ACA Repeal and Replacement

| 3/9/2017

On March 6, 2017, the House Ways and Means Committee and the Energy and Commerce Committee released legislation to repeal and replace the Affordable Care Act (ACA). Once the legislation goes through markup, it will move on to the full House and then the Senate for consideration. The legislation is being approved through the budget reconciliation process, which allows the legislation to pass with a simple majority of votes and prevents filibustering in the Senate. This process limits the scope of the legislation to modifying or repealing the taxation and spending portions of the ACA.

The cornerstone of the new legislation is a refundable credit for the purchase of health insurance on a state exchange or through Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage. The credit is computed on a sliding scale based on age and income. Individuals younger than 30 can receive a maximum credit of $2,000, with individuals over 60 eligible for the maximum credit of $4,000. Each individual in a family is entitled to a credit (for example, a husband and wife in their twenties with two children would be entitled to a total credit of $8,000). The maximum credit that can be claimed by a family is $14,000. Married taxpayers with modified adjusted gross income of $150,000 or less and single taxpayers with modified adjusted gross income of $75,000 or less will be entitled to a full credit. For taxpayers with income above those levels, the available credit per individual is reduced by $100 for every $1,000 of income above the threshold. Because of variation in the amount of the credits based on the taxpayer’s age, the credits would be fully phased out for married taxpayers with modified adjusted gross income between $170,000 and $190,000 and for single taxpayers with modified adjusted gross income between $95,000 and $115,000.

The legislation also includes the following proposed changes to current tax law:

Effective retroactively to Jan. 1, 2016:

  • Effectively repeals the individual health insurance mandate by setting the penalty amount to $0; however, imposes an additional 30 percent penalty premium on purchased insurance for individuals who do not maintain continuous coverage (new 30 percent penalty premium proposed to take effect in 2019)
  • Effectively repeals the employer health insurance mandate by setting the penalty amount to $0

Effective for tax years beginning after Dec. 31, 2017:

  • Repeals the 3.8 percent net investment income tax
  • Repeals the Medicare tax increase of 0.9 percent for wages in excess of $200,000 ($250,000 for married taxpayers)
  • Eliminates the limitation on the deductibility of wages in excess of $500,000 paid to officers, directors, and employees of covered health insurance providers
  • Repeals the 10 percent excise tax on tanning
  • Repeals the excise tax on branded prescription drugs paid by prescription drug importers and manufacturers
  • Repeals the health insurance provider annual fee
  • Eliminates the small-employer health insurance credit in 2020 and places limitations on the credit prior to its elimination
  • Restores a provision allowing the use of health savings account (HSA), health reimbursement arrangement, flexible spending account (FSA), and medical savings account funds to pay for over-the-counter medication tax free
  • Repeals the limitation on contributions made to an FSA
  • Repeals the medical device excise tax
  • Repeals the elimination of the deduction for the Medicare Part D subsidy
  • Increases maximum contributions to HSAs to the amount of the deductible and out-of-pocket limitation
  • Allows spouses to make catch-up contributions to HSAs

Other changes:

  • Eliminates premium tax credits beginning in 2020 and allows for premium tax credits to be used for insurance coverage not purchased from an exchange in limited circumstances in 2018 and 2019
  • Places a moratorium on the excise tax for high-cost employer-sponsored health insurance for tax years beginning after Dec. 31, 2019, and before Jan. 1, 2025
  • Returns the threshold for itemized deductions for medical expenses to 7.5 percent of adjusted gross income from 10 percent for tax years beginning after Dec. 31, 2016

Although Republicans are trying to fast-track the legislation, it is unlikely final agreement will be reached quickly, and it is possible that significant changes will be made before enactment.

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Howard Wagner
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