House passes bill to repeal taxes created by the Affordable Care Act
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House passes bill to repeal taxes created by the Affordable Care Act

What are the ramifications? For starters, the 3.8 percent tax on net investment income and 0.9 percent increase in the Medicare payroll tax would be eliminated.

​House Republicans have fulfilled a 2016 campaign promise by passing the American Health Care Act (AHCA). The cost of the Affordable Care Act was paid for in part by a series of taxes, as well as penalties on individuals and employers who failed to comply with its mandates. If the AHCA were to become law, many of those taxes, penalties, and mandates would no longer apply or would be substantially altered.

How are taxes affected?
The House bill would affect most of the taxes and penalties originally created by the ACA, including:
  • The premium tax credit created to help certain taxpayers reduce the net cost of their health insurance would be substantially altered, decreasing the amount of the credit for most taxpayers.
  • The individual and employer mandate penalties would be retroactively repealed back to 2016, and the tax on high-cost employer health plans would be deferred until 2026.
  • The 3.8 percent tax on net investment income would be retroactively repealed effective in 2017.
  • The 0.9 percent increase in the Medicare payroll tax would be eliminated — but only beginning in 2023.
  • The income threshold for claiming medical expenses as itemized deductions would be reduced from 10 percent of adjusted gross income to 5.8 percent, beginning in 2017.
  • The ACA excise taxes affecting products and services, including medical devices and tanning salons, would be retroactively repealed effective in 2017.

See this alert for a more detailed analysis of all of the tax provisions in the bill.

What lies ahead for healthcare reform legislation?
The AHCA is a long way from becoming the law of the land, but it does represent an important first step. Some of the milestones and possible roadblocks include:
  • Congressional Budget Office “scoring”: To date, the costs associated with the bill are unknown, as is the number of Americans who would lose health insurance coverage if it were enacted. Those numbers are provided when the Congressional Budget Office “scores” the proposal. The release of that score could have a significant impact on how the Senate would address this legislation, particularly if the public reaction to the score is negative.
  • Senate consideration: Senators could choose to consider the AHCA in its current form, or they could offer amendments to it. Some provisions in the House bill may not even be able to be included in a Senate version if the Senate plans to consider health care as part of the reconciliation process, as only items germane to revenue or spending are permitted to be included in that process. Alternatively, they could choose to start from scratch and create their own proposal to address concerns with the ACA in a different way. Early indications from Senate Republicans are that they’ll start from scratch.
  • House/Senate conference committee: If the Senate were to pass a healthcare reform bill that isn’t identical to the AHCA, the two chambers would create a joint committee to merge the two proposals into one compromise version. That “conference bill” would have to again pass both the House and Senate before going to President Trump for his signature. House support for conference bill: The AHCA passed by a razor-thin margin in the House with certain amendments being narrowly tailored to obtain a single vote without losing any other votes. Even slight changes in a conference bill could lead to a different result.
  • Timing: Senate Republicans have not yet provided a timeline for when they intend to address healthcare reform, but they have indicated that they intend to use the budget reconciliation process. If a conference bill does not pass the Senate before the budget for the next fiscal year is enacted, this would substantially complicate the process. Given that both the House and Senate also plan to pursue tax reform this summer, that timing may be challenging.

If you have any questions or concerns about the legislation or the process, please give us a call.

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