May 8, 2017 - Weekly Legislative Update

American Health Care Act Passes House
 
On May 4, the U.S. House of Representatives narrowly passed the American Health Care Act (AHCA) a vote of 217 to 213. Every House Democrat and 20 House Republicans opposed the measure.
 
TIA would like to thank the Council of Insurance Agents and Brokers (CIAB) for sharing with us the relevant, unbiased, and useful information on this complex issue.
 
The AHCA was given new life after language intended to bolster high-risk pools to cover preexisting conditions was negotiated by Congressmen Fred Upton (R-MI) and Billy Long (R-MO) yesterday.
 
The bill eliminates the employer and employee mandates; replaces the ACA's income-based subsidies with tiered tax credits, gradually increasing for older Americans; allows states to apply for waivers to define their own essential health benefit requirements; expands the limits for Health Savings Accounts; discontinues Medicaid expansion in 2020; and repeals most of the ACA's taxes. The legislation would delay implementation of the Cadillac Tax by five years, from 2020 to 2025, and it importantly preserves the tax exclusion for employer sponsored insurance.

 
Since the bill was last considered on the House floor in March-without culminating in a vote-two significant changes have been made:
 
(1)   MacArthur Amendment - permits state waivers (which last for 10 years and get default approval by HHS) for one or more of the following purposes:
  • For plan years beginning on or after Jan. 1, 2018, to apply a higher ratio for age-based premium rating in the individual and small group markets;
  • For plan years beginning on or after Jan. 1, 2020, to establish and apply their own essential health benefit requirements (rather than those under the ACA) for coverage in the individual and small group markets; and
  • For states with an AHCA-approved high-risk pool program (e.g., financial assistance for high-risk individuals, reinsurance, federal high-risk pool established by the AHCA), beginning with 2019 enrollments, to engage in health status underwriting for individuals in the program who cannot demonstrate they had continuous coverage over the prior 12 months (in lieu of the 30% surcharge otherwise imposed for non-continuous coverage under the AHCA).
 
The amendment clarifies that insurers may not discriminate in rates by gender or limit access to coverage for individuals with preexisting conditions.
 
(2)   Upton Amendment - appropriates an additional $8 billion for the period between 2018 and 2023 to be allocated to states with health status underwriting waivers (discussed above); funds must be used by the state to provide assistance to reduce premiums or other out-of-pocket costs for individuals who have seen premium increases as a result of the waiver.
 
Below is an overview of other notable provisions in the AHCA on which we previously reported.
 
Regarding The Council's priority issues:
  • The bill does not cap the employee tax benefit for employer-sponsored coverage.
  • The individual and employer mandates are effectively eliminated by making the penalties $0 for tax years starting after December 31, 2015.
  • The Cadillac tax is eliminated for years 2020 through 2025, leaving the possibility that the tax could be imposed beginning in 2026.
The bill repeals the following ACA taxes and fees (among others) beginning in 2017:
  • annual provider fee;
  • net investment income tax;
  • prescription drug tax; and
  • medical device tax.
The additional Medicare payroll tax for higher-income earners is repealed for tax years after 2022. Notably, the PCORI fee is not among the fees repealed in the bill.
 
The AHCA replaces the ACA's federal exchange subsidies with a refundable tax credit tiered by age:
  • $2k per year for anyone under 30
  • $2.5k per year for 30-39
  • $3k per year for 40-49
  • $3.5k for 50-59
  • $4k for 60 and over.
The tax credit is available for individual market plans and unsubsidized COBRA coverage (purchased on or off of the exchanges). Credit amounts are reduced for individuals with income over $75k (or $150k for joint filers) by 10% of gross income over those threshold amounts. Credits are additive for a family and are capped at $14,000 per year. The bill denies eligibility for the credit if coverage includes abortions.
 
