5 ways the American Health Care Act benefits employers
Most of the discussions around the American Health Care Act rage around the more political aspects of the bill, but lost in much of the public debate is the potential impact of the proposed bill on employers — by far the largest source of providing healthcare coverage in the country.
In that regard, let’s take a look at five beneficial aspects of the bill:
1) Repeal of the tax penalties related to the employer mandate. The Affordable Care Act requires that all employers with 50 or more full-time employees offer “affordable” and “adequate” health coverage or pay significant tax penalties. Moreover, the ACA defines a full-time employee as one who works 30 hours a week. For many employers, this exponentially expanded the workforce to whom employers had to offer coverage, as well as the overall cost and type of benefits provided. While the AHCA technically does not repeal this mandate (this would likely come later), employers will no longer be penalized for failure to comply. This repeal of penalties is retroactive to the 2016 tax year, so employers who may have been out of compliance will not face negative tax consequences.
2) A delay of the Cadillac tax until 2025. The Cadillac tax, a 40% excise tax on insurers and employers offering so-called high-cost coverage, is delayed until 2025. The Cadillac tax has been widely criticized by both employer and union groups, and the delay will certainly be welcomed by constituents on both sides of the aisle.
3) Expansion of tax savings vehicles, such as individual health savings accounts and health flexible spending accounts. Effective for the 2018 tax year, the AHCA amends the Internal Revenue Code to allow tax-free contributions to individual HSAs up to the out-of-pocket maximums under a qualified high deductible health plan — currently $6,550 for self-only coverage and $13,100 for family coverage. This is nearly double the contributions currently permitted. The current prohibition on using HSAs for over-the-counter medications would also be repealed, expanding how HSA dollars can be spent. For health FSAs, the ACA-imposed limitation on nontaxable contributions (currently $2,600) would be eliminated. With the expansion of these tax-preferred accounts, employers would see direct savings in required FICA and FUTA contributions. In addition, the adoption of consumer-driven benefit strategies, such as high-deductible health plans, would become more attractive and potentially create savings in overall healthcare costs.
4) Elimination of taxes on medical devices and health insurers. The AHCA also repeals two key ACA tax provisions that should have a positive impact on employer plans moving forward. Specifically, the 2.3% medical device tax is repealed, as is the ACA’s health insurer tax. Both of these provisions were suspended for the 2017 tax year, and are set to return in 2018. These taxes have a direct impact on group health insurance premiums and self-funded claims costs. Their elimination will certainly have a positive impact on employer healthcare costs.
5) A likely end to the ACA’s complex and burdensome employer reporting requirements. Although the AHCA does not directly address one of the ACA’s most burdensome provisions — Section 6055 and 6056 reporting — industry experts anticipate that these troublesome reporting requirements will be suspended through regulatory action. With the elimination of all tax penalties related to the employer and individual mandates, the need for reporting is largely eliminated. This move would be consistent with President Donald Trump’s first executive action, directing the departments to ease the ACA’s administrative burdens. It is fair to say that ACA reporting is universally viewed by employers as time consuming and costly, so elimination of this requirement would be loudly applauded.
It is important to reiterate that the AHCA is not a done deal. The political process is just beginning. To quote Schoolhouse Rock, at this point the AHCA is “just a bill.” It does not yet have force of law, and changes are inevitable. With this legislation on the horizon, employers and their advisers certainly have new things to consider as they prepare benefit and business strategies moving forward.