2017 midyear tax update | Status of the Affordable Care Act: repeal and replace

In May, the House passed the American Health Care Act (AHCA) intended to repeal and replace the Affordable Care Act (ACA). Key components of the AHCA include:

  • Eliminating the individual and employer mandates
  • Eliminating most of the ACA’s related taxes. However, while the 3.8 percent Medicare tax on net investment income is repealed, the 0.9 percent Medicare surtax on earned income (wages and self-employment income) is retained for six years. Keeping the 0.9 percent tax, which applies to individuals with earned income over $200,000, was one of several last-minute concessions offered by House leadership back in March. It is unknown if this tax will be further addressed as part of any tax reform package.
  • Allowing states to opt out of requiring insurance companies to cover pre-existing conditions
  • Decreasing the adjusted gross income threshold for medical expense deductions to 5.8 percent from 10 percent. With potential tax reform on the horizon, this deduction may be significantly modified or disappear altogether.
  • Modifying the refundable tax credits made available to assist with insurance purchases. It increases the credits available for those over 50 years of age and provides additional authority to the Senate to increase the age brackets and related credit amounts in the new age-weighted credit system.
  • Extending relief from the “Cadillac” tax to 2026 from 2025

Recently released scoring from the Congressional Budget Office estimates the bill as presently written would reduce federal deficits by $119 billion between 2017 and 2026 and result in 23 million more uninsured as compared to current law.

The AHCA is now with the Senate, where from all indications, it will either be substantially modified or discarded altogether and replaced with the Senate’s own bill. The Senate indicated it expects to have extensive meetings to fully consider various provisions, including coverage for pre-existing conditions, before a bill is advanced to the floor. As with tax reform, we believe the Senate will analyze healthcare reform over weeks and months, not days. This will render cost estimates and policy revisions difficult for the insurance industry to incorporate into plans that will take effect in 2018. The insurance industry stated earlier it will need significant lead time to write new policies and make cost estimates. As noted in our previous alerts, all of this makes the cost of employer-sponsored plans difficult to forecast into next year and beyond. Therefore, we recommend you maintain regular contact with your insurance agent/broker to monitor how legislative proposals will affect your ability to renew your current coverage and on what terms.

Similar to the tax reform resource center we developed a healthcare reform resource center, offering access to all of our alerts regarding the status of healthcare reform.

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For more information on this topic, or to learn how Baker Tilly tax specialists can help, contact our team.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely.  The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.