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Impact of the New Administration on
Employee Benefits –
What to Plan For
Carolyn E. Smith
WEB New York Chapter
March 16, 2017

1
“I would be shocked if we didn’t move forward and keep our commitment to the
American people”
 Senate Majority Leader Mitch McConnell (R-KY), November 2016
“I want to have a repeal as quickly as we can get it done. Day one would be nice
for me.”
 Florida Gov. Rick Scott, December 2016
“The first bill we’re going to be working on is our Obamacare legislation….We have
to bring relief as fast as possible to people who are struggling under Obamacare”.
 Speaker Paul Ryan (R-MI), December 2016
President Trump “is prepared and ready to go. As he’s said before, he wants real
change on day one. That will mean within hours of being sworn in.”
 Sean Spicer, January 4, 2017
Repeal Obamacare Now!

2
Some Caution and Reassurances….
“We are not going to rip health care away from Americans”
 Ways and Means Chairman Kevin Brady (R-TX), December 2016
“I imagine this will take several years to completely make that sort of
transition – to make sure we do no harm”
 Senate HELP Committee Chairman Lamar Alexander (R-TX), November 2016

3
Some Disagreements
“Republicans want to repeal Obamacare’s expensive and rigid system of
subsidies and replace them with a simple and flexible, advanceable and
refundable tax credit to help Americans who do not receive insurance
through their employer or a government program.”
 House Republican Obamacare Repeal and Replace Policy Brief and Resources
2017
“I think that hard-line conservatives will come out, I would say, near
unanimously against the idea of a refundable tax credit.”
 Rep. Mark Sanford (R-SC), a member of the Freedom Caucus

4
Taxing Employees on Health Coverage
“I don’t believe we ought to tax health care. I’ve never been for it… I was
opposed to the Obamacare tax, so I’d be opposed to any Cadillac tax.
Would I be for a Republican Cadillac tax but against a Democrat Cadillac
tax? I don’t think so.“
 House Rules Committee Chairman Pete Sessions (R-TX)
Is a cap on the employee exclusion a tax on the middle class? “I don’t see
it that way”.
 Ways and Means Committee Chairman Kevin Brady (R-TX)

5
Medicaid
Under our proposal, Obamacare’s Medicaid expansion for able-bodied
adult enrollees would be repealed in its current form.
 House Republican Obamacare Repeal and Replace Policy Brief and Resources
2017
“As long as Alaska wants to keep the [Medicaid] expansion it should have
the option. I will not vote to repeal it.”
 Senator Lisa Murkowski (R-AL)

6
"Nobody knew it could be so complicated.”

8
Key Objectives of ACA Repeal/Replace
Federal Regulation
Federal Budget Impact
State Oversight
But, preemption?
Individual Responsibility
Taxes and Fees
But, tax employees?
Job-Based Health Coverage

9
American Health Care Act
 House Budget Reconciliation Provisions to Repeal/Replace
ACA
 ACA premium subsidies kept through 2019, with some
changes
 New health coverage tax credit replaces the ACA premium
subsidies starting in 2020
 Keeps most ACA market reforms in place
 Repeals most ACA taxes and fees
 Expands HSAs
 Medicaid cuts and revisions

10
Tax Repeal
Individual, employer mandates reduced to zero (1/1/2016) (Continuous cov. penalty)
Small business tax credit (1/1/2020) N/A to plans with abortion coverage in 2019
“Cadillac Tax” (delayed until 2025)
Prohibition on reimbursements of OTC medicines w/o a prescription (1/1/18)
Limitation on salary contributions to health FSAs (1/1/2018)
Increase in threshold for medical expense deduction (1/1/2018)
0.9% additional Medicare tax for incomes above $200,000/$250,000 (1/1/2018)
Net investment income tax (1/1/2018)
Medical device tax (1/1/2018, tax already suspended for 2016 and 2017)
Tax on manufacturers of branded prescription drugs (1/1/2018)
Tax on health insurance providers (1/1/2018, tax already suspended for 2017)
Denial of deduction for expenses relating to Medicare Part D subsidy (1/1/2018)
Limitation on the deductibility of health insurer executive pay (1/1/2018)
Tanning tax (1/1/2018)

11
Repeal of Taxes – Official Estimates (Joint Committee on Taxation)
Provision Revenue Impact (2017-2026)
Repeal 3.8% Net Investment Tax -$158 billion
Repeal Health Insurer Tax -$145 billion
Repeal 0.9% Additional Medicare Tax -$117 billion
Delay Cadillac Plan Tax to 2025 -$49 billion
Repeal Increase in AGI Threshold for Medical Deduction -$35 billion
Repeal Fee on Branded Prescription Drugs -$25 billion
Repeal Medical Device Tax -$20 billion
Repeal FSA Contribution Limit -$19 billion
Repeal Other -$8 billion
Repeal Total -$576 billion
HSA Expansion -$19 billion
Total -$595 billion

12
Cap on Employee Exclusion
40% Excise Tax
(Delayed until 2025)
Proposed Cap on Employee Exclusion
(Dropped – for now….)
$10,800 self-only; $29,100 family
(CBO estimates for tax for 2020)
90th percentile of premiums; CBO says
75th percentile $9,520/$23,860
CPI-U (2020 forward) CPI-U plus 2%
Total cost included in tax base Same
HSA contributions included HSA contributions excluded
FSA contributions included Same, but could change (possible
interaction with elimination of cap)
Payroll tax issues
Insurer/employer legally liable for any
tax
Employees liable for any tax

