It’s not quite a tale of two cities, but below is a breakdown of two competing health care bills being considered by Congress. The Republican-led U.S. House of Representatives and the Republican majority in the Senate have both released healthcare bills designed to overhaul the Affordable Care Act, also known as Obamacare. The House bill, the American Health Care Act (AHCA), passed earlier this spring. The Better Care Reconciliation Act (BCRA) has not yet been voted on in the Senate. The two versions will have to be reconciled with one bill emerging that will be approved by both chambers before being sent to President Trump for his signature.
In the meantime, the Congressional Research Service (CRS) has issued a comparison of the ACA, the AHCA and the BCRA, as they currently exist. Note that the BCRA was first released in June and amended July 13.
- Premium tax credit
ACA
Under the ACA, which is the current law, a tax credit is available to help low- and moderate-income people pay for qualified health plans offered through individual exchanges. Eligibility for the credit is based largely on income, with the credit generally available on a sliding scale basis for individuals and families with household incomes below 100 percent and 400 percent of the federal poverty line. The amount of the credit, regardless of the level of coverage in which the taxpayer enrolls, is determined by reference to the premium for the “applicable second lowest cost silver plan” in the rating area where the taxpayer resides and offered by the exchange where the taxpayer enrolls in a qualified health plan. Individuals have the option of receiving the credit during the year, then reconciling the amount received upon filing their tax returns.
AHCA
The AHCA would allow the ACA tax credit to apply to certain off-exchange and other plans beginning in 2018. It would also amend the tax credit calculation formula by specifying income and age as factors beginning in 2019. The ACA tax credit would be replaced with a different refundable, advanceable tax credit, beginning in 2020. Under the new AHCA credit, credit amounts would be based on age and adjusted by a formula that takes into account income, and credits would be capped according to a maximum dollar amount and family size. Limitations on repayments of excess ACA credits would be disregarded for 2018 and 2019.
BCRA
The BCRA would amend the ACA premium tax credit by reducing income eligibility from 100 to 400 percent of the federal poverty level to 100 to 350 percent of the poverty level, which would change the level of coverage of a standard plan used to determine the amount of the credit. The Senate version also amends the ACA tax credit calculation formula by specifying income and age as factors beginning in 2020 and disregards repayment limitations beginning in 2018.
- Small business health insurance tax credit
ACA
Subject to a phaseout, the ACA provides a tax credit equal to 50 percent of an eligible small employer’s nonelective contributions to purchase health insurance for its employees. An eligible small employer is generally an employer that: (1) has no more than 25 full-time equivalent employees employed during its tax year; (2) has employees who have average annual wages of no more than a statutorily defined amount ($52,300 for 2017); and (3) has in effect a qualifying arrangement in which the employer has to contribute at least 50 percent of the premiums.
AHCA and BCRA
The AHCA and BCRA would restrict the credit for certain types of coverage beginning in 2018 and sunset the credit beginning in 2020.
- Individual mandate
ACA
The ACA requires most individuals (i.e., those who don’t qualify for an exemption) to maintain health insurance coverage or pay a penalty for noncompliance.
AHCA and BCRA
Both the AHCA and BCRA would effectively eliminate the individual mandate by reducing the penalty to zero retroactively beginning in 2016.
- Employer mandate
ACA
The ACA requires applicable large employers – those with at least 50 full-time, including full-time equivalent, employees – to pay a fine if at least one full-time employee purchased health insurance through a state exchange for which an applicable premium tax credit or cost-sharing reduction is allowed or paid to the employee, and the employer either (1) doesn’t offer health care coverage for its full-time employees, or (2) offers minimum essential coverage that is unaffordable or does not provide minimum value.
AHCA and BCRA
Both the AHCA and BCRA would effectively eliminate the employer mandate by reducing the penalty to zero retroactively beginning in 2016.
- Net investment income tax
ACA
The ACA assesses a 3.8 percent tax to certain net investment income of individuals, estates and trusts with income above specified amounts.
AHCA
The AHCA would repeal the NIIT beginning in 2017.
