House Republicans release outline of ACA repeal

Tax Hot TopicsHouse Republicans released a blueprint for repealing the Affordable Care Act (ACA) that includes a new tax refundable tax credit for individuals to purchase insurance and a cap on the exclusion for employer-provided health care.

The 19-page outline does not offer full details and ACA repeal legislation is clearly a work in progress. Senate Republicans and President Trump have yet to release their own versions, repeal the legislation or fully endorse the House plan.

The excise taxes on individuals who fail to get insurance and employers who do not offer adequate coverage would be repealed immediately. The plan would replace the premium subsidies for individuals to buy insurance on the ACA exchanges with a refundable tax credit that could be used to purchase insurance anywhere. The refundable credit would not be based on income, but instead would be based on age.

The House plan would repeal all the ACA taxes, including:

  • 3.8% tax on net investment income (NII)
  • Medical device excise tax
  • Health insurance industry fee
  • Pharmaceutical industry fee
  • “Cadillac tax” on expensive health coverage

Only the NII tax and pharmaceutical industry fee are currently in effect, and Republicans did not specify whether such repeal would be effective beginning in 2018 or retroactive for all of 2017. Although Republicans propose to repeal the Cadillac tax, they are considering capping the exclusion from income of employer-provided health care, which would provide a similar result.

The plan would double the limit on health savings accounts (HSAs) and make HSAs exempt from the cap on employer health care, essentially pushing more and more people toward high deductible health plans.

House Republicans envision using the reconciliation process to avoid 60-vote procedural hurdles in the Senate. Reconciliation generally prohibits tax cuts outside the budget window, so the repeal of some of the ACA taxes could be limited to the next 10 years.

Achieving ACA repeal is considered a key to passing tax reform this year. First, Republicans plan to use reconciliation on ACA repeal to avoid 60-vote procedural hurdles in the Senate. Republicans cannot write a second set of reconciliation instructions for tax reform until ACA repeal uses the current instructions. In addition, Republicans plan to repeal several taxes as part of ACA legislation that will lower the revenue baseline and make it much easier to write revenue-neutral tax reform.

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