This is the third in a series of Baker Tilly articles exploring the impact on ongoing U.S. healthcare reform.
On March 6, the Republican leadership in the U.S. House of Representatives released the American Health Care Act (AHCA) — proposed legislation to repeal and replace the Affordable Care Act (ACA). Drafts from both the House Ways and Means and the Energy and Commerce Committees include provisions modifying the existing ACA.
While eliminating the individual and employer mandates and most of ACA-related taxes, the AHCA retains the provision which allows:
The following chart compares some of the AHCA provisions with current law.
Affordable Care Act
(current law)
American Health Care Act
(proposed legislation)
Individual mandate
Individuals required to purchase insurance or pay a penalty
Penalty reduced to zero for months beginning after 12/31/15
Employer mandate
Applicable large employers required to provide certain level of insurance to certain percentage of employees
Penalty reduced to zero for months beginning after 12/31/15
Additional Medicare tax
0.9% surtax imposed on wages or self-employed income in excess of certain thresholds
Repeals beginning in 2018
Net investment income tax
Imposes a 3.8% surtax on net investment income of taxpayers with income in excess of certain thresholds.
Repeals beginning in 2018
Medical device tax
Imposes a 2.3% excise tax on sales of certain medical devices
Repeals beginning after 12/31/17
Health savings accounts (HSAs)
Basic contribution limit begins at $3,400 (self-only) or $6,750 (family). Disallows over-the-counter medications from HSA distributions. 20% tax rate on distributions not used for qualifying medical expenses
Basic contribution limit begins at $6,550 (self-only) or $13,100 (family) beginning in 2018. Includes over-the-counter medications in allowable distributions from HSAs. Also reduces the tax rate on non-qualified distributions. Spouses eligible for catch-up contributions to a single HSA beginning in 2018.
Flexible savings account
Employers or individuals limited to $2,500 annual contribution; indexed for cost-of-living adjustment
Repeals limitation on contributions
Premium tax credits
Households receive premium tax credits, based on income, to purchase qualified health coverage Repayment of excess premium credits to federal government limited based on income
Refundable tax credit for health insurance
Not applicable under ACA
Cadillac tax
40% excise tax imposed on high-cost employer-provided health coverage effective in 2020
Effective date of 40% excise tax on high-cost employer-provided health insurance delayed until 2025
Medical expense deduction
Medical expense deduction threshold is 10% of AGI
Medical expense deduction threshold drops to 7.5% of AGI
Offer of coverage reporting
Forms 1094/1095 reporting required of insurance providers, including exchanges and employers
Enacts, over time, simplified W-2 reporting by employers. Does not appear to offer immediate relief to reporting procedures
For further information regarding this legislation, please see the House Ways and Means Committee section-by-section analysis of the bill.
By repealing the mandates for individuals to purchase, and employers to provide health insurance, the AHCA removes the requirement for citizens to have insurance. However, the AHCA does impose a 30 percent premium surcharge on individuals who purchase a policy only when necessary. Eliminating the various ACA taxes and fees, such as the net investment income tax, creates a funding issue for the new proposed refundable tax credits.
The estimated price tag of repealing ACA-related taxes as prescribed by the AHCA as currently drafted will be approximately $593.7 billion over the next decade, according to the Joint Committee on Taxation. However, this does not include the revenue loss scores which have not yet been released by the Congressional Budget Office. The unscored items include funds tied to repealing the individual and employer mandates to buy health coverage. In summary, the actual cost of the new AHCA provisions has also not yet been determined. Consequently, there is already bipartisan concern over these draft bills. While the House leadership has indicated quick passage, it is unclear whether there will be enough votes to move this legislation forward in Congress.
The AHCA already has four GOP senators speaking out in opposition. The Act is also unlikely to garner any Democratic support in its current form making it difficult to pass the Senate via the reconciliation process (meaning a simple majority vote). While this may be the starting point for discussions, we don’t expect this to be enacted without meaningful changes.
Baker Tilly tax specialists will continue to keep you informed on significant healthcare reform proposals and enacted legislation.
For more information on this topic, or to learn how Baker Tilly tax specialists can help, contact our team.