13
HSA Expansion: Hatch-Paulsen/House Recon
Contributions increased to OOP limit (including deductibles)* Eff. 2018
• Limit for 2017 -- $3,400 self/$6,750 family
• OOP limit for 2017 -- $6,550 self/$13,000 family
• Both spouses can make catch-up contributions to same account*
HSA qualified family coverage may include embedded deductible for each
individual of at least minimum individual deductible ($1,300 self for 2017)
Eligibility for HSAs expanded
• Direct primary care service agreement
• On-site medical clinics
• Medicare beneficiaries
Distributions -- HSA-qualified insurance may be purchased from account
• Tax on non-medical expenses reduced back to 10%*
• Pre-paid primary care services
• Exercise equipment and gym memberships
• Certain nutritional and dietary supplements
• Eliminate “trap for the unwary” based on when HSA established*

14
Market Reforms
 Modify permitted age rating variation from 3/1 to
5/1
 Effective in 2018, as implemented by HHS regulations
 States may provide for a different variation
 Metal Tier Requirements Repealed, effective 2020
 Other requirements generally not affected
 OOP max, no pre-ex exclusions, preventive care, etc.

15
Continuous Coverage Incentive/Penalty
 With repeal of individual mandate, how to address adverse
selection
 Medicare-like penalty
 In small group and individual market, insurers “shall” impose a
penalty of 30% of the otherwise applicable premium for
failure to prove continuous coverage
 Applies if there is a gap of 63 days or more in the last 12
months
 Penalty applies for one year
 Generally starting in 2019, also applies to special enrollment
periods in 2018

16
New Tax Credit to Replace ACA Credits
 ACA tax credit to remain temporarily – until 2020
 New credit for individual market coverage and unsubsidized COBRA
 Age based (annual amounts, credit calculated monthly)
 $2,000 if less than 30
 $2,500 if ≥ 30 and < 40
 $3,000 ≥ 40 and < 50
 $3,500 ≥ 50 and < 60
 $4,000 if ≥ 60
 Max credit is $14,000, no more than 5 oldest people in family counted
 Ex: Mom age 40; Dad age 35; 3 teenagers -- Max credit is $11,500
 Income based
 N/A if eligible for group health coverage, Medicare Part A, Medicaid, CHIP
 Excess of credit over cost of insurance can go to HSA (if eligible)
 Advanceable and refundable
 N/A if abortion coverage included

17
Employer Reporting
 MEC reporting (Code §6055)
 Current Form 1095-B for non-ALEs; Part III of 1095-C for ALEs
 Not repealed, but no longer needed when individual mandate repealed
 IRS “can stop enforcing reporting that is not needed for taxable
purposes,” says the Ways and Means Committee
 Reporting Offers of Coverage and ALE reporting (Code §6056)
 Current Form 1095-C Part II
 Offer information still relevant through 2019 for current ACA premium
subsidies (even when employer penalty is repealed)
 New W-2 reporting requirement relating to new health coverage credit
takes effect in 2020. Intended to replace current 6056 reporting.
 W-2 Reporting of Cost of Health Coverage
 Still in effect

18
More Reporting
 Statement from employer relating to advance payment of
new health coverage credit (starting 2020)
 Statement must be provided by any working individual who seeks
advance payment of the credit
 Normal penalties for failure to file information returns applies to
employers who fail to comply
 Reporting for insurers relating to health coverage tax credit
 New requirement under Code section 6055

19
What’s Next in the Process?
 Two Pieces --
 House Ways and Means Committee
 House Energy and Commerce Committee
 House Budget Committee
 House Floor
 Senate – ?
 President
 “This bill will land on the President’s desk, he will sign it.” White House
Press Secretary Sean Spicer

20
Fiduciary Rule Delay
 Executive Order Issued Feb 3
 Does the rule “adversely affect the ability of Americans to gain access
to retirement information and financial advice”?
 Proposed Rule
 Would extend April 10 “applicability date” for 60 days
 Asks for comments on broader issues/economic impact
 Next steps
 Further delay?
 Rescission of the rule?

21
DOL Final Rule on State/Municipal Savings Plans
 Savings Arrangements Established by States for Non-
Governmental Employees
 Published in Fed Reg on Aug 30, 2016
 Savings Arrangements Established by Qualified State Political
Subdivisions for Non-Governmental Employees
 Published in Fed Reg on Dec 20, 2016
 Disapproval resolutions under the CRA for each of these rules have
passed the House
 If a rule is disapproved, the rule cannot be re-issued “in substantially
the same form” unless authorized by a subsequent law

22
DOL Overtime Rule
 “Defining and Delimiting the Exemptions for Executive, Administrative,
Professional, Outside Sales and Computer Employees”
 Published in Fed Reg May 23, 2016
 Effective December 1, 2016
 Stalled in Litigation
 Subject to Executive Order regarding rules not yet in effect?

23
A Few Words About Tax Reform
 Next big item after ACA repeal/replace
 Taxing employee health benefits
 Possible retirement area changes

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