The net investment income (NII) tax and the additional Medicare tax would survive repeal of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) under a just-introduced, revised Senate GOP proposal. In June, Senate Republicans proposed to abolish both taxes (TAXDAY, 2017/06/23, C.1). The revised Senate GOP plan would repeal or delay other ACA -related taxes. The ACA’s individual and employer shared responsibility provisions also would be eliminated.
We will be voting next week,” Senate Majority Leader Mitch McConnell, R-Ky., told reporters on July 13. Democrats are uniformly opposed to the bill, but will have an opportunity to offer amendments on the Senate floor when the bill becomes open for debate. Republicans, holding a slim 52-majority, can only afford to lose two GOP votes.
NII and Additional Medicare Taxes
The ACA created the NII tax and the additional Medicare tax to help offset the cost of health care reform. Both taxes generally reach higher-income taxpayers. The NII tax subjects qualified taxpayers to 3.8-percent tax on the lesser of (i) net investment income, or (ii) modified adjusted gross income that exceeds $200,000 ($250,000 for joint filers and surviving spouses, and $125,000 for married taxpayers filing separately). An additional 0.9-percent Medicare tax is imposed on the wages and self-employment income of higher-income taxpayers.
Originally, Senate Republicans had proposed to repeal the NII tax and the additional Medicare tax. The previous Senate GOP proposal would have repealed the NII tax retroactively to the start of 2017. The revised bill retains both taxes.
The revised Senate GOP bill would repeal, among other ACA taxes:
—the medical device excise tax;
—the health insurance provider fee; and
—the excise tax on tanning services
The excise tax on high-dollar health plans (also known as the tax on “Cadillac plans”) would be delayed until after 2025. Additionally, the revised Senate GOP bill would return the medical expense deduction to its pre-ACA parameters.
Various rules for health savings accounts (HSAs) and health flexible spending arrangements also would be modified. For the first time, individuals would be able to use their HSAs to pay for premiums and not just health services and products.
Shared Responsibility Provisions
Like the original bill, the revised Senate GOP bill effectively repeals the individual and employer shared responsibility provisions in the ACA. The bill would make the payment amounts $0 for qualified individuals and large employers. This change would be retroactive beginning in 2016. Individuals with a gap in insurance would be required to wait six months before reapplying.
Premium Tax Credit
Any individual who was overpaid in Code Sec. 36B advance premium tax credits would have to repay the entire excess amount, regardless of income, beginning in tax year 2018. Changes would also be made to the premium credit’s eligibility criteria, starting in 2020.
Senate Finance Committee Chairman (SFC) Orrin G. Hatch, R-Utah, took to the Senate floor on July 13 to say that, while the bill is not perfect, it deserves an open debate and amendment process. “There are some things in the bill that, given my preferences, I would do very differently,” he said.” The next vote on this legislation will presumably be whether to let the Senate proceed to the bill,” he added.
“One thing that the bill does have is a large amount of money for states to put in what is called a stabilization fund. We can have a reinsurance pool so that folks with a preexisting condition would be reinsured and that would keep premiums lower for that person but also for the entire group,” Sen. Bill Cassidy, R-La., said.
Meanwhile, Democrats remain critical of the measure. Senate Minority Leader Charles E. Schumer, D-N.Y., said on the Senate floor on July 13 that the revised bill draft is similar to the original. “It appears little has changed at the core of the bill,” he noted. “My Republican friends should not be tempted by the promise of amendments to fix this bill.”
Similarly, SFC ranking member Ron Wyden, D-Ore., criticized the bill for providing certain delayed tax breaks for the wealthy. “No one in Oregon or in America is okay with a bill that just delays tax breaks for the fortunate few—yet that’s what the GOP is doing,” Wyden said in a July 13 tweet.
By Jessica Jeane, George Jones and George L. Yaksick, Jr., Wolters Kluwer News Staff
Discussion Draft of the Better Care Reconciliation Act of 2017, an Amendment in the Nature of a Substitute to HR 1628