Employer-plan sponsors need to be ready to act as changes to the landscape of the Patient Protection and Affordable Care Act (“PPACA”) as applied to employer-sponsored group health plans are looming on the horizon.
On January 20, 2017, President Trump signed Executive Order 13765 titled “Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal” (the “Executive Order”). The Executive Order indicates a clear intent to repeal the PPACA in the future and in the meantime urges federal government agencies to take legally permissible leniencies in enforcing certain aspects of the PPACA: “To the maximum extent permitted by law, . . . [executive departments and agencies] . . . shall exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications.” A copy of the Executive Order is available at: https://www.gpo.gov/fdsys/pkg/FR-2017-01-24/pdf/2017-01799.pdf
While the Executive Order serves as a general mission statement for the new administration, it does not provide an instantaneous change to the PPACA (the President cannot, by unilateral action, repeal final regulations). Furthermore, while the Executive Order provides a clear overall goal, it does not include details regarding how this goal will be achieved. Moreover, the Executive Order does not specifically mention any relief for employers or plan sponsors, nor does it discuss if and how any PPACA provisions regulating employers and employer-sponsored plans are expected to be impacted. Since the release of the Executive Order, all eyes in the benefits community have been on the status of the PPACA.
In the wake of the Executive Order, in February 2017, the IRS became the first agency to follow the Executive Order’s directive to start unwinding certain provisions of the PPACA. Specifically, the IRS released a statement indicating that individual tax returns will not be automatically rejected during processing merely because the taxpayer fails to indicate his or her health coverage status. This IRS statement appears to have loosened the IRS’ enforcement of the individual shared responsibility mandate. The IRS’ statement related to the individual shared responsibility mandate can be found at: https://www.irs.gov/affordable-care-act/individuals-and-families/individual-shared-responsibility-provision
It is important to note that the IRS statement did not indicate that the IRS would waive penalties for individuals who fail to maintain compliant health insurance coverage: “However, legislative provisions of the ACA are still in force until changed by Congress, and taxpayers remain required to follow the law and pay what they may owe.” And, again, the IRS statement does not address anything about its enforcement of the employer shared responsibility mandate or other PPACA provisions regulating employer-sponsored plans. Thus, the Executive Order and IRS statement have left the employee benefits community uncertain as to how the new administration intends to address the PPACA as it relates to employer-sponsored plans.
Yesterday, however, the House Republicans addressed this looming issue. On March 6, 2017, the House Ways and Means Committee and the House Energy and Commerce Committee each released proposed legislation to repeal and replace certain aspects of the PPACA, entitled the American Health Care Act (the “Proposed Legislation”). The Proposed Legislation provides insight into how the landscape of the PPACA may be altered with respect to employer-sponsored plans.
If enacted as drafted, the Proposed Legislation, as summarized, would dismantle certain taxes imposed under the PPACA, eliminate both the individual and employer shared responsibility mandate penalties, while keeping other portions of the PPACA in place, such as prohibiting pre-existing condition exclusions from coverage and allowing dependents to continue coverage under their parents’ health plans until the age of 26.
Other provisions of the Proposed Legislation establish a patient and state stability fund to provide states financial assistance to design programs aimed at each state’s own population and needs for affordable health care, transition Medicaid to a “per capita allotment,” increase the contribution maximums for health savings accounts (HSAs), repeal the tax on over the counter drugs, repeal the limitations of contributions to health flexible spending accounts, and assist those in the low to middle-income brackets with monthly tax credits to assist with health care costs.
A summary of the Proposed Legislation impacting employers, as prepared by the Committee on Ways and Means Majority Staff, is as follows:
“SUBTITLE _ — REPEAL AND REPLACE OF HEALTH-RELATED TAX POLICY”
“SECTION_04: SMALL BUSINESS TAX CREDIT
“This section repeals Obamacare’s small business tax credit beginning in 2020. Between 2018 and 2020, under the proposal, the small business tax credit generally is not available with respect to a qualified health plan that provides coverage relating to elective abortions.”
“SECTION_06: EMPLOYER MANDATE
“Under current law, certain employers are required to provide health insurance or pay a penalty. This section would reduce the penalty to zero for failure to provide minimum essential coverage; effectively Prepared by the Committee on Ways and Means Majority Staff March 6, 2017 repealing the employer mandate. The effective date would apply for months beginning after December 31, 2015, providing retroactive relief to those impacted by the penalty in 2016.
“SECTION_07: REPEAL OF THE TAX ON EMPLOYEE HEALTH INSURANCE PREMIUMS AND HEALTH PLAN BENEFITS
“Obamacare imposed a 40 percent excise tax on high cost employer-sponsored health coverage, also known as Cadillac plans. Under current law, the tax will go into effect in 2020. This section changes the effective date of the tax. It will not apply for any taxable period beginning after December 31, 2019, and before January 1, 2025. Thus, the tax will apply only for taxable periods beginning after December 31, 2024.
