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House Committees Move to Repeal and Replace the ACA

On March 6, the U.S. House of Representatives, acting through the Ways and Means Committee and the Energy and Commerce Committee, released a new bill designed to repeal and replace or modify the Affordable Care Act (ACA), generally known as Obamacare.

The new House health care bill is called the American Health Care Act (AHCA).

The Ways and Means Committee is scheduled to begin markup, the formal tweaking of the bill language and provisions, on March 8.

AHCA Tax Impact  
On March 7 the Joint Committee on Taxation issued their report, "Estimated Revenue Effects of Budget Reconciliation Legislative Recommendations Relating to Repeal and Replacement of Certain Health-Related Tax Policy Provisions Contained in the Affordable Care Act for the Fiscal Years 2017-2026." Based on the information produced by the Joint Committee on Taxation, the AHCA, which would repeal most of the tax provisions enacted to provide necessary funding for the ACA, would cost $594 billion in lost tax revenues over the 10-year measurement period.

The primary tax revenue costs to the government, and primary benefits of repeal to taxpayers, would be caused by repealing the 3.8 percent net investment income tax and the 0.9 percent Medicare high-income surtax beginning after Dec. 31, 2017. Other notable tax provisions being repealed would be the health insurer tax, the increase in medical expense deduction floor amount and the 2.3 percent medical device tax. There are other less costly taxes being repealed, including the mandates and related penalties for individuals to purchase health insurance and employers to offer employees minimum essential coverage. The high-benefit health plan tax, known as the "Cadillac" tax, is not repealed, just delayed an additional five years until 2025. For budget reconciliation purposes, the delay is still scored as a cost.

What Happens Next?
The House of Representatives has promised quick action on the AHCA legislation. But, there is a tax credit provision in the AHCA that has raised some questions and could make the passage process more interesting than might have been initially anticipated. And, in the Senate, opposition is appearing against the tax credits and the lack of provisions for reduction in the overall cost of health care in the AHCA, which could produce a challenge for Senate leadership.

There is still much work to be done to gain passage of the AHCA in its present form, but House and Senate leadership have stated that they will have the legislation passed before they leave Washington D.C. for the April recess.

We will continue to monitor the legislation as it moves through the procedural process. And, we will report again when the House markup has been completed, when the budget scoring (final cost) has been developed and when the Senate is provided the House legislation for passage.

However, the tax changes made by the AHCA will reduce tax, not increase tax, and the effective date is generally in 2018, which provides ample time for tax planning related to any changes finally made by the AHCA.