The Better Care Reconciliation Act of 2017

This update is brought to you by Brown & Brown’s business partner, the law firm of Miller Johnson.

Background: It has been almost two months since the House of Representatives narrowly passed its ACA repeal and replace proposal—The American Health Care Act (“AHCA”)—on May 4, 2017. It was unclear whether Senate Republicans would attempt to pass the AHCA in the same form as passed the House (least likely), pass the AHCA with amendments (more likely), or scrap the AHCA and start from scratch (most likely).

On June 22, 2017, Senate Republicans released a “discussion draft” of the Better Care Act. While the Better Care Act shares the same bill number as the AHCA (H.R. 1628), it is an entirely separate bill from the AHCA. While the Better Care Act appears to scrap the AHCA, many of its provisions borrow from the AHCA. The more notable similarities and differences between the Better Care Act and the AHCA are explored in detail below.

Similarities to the AHCA: Here is a summary of the Better Care Act’s provisions that are similar to the AHCA:\
Effective in 2016

  • The employer mandate penalty (aka the pay or play penalty) and the individual mandate penalty are reduced to $0

Effective in 2017

  • HSAs, Archer MSAs, health FSAs and HRAs may be used to purchase over-the-counter medications, regardless of whether the medication was prescribed.
  • The penalty on HSA distributions for certain non-qualified medical expenses is reduced to 10% from 20%.
  • The 3.8% net investment income tax is repealed.

Effective in 2018

  • Increase the maximum allowable HSA contributions to be consistent with the maximum statutory out-of-pocket limits imposed under qualified high deductible health plans. For 2017, these out-of-pocket limits are $6,550 for self-only coverage and $13,100 for family coverage.
  • For plan years beginning after December 31, 2017, the limitation on employee contributions to a health FSA is repealed. (Under the ACA, this limit is currently $2,600 for plan years beginning on or after January 1, 2017, and is annually adjusted for inflation.)

Effective in 2020

  • The small business tax credit is repealed. However, plans that cover abortions (that are not necessary to save the life of the mother, or are not necessitated by rape or incest) are not eligible for the credit beginning in 2018.

Effective in 2023

  • The additional Medicare tax of 0.9% on high-wage earners is repealed. This includes an employer’s obligation to withhold this additional Medicare tax on employees with earnings in excess of $200,000.

Effective in 2026

  • The excise tax on high cost employer-sponsored coverage (i.e., the “Cadillac tax”) takes effect. (The Cadillac tax was originally scheduled to take effect on January 1, 2018, but was delayed two years, until January 1, 2020, under the Consolidated Appropriations Act of 2016.)
  • It is possible that the Cadillac tax is further delayed (or repealed) by future legislation, but it appears that including an outright repeal of the Cadillac tax in the Better Care Act is prohibited by the Byrd Rule. (Among other things, the Byrd Rule generally prohibits inclusion of provisions in a reconciliation bill that increase net outlays or decrease net revenues in a fiscal year that is at least ten fiscal years later than the fiscal year in which the reconciliation bill is passed.)

As you can see, the Better Care Act incorporates most of the tax-related provisions that were included in the AHCA. These changes—which repeal many of the taxes imposed under the ACA—generally have a favorable impact on employers that sponsor group health plans

Differences from the AHCA: The primary differences in the Better Care Act and the AHCA relate to the Better Care Act’s Medicaid and premium tax credit provisions. These provisions have little, if any, direct impact on employer-sponsored group health plans. As a result, these differences are only briefly explained below.

Medicaid Provisions
Similar to the AHCA, the Better Care Act eliminates the ACA’s “enhanced” funding to states that expanded Medicaid using Federal Medical Assistance Percentages (“FMAP”). The Better Care Act replaces Medicaid funding under FMAP with a “per capita” funding arrangement (i.e., generally a fixed dollar amount per Medicare enrollee, which is annually adjusted for inflation). Alternatively, states may apply for a federal block grant to fund Medicaid coverage for certain Medicare enrollees. Unlike the AHCA, however, the Better Care Act phases out Medicaid funding under FMAP from 2020 to 2024. The AHCA terminated Medicaid funding using FMAP as of December 31, 2019.

Premium Tax Credits
The AHCA revised the ACA’s current premium tax credit structure in 2018 and 2019, and outright replaced this structure beginning in 2020. As replaced under the AHCA, individuals are eligible for premium tax credits in an amount that varies solely based on age:

  • $2,000 per individual up to age 29;
  • $2,500 per individual ages 30 to 39;
  • $3,000 per individual ages 40 to 49;
  • $3,500 per individual ages 50 to 59; and
  • $4,000 per individual ages 60 and over.

Under the Better Care Act, the ACA’s premium tax credit structure is left intact through 2019. Beginning in 2020, the Better Care Act replaces the premium tax credit structure under the ACA, although the replacement is more similar to that under the ACA than under the AHCA. Similar to the ACA, the amount of an individual’s premium tax credit varies under the Better Care Act based on age, income and the cost of health insurance in particular markets.