BCRA
The original version of the BCRA also repealed the NIIT, but the revised version of the bill did not call for the repeal.
- Medicare surtax
ACA
Under the ACA, an additional 0.9 percent Medical Hospital Insurance surtax is assessed to wages received in excess of: $250,000 for joint returns; $125,000 for married taxpayers filing a separate return; and $200,000 in all other cases. The additional 0.9 percent tax also applies to self-employment income for the tax year in excess of the above figures.
AHCA
The AHCA would repeal this surtax beginning in 2023.
BCRA
The original version of the BCRA repealed the Medicare surtax, but the revised version does not.
- Medical expense deduction floor
ACA
The ACA raised the longstanding 7.5 percent floor for medical expense deductions to 10 percent.
AHCA
The AHCA would reduce the floor to 5.8 percent for all taxpayers beginning in 2017.
BCRA
The BCRA would restore the 7.5 percent floor for all taxpayers beginning in 2017.
- FSA contribution limit
ACA
The ACA limits employee contributions to a health FSA established under a cafeteria plan. The maximum contribution is $2,500, as adjusted by inflation ($2,600 for 2017).
AHCA
The AHCA repeals this limit and would go into effect in 2017
BCRA
The BCRA repeals this limit and would go into effect in 2018.
- HSA contribution limits
ACA
Health Savings Account contributions are subject to an annual limit, which is adjusted for inflation. In 2017, the contribution limit is $3,400 for account holders enrolled in self-only coverage and $6,750 for account holders enrolled in family coverage.
AHCA and BCRA
Both the AHCA and BCRA would increase the HSA annual contribution limits to match the out-of-pocket limits for HSA-qualified high deductible health plans for self-only and family coverage beginning in 2018.
In addition, under both the AHCA and BCRA, both spouses would be allowed to make catch-up contributions to one HSA beginning in 2018.
- Pre-HSA medical expenses
ACA
Withdrawals from HSAs under the ACA are generally exempt from federal income taxes if used for qualified medical expenses (except for health insurance), but the HSA must be established before the qualified medical expenses are incurred.
AHCA and BCRA
Both the AHCA and BCRA would allow HSA withdrawals to be used to pay qualified medical expenses incurred before the HSA was established, provided that one is established within 60 days from the date the expenses are incurred, beginning in 2018.
- Tax on over-the-counter medications
ACA
The ACA does not consider over-the-counter medications to be “qualified medical expenses,” which taxpayers may pay or be reimbursed by several different types of tax-advantaged health accounts, such as HSAs Archer Medical Savings Accounts.
AHCA and BCRA
Both the AHCA and BCRA would repeal this prohibition beginning in 2017.
- Penalty tax on nonqualifying HSA and Archer MSA distributions
ACA
The ACA imposes an additional 20 percent tax on distributions from HSAs and Archer MSAs for distributions not used for qualified medical expenses.
AHCA and BCRA
Both the AHCA and BCRA would reduce the applicable tax rate to 15 percent for Archer MSAs and 10 percent for HSAs, retrospectively, for distributions made beginning in 2017.
- Cadillac tax
ACA
A 40 percent excise tax on high-cost employer-sponsored health care coverage (referred to as the Cadillac tax) would be effective in 2018; however, a subsequent law delayed implementation until 2020.
AHCA and BCRA
Both the AHCA and BCRA would delay implementation of the Cadillac tax until 2026.
- Deduction for Medicare Part D expenses
ACA
Before the ACA, employers were allowed to claim a business deduction for their qualified retiree prescription drug expenses, even though they also received the federal subsidy to cover a portion of those expenses. Under the ACA, the amount allowable as a deduction is reduced by the amount of the federal subsidy received.
AHCA and BCRA
Both the AHCA and BCRA would repeal the ACA change and reinstate business-expense deductions for retiree prescription drug costs without reduction by the amount of any federal subsidy beginning in 2017.
Again, changes to both the AHCA and BCRA are expected. We will keep you informed as these bills work their way through the legislative process so you can be prepared for how your business will be impacted by the healthcare law.
Source: RIA Checkpoint
