June 22, 2017
Senate Republicans issued the BCRA.
July 13, 2017
Senate Republicans released an amended version of the BCRA.
July 18, 2017
Senate Republicans put off a vote on the BCRA in favor of a new approach.
Republicans in the U.S. Senate announced on July 18, 2017, that they are postponing a vote on the Better Care Reconciliation Act (BCRA) due to a lack of votes. The BCRA is the latest bill proposed to repeal and replace the Affordable Care Act (ACA). The initial draft of the BCRA was released on June 22, 2017, followed by an amended version released on July 13, 2017.
Senate Republicans now plan to focus on repealing the ACA without a replacement plan, based on a budget reconciliation bill from 2015. This proposal would provide a two-year delay of the repeal to provide a stable transition period. However, it would not repeal the ACA in its entirety, due to restrictions with the budget reconciliation process. It is unclear whether this approach has the required votes to pass the Senate at this time.
IMPACT ON EMPLOYERS
The Senate has not voted on any ACA repeal or replacement proposal at this time. It is unclear whether the Senate plans to abandon the BCRA completely. Any ACA repeal and replacement bill that passes the Senate would need to go back to the House for approval before being signed into law by President Donald Trump.
Republicans in both the Senate and the U.S. House of Representatives are using the budget reconciliation process in their efforts to repeal and replace the ACA. This means that the proposed bills can only address ACA provisions that directly relate to budgetary issues—specifically, federal spending and taxation. As a result, these proposals cannot fully repeal the ACA. Budget reconciliation legislation can be passed by both houses with a simple majority vote. However, a full repeal of the ACA must be introduced as a separate bill that would require 60 votes in the Senate to pass.
On May 4, 2017, the House voted 217-213 to pass the American Health Care Act (AHCA), which is their proposal to repeal and replace the ACA. As a result, the AHCA moved on to the Senate for consideration. In response, the Senate drafted the BCRA as their own ACA repeal and replacement bill, followed by an amended version of the BCRA on July 13, 2017.
The Senate’s new proposal is mirrored after ACA repeal legislation included in a budget reconciliation bill that passed both the House and Senate in 2015, but was vetoed by then-President Barack Obama. The new bill would delay the repeal for two years, but would not completely repeal the ACA due to restrictions with the budget reconciliation process. At this time, it is unclear whether the Senate plans to abandon the BCRA completely. The Senate may choose to introduce this proposed legislation in the future, with or without additional amendments.
Amendments to the BCRA
The biggest change included in the amended version of the BCRA would have allowed individuals to purchase “catastrophic plans” beginning in 2019. Catastrophic plans do not comply with all of the ACA’s requirements and typically do not cover many of the benefits included in other types of health plans. These plans generally have lower premiums and higher deductibles, and are intended only to protect against “catastrophic” medical costs (for example, costs related to an accident or serious medical condition). Under the ACA, only individuals under the age of 30 and those who could not afford other coverage could purchase catastrophic coverage.
The amended version of the BCRA also would have:
- Prohibited premium tax credits for consumers who receive HRA contributions from their employers for individual health insurance coverage;
- Provided additional funding for insurers to cover high-cost individuals;
- Provided additional funding for substance use disorder treatment and recovery support services, as well as for research related to the opioid abuse crisis; and
- Removed the BCRA’s repeal of the ACA’s Medicare net investment tax and additional Medicare tax.
In addition, the amended BCRA would have made a number of amendments to certain Medicaid provisions.
ACA Provisions Not Impacted
Like the AHCA, the BCRA would not affect the majority of the ACA. For example, the following key ACA provisions would remain in place:
- Cost-sharing limits on essential health benefits (EHBs) for non-grandfathered plans (currently $7,150 for self-only coverage and $14,300 for family coverage)
- Prohibition on lifetime and annual limits for EHBs
- Requirements to cover pre-existing conditions
- Coverage for adult children up to age 26
- Guaranteed availability and renewability of coverage
- Nondiscrimination rules (on the basis of race, nationality, disability, age or sex)
- Prohibition on health status underwriting
Similarly, the requirement to offer the EHB package for individual and small group plans also remains in place. In addition, age rating restrictions would also continue to apply, with the age ratio limit being revised to 5:1 (instead of 3:1), and states would be allowed to set their own limits.
