A few changes have been made to the Affordable Care Act since it was passed. Most notably, Public Law 114-113, which was successfully passed in 2015, delayed the effective date of the 40 percent excise tax on high-cost health plans (also known as the “Cadillac tax”) from 2018 to 2020; suspended the health insurance provider fee for 2017; and suspended the medical device tax for 2016 and 2017.1 More changes to the law are on the horizon.
Sibson expects that the 115th Congress, which convenes in January 2017, will act quickly to repeal the parts of the Affordable Care Act that can be repealed without triggering a filibuster in the Senate. This will likely involve a process known as “budget reconciliation.” This is the process that Congress followed in late 2015 and early 2016 when it passed HR 3762, legislation to repeal the significant parts of the Affordable Care Act. That legislation was vetoed by President Obama on January 8, 2016, and the House failed to override the veto on February 2, 2016. Congress will likely pass much of this legislation again, and this time a bill will be signed, not vetoed.
This Update provides background on the budget process, including what can — and cannot — be achieved through it. The Update also briefly addresses the regulatory and enforcement process and what may occur using those administrative tools.
Budget reconciliation was created by Congress to allow expedited consideration of certain tax, spending and debt-limit legislation. Consequently, reconciliation bills are not subject to a filibuster in the Senate and can be passed with a simple majority, which is currently held by the Republican party. In addition, the scope of amendments is limited and reconciliation bills can only be debated for 20 hours in the Senate.
Under budget reconciliation, Congress could repeal the parts of the Affordable Care Act that have a budgetary impact. This includes taxes and expenditures, such as the 40 percent excise tax or the expenditure for insurance subsidies in the federal Marketplace and state Exchanges. Due to complicated rules governing budget reconciliation, some provisions (e.g., the employer mandate) might not be repealed outright, but the associated tax penalties could be changed to “zero,” thus eliminating the tax penalty for noncompliance. However, Congress could not repeal those Affordable Care Act sections that do not affect the budget, such as the mandate to cover dependent children to age 26 or a requirement to cover certain benefits. If separate efforts are made to repeal these types of provisions it is likely that Senate Democrats would oppose the effort and filibuster these attempts.
Based on the budget reconciliation bill that Congress passed in 2015/2016 that was vetoed by President Obama, this section notes which parts of the Affordable Care Act could be repealed in 2017 through a budget reconciliation bill.
The amount of the penalty for not having health coverage — the greater of $695 or a percentage of income (indexed) — could be reduced to zero.
Like the individual mandate, the amount of the employer penalty — the original $2,000 or $3,000 penalties under Internal Revenue Code (IRC) Section 4980H(a) and (b) — could be reduced to zero. However, it is unclear what would happen to the employer and plan reporting obligations under IRC Sections 6055 and 6056 (the 1094 and 1095 forms). Those sections likely could not be repealed, and some form of reporting may continue to be necessary in the type of replacement system that is implemented.
The State Health Insurance Exchanges/Federal Marketplace
The subsidies for individuals to purchase coverage in the Exchanges/Marketplace could be reduced to zero through budget reconciliation even though the Affordable Care Act provisions creating the Exchanges could not be repealed through that process. In addition, the penalties that apply to individuals who receive a subsidy in error could be increased. The cost-sharing assistance available to low-income individuals purchasing coverage could also be eliminated, because these subsidies also flow from the federal government to the insurers.
Collections and expenditures under the three risk-stabilization programs created by the Affordable Care Act (reinsurance, risk adjustment and risk corridors) could be reduced or eliminated through budget reconciliation. Transitional reinsurance expires in 2016, but the collection efforts in 2017 could be affected. Litigation concerning some of these programs initiated by some health insurers is ongoing.
The optional state Medicaid expansion (to individuals with incomes up to 138 percent of the federal poverty level) could also be repealed. Under the Affordable Care Act, the federal government pays for nearly the entire cost of the expansion.
Small Business Tax Credit
This tax credit, available to very small employers (those with fewer than 25 full-time equivalent employees) that purchase coverage in the Exchanges and whose employees earn wages below a certain amount ($50,000 a year per full-time equivalent (indexed annually), could be repealed through budget reconciliation.
The following tax provisions could be repealed:
Various Provisions Affecting Account-Based Plans
These provisions could be changed through budget reconciliation:
Non-Deductibility of Medicare Part D Retiree Drug Subsidy (RDS)
The Affordable Care Act eliminated the ability of plan sponsors to take a tax deduction for prescription drug expenses reimbursed by the RDS program. These expenses could become tax deductible again.
