In what may be considered lightning fast execution by Washington, DC, measures, Congress this week passed a tax overhaul (H.R. 1: An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018) for the first time since 1986, when Ronald Reagan was President. President Donald Trump signed the bill into law on Wednesday.

In the agreement, which is largely the work product of the Senate, a couple of key healthcare provisions are included, the biggest being the zeroing out, an effective repeal, of the individual mandate penalty, a tax penalty imposed on those who do not enroll in health insurance coverage. The first year this will take effect is in 2019, meaning that, for 2018, the penalty remains in place. Furthermore, the bill only repeals the penalty and not the requirement itself. This may seem like a nuance that is not important, but given that the requirement to obtain health insurance coverage remains in the law, it will still result in many Americans who will comply, even without the threat of a financial penalty.

NAHU has concerns with the overall impact on market stability that would come from effectively eliminating the individual mandate, because this could result in a death spiral of the individual market as rates perpetually increase with only the sickest consumers remaining insured. While we are not necessarily supportive of the ACA’s individual mandate, we believe there should be some enforcement mechanism, such as a continuous-coverage requirement that includes a lockout period or increased premium costs. Pressure will now increase on market-stability bills that have already been introduced by Alexander-Murray and Collins-Nelson that will mainly impact the individual market.

In light of the elimination of the individual mandate penalty, NAHU has received many questions on how this will effect employer sponsored coverage and employer reporting. Unfortunately, this provision will have no effect on employer reporting and employers will still be expected to be in compliance with these regulations. What could change for employers is enrollment numbers. Some employees who may have previously gone without employer-sponsored coverage may have only enrolled in the past few years in order to avoid the individual mandate penalty. For 2019, an employee may choose not to accept employer sponsored coverage and will escape any penalty. The employer mandate, however, is still in place and employers with over 50 employees are still required to offer coverage to full time employees or face the employer mandate penalty. One outcome is that employers could see fewer employees choosing to enroll in the employer’s plan, which in some cases could lead to issues with participation requirements. In that case, for small groups, employers may take advantage of the open enrollment time period to enroll in group coverage without participation requirements. At this time it is too soon to gauge the total impact this will have on employer sponsored coverage, but for now there are not two but three things that are guaranteed in life: death, taxes, and employer reporting.

In addition, the bill does not affect the employer exclusion which is a victory for NAHU and our allies. As we have been reporting during tax reform negotiations, there was some interest from members of both parties to include a cap on the Employer Exclusion as a way to decrease the deficit. This threat loomed even as the House and Senate went in to conference committee to merge their two bills. In the end, a cap on the Employer Exclusion was not included; however, this is still seen as a possible measure for creating revenue and NAHU will continue to advocate for the preservation of the Employer Exclusion.

The bill also includes a restoration of the deductibility of healthcare expenses above 7.5% of income for those who itemize their taxes. As a reminder, previous law had allowed a medical expense deduction for unreimbursed medical expenses that totaled more than 7.5% of a person’s adjusted gross income and the ACA raised the percentage of overall income that would trigger the deduction to 10%. The Senate tax-reform bill language prevailed in restoring deductibility back to 7.5% of income, bringing tax relief to many more people with high medical costs. The House version of the tax bill, on the other hand, would have eliminated the deduction altogether, but the Senate’s language was adopted during the conference process to merge the House and Senate versions in to the final law that was signed by President Trump earlier this week.

Last week we reported that Republican Senators Bob Corker (TN), Susan Collins (ME), and Marco Rubio (FL) were all opposed or undecided on the bill. So, what changed to allow them to support it? In Corker’s case there are varying reports with some accusing him of requesting a provision nicknamed the “Corker Kickback” in return for his support. The added provision basically allows individuals who hold real estate holdings through a limited liability company to be able to take advantage of a new deduction for “pass-through” businesses, of which Corker is said to hold many. Corker, however, has claimed that after speaking with Treasury Secretary Mnuchin and senior officials at the Congressional Budget Office, and reflecting on his previous statements that he would not vote for any proposals that would increase the deficit, he determined that he did not want to be the vote that would stand in the way of the bill passing. “On one hand, you had the deficit issue. On the other hand, you had the economic growth issue,” Corker said. “I took a long walk on Friday morning and just decided that from the standpoint of, if I were the deciding vote on this … is our country better with this or not better with it? And I feel that we are.”

For Senator Collins her previously “undecided” stance on the bill was able to turn in to a “yes” based on some amendments that were added in the conference report. Those amendments included — retaining some state and local tax deductions, restoring a more generous medical expense deduction for two years and retaining retirement account tax breaks. She also felt she could vote for the tax bill after keeping out of the bill taxes on graduate student tuition assistance, private activity bonds, student loans and a list of other issues. Collins is now expected to use her bargaining powers to pass market stability legislation such as the bill she introduced with her Democrat counterpart, Bill Nelson (FL).

Senator Rubio previously voiced his opposition to the bill unless it included a more robust tax credit for working families. Ultimately, the credit was increased enough to receive Rubio's support. The change will put, on average, about an extra $300 per child in the hands of families earning between $25,000 and $40,000 a year, but will have little effect on those earning less. Currently, the Child Tax Credit gives families $1,000 per child off their tax burden to the federal government. The Senate tax bill doubled the credit to $2,000; however, to get the full amount, families must owe a high amount in federal taxes. Families that make less money owe less money to the government and, as a result, can get less money from the credit.

NAHU is generally supportive of the tax-reform package, despite our enumerated concerns. We are primarily focused on ensuring that any tax-reform proposal does not cause significant market disruption in either the individual or group markets or make fundamental changes to employer-sponsored insurance coverage. Beyond that, we continue to advocate a further delay or permanent repeal of the HIT and Cadillac Tax, which were not addressed in tax reform. The Cadillac Tax will impose a 40% excise tax on health plans that exceed certain cost thresholds beginning in 2020, while the HIT is currently under a one-year moratorium and is set to take effect again next year, adding an additional $500 to average premiums per affected family every year.