Employers are bracing for more upheaval in the area of health insurance benefits, with the federal government now moving to repeal and replace the Affordable Care Act (ACA). As of this writing, it seems likely that most changes won’t take effect this year. The bill introduced in the House of Representatives has already drawn stiff opposition. Still, a different kind of marketplace is very likely to emerge when the dust finally settles.
The good news for employers is that most of the changes will be targeted for the individual market, rather than employer-based health insurance. The bad news is that the new dynamics will affect the insurance industry at large in unpredictable ways, which could re-create the confusion and uncertainty of the early ACA years.
What the New Bill Proposes
The American Health Care Act (AHCA) was introduced in the House on March 6. After many years that saw the introduction of a wide variety of plans to repeal the Obama Administration’s ACA, the new bill sought to strike a balance. The bill seeks to begin erasing many of the government regulations and taxes from the old law, while not changing the elements that Americans have shown support for—such as banning pre-existing conditions clauses, or allowing young adults to stay on their parents’ insurance plans.
The AHCA has been met with strong opposition from both left and right. On the right, some congress members have dubbed it “Obamacare Lite,” saying the bill keeps too much of both the spirit and letter of the previous health reform law.
Democrats, meanwhile, have blasted the bill, saying it will throw millions off their insurance plans by making plans more expensive, especially for older and poorer Americans. Industry analysts such as Standards and Poor have estimated that 6 million to 10 million Americans could lose insurance under the introduced plan. And groups such as the American Medical Society, AARP, and America’s Health Insurance Plans have all expressed some level of opposition to the bill as introduced.
On March 13, the nonpartisan Congressional Budget Office released an analysis of the AHCA, saying it would result in 14 million people losing insurance in the first year, and 24 million by 2026. It also found that AHCA would trigger a 10 percent reduction in premiums over ten years.
Hold On - Changes Are Inevitable
The CBO report was seen as a significant blow to the bill being passed as it was introduced. Moderate Republicans said the bill would cause too many people to lose insurance; more conservative Republicans continued to say it did too much to continue ACA ideas such as Medicaid expansion and subsidized health insurance.
The level of opposition greatly increases the chances this will be a long, drawn-out process, with many possible changes to the bill. And a number of top Republicans, including President Trump, have said that other health reform legislation is likely to follow. If it does pass in some form, the AHCA also gives states more say over health insurance policy—so the changes may differ from state to state.
In any case, employers are likely to continue to see upheaval in the health benefits market for several years. As with the ACA, they will need to rely on expert consultation from brokers and other resources to navigate a complex and constantly evolving industry.
AHCA Provision that Could Affect Employers
The ACA was designed to cover individuals who lacked insurance, who are often self-employed people or those who work at very small businesses. Most Americans get their insurance through the workplace, and for them, there has been little change. However, employers themselves have not been so lucky. The employer mandate, reporting requirements, and other changes have raised the regulatory burden for employers.
Some have predicted all this would go away with the repeal of the ACA. The truth is more complicated. For now, the reporting requirements will stay, since the government will still be assisting consumers in the form of tax credits. To do so the government has to know which Americans are covered by their employers and which are not.
On the other hand, the employer mandate will effectively be eliminated—not because it will be struck from the books, but because the financial penalty will be taken down to zero for firms who choose not to offer health care coverage (this is because of the rules around “budget reconciliation,” and the need to avoid a filibuster in the Senate). So, in the end, that will reduce costs for some employers.
The individual mandate to purchase insurance is also being effectively eliminated. This is more of a mixed blessing for employers. Some of their employees will likely drop coverage—or, more likely, newer and younger employees will not get it in the first place. Employers will save money on providing benefits, but will have employees who may face financial crises’ due to lack of coverage. In addition, some employees will be reluctant to leave jobs that they might not be a good fit for, if they are relying on employer health benefits to protect their family.
It should be noted that the AHCA allows insurers to charge higher premiums to people who have dropped their insurance for more than two months. This is designed to encourage people to purchase, and keep, health insurance. Its effectiveness remains to be seen.
High Risk Pools
One of the things that conservative critics of the ACA have pushed for is the reinstatement of high-risk insurance pools, which some states offered before the ACA was implemented. The thinking is that those with serious medical issues push the cost up for other consumers if they are all in the same insurance pool. The new AHCA provides funding that will allow individual states to create high-risk pools and buy reinsurance to help cover these higher-cost enrollees.
The effect this will have on employers is unclear. It’s possible that premium increases could be reduced overall; but it’s just as likely that the funding provided won’t adequately cover the states’ costs for insuring this expensive group. In which case stakeholders such as insurance carriers and purchasers might end up footing the bill for higher costs after all. If state pools become too expensive for sick individuals, they might turn to hospital Emergency Rooms, which then shift the cost to insurers, who shift the cost to consumers/employers. This would not be a preferred outcome for employers.
Tax Changes Could Affect Some
The AHCA repeals a good number of taxes, which may affect some employers. Some of these will give relief to HSA plans and retiree health plans. However, it notably does not repeal the notorious “Cadillac tax,” a tax on high-benefit plans. Implementation of this ACA tax had been delayed by the Obama Administration; the new bill further delays implementation of the tax until 2025. The tax preferences for HSAs will mean that model of insurance will become more appealing to some employers and enrollees.
HSA’s get a boost
Many critics of the ACA, including President Trump, have called for wider use of Health Savings Accounts (HSAs), which they say are more flexible and help make enrollees smarter health care consumers. The new bill gives HSAs a boost by nearly doubling the amount HSA enrollees can contribute tax-free. It also allows HSA dollars to be used for over-the-counter drugs, without a prescription. This will be an attractive feature for consumers.
Some experts had predicted the AHCA would put a limit on the tax exclusion for employer-sponsored coverage, which could mean that some more expensive health benefits would not be exempt from income taxes. This could have had a significant impact on employers. Tom Price, the new Secretary of Health and Human Services, had been a proponent of the idea. However, that provision is not in the current bill—and it may or may not resurface.
As with all health insurance reforms, employers will need to stay tuned. Having a good resource to keep up-to-date on the latest developments and upcoming changes has never been more important. As the new changes are passed and implemented, employers will need to continue to be aware of the possible effects to their health benefit plans.