Tax credits, association health plans, MLR rebates, continuous coverage requirements, etc. There’s a lot to assimilate with the ACA replacement bill, the BCRA.
Healthcare reform dominated the headlines again last week, as Senate Republicans unveiled a discussion draft of the Better Care Reconciliation Act of 2017 (BCRA). Much like the House’s Affordable Care Act (ACA) replacement bill (AHCA), the BCRA promises to repeal or delay the most significant ACA taxes and penalties on employers and individuals.
Among other provisions, the BCRA would retroactively repeal the ACA’s employer and individual mandates by eliminating the tax penalty for not complying after Dec. 31, 2015.
How is the BCRA Different from the AHCA?
The BCRA’s details are similar to those of the AHCA, but there are some notable exceptions:
Health Insurance Tax Credits: The BCRA’s tax credit system is closer to the ACA’s than the AHCA’s. Currently, the ACA’s tax credit system provides subsidies to people earning between 100% and 400% of the federal poverty level. The BCRA also looks to the federal poverty level when paying out tax credits, but under the BCRA, starting in 2020, this assistance would be capped for those earning up to 350% of the federal poverty level.
Importantly, the tax credits under the BCRA would not be available to individuals who are eligible for a group health plan through their employer, but unlike the ACA, the BCRA eliminates the requirement that the employer’s offer of group health plan coverage be affordable and provide minimum value.
Association Health Plans: Through the BCRA, association health plans could be established to operate as large group health plans for small businesses and individuals. These plans would be exempt from the ACA’s community rating and essential health benefit requirements currently imposed on the small group and individual insurance markets.
Small Business Tax Credit Rules: The BCRA eliminates the ACA’s small business tax credit for health insurance beginning after Dec. 31, 2019. Additionally, if small businesses cover abortion services (with a few exceptions), they will be ineligible for the small business tax credit effective for taxable years after December 31, 2017.
MLR Rebate System: The BCRA eliminates the ACA’s medical loss ratio (MLR) rules—standards designed to prevent insurance carriers from overcharging and requiring payment of rebates to plan participants—effective for plan years beginning on or after Jan. 1, 2019. After that date, states will be required to create their own MLR rules with rebates.
Continuous Coverage Requirement: Unlike the AHCA, the BCRA does not have any requirement that individuals maintain continuous coverage. This is one area of the BCRA that will likely see an amendment before it goes to vote (as discussed below). The AHCA requires individuals to maintain continuous coverage, and if they have a lapse in coverage of 63 days or more, they must pay a premium surcharge.
State Waiver Rules: Unlike the AHCA, the BCRA does not have as complex of a system of state waiver rules. Most notably, the BCRA doesn’t include the AHCA’s controversial McArthur Amendment, which allows states to apply to receive a waiver from the Department of Health and Human Services that allows them to increase the age rating ratio (allowing insurers to charge more for older participants than the maximum 5:1 ratio permitted), specify their own list of essential health benefits, and allow health status rating (insurance underwriting) on those who have not maintained continuous coverage.
The BCRA also provides for a “long-term state innovation fund” which would allocate $62 billion over eight years to encourage states to assist high-cost and low-income individuals with purchasing health insurance.
Medicaid Program: The ACA’s Medicaid-expansion provisions were a hotly contested part of the bill as Senators in states that have opted for the expansion had raised concerns about the rollback of these provisions in the AHCA. In order to reach a compromise, the BCRA provides a longer transition period on the rollback, beginning a reduction in the amount of federal ACA funds provided to expand Medicaid in 2021, and then continuing that until 2024. After that, the BCRA proposes cuts to Medicaid funding that are deeper than the AHCA’s proposed cuts.
Employer-provided Health Insurance: While this is technically not a change from the AHCA, it was widely reported that the Senate was considering (in earlier drafts of the bill) capping the tax exclusion for employer-provided health insurance coverage in the BCRA. This did not appear in the version of the BCRA released last week.
What are the challenges to the bill’s passage?
The BCRA, as it was first introduced in the “discussion draft” form, does not have full support from the Senate. As of Monday, June 26, there were at least six Republican Senators that would not commit to voting in favor of the bill—and amendments will likely be made before a vote.
The AHCA had proposed the continuous coverage rule as a way to motivate individuals to stay enrolled in health plans offered on the Exchanges without an individual mandate penalty. The Senators working on the BCRA have disagreed about how this rule should work.
An additional challenge for Republican lawmakers is the CBO score. The initial CBO score on the final version of the House bill had estimated that the AHCA would result in 23 million fewer people with insurance by 2026. Given that the BCRA does not have many substantial changes to the AHCA, it will likely result in a similar estimate. This could dissuade additional Republican lawmakers from voting for the bill.
What does this mean for employers sponsoring health plans?
If the BCRA were to pass as written in the discussion draft form released last week, the impact on employers would not be substantially different than under the AHCA. The main impact would be that employers would be relieved of having to comply with several of the ACA’s most burdensome taxes and regulatory hurdles, including the Employer Mandate and the Cadillac Tax (at least until 2026).
Without the Employer Mandate and Individual Mandate penalties, the process of information reporting that employers have to complete now (using the Forms 1095-C/1094-C) would become significantly easier.
Additionally, the BCRA retains the AHCA’s new rules for HSAs and Health FSAs. This would mean that employers and employees could contribute more tax-free money to HSAs and Health FSAs, and the HSA rules would become much more flexible.
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