How the American Health Care Act could affect employers and employees

On Thursday, the American Health Care Act (AHCA) passed in the U.S. House of Representatives by a 217-213 vote. The bill now travels to the Senate for discussion.
The AHCA aims to repeal and replace certain provisions of the Affordable Care Act, including the elimination of penalties, but not the reporting requirements, for the employer mandate, applying retroactively to the 2016 tax year.

Below is an outline of the provisions of the American Health Care Act that would affect employers, plan sponsors and employees. However, the legislation is not yet law, and it is subject to change in the Senate before reaching a vote.

Provisions affecting employers

Some big changes for employers are proposed in the American Health Care Act, including:

→ Elimination of the employer mandate.

→ Elimination of penalties for Applicable Large Employers who do not provide affordable health coverage for full-time employees starting in tax year 2016. The reporting requirements would still be in place, unless and until further regulatory guidance is issued for the reporting.

→ Elimination of the small-employer tax credit, beginning in 2020.

→ Delay of the "Cadillac Tax" until 2025. Affecting one in four employers, the Cadillac Tax is a 40 percent excise tax to be imposed on high-cost employer-sponsored group health plans.

→ Employers would be obligated to provide the government with statements regarding whether specific employees are eligible for employer-sponsored health coverage.

→ W-2 reporting would be modified to reflect new health coverage requirements.

Other notable potential changes under AHCA

The American Health Care Act would affect a host of other benefits, including:

FSAs

→ The contribution limit for FSAs would be repealed entirely.

→ Over-the-counter medications would be considered a qualified expenditure.

HSAs

→ The new HSA limit would equal the limit on out-of-pocket cost-sharing under qualified high-deductible health plans. (Current 2017 limits: $6,550 for self-only coverage, $13,100 for family coverage.)

→ An additional "catch-up" contribution of up to $1,000 may be made by persons over age 55. Both spouses can make catch-up contributions to the same HSA.

→ Over-the-counter medications would be considered a qualified medical expense, as would expenses incurred up to 60 days prior to the date the HSA was established.

→ The tax penalty for HSA withdrawals used for non-qualified expenses would be reduced from 20 percent to 10 percent.

Individual mandate eliminated

→ Penalties for individuals who do not have health insurance coverage would be eliminated, beginning with the 2016 tax year. However, the individual mandate would be replaced by an increase in insurance premiums of up to 30 percent for an individual who has a lapse in health coverage.

Certificate of Creditable Coverage

→ With the removal of the individual mandate, and the requirement to show continuous coverage to avoid a 30 percent premium increase under AHCA, the Certificate of Creditable Coverage would be required once again.

→ Also, beginning in 2018, the Creditable Coverage tax deduction would be reinstated for employers who receive Part D retiree drug subsidy (RDS) payments to provide creditable prescription drug coverage to Medicare beneficiaries.

→ When Employer Plan Sponsors receive a subsidy for providing prescription drugs to retirees who receive Medicare Part D, the employer plan sponsors may disregard the subsidy payments for purposes of determining the deductibility of their retiree prescription drug costs for the plan year for which they received the subsidy.

Elements that would not change under AHCA

While the American Health Care Act would bring many new regulations, some existing provisions would remain in place. In fact, most of the insurance reform under the Affordable Care Act would stay the same, including:

→ Requirement to cover pre-existing conditions (except potentially in the individual market).

→Requirement to cover dependents until age 26.

→ Out-of-pocket maximums.

→ Lifetime and annual limits.

→ Preventative benefits must be covered, with no cost-sharing.

→ Nondiscrimination.

→ Essential health benefit requirements.

Other elements remaining in place under AHCA include:

→ Employer-sponsored group health coverage would continue to be purchased using pre-tax dollars.

→ Wellness incentives remain the same, including premium incentives for biometric screenings and a surcharge for tobacco use.

Contact us 

Again, this legislation is not final, and employers should not make any changes based on this week's news. We will continue to closely monitor this issue and alert you to any important changes. For more information, please contact a Plexus client service team member here.