On May 4, 2017, the House of Representatives passed the American Health Care Act (AHCA) by a vote of 217 to 213. The AHCA represents the Republican plan to repeal and replace the Affordable Care Act (ACA, or Obamacare). The Bill now travels to the Senate, which is expected to make many changes to the Bill.

REPEAL

The AHCA contains numerous provisions which impact taxes. The AHCA, as amended, would repeal virtually all of the ACA-imposed taxes, including the following:

  • The individual mandate under §5000A, retroactively effective beginning in 2016
  • The employer mandate under §4980H, retroactively effective beginning in 2016
  • The premium tax credit under §36B, effective in 2020 (and modified pending its repeal)
  • The 3.8% net investment income tax (NIIT) under §1411
  • The 0.9% additional Medicare tax under §3101(b)(2), effective 2023
  • The higher floor for medical expense deductions under §213(a)
  • The smaller employer health insurance credit under §45R, effecti ve2020
  • The limitation on health Flexible Spending Account (FSA) contributions
  • The so-called “Cadillac” tax on high cost employer-sponsored health plans under §4980I, delayed until 2026
  • The exclusion from “qualified medical expenses” of certain medications for HSAs
  • The ACA’s increase to the additional tax on HSAs and Archer MSAs
  • The annual fee imposed on branded prescription drug sales
  • The medical device tax under §4191
  • The annual fee on health insurance providers
  • The elimination of a deduction for expenses allocable to Medicare Part D subsidy under §139A
  • The 10% tanning tax under §5000B, effective June 30, 2017
  • The disallowance under §162(m)(6) of any deduction for “aplicable individual remuneration” in excess of $500,000 paid to an applicable individual by certain health insurers.

REPLACE

The main feature of the AHCA’s replacement of the ACA subsidies would be a new refundable tax credit for individuals who purchase state-approved health insurance. This refundable tax credit would equal the lesser of: 1) the sum of the applicable monthly credit amounts (which are a range between $2,000 to $4,000 depending on your age) or, 2) the amount paid by the taxpayer for “eligible health insurance” for the taxpayer and qualifying family members.

The AHCA would also strengthen HSAs, as well as reduce the “floor” for deductible medical expenses.

WHERE WE STAND

The Senate is expected make many changes to the Bill before passing it. The Bill would then go through the “budget reconciliation” before going to President Trump for his signature. We will track the progress of this Bill closely and provide more information as developments occur. If you have any questions about how these changes may impact you or your business, please contact Barnes Dennig here.