United States: House Republicans Take Initial Step To Repeal And Replace The Affordable Care Act With The American Health Care Act

On March 6, 2017, House Republicans introduced their initial proposed bill to repeal and replace the Patient Protection and Affordable Care Act (the "ACA").  The proposed legislation is entitled the American Health Care Act (the "AHCA") and was drafted by two separate House committees – the Ways and Means Committee and the Energy and Commerce Committee.

While the AHCA expectedly repeals a number of the ACA's key features – such as the employer and individual mandates – and restructures the Medicaid program, it also retains a number of the most popular provisions of the ACA – such as coverage for individuals for pre-existing conditions and coverage of children on their parents' plans until age 26.

Ways and Means Committee Provisions

The proposed legislation drafted by the Ways and Means Committee is designed to (1) repeal the ACA's taxes and mandates, (2) allow individuals and families to spend their health care dollars through expanded Health Savings Accounts (HSAs) and (3) provide Americans access to health care through a monthly tax credit to individuals who do not receive insurance through an employer or a government program.

Repeal of ACA Taxes and Mandates

With respect to repealing the ACA's taxes and mandates, the proposed legislation does the following:

The AHCA also addresses the reporting requirements under the ACA and notes that Congress is limited in its ability to repeal the current reporting requirements because such requirements fall outside of the budget reconciliation process used to repeal and replace the ACA.  However, in comments from the Ways and Means Committee that accompanied the proposed legislation, it is noted that the Secretary of the Treasury can stop enforcing reporting that is not needed for taxable purposes.  Therefore, due to the fact that the AHCA would repeal both the individual and employer mandates, the ACA's reporting requirements would essentially be eliminated as well.

Retention of Popular ACA Provisions

As noted above, the AHCA does not impact the ACA's prohibition against exclusions based on pre-existing conditions and the coverage of children on their parents' plans until the age of 26.  These provisions, which are popular with the majority of Americans, would remain under the proposed AHCA.  The proposed AHCA would also retain the prohibition on annual and lifetime limits, as well as the requirement that all insurers must offer 10 essential health benefits (including maternity care and preventive services).

Expansion of HSAs

With respect to allowing individuals and families to spend their health care dollars through expanded HSAs, the AHCA proposes the following:

• Increase the basic limit on aggregate HSA contributions for a year to equal the maximum of the sum of the annual deductible and out-of-pocket expenses permitted under a high deductible health plan. Thus, the basic limit would be at least $6,550 for self-only coverage and $13,100 for family coverage in 2018.  The current limit for HSA contributions in 2017 is $3,400 for self-only coverage and $6,750 for family coverage.
• Allow both spouses to make catch-up contributions to one HSA beginning in 2018. Currently only one spouse may make the HSA catch-up contribution of $1,000 upon reaching age 55.
• HSA withdrawals could be used to pay qualified medical expenses incurred before the HSA was established. Starting in 2018, if an HSA is established during the 60-day period beginning on the date that an individual's coverage under a high deductible health plan begins, then the HSA is treated as having been established on the date coverage under the high deductible health plan begins for purposes of determining if an expense incurred is a qualified medical expense.

Refundable Tax Credits

With respect to providing Americans access to affordable health care, the AHCA provides for an advance, refundable tax credit for the purchase of state-approved, major medical health insurance and unsubsidized COBRA coverage.  This refundable tax credit could potentially reduce a taxpayer's liability below zero; thereby allowing for the receipt of a tax refund.  To be eligible, an individual must (1) not have access to government health insurance programs or an offer from an employer; (2) be a citizen, national or qualified alien of the United States; and (3) not be incarcerated.  The tax credits are adjusted by age, as follows:

The credits are additive for a family and capped at $14,000 and are available in full to those individuals making less than $75,000 per year ($150,000 joint filers), with a phase out of $100 for every $1,000 of income higher than those thresholds.

Energy and Commerce Committee Provisions

While the Ways and Means Committee's provisions in the proposed AHCA were aimed at repealing and replacing the ACA and the establishment of new refundable tax credits, the Energy and Commerce Committee's provisions would (1) create a Patient and State Stability Fund, which is designed to give states flexibility in developing programs that serve their populations and increase access to preventative services; (2) unwind the ACA's Medicaid expansion by freezing enrollment after two years and grandfathering in current enrollees; and (3) overhaul the Medicaid program and how funds are allocated to individual states.

The Patient and State Stability Fund in the proposed AHCA is designed to lower patient costs and stabilize state markets.  Under the proposed fund, a state may use the resources provided to it for any of the following purposes:

• Help high-risk individuals who do not have access to health insurance enroll in health insurance coverage in the individual market in the state.
• Provide incentives to appropriate entities to enter into arrangements with the state to stabilize premiums.
• Reduce the cost of providing health insurance coverage in the individual market and small group market to individuals who have a high rate of utilization of health services.
• Promote participation in the individual market and small group market in the state and increasing health insurance options available.
• Promote access to preventive services, dental care services, vision care services, or any combination of such services, as well as mental health and substance use disorders.
• Provide assistance to reduce out-of-pocket costs of individuals enrolled in health insurance coverage in the state.

As expected, the proposed AHCA also provides for a significant curtailment of the ACA's Medicaid expansion and an overhaul of how the Medicaid program is funded at the state level.  Specifically, Medicaid expansion would be optional for states and the state option to extend coverage to adults above 133% of federal poverty by December 31, 2019 would be repealed.  Repealing the Medicaid expansion is beyond the scope of this Alert and will be addressed in detail in a later Duane Morris Alert.

Finally, the Energy and Commerce Committee's provisions provide for a "Continuous Health Insurance Coverage Incentive" as a method to encourage individuals to retain coverage.  It is in some ways the heir to the ACA's individual mandate in that it encourages individuals to maintain coverage.  Under the proposed AHCA, beginning in open enrollment for the 2019 benefit year, there would be a 12-month lookback period to determine if the applicant went longer than 63 days without continuous health coverage.  If the applicant had a lapse in coverage for greater than 63 days, issuers will assess a flat 30% late-enrollment surcharge on top of their base premium, based on their decision to forgo coverage.  This late-enrollment surcharge would be the same for all market entrants, regardless of health status, and discontinue after 12 months, thereby incentivizing enrollees to maintain coverage.  It should be noted that this incentive – and its potential surcharge – would not apply to employer-sponsored plans.

Conclusion

The AHCA contains a number of expected provisions – such as the repeal of the ACA's taxes and mandates and Medicaid expansion.  It also introduces a number of important new concepts to the health care arena – such as the refundable tax credit for those not eligible for employer-sponsored coverage and the continuous health insurance coverage incentive.  It must be emphasized that the AHCA is only a proposed bill from House Republicans at this point.  It is not the law and employers should not change their health plans or practices based on its terms.  House Republicans not only have to deal with House Democrats in getting legislation enacted, but also House Republicans who may view the refundable tax credits as an entitlement program and House Republicans who have indicated an unwillingness to support a rollback of Medicaid expansion.  Needless to say, this is the first step in the process for House Republicans.  However, it is likely that change is coming and that many of the provisions of the ACA that employers are now familiar with are unlikely to survive beyond 2017.

Attorneys in the Employee Benefits and Executive Compensation practice group at Duane Morris will continue to monitor these developments and are happy to discuss the potential impact of the AHCA on employers and their health plans.

If you have any questions about this Alert, please contact any of the attorneys in our Employee Benefits and Executive Compensation Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.