Planning for the American Health Care Act

Editor’s Note: At publication, the U.S. House of Representatives had just released its draft of the American Health Care Act (AHCA) for consideration by the U.S. Senate. Since the proposed bill went public, Senate GOP leaders have released a revised draft of the health care legislation, which is currently being considered and debated by lawmakers. Continue to visit onebiteblog.com/health for the latest updates on health care reform in the U.S.

From comprehensive tax overhaul to major budget cuts, President Donald Trump’s first few months in office have been a whirlwind of proposed legislative changes and actions, which have sparked their fair share of debate in Congress and in the media — and likely in many dinner-table discussions across the country.

But perhaps the most talked-about changes coming down the pipeline have been around health care reform, a signature hallmark of President Trump’s election campaign. Those conversations took a big leap forward in early May, after the U.S. House of Representatives approved legislation that, if passed, would effectively repeal and replace key aspects of the Affordable Care Act (ACA), more commonly known as “Obamacare.”

Riding on a House vote of 217 to 213, the American Health Care Act (AHCA) is currently in the U.S. Senate for consideration, where it will need a simple majority vote — 51 votes or 50, plus a tiebreaker-vote by Vice President Michael Pence — to clear the chamber. And since the AHCA is part of the budget reconciliation process, it also must meet special criteria, including a demand that the bill reduces the national deficit.

What could new health care regulation mean for you and your family?

Meanwhile, as we wait to see how the AHCA is received by the Senate, there’s likely one core question on every American’s mind: what could new health care regulation mean for me and my family? There isn’t a clear-cut answer to this question; the effects will vary depending on your individual situation and health care needs, among other factors. That’s why it’s imperative that you stay proactive and seek out a qualified financial advisor, tax accountant or health care consultant to discuss how the new system may impact your health care plan, and what you should do to prepare appropriately.

To help you develop a better understanding of the current state, here’s our quick breakdown of what’s new about the AHCA, and what remains from Obamacare.

The individual and employer mandates will be repealed

Retroactive to January 1, 2016, the AHCA would eliminate the tax penalties originally imposed under Obamacare for individuals who do not have health insurance coverage. The penalties would also be repealed for employers with 50 or more full-time workers who do not offer health insurance coverage to their employees.

Other taxes instituted under Obamacare will be cut

If the House version of the AHCA is written into law, the following taxes will be repealed:

– The 2.3-percent excise tax on the sale of medical devices1

– The annual tax on health insurers2

– The tax on pharmaceutical manufacturers3

– The 0.9-percent Medicare tax on employees’ wages or self-employment income4

– The 3.8-percent tax on certain net investment income of individuals, and estates and trusts5

– The 10-percent sales tax on indoor tanning services6

The 40-percent excise tax on high-cost employer-sponsored health plans, known as the “Cadillac tax,” will remain under the AHCA; however, the effective date would be delayed until the tax years beginning after December 31, 2025. 7

Good news for young adults

The Obamacare provision that allows adult children to stay on their parents’ health insurance plans until age 26 would continue under the AHCA, if passed.

Pre-existing conditions are still covered, but certain provisions will change

Like Obamacare, insurance providers would still be required to offer coverage to individuals regardless of health status, including those with pre-existing conditions, under the AHCA. However, providers would be required to charge 30-percent higher premiums for one year to people entering the individual market without consistent coverage, which is defined as lapsed coverage of 63 days or more over the previous 12-month period.8

If you or a family member could be affected by this change, be sure to regroup with your financial advisor or a qualified insurance consultant to prioritize your needs and make sure you are receiving the appropriate coverage for your health situation.

Certain premium tax credits will change, too

Under the AHCA (for tax years prior to 2020), premium tax credits would be available for qualified health plans purchased outside of the state insurance exchanges and for “catastrophic” policies (which are high-deductible plans for individuals under age 30 or those who qualify for “hardship” exemptions). Prior to 2020, the premium tax credit schedule would be modified to reflect household income or the age of the insured individual or family member(s). The premium tax credit and the cost-sharing subsidy to reduce out-of-pocket costs for exchange coverage would be repealed starting in 2020.9

Planning for the American Health Care Act

Medicaid expansions will be phased out, but insurers are still required to cover essential benefits

State-by-state Medicaid expansions will eventually be scaled back, with new enrollments in the program frozen by 2020.

Under the AHCA, insurance providers would still have to cover the 10 “essential health benefits” requirement originally put in place under Obamacare. However, after December 31, 2019, state Medicaid plans would not have to meet this requirement.10

Americans nearing retirement may see higher premiums

Under the current health law, insurance providers can charge older individuals at rates three-times higher than those charged to younger individuals. Under the AHCA, that ratio would increase to 5:1 in 2018 — a crucial factor to consider, especially if you’re expecting to retire prior to age 65.11  If the new bill moves forward, sit down with your financial advisor to discuss your retirement, health care and long-term care needs, and potentially restructure your plan for optimal cost efficiency (if need be).

Health savings account (HSA) contribution limits will increase

Starting in 2017, annual contribution limits for HSAs under the AHCA would rise from $3,400 to $6,550 for individuals, and from $6,750 to $13,100 for families. In 2018, spouses would be allowed to make catch-up contributions to the same HSA, and over-the-counter medications could be reimbursed in HSAs and flexible spending accounts (FSAs). Moreover, taxes on distributions from HSAs for non-qualified medical expenses would return back to 10 percent.12

Keep in mind that this overview is not exhaustive. While we shift our eyes to the Senate, and await updates and feedback from lawmakers, we’ll continue to provide you with more educational information about the implications of the AHCA, and how you can prepare from a financial and tax planning perspective.

Click here to read the bill in full, as well as the latest amendments. If you have any questions about how the new provisions may affect you, your financial plan and health care needs, contact a financial advisor or qualified health care expert. And remember that regardless of what lies ahead on the legislative landscape, proactive planning is smart planning.

Have questions about how the AHCA might affect you and your family? Contact a Wipfli health care consultant today.

CONTACT

Hewins Financial Advisors, LLC d/b/a Wipfli Hewins Investment Advisors, LLC (“Hewins”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. Hewins is a proud affiliate of Wipfli LLP. Information pertaining to Hewins’ advisory operations, services and fees is set forth in Hewins’ current Form ADV Part 2A brochure, copies of which are available upon request at no cost or at www.adviserinfo.sec.gov. The views expressed by the author are the author’s alone and do not necessarily represent the views of Hewins or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Hewins, and Hewins does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Hewins of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional. Hewins does not provide tax, accounting or legal services.
Pamela R. Branshaw
Pamela R. Branshaw

CPA, CEBS | Partner, Employee Benefits Services Leader at Wipfli LLP

Pamela R. Branshaw, CPA, CEBS, is a partner and the Employee Benefits Services Leader for Wipfli LLP, in which she is responsible for the development and operations of the firm’s entire employee benefits practice. Pam also leads Wipfli’s Health Care Reform Advisory Group and is a member of the leadership team for the firm’s small business services group.

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Planning for the American Health Care Act

time to read: 5 min