Compliance | By Stacy Barrow,

LEGAL ALERT – Employee Benefit Changes in the Tax Cuts and Jobs Act of 2017

On December 22, 2017, President Trump signed what is popularly known as the Tax Cuts and Jobs Act (H.R. 1) (the “Bill”), overhauling America’s tax code for both individuals and corporations and providing the most sweeping changes to the U.S. Tax Code since 1986. The House and Senate Conference Committee provided a Policy Highlights of the major provisions of the Bill, and the Joint Committee on Taxation provided a lengthy explanation of the Bill.

Compared to initial proposals, the final Bill generally does not make significant changes to employee benefits. The chart that follows highlights certain broad-based health and welfare, fringe and retirement plan benefit provisions of the Bill (comparing them to current law). Notable changes include:

  • Repeal of the Individual Mandate penalty beginning in 2019;
  • Elimination/changes of employer deductions for certain fringe benefits, including qualified transportation fringes, moving expenses, and meals/entertainment;
  • New tax credit for employers that pay qualifying employee while on family and medical leave, as described by the Family Medical Leave Act;
  • Extended rollover periods for deemed distributions of retirement plan loans; and
  • Tax relief for retirement plan distributions to relieve 2016 major disasters.

In addition, the Bill makes certain narrowly-tailored changes (which we did not include in the chart that follows) impacting only certain types of employers or compensation. For instance, the Bill:

  • modifies the $1 million compensation deduction limitation under Code Section 162(m) for publicly traded companies (expanding the type of compensation which will be applied against the limitation, the individuals who will be considered covered employees, and the type of employers that will be subject to the limitation), with transition relief for certain performance-based compensation arrangements pursuant to “written binding contracts” in effect as of November 2, 2017, so long as such arrangements are not “modified in any material respect”; and
  • creates a new “qualified equity grant” by adding a new Code Section 83(i), which allows employees of non-publicly traded companies to elect to defer taxation of stock options and restricted stock units (“RSUs”) for up to five years after the exercise of such stock options or the vesting of RSUs.

The Bill also has specific provisions impacting employers that are tax-exempt organizations. For instance, it imposes a new excise tax for highly compensated non-profit employees, and changes the way non-profits calculate unrelated business income tax (UBIT).

What’s Not Changing

ACA Employer Mandate & Reporting

While the individual mandate penalty has been reduced to zero beginning in 2019, at this time, the employer mandate and employer reporting requirements under the Affordable Care Act (ACA) remain in effect.

In addition, there were no changes to other ACA taxes and requirements. For example, the bill does not eliminate (or delay) the 40% excise tax on high-cost plans (Cadillac Tax) that is scheduled to be effective beginning in 2020, nor does it eliminate the comparative effectiveness research fees paid annually to fund the Patient-Centered Outcomes Research Institute (PCORI) through 2019. However, the Trump Administration has indicated its intention to renew ACA repeal and replace efforts in 2018, which may result in additional changes at a later date.

It has been recently reported that Republican legislators are targeting a further delay of two ACA-created taxes – a 2.3% excise tax on medical devices, and an annual fee imposed on health insurers known as the HIT tax – for inclusion in a spending bill that must be passed by January 19. Both of these taxes are scheduled to go into effect beginning in 2018 after a delay was incorporated in a 2015 year-end tax extenders deal. Employer groups have been lobbying for an elimination or delay of the Cadillac Tax and relief on the employer mandate. It remains to be seen whether these tax relief items will be included as part of a spending bill later this month.

FSAs, HSAs, Adoption Assistance and Education Assistance Programs

Earlier versions of the Bill in both the House and Senate included provisions that would have significantly impacted the tax treatment of many employee benefits. However, the final Bill makes no changes to the tax treatment of HSAs, dependent care FSAs, health FSAs, adoption assistance programs, or qualified education assistance programs. Although, it has been reported that repealing restrictions on using FSAs, HSAs and other account-based plans to purchase over-the-counter medications could also be considered during negotiation of the spending bill.

Unsubsidized/Pre-Tax Qualified Transportation Fringe Benefits

While the Bill eliminated the employer deduction for qualified transportation fringe benefits, this change would appear to have the most impact on employers who subsidize transit and parking expenses since they may no longer claim a deduction for subsidized transit expenses (but such amounts would still be exempt for payroll tax purposes). For the majority of employers who do not subsidize transit expenses but offer pre-tax qualified transportation fringe programs that allow employees to enter into salary reduction agreements and receive transit expense reimbursements on a tax-free basis, the Bill should not have an impact on those programs. Tax-exempt employers will be taxed on the value of providing qualified transportation fringe benefits (such as payments for mass transit) by treating the funds used to pay for the benefits as UBIT.

For the majority of employers who do not subsidize transit expenses but offer pre-tax qualified transportation fringe programs that allow employees to enter into salary reduction agreements and receive transit expense reimbursements on a tax-free basis, the Bill should not have an impact on those programs. Employees may continue to receive transit expenses (other than bicycle commuting expenses) on a tax-free basis under such programs.

