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Republicans propose group health exclusion cap

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Three top Republicans have proposed paying for an alternative to the Patient Protection and Affordable Care Act (PPACA) by capping tax breaks for employer-sponsored health coverage.

The provision, part of the Patient Choice, Affordability, Responsibility and Empowerment (CARE) Act proposal, would set the tax exclusion at $12,000 for individual coverage and $30,000 for family coverage.

If workers received health benefits with a higher value than that, the Internal Revenue Service (IRS) would treat the excess value as ordinary taxable income.

Starting in 2018, the PPACA “Cadillac plan excise tax” is set to impose a 40 percent tax on the excess value in an individual health benefits package with a value over $10,200 and a family health benefits package with a value over $27,500.

The Patient CARE Act proposal backers — Rep. Fred Upton, R-Mich.; Sen. Richard Burr, R-N.C.; and Sen. Orrin Hatch, R-Utah  — say their tax cap would be more fair than the PPACA Cadillac plan tax.

The Cadillac plan tax imposes the same 40 percent excise tax no matter how much or how little a worker earns, the proposal backers say.

Because the Patient CARE Act proposal would treat the excess value in a benefits package as ordinary income, the tax rate on the excess value would be lower for lower-income families, and middle-income families would fare better, the proposal backers say.

The PPACA replacement bill also would:

  • Fund Medicaid with enrollment-based block grants.

  • Change medical malpractice rules.

  • Set new health care price transparency rules.

  • Create tax credits individuals and employers could use to buy health coverage. Credits would be available to individuals with annual income up to 300 percent of the federal poverty level.

  • Adjust the PPACA commercial health insurance consumer protection rules.

The proposal drafters want to keep the PPACA ban on lifetime benefits limit caps and the PPACA requirement that plans with dependent coverage make dependent coverage available to people up to age 26.

The drafters would start by increasing the maximum ratio between the rates insurers charge the oldest insureds to the rates they charge the youngest insureds to 5 to 1, from 3 to 1 in PPACA. Eventually, the drafters would like to leave decisions about rates in the hands of state regulators.

The drafters would replace the current ban on medical underwriting during an annual open enrollment period with a ban on medical underwriting during a one-time open enrollment period. To continue to be able to buy coverage without worrying about medical underwriting, people would have to own health coverage.

“Over the longer-term, this approach would have the effect of helping reduce the turn-over of consumers coming in and out of the individual market, thus making this market more stable, predictable, and ultimately affordable for consumers,” according to the proposal text. “This change will also encourage portability of health plans and more strongly encourage health plans to focus on wellness and offer innovative benefit designs, as an average individual may be enrolled in their plan over a longer period of time.”

See also: House GOP to unveil PPACA replacement ‘later’