The Medicare Part D program itself is unlikely to be modified in budget reconciliation. Therefore, the RDS and Employer Group Waiver Programs (EGWPs), and funding for them, are unlikely to change in the immediate future.
Many provisions in the Affordable Care Act could not be repealed using the budget reconciliation process. These include provisions that directly affect group health plans,3 such as the following coverage or benefit mandates (not an exhaustive list):
Nondiscrimination requirements under Section 1557 of the Affordable Care Act also could not be repealed through budget reconciliation, but the final regulations released in May 2016 could be re-proposed. These rules prohibit covered entities (including plans that receive the Medicare Part D RDS program) from discriminating on the basis of race, color, national origin, sex, age or disability. The most controversial aspect of these rules is the interpretation that discrimination on the basis of sex encompasses discrimination on the basis of gender identity, thus effectively requiring covered entities to cover transgender health benefits. Other provisions in these regulations require protections for individuals with limited English proficiency. In addition, litigation is pending that could affect the definition of “sex discrimination” under the law.
Insurance-market reforms affecting insurers in the individual and small group markets could not be repealed through this process. These include the requirement to cover the full range of essential health benefits, requirements relating to medical loss ratios, and the rating rules that prohibit medical underwriting and limit age rating to a 3:1 ratio.
In addition to legislative change, the incoming administration also has both regulatory and enforcement tools available to it to attempt to change or undermine portions of the Affordable Care Act. While existing final regulations could generally be overturned only through formal rulemaking (after notice and comment), there is a great deal of sub-regulatory guidance on the ACA, such as answers to frequently asked questions (FAQs), that could be changed or removed without a formal process. The incoming Administration will also set its own enforcement priorities and could clearly signal a different set of priorities.
It seems certain that Congress will proceed with the budget reconciliation process when the new Congress convenes in January. It is even possible that Congress will put a reconciliation bill on the new president’s desk on, or soon after, January 20. Many decisions remain to be made by leaders in Congress, including what would be included in the bill, when the changes would take effect, and how soon Congress will turn to the “replace-Obamacare” portion of the Republicans’ legislative agenda.
While these efforts have profound implications for the country as a whole, especially for the people who benefit from the Medicaid expansion or the subsidies to purchase coverage on the Exchanges/Marketplace, sponsors of large group health plans are unlikely to see any immediate, significant changes. The effective repeal of the employer penalty would be the most significant change, especially if this is made retroactive.
On the “replace” side of the agenda, fundamental questions loom, including the stability of the individual insurance market and whether future proposals would cap the tax exclusion for employer-provided coverage. Clearly, all eyes will be on Congress when it convenes in January 2017.
Sibson will keep you informed about developments related to the Affordable Care Act. As always, plan sponsors should rely on attorneys for authoritative advice on laws and regulations.
To discuss how possible changes to the Affordable Care Act could affect your plan, please contact your Sibson consultant or the Sibson office nearest you.
1 For a summary of those changes, see Sibson Consulting’s December 22, 2015 Update, “2016 Appropriations Law Delays Three Affordable Care Act Taxes, Including the 40 Percent Excise Tax on High-Cost Health Plans.”
4 EHBs are defined in the Affordable Care Act to include 10 services: Ambulatory patient services, emergency services, hospitalization, pregnancy, maternity, and newborn care, mental health and substance use disorder services, prescription drugs, rehabilitative and habilitative services, laboratory services, preventive benefits, and pediatric services, including oral and vision care.
5 While this provision in its entirely could not be repealed through budget reconciliation, the incoming administration could re-design the SBC forms or provide greater flexibility in how they are completed.
6 While this provision in its entirely could not be repealed through budget reconciliation, many believe that the incoming administration might amend the list of required women’s preventive services to, for example, eliminate or modify the requirement to pay for all FDA-approved contraception methods. This list was created by the Health Resources & Services Administration, which is part of the Department of Health and Human Services. Additionally, the administration might seek to expand the group of plan sponsors who could decline to provide this coverage (or other coverage) for religious or moral reasons.
Update is Segal Consulting’s electronic newsletter summarizing compliance news. Update is for informational purposes only and should not be construed as legal advice. It is not intended to provide guidance on current laws or pending legislation. On all issues involving the interpretation or application of laws and regulations, trustees should rely on their fund counsel for legal advice.
Sibson Consulting is a member of The Segal Group.
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