17 July 2017 Senate's revised health care bill would affect employers and insurers The Senate Republicans continue the effort to repeal and replace the Affordable Care Act (ACA) with the release on July 13 of an undated version of the "Better Care Reconciliation Act" (the revised BCRA). We previously reported on an earlier version of the BCRA (the original BCRA) released by the Senate Republicans in mid-June (see Tax Alert 2017-1003). In that Alert, we summarized the original BCRA and how it differed from the American Health Care Act (AHCA), which the House of Representatives passed on May 8. The original BCRA was never called for a vote in the Senate because it lacked majority support. The revised BCRA adds certain provisions, including an option for health insurers to offer unregulated health care policies, designed to attract the votes of conservative members of Senate, and adds other provisions, including the retention of certain taxes on higher-income individuals and the allocation of additional state funding, to attract the votes of more moderate senators. Senate Majority Leader Mitch McConnell reportedly aims to vote on the revised BCRA prior to Congress's August recess. The Congressional Budget Office (CBO) is expected to release a revenue and coverage estimate of the revised BCRA in the near future; receipt of the CBO estimate is a necessary step for the Senate parliamentarian to complete a review of the legislation in order for it to move forward to a vote. The provisions of the revised BCRA continue to generate debate among the senators. We expect that negotiations will continue and that additional changes will be made to the BCRA before a Senate vote. Even with negotiated changes, an open question remains of whether the Senate Republicans have the 51 votes (50 senators plus the Vice President if necessary to break a tie) required to pass the legislation. If the BCRA passes the Senate, the House would either have to pass the Senate bill without modification or the Senate and House would undertake the conference process to reconcile the differences in their bills. This Alert recaps the background of the Senate's proposed legislation and summarizes the key changes in the revised BCRA that affect employers and health insurers. Similar to the AHCA and the original BCRA, the revised BCRA bill would repeal and amend portions of the ACA, but would retain many ACA provisions. The revised BCRA retains the basic structure and provisions of the original BCRA, including the following provisions that are important to employers and health insurers. — The individual mandate (Section 5000A) and the employer mandate (Section 4980H) excises taxes would be eliminated by reducing these excise taxes to zero retroactively to 2016. (See, Tax Alert 2017-768.) — The ACA premium tax credits that provide low- and middle-income individuals with a subsidy to purchase health care coverage on the marketplace Exchanges would remain in place through 2019. Beginning in 2020, income- and age-based premium tax credits to purchase health care coverage would be available, but generally would be less generous than the ACA tax credits. Under the BCRA, individuals with household incomes of up to 350% of the federal poverty level (FPL) would be eligible for the tax credit; under current law, individuals with incomes between 100% and 400% of the FPL are eligible for the tax credits. The amount of the BCRA premium tax credit would be benchmarked to a 58% actuarial value plan; under current law, the tax credit is benchmarked to a silver (70% actuarial value) plan. Similar to the ACA provisions, premium tax credits would not be available to employees who have an offer of employer coverage. As discussed later, the revised BCRA would further modify the availability of the premium tax credits. — The ACA taxes and fees would be repealed or eliminated, including the taxes imposed on health insurance issuers, drug manufacturers and medical device companies. As discussed later, however, the revised BCRA would continue the ACA taxes imposed on high-income individuals and the compensation deduction limitation imposed on the health insurance issuers. The tax on high-cost plans (also known as the Cadillac tax) would be delayed until 2026. — The ACA's Medicaid expansion provisions would continue through 2023 with a reduction in funding beginning in 2021. The BCRA would sharply reduce Medicaid expenditures beginning in 2024 and would convert Medicaid funding into a per capita or block grant funding arrangement. — Health insurers would continue to receive, through 2019, the cost-sharing reduction subsidies available for coverage of low-income enrollees. The BCRA appropriates close to $200 billion (as increased by the revised BCRA), however, in funding available for states to stabilize their individual and small group insurance markets. The BCRA sets forth criteria for how the states may use the funds and a general outline to apply for receipt of the funds. States would be eligible to use this funding to establish state-based cost-sharing reduction subsidies for insurers or to provide for an insurance funding pool for high-risk individuals. — The BCRA would enhance the ACA Section 1332 state innovation waivers that permit states to waive several of the ACA requirements. Most importantly, the BCRA would permit states to waive the ACA essential health benefits requirements, in addition to waiving other ACA requirements. — Insurers would be permitted to charge older individuals up to five times more than the premium charged to younger individuals; under current law the age-rating ratio is limited to 3 to 1. — The use of health savings accounts (HSAs) would be enhanced by permitting individuals to contribute up to the maximum out-of-pocket costs and to allow spouses to make additional contributions. As discussed later, the revised BCRA would further enhance the use of HSAs. The most