Structural Changes to Qualified Retirement Plans and Deferred Compensation Plans

In addition, there were no major changes to the general structure of qualified retirement plans, such as the “Rothification” of pre-tax deferrals in 401(k) plans, nor reductions in the limits that could be contributed tax-free. Nor were other changes that were initially proposed in the House version of the bill to retirement provisions (e.g., changing the minimum age of in-service distribution in retirement plans, modifying non-discrimination rules for “soft-frozen” defined benefit plans, and changes to 401(k) and 403(b) hardship withdrawal rules) included in the final bill.
Earlier versions of the Bill would have also completely upended how deferred compensation by companies to executives is paid by taxing such compensation when it vested. But this provision did not survive in the final Bill.

Next Steps

Only time will tell the full impact of the Bill on employers and employees. For instance, the repeal of the individual mandate beginning in 2019 may result in fewer “healthy” individuals enrolling in health coverage, resulting in increased premiums. Fewer individuals may enroll in Exchange coverage, reducing potential employer mandate penalty (both “A” and “B”) exposure, which is triggered when a full-time employee receives a premium subsidy for Exchange coverage.

Given the changes to the corporate tax rates, it remains to be seen whether employers will alter how they compensate their employees, particularly, highly compensated employees, and how they will handle their pension, 401(k)/profit sharing plans, and other employee benefits.

In addition, it is likely that there will be a correction bill (and IRS guidance) in 2018 to address unintended consequences, omissions, ambiguities, and drafting errors in the Bill. We will continue to monitor for further legislative and other developments impacting employee benefits as a result of the passage of the Bill.

In the meantime, we suggest that employers work with their payroll departments and vendors, accountants, finance, counsel and other advisors to assess the impact of the Bill to its benefit programs and implement necessary changes to their systems and practices.


For a summary of select employee benefits changes in the Tax Cuts and Jobs Act (H.R.1) here.


About The Authors. This alert was prepared for Sonus Benefits by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act. Contact Peter Marathas (, Stacy Barrow ( or Tzvia Feiertag (

Compliance | By Stacy Barrow,

LEGAL ALERT – Trump Administration Releases Guidance on ACA’s Contraceptive Coverage Mandate

On October 6, 2017, The U.S. Departments of Health and Human Services (HHS), Treasury, and Labor (the “Departments”) released interim final regulations allowing employers and insurance companies to decline to cover contraceptives under their health plans based on a religious or moral objection.  The new rules – which are effective immediately – scale back Obama-era regulations under the Affordable Care Act (ACA) that require non-grandfathered group health plans to cover women’s contraceptives with no cost-sharing, with limited exceptions for non-profit religious organizations or closely-held for-profit entities.

The new regulations were released in two parts, one covering employers with moral objections (the “Moral Exemption”), the other for those with religious objections (the “Religious Exemption”).  The regulations are scheduled to be published in the October 13, 2017 Federal Register.  Within hours of their release, the Departments were sued by the Attorney Generals of California and Massachusetts, and the American Civil Liberties Union (ACLU), alleging that the regulations violate the Administrative Procedure Act, the Establishment Clause of the First Amendment to the Constitution, and the Equal Protection guarantee implicit in the Fifth Amendment to the Constitution.  The lawsuits seek to stop implementation of, and invalidate, the regulations.  Other states, including Virginia and Oregon, are exploring legal options to challenge the exemptions.

Background on ACA’s Contraceptive Coverage Mandate

Originally, the bill that became the ACA did not cover certain women’s preventive services that many women’s health advocates and medical professionals believed were “critically important” to meeting women’s unique health needs.  To address that concern, the Senate adopted a “Women’s Health Amendment,” to the ACA, which added a new category of preventive services specific to women’s health based on guidelines supported by the Health Resources and Services Administration (HRSA).  Supporters of the amendment emphasized that it would reduce unintended pregnancies by ensuring that women receive coverage for “contraceptive services” without cost-sharing.

The ACA was enacted in March 2010.  In 2011, the Departments issued regulations requiring coverage of women’s preventive services provided for in the HRSA guidelines, which include all Food and Drug Administration (FDA)-approved contraceptives, sterilization procedures, and patient education and counseling for women with reproductive capacity, as prescribed by a health care provider.

Once these rules took effect in 2012, women enrolled in most health plans and health insurance policies (non-grandfathered plans and policies) have been guaranteed coverage for recommended preventive care, including all FDA-approved contraceptive services prescribed by a health care provider, without cost sharing.  Under rules released in 2013, exemptions were introduced for certain religious employers (generally churches and houses of worship), as well as “accommodations” for non-profit religious organizations that “self-certify” their objection to providing contraceptive coverage on religious grounds.  Under the accommodation approach, an eligible employer does not have to arrange or pay for contraceptive coverage.  Employers may provide their self-certification to their insurance carrier or third-party administrator (TPA), which will make contraceptive services available for women enrolled in the employer’s plan, at no cost to the women or the employer.

In 2014, regulations were published to establish another option for an employer to avail itself of the accommodation. Under these rules, an eligible employer may notify HHS in writing of its religious objection to providing coverage for contraceptive services.  HHS or the Department of Labor, as applicable, will notify the insurer or TPA that the employer objects to providing coverage for contraceptive services and that the insurer or TPA is responsible for providing enrollees in the health plan separate no-cost payments for contraceptive services.

