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American Health Care Act - What you need to know

March 20, 2017
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As seen in NJBIZ

The House Republicans recently presented their plan, the American Health Care Act (AHCA), to replace former President Obama’s Affordable Care Act (ACA), commonly referred to as ‘Obamacare.’ The new plan has drawn both praise and criticism from all sides.

What taxes are going?
Some of the repealed provisions affecting individuals and business owners for tax years after December 31, 2017 (unless otherwise noted), include the increased Medicare Tax on Earned Income and Net Investment Income Tax.  These taxes currently increase the tax on earned income over threshold amounts by 0.9% and increase the tax on investment income by 3.8%. In addition, the fee imposed on manufacturers or importers of certain branded prescription drugs or biologics; the health insurance tax; the medical device excise tax, and the increase in the income threshold for determining medical care deductions have all been repealed. There is also the repeal of the “Cadillac” health plan tax beginning after December 31, 2019 (but the tax reappears in 2025).

What is it staying?
The AHCA retains the following provisions: insurers can’t deny coverage to people with pre-existing health conditions; parents can keep offspring under their plan until they turn 26; there are no annual or lifetime dollar limits on most insurance benefits; prohibition of health status underwriting; and prohibition for discrimination on the basis of race, nationality, disability, age or sex.

What is changing?
The new plan removes the mandatory insurance requirement for individuals, but a 30% penalty can be imposed for lapses in coverage. The employer mandate to provide coverage for certain employees has also been eliminated. The subsidies for purchasing insurance will change from direct premium subsidies for insurance to age and income based tax credits. In addition, the contribution limitations for health savings accounts will increase in order to encourage their use as a tax-efficient method to purchase health insurance.

The AHCA also allows insurers to charge older policy holders up to five times as much as younger ones, and gives the states the right to adopt their own ratios.

The new plan does include the creation of a Patient and State Stability Fund to provide funding to the states and District of Columbia beginning January 1, 2018 and ending on December 31, 2026.  Among other things, the fund is intended to increase available insurance options, reduce out-of-pocket costs, stabilize insurance premiums and provide financial assistance to high-risk individuals who do not have access to health insurance coverage offered through an employer or a state individual market.

Additionally, states that expanded Medicaid under the ACA will continue to receive federal funds, but only until 2020 – sending states a fixed amount of money per covered individual, known as per-capita cap. New beneficiaries will receive less funding, and states that lose participants will see its federal funding reduced. This could result in budget pressures on the individual states that may lead to state tax increases, or the reduction in the number of people that are covered.
 
What is next?
It is very important to keep in mind that these are currently proposed bills, and not passed legislation. No one can predict what will happen next, other than healthcare policy will remain fiercely debated among all of the various political factions. At this point in time, it is uncertain if these bills will even be brought up for a vote in the House, as presently written.