significant change the revised BCRA would make to the original BCRA is an amendment proposed by Senator Cruz (the Cruz amendment), referred to by some as the "Consumer Freedom Option." The revised BCRA would also make a number of changes that would affect employers and health insurance companies, as summarized below. The revised BCRA would add a new "Section Title III" that would provide insurers with the option of offering unregulated health insurance policies on the individual market, as long as the insurer also offers ACA-compliant plans on the marketplace Exchange. Under this option, insurers would be permitted to offer individual market policies that would not be required to comply with ACA requirements, including: the requirement to cover essential health benefits; the prohibition on the exclusion of preexisting conditions; the prohibition on underwriting based on health care status; the prohibition on annual or lifetime limits; and the prohibition on waiting periods over 90 days. The revised BCRA would provide additional funding for states to make payments to insurers to cover the cost of high-risk individuals enrolled in ACA-compliant health plans offered on the marketplace Exchange. Two major health insurance associations (America's Health Insurance Plans and the BlueCross Blue Shield Association) have strongly criticized the Cruz amendment, stating in a letter to the Majority Leader and the Democratic Leader that the proposal is "simply unworkable." These insurance associations raise the concern that the option proposed in the amendment would cause a bifurcation in the individual insurance market, effectively creating one market for healthy individuals who likely would opt for the less expensive noncompliant policies and a separate market for less healthy older individuals or individuals with preexisting conditions who would need coverage under a compliant policy that likely would become excessively expensive. Interestingly, the Cruz amendment is bracketed in the revised BCRA, leaving impression that it may be deleted in the future. It has been reported that the Majority Leader asked the CBO to estimate the revenue and coverage impact of the revised BCRA with and without the Cruz amendment. Continuation of ACA taxes on high-income individuals and the compensation deduction limitation for health insurance providers The revised BCRA would retain the 3.8% tax under Section 1411 on individuals with net investment income of $200,000 or more per year ($250,000 for joint filers) and the 0.9% additional Medicare (Hospital Insurance (HI)) tax also imposed on individuals with earnings of $200,000 or more per year ($250,000 for joint filers). The CBO previously estimated that the repeal of the 3.8% net investment income tax would result in $172 billion of lost revenue and the repeal of the 0.9% additional Medicare tax beginning in 2022, as proposed by the original BCRA, would result in $58 billion of lost revenue. The revised BCRA would also retain the $500,000 compensation deduction limitation imposed on covered health insurance providers under Section 162(m)(6). This deduction limitation applies to current and deferred compensation that is otherwise deductible paid to any service provider by a covered health insurance company. These changes would improve the CBO estimate of the deficit reduction. As a result, the Senate Majority Leader may have additional funds that could be used to make further changes to the proposed legislation to attract the votes of moderate Republican senators. The revised BCRA would further enhance the use of HSAs. Under the revised provisions, Section 223 would be amended to permit HSAs to be used to pay for premiums of high-deductible health plans (rather than being limited to out-of-pocket medical expenses), but only to the extent of: (1) the portion of the expense that exceeds the available premium tax credits, (2) any amount allowable as a deduction under Section 162(l), and (3) any amount excludable from income under Section 106 or Section 125. The revised BCRA also would amend Section 223 to permits HSAs to be used to pay for medical expenses of children under age 27. In addition, the revised BCRA would make HSAs ineligible to be used in connection with high-deductible health plans that cover abortions, except when the abortion is necessary to preserve the life of the mother or in cases of rape or incest. The revised BCRA would allow premium tax credits to be used to purchase catastrophic coverage beginning in 2019. This is a change from current law, which limits the purchase of these policies to individuals under age 30 and those who could not afford other coverage. The revised BCRA would prohibit employees of small businesses from purchasing coverage on the marketplace with premium tax credits if the employee is entitled to employer health reimbursement arrangement (HRA) contributions that may be used to purchase health insurance coverage. The revised BCRA contains the change added to the original BCRA covering preexisting conditions. Under this provision, an individual who fails to maintain continuous coverage for 63 days in a 12-month period would be required to endure a six-month waiting period on reentering the individual market. The original BCRA would have amended ERISA to permit small businesses to establish fully insured group health plans (also known as association health plans). The revised BCRA would also allow certified professional employer organizations to sponsor association plans. The future of the BCRA remains an open question. We expect to see additional changes to the discussion draft of the legislation and will keep you informed of the significant changes. At this point, the ACA is the current law. Employers and insurers should continue to plan their health care offerings based on the ACA provisions, but with an eye on the potential future changes to the law. Document ID: 2017-1150 |