Repealing the Employer and Individual Mandates
The ACA imposes both an employer and individual mandate. Like the AHCA, the BCRA would reduce the penalties imposed under these provisions to zero, effectively repealing both mandates (although they would technically still exist). These changes would apply retroactively for months beginning after Dec. 31, 2015. The AHCA would have allowed issuers to add a 30 percent late-enrollment surcharge to the premium for applicants that had a lapse in coverage, in an effort to limit adverse selection and encourage individuals to maintain health coverage. However, the BCRA removed this late-enrollment surcharge, so that issuers may not charge higher premiums for individuals who do not maintain continuous coverage.
Note that neither the AHCA nor the BCRA would repeal the ACA’s reporting requirements related to the employer and individual mandates (Section 6055 and Section 6056 reporting).
Replacing Health Insurance Subsidies with Tax Credits
The ACA currently offers federal subsidies in the form of premium tax credits and cost-sharing reductions to certain low-income individuals who purchase coverage through the Exchanges. Like the AHCA, the BCRA would repeal the cost-sharing reductions, effective in 2020. The BCRA would, however, technically leave the premium tax credit provision in place, with heavy amendments taking effect in 2020. These amendments would essentially replace the ACA’s premium tax credits with a portable, monthly tax credit to all individuals, which can be used to purchase individual health insurance coverage.
The BCRA would:
- Restrict individual eligibility for premium tax credits to those with incomes not exceeding 350 percent of the federal poverty level (reduced from the current eligibility limit of 400 percent);
- Eliminate the cap on repaying Exchange subsidy overpayments; and
- Amend the “applicable percentage” schedule for determining the amount of premium tax credits an individual is eligible for, so that younger individuals would be eligible for higher tax credits.
The BCRA (like the AHCA) would also repeal the ACA’s small business tax credit, beginning in 2020. In addition, between 2018 and 2020, the small business tax credit generally would not be available with respect to a qualified health plan that provides coverage relating to elective abortions.
The AHCA included an option for states to obtain limited waivers from certain ACA standards, in an effort to lower premiums and expand the number of insured. Specifically, states could apply for waivers from the EHB requirement and community rating rules (except strict limitations applied with respect to rating based on gender, age and health status). The BCRA eliminated this state waiver option.
However, the BCRA would provide states additional flexibility to use waivers that currently exist under Section 1332 of the ACA. The ACA’s Section 1332 State Innovation Waivers are intended to allow states to pursue innovative strategies for providing their residents with access to high-quality, affordable health insurance while retaining the basic protections of the ACA. Currently, four states have submitted applications for Section 1332 Waivers (Alaska, Hawaii, Vermont and Iowa; California submitted an application, but later withdrew it).
The BCRA would expand the ACA provisions that could be waived under Section 1332, and lower the standards that states must meet in order to be eligible for a Section 1332 Waiver. In addition, the BCRA would also allow the Department of Health and Human Services (HHS) to fast-track waiver applications from states experiencing an urgent or emergency situation with respect to health insurance coverage within the state.
State Stability Fund
The AHCA would have established a Patient and State Stability Fund for 2018 through 2023 to provide funding to states that have applied for, and been granted, a state waiver from the ACA’s community rating rules. Because the state waivers would not be available under the Senate proposal, the BCRA decreases the amount available through this fund, to be used to help address coverage and access disruption.
In addition, the BCRA would establish a second long-term state innovation fund that would dedicate $62 billion over eight years to encourage states to assist high-cost and low-income individuals to purchase health insurance by making it more affordable. In 2018, the BCRA would also provide $2 billion in state grants for substance abuse disorder treatment or recovery support services for individuals with mental health or substance use disorders to address the opioid crisis.
