Update: On Tuesday June 27, Senate Republican leaders postponed consideration of their bill to overhaul the Affordable Care Act until after the Fourth of July recess. The Senate leadership had little choice after the number of Senate Republicans who said they would not support the bill rose after the CBO’s analysis was released. It is expected that they will use the intervening time to determine what changes to the bill need to be made before proceeding.
On June 22, 2017, U.S. Senate Republicans revealed their version of an Affordable Care Act (ACA) partial repeal and replacement bill. The Senate Republican leadership is describing the bill as a “discussion draft.” The draft is called the Better Care Reconciliation Act of 2017. The official legislation has not yet been introduced.
Where the Legislation Stands in the Process
No definitive timeline for a vote in the Senate has been set, although the Senate Republican leadership is pushing to have the vote prior to the July 4th recess. Before a vote can take place, the Congressional Budget Office must still complete its required bill analysis of the economic impacts, including cost and estimates as to the number of individuals that would be covered under the proposal. Keep in mind, under reconciliation rules the Senate bill must achieve at least as much savings as the House bill. The House bill achieved $119 billion in savings over 10 years. The CBO score is expected early next week as Senators begin their debate on the legislation.
The Senate Parliamentarian must also review the bill and determine whether there are items contained in the bill that do not meet budget reconciliation requirements. Reconciliation bills are limited to items that directly impact the federal government budget either in spending, revenue, or debt limit. Accordingly, items that are ancillary to the federal outlays may not meet that test and may need bipartisan support to get the 60 votes required under regular order. Keep in mind that there are 52 Republican senators, so eight Democrats are needed in this case.
Media reports indicate that the legislation has been carefully guarded, and many lawmakers were viewing it for the first time on Thursday. Even though they have had very little time to review, some Republican senators have already come out against the bill in its current form. In order to pass under reconciliation rules, the Republicans cannot lose more than two senators if the Democrats stay unified against the legislation. To ensure they have the votes necessary to pass this legislation, it may be amended in the coming weeks. Just as was seen play out in the House, if they tweak the legislation to move it to appease moderates, they risk losing the conservative members, and vice versa. However, they have considerably less wiggle room in the Senate to lose votes.
How Do the House and Senate Bills Compare?
Despite the conjecture that the Senate version would substantially differ from the House’s version, the general structure follows the House bill. Remember, the various provisions contained in this “discussion draft” may be amended as it progresses through the Senate. However, it’s important as a frame of reference to look at how closely it follows the House bill and where it differs.
At a high level, the Senate proposal repeals the bulk of taxes, including the additional Medicare tax on higher income individuals, contained in the ACA. Although some of the effective dates of the repeal provisions vary from the House version, the content is generally the same. Similarly, one of the more controversial taxes in the ACA, the excise tax of high-cost employer sponsored health care (known as the Cadillac tax), is retained, but the effective date of the tax moves from 2020 to 2026 in the bills. Consistent in both the House and Senate bills is a push to make it easier to use various health savings vehicles. This push is consistent with general Republican messaging to expand their use.
The Senate bill also maintains the same trajectory of the House in relation to the employer and individual mandates. The legislation does not negate the individual shared responsibility or employer shared responsibility provisions, but sets the penalty amount to zero dollars retroactive to January 1, 2016. Essentially, this negates the need to maintain certain coverage requirements in order to avoid a penalty. However, the informational filings associated with these mandates were not addressed in this bill. Consequently, this bill does not alleviate employers’ obligations to file Forms 1094-C and 1095-C or risk a penalty for not filing accurately or on time.
Additionally, the Senate bill keeps the repeal of the Small Business Tax Credit for purchasing health insurance that was in the House bill, and the repeal of the cost-sharing reduction subsidies. However, it takes a different direction from the House bill by retaining the premium tax credits. The current draft tweaks the formula for these credits, including interjecting age along with income into the matrix for contributions. The House bill proposed to repeal these credits in 2020 and replace them with their new age-based advanceable refundable tax credit ranging from $2,000-$4,000 per individual with various caps and phase-out for upper income individuals.
Another item in the House bill absent from the Senate version is the House bill’s continuous coverage requirement to avoid a 30 percent premium surcharge. This was the policy alternative to the individual mandate to ensure healthy individuals still purchased insurance prior to getting sick. In addition, the Senate version does not allow states to opt out of using the community rating formula contained in the ACA; this was one of the last-minute compromises to garner enough support in the House. This compromise drew criticism that repealing components of the community rating provision would allow insurers to charge people with pre-existing conditions more for their insurance in states that opted out.
It should be noted that the Senate bill does contain the larger age ratio option included in the House. Additionally, the Senate bill took a different direction from the House bill, allowing states to modify their markets by interjecting changes to the state innovation waivers and allowing states to determine their formula for medical loss ratio. Other market reforms contained in the House bill are retained in the Senate proposal, but these slight variations in the structure could lead to substantial debate in the weeks and the months to come. There are several other items in the Senate bill that adjust the trajectory of the House bill, requiring resolution between the bills should the Senate bill pass.
What Do Employers Need to Know?
There is no change at this juncture. When and if the Senate passes a bill, the version that passes the Senate must be reconciled with the version that passed the U.S. House of Representatives last month. Until both the Senate and the House pass the same bill and President Donald Trump signs it, the ACA continues to be in effect.
Employers must remember that this does not change anything. The ACA and all its provisions still continue to be the law of the land, including employer shared responsibility provisions and its filing requirements. This legislative process is fluid, and it’s important to stay compliant with the current law. Keeping informed of where the process stands is critical, but it’s vital to understand that at this time it’s unknown if this legislation will make it successfully through Congress and if it does, what the final form may contain. Paychex will continue to monitor for any changes or movement through Congress and keep you informed.