Notably, credits are not available to individuals who are eligible for a group health plan (including employer plans), Medicare, Medicaid or other government coverage. They also are not available for ACA grandfathered plans or so-called grandmothered plans (i.e., grandfathered plans that received transition relief from CCIIO). The bill directs HHS and other federal agencies to establish an advance payment program under which credit payments can be made directly to health care providers on behalf of eligible tax payers.
 
With respect to employer reporting obligations, the requirement to report coverage amounts on Form W-2 remains, and an additional W-2 field is added: each month with respect to which an employee is eligible for a group health plan. A House Ways and Means section-by-section description of the AHCA states: "Reconciliation rules limit the ability of Congress to repeal the current reporting, but, when the current reporting becomes redundant and replaced by the reporting mechanism called for in the bill, then the Secretary of the Treasury can stop enforcing reporting that is not needed for taxable purposes."
 
Unlike earlier drafts of the bill, the final House package would not allow excess tax credits to be paid into designated HSAs. With respect to other HSA reforms, effective January 1, 2018, the bill would:
  • eliminate the prohibition on over-the-counter drugs as qualified medical expenses;
  • raise the contribution limit to the out-of-pocket cost for high deductible health plans; and
  • allow spouses to make catch-up contributions to the same HSA.
 
Other issues covered in the bill which may be of more general interest to Council members include -
  • Promotion of continuous coverage by requiring a 30% surcharge on otherwise-applicable premium rates for 12 months for individuals who go more than 63 days without coverage (subject to state waivers discussed above).
  • Sunset of the ACA's "levels of coverage" provisions (metal levels and actuarial value calculation rules) as of 2020.
  • Adjustment of the permissible age bands for premium rates from 3-1 to 5-1 for the individual and small group markets (again, subject to state waivers).
  • Repeal of the ACA's Medicaid expansion and reform of federal Medicaid financing into a per capita model (with per enrollee limits on federal payments to states).
  • An option for states to institute a work requirement for non-disabled, non-elderly, nonpregnant adults eligible for Medicaid coverage.
  • Creation of a temporary "Patient and State Stability Fund," which allocates federal funds to states that may be used for: financial assistance for high-risk individuals; incentives for entities to contract with the states to stabilize premiums in the individual market; defraying the cost of coverage in the individual and small group markets; promoting access to preventive services; providing payments directly to providers; maternity coverage and newborn care; and mental health and substance use disorder services. Within the Fund, the AHCA creates a Federal Invisible Risk Sharing Program to provide payments to insurers for claims made by eligible individuals (i.e., individuals with certain health conditions determined by CMS).
A Comparison of the Affordable Care Act (ACA) and the American Health Care Act (AHCA)
 
  ACA AHCA
Employee Pre-Tax Treatment of Group Plan Premiums Premiums for employer-sponsored coverage excluded from employees' taxable income; employers required to report cost of coverage on Form W-2.
Does not cap the employee tax benefit for employer sponsored coverage; retains the obligation that the employer report coverage amounts on Form W-2, and an additional W- 2 field is added: each month with respect to which an employee is eligible for a group health plan.
 
Insurance Subsidies Federal income-based subsidies (available to eligible individuals with incomes between 100%-400% of the federal poverty level) for individual coverage purchased on the exchanges.
Replaces federal subsidies with a refundable tax credit that is tiered by age:
-$2,000 per year for anyone under 30;
-$2,500 per year for 30-39;
-$3,000 per year for 40-49;
-$3,500 for 50-59; and
-$4,000 for over 60.
Reduces the credit amount for individuals with income over $75,000, or $150,000 for joint filers, by 10% of gross income over those threshold amounts; credits capped for family at $14,000 per year; no credit eligibility if coverage includes abortions. Limits the tax credit to individual market plans and unsubsidized COBRA coverage (on or off exchanges). Credits are not available to individuals who are eligible for a group health plan (including employer plans), Medicare, Medicaid or other government coverage. They also are not available for ACA grandfathered or grandmothered (i.e., grandfathered plans that received transition relief from CCIIO) plans.
 