In 2015, in response to the Supreme Court’s decision in Burwell v. Hobby Lobby Stores, Inc., regulations were released that expanded the availability of the accommodation to include a closely held for-profit entity that has a religious objection to providing coverage for some or all contraceptive services.

In May 2017, President Trump issued an Executive Order that directed the Departments to consider amending the contraceptive coverage regulations in order to promote religious liberty.  Specifically, the Executive Order instructed the Departments to “consider issuing amended regulations . . . to address conscience-based objections to the preventative-care mandate.”  These latest regulations are consistent with the Executive Order.

Overview of the Moral & Religious Objection Regulations

The Regulations expand existing exemptions to the ACA’s contraceptive care requirement. The Religious Exemption automatically exempts all employers—non-profit and for-profit organizations alike—with a religious objection to contraception from complying with the contraceptive care requirement.

The Moral Exemption exempts all non-profit employers and non-publicly traded for-profit employers with a moral objection to contraception from complying with the contraceptive care requirement. The rules also give exempted employers the authority to decide whether their employees receive independent contraceptive care coverage through the accommodation process.  In other words, by making the accommodation process voluntary for employers, employees would no longer be guaranteed the seamless coverage for contraceptive care that currently exists under the accommodation process.

Entities that qualify for the exemptions include churches and their integrated auxiliaries, nonprofit organizations, closely-held for-profit entities, for-profit entities that are not closely held, any non-governmental employer, as well as institutions of higher education and health insurers offering group or individual insurance coverage.  Publicly-traded companies, however, are not eligible for the Moral Exemption.  The rules also appear to have been drafted separately to ensure that one remains if the other is struck down.

Employers currently operating under the religious accommodation (or that operate under the voluntary accommodation in the future) who wish to revoke that status may do so and rely on the exemptions in the new regulations.  As part of any revocation, the insurer or TPA must notify participants and beneficiaries in writing.  If contraceptive coverage is being offered by an insurer or TPA through the religious accommodation process, the revocation will be effective on the first day of the first plan year that begins on or after 30 days after the date of the revocation.  Alternatively, an eligible organization may give 60 days’ advance notice under the ACA’s Summary of Benefits and Coverage rules, if applicable.

Next Steps and Impact on Employers

Although the Moral and Religious Exemptions are effective immediately, employers that plan to avail themselves of either exemption should exercise caution and consult with qualified ERISA counsel before making plan changes.  The regulations are already under challenge, regarding both their substance and their accelerated effective dates.  Also, in many states, contraceptive coverage is a state-mandated benefit.  Practically, this means that employers sponsoring fully-insured non-grandfathered group health plans may be precluded from exercising either exemption because insurance carriers in those states would be required to write policies that provide such coverage.  Moreover, an employer availing itself under either exemption may face private lawsuits from participants and beneficiaries under Title VII of the Civil Rights Act of 1964, which prohibits discrimination based on sex.


Stacy Barrow, Esq.
Compliance Director

About the Author.  This alert was prepared for Sonus Benefits by Stacy Barrow.  Mr. Barrow is a nationally recognized expert on the Affordable Care Act.  His firm, Marathas Barrow Weatherhead Lent LLP, is a premier employee benefits, executive compensation and employment law firm.  He can be reached at



This e-mail is a service to our clients and friends. It is designed only to give general information on the developments actually covered. It is not intended to be a comprehensive summary of recent developments in the law, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion.

Benefit Advisors Network and its smart partners are not attorneys and are not responsible for any legal advice. To fully understand how this or any legal or compliance information affects your unique situation, you should check with a qualified attorney.

© Copyright 2017 Benefit Advisors Network. Smart Partners. All rights reserved.
Compliance | By Stacy Barrow,

LEGAL ALERT – Court Requires EEOC to Substantiate 30% Limit on Wellness Program Incentives

On August 22, 2017, a federal court in the District of Columbia ordered the Equal Employment Opportunity Commission (EEOC) to reconsider the limits it placed on wellness program incentives under final regulations the agency issued last year under the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA).  As part of the final regulations, the EEOC set a limit on incentives under wellness programs equal to 30% of the total cost of self-only coverage under the employer’s group health plan.  The court found that the EEOC did not properly consider whether the 30% limit on incentives would ensure the program remained “voluntary” as required by the ADA and GINA and sent the regulations back to the EEOC for reconsideration.

In the meantime, to avoid “potentially widespread disruption and confusion” the court decided that the final regulations would remain in place while the EEOC determines how it will proceed (e.g., provide support for its regulations, appeal the decision, or change the regulations). As background, under the ADA, wellness programs that involve a disability-related inquiry or a medical examination must be “voluntary.”  Similar requirements exist under GINA when there are requests for an employee’s family medical history (typically as part of a health risk assessment).  For years, the EEOC had declined to provide specific guidance on the level of incentive that may be provided under the ADA, and their informal guidance suggested that any incentive could render a program “involuntary.”  In 2016, after years of uncertainty on the issue, the agency released rules on wellness incentives that resemble, but do not mirror, the 30% limit established under U.S. Department of Labor (DOL) regulations applicable to health-contingent employer-sponsored wellness programs.  While the regulations appeared to be a departure from the EEOC’s previous position on incentives, they were welcomed by employers as providing a level of certainty.

