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Impact of the New Administration on Employee Benefits –What to Plan For

Carolyn E. Smith

WEB New York ChapterMarch 16, 2017

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“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!

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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

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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

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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)

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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)

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"Nobody knew it could be so complicated.”

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Key Objectives of ACA Repeal/ReplaceFederal Regulation

Federal Budget ImpactState OversightBut, preemption?

Individual ResponsibilityTaxes and Fees

But, tax employees?Job-Based Health Coverage

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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

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Tax RepealIndividual, 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)

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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 billionRepeal 0.9% Additional Medicare Tax -$117 billionDelay Cadillac Plan Tax to 2025 -$49 billion

Repeal Increase in AGI Threshold for Medical Deduction -$35 billionRepeal Fee on Branded Prescription Drugs -$25 billionRepeal Medical Device Tax -$20 billion

Repeal FSA Contribution Limit -$19 billionRepeal Other -$8 billionRepeal Total -$576 billionHSA Expansion -$19 billionTotal -$595 billion

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Cap on Employee Exclusion40% 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

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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 beneficiariesDistributions -- 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*

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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.

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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

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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

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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

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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

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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

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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?

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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

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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?

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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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Questions?