First Official ACA Repeal and Replacement Proposal Unveiled

March 7, 2017 | Kristine A. Tidgren

Update: On March 24, House Speaker Paul Ryan cancelled a vote scheduled for that day on the Republicans proposed repeal and replacement plan. Officials have stated that they will now turn their attention to tax reform. It is unclear whether Republicans will take another stab at crafting repeal and replacement legislation before the budget reconciliation window closes later this year. We will keep you posted.

House Republicans offered the text of their first official proposal for an Affordable Care Act rollback and replacement on March 6. The House Ways and Means Committee is scheduled to markup its portion of the proposed legislation, called the American Health Care Act (AHCA), on March 8. This proposal is designed to be eligible for passage through the budget reconciliation process, thereby avoiding a filibuster.

While just a starting point, the provisions in the initial AHCA are worth reviewing. As currently written, the AHCA would:

Eliminate the Individual Mandate Beginning with the 2016 Tax Year.  The ACA requires that all individuals either have health insurance, qualify for an exemption, or pay an individual shared responsibility payment. The shared responsibility payment for 2016 is the higher of these two amounts:

  •     $695 per adult and $347.50 per child (under 18), up to a maximum of $2,085 OR
  •     2.5% of family income above the filing threshold

Since President Trump issued an Executive Order directing his agencies to minimize the burden of the ACA, taxpayers have been debating whether they should make the individual responsibility payment—which remains law—for the 2016 tax year. The AHCA would set the individual responsibility to $0 beginning with the 2016 tax year. Therefore, those that have paid or do pay the ISRP for the 2016 tax year could get the payment refunded if the AHCA is enacted.

Eliminate the Employer Mandate Beginning with the 2016 Tax Year.  Beginning with the 2015 tax year, IRS began assessing shared responsibility payments against employers with 100 or more full-time equivalent employees. Penalty payments applied to those employers who either (a) did not offer insurance to their employees or (2) did not offer coverage that was affordable or provided minimum value. These penalties were triggered when an employee received a premium tax credit on the Marketplace. Beginning in 2016, employers with 50 or more full-time equivalent employees were subject to the shared responsibility payment. The AHCA would reduce the employer shared responsibility payment to $0, beginning after December 31, 2015. Therefore, no employers with 50 to 99 employees would ever be subject to the penalty.

Repeal the Premium Tax Credit beginning in 2020. The premium tax credit is a refundable credit available to those with low or moderate incomes who purchase health insurance on the Marketplace. It was implemented by the ACA beginning in 2014. The AHCA would eventually eliminate premium tax credits. Before 2020, however, the law would be changed to allow the premium tax credit to be applied toward purchases of some qualified health plans on the individual health insurance market, such as those offering qualified catastrophic-only coverage. The premium tax credits could not be used to purchase plans covering elective abortion procedures. Finally, the calculation of the premium tax credit would be adjusted to incorporate an index for the age of the insured.

Recapture Excess Payments of Advance Premium Tax Credits. Under the ACA, taxpayers with incomes at or below 400% of the federal poverty limit may receive an Advance Premium Tax Credit to apply toward the cost of premiums for insurance they purchase on the Marketplace. The amount of this APTC is based upon household income estimates for the upcoming tax year. If household income turns out to be higher than estimated, too much APTC is paid on behalf of the taxpayer during the tax year, and the taxpayer must reconcile and repay this overpayment when filing his or her tax return. Current law caps this repayment amount based upon income level. The AHCA would eliminate the repayment limitations for the 2018 and 2019 tax years.

Implement a Refundable Tax Credit for the Purchase of Health Coverage. In place of the premium tax credit system, the AHCA would implement a refundable tax credit for the purchase of state-approved, major medical health insurance. The credit would be advanced to eligible taxpayers to offset the cost of purchasing qualified coverage. The credit would not be available to those offered coverage through a government-sponsored or an employer-sponsored health plan. The yearly credits, which would be based on age, would be limited as follows:

  • Under age 30: $2,000
  • Between 30 and 39: $2,500
  • Between 40 and 49: $3,000
  • Between 50 and 59: $3,500
  • Over age 60: $4,000

Credits for families would be capped at $14,000 per year. The credits would also begin to phase-out for those with yearly modified adjusted gross incomes above $75,000 (single) or $150,000 (married filing jointly). The Secretary of the Treasury would be directed to create a system for implementing the advance payment of these credits no later than January 1, 2020. The Secretary would be directed to use “to the greatest extent practicable,” the procedures already in place for the current advance premium tax credit process. The AHCA would require employers to report offers of coverage, but that process would appear to be triggered by a request from the employee according to procedures that would be created by the Secretary.  

Repeal the Health Insurance Tax. Section 9010 of the ACA imposed an annual fee on those engaged in the business of providing health insurance beginning in 2014. Called the Health Insurance Provider’s Fee, opponents have argued that this tax significantly increases the cost of insurance to individuals.  The Consolidated Appropriations Act of 2016, Title II, § 201, suspended the collection of the Health Insurance Provider's Fee for the 2017 calendar year. The AHCA would eliminate this tax altogether after December 31, 2017.

Repeal the Net Investment Income Tax. Implemented by the ACA, the NIIT went into effect for tax years beginning January 1, 2013. It imposed a 3.8% tax on net investment income (ie. interest, dividends, capital gains, rental and royalty income, and non-qualified annuities) for taxpayers with modified adjusted gross income above certain thresholds ($125,000 for single filers and $250,000 for married filing jointly). The AHCA would eliminate the NIIT for tax years beginning after December 31, 2017.

Further Delay Implementation of the Cadillac Tax until 2025. The Affordable Care Act imposed a 40% excise tax on high-cost employer-sponsored health plans. Although the tax was originally scheduled to be imposed beginning in 2018, Congress delayed the imposition of that tax until 2020. The AHCA would delay this implementation further, pushing its initiation forward to 2025. Employees would continue to be eligible to exclude the full amount of coverage from income.  

Implement Other Provisions. The AHCA would also do the following:

  • Repeal the Medical Device Tax beginning after December 31, 2017
  • Repeal the $2,500 limitation on contributions to FSAs after December 31, 2017
  • Allow individuals to purchase over-the-counter medications using health savings account dollars beginning in tax year 2018
  • Restore the income threshold above which the medical expense deduction can be claimed to 7.5 percent for all taxpayers (down from the 10% threshold implemented by the ACA)
  • Repeal the additional .9% Medicare tax beginning in 2018
  • Increase contribution limits and allowable catch-up contributions for HSAs beginning in 2018

We’ll be watching as this proposed legislation evolves. We're sure to see some interesting debate.