However, the American Association for Retired Persons (AARP) sued the EEOC in 2016, alleging that the final regulations were inconsistent with the meaning of “voluntary” as that term was used in ADA and GINA.  AARP asked the court for injunctive relief, which would have prohibited the rule from taking effect in 2017.  The court denied AARP’s request in December 2016, finding that AARP failed to demonstrate that its members would suffer irreparable harm from either the ADA or the GINA rule, and that AARP was unlikely to succeed on the merits.  This was due in part to the fact that the administrative record was not then available for the court’s review.

In its recent decision, the court reviewed the administrative record and found the EEOC’s regulations were arbitrary and capricious, in that the EEOC failed to provide a reasoned explanation for its decision to interpret the term “voluntary” to permit a 30% incentive level.  As part of its analysis, the court evaluated numerous reasons the EEOC gave for choosing the 30% level and noted that, having chosen to define “voluntary” in financial terms (30% of the cost of self-only coverage), the EEOC “does not appear to have considered any factors relevant to the financial and economic impact the rule is likely to have on individuals who will be affected by the rule.”

The court has allowed the final regulations to remain in place while the EEOC determines how it will proceed, to avoid disruption to employers and others who have relied on them.  If the court had vacated the regulations, employers would have been at risk of violating the ADA despite having designed their wellness programs to comply with the 30% limit on incentives.

Next Steps and Impact on Employers

It is unknown at this time how the EEOC will respond to the court’s decision. If the EEOC wishes to continue its application of the rule, it will need to supplement the administrative record with some evidence that participation in a wellness program remains “voluntary” even when an employer can penalize employees 30% of the total cost of coverage if they don’t participate.  However, the EEOC may decide, instead, to withdraw its rule or promulgate new rules lowering the incentive limit (further distancing it from the HIPAA limits).  It is likely that any new rules would provide for a transition period during which employers would be able to review and revise their wellness programs so that they comply.  Given that the Trump Administration’s nomination for EEOC Commission Chair awaits Senate confirmation, it may be a considerable amount of time until the EEOC decides how to proceed, leaving employers without the clarity they desire on this issue.

It is also possible, though given other priorities unlikely, that Congress may intervene to pass legislation harmonizing the ADA with the HIPAA/ACA rules, which would render the court’s decision moot.

In the short term, employers may continue to rely on the EEOC’s final regulations.  Wellness programs designed to comply with existing rules, specifically the 30% cap, are unlikely to be challenged by the federal governmental agencies.  However, it is possible the court’s decision may open the door for employees to bring a private lawsuit against an employer challenging under the ADA the “voluntariness” of a wellness program that includes an incentive up to the 30% limit.  One would expect that any employer facing such an action would defend it arguing its good faith reliance on the EEOC’s regulation.

In the longer term, employers are again faced with uncertainty as to their wellness program incentives.  Employers designing and maintaining wellness programs should continue to monitor developments and work with employee benefits counsel to ensure their wellness programs comply with all applicable laws.


Stacy Barrow, Esq.
Compliance Director

About the Author.  This alert was prepared by Stacy Barrow.  Mr. Barrow is a nationally recognized expert on the Affordable Care Act.  His firm, Marathas Barrow Weatherhead Lent LLP, is a premier employee benefits, executive compensation and employment law firm.  He can be reached at


This e-mail is a service to our clients and friends. It is designed only to give general information on the developments actually covered. It is not intended to be a comprehensive summary of recent developments in the law, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion.

Benefit Advisors Network and its smart partners are not attorneys and are not responsible for any legal advice. To fully understand how this or any legal or compliance information affects your unique situation, you should check with a qualified attorney.

© Copyright 2017 Benefit Advisors Network. Smart Partners. All rights reserved.
Compliance | By Stacy Barrow,

LEGAL ALERT – Senate Republicans Release Healthcare Bill; Largely Mirroring House Bill but with Some Key Differences

On Thursday, June 22, 2017, Senate Majority Leader Mitch McConnell of Kentucky released a 142-page healthcare “Discussion Draft” of legislation, called the Better Care Reconciliation Act of 2017 (BCRA), which is the Senate version of the Affordable Care Act (ACA) “repeal-and-replace” legislation American Health Care Act (AHCA) passed by the U.S. House of Representatives last month.  An updated “Discussion Draft” of the BRCA was released on June 26, 2017.  A summary of the updated June 26 draft of the BCRA by the U.S. Senate Committee on the Budget is available here and a section-by-section summary of the June 26th version is available here.

The major substantive change in the updated Discussion Draft released on June 26 was to add a new Section 206, beginning in 2019, that would subject an individual who has a break in continuous “creditable coverage” for 63 days or more in the prior year to a six-month waiting period (in the individual market) before coverage begins.  This provision is intended to provide an incentive for young and healthier individuals to maintain health insurance since the bill would eliminate the individual mandate.  The AHCA proposed imposing a 30% surcharge on those without continuous creditable coverage, but there were concerns over whether that provision could pass Senate parliamentary rules.

