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Just Another Replacement Proposal or the “Real Deal”

Our new president promised to move quickly to repeal and replace the Affordable Care Act, known as Obamacare. Proposed legislation just released is quite interesting in how reversionary it is, comparing to the time before 2010.

It is only a proposal and that needs to be understood in that negotiations to achieve enough votes for passage will necessitates changes and compromise, plus “scoring” by the CBO (Congressional Budget Office). Americans with coverage through their employer will appreciate the following:

1. Eliminating the FSA (Flexible Spending Account) tax deductible deferral maximum of $2,600, plus allowing Over-The-Counter medications to again be paid using FSA dollars
2. Increasing the HSA (Health Savings Account) tax deductible deferral maximum to $6,550 single and $13,100 with dependents, which equals the current maximum annual out of pocket exposure, plus allowing Over-The-Counter medications to again be paid using HSA dollars
3. Allows new HSA account owners to deduct health care expenses incurred in the 60 day period prior to opening their HSA
4. Allows both spouses, if age 55 or more to make catch up contributions to the same HSA; these amounts are currently capped at $1,000 for the account owner
5. Maintains coverage for pre-existing conditions. In order to address adverse selection costs, if not insured for more than two months then up to a 30% penalty may be added to normal premium rates when applying for coverage
6. Maintains coverage eligibility for children on their parents plan until age 26
7. Returns the adjusted gross income threshold to 7.5% for tax deductible health care expenses which Obamacare increased to 10%

Changes that businesses and higher income earners will appreciate include:

A. Elimination of the penalty for employers with 50 or more employees that do not offer health insurance to fulltime workers, which means no more excessively bureaucratic Section 6055/6056 reporting
B. A return of to tax deductibility the subsidies employers who provide retiree prescription benefits receive from the government; known as RDS (Retiree Drug Subsidy)
C. Elimination of the 2.3% Medical Device Tax which is scheduled to start in 2018
D. Elimination of the 10% Tanning Parlor Tax, which is an easy one to forget
E. Delay of the 40% Cadillac Tax through 2024; in the author’s opinion excess premium amounts should simply be subject to income taxation
F. Elimination of the .9% Medicare tax increase for higher income earners
G. Elimination of the 3.8% net investment tax for individuals, estates and trusts

All of these changes increase incentives to save for future health care needs as the cost of coverage on top of Medicare becomes increasingly expensive. Changes thankfully also simplify the tax system.

Smart move that the current subsidy arrangement for lower income earners will remain in place until 2020, and yet what may be most controversial is changing how to help pay for insurance protection. The bill replaces subsidies for premiums with advanceable tax credits. On its face upfront tax credits sound reasonable, and the amounts available scale between $2,000 to $14,000 for people with incomes up to $75,000 or $150,000. Amounts are available to individuals and families who have no access to coverage through an employer, COBRA, or a government plan. Hard nose conservatives will consider this just another entitlement. Concerns will also be raised about people falling through the cracks because they earn too much to qualify for Medicaid but receive too low a tax credit. The size of the credit is sensitive to age and income.

The issue of paying for Medicaid is also filled with challenges as just 31 of the 50 states approved the expansion of Medicaid benefits under Obamacare, and federal government funding changes to a system that supports the states are proposed to move to a per person, or per capita basis.

I often am asked if I supported the passage of Obamacare. I actually did because of the risk faced in America by people who became too ill to work and then had to bankrupt themselves to qualify for Medicaid. That is just not right and yet growing in understanding about the complexity of the current law makes me a supporter for change. It will be exciting to follow the process, and nothing changes to the current system until a new law is passes both House and Senate, then signed by the president. Eerily familiar to the Democrats controlling the Congressional majority seven years ago with a Democratic in the White House. The PPACA, known as ACA and Obamacare was signed into law on March 23, 2010. Any bets on a signature on new legislation in April 2017?

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