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Republican Bill Would Repeal ACA and Replace it With Alternative Health Care Legislation

Republicans who oppose the Affordable Care Act (ACA) have offered and ACA replacement plan called the Patient Choice, Affordability, Responsibility, and Empowerment (CARE) Act. ( Executive Summary of the “Patient Choice, Affordability, Responsibility, and Empowerment (CARE) Act.” )

Here’s an overview of what would be in the CARE Act, as introduced by Senator Richard Burr (R-NC), Senate Finance Chair Orrin Hatch (R-UT), and House Energy and Commerce Chairman Fred Upton (R-MI), with an emphasis on the tax implications.

Repeal of ACA. The CARE Act would repeal ACA (P.L. 111-148) as amended by the Health Care and Education Reconciliation Act of 2010 (HCERA, P.L. 111-152)) in its entirety, except for the changes to Medicare.

RIA observation: Complete repeal would eliminate the individual mandate and employer responsibility provisions, as well as the associated penalty tax provisions and refundable tax credit for low- or moderate-income families buying certain health insurance. Repeal of ACA would also include the elimination of:
…, the increased hospital insurance (HI) tax for high-earning workers and self-employed taxpayers;
…the 3.8% surtax on unearned income of higher-income individuals;
…the higher threshold for deducting medical expenses;
…the $2,500 dollar cap on contributions to health flexible spending arrangements (FSAs);
…the ban on the cost of over-the-counter medicines being reimbursed with excludible income through a health FSA, health reimbursement account (HRA), health savings account (HSA), or Archer MSA, unless the medicine is prescribed by a doctor;
…the $500,000 compensation deduction limit for health insurance issuers;
…the excise tax on medical device manufacturers;
…the excise tax on health insurance providers; and
…the 40% nondeductible excise tax on high-cost employer-provided health insurance coverage.

Continuous coverage protection. Under the CARE Act, individuals moving from one health plan to another—regardless of whether it was in the individual, small group, or large employer markets—could not be denied a plan based on a pre-existing condition if they were continuously enrolled in a health plan. Insurers would be required to offer coverage at standard rates, based on age and residence, to individuals who have stayed continuously insured with at least catastrophic coverage, for a period of at least 18 months, without a significant break in coverage.

For those who are uninsured when the Republican proposal is adopted, there would be a one-time open enrollment period in which individuals would be able to purchase coverage regardless of their health status or pre-existing conditions. This enrollment period would make certain that an uninsured American facing health issues could buy coverage at the same premium as a healthy individual. Uninsured individuals who forgo enrolling during the one-time open enrollment period or during their “applicable creditable coverage window” would still be able to enroll during an annual enrollment period. However, they would not be able to avail themselves of the continuous coverage protections. Accommodations for life-events would also be permitted.

According to the sponsors of the legislation, these provisions would help incentivize responsible behaviors by encouraging consumers to keep their health coverage.

Tax credit for lower income persons, in order to make health care more affordable. The repeal of ACA would remove the premium tax credit for health insurance purchases through an Exchange. That credit is available for those with household income that does not exceed 400% of the federal poverty level (FPL).

Under the proposal, individuals with annual income up to 300% of the FPL would be eligible to receive an age-adjusted, advanceable, refundable tax credit to buy health coverage or health care services. The value of the tax credit would be reduced as an individual’s income increased between 200 to 300% of FPL. Individuals with annual income above 300% FPL would not be eligible for a credit, and only American citizens would be eligible for a credit. The tax credit would be indexed for inflation.

Individuals with qualifying incomes who work for a small business with 100 or fewer employees would be eligible for the credit. In addition, those who don’t work at such a small business or at a large employer, including the self-employed, and who do not have an offer of health insurance coverage, also would also be eligible for the credit to help them buy a plan in the individual market.

Dependent coverage up to age 26. The repeal of ACA also would eliminate the rule requiring group health plans and health insurance issuers that provide dependent coverage of children to continue to make such coverage available for an adult child until age 26. However, the Republican proposal would continue to require health plans to offer dependent coverage up to age 26 during a transition period. But any state could choose to opt out of this dependent coverage provision for the plans it regulates.

Capped exclusion of employer provided health care coverage. The CARE Act would replace ACA’s 40% excise tax on high-cost employer-provided health insurance coverage with a cap on the tax exclusion for employee health coverage. The cap would be $12,000 for individuals and $30,000 for families (these amounts would be inflation indexed). The employee’s health benefit above the threshold amount would be treated as regular income and taxed to the employee.

Broadened HSA uses. By repealing ACA, the proposal would restore the ability to treat as a qualified medical expense any HRA and MSA amounts used to buy over-the-counter medications. Additionally, taxpayers would be permitted to use HSA funds for COBRA coverage and “HSA-qualified policies” (a term that is not defined in the materials). Spouses would be allowed to make catch-up contributions to the same HSA account.

Other proposed changes. The CARE Act’s non-tax changes would include the following:

  • States could elect to auto-enroll qualified individuals into insurance plans with premiums equal to the value of the individual’s tax credit, but who fail to make an affirmative choice in choosing a plan within a specified timeframe. If individuals did not like the initial default plan selected, they would be able to switch plans or opt-out of coverage altogether.
  • State high-risk pools would help chronically ill patients access coverage while reducing premiums for other consumers in that state.
  • Under a change to Medicaid, states would be able to adopt a “capped allotment,” where federal Medicaid dollars would “follow the patient.” The state capped allotment would be based on the patient’s health status, age, and life circumstances. States would continue to receive taxpayer-provided pass-through health care grants for pregnant women, low-income children, and low-income families. Funding for health grants would be allocated to states based on the number of low-income individuals at or below 100% of FPL. This capped allotment would grow over time to reflect inflation and demographic and population changes.
  • Under another change to Medicaid, states would receive a defined budget for long-term care services and support for low-income elderly or disabled individuals who do not avail themselves of the new tax credit.
  • Changes in the law would combat so-called “junk lawsuits,” and reduce the practice of defensive medicine (i.e., over-use of diagnostic tests) by placing caps on non-economic damages and limitations on attorney’s fees. They envision changes to incentivize states to adopt a range of solutions to tackle junk lawsuits and defensive medicine. For example, states could establish expert panels to provide an avenue for swift resolution informed by individuals qualified to evaluate the type of alleged injury. States could also elect to establish a state Administrative Health Care Tribunal, or “health court,” presided over by a judge with health care expertise who could commission experts and make the same binding rulings that a state court can make. States could also encourage settlement of medical malpractice cases sooner by adopting patient compensation system reforms modeled after worker’s compensation.
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