The unveiling of the Senate bill comes after weeks of drafting by a small group of Senate Republican leadership behind closed doors that has frustrated Democrats and left out many Republicans from the drafting process.  The Congressional Budget Office released its score of the legislation on June 26, 2017, finding that the updated Discussion Draft of the BCRA would leave 22 million more uninsured by 2026 than under the ACA (versus 23 million under the AHCA).  Senator McConnell is pushing for a Senate vote by the end of this week before the Fourth of July recess.  It is unclear whether the Republicans will be able to secure enough votes to pass the bill because at least five Republican senators – Sens. Rand Paul (KY), Ron Johnson (WI), Mike Lee (UT), Ted Cruz (TX), and, most recently, Dean Heller (NV) – have publicly expressed their unwillingness to vote for it as currently drafted.  Other senators are still reviewing but have expressed concerns (e.g., Senator Rob Portman of Ohio regarding the Medicaid policies and Senator Mike Rounds of South Dakota on group market issues).

In large part, the BCRA mirrors the House-passed AHCA.  A comparison of the two bills can be found below. Similar to the House bill, the Senate bill would repeal virtually all of the tax increases imposed by the ACA, except for the “Cadillac” tax on high-cost employer-sponsored coverage, which would be delayed through 2025.

Key Issues for Employers

For employers, the most significant change made by the AHCA to the ACA that was retained by the BCRA is the repeal of the employer mandate penalties effective January 1, 2016.  The BCRA retains other significant AHCA changes for employers, including unlimited flexible spending accounts, and enhancements to health savings accounts (HSAs).[1]  Of note for employers sponsoring fully-insured group health plans, beginning in 2020 the bill requires states to set their own medical loss ratio rebating rules.  It also adds a structure under ERISA (by adding a new Part 8) that would allow for the establishment of association health plans for small businesses or individuals (Small Business Health Plans or SBHPs), allowing them to be treated as large group plans exempt from the community rating and essential health benefit requirements that are currently applicable to small group and individual plans.  This new section of ERISA would preempt any and all state laws that would preclude an insurer from offering coverage in connection with an SBHP and would go into effect one year after enactment (and implementing regulations would be required to be promulgated within six months of enactment).

The addition in the updated June 26th Discussion Draft of a continuous coverage requirement would again require employers to provide written certifications of periods of creditable coverage for the purpose of verifying that the continuous coverage requirements are met.

Also significant is that the bill does not include a provision capping the tax exclusion for employer provided health insurance.  Many employers were concerned that the exclusion would be capped or removed as a way to increase revenue to pay for other tax cuts in the bill.  Nor does the bill repeal the Sections 6055 and 6056 reporting requirements.  It will remain to be seen whether, if the BCRA is passed, the IRS may continue to use the existing ACA information reporting system to determine whether an individual is eligible for a premium tax credit or is prohibited from receiving one in 2018 or 2019 because such an individual has an offer in 2018 or 2019 of affordable, minimum value employer-sponsored coverage.  Or, whether in 2020 and thereafter, the IRS would need information to assess whether an individual has any offer of employer-sponsored coverage to determining eligibility for the premium tax credit.

[1] Beginning next year, enhancements include an increase in the HSA contribution limits so that they are the same as the out-of-pocket maximums that apply to HDHPs (for 2018, $6,650 for self-only coverage and $13,300 for family coverage), allowing the reimbursement of otherwise eligible expenses incurred up to 60 days before an HSA is established, and allowing both spouses to make HSA catch-up contributions to the same HSA.  The penalty for non-qualified HSA distributions was increased to 20% under the ACA; under the AHCA it will go back to 10% retroactive to the beginning of this year.

Key Issues for Individuals

For individuals, the BCRA would repeal the ACA’s Medicaid expansion, but at a slower rate than proposed by the AHCA and would tighten the eligibility criteria for premium subsidies (beginning in 2020, only those earning up to 350% of the poverty level would qualify rather than the 400% threshold in the ACA); however, subsidies would open up for enrollees below the poverty level living in states that did not expand Medicaid.  The bill would allocate money for cost-sharing subsidies through 2019, which are used to offset the costs for insurers to offer low-income individuals with coverage that has lower out-of-pocket costs.  There had been uncertainty whether these payments would continue, which was causing instability in the individual insurance market.  Higher-income individuals would see relief from various ACA taxes and fees, including the 0.9% Medicare surtax beginning in 2023 and the 3.8% net investment income tax retroactive to the beginning of this year.

Next Steps

The Republicans are trying to pass the bill through the budget reconciliation process since it allows them to avoid a Democratic filibuster and to pass the bill with a simple majority (rather than 60 votes).  However, the Republicans have only 52 Senate seats, which means that to pass, Senator McConnell can only afford to lose 2 votes (Vice President Pence can be the tie breaker).  The bill may be too liberal for some Republican senators and too “harsh” for others (the CBO score released on June 26th states that the BCRA would leave 22 million more uninsured by 2026 than under the ACA), so it remains to be seen whether the bill, as proposed, will pass or whether it will undergo further revisions to ensure passage.  Currently, there are at least 5 Republican senators who have publicly expressed that they would not vote for the bill as currently drafted.  The Republicans will not have much time to sort out any disagreement since Senator McConnell has stated that he intends to call a vote this week before the July 4th recess.

If the Senate passes a bill, it will either have to be approved by the House (the two chambers would have to reconcile their differences in a conference committee), or the House could pass a new version and send it back to the Senate for approval.

