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Tuesday September 26, 2017

Washington News

Washington Hotline

House Sends American Health Care Act to Senate

By a vote of 217 to 213, on May 4 the House of Representatives passed the American Health Care Act (AHCA). The bill has been sent to the Senate. Several Senators indicated the future Senate health care bill will reflect their respective views on improving health care.

The House bill is complex and comprehensive. It has ten major sections.

1. Health Care Credits – The former health care subsidies are replaced with credits used to purchase health insurance. Generally, the credits are $2,000 for persons in their 20's and increase to $4,000 for those in their 60's. There are phaseouts of credits for persons with incomes over $150,000. The new credits start in 2020.

2. Senior Credits – The bill added $85 billion for increased credits for more senior persons.

3. Employer Mandate – AHCA repeals the requirements for employers with 50 or more employees to provide a group health insurance plan.

4. Continuous Coverage – If individuals have a gap in coverage (perhaps 63 days or longer), an insurance company may charge a higher premium for a period of time.

5. State Waivers – Most plans must cover ten essential health benefits. States may seek waivers that permit the sale of major medical plans with different coverage levels.

6. High Risk Pools – ACHA sets aside $100 billion for states to create high risk insurance pools for those persons with serious illnesses.

7. Cadillac Tax Delay – The 40% excise tax on expensive employer health insurance plans is delayed until 2026.

8. Medicaid Funding – There is a new per capita grant for state funding of Medicaid. The states will receive block grants and can tailor their plans separately from the federal government. However, states will continue to receive support for elderly or disabled Medicaid recipients using an enrollment method.

9. Health Savings Account – AHCA increases the limits for HSA plans, starting in 2018. The plans may have increased limits of $6,550 for individuals and $13,100 for families. There also are increases in the permitted levels of funding for flexible savings accounts.

10. Taxes Repealed – The 3.8% Medicare tax on investment income is repealed in 2017. The 0.9% Medicare tax on incomes over $200,000 for single persons and $250,000 for married couples is repealed in 2023.

Editor's Note: Health care is a complicated and sensitive topic. This objective description of the basic provisions of AHCA is offered as an educational service for our readers. If and when a Senate health care bill passes, we will offer a similar objective description of that legislation.

House and Senate Leaders Comment on Health Care Bill


Following passage of AHCA on May 4, both the House and Senate leaders of the main taxation committees commented. Understandably, leaders of the two parties offered quite diverse opinions on the health care bill.

House Ways and Means Committee Chair Kevin Brady (R-TX) called the bill a "major step forward." He continued, "Not only does this legislation rescue millions of Americans from Obamacare's crushing taxes and collapsing health care market, it lays the foundation for a health care system based on what workers and families want and need. Our proven, conservative solutions will move us away from the government-centered Obamacare model and toward a patient, family and state driven approach that will lower costs, expand choices, and increase access to care."

House Ways and Means Ranking Member Richard Neal (D-MA) opposed the bill. He described it as an effort "to remove key protections for Americans with pre-existing conditions, take away health insurance from 24 million, shorten the life of Medicare, and impose an age tax on seniors – all to pay for a giant tax cut for the wealthy."

Senate Finance Committee Chair Orrin Hatch (R-UT) explained the Senate process to pass a bill using the reconciliation procedure. He commented, "As we work to fulfill our promise to our constituents to repeal and replace the law in the Senate, we will be guided by the important principles to address costs and give American families more choices. At the same time, we will be working to put together a package that reflects our members' priorities with the explicit goal of getting 51 votes. Coupled with the constraints imposed by the budget reconciliation process, we must manage expectations and remain focused on the art of the doable as we move forward."

Senate Finance Committee Ranking Member Ron Wyden (D-OR) called the bill a "staggering reversal of Republican health care promises." He described the bill as a vote "To turn back the clock to the days when health care was reserved for the healthy and wealthy. If my Senate Republican colleagues don't declare this dangerous, partisan effort dead on arrival, I will fight at every turn to protect people from the harm it will cause."

Editor's Note: In the midst of strong feelings, Senate Majority Leader Mitch McConnell (R-KY) and Sen. Hatch face major challenges in crafting a bill. They hope it will pass with 51 votes through reconciliation, but there are substantial differences of opinion within their party. Even if the Senate passes a health care bill, it will be a lengthy process for the House and Senate to agree on the final legislation.

House Pivots to Tax Reform


With passage of the AHCA, Chairman Brady and House Ways and Means Members turned to tax reform. The weekend of April 28, White House staff and Republican committee members held a two day retreat. Chainman Brady called this a successful effort to bridge some of their differences.

He reported, "Our chances for success in this once-in-a-generation opportunity are greatly enhanced if we are on a single plan." Brady reviewed the White House proposal and the House "A Better Way" plan. He claimed that there is substantial agreement between the plans. Brady encouraged members to be "pro-growth, but also get on the same page in the other areas. And of course, we are going to bring to the table our case for permanence, because that is where we get the greatest growth for the greatest number of years."

Treasury Secretary Steven Mnuchin spoke with national media on May 1 and was asked whether the White House would support the border adjustable tax (BAT) advocated by Brady. Mnuchin was not directly supportive of the tax. He suggested, "No, but there will be other things. There are plenty of other ways to raise that revenue."

House Ways and Means Tax Policy Chair Peter Roskam (R-IL) affirmed the House goal to produce a bill that is revenue neutral. The House plan continues to be to lower rates by eliminating deductions and including the BAT. Roskam stated, "We are committed to getting this rate down as low as we can."

Editor's Note: The previous plan by the House created when Rep. Dave Camp was Chair of the House Ways and Means Committee specified a 25% corporate and 35% personal rate. The obvious challenge is to find the funding to lower rates with reasonable revenue neutrality. While making the tax extenders permanent last year, passing health care reform and scoring on a dynamic basis are helpful, there still is a need for additional revenue. The House solution continues to be the Border Adjustable Tax. If the White House and Senate continue to oppose the BAT, it will be very difficult to pass tax reform with significant corporate and individual rate reductions.

Applicable Federal Rate of 2.4% for May -- Rev. Rul. 2017-11; 2017-19 IRB 1 (17 Apr 2017)


The IRS has announced the Applicable Federal Rate (AFR) for May of 2017. The AFR under Section 7520 for the month of May will be 2.4%. The rates for April of 2.6% or March of 2.4% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2017, pooled income funds in existence less than three tax years must use a 1.2% deemed rate of return. Federal rates are available by clicking here.

Published May 5, 2017
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