February 5, 2015
GOP Unveils Measure to Replace PPACA Including Cap on Health Tax Exclusion
Republican leaders in the U.S. Senate and House of Representatives have released a plan to repeal and replace the Patient Protection and Affordable Care Act (PPACA).
The Patient Choice, Affordability, Responsibility, and Empowerment (Patient CARE) Act was unveiled on February 5 by its chief authors, Senate Finance Committee Chairman Orrin Hatch (R-UT); Senator Richard Burr (R-NC), a member of the Finance and Health, Education, Labor and Pensions (HELP) Committee; and House Energy and Commerce Committee Chairman Fred Upton (R-MI). (A two-page summary and comparison chart are also available.)
The House of Representatives has already passed legislation to repeal PPACA (H.R. 596), and a similar measure (S. 339) has been introduced in the Senate (See the February 3 Benefits Byte for details). Such repeal efforts are largely symbolic, since President Obama has announced that he would veto the bill, but the introduction of true “replacement” legislation would establish the Republican leadership’s vision for a reformed health care system as well as the starting position for possible reforms of PPACA.
The Patient CARE Act attempts to fulfill many of the principles outlined for “replacement” legislation in H.R. 596. The measure would eliminate the individual and employer mandates, impose medical liability reforms, revise the age rating rules and transition Medicaid to a “capped allotment” system.
Very significantly, the proposal would impose new limits on individuals’ federal income tax exclusion on the value of employer-provided health insurance coverage. For employees with benefits exceeding certain annual thresholds (initially set at $12,000 for individuals and $30,000 for families, indexed for inflation plus one percentage point for perpetuity), the excess would be treated and taxed as regular income for the employee. (Importantly, the proposal maintains the employer deduction, so employers “continue to have incentive to provide quality coverage to their employees.”) This approach is a change from the version floated in the previous Congress, in which the exclusion was capped at 65 percent of the average plan value.
According to the new proposal, this change will “help lower the cost of health coverage” and “is biased in favor of individuals who work for large companies.” The Council disagrees with this analysis and, in its A 2020 Vision public policy strategic plan, has argued that the current tax treatment is actually quite progressive and is indispensable to the success of the employer-sponsored benefits system.
In lieu of PPACA’s system of subsidies, the Patient CARE Act would provide a tax credit that could solely be used for the purchase of health care coverage, targeted at employees of small businesses or those who cannot obtain coverage through a large employer. Low-income individuals (those with annual income up to 300 percent of the Federal Poverty Level, rather than 400 percent under PPACA) would also be eligible to receive an age-adjusted, advanceable, refundable tax credit to buy health coverage or health care services.
The proposal includes measures to “expand and strengthen consumer-directed health care,” allowing Health Savings Account funds to be used to pay premiums for HSA-qualified and COBRA policies, for the first time. Additionally, restrictions on veterans, service members, and individuals receiving care through the Indian Health Service would be removed.
The proposal retains some of the market reforms enacted as part of PPACA, including the prohibition on lifetime limits and adult-child coverage to age 26. Coverage of those with pre-existing conditions would be enforced through a new “continuous coverage” standard, in which an individual could not be denied coverage based on a preexisting condition if they were continuously enrolled in a health plan.
States would still be permitted to sponsor a health insurance exchange if they wished, but the GOP proposal does not allow for federal exchanges.
Legislative text for the proposal is not yet available. The Council will provide additional analysis when additional details become available. For more information on legislation addressing PPACA, contact Katy Spangler, senior vice president, health policy, or Kathryn Wilber, senior counsel, health policy, at (202) 289-6700.