Senate Health Care Bill Would End Employer Mandate Penalty, Keep Cadillac Tax
Annual employer reporting would remain but would be less burdensome
By Stephen Miller, CEBS
Jun 23, 2017 - SHRM
The health care bill released by the Senate this week closely hews to the
bill that was narrowly approved by the House, at least with regard to
employer-sponsored group health plans.
On June 22, the Senate made public the
Better Care Reconciliation Act (BCRA), its measure to repeal and replace key
sections of the Affordable Care Act (ACA). The House passed its version of a replacement bill, the American
Health Care Act (AHCA), on May 4. If the Senate approves its bill, which is not
expected to receive any Democratic support, the Senate and House versions would
need to be reconciled by a joint committee.
"The Senate proposal largely mirrors the House measure with some significant
differences," said Ben Conley, a partner with law firm Seyfarth Shaw in Chicago
and a faculty member of the nonprofit Health Care Reform Center and Policy
Center. For instance, both bills would:
- Eliminate employer mandate penalties and ease
employee tracking/reporting requirements. Under the ACA, employers
with 50 or more full-time employees or full-time equivalent employees are
required to provide ACA-compliant health insurance or pay a penalty. Both the
House and Senate bills would reduce the penalty to zero for failure to provide
minimum essential coverage. Without these penalties,
follow-up regulatory changes could reduce reporting and notification
requirements, benefit attorneys said.
- Eliminate individual mandate penalties.
Under current law, most individuals are required to purchase health
insurance or pay a penalty. The bill reduces the penalty to zero for failure
to maintain minimum essential coverage.
- Keep but delay the "Cadillac tax," and
eliminate other levies. The ACA imposed a 40-percent excise tax on the value of employer-sponsored
health plans exceeding $10,200 for individual coverage and $27,500 for family
coverage, indexed for inflation. Both the House and Senate bills would
delay the excise tax, now set to take effect in 2020,
until 2026 and end all other ACA taxes on employers.
- Raise health savings account (HSA)
contributions. The Senate bill, like its House counterpart, would
nearly double annual HSA contribution limits above the current limits (for 2017: $3,400 for self-only coverage and $6,750 for
family coverage), making the cap equal to the out-of-pocket maximums that
apply to high-deductible health plans (for 2018: $6,650 for self-only coverage and $13,300 for
family coverage).
- Repeal tax increases on HSAs. The ACA imposed a
20-percent tax on distributions that are not used for qualified medical
expenses. The House and Senate bills lower the tax rate to 10 percent and
allow individuals to use HSA funds for over-the-counter medical
items.
- Repeal the limit on contributions to health flexible spending
accounts (FSAs). The ACA limited the amount an employee may
contribute to a health FSA to $2,500 indexed for inflation, with the 2017 limit set at $2,600. This BCRA, like the AHCA, would
repeal these annual limits and allow FSAs to reimburse over-the-counter
medications.
Essential Health Benefits
Like the House bill, "The Senate bill allows states to repeal essential health benefits mandated by the ACA, including
things like maternal care and mental health care," said Shan Fowler, senior
director of product strategy at Benefitfocus, a Charleston, S.C.-based provider
of cloud-based benefits software. He noted that a poll released last fall by the
International Foundation of Employee Benefit Plans showed that nearly 3 in 4
employee-benefits professionals support essential health benefits, and more than
4 in 5 support mental health benefits in particular.
Differences from the House Bill
In the House version of the bill, health care subsidies were tied to age, so
the older a person is, the more assistance he or she would receive in paying for
health insurance. In the Senate version of the bill, subsidies would be tied to
income, as they are in the ACA.
While largely maintaining the ACA's premium subsidies structure, the Senate
bill would tighten the eligibility criteria starting in 2020. "Maintaining the
income-based subsidy structure may keep costs lower than under the House plan
but it limits subsidies to those making 350 percent of the federal poverty
level, as opposed to the ACA's 400 percent," Fowler said.
The Senate also backs away from the House bill's provision that would allow
states to opt out of requiring health plans to provide equal access to those
with pre-existing conditions.
