ACA Update: Leaked Republican Legislation Would Phase Out Key Provisions

Congress considers options for the Affordable Care Act, ACA

ACA Update: Leaked Republican Legislation Would Phase Out Key Provisions

March 1, 2017, 3:33 pm EDT in Affordable Care Act, Blog

Recently leaked draft legislation provides further insight into Republican plans for healthcare overhaul and associated reporting requirements. The draft, which is nearly three weeks old, indicates key provisions of the law – such as the taxes, mandates, Medicaid expansion and subsidies – would be phased out and replaced between 2018 and 2019. The replacement provisions could lead to additional reporting requirements.

The draft reconciliation bill reflects the piecemeal repair approach to replacing the ACA, rather than a full repeal. While it repeals the employer and individual mandates, they would not be officially phased out until 2018-2019. The bill maintains coverage for preexisting conditions, actuarial value requirements, coverage of children to age 26, non-discrimination provisions, capping of out-of-pocket expenses and the prohibition on lifetime or annual limits.

The draft replaces the individual and employer mandates with a “continuous coverage requirement”. This effect is similar to current mandates, except the beneficiaries of the mandate would be insurance companies rather than the government. The requirement would begin in the individual and small group markets in 2019 (or 2018 for special enrollments). Those who have gaps in their coverage for at least 63 days during the previous 12 months would be subject to a 30% premium increase for that next year of coverage. This could lead to some form of reporting requirement, depending on the government’s degree of involvement in the enforcement of these penalties.

However, it is entirely possible that monitoring for continuous coverage would be exclusively between the insurance company and the consumer. The cost-sharing reduction payments would also be slated to end in 2019 under this bill, and the ACA premium tax credit provisions would extend through the end of 2019 – at which point they would be subject to change.

Beginning in 2019, the bill would add the cost of employer group coverage that “exceeds the annual limitation” to the taxable income of employees. In 2019, that amount would be the 90th percentile cost for premiums for self-only employer coverage, and adjusted for inflation in subsequent years. This provision may also lead to a new reporting requirement – either on the W-2 or on a separate 10-series form – allowing the government to enforce this limitation.

In addition to zeroing out the penalties for the individual and employer mandates, the bill would also repeal the following taxes:

  1. The Cadillac plan tax
  2. The exclusion of coverage for OTC medication from HSAs
  3. Limitations on contributions to flex spending accounts
  4. The tax on prescription medications
  5. The medical device tax
  6. The health insurance tax
  7. The tanning tax
  8. The Medicare surcharge and Medicare tax on unearned income for high-income taxpayers

The bill also lowers the deductibility threshold from 10 percent to 7.5 percent and the HSA penalties from 20 percent to 10 percent. The repeal of these taxes would go into effect at the end of 2016.

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Tom Hospod

About Tom Hospod

Tom Hospod is a member of the Tax Research Team for the Direct Tax division at Sovos Compliance, where his main areas of focus are Tax Withholding and Automatic Exchange of Information (AEOI). Prior to Sovos, Tom worked as a legislative aide in the Massachusetts House of Representatives. He also has experience in securities law—focusing on broker-dealer disputes and representing clients in FINRA arbitration. Tom is a member of the Massachusetts Bar, earned his B.A. from Boston College and his J.D. from the University of Miami.