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Five Items Employers Should Know About the Repeal and Replace of Health-Related Tax Policy Bill

March 8, 2017

On Monday March 6, 2017 the Republicans released a bill that would repeal and replace certain provisions of the Affordable Care Act (ACA). The bill has faced harsh criticism from both Democrats and certain Republicans and as currently constructed is unlikely to pass. Nonetheless, it is the first step in the process of repealing or amending the ACA which still appears inevitable under the country’s current leadership. This article provides a brief summary of five items employers should be aware of in the bill.

The Bill Repeals the Employer Mandate as of December 31, 2015

Technically, section 4980H(a) and section 4980H(b) of the Internal Revenue Code will remain the same except for the penalty amounts which will be changed from $2,000 for the section 4980H(a) penalty to $0 and from $3,000 for the section 4980H(b) penalty to $0. Therefore, the employer mandate would lose all of its bite if implemented as the bill is currently structured. The bill retroactively repeals the employer mandate for all years beginning after December 31, 2015. It is interesting that Republicans are retroactively repealing the employer mandate as the CBO projected it would bring in more than $30 billion in 2016.

The Bill Repeals the Individual Mandate as of December 31, 2015

Similar to the employer mandate, the bill repeals the individual mandate retroactively for all tax years beginning after December 31, 2015. While this does not directly impact employers, some employers offered minimum essential coverage at little or no cost to assist their employees in avoiding the individual mandate penalty. Offering insurance for this reason would no longer be necessary and it could put certain employees at risk of becoming ineligible for the new tax credits.

A Change to the Way Eligibility is Determined for Tax Credits

In 2020 the premium tax credits as we have known them under the ACA would cease to exist. However, beginning in 2020 eligible individuals will be able to utilize a refundable tax credit. The tax credit is based on an individual’s age and income. First, an eligible individual is assigned a refundable tax credit based on his/her age. For an individual under age 30, the tax credit is $2,000 and this amount increases to $4,000 for an individual who is age 60 and older. Between these ages the tax credit has a linear increase of $500 for each consecutive 10 year age increment.

The tax credit is phased out by $100 for every $1,000 in income higher than $75,000 for an individual and $150,000 for joint filers. Therefore, the $2,000 tax credit would be completely phased out for any individual who is less than 30 years old and has an income level of $94,000 ($168,000 for joint filers) or more. However, the $4,000 tax credit would be completely phased out for any individual who is 60 or older and has an income level of $113,000 ($188,000 for joint filers) or more.

Detailed Reporting Will Still Be Required by Employers

One common theme that can be seen throughout the bill is Republican frustration with the ACA’s inability to accurately determine if an individual is eligible for premium tax credits. As discussed under the previous heading, the bill retains some form of the government subsidizing certain individual’s health insurance. And, similar to the ACA, an employer’s offer of coverage could prevent an employee and certain dependents from receiving a tax credit. To achieve the Republican goal of accurately determining who is eligible for the tax credits, a robust employer reporting system will be required.

While the current reporting system is not repealed by the bill, it does include a new reporting section with many of the same requirements. The reason the previous reporting requirement was not repealed is reconciliation rules that Republicans are being forced to use to avoid a Democratic filibuster. Republicans believe creating a new, redundant reporting requirement will make the previous reporting requirements unnecessary which will allow the Secretary of the Treasury to cease enforcing the prior reporting requirements. To be clear, reporting in 2016 and beyond is still required even if the bill becomes a law.

Employers Will Need to Reassess Whether it Makes Sense to Offer Certain Employees Coverage

With no employer mandate and no individual mandate employers will have to reassess whether it makes sense to offer its employees or a certain segment of its employees health coverage. As was the case with the ACA, an offer of coverage if certain conditions are satisfied could prevent an employee from being eligible to receive a tax credit under the bill. It is possible, although not entirely clear at this time, that an employer could have the government subsidize a portion of its workforce’s health coverage. If an employer elects to only offer a certain segment of its population health insurance, it must be sure it is compliant with the nondiscrimination rules. These factors along with the talent and retention scope of the analysis will need to be rethought should the bill become a law.

As the Republican leadership has stated, the proposed bill is a starting point for the changes that are inevitably coming to the ACA. Employers should pay attention to this process as any changes to the ACA will impact the healthcare decisions it makes in the future. We will continue to monitor the situation and update employers on the progress of this bill and any others associated with the ACA.

About the author – Ryan Moulder serves as General Counsel at Accord Systems, LLC and is a Partner at Health Care Attorney's P.C. Ryan received his LL.M. from Georgetown University Law Center and his J.D. from Saint Louis University School of Law. He has distinguished himself as a leader in the Affordable Care Act arena and has written and spoken on a variety of ACA topics as it relates to compliance for companies.

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