Legislative update: Tax components in House Republican health care plan

Tax components in House Republican health care plan

House Speaker Paul Ryan (R-WI) today released a House Republican plan to replace “Obamacare” and provide “every American access to quality, affordable health care.” The plan is part of a larger House Republican effort to provide a slate of ideas that “look past this president” to what House Republicans could achieve in 2017 and beyond.

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Tax components of the House Republican health care plan [PDF 875 KB] include:

  • Repealing taxes that were enacted to fund “Obamacare”
  • Expanding health savings accounts (HSAs)
  • Providing a new refundable tax credit for certain individuals and families who do not have access to job-based insurance, Medicare, or Medicaid
  • Imposing a cap on the exclusion from gross income for employer-provided health insurance

The following provides a summary of the tax components in the plan.

Repeal taxes enacted to fund “Obamacare”

The plan would repeal all the tax increases imposed by “Obamacare.” According to the plan, the “most egregious” of these tax increases are:

  • The 0.9% payroll tax on wages and self-employment income 
  • The 3.8% tax on net investment income
  • The increased penalty for nonqualified HSA distributions
  • Limitations on the ability to use HSAs, flexible spending accounts (FSAs), health reimbursement accounts (HRAs), and Archer medical savings accounts (MSAs) to purchase over-the counter medicines
  • Limitations on FSAs in cafeteria plans• The “Cadillac tax” on high cost plans 
  • The annual tax on health insurers and the fee on insured and self-insured health plans
  • The “individual mandate” 
  • The “employer mandate”
  • The medical device excise tax 
  • The annual tax on drug manufacturers/importers 
  • The increase in the floor on medical expense deductions to 10% of adjusted gross income (AGI)
  • The elimination of the deduction for expenses allocable to the Medicare Part D subsidy


KPMG observation

Note that legislation enacted at the end of 2015 included two-year moratoria with respect to both the Cadillac tax and the medical device excise tax, as well as a one-year moratorium (for 2017) on the application of the fee applicable to health insurance providers. Thus, under current law, the medical device excise tax does not apply to sales of taxable medical devices between January 1, 2016, and December 31, 2017, and the Cadillac tax will not be in effect until January 1, 2020. Read KPMG’s description of the PATH Act [PDF 542 KB]

Note also that, as part of a markup of health-related tax legislation, the House Ways and Means Committee last week approved a bill (H.R. 3590) that would increase the floor on medical expense deductions to 10% of AGI. The House has not yet scheduled action on that bill, and the Senate has not indicated whether it would act on such legislation.   Read TaxNewsFlash-Legislative Update

Expand HSAs

The House Republican plan proposes to expand tax-advantaged savings accounts tied to high-deductible plans by providing the following:

  • Allow spouses to make catch-up contributions to the same HSA account
  • Allow qualified medical expenses incurred before HSA-qualified coverage begins to be reimbursed from an HSA account as long as the account is established within 60 days
  • Set the maximum contribution to an HSA at the maximum combined and allowed annual deductible and out-of-pocket expense limit 
  • Expand accessibility for HSAs to certain groups, such as those who receive services through the Indian Health Service and TRICARE.


KPMG observation

At last week’s House Ways and Means Committee mark-up of health-related tax legislation, the Committee also reported out (approved) legislation that would expand HSAs. Further, the House this week passed by voice vote a bill to clarify that individuals receiving care from tribal organizations or the Indian Health Service are eligible to participate in HSAs. Read TaxNewsFlash-Legislative Update. The Senate has not indicated whether it would act on these bills.

New refundable tax credit

The House Republican plan proposes to provide a “universal advanceable, refundable tax credit” for those who do not have access to job-based coverage, Medicare, or Medicaid.  According to the plan, a monthly payment would be available and would be adjusted for age, so that older Americans would receive more support. Persons receiving the credit could use the payment to help offset the costs of purchasing plans of their choice.  

The amount of the credit is described as an amount that would be “large enough to purchase the typical pre-Obamacare health insurance plan.” If a credit recipient selected a health insurance plan that is less expensive than the value of the credit, the difference would be deposited into an HSA-like account and could be used toward other health care expenses (such as over-the-counter medicines or dental and vision care). The credit would not be available to those who are in the country unlawfully, and “this new payment would not be allowed to pay for abortion coverage or services.”

Cap employer health care exclusion

To help lower the cost of coverage, the House Republican plan proposes to cap the exclusion from gross income for employer-provided health insurance at an unspecified level that would affect only the “most generous” plans and would allow job-based coverage to continue unchanged for the vast majority of health insurance plans.  Employee contributions made on a pre-tax basis to an HSA would not count towards the cost of coverage for purposes of the cap.

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