Despite House amendments, core provisions affecting employers left intact
On Thursday, the U.S. House of Representatives passed the GOP's revised American Health Care Act (AHCA) by a vote of 217 to 213, sending the measure to the Senate, where it faces a drastic makeover.
No Democrats voted "yes" in the House, while 20 Republicans voted against the bill.
If the Senate approves the legislation—with amendments or an entirely rewritten bill—then representatives of both chambers will attempt to cobble the two versions together in a conference committee and that iteration will (depending on the extent of the changes) face up-and-down votes in the House and Senate.
While Republicans have a 45-seat majority in the House, the 100-member Senate has just 52 Republicans. The GOP can only afford to lose two Republican votes and still keep the legislation alive, with Vice President Mike Pence serving as tie-breaker.
"The fate of bill in the Senate is uncertain since it includes a few provisions unrelated to tax provisions, a requirement under the budget reconciliation process" through which legislation can be passed by majority vote, not subject to filibuster, said Chatrane Birbal, senior advisor for government relations at the Society for Human Resource Management. "In addition, the Congressional Budget Office score estimating the potential costs and number of people who would lose insurance was not released until after House passage of the bill, which could impact the Senate's consideration of the measure."
Employer-Sponsored Plans
"In many respects, the AHCA is less 'repeal and replace' and more 'retool and repurpose,' but there are some significant changes that could affect employers if this bill becomes law" and the provisions stay intact, noted Chris Rylands and Sarah Bhagwandin, benefit attorneys at law firm Bryan Cave's Atlanta and Denver offices, respectively.
What does the AHCA, as it currently stands, portend for employer-sponsored group health plans?
To date, most of the debate around the Republicans' bill has focused on its repeal of the Affordable Care Act's (ACA's) reforms to the individual insurance market and, for those purchasing nongroup policies, its replacement of subsidies for lower-income people with age-based refundable tax credits.
Among the key issues for HR professionals who manage employer-sponsored group plans are the following:
- Employer mandate and tracking/reporting requirements. Under the ACA, employers with 50 or more full-time employees or equivalents are required to provide health insurance or pay a penalty. The AHCA reduces the penalty to zero for failure to provide minimum essential coverage. Without those penalties, follow-up regulatory changes could reduce reporting and notification requirements, benefit attorneys said.
- Individual mandate penalty. Under current law, most individuals are required to purchase health insurance or pay a penalty. The bill reduces the penalty to zero for failure to maintain minimum essential coverage.
- "Cadillac tax" and other levies on employer plans. The ACA imposed a 40 percent excise tax on the value of employer-sponsored health plans exceeding $10,200 for individuals and $27,500 for family coverage, indexed for inflation. The AHCA would delay the excise tax, now set to take effect in 2020, until 2026 and end all other ACA taxes on employers.
- Health savings accounts (HSAs) contributions. The bill would nearly double annual HSA contribution limits above current contribution limits, making the cap equal to the out-of-pocket maximums that apply to high-deductible health plans (for 2018, $6,650 for self-only coverage and $13,300 for faimily coverage).
The AHCA also would allow spouses age 55 or older to make catch-up contributions to the same HSA (currently, only the account holder can make an annual catch-up contribution; a spouse must open a separate HSA to make this contribution). And any excess funds left from the coverage tax credit after purchasing qualifying health insurance would be payable to an HSA.
- HSA restrictions. The ACA increased the tax on HSA distributions for nonmedical expenses to 20 percent; the AHCA would lower the rate back to 10 percent and allow individuals to use HSA funds for over-the-counter medical items. Additionally, expenses incurred up to 60 days before the account is established could be reimbursed from the account.
- Flexible spending accounts (FSAs). The ACA limited the amount an employee may contribute to a health FSA to $2,500 indexed for inflation, with the 2017 limit set at $2,600. This AHCA would repeal these annual limits and allow FSAs to reimburse over-the-counter medications.
- Medicare Part D subsidies. The ACA allowed Medicare Part D subsidies to be excluded from a company’s income, but denied the deduction, for tax purposes, for any expenses that were subsidized. The AHCA reinstates the prior law that allowed both the exclusion of the subsidy from income and the deduction for the costs funded by the subsidy.
- COBRA subsidies. Unlike the ACA's subsidies to purchase only individual market insurance, the AHCA's refundable tax credits could pay for unsubsidized COBRA coverage.
