The Latest on Health Care & Tax Reform

Written By: Michael Dollar

Date: January 20, 2017

According to an article by Benefits Partners, with the convening of the 115th United States Congress and President-Elect Donald Trump’s inauguration on January 20, changes to health reform are imminent. The Republicans have already taken steps to begin the process to repeal the Affordable Care Act (ACA). Meanwhile, the president-elect expressed his desire for a vote in Congress to include repeal and replacement of the ACA simultaneously, which presents a challenge for the Republicans because, to date, they haven’t reached a consensus on the replacement plan’s details. Below is a summary of the repeal process and what we may expect to see in the coming weeks and months. Future articles will address the various replacement proposals.


What Will Be Repealed?

Reconciliation may be used to repeal and replace some parts of the ACA, but may not be used to fully repeal the law due to the Senate’s Byrd Rule named after its principal sponsor, Senator Robert C. Byrd. The Byrd Rule strikes “extraneous” material and amendments from the reconciliation process, which are described as provisions unrelated to achieving the goals of the reconciliation directives — namely non-budgetary items.

Most believe the omnibus bill will be aligned with the repeal bill passed through the budget reconciliation process in 2015 (Restoring Americans’ Healthcare Freedom Reconciliation Act), which President Obama vetoed. That bill would have repealed key aspects of the ACA, including the tax credits and subsidies for purchase of insurance through the exchanges, Medicaid expansion, the ACA taxes (e.g., medical device tax, the “Cadillac” tax and the health insurance tax), the reinsurance fee and the penalties under the individual and employer mandates. It technically retained the individual mandate provision, though the penalties for noncompliance were eliminated (some argue that the mandate itself is exempt from the Byrd Rule because of the Supreme Court’s ruling that characterized the mandate as a “tax”). It should be noted that separate bipartisan legislation has already been introduced to eliminate the Cadillac Tax (Middle Class Health Benefits Tax Repeal Act of 2017).

Other provisions that would have been repealed through the 2015 bill include the Medicare surtax on high earners, the 3.8 percent tax on certain net investment income, the cap on health care flexible spending account (FSA) contributions (the ACA capped it at $2,500 per year), the prohibition on using FSA or health savings accounts (HSAs) funds for over-the-counter medicines and the tax penalty for non-qualified purchases from FSAs was reduced from 20 percent to 10 percent, among other things.

What Won’t Be Repealed?

However, Republicans’ ability to repeal other provisions is hampered by the Byrd Rule. This means that several insurance mandates under the ACA will remain, including:

  • The essential benefits package requirements (prohibition on annual and lifetime limits)
  • The requirement to offer coverage to dependents up to age 26
  • The prohibition on pre-existing condition exclusions
  • The enhanced claims procedures and external review
  • Other changes that don’t have a direct budgetary effect

Though the employer reporting provisions (under Section 6055 and 6056) don’t fit within the reconciliation scheme, the elimination of the individual and employer mandate penalties would obviate the need for these reports, as they were created solely for enforcement of the mandates.

Republicans have expressed their intention to delay the effective date of repeal for certain ACA provisions to give them time to implement a replacement and to ensure market stability. Now referred to as “repeal and delay,” the suggested transition period is two years. This timeframe, however, is now in question with the president-elect’s stated desire for a replacement plan to be offered simultaneously..

To that end, watch for the reconciliation legislation to include provisions with costs (e.g., tax credits for health insurance or other tax and spending policies) as replacement measures. These types of provisions are permitted under the reconciliation process if the net effect of the bill complies with the reconciliation instructions. However, other changes, such as those related to insurance mandates that are likely to be instrumental to any replacement legislation, will need bipartisan support for a waiver to the Byrd rule during the reconciliation process or through general legislative means.

What Does This Mean for Employers?

Employers may soon find relief through the repeal of the employer mandate and corresponding change to reporting requirements, though the effective date may be delayed. Because of this delay, employers should continue to meet their compliance obligations until an actual change in the law becomes effective.


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