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

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

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 26^th 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 26^th 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 26^th 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 4^th 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.

Employers that sponsor self-insured group health plans, including health reimbursement arrangements (HRAs) should keep in mind the upcoming July 31, 2017 deadline for paying fees that fund the Patient-Centered Outcomes Research Institute (PCORI).  As background, the PCORI was established as part of the Affordable Care Act (ACA) to conduct research to evaluate the effectiveness of medical treatments, procedures and strategies that treat, manage, diagnose or prevent illness or injury.  Under the ACA, most employer sponsors and insurers will be required to pay PCORI fees until 2019.

The amount of PCORI fees due by employer sponsors and insurers is based upon the number of covered lives under each “applicable self-insured health plan” and “specified health insurance policy” (as defined by regulations) and the plan or policy year end date.

• For plan years that ended between January 1, 2016 and September 30, 2016, the fee is $2.17 per covered life and is due by July 31, 2017.
• For plan years that ended between October 1, 2016 and December 31, 2016, the fee is $2.26 per covered life and is due by July 31, 2017.

For example, a plan year that ran from October 1, 2015 through September 30, 2016 will pay a fee of $2.17 per covered life.  Calendar year 2016 plans will pay a fee of $2.26 per covered life.

NOTE: The insurance carrier is responsible for paying the PCORI fee on behalf of a fully insured plan.  The employer is responsible for paying the fee on behalf of a self-insured plan, including an HRA.  In general, health FSAs are not subject to the PCORI fee.

Employers that sponsor self-insured group health plans must report and pay PCORI fees using IRS Form 720, Quarterly Federal Excise Tax Return.

Note that because the PCORI fee is assessed on the plan sponsor of a self-insured plan, it generally should not be included in the premium equivalent rate that is developed for self-insured plans if the plan includes employee contributions.  However, an employer’s payment of PCORI fees is tax deductible as an ordinary and necessary business expense.

Historical Information for Prior Years

• For plan years that ended between October 1, 2015 and December 31, 2015, the fee was $2.17 per covered life and was due by August 1, 2016.
• For plan years that ended between January 1, 2015 and September 30, 2015, the fee was $2.08 per covered life and was due by August 1, 2016.
• For plan years that ended between October 1, 2014 and December 31, 2014, the fee was $2.08 per covered life and was due by July 31, 2015.
• For plan years that ended between January 1, 2014 and September 30, 2014, the fee was $2 per covered life and was due by July 31, 2015.
• For plan years that ended between October 1, 2013 and December 31, 2013, the fee was $2 per covered life and was due by July 31, 2014.
• For plan years that ended between January 1, 2013 and September 30, 2013, the fee was $1 per covered life and was due by July 31, 2014.
• For plan years that ended between October 1, 2012 and December 31, 2012, the fee was $1 per covered life and was due by July 31, 2013.

Counting Methods for Self-Insured Plans

Plan sponsors may choose from three methods when determining the average number of lives covered by their plans.

Actual Count method.  Plan sponsors may calculate the sum of the lives covered for each day in the plan year and then divide that sum by the number of days in the year.

Snapshot method.  Plan sponsors may calculate the sum of the lives covered on one date in each quarter of the year (or an equal number of dates in each quarter) and then divide that number by the number of days on which a count was made. The number of lives covered on any one day may be determined by counting the actual number of lives covered on that day or by treating those with self-only coverage as one life and those with coverage other than self-only as 2.35 lives (the “Snapshot Factor method”).

Form 5500 method.  Sponsors of plans offering self-only coverage may add the number of employees covered at the beginning of the plan year to the number of employees covered at the end of the plan year, in each case as reported on Form 5500, and divide by 2.  For plans that offer more than self-only coverage, sponsors may simply add the number of employees covered at the beginning of the plan year to the number of employees covered at the end of the plan year, as reported on Form 5500.

Special rules for HRAs. The plan sponsor of an HRA may treat each participant’s HRA as covering a single covered life for counting purposes, and therefore, the plan sponsor is not required to count any spouse, dependent or other beneficiary of the participant. If the plan sponsor maintains another self-insured health plan with the same plan year, participants in the HRA who also participate in the other self-insured health plan only need to be counted once for purposes of determining the fees applicable to the self-insured plans.

Stacy Barrow, Esq.
Compliance Director

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