Plan Parameters
Under the ACA, employers-sponsored health plans must meet the ACA's
parameters for minimum essential coverage, minimum value and affordability. Employees who are not offered a plan that
meets these criteria and who satisfy income-eligibility requirements are
eligible for subsidized coverage through the ACA's public
exchange/marketplace—and if their employer has 50 or more full-time or
equivalent employers, then the employer faces penalties under the ACA's shared-responsibility
provisions.
Under the BCRA, however, after 2019 tax credits would not be available
to individuals if they are offered minimum essential coverage, without
regard to any affordability or minimum value requirement, according to analysis by Lockton Benefit Group of Kansas City,
Mo.
ACA Reporting Requirements
The Senate bill "doesn't appear to differ from the House bill with respect to
annual ACA information-reporting by employers," Conley said. As with the House's
American Health Care Act, "even in the absence of an individual or employer
mandate, if there is a tax credit and that tax credit is conditioned, in part,
on whether your employer has offered you qualified health insurance coverage,
the IRS needs to know whether the employer offered you qualifying health
insurance coverage," he explained.
However, eliminating the individual and employer mandate penalties would
allow federal agencies to simplify employer reporting. For instance, "there
would be a reduced burden in that you no longer have to track full-time staff
for purposes of offering coverage to individuals working 30 or more hours a
week; that piece would drop off." He further noted, "there likely will be no
[Form 1095] Line 16 reporting for the employer mandate safe harbor, given that
the employer mandate penalty would be zeroed out."
After 2019, when the new provisions would take effect, "presumably, the IRS
could move to modify employers' reporting requirements, and they could even do
so before 2019," Conley said.
[SHRM members-only HR Q&A: How has the Affordable Care Act affected employers that use
part-time employees?]
Cadillac Tax Persists
The Senate bill "fully repeals every other tax imposed by the Affordable Care
Act, and the same must be done for the Cadillac tax to avoid harming the 1 out
of 2 Americans who receive health coverage through their employer," said a
statement by the Alliance to Fight the 40, which advocates repeal of the tax.
Boost for HSAs
"The language and updates to the Senate bill regarding health savings
accounts have carried over, unchanged, from the House bill," Fowler said. "It
would change the annual HSA contributions to line up with maximum out-of-pocket
amounts. This change is positive for the growing number of employees and
individuals with high-deductible health plans and HSAs," as it will help them
save more today to prepare to manage future health care expenses.
ACA Market Reforms Kept
"Popular ACA market reforms would remain in place," said Robert Projansky, a
partner with law firm Proskauer in New York City. "These include, among other
things, mandated dependent coverage to age 26, first-dollar coverage of
preventive care, prohibition on annual and lifetime dollar limits, and
prohibition on preexisting condition exclusions."
While both the House' and Senate bills repeal the ACA's individual mandate
penalties, "the AHCA included a premium surcharge to be applied on insurance
purchased on the individual market following a break in coverage of more than 63
days," Projansky noted. "This, at least, provided some financial incentive for
individuals to maintain insurance coverage. The BCRA does not provide any
financial incentive to maintain continuous insurance coverage."
Next Steps
The Senate bill will shortly be "scored" by the Congressional Budget Office
(CBO), which will estimate how many additional Americans would go without health
insurance under the plan and how passage would affect federal spending. After
the CBO score, the Senate will vote on the bill. If the bill passes, it would go
to joint committee where the House and Senate versions would be reconciled. That
final bill, depending on the scope of its changes, may again need to be
approved by the House and Senate.
"With 52 seats in the majority party, Senate leadership can only afford to
lose two Republicans, with Vice President Mike Pence breaking the tie," said
Chatrane Birbal, senior advisor for government relations at the Society for
Human Resource Management.
SHRM "has not yet taken a formal position on the Senate's proposal as we are
still reviewing the full legislative text,"
Birbal said. Similarly, SHRM did not formally take a position on
the House-passed bill, "as we remain concerned about its potential implications
on employer-sponsored coverage, and the health care coverage these plans provide
to over 177 million Americans. SHRM does support the reduction of the
employer mandate penalty and looks forward to working with Congress to
repeal the mandated employer coverage and reporting requirements, which are an
administrative and financial burden to employers."
She added, "SHRM applauds the inclusion of a six-year delay of the ACA excise
tax on health care plans but will continue to advocate to fully repeal the tax.
Furthermore, SHRM fully supports the repeal of the restrictions on the use and
limitations on contributions to health savings accounts and flexible spending
accounts."