March 8, 2017

American Health Care Act

Contributor Michael D'Addio, Principal, Tax & Business Services

American Health Care Act

House Republicans released their version of health care reform this week – the American Health Care Act (AHCA). This Congressional Budget Office has not yet scored the bill, and there is a question as to its cost. The proposal does not eliminate all of the provisions found in the Affordable Care Act (ACA) and also includes an individual penalty. Some Republicans have labeled it “Obamacare-lite.”

Following is a summary of the major provisions contained in the American Health Care Act:

Retention of Popular Obamacare Provisions

  • Insurers cannot discriminate against insureds with pre-existing conditions.
  • Young adults will be permitted to stay on their parents’ health plans through age 26.

Repeal of the Individual Mandate

The penalty imposed for failing to maintain health care coverage is repealed immediately. Penalty relief is provided for 2016, effectively making the repeal retroactive to December 31, 2015.

New Penalty Provision for Individuals

The AHCA includes a new penalty provision for those who do not maintain “continuous coverage.” Premiums for insurance purchased on the individual market are subject to a 30% surcharge for a full year if there is a lapse of coverage longer than 63 days. Under this approach, the “penalty” amount is paid to the insurance company and not to the government.

New Tax Credit Structure

While the Affordable Care Act links tax credits to income, the Republican AHCA bases tax credits mostly on age. Credits are established for certain age ranges for taxpayers who earn up to $75,000 a year ($150,000 for married joint filers):

  • $2,000 for those under 30.
  • $2,500 for those 30-40.
  • $3,000 for those 40-50.
  • $3,500 for those 50-60.
  • $4,000 for those over 60.

Families can combine the credits, with a maximum credit of $14,000 for a single family. However, the listed credits are reduced at a rate of $100 for each $1,000 of income earned above the applicable income thresholds.

Under this schedule, older enrollees in health insurance plans are eligible for a larger tax credit. However, this benefit is partially offset by an AHCA provision eliminating the current rule restricting amounts charged to older enrollees for health insurance in the individual market to no more than three times the amount charged to younger enrollees.

Like the current Obamacare premium tax credits, the new tax credits can either be refunded post-year end or advanced during the year.

Employer Mandate

Large employers will no longer be required to offer affordable coverage to employees. The employer shared responsibility payment (i.e., the penalty applied to large employers failing to offer such coverage) is repealed immediately, with a penalty relief provision for 2016.

Affordable Care Act Tax Provisions

  • The AHCA repeals the 3.8% Net Investment Income tax and the .9% Medicare Surtax for tax years beginning after 2017.
  • The Cadillac Tax (imposed on “luxury” health insurance plans) was not repealed – but has been delayed until 2025.
  • Health Savings Account rules will be substantially changed for 2018.
    1. Limits will be increased to $6,550 for individuals and $13,100 for families.
    2. The accounts can be used to purchase over-the-counter drugs.
    3. Spouses will be able to make catch-up contributions.
    4. The additional tax on using funds for non-medical purposes will be reduced.
  • The $500,000 cap on executive salaries which an insurer can deduct as a business expense is removed. Under the AHCA, the full amount paid can be deducted.
  • Many miscellaneous taxes (e.g., on insurers, hospitals, tanning salons) will remain in effect until January 1, 2018.

Changes to the Medicaid Program

  • The AHCA ends the Medicaid expansion – but not immediately. States can enroll individuals into the Medicaid program through 2019. The program will be frozen in 2020, and Medicaid rolls are then expected to decrease as enrollees earn higher incomes or otherwise leave the program.
  • In 2020, Medicaid will shift to a “per capital cap” system where states will receive a lump sum for each enrollee (versus the unlimited commitment of the federal government under current law).
  • Eligibility redetermination will be required every six months.

If you have any questions related to the American Health Care Act, please contact your Marcum tax professional for assistance.

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Michael  D'Addio

Michael D'Addio


  • Tax & Business
  • New Haven, CT