New Senate Tax Plan Repeals Individual Mandate, Adds Employer Tax Credit for Paid Leave

A revised tax reform plan released Nov. 14 by Senate Finance Committee Chairman Orrin Hatch, R-UT, makes several health care changes to the plan he unveiled last week, including adding a provision to repeal the Affordable Care Act’s (ACA) individual mandate and to offer employers a new tax credit to employers providing paid family and medical leave.

The modified Senate plan would eliminate the ACA’s individual shared responsibility penalty for months after December 2018, but leaves unchanged the employer shared-responsibility penalty, employees’ tax exclusion of employer-provided health coverage, or the "Cadillac" tax on high-cost employer-sponsored coverage set to take effect in 2020.

Repealing the individual mandate penalty changes the political dynamics and complicates the outlook for tax reform, but it also boosts the odds that Republicans will act on legislation to bolster the individual insurance markets out of concern that they’ll be held accountable for a resulting increase in premiums. While the Congressional Budget Office (CBO) projects repeal would save $338 billion over the next ten years (by reducing federal subsidies), it also projects that eliminating the mandate will increase the cost of individual coverage by about 10 percent over the next decade. CBO reasons that because some healthier people will drop coverage, those remaining will face higher health care costs.

The proposed new employer tax credit would give employers offering paid leave under the Family Medical and Leave Act (FMLA) a tax credit under a two-year pilot program for 2018 and 2019. Employers could qualify for the credit if they offer full-time employees at least two weeks of paid FMLA leave, with part-time employees receiving a proportional amount of paid FMLA leave. The rate of pay during the leave would have to be at least 50% of employees’ regular wages. Additional requirements would apply.

The Senate Finance Committee is currently considering the tax bill and will likely clear it this week for consideration by the full Senate in early December. While any and all provisions in the legislation will continue to be subject to change on the Senate floor and in negotiations with the House on a final bill to send to the president, the individual mandate repeal and family leave tax credit stand a good chance of surviving.

Geoff Manville
by Geoff Manville

Principal, Mercer’s Law & Policy Group

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