As noted previously, employers and other stakeholders should continue to stay the course on ACA compliance at this time while they monitor for changes as the BCRA continues to make its way through the legislative process.

Comparison of the ACA, AHCA, and BCRA

The chart below compares some of the significant changes proposed by the BCRA to the ACA and the proposed House bill.



Affordable Care Act


(Proposed House Bill)

American Health Care Act


(June 26th Updated Proposed Senate Bill)

Better Care Reconciliation Act


Mandates ·         Individual mandate

·         Employer mandate on applicable large employers (ALEs)

·         No individual or employer mandate effective retroactive to Jan. 1, 2016

·         Insurers can impose a one year 30% surcharge on consumers with a lapse in continuous coverage (individual market)

·         No individual or employer mandate effective retroactive to Jan. 1, 2016

·         Includes a continuous coverage provision, beginning January 1, 2019, that imposes a 6-month waiting period in the individual market on those with a gap in creditable coverage that is longer than 63 days

Assistance ·         Income-based subsidies for premiums that limit after-subsidy cost to a percent of income

·         Cost sharing reductions for out-of-pocket expenses


·         Age-based refundable tax credits for premiums, phased out for higher incomes

·         No cost sharing reductions for out-of-pocket expenses

·         ACA subsidies phased out after 2019; AHCA credits effective in 2020

·         Targeted tax credits advanceable and refundable, adjusted for income and age

·         Subsidies based on the cost of a low-level bronze plan (58% actuarial value plan) rather than a silver plan (70% actuarial value plan)

·         Effective in 2020, subsidies available to individuals with incomes <350% of the federal poverty level

·         Subsidies are not available to individuals who are eligible for a group health plan (no affordability or minimum value requirement)

·         Cost-sharing reduction assistance continues through 2019

Medicaid ·         Matching federal funds to states for anyone who qualifies

·         Expanded eligibility to 138% of poverty level income

·         Federal funds granted to states based on a capped, per-capita basis starting in 2020

·         States can choose to expand Medicaid eligibility, but would receive less federal support for those additional persons

·         Phases out ACA Medicaid expansion between 2021 and 2024 (with deeper reductions than the AHCA after that)

·         Permits states to impose a work requirement on nondisabled, nonelderly, non-pregnant adults

Premium Age Differences ·         3:1 (individual and small group plans) ·         5:1 (and the MacArthur amendment would allow a higher ratio conditioned on receipt of a MacArthur state waiver) ·         5:1 (but allows states to set a different ratio)
Health Savings Account Limits ·         $3,450/$6,900 (2018 limits shown) ·         Contribution limits increased to maximum out-of-pocket limit for HDHP coverage (retroactive to January 1, 2017) ·         Same as AHCA (but effective beginning January 1, 2018)

·         In 2018, out-of-pocket limits for HDHPs are $6,650 / $13,300

“Cadillac” Tax ·         Cadillac tax on high-cost employer plans implemented in 2020 ·         Cadillac tax on high-cost employer plans delayed until 2026 ·         Same as AHCA
Other Taxes ·         3.8% tax on net investment income

·         Limit placed on contributions to flexible spending accounts

·         Annual health insurance provider tax


·         Over-the-counter medication excluded as qualified medical expense

·         0.9% Medicare tax on individuals with an income higher than $200,000 or families with an income higher than $250,000

·         Repeal of these taxes retroactive to the beginning of 2017 (except for the repeal of the Medicare tax, which would begin in 2023) ·         Same as AHCA (but FSA change would begin for plan years after December 31, 2017)
Essential Health Benefits ·         Individual and small group plans are required to offer coverage in ten essential health benefit categories ·         Under the MacArthur amendment, individual and small group plans are required to offer the ten essential health benefits, but a waiver option is available

·         Some Medicaid plans are not required to offer mental health and substance abuse benefits

·         Does not contain a specific-essential health benefit waiver but expands the existing ACA Section 1332 waiver to provide states with more flexibility to decide the rules of insurance in their state (but can’t opt out of regulations governing pre-existing conditions)
No Change:  No Pre-Existing Condition Exclusions / Coverage of Children to Age 26 / No Annual or Lifetime Dollar Limits on Essential Health Benefits (EHBs)*

* States may have the ability to re-define EHBs, which could weaken the prohibition on annual and lifetime limits, as the annual/lifetime limit rules and out-of-pocket limit rules apply only to EHBs.


About the Author.  This alert was prepared for Sonus Benefits by Stacy Barrow.  Mr. Barrow is a nationally recognized expert on the Affordable Care Act.  His firm, Marathas Barrow Weatherhead Lent LLP, is a premier employee benefits, executive compensation and employment law firm.  He can be reached at

Compliance | By Stacy Barrow,

LEGAL ALERT – House Republicans Withdraw the AHCA Before a Planned Vote But Efforts to Repeal Continue

On Friday, March 24, 2017, the U.S. House of Representatives’ Speaker Paul Ryan pulled from the floor the American Health Care Act (AHCA), the proposed legislation to repeal and replace the Affordable Care Act (ACA), once it was clear that the bill was short on votes to pass.  Effectively, this means the AHCA will not survive to become law and, at this time, any future efforts to repeal and replace the ACA are uncertain.  This may mean, as Speaker Ryan said shortly after the announcement that the bill was withdrawn, “Obamacare is the law of the land. We’re going to be living with Obamacare for the foreseeable future.” However, as of March 28, there have been reports that the House Republican leaders and the Trump administration have started renegotiations on legislation to repeal the ACA. At this time, there are no details about what may be in any renewed repeal legislation or the timing of its release or a vote.

