The two Republican-sponsored bills in the House ofRepresentatives that repeal the Affordable Care Act currently lacka provision that taxes employer-provided health care plans.

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That marks a pivot from a recently leaked discussion draft of proposedlegislation, which proposed taxing the 90thpercentile of premiums in the group market.

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The U.S. Chamber of Commerce, the American Benefits Council andother trade organizations representing employers’ interestscharacterized the provision as a new tax on the middle class.

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“This certainly is welcomed news to the employer community,”says Garrett Fenton, an attorney in the employee benefits practiceof Washington, D.C.-based Miller & Chevalier.

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While employers -- and the roughly 170 million Americans whohave health insurance through the group market -- can breathe acollective sigh of relief, Fenton cautions that the two Republicanbills, which, together, are called the American Health Care Act,are almost certainly subject to change.

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That includes the possibility that the House may reintroduce theidea of taxing a portion of the group market to pay for the bills’new tax credits that subsidize individual market coverage.

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“Proponents of protecting the tax treatment of employer-providedplans need to stay vigilant,” says Fenton. “Just because the cap ontax exclusions is gone for now doesn’t mean it won’t reappear.There’s a lot of potential revenue in the group market, and iflawmakers need to raise revenue to pay for repeal, that’s the placeto go.”

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How much potential revenue? Tax-favored employer-provided planswill amount to $4 trillion in lost revenue to the IRS over the nextdecade, according to some estimates. In 2017, tax exclusions in thegroup market cost $260 billion in lost income and payroll taxrevenue, accounting for the largest expenditure in the tax code,according to the Tax Policy Center.

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How to pay for repeal ofACA

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In the effort to move the ACA to a House floor vote before theEaster recess, the House Ways and Means Committee, which hasjurisdiction over taxes, and the House Energy and CommerceCommittee, which oversees health care policy, moved to mark up thebills before the nonpartisan Congressional Budget Office couldscore them.

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This is a highly unusual move, says Fenton.

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“It’s not the normal way of doing things,” he says. “I don’trecall seeing a mark-up without a score, if it’s ever happened. ButRepublicans are in a race against time.”

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Republicans plan to repeal and replace the ACA via the budgetreconciliation process, which requires a simple Senate majorityvote to pass legislation.

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But the rules of reconciliation also insist that legislationcan’t increase the deficit beyond a 10-year budget window, explainsFenton.

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That requirement creates a significant obstacle forRepublicans.

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The American Health Care Act does away with most of the ACA’srevenue-generating provisions. Early estimates from Joint Committeeon Taxation (JCT), another nonpartisan Congressional agency, saythe bill would erase $600 billion in tax revenue by 2026.

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The bill repeals the employer and individual mandates and theirassociated taxes along with ACA taxes on higher earners and taxeson health insurers, prescription drug makers and medical devicemanufacturers.

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It also nearly doubles the tax-preferred contributions to healthsavings accounts, which the JCT says will cost $19 billion inrevenue over the next 10 years.

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Beyond rolling back the ACA’s revenue generating provisions, theRepublican bill creates new costs in the form of tax credits. Lowand middle-income individuals and families without group insurancewill be eligible for credits ranging from $2,000 to $14,000 ayear.

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“A lot of what the bill aims to do will be very expensive,”notes Fenton.

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Some new costs would be offset by rolling back the Medicaidexpansion plotted by the ACA. But it’s unclear whether thosesavings will be enough to fill all the revenue gaps, saysFenton.

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Cadillac Tax stays, implementationfurther delayed

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In an unexpected move, the Republican plan keeps the CadillacTax in place -- but extends the scheduled 2020 implementation dateto 2025.

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They likely maintained the tax to offset the bill’s new costsand lost revenue, says Fenton.

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“It’s surprising they kept it on the books, but that’s not tosay it will be there indefinitely,” he says.

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When the ACA was passed, employers were given eight years toprepare for the Cadillac Tax’s implementation.

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In delaying, employers now have another eight year “runway”before they must adjust plans to account for the tax threshold.Fenton says that buys employers plenty of time.

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“When the ACA was passed, employers were mindful of the CadillacTax, but the Obama Administration never got around to issuing solidguidance beyond delaying it,” he says. “So employers mostly stayedthe course with their plans.

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“We think that will be the same now,” he adds. “We’re notexpecting employers to drastically change plans as a result of thenew proposed legislation.”

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How the bill could impact coverage in employermarket

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Under the Republicans’ plan, insurance companies would be unableto cap annual and lifetime coverage limits – both core provisionsof the ACA.

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The bill also leaves the ACA’s Essential Health Benefits (EHBs)coverage requirements intact. This includes 10 service categoriesfor individual and small-group plans. Large-group plans were notrequired to offer EHBs, as they typically included those servicesbefore the ACA anyway.

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Some analysts have described the first version of the AmericanHealth Care Act as the opening salvo of a broader negotiation. Andwhen the CBO’s score does arrive, Fenton says, it will change thedebate’s whole dynamic of the debate.

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Within hours of the bill’s release, conservative House andSenate Republicans pushed back against the proposed new taxsubsidies.

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And moderate Republicans from states that have already acceptedACA funds to expand Medicaid rolls can be expected to rail againstproposed cuts to the welfare program.

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“Republicans are walking a tight rope,” says Fenton. “It’salmost a guarantee that we’ll see substantial changes to thelegislation.”

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Nick Thornton

Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.