Repealing and replacing the ACA: A first look at what it might mean for employers

Repealing and replacing the ACA: A first look at what it might mean for employers
Posted by Robert B. Davis and Rick Wald on February 24, 2017.

The Trump Administration and Republican congressional leaders are moving forward with plans to “repeal and replace” the Affordable Care Act (ACA). Like other stakeholders, employers are beginning to think about what a post-ACA world might mean for them and their employees.

According to a summary1 of the plan being developed by House Republican leaders, a “repeal and replace” bill will be introduced in the near future. The ACA repeal bill Congress passed—and President Obama vetoed—last year may serve as a model for this year’s bill, albeit with some modifications. That bill (H.R. 3762) would have made the following changes to key employer provisions:

  • Employer Shared Responsibility: The Employer Shared Responsibility penalties (i.e., $2,000 times the total number of full-time employees, or $3,000 for full-time employees opting out of coverage and instead enrolling in an Exchange plan and qualifying for a premium tax credit) would have been reduced to $0 for months beginning after December 31, 2014.
  • High-Cost Excise Tax: The 40 percent “Cadillac Tax” would have been repealed for taxable years beginning after December 31, 2017.
  • OTC Drugs and Health FSAs/HRAs: The ban on using health FSA and HRA funds to reimburse over-the-counter drugs purchased without a prescription would have been repealed effective for taxable years beginning after December 31, 2015.
  • Cap on Health FSA Salary Reduction Contributions: The $2,500 annual limit (inflation-adjusted) on salary reduction contributions to health FSAs would have been repealed for taxable years beginning after December 31, 2015.
  • Deductions for Expenses Allocable to Medicare Part D Subsidy: The deduction for retiree prescription drug expenses allocable to the Medicare Part D subsidy would have been restored for taxable years beginning after December 31, 2015.
  • Additional Medicare Tax on Highly Compensated Workers: The additional 0.9 percent Medicare tax on wages in excess of $200,000 ($250,000 in the case of a joint return) would have been repealed for taxable years beginning after December 31, 2015.

Note that the reconciliation bill would not have removed the Employer Shared Responsibility rules from the books. Instead, it simply would have reduced the penalties to zero. The reason for this is that budget reconciliation bills—the legislative vehicle Congress used last year and is planning to use again this time—may only include provisions with a budgetary impact.

How might this year’s bill be different?
The House Republican summary states this year’s repeal bill will include some “replacement” provisions as well. Details are limited, but some of the provisions of interest to employers might include more flexible rules for health savings accounts (HSAs) and replacing the ACA’s premium tax credits with a universal health care tax credit.

The latter is likely of interest to employers in part because the summary states it would not be available to individuals who are eligible for employer-sponsored coverage. This suggests that there still may continue to be some employer information reporting requirements relating to health benefits, although presumably not as comprehensive and complex as what is required now.

The summary doesn’t specifically address the high-cost excise tax, which, as noted, last year’s bill would have repealed. Given the broad bipartisan opposition to this tax,2 it may be repealed either in this bill or a future tax bill. If this proves to be the case, a key question would be whether it would be replaced—and how. Again, the summary is silent. One possibility is that it could be replaced with a cap on the gross income exclusion for employer-provided health benefits.

The summary also indicates that the effective dates for repealing key ACA provisions will be delayed. Last year’s reconciliation bill generally would have been effective immediately. In fact, the Employer Shared Responsibility penalties would have been reduced to zero retroactively to 2015—the first year IRS began enforcing those rules. That and other effective dates may be adjusted in order to give time to develop and fully implement the complete replacement package.

Will there be other changes affecting employers?
The House Republican strategy indicates the “repeal and replace” bill is only one part of the puzzle. Pursuant to the executive order President Trump signed on his first day in office, the Departments of Health and Human Services, Labor, and Treasury are working on ways they can reduce some of the regulatory burdens associated with ACA.3 Congress is also looking to pass other “replacement provisions” pursuant to “regular order”—that is, without using the budget reconciliation process.

Again, details about what might be included in these other bills are not yet available. However, the summary indicates Congress is considering proposals that will increase “flexibility for employers to offer affordable, quality health care options to their employees.”


Robert B. Davis is a managing director in Deloitte Consulting LLP specializing in employer-sponsored retirement and health and welfare benefit plans. In addition to advising clients on a range of compliance-related issues, he leads the Washington Rewards Policy Center of Excellence.
Rick Wald is a managing director in Deloitte Consulting LLP and the national practice leader for Deloitte Consulting’s Employer Health Reform Strategy practice and the Employer Health Care Consulting practice.

1 On February 16, 2017, House Republican leaders released a 19-page document titled “Obamacare Repeal and Replace: Policy Brief and Resources,” to the House Republican Caucus. The document is available at: https://www.nytimes.com/interactive/2017/02/16/us/politics/document-The-New-Obamacare-Replacement-Template.html?_r=0. Information also is available on the House Ways and Means Committee’s website, at https://waysandmeans.house.gov/taking-action-now-repeal-replace-obamacare/.

2 A standalone bill to repeal this tax (H.R. 173, the “Middle Class Health Benefits Tax Relief Act of 2017) was introduced by Rep. Mike Kelly (R-PA) and Rep. Joe Courtney (D-CT) on January 3, 2017. As of February 21, 2017 the bill has 60 Democratic and 22 Republican co-sponsors.

3 In direct response to the executive order, the Centers for Medicare and Medicaid Services (CMS) has already issued proposed regulations to address issues relating to the ACA’s health insurance exchanges (82 FR 10980, February 17, 2017), and the IRS has announced it will continue its policy of not automatically rejecting Forms 1040 that do not include the required information about health insurance coverage on Line 61. See https://www.irs.gov/affordable-care-act/individuals-and-families/individual-shared-responsibility-provision.

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