What the AHCA Would Have Done

If enacted, the AHCA would have retroactively repealed the individual and employer mandate penalties, delayed the 40% “Cadillac” tax on employer-sponsored health plans, made significant changes to the ACA insurance coverage and marketplace stabilization provisions, enhanced health savings accounts (HSAs), provided relief from many of the ACA’s taxes and fees, and curtailed Medicaid reforms, among other things.

The AHCA was intended to be Phase I of a three-phase approach to repeal and replace the ACA through the budget reconciliation process, which requires a simple majority vote in Congress.  Phase II was envisioned to include regulatory relief by Health and Human Services (HHS) Secretary Thomas Price, and in Phase III legislation would be introduced to repeal the ACA market reforms, permit the sale of insurance across state lines, and effectuate other provisions that could not be addressed through the budget reconciliation process because of the Byrd rule, which limits reconciliation provisions in the Senate to provisions that affect government revenues and outlays.

Why It Failed

In large part, the bill failed because the more conservative wing of the Republican Party, known as the Freedom Caucus, was against the bill because of its preservation of certain ACA provisions.  Prior to the vote on the bill, which was initially scheduled for Thursday, changes were introduced (via what was referred to as the “Manager’s Amendment”) to add concessions (such as accelerating the repeal of most of the ACA tax provisions) in the hope that the Freedom Caucus, representing more than 30 members, would vote in favor of the bill.  However, when realizing that even those concessions were not enough, additional concessions, including the repeal of the federal “essential health benefits” definition were added.  At that point, more moderate Republicans were voicing concerns.  Late Thursday, President Trump issued an ultimatum, demanding a vote on Friday and threatening Republicans that the ACA would remain the law if Republicans did not back the AHCA.  By Friday afternoon, it was apparent that a compromise could not be reached, and the bill was withdrawn (at President Trump’s request) without going to a vote.

What Does This Mean for Employers

Effectively, at least for the short term, the ACA, including the employer and individual mandates (including associated reporting) remains the law of the land. Until further notice, employers must stay the course on their compliance efforts.

Administrative Relief May Be Forthcoming

Consistent with the President’s Executive Order issued immediately after his taking office, there may be pressure on HHS Secretary Price in the short-term to provide regulatory relief to the extent permitted by the ACA.  However, it is unclear whether any such relief will focus on issues facing employer-sponsored group health plans.

Future Legislative Efforts Uncertain

President Trump could remain firm on his ultimatum and not support any future efforts to repeal the ACA and test his theory that it will “explode.”  One way the Republicans may help hasten this is by choosing not to pursue a lawsuit filed by Congressional Republicans during the Obama administration that would de-fund the cost-sharing reduction subsidies paid to insurers to reduce out-of-pocket costs for low-income enrollees, which the Republicans have asserted are illegal.  In that case, Republicans argued that Congress never actually gave the Obama administration funding for the program that’s being used to pay insurers.  A district court judge decided in their favor, but the Obama administration appealed the case.  The case was delayed in February and is currently on hold, with an update due in May.  Many believe these payments are essential for the stability of the insurance market. It remains to be seen whether the administration will drop the case and Republicans will fund the next round of subsidies in the short-term spending bill due at the end of April in exchange for a commitment by insurance companies not to abandon the market over the next few weeks.  Many conservatives may view this course of action as “giving up” on repeal and may not support it unless it is part of a larger repeal and replace effort.

Initially, the Trump administration and other Republican leadership stated that they intended to move on to tax reform and other initiatives at the top of the Trump administration’s agenda.  However, there is nothing that could stop Republicans from trying to garner support for another repeal effort, and, in fact, there have been recent reports that the House Republicans and the Trump administration are back in negotiations on repeal legislation.  The details and timing of such renewed efforts have yet to be released.  It is possible that the Republicans may offer piecemeal legislation to address certain components of the ACA, rather than a complete repeal.

ACA Taxes Repeal May Be Left Out of Any Tax Reform

Taxes associated with the ACA will remain untouched while Congressional Republicans work on reforming the rest of the tax code, House Speaker Ryan said following the March 24 decision to pull the AHCA from a planned House vote.  According to the latest Congressional Budget Office report, repeal of the ACA taxes would have reduced revenues by nearly $1 trillion over the next ten years.  Republicans believed that repealing the ACA taxes first and being able to offset them with ACA spending cuts would have made tax reform easier.  According to Ryan, failure to pass the AHCA “just means the Obamacare taxes stay with Obamacare. We’re going to go fix the rest of the tax code.”

ACA Taxes Repeal May be Funded by Cap on Employer Sponsored Health Coverage

However, ACA tax repeals may be part of the larger tax reform effort if other tax expenditures would be used to finance the repeal.  One option that has been suggested is instituting a cap on the exclusion for employer-sponsored health coverage.  Initial leaked drafts of the AHCA had included such a provision but were not included when the bill was introduced earlier this month after there was political pressure by employer groups to eliminate it.

