2017 Health Care Reform Update

The long-awaited Republican health care plan to repeal and replace Obamacare, titled the “American Health Care Act” (AHCA), was released by the GOP on March 6. The bill—which includes the addition of income-based phaseouts for the new health care coverage credit, delayed effective dates for several key provisions, and the removal of the so-called “Cadillac” tax on high-cost employer plans—would repeal and replace the 2010 Affordable Care Act (a.k.a. Obamacare).

CHANGES TO ACA TAX PROVISIONS

ACA tax provisions of note that would be repealed and/or replaced by the AHCA include:

  • Individual mandate. Repealed with zero penalty amounts, effective for months beginning after Dec. 31, 2015 (i.e. retroactive for 2016). However, the GOP plan proposes a “continuous coverage” penalty of 30% for people in the individual market who lapse in health insurance coverage.
  • Employer mandate. Repealed with zero penalty amounts, effective for months beginning after Dec. 31, 2015 (i.e. retroactive for 2016).
  • Premium tax credit. Changed. The AHCA proposes refundable tax credits that vary with age and grow annually with inflation.
  • 3.8% net investment income tax (NIIT). Repealed, beginning in 2018.
  • 0.9% additional Medicare tax. Repealed, beginning in 2018.
  • Medical expense deduction. Restored to 7.5% of adjusted gross income (now 10% under Obamacare), beginning in 2018.
  • Small employer health insurance credit. Repealed, beginning in 2020. Beginning in 2018, and up to the credit’s repeal, the credit would not be available with respect to a qualified health plan that provides coverage relating to elective abortions.
  • Limitation on health Flexible Spending Account (FSA) contributions. Repealed, beginning in 2018.
  •  40% “Cadillac” tax on high cost employer-sponsored health plans. Suspended from 2020 through 2024.

CHANGES RELATED TO HEALTH SAVINGS ACCOUNTS (HSAs)

The AHCA would make several changes to strengthen and enhance HSAs. These include:

  • Beginning in 2018, max contribution limits for tax-exempt HSAs would increase from $3,400 for individuals and $6,750 for families to $6,750 and $13,100, respectively. The bill would also allow excess money from a premium tax credit to be contributed to an HSA and not count toward the contribution limit.
  • Both spouses would be allowed to make “catch-up” contributions to the same HSA, beginning in 2018.
  • Individuals would be allowed to use HSA money for over-the-counter drugs, which is now limited by the ACA to only allow over-the-counter drugs for which there is a prescription.
  • The HSA distribution tax for non-qualified medical expenses would be reduced from 20% to 10%.

For additional information on how the GOP’s American Health Care Act differs from the ACA, go to: http://kff.org/interactive/proposals-to-replace-the-affordable-care-act/.

The full text of the bill is available here.

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