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ML BeneBits

On June 22, the US Senate released a discussion draft of the “Better Care Reconciliation Act of 2017” (BCRA), the Senate’s substitute for the US House of Representatives–passed H.R. 1628.

In the areas of the BCRA that are of major importance to sponsors of employer group health plans, the BCRA is not significantly different than the predecessor House legislation (click here for our prior post on the House legislation)—although the timing of certain provisions is slightly different.

As the Senate bill is part of a budget reconciliation process, Senate Republicans only need 50 votes to pass the BCRA, but are limited to provisions that impact the federal budget (which is why a full “repeal and replace” is not possible).

Highlights of the BCRA that are of significant interest to employers include the following:

  • 2016 “zero out” of tax on individual and employer mandates
  • 2017 repeal of the following: over-the-counter drug reimbursement prohibition, tanning tax (10.01.2017), health savings account (HSA) 20% penalty (reduced to 10%) for improper distributions, nondeductibility of Medicare Part D reimbursement, $500,000 cap on health insurance provider remuneration, 10% threshold for deducting medical expenses (returns to 7.5%), and the 3.8% net investment tax
  • 2018 repeal of health flexible spending account (HFSA) dollar cap, medical device tax, tax on prescription medicines, health insurance tax, plus expansion of HSA contribution limits and special rules for spousal HSA contributions and HSA expenses incurred 60 days prior to HSA establishment
  • 2020 modification of Affordable Care Act (ACA) premium credits to reflect age, income up to 350% of the federal poverty level, and local “less-than-bronze” benchmark; cost sharing repeal; repeal of the Cadillac tax (which, under Senate rules, pops back up in 2026); and sunset of the small business tax credit
  • 2023 repeal of the ACA 0.9% Medicare tax increase

Notably, the BCRA does not contain a cap on tax-free employer health insurance (but this could still occur in subsequent tax reform legislation).

The BCRA does not change the following:

  • Age 26 coverage for adult children
  • Preexisting condition exclusions
  • Essential Health Benefit (EHB) rules—unless a state seeks an innovation waiver
  • Reporting (although employer reporting will not reflect affordability or minimum value beginning in 2020)
  • Preventive care (note the May 4 executive order regarding religious freedom)
  • Lifetime/annual dollar limits (unless benchmark state seeks waiver)
  • Summaries of Benefits and Coverage (SBCs)

Given the restrictions of the Senate budget process, it is curious that the BCRA includes an extensive new provision adding ERISA sections 801–804—which is apparently focused on reviving trade association and franchisee plans—titled “Small Business Risk Sharing Pools.” It is unlikely that these new ERISA rules will survive the Senate budget reconciliation parliamentarian process.

While the BCRA is a long way away from being passed by the Senate (and subsequently submitted for approval by the House), it may create 2017 planning opportunities related to:

  • Expanding permissible health reimbursement account (HRA)/HFSA reimbursements to include over-the-counter drugs

And as employers begin to plan for 2018, the BCRA may lead them to do the following:

  • Change eligibility rules back to “traditional” full-time definitions
  • Remove dollar caps on contributions to HFSAs
  • Communicate higher HSA contribution limits
  • Drop “least expensive” plan and/or abandon affordability-based premiums
  • Abandon professional employer organization (PEO) contracting efforts focused on employer mandate
  • Abandon employer group waiver plans (EGWPs) and go back to traditional Retiree Part D subsidy (because it will again be deductible)

Morgan Lewis will keep employers updated as the legislative process to repeal and replace the ACA plays out.