SPECIAL ALERT: Possible Changes to ACA
Dear BMSS Clients and Friends,
Prior to its July 4th holiday, the Senate released its amended version of the House’s American Health Care Act (H.R. 1638). The American Health Care Act (AHCA) was approved by the House on May 4 by a vote of 217 to 213. The Senate renamed the controversial bill the Better Care Reconciliation Act of 2017 (BCRA). Like the House’s version, the Senate bill would eliminate most of the Affordable Care Act’s (ACA) taxes, including the penalties connected with the individual and employer mandates. As well publicized, the Senate bill received significant negative reaction, even among some Republican senators. The Senate leadership delayed plans to vote on the bill until after the July 4th recess. At press time, a vote has not occurred and the situation is still very fluid.
The bills by the House and the Senate still face significant challenges to reconciliation and ultimate passage. Nevertheless, we provide below a very brief overview of the proposed changes. Please stay tuned as more information regarding the bill develops and as the Senate releases more information.
Premium Tax Credit
The Senate Bill would not completely eliminate the Premium Tax Credit. Instead, it would make changes to how the PTC is administered. Instead of the ACA’s silver plan, which has an actuarial value of 70%, the new “bronze” plan would have an actuarial value of 58%. In addition, people with incomes between 350-400% of the federal poverty line, would not be eligible for the tax credit.
45RSmall Employer Credit
Under both the House and Senate bills, the 45R Small Employer Credit would expire for tax years after 2019.
Elimination of ACA Taxes
Individual and Employer Mandate Penalties
The mandates would be repealed under both the House and Senate bills. Instead, there would be penalties if a healthy person allows their coverage to lapse for more than two month (House version) or the individual would have to wait six months before being eligible to obtain new coverage (Senate version). Also, the ratio between what an insurance company can charge an older individual versus a younger individual would increase from 3-to-1 to 5-to-1.
|Individuals||Mandate: Taxpayers must either maintain coverage or pay a penalty unless exempt||Incentive: 30 percent premium penalty for individuals who lack continuous coverage for more than 2 months||Incentive: 6-month waiting period for individuals who lack continuous coverage for more than two months|
|Employers||Mandate: Large employers must either provide affordable, minimum value coverage or pay a penalty||No mandate or incentive||No mandate or incentive|
Net Investment Income Tax and Additional Medicare Tax
Under both the House and Senate bills, the NII tax would be repealed effective for tax years after December 31, 2016. The AMT tax would be repealed for tax years after December 31, 2022.
Health Flexible Spending Arrangements
The limits set by the ACA would no longer be applicable. The limitation would be repealed for tax years after December 31, 2017.
Normally, expenses incurred for a medicine or drug are reimbursable only if the medicine or drug is a prescription drug or insulin. Both the House and Senate bills would eliminate this rule effective after December 31, 2016.
Other Medical Care Tax Changes
Medical Expense Deduction
Currently, the threshold to claim an itemized deduction for nonreimbursed medical expense is 10% of adjusted gross income. The proposed Senate bill would lower this to the previous 7.5% and the House bill could possibly lower it to 5.8%.
Health Savings Accounts
The House bill would increase the annual limit for contributions to an HSA to equal the sum of the maximum annual deductible and out-of-pocket expenses permitted under a high-deductible plan. Also, both spouses would be eligible to make a catch-up contribution to a single HSA.
|Tax on Health Savings Accounts||20% tax on distributions from HSAs or Archer MSAs that are not used for qualified medical expenses||10% tax on distributions from HSAs (15% tax on Archer MSAs) that are not used for qualified medical expenses|
|Maximum Contribution Limit to HSAs||$3,450 for self-only coverage, $6,900 for family coverage in 2018||$6,650 for self-only coverage, $13,300 for family coverage in 2018|
|HSA Catch-Up Contributions||Each spouse may make catch-up contributions to his or her own HSA account||Both spouses may make contributions to one HSA|
|Medical Expenses Incurred Before HSA was Established||HSA is treated as established on the day it is actually established||If an HSA is established during the 60 day period beginning on the date that an individual’s coverage under a HDHP begins, then HSA treated as having been established on date coverage begins under the HDHP|
We will continue to monitor the Senate bill as it goes through the voting process and keep you updated as new information is available.
Barfield, Murphy, Shank, & Smith, LLC