The fate of the Affordable Care Act employer mandate is becoming clear. Proposed ACA replacement legislation released Monday, entitled the American Health Care Act, aims to dismantle the employer mandate by zeroing out the associated penalties. Despite this, the AHCA maintains both employer and insurer reporting requirements. The employer mandate is one of the key points of the proposed legislation, as it carries great implications for businesses. But what else would the American Health Care Act do?
High-Level Policy ChangesThe bill addresses 11 basic provisions:
- Individual Mandate: AHCA would strike the individual mandate by eliminating penalties for those who do not obtain coverage. However, the mandate would be replaced by a “continuous coverage incentive,” which imposes an additional 30 percent premium for those who allow their coverage to lapse for longer than the prescribed time period.
- Employer Mandate: The bill relieves applicable large employers of their legal duties to provide insurance under the current law by setting the penalties to zero.
- Out-of-Pocket Subsidies: The law would repeal the cost-sharing subsidy for out-of-pocket expenses, effective in 2020.
- Premium Subsidies: The new law changes the way in which premium subsidies would be distributed. Instead of using income, the determining factor would be age. However, full tax credits will be available for those falling within the designated income brackets. More types of plans would qualify for subsidies under the new law.
- Medicaid Expansion: States would keep the Medicaid expansion and continue to receive federal funding until 2020, at which point funding for newly eligible individuals would be reduced. The new law would cap federal funding per individual based on each state’s 2016 Medicaid spending.
- Health Savings Accounts: The law would remove contribution limits for HSAs and allow spouses to make additional contributions.
- Price Restrictions for Older Individuals: Under the new law, insurers would be permitted to charge older patients five times as much as younger patients; however, states may also set their own ratios.
- Dependent Coverage until 26
- Pre-existing Condition Coverage
- Essential Health Benefits
- Prohibitions on Annual/Lifetime Limits.
Continuous Coverage Requirement: The New “Mandate”The AHCA would effectively replace existing mandates with a “continuous coverage requirement,” which imposes a 30 percent premium surcharge for those who have coverage gaps in any given year for at least 63 continuous days. The burden of proving gaps do not exist appears to fall on consumers. The new penalties would be enacted for special enrollments in 2018 and would be applicable for coverage gaps in the remainder of the year. In contrast, the lookback period for 2019 and beyond would be the entire year. If the president signs AHCA into law, individual and employer mandate penalties would be retroactively eliminated for 2016 and succeeding years. For procedural reasons, the text of the mandates would not be stricken from the law because no nexus exists between the mandates and government revenues in the reconciliation bill. However, they will be effectively eliminated due to the zeroing out of the associated penalties.
Reporting Under the American Health Care ActThe AHCA maintains the provision imposing the employer and insurer reporting requirements. There are several potential reasons for this:
- As with the mandates, the reporting requirements cannot be stricken through the budget reconciliation for procedural reasons.
- Congress is giving the HHS and IRS discretion to enforce reporting requirements going forward.
- The reporting requirement is remaining in place as a means of facilitating implementation of the “continuous coverage requirement.”
Take ActionRead more about recent ACA regulatory updates on our blog:
- “Industry Report Blog Series: Top Challenges to ACA Reporting”
- “ACA Update: IRS Tweak to Individual Reporting – What It Means“
- “Three ACA Replacement Plans Emerge“
- New York Times: House Republicans Unveil Plan to Replace Health Law
- New York Times: The Parts of Obamacare Republicans Will Keep, Change or Discard
- Bloomberg: Republicans Unveil Health Care Bill to Bridge Gaps in Party
- HR Dive: ACA Bill Finally Released: Employer mandate gone but Cadillac tax remains
- Health Affairs: Examining The House Republican ACA Repeal and Replace Legislation
- Budget Reconciliation Legislative Recommendations
- Society for Human Resource Management: Will the GOP’s ACA Replacement End the Employer Mandate and Required Reporting?
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About the Author
Tom Hospod is a member of the Tax Research Team for the Direct Tax division at Sovos Compliance, where his main areas of focus are Tax Withholding and Automatic Exchange of Information (AEOI). Prior to Sovos, Tom worked as a legislative aide in the Massachusetts House of Representatives. He also has experience in securities law—focusing on broker-dealer disputes and representing clients in FINRA arbitration. Tom is a member of the Massachusetts Bar, earned his B.A. from Boston College and his J.D. from the University of Miami.More Content by Tom Hospod