“SECTION_08: REPEAL OF THE TAX ON OVER-THE-COUNTER MEDICATIONS
“Under current law, taxpayers may use several different types of tax-advantaged health savings accounts to help pay or be reimbursed for qualified medical expenses. Obamacare excluded over-the counter medications from the definition of qualified medical expenses. This section effectively repeals the Obamacare tax on over-the-counter medications. The effective date begins tax year 2018.
“SECTION_09: REPEAL OF INCREASE OF TAX ON HEALTH SAVINGS ACCOUNTS
“Distributions from an HSA or Archer MSA that are used for qualified medical expenses are excludible from gross income. Distributions that are not used for qualified medical expenses are includible in income and are generally subject to an additional tax. Obamacare increased the percentage of the tax on distributions that are not used for qualified medical expenses to 20 percent. This section lowers the rate to pre-Obamacare percentages. This change is effective for distributions after December 31, 2017.
“SECTION_10: REPEAL OF LIMITATIONS ON CONTRIBUTIONS TO FLEXIBLE SAVINGS ACCOUNTS
“Obamacare limits the amount an employer or individual may contribute to a health Flexible Spending Account (FSA) to $2,500, indexed for cost-of-living adjustments. This section repeals the limitation on health FSA contributions for taxable years beginning after December 31, 2017.”
“SECTION_12: REPEAL OF ELIMINATION OF DEDUCTION FOR EXPENSES ALLOCABLE TO MEDICARE PART D SUBSIDY
“Prior to Obamacare, as an incentive for employers to offer retiree drug coverage, employers who offered sufficient prescription drug coverage to their employees qualified for the Retiree Drug Subsidy to help cover actual spending for prescription drug costs. Obamacare eliminated the ability for employers to take a tax deduction on the value of this subsidy. This section repeals this Obamacare change and re-instates the business-expense deduction for retiree prescription drug costs without Prepared by the Committee on Ways and Means Majority Staff March 6, 2017 reduction by the amount of any federal subsidy. This section applies to taxable years beginning after December 31, 2017.”
“SECTION_14: REPEAL OF MEDICARE TAX INCREASE
“Obamacare imposed a Medicare Hospital Insurance (HI) surtax based on income at a rate equal to 0.9 percent of an employee’s wages or a self-employed individual’s self-employment income. This section repeals the additional 0.9 percent Medicare tax beginning in 2018.
“SECTION_15: REFUNDABLE TAX CREDIT FOR HEALTH INSURANCE
[***]
“The program also calls for simplified reporting of an offer of coverage on the W-2 by employers. 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.
“SECTION_16: MAXIMUM CONTRIBUTION LIMIT TO HEALTH SAVINGS ACCOUNT INCREASED TO AMOUNT OF DEDUCTIBLE AND OUT-OF-POCKET LIMITATION
“This section increases the basic limit on aggregate Health Savings Account contributions for a year to equal the maximum on the sum of the annual deductible and out-of-pocket expenses permitted under a high deductible health plan. Thus, the basic limit will be at least $6,550 in the case of self-only coverage and $13,100 in the case of family coverage beginning in 2018.
“SECTION_17: ALLOW BOTH SPOUSES TO MAKE CATCH-UP CONTRIBUTIONS
“This section would effectively allow both spouses to make catch-up contributions to one HSA beginning in 2018.
“SECTION_18: SPECIAL RULE FOR CERTAIN MEDICAL EXPENSES INCURRED BEFORE ESTABLISHMENT OF HSA
“This section sets forth certain circumstances under which HSA withdrawals can 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.”
“SUBTITLE _ — REPEAL AND REPLACE OF CERTAIN CONSUMER TAXES”
“SECTION_02: REPEAL OF HEALTH INSURANCE TAX
“Obamacare imposed an annual fee on certain health insurers. The proposal repeals the health insurance tax beginning after December 31, 2017.”
For the full summary of the Proposed Legislation, please see: https://waysandmeans.house.gov/wp-content/uploads/2017/03/03.06.17-Section-by-Section.pdf and http://energycommerce.house.gov/sites/republicans.energycommerce.house.gov/files/documents/Section-by-Section%20Summary_Final.pdf
Please note that the American Health Care Act is proposed legislation; the changes which may be made to the PPACA through final legislation are still uncertain. The Committees for both the House Ways and Means and the House Energy and Commerce have scheduled a markup of this proposed legislation for tomorrow, Wednesday March 8th. Unless and until any legislation is finalized, employers must stay their current course, including complying with ACA employer reporting requirements and the employer shared responsibility mandate.
We will keep you posted as the legislative process progresses.
This email serves solely as a general summary of complex proposed legislation and government initiatives. It does not constitute legal guidance. Please contact us with any questions related to the Proposed Legislation and what impact finalization might have on your employer-sponsored plans.
Questions? Contact us to learn more.
Elizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2018 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or elatchana@fraserlawfirm.com.
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