This is the fifth in a series of Baker Tilly articles exploring the impact of ongoing U.S. healthcare reform.
On June 22, Senate Republicans released their draft version of healthcare reform, the Better Care Reconciliation Act of 2017 (BCRA). Crafted by Senate leadership, it is unclear whether there will be enough votes to pass the legislation. With possibly nine Republican senators and all 48 Democratic senators projected to vote no on the current draft, Senate Majority Leader Mitch McConnell delayed this week’s expected vote until after the July 4 recess. In order to use the reconciliation method process (meaning the bill can pass using a simple majority), leadership needs at least 50 senators willing to vote for the bill.
In this article, we focus on how the draft BCRA differs from the American Health Care Act (AHCA), as passed by the House, and the current law, the Affordable Care Act (ACA).
Key components of the BCRA
- Repeals most ACA taxes
- Repeals individual and employer mandates
- Expands health savings accounts (HSAs)
- Retains pre-existing conditions coverage requirements
- Provides targeted tax credits to defray costs of insurance
- Allows insurance cooperatives to purchase coverage across state lines
Comparing the ACA, AHCA and BCRA
|Components||Affordable Care Act (current law)||American Health Care Act (House)||Better Care Reconciliation Act (Senate)|
|Employer mandates||Requires large employers to offer essential minimum coverage to employees||Repeals||Repeals (effective for years beginning in 2016)|
|Individual mandate||Requires individuals to carry health insurance or pay a penalty||Repeals||Repeals (effective for years beginning in 2016)|
|Net investment income tax||3.8% tax imposed on net investment income for taxpayers with adjusted gross income over certain thresholds||Repeals||Repeals retroactively to Jan. 1, 2017|
|Additional Medicare tax||0.9% tax imposed on wages for taxpayers with adjusted gross income over certain thresholds||Retains for six years||Repealed for years beginning in 2023|
|Essential benefits||Requires policies to provide 10 defined essential benefits, including emergency services, hospitalization, preventive services, prescription drugs and lab services||Allows states to opt out of including all or some of these benefits||Retains coverage requirements for individuals with pre-existing conditions|
|Pre-existing coverage||Prohibits denial of coverage due to pre-existing conditions||Allows states to opt out of coverage requirement; insurers can impose a 30% surcharge if individual has break in coverage||Retains coverage requirements; added a six-month waiting period for people who let their insurance coverage lapse for over 63 days and want to get insured again|
|Health savings accounts||2017 contributions limited to $3,400 (single); $6,750 (family)||Almost doubles contribution limits retroactive to 2017||Almost doubles contribution limits as of 2018|
|Itemized deduction for medical expenses||Deduction limited to amount in excess of 10% of adjusted gross income||Deduction limited to 5.8% of adjusted gross income||Deduction limited to 7.5% of adjusted gross income|
|Premium tax credits||Advanceable and refundable; eligibility determined based on income level (400% of federal poverty level)||Significantly modifies credit structure; uses age-weighted system instead of income||Advanceable and refundable; eligibility determined based on age, income (350% of federal poverty level) and geography|
|Cadillac tax||40% excise tax on certain types of healthcare plans offered by employers; effective date delayed until 2020||Extends relief until 2026||Extends relief until 2026|
|Child coverage||Allows parents to retain child coverage up to age 26||Retains||Retains|
The Congressional Budget Office (CBO) projects the June 22 draft BCRA to reduce the federal deficit by $321 billion over 10 years, $202 billion more than the House bill. The CBO also estimates approximately 22 million people would become uninsured over the next 10 years under the current draft, including 15 million more next year alone.
As seen in the chart, the BCRA draft is similar in many ways to the AHCA. If the Senate approves the BCRA, the House can either vote on choosing to pass the BCRA in its current form as passed by the Senate, where it would go immediately to the president, or request a conference committee with the Senate where members of both congressional houses would negotiate any differences. Once a revised bill is available, both houses will vote again for final passage before going to the president’s desk. Since no Democratic support is expected in either chamber, it will likely be a difficult negotiation process between Republican moderates and conservatives in order to obtain the votes needed for passage.
The BCRA does not address current reporting requirements under the ACA. Presumably, without a mandate to carry or offer health insurance, disclosure would no longer be necessary. Therefore, the need for the Form 1094 and 1095 series would likely be moot.
What this means to you
With more insurers expected to withdraw from the federal health insurance marketplaces, pressure continues to build on Congress to address the rising costs of premiums and deductibles. However, it is unclear whether either the BCRA or AHCA will do anything to alleviate this problem. With the repeal of the individual mandate, presumably fewer people will buy insurance, resulting in rising premiums as people with medical needs are the most likely purchasers. On the other hand, allowing states to waive certain coverage requirements is thought to potentially reduce costs.
Both versions include repeal of the 3.8 percent net investment income tax in 2017. This would mean a retroactive tax cut to the first of the year if enacted. The revenue from this tax could play an important role in funding any negotiated changes. Plus, if tax reform moves forward, this tax could become a bargaining tool.
If your business is eligible for the small employer health insurance credit and your plan includes coverage for abortion (with very limited exceptions), the plan will no longer be eligible for the credit beginning in 2018.
A highly debated aspect of both the BCRA and AHCA is the reduction in Medicaid subsidies to the states. States, which now pay about a third of the cost of the program, have had some flexibility to propose different ways of covering the poor, and the federal government has approved a variety of such experiments. But the way most states have been found to restrain Medicaid costs is to pay doctors and hospitals less than all other insurers pay. It is not known if the promised increased flexibility under these proposals will change states’ approach. Paying doctors and hospitals below the prevailing rates means hospitals charge other insurers and patients higher rates to make up the difference, while the number of doctors who are willing to take Medicaid patients has declined over the years. If Medicaid subsidies are reduced, states basically face three choices: 1) raise taxes to make up the difference, 2) further cut reimbursement to doctors and hospitals and drug companies, resulting in even more cost shifting, or 3) reduce the number of people from Medicaid coverage or range of services covered. Each choice could result in additional cost shifting.
The White House and Republican senators are attempting to settle differences in order to pass the BCRA. If the Senate can cobble together 50 votes after the July 4 recess, we expect any subsequent negotiations between the House and Senate to be played out over the remainder of the summer and into early fall. This will leave cost estimates as well as determining how to revise policies difficult for the insurance industry as they design plans that will take effect in 2018. The insurance industry previously indicated it will need significant lead time to write policies and make cost estimates. As previously noted in our alerts, all of this makes for a complex forecast of the cost of employer-sponsored plans 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.
If the House and Senate cannot agree on a path forward, we believe healthcare reform will be scrapped in the short term so senators can focus on tax reform after the August recess.
Baker Tilly specialists will continue to keep you informed on significant healthcare reform proposals and enacted legislation. For more information, see our healthcare reform resource center.
For more information on this topic, or to learn how Baker Tilly tax specialists can help, contact our team.
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