Under the Better Care Act, an individual’s required contribution towards health insurance (net of the premium tax credit) varies based on the amount that the cost of the median-cost plan that provides benefits that are actuarially equivalent to 58% of the full actuarial value of the ACA’s essential health benefits (which are based on the applicable state-benchmark plan) exceeds the following percentages of the individual’s household income:

For example, an individual who is age 62 with a household income of 300% of the federal poverty level would not be required to pay more than 11.5% of his or her household income to enroll in the median-cost 58% actuarial value plan. Any premium in excess of this limitation would be covered by the premium tax credit under the Better Care Act.
Here are some notable differences in the premium tax credit structure under the ACA and the Better Care Act:

  • Under the ACA, the amount of an individual’s premium tax credit is based on the amount that the cost of a more expensive plan (the second-lowest cost 70% actuarial value plan) exceeds the applicable percentage of an individual’s household income. The applicable percentage doesn’t vary based on age. And the maximum applicable percentage is 9.5%, which is annually adjusted for inflation (i.e., it is 9.69% in 2017).
  • Under the ACA, the premium tax credit is completely phased-out for individuals with household income that exceeds 400% of the federal poverty level (vs. 350% under the Better Care Act).
  • Under the ACA, premium tax credits are not available to individuals with household income less than 100% of the federal poverty level. Since premium tax credit eligibility is extended to these low-income individuals under the Better Care Act, this may reduce the number of individuals who enroll in Medicaid compared to under the ACA.
  • Under the ACA, individuals were ineligible for a premium tax credit if they were eligible for employer coverage that was both: (1) affordable, and (2) of minimum value. Under the Better Care Act, individuals are ineligible for a premium tax credit if they are eligible for any employer coverage (that doesn’t consist solely of excepted benefits), regardless of whether that coverage is affordable or of minimum value.

Recent Updates to the Better Care Act: Senate Republicans originally indicated their goal to bring the Better Care Act to a vote in the full Senate before its July 4th recess. However, on June 26, 2017 (only 4 days after the discussion draft was released), Senate Republicans released an amended version of the Better Care Act. The amended version is largely the same as the original discussion draft. The most notable amendment adds a provision that allows health insurance issuers in the individual market to impose a six-month waiting period on individuals who had a gap in coverage of at least 63 days.
The discussion draft of the Better Care Act removed the ACA’s “individual mandate” penalty for failing to maintain continuous minimum essential coverage. But—unlike the AHCA—did not replace the individual mandate with any penalty for failing to maintain continuous coverage. It is unclear how the absence of such a penalty would not result in adverse selection in the individual market (i.e., because individuals would be able to purchase health insurance only after becoming sick with no penalty). While this amendment addresses this adverse selection problem, it is unclear if this six-month waiting period penalty is severe enough to prevent adverse selection.

Next Steps: The Senate’s July 4th vote goal, which seemed unlikely at the onset, was delayed on June 27, 2017. Like the AHCA in the House, the Better Care Act appears to face significant opposition from both moderate and conservative Senate Republicans. As a result, it is unclear when the Better Care Act will ultimately be brought to a vote in front of the full Senate. But, this opposition within the Senate Republicans is likely to lead to several amendments to the Better Care Act, which could take days or weeks.
We will continue to update you as developments related to the Better Care Act (and the ACA repeal effort, in general) continue to emerge.


The Patient Centered Outcomes and Research Institute (PCORI) fee, also known as the Comparative Effectiveness Research (CER) fee, is due annually using IRS form 720 by July 31st.
Background: This fee applies to both insured and self-insured medical plans. It is based on the number of covered lives—employees and dependents. For insured plans, the fee is paid by the carrier and included in premiums. For self-insured plans, the employer plan sponsor must calculate and pay the fee. The fee is based on the average number of covered lives for the 12-month policy period that ended in the preceding year.

Rates: For policies ending between January 1, 2016 and September 30, 2016, the cost is $2.17 per person. For policies ending between October 1, 2016 and December 31, 2016 the fee is $2.26.

Counting Methods: There are three allowable counting methods for self-insured policies. Once chosen, the plan sponsor must use only the one method for that reporting year. Here are the options:

Actual Count Method. Plan sponsors calculate the sum of lives covered for each day of the plan year and then divide that sum by the number of days in the year. This count includes employees plus dependents.

Snapshot Method. Plan sponsors calculate the sum of the lives covered on one or more dates in each quarter of the plan year and then divide that number by the number of dates used. Each date must be within three days of the date used for the first quarter. E.g. If using February 15th (1st quarter), then must use a day between May 12 – 18th (2nd quarter). Under this method, the plan sponsor can count the number of covered employees and multiply that number by 2.35 to obtain the spouse and dependents count.

The 5500 Method. By adding the total number of employee lives on the first day of the plan year to the total number of lives on the last day of the plan year as reported on the Form 5500 (without dividing by 2). Can only use this method if the 5500 for that plan year is filed no later than the due date for the fee imposed for that plan year. E.g. Calendar plan year 2015, the 5500 is due by 7/31/16, and the employer obtains an automatic 2 ½ month extension. The employer is not eligible to use the Form 5500 method because they did not file by the 7/31 fee due date.

