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Long-Awaited GOP Healthcare Legislation Revealed

by
Lee Reams, BSME, EA
on
3/8/2017
Long-Awaited GOP Healthcare Legislation Revealed

The GOP has released its long-awaited proposed plan for repealing and replacing the Affordable Care Act. The draft legislation outlines a continuation of the existing premium tax credit through the end of 2019, with plans to replace it in 2020 with a tax credit for those whose employers do not provide insurance and those who are not eligible for government insurance. All of the insurance mandates and penalties imposed by the Affordable Care Act would be repealed effective end of 2015. This initial release is preliminary, and is expected to undergo a number of changes before Congress holds a vote on it. The specifics of the current plan are detailed below:

The Individual Mandate Would Be Repealed

Under the current health plan law, there is a requirement that individuals enroll in a health insurance plan that complies with the rules of the Affordable Care Act. Failure to do so results in a penalty referred to as a shared responsibility payment. The maximum penalty owed by a family for 2016 was $2,085, and for an individual was $695. The proposed plan would eliminate the mandate retroactively, as of the end of 2015.

The Employer Mandate Would Be Repealed

Under the current health plan law, there is a requirement that employers who have 50 or more equivalent full-time employees provide full-time employees with affordable health insurance. Failure to do so results in significant per employee penalties, with some as high as thousands of dollars per worker. Additionally, employers were required to submit complex and cumbersome documentation. The proposed plan would eliminate the employer mandate and penalties retroactively, as of the end of 2015.

Premium Tax Credit Would Be Recaptured and Repealed

Under the current health plan law, lower-income individuals receive a health insurance subsidy known as the premium tax credit, or PTC. The PTC is calculated based upon each individual family’s annual household income, and an estimate of what that subsidy, called the advanced premium tax credit, or APTC is calculated at the beginning of each year and used to reduce the insurance premiums throughout the year. After the end of the year, the APTC is reconciled with the PTC based on actual household income. If the APTC is higher than the PTC the difference is paid back to the government via the individual’s tax return. Likewise, if the individual had received too small an APTC, they would receive the difference in the form of a refund. A limit based on household income is placed on how much lower-income taxpayers would have to repay in order to minimize hardships. Under the proposed plan the premium tax credit will stop being offered after 2019, and during tax years 2018 and 2019 the limit on the amount to be repaid would be revoked and the entire difference would be due.

Catastrophic Insurance

Under the current health plan, taxpayers who receive the premium tax credit cannot use it to buy insurance plans designated as being for catastrophic coverage. Under the proposed plan the premium tax credits could be used to purchase these types of plans, as well as other plans that are not currently offered.

Refundable Tax Credit for Health Insurance

Under the proposed GOP plan, rather than offering the insurance subsidies that are currently offered through the Affordable Care Act, starting in the year 2020 the government would begin offering a refundable tax credit specifically designated for the purchase of unsubsidized COBRA coverage and health care insurance that is approved by the taxpayer’s state. These tax credits would be available to those who are not offered health insurance by their employer and to those who are not covered by government health insurance programs.

The amount of the refundable tax credit varies. For those under age 30 it would start at $2,000, while those over the age of 60 would be eligible for a tax credit of $4,000. The credit would be determined monthly, but is capped at $14,000 for a family and would have a phase out for those who make $75,000 individually or for married couples filing jointly whose annual household income is over $150,000.

Health Savings Accounts

Under current law, those who elect high-deductible health plans are able to contribute up to $3,400 per year for self-only coverage and $6,750 for family coverage to a health savings account (HSA) on a tax-deductible basis. Taking money out of these accounts to pay for nonqualified distributions is taxable and subject to a 20% penalty, but distributions to pay for qualified medical expenses are not subject to penalties or taxes. Under the proposed plan, the tax-deductible contribution limit would increase in 2018 to $6,550 for an individual and $13,100 for family coverage, and would permit catch-up contributions for both spouses between the ages of 55 and 64. It would also allow reimbursement for medical expenses incurred within 60 days of the establishment of the HSA and would lower the penalty from 20% to 10% for nonqualified distributions.

Medical Deduction Income Limitation

Under the Affordable Care Act, only those whose medical expenses represented 10% or more of a taxpayer's Adjusted Gross Income are eligible to itemize and deduct those expenses. This number reflects a recent increase from its original level of 7.5%. Under the proposed GOP plan, the threshold would drop back to 7.5% in 2018. For taxpayers who are 65 or older, the threshold would drop back to 7.5% for tax year 2017.

Repeal of Net Investment Income Tax

Under the Affordable Care Act, higher-income individuals with incomes over $200,000 and married taxpayers who filed jointly and had an income over $250,000 faced a 3.8% surtax on their net investment income. Under the proposed GOP plan, this tax would be eliminated after tax year 2017.

Repeal on FSA Contribution Limits

Under current law employees are able to ask their employer to contribute pre-tax funds into Flexible Spending Accounts (FSAs) that can be used to pay qualified expenses including medical expenses. The annual contributions are limited to an inflation adjusted amount which is $2,550 in 2017. Under the proposed GOP plan, starting in 2017 there would be no limit on the amount that employees could contribute to their FSA account.

Repeal on Increased Medicare Tax

Under the Affordable Care Act, individuals with self-employment income and wages over $200,000 (and $250,000 for married couples filing jointly) were subject to a Medicare Hospital Insurance surtax  of 0.9%. Under the proposed GOP plan, in 2018 this surtax would be repealed.

Additional Provisions of the Proposed GOP Plan

Two popular aspects of the Affordable Care Act are the provisions for preexisting conditions and for children under the age of 26. These provisions prevented insurers from denying insurance coverage or charging a premium to those who have preexisting conditions, and allowed those under the age of 26 to be on their parents’ health insurance plan. The proposed GOP plan will continue to allow those under 26 to have coverage on their parent’s plan, but makes a change to the terms regarding pre-existing conditions. Under the proposed plan, those with preexisting conditions will still be able to have coverage and will not be charged more, but in order to ensure that people maintain insurance when they are not sick they will be penalized for not maintaining continuous coverage. The penalty for being uninsured for a specific period of time will be that they will have to pay premiums at a 30% higher rate.

The proposed GOP health plan also repeals several other aspects of the Affordable Care Act, including the Small Business Health Insurance Tax Credit after 2019, the Medical Device Tax and Over the Counter Medication Tax after 2017, and the Tanning Tax after 2018.

It is expected that the details shown here will undergo significant changes before the plan is made into a law.

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Lee Reams, BSME, EA

Lee Reams, BSME, EA

Editor-in-Chief

Besides his role at CountingWorks as an educator and speaker to thousands of accountants nationwide, Lee manages a technical research service for a large group of tax accountants which sharpens his technical skills. Lee served on the Board of Blackline Systems, is a former Board of Director for the California Tax Education Council, is a Past President of the San Fernando Valley Chapter of Enrolled Agents, Member and Past Director for the California Society of Enrolled Agents.

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