While it is not quite clear yet that the dust has settled, employers should proceed with the expectation that the IRS will begin enforcing the employer mandate via the ACA reporting forms, and prepare for the return of the health insurance industry tax (HIT) in 2018 (the HIT affects fully-insured medical, dental and vision plans but was under a one-year moratorium for 2017).  Lastly, the Cadillac tax is expected to be effective in 2020, so employers should also continue evaluating how their plans may be impacted.  Of course, it’s certainly possible that the Cadillac tax will be delayed again in the future.


Stacy Barrow, Esq.
Compliance Director

About The Authors.  This alert was prepared for Sonus Benefits by Stacy Barrow and Mitch Geiger.  Mr. Barrow and Mr. Geiger are nationally recognized experts on the Affordable Care Act.  Their firm, Marathas Barrow & Weatherhead LLP, is a premier employee benefits, executive compensation and employment law firm.  They can be reached at or


This e-mail is a service to our clients and friends. It is designed only to give general information on the developments actually covered. It is not intended to be a comprehensive summary of recent developments in the law, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion.

Benefit Advisors Network and its smart partners are not attorneys and are not responsible for any legal advice. To fully understand how this or any legal or compliance information affects your unique situation, you should check with a qualified attorney.
Compliance | By Stacy Barrow,

LEGAL ALERT – White House Extends Transition Relief for Individual and Small Group Plans

On February 23, 2017, the White House announced a one-year extension to the transition policy (originally announced November 14, 2013 and extended several times since) for individual and small group health plans that allows issuers to continue policies that do not meet ACA standards.  This transition policy has now been extended to policy years beginning on or before October 1, 2018, provided that all policies end by December 31, 2018.  This means individuals and small businesses may be able to keep their non-ACA compliant coverage through the end of 2018, depending on the policy year.  Carriers may have the option to implement policy years that are shorter than 12 months or allow early renewals with a January 1, 2018 start date in order to take full advantage of the extension.


The Affordable Care Act (ACA) includes key reforms that create new coverage standards for health insurance policies. For example, the ACA imposes modified community rating standards and requires individual and small group policies to cover a comprehensive set of benefits.

Millions of Americans received notices in late 2013 informing them that their health insurance plans were being canceled because they did not comply with the ACA’s reforms. Responding to pressure from consumers and Congress, on Nov. 14, 2013, President Obama announced a transition relief policy for 2014 for non-grandfathered coverage in the small group and individual health insurance markets. If permitted by their states, the transition policy gives health insurance issuers the option of renewing current policies for current enrollees without adopting all of the ACA’s market reforms.

Transition Relief Policy

Under the original transitional policy, health insurance coverage in the individual or small group market that is renewed for a policy year starting between Jan. 1, 2014, and Oct. 1, 2014 (and associated group health plans of small businesses), will not be out of compliance with specified ACA reforms.  These plans are referred to as “grandmothered” plans.

Also, to qualify for the transition relief, issuers must send a notice to all individuals and small businesses that received a cancellation or termination notice with respect to the coverage (or to all individuals and small businesses that would otherwise receive a cancellation or termination notice with respect to the coverage).

The transition relief only applies with respect to individuals and small businesses with coverage that was in effect since 2014. It does not apply with respect to individuals and small businesses that obtain new coverage after 2014. All new plans must comply with the full set of ACA reforms.

One-year Extension

According to HHS, the extension will ensure that consumers have multiple health insurance coverage options, and that states continue to have flexibility in their markets. Also, like the original transition relief, issuers that renew coverage under the extended transition relief must, for each policy year, provide a notice to affected individuals and small businesses.

Under the transition relief extension, at the option of the states, issuers that have issued policies under the transitional relief in 2014 may renew these policies at any time through October 1, 2018, and affected individuals and small businesses may choose to re-enroll in the coverage through October 1, 2018. Policies that are renewed under the extended transition relief will not be considered to be out of compliance with the following ACA reforms:

  • community premium rating standards, so consumers might be charged more based on factors such as gender or a pre-existing medical condition, and it might not comply with rules limiting age banding (PHS Act section 2701);
  • guaranteed availability and renewability (PHS Act sections 2702 & 2703);
  • if the coverage is an individual market policy, the ban on preexisting medical conditions for adults, so it might exclude coverage for treatment of an adult’s pre-existing medical condition such as diabetes or cancer (PHS Act section 2704);
  • if the coverage is an individual market policy, discrimination based on health status, so consumers may have premium increases based on claims experience or receipt of health care (PHS Act section 2705);
  • coverage of essential health benefits or limit on annual out-of-pocket spending, so it might not cover benefits such as prescription drugs or maternity care, or might have unlimited cost-sharing (PHS Act section 2707); and
  • standards for participation in clinical trials, so consumers might not have coverage for services related to a clinical trial for a life-threatening or other serious disease (PHS Act section 2709).
This e-mail is a service to our clients and friends. It is designed only to give general information on the developments actually covered. It is not intended to be a comprehensive summary of recent developments in the law, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion.

Benefit Advisors Network and its smart partners are not attorneys and are not responsible for any legal advice. To fully understand how this or any legal or compliance information affects your unique situation, you should check with a qualified attorney.