Health Reimbursement Account (HRA). In the event the employer has a self-funded medical plan and a HRA covering the same group, the fee will be payable on the self-funded medical plan. If the employer offers a self-funded medical plan to one class (e.g. management employees) and a self-funded HRA to non-management employees, then the fee would be based on the aggregate number of covered lives. If the employer has a fully-insured medical plan and a HRA covering the same group, the fee is payable on the HRA. Most HRA third-party administrators are able to provide the covered lives count required to make payment.

Retiree Coverage: The fee applies to health insurance policies and self-insured health plans that provide accident and health coverage to retirees, including retiree-only policies and plans.

COBRA continuation coverage: COBRA and similar continuation coverage (Cal-COBRA, for example) must be taken into account when determining the PCORI fee.
Please contact your Brown & Brown Account Team if you have any questions.

HIPAA Checklist After Cyber-Attack

Health and Human Service’s (HHS) Office for Civil Rights (OCR) has issued a Quick-Response Checklist, a guide explaining the steps for HIPAA covered entities and business associates to take in response to a cyber-related security incident. The Checklist explains that affected entities-

  • Must execute response and mitigation procedures and contingency plans. For example, affected entities should take immediate actions to stop the incident and mitigate impermissible disclosures of protected health information (PHI). Noting HIPAA’s broad definition of security incidents that trigger an obligation to act, the Checklist refers to OCR’s ransomware guidance for some specific recommendations.
  • Should report the incident to law enforcement. Entities may report to federal, state, or local law enforcement agencies, but their reports generally should not include PHI (unless otherwise permitted by the HIPAA privacy rule).
  • Should report threat indicators to information-sharing and analysis organizations (ISAOs). Federal law defines cyber-threat indicators as information that is necessary to describe or identify security vulnerabilities and other attributes of cybersecurity threats. Disclosure of cyber-threat indicators is intended to alert other entities and the federal government to possible or actual threats and vulnerabilities to information systems, and associated harms. ISAOs include the Department of Homeland Security, the HHS Assistant Secretary for Preparedness and Response, and certain private organizations. Reports, which generally are not forwarded to OCR, should not contain PHI.
  • Must follow breach notification requirements. The Checklist notes that OCR presumes all cyber-related security incidents in which PHI was accessed, acquired, used, or disclosed are reportable breaches unless the PHI was encrypted by the entity at the time of the incident or the entity determines, through a written risk assessment, that there is a low probability that the PHI was compromised during the breach. The breach notification rule establishes the content and timing requirements for notices to affected individuals, OCR, and, if a breach affects more than 500 individuals in a state, the news media. The Checklist states that entities should obey law enforcement agencies’ requests to delay breach notification (for example, if notification would impede a criminal investigation).

The Checklist concludes with a reminder that OCR considers all mitigation efforts, including voluntary reports to law enforcement agencies and ISAOs, during its breach investigations.

Next Steps: HIPAA requires covered entities and business associates to implement security incident procedures and a contingency plan, among other safeguards. Coming on the heels of a widely publicized global ransomware attack, the Checklist provides a timely reminder of the need for robust breach preparation, response, and recovery plans. With the heightened awareness following recent incidents, now would be a good time to evaluate the adequacy of these provisions.

CA Single Payer

On June 23rd California Assembly Speaker Anthony Rendon released a statement on SB 562 (Lara/Atkins) saying, “I have decided SB 562 will remain in the Assembly Rules Committee until further notice. . Because this is the first year of a two-year session, this action does not mean SB 562 is dead. In fact, it leaves open the exact deep discussion and debate the senators who voted for SB 562 repeatedly said is needed.” Speaker Rendon added, “SB 562 was sent to the Assembly woefully incomplete. Even senators who voted for SB 562 noted there are potentially fatal flaws in the bill, including the fact it does not address many serious issues, such as financing, delivery of care, cost controls, or the realities of needed action by the Trump Administration and voters to make SB 562 a genuine piece of legislation.”

SB 562 Key Provisions:

  • Creates a universal, single payer health care system in California
  • Provides coverage for medical, dental, vision, and nursing home care

o No premiums or out of pocket costs for covered services

  • Network would include all CA licensed providers
  • No referrals required
  • All current coverage (Medicare, Group, Individual, Medicaid, etc.) would be replaced

o Insurers could not cover services covered by the State

  • Covers all residents regardless of income, immigration status or Medicare coverage

o Eliminates co-pays for Medicare Part B

  • Estimated annual cost of $400 billion
  • Would require permission from Federal Government to allow California to use Medicare and Medicaid funds for all Californians
  • Administered by a nine-member, unpaid board appointed by the Governor, Legislature and a public advisory committee of doctors, nurses, health care providers and consumers

What’s Next: The Campaign for a Healthy California, an organization created to pass SB 562, has indicated they plan to put a single payer initiative on the ballot. There is time for this to be done by the November 2018 election.

We will keep you posted on any progress this bill makes in the CA legislature and as an initiative.