- Additional Medicare Tax. The ACA added an additional 0.9 percent tax on wages above certain thresholds. The AHCA eliminates this tax.
- Small Business Health Care Tax Credit. The AHCA eliminates the credit for qualifying small businesses to purchase ACA coverage through the Small Business Health Options Program (SHOP). Under the ACA, the credit could be claimed for two consecutive years.
Existing ACA insurance standards, such as those providing coverage for adult children up to age 26, guaranteed renewability and no discrimination based on gender, would remain the law.
"SHRM did not take a formal position on the American Health Care Act as we remain concerned about its potential implications on employer-sponsored coverage, and the health care coverage these plans provide to over 177 million Americans," said Birbal.
"SHRM does support the reduction of the employer mandate penalty but looks forward to working with Congress to repeal the mandated employer coverage and reporting requirements, which are an administrative and financial burden to employers," she added. "SHRM applauds the inclusion of a six-year delay of the ACA excise tax on health care plans but will continue to advocate to fully repeal the tax. Furthermore, SHRM fully supports the repeal of the restrictions on the use and limitations on contributions to health savings accounts and flexible spending accounts."
Looking ahead to Senate action, "SHRM will continue to urge Congress to avoid any future changes to the tax treatment of employer-sponsored health coverage and will advocate for the preservation of the Employee Retirement Income Security Act that allows for common benefit plans across state lines."
[SHRM members-only toolkit: Complying with and Leveraging the Affordable Care Act]
Essential Health Benefits and Lifetime Limits
The House revised the original AHCA through an amendment that gives states the flexibility to apply for waivers from certain requirements imposed on individual market plans and group plans offered by small employers.
One waiver that individual states could request would allow them to opt out of mandating that insurers cover 10 essential health benefits in health care plans. "For small group plans, this would mean a change in what they have to cover, if the state in which the insurance is issued obtains a waiver," said Rylands and Bhagwandin.
Also, as Birbal explained in a recent analysis, "since the ACA's prohibitions of lifetime and annual limits and cap on out-of-pocket expenditures also only apply to essential health benefits, states granted a waiver would be able to define these protections as well."
Also, while the waiver would specifically apply to individual market and small-group market plans, the amended AHCA "could affect large group and self-funded employer plans that are prohibited from imposing annual and lifetime dollar limits on 10 essential health benefits," said Garrett Fenton, an employee benefits lawyer at Miller & Chevalier in Washington, D.C.
"In theory, for example, a large group or self-funded employer plan might be able to use a 'waiver' state's definition of essential health benefits—which could be significantly more limited than the current federal definition—and exclude items like maternity, mental health or substance abuse coverage for purposes of the annual and lifetime limit rules. Employers effectively could be permitted to begin imposing dollar caps on certain benefits that currently would be prohibited under the ACA."
"In light of the patterns of state benefit regulation that existed prior to the ACA, it appears plausible that many states will set essential health benefit standards that are considerably laxer than those that are in place under the ACA," wrote Matthew Fiedler, a fellow in the Brookings Institution's Center for Health Policy. "Large employers may have the option to pick which state's essential health benefits requirements they wish to abide by for the purposes of these provisions; this would likely have the effect of virtually eliminating the catastrophic protections with respect to large employers since employers could choose to pick whichever state set the laxest standards."
But as the amended bill relates to states' flexibility to waive lifetime limits, "the provision wouldn't have much of an impact on employer-sponsored health plans," said Birbal. "Many large employers didn't impose annual or lifetime limits before the ACA was implemented. Furthermore, HR professionals work diligently to design and implement quality benefits to meet employee needs. Health care will continue to be an integral part of the benefits package employers offer to recruit and retain talent."
Essential health benefits and lifetime limits are issues that the Senate is likely to revisit.
Outlook Uncertain
"There is no timeline for the Senate effort," said Edward Fensholt, senior vice president and director of compliance services at Lockton, a benefits brokerage and consultancy based in Kansas City, Mo., and Scott Behrens, an ERISA compliance attorney at the firm.
"Even if the Senate is able to agree on a bill, it's unclear whether the Freedom Caucus, the staunch House conservatives who initially derailed the AHCA in that chamber, would support the Senate version," they noted. "So, while group plan sponsors might keep one eye on Washington, it's important to keep the other focused on ACA compliance, as it remains the law of the land."
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Source: The Society for Human Resource Management (SHRM)
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