On March 6, 2017, Ways and Means, and shortly after, House Energy and Commerce Committees introduced the American Health Care Act as a replacement to the Affordable Care Act. The Bill modifies the Affordable Care Act (also known as ‘Obamacare’). It does not, in our opinion, repeal it. Many provisions of the ACA are retained, including the following:
- Pre-existing conditions may not disqualify a person from coverage;
- There is no lifetime benefits cap;
- Adult children up to age 26 may stay on a parent’s plan.
Here is an overview of some of the things the Bill does change (recognize, that there is a long way to go before legislation is final).
- It repeals ACA requirement that every individual must buy insurance by reducing to zero the penalties for employer and individual mandates. This means that employers are still obligated to cover employees, but there is no penalty for failure to do so.
- Health insurers must now add a 30% surcharge for people who do not have continuous coverage.
- The new age-adjusted tax credit for individuals has five levels (vs. three) meaning older customers could potentially now be charged five times, rather than three, more than younger customers for insurance premiums. The tax credit subsidy is likewise adjusted ranging from $2,000 for a 20-year-old to $4,000 for those 60 and older.
Tax changes are significant (there are more than these, but these are the most relevant):
- The 3.8% Net Investment Income Tax on high-income individuals is repealed as of 2018.
- The 0.9% Medicare tax on high-income individuals is repealed as of 2018.
- The itemized deductions for medical expenses goes back to 7 ½% of Adjusted Gross Income for 2018 from 10% today.
- The limits on HSA contributions are increased to $6,550 for individuals and $13,100 for a family.
- The ‘Cadillac tax’ on medical plans that cost over $10,200 for a single person or $27,500 for a family is still in place, but will be implemented five years later than originally planned (in 2025 instead of 2020).
We want to caution that this is only a plan, and will be marked-up and submitted for amendments. The Committees then send the Bill to the Budget Committee to complete it and send to the House for a floor vote. After that, the House Bill will need to go to the Senate for more debate and possible changes. In others words, this is just the beginning. It is an indication that the planning environment is changing.
Here at LJPR Financial Advisors, we’ll be monitoring the progress and eventual resolution, and letting you know how it makes a difference in your plan.