Enhancements to Health Savings Accounts (HSAs)
HSAs are tax-advantaged savings accounts that are tied to a high deductible health plan (HDHP), which can be used to pay for certain medical expenses. To incentivize use of HSAs, the BCRA (like the AHCA) would:
- Increase the maximum HSA contribution limit: The HSA contribution limit for 2017 is $3,400 for self-only coverage and $6,750 for family coverage. Beginning in 2018, the BCRA would allow HSA contributions up to the maximum out-of-pocket limits allowed by law (at least $6,550 for self-only coverage and $13,100 for family coverage).
- Allow both spouses to make catch-up contributions to the same HSA: The BCRA would allow both spouses of a married couple to make catch-up contributions to one HSA, beginning in 2018, if both spouses are eligible for catch-up contributions and either has family coverage.
- Address expenses incurred prior to establishment of an HSA: Under the BCRA, starting in 2018, if an HSA is established within 60 days after an individual’s HDHP coverage begins, the HSA funds would be able to be used to pay for expenses incurred starting on the date the HDHP coverage began.
Relief from ACA Tax Changes
Like the AHCA, the BCRA would provide relief from many of the ACA’s tax provisions. The affected tax provisions include the following:
- Cadillac tax: The ACA imposes a 40 percent excise tax on high cost employer-sponsored health coverage, effective in 2020. Like the AHCA, the BCRA would delay the effective date of the Cadillac tax to 2026.
- Restrictions on using HSAs for over-the-counter (OTC) medications: The ACA prohibits taxpayers from using certain tax-advantaged HSAs to help pay for OTC medications. Like the AHCA, the BCRA would allow these accounts to be used for OTC purchases, beginning in 2017.
- Increased tax on withdrawals from HSAs: Distributions from an HSA (or Archer medical savings account) that are not used for qualified medical expenses are includible in income and are generally subject to an additional tax. The ACA increased the tax rate on these distributions to 20 percent. Like the AHCA, the BCRA would lower the rate to pre-ACA percentages, beginning with distributions in 2017.
- Health flexible spending account (FSA) limit: The ACA limits the amount an individual may contribute to a health FSA to $2,500 (as adjusted each year). Like the AHCA, the BCRA would repeal the limitation on health FSA contributions for taxable years beginning in 2018.
- Additional Medicare tax: The ACA increased the Medicare tax rate for high-income individuals, requiring an additional 0.9 percent of wages, compensation and self-employment income over certain thresholds to be withheld. Although the original version of the BCRA, like the AHCA, would have repealed this additional Medicare tax beginning in 2023, the amended BCRA removed this repeal.
- Deduction limitation for Medicare Part D subsidy: The ACA eliminated the ability for employers receiving the retiree drug subsidy to take a tax deduction on the value of this subsidy. Like the AHCA, the BCRA would repeal this ACA change and reinstate the business-expense deduction for retiree prescription drug costs without reduction by the amount of any federal subsidy, effective in 2017.
Beginning in 2018, both the AHCA and the BCRA would also repeal the medical devices excise tax, the health insurance providers fee and the fee on certain brand pharmaceutical manufacturers. The 10 percent sales tax on indoor tanning services would be repealed effective Oct. 1, 2017, to reflect the quarterly nature of this collected tax. Finally, the BCRA would also reduce the medical expense deduction income threshold to 7.5 percent, beginning in 2017.
Most of the differences between the AHCA and the BCRA relate to the Medicaid program. Like the AHCA, the BCRA would repeal the ACA’s Medicaid expansion, and make certain other changes aimed at modernizing and strengthening the Medicaid program. For example, the BCRA would provide enhanced federal payments to states that already expanded their Medicaid programs, and then transition Medicaid’s financing to a “per capita allotment” model starting in 2021, where per-enrollee limits would be imposed on federal payments to states. Unlike the AHCA, though, the BCRA would also guarantee coverage for children with medically complex disabilities and ease restrictions on coverage of treatment for mental diseases in psychiatric hospitals.
This ACA Compliance Bulletin is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.
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