BY KEVIN BLOCK — MANAGER
Earlier this month, the House approved The American Health Care Act (AHCA) to repeal and replace the Affordable Care Act (ACA). There are also plans to repeal ACA provisions not already repealed in this bill through the budget reconciliation process and other administrative actions. The bill now moves to the Senate where healthcare reform will once again be up for debate. It is expected that the Senate will make changes or perhaps create their own bill. We will continue to monitor the progress and keep you up to date.
If enacted, some of the key tax provisions of the ACA that the AHCA would repeal along with their effective dates, as summarized:
- Individual mandate (December 31, 2015)
- Employer mandate (December 31, 2015)
- Net investment income tax (December 31, 2016)
- Medical hospital insurance tax (December 31, 2016)
- Health insurance tax (December 31, 2016)
- Tax on prescription medications (December 31, 2016)
- Medical device tax (December 31, 2016)
- Tanning tax (June 30, 2017)
- Small business tax credit (2020 and limited in 2018)
- Premium tax credit (modified and fully repealed after 2019)
The AHCA would also delay the 40% Cadillac tax on high-cost employer‐sponsored health coverage from Dec. 31, 2020, to Dec. 31, 2025.
Due to the repeal of the individual mandate, taxpayers will not have to pay a tax for not having qualified health insurance, which may result in many canceling their coverage. To discourage individuals from doing this, the bill will allow insurance companies to charge an increased premium of 30% for one year for new enrollees who did not have coverage for more than 62 days in the previous year.
The premium tax credit was modified (until its full repeal after 2019) so that it can be used to purchase catastrophic only qualified plans and certain qualified plans not offered through the exchange. The credit cannot be used to purchase plans that offer elective abortion coverage. In an effort to assist individuals in purchasing state‐approved health insurance coverage, the bill created a new refundable tax credit that can be paid in advance. This credit is based on age and ranges from $2,000 for those under age 30 to $4,000 for those over the age of 60.
For the taxpayers who itemize their deductions, the bill allows those with qualified medical expenses to deduct the expenses over 5.8% of their adjusted gross income instead of 10%.
Under the AHCA, the annual limit on aggregate health savings account contributions is equal to the maximum of the sum of the annual deductible and out‐of‐pocket expenses under a high deductible plan. This would increase the contribution from $3,400 to $6,550 for self‐only coverage and from $6,750 to $13,100 for family coverage. The penalty tax on distributions from HSAs that are not used for qualified medical expenses was also reduced from 20% down to 10%. HSA distributions can also be used up to 60 days before the HSA was established to match when the high‐deductible health plan began.
Contact MBE CPAs if you have any questions.