The tax implications of the GOP health plan
House Republicans released a bill, the American Health Care Act, on Monday night to begin making good on their promise to repeal and replace the Affordable Care Act.
The ACA repeal bill proposed in the House on Monday would immediately repeal the individual and employer mandates, and modifies the current premium tax credit for 2018 and 2019 before replacing it with a new tax credit in 2020, according to Nicole Elliot, former IRS senior director of operations for the Affordable Care Act and current partner with law firm Holland & Knight.
“The bill repeals the individual mandate and provides a retroactive break for those impacted in 2016,” she explained. “If you thought you owed a penalty for 2016 and paid it, if this bill goes through, you won’t owe it, and can get a refund.”
“That’s a significant change,” she said. “It also repeals a lot of the other ACA taxes, so starting in 2018 it repeals the medical device excise tax, the tanning tax, the Medicare tax increase as well as the net investment income tax of 3.8 percent.
“The biggest thing is that it makes some changes to the current premium tax credit. It modifies the credit for several years, and then in 2020 it repeals the premium tax credit and replaces it with a new credit. Under the bill an individual will now be able to get the premium tax credit in 2018 and 2019 for non-exchange coverage, which is significant. The amount of the credit is modified based on age in addition to income and premiums. The new credit in 2020 is an age-adjustable tax credit.”
The bill released on Monday contains the entire proposal, according to Jeff Martin, senior manager in Grant Thornton’s Washington National Tax Office. “I don’t expect another bill that will add to it. It’s a package of over 100 pages. It’s going into markup tomorrow. There will be plenty of comments, and we do expect some changes, but we don’t know whether they will be major or minor changes.”
“It does not repeal the ACA entirely,” said Martin. “It repeals some of the taxes that are in it. It effectively repeals the individual mandate and the employer mandate, by reducing the penalties down to zero. It also repeals many other things.”
Prospects of success
Despite the Republican majority in the House, the success of the bill is not assured since there are a number of Republican lawmakers who have vowed to vote against anything short of a full repeal of the ACA.
Medicaid administered by the states will no longer be open-ended based on the number of individuals covered, Martin indicated. “Under the proposal, they will now give states a fixed-dollar amount. The whole idea is that it will help curtail Medicaid spending.”
The new proposal does not place a cap on the exemption for employer-sponsored health care plans. “That was a way they were going to raise revenue,” Martin said. “Back when the ACA was negotiated, it was originally going to cap what an individual could exclude from income from health coverage, so any amount offered by an employer to an employee in excess of that amount would be income. They took that out of the ACA and replaced it with the Cadillac tax, an excise tax on high-cost plans. The Republican proposal put that [the cap on employer-sponsored health car plans] back in the discussion draft that was leaked 10 days ago. It created a lot of push-back, so they took it out and put the Cadillac tax back in, but with a delayed effective date.”
“They put the Cadillac tax back in for budgetary reasons, but they kicked it down the road to 2025,” he continued. “Congress already kicked it down the road from 2018 to 2020. It will get kicked down the road even more to the extent that it never goes into effect.”
The premium tax credit will be around until 2019 and then replaced with a new credit.
“The amount of the new credit is based on the age of the individual, so the older you get, the larger the credit you can receive,” Martin said. “If you make up to $75,000, you get the full credit, but once you go over $75,000 it phases out. And you’re not eligible for the credit if you are eligible for employer coverage.”
“We’re still early in the process,” Martin cautioned. “There could be significant, or very minor changes, it will be interesting to see how it all works out.”