Individual Mandate Requires individuals (unless exempted) to obtain ACA compliant health insurance or else pay a tax penalty.
Effectively eliminates the individual mandate by making penalty $0 as of 2016; incentivizes continuous coverage by imposing a 30% surcharge on otherwise-applicable premiums for individuals who go more than 2 months without coverage (subject to state waivers that permit health status underwriting in some circumstances).
 
Employer Mandate Requires employers with 50 or more full-time employees to offer ACA-complaint health insurance; absent such an offering, imposes penalties on covered employers. Effectively eliminates the employer mandate by making penalty $0 as of 2016.
Essential Health Benefits Requires individual and small group plans to offer 10 essential health benefits; no dollar limits allowed on essential health benefits (including in large group market) States may apply for waivers to establish their own essential health benefit requirements for individual and small group markets
Wellness Permits employers to adopt wellness incentives, within certain nondiscrimination parameters, for group health plan participants to meet wellness targets.
Retains ACA wellness program structure.
 
HSAs
Leaves in place HSA rules authorized by the Medicare Modernization Act of 2003, including:
-Allows individuals to put $3,400 and families to put $6,750 into a tax-free health savings account;
-Non-qualified distributions are subject to a 20% tax penalty, though amounts withdrawn for qualified medical expenses are not subject to income tax; and
-Only prescribed medicines (non OTC) are considered qualifying medical expenses that get preferred tax treatment.
 
Modifies certain HAS rules, including:
-Increases annual tax free contribution limit to equal the limit on out-of-pocket cost sharing under qualified high deductible health plans ($6,550 for self only coverage, $13,100 for family coverage in 2017);
-Allows spouses to make catch-up contributions to the same HSA;
-Reduces tax penalty for HSA withdrawals used for non-qualified expenses from 20% to 10% (retains provision that amounts withdrawn for qualified medical expenses are not subject to income tax); ACA AHCA and
-Allows OTC drugs as qualified medical expenses.
 
Taxes and Fees
Levies various fees and taxes on, inter alia, insurance companies, pharmaceutical manufacturers, and medical device manufacturers; and taxes net investment income and high-cost, employer-sponsored coverage ("Cadillac tax").
 
Eliminates the Cadillac tax for years 2020 through 2025 (leaving the possibility that the tax could be imposed beginning in 2026). Repeals several other ACA taxes and fees beginning in 2017:
-Annual provider fee;
-Net investment income tax;
-Prescription drug tax; and
-Medical device tax. Medicare payroll tax increase repealed as of 2023.
 
Popular ACA Market Reforms
Preexisting Condition Coverage: Prohibits insurers from denying coverage to people who have preexisting medical conditions.
Dependent Coverage (Under 26): Allows individuals to stay on their parents' health insurance plans until the age of 26.
Annual/Lifetime Limits:
Prohibits insurers from setting certain dollar limits on how much they will pay.
 
Retains ACA market reforms.
 
Regarding preexisting conditions - states may apply for waivers that allow health status underwriting, in certain circumstances, for individuals who do not maintain continuous coverage (in lieu of 30% surcharge).
Age Rating Permits insurers to charge elderly customers no more than 3 times what they charge young adults.
Increases the ACA ratio, allowing insurers to charge elderly customers up to 5 times what they charge young adults.
State waivers also available to further increase the age rating ratio.
 
Medicaid Expansion Allows states to expand Medicaid coverage for low-income individuals, and provides federal support for such expansion. Discontinues the ACA's Medicaid expansion in 2020 (but allows states to continue expansion with less federal support); allows states to impose a work requirement on ACA AHCA nondisabled, nonelderly, non -pregnant adults as a condition of Medicaid coverage; and otherwise restructures the federal financing system for Medicaid into a per capita model (with per -enrollee caps on federal payments