As Congress and the Trump administration discuss repealing or replacing the Affordable Care Act, companies are watching warily. While the ACA is primarily known for implementing the state exchanges that provide health coverage to the uninsured, many of the legislation’s provisions affect employer health plans.
Republicans in Congress started the year by passing a reconciliation bill that allows them to eliminate many parts of the ACA, including all of its tax measures and other components that would have an effect on the federal budget. Under the reconciliation bill, Congress could also do away with such ACA features as the employer mandate and the individual mandate.
But Congress can’t use the reconciliation measure to get rid of provisions of the ACA that don’t directly affect the budget, such as reporting requirements. And there seems to be a consensus that the GOP won’t eliminate some popular components of the law, such as the provisions banning exclusions for pre-existing conditions and lifetime limits on benefits, and those allowing children to continue getting coverage through a parent’s policy up to age 26.
“Whatever Congress does will not change what benefits [companies are] offering in any material ways,” said Brian Marcotte, president and CEO of the National Business Group on Health, which represents large companies on healthcare topics. “Many of the ACA insurance reforms are likely to remain.”
Employers would welcome a repeal of the legislation’s excise tax on high-cost health plans, also known as the Cadillac tax, which is scheduled to go into effect in 2020.
The prospects for the elimination of the tax looked even brighter when Sen. Orrin Hatch, R-Utah, who chairs the Senate Finance Committee, argued in a speech to the U.S. Chamber of Commerce earlier this month that the taxes imposed by the ACA should be eliminated. “All of the Obamacare taxes need to go as part of the repeal process,” Hatch said, according to a report in The Hill.
But there is talk that Congress might eliminate the excise tax only to implement another measure that would cap the exclusion of the value of employees’ health benefits from income and payroll taxes. Such a change could result in employees paying income taxes, payroll taxes, or both on some portion of the value of their healthcare benefits and companies paying their share of payroll taxes on the amounts.
The idea of capping the tax exclusion for employee health benefits has been discussed for years. It was part of the healthcare proposal released by House Speaker Paul Ryan, R-Wis., last fall and it was also included in healthcare reform legislation submitted in 2015 by Tom Price, then a GOP representative from Georgia, who was sworn in as Secretary of Health and Human Services last week. Price’s Empowering Patients First Act would have capped the exclusion from taxes at $20,000 for family coverage and $8,000 for individual coverage.
Kathryn Bakich, national health compliance practice leader in the D.C. office of benefits consultancy Segal, said capping the tax exclusion would involve many of the same problems as those posed by the excise tax on healthcare benefits.
“There’s nobody in the employer community that wants either of them,” said Bakich, pictured at left.
Both the excise tax and the prospective limit on the tax exclusion would target plans whose value exceeds a certain amount, but the cost of health insurance varies greatly depending on where a company is located and what industry it’s in, she said. “The basic underlying complaint that employers and unions have about the excise tax is that it puts an artificial amount on the value of healthcare and it doesn’t take into consideration that employers and unions have thought about how much they want to pay for healthcare, and in many cases there’s been a trade-off for wages to get that kind of healthcare.”
Steve Wojcik, vice president of public policy at the National Business Group on Health, noted that the value of employer-provided health coverage is one of the biggest untapped sources of tax revenue available to the federal government. A 2013 Congressional Budget Office study concluded that the exclusion costs the federal government $250 billion in revenue a year.
Moreover, Wojcik said, some economists argue that the tax exclusion plays a role in the outsized growth in healthcare costs in the U.S. But he argued that many supply-side factors play a role in rising healthcare costs, including the healthcare system’s fee-for-service model, incentives built into Medicare that reward doctors and hospitals for choosing more expensive alternatives, “out-of-control pricing for specialty pharmacy,” and the consolidation that has taken place among healthcare providers.
Limits on the exclusion would be difficult to get through Congress, Wojcik added. “We’re already seeing they’re having a lot of difficult repealing and repairing the ACA. They’re going to have similar difficulties if they’re going to try to tax benefits to raise federal revenue.”
Insurance Market Conditions
National Business Group on Health's Marcotte said that after the issue of taxes, companies’ next biggest concern is what happens to the state exchanges that may be providing coverage for their part-time employees and for company retirees who aren’t yet 65. If Congress eliminates the individual mandate, which requires individuals to pay a penalty if they don’t have health coverage, “that could result in further destabilization and possibly the death spiral of the exchanges,” said Marcotte, pictured at right.
“If the individual market destabilizes and you see more insurers pull out, if I have pre-65 retirees who want to leave the company, what market do they have to purchase healthcare in?” he said. “They don’t have a market.”
James Gelfand, senior vice president of health policy at the Erisa Industry Committee, which represents large employers on health, retirement, and compensation issues, cited concerns that eliminating the Affordable Care Act could destabilize the health insurance market and that the cost of providing healthcare for uninsured individuals could cause hospitals and doctors to raise their fees, resulting in an overall increases in prices that would affect employers.
Cutting Back on Regulations
On the plus side, employers see the possibility that changes in the ACA, together with the Trump administration’s vow to cut back on regulations, could pave the way for modifying or eliminating provisions of the ACA and other healthcare regulations that companies see as burdensome.
Bakich cited the ACA’s requirement that companies report the value of the coverage they provide to employees each year to the employees and the IRS. That requirement took effect last year, but Bakich said employers ran into a lot of issues in complying.
This year, employers are supposed to send the form with the information about health coverage to employees by March 2 and file it with the IRS by March 31. “I think employers would like either a delay in those dates or an extension of that requirement,” she said.
“Business is asking the administration to look at a number of specific regulations that have been deleterious to the administration of benefits,” Gelfand said. “There are a number of changes employers are actively seeking and the administration has the power to enact without going the legislative route that I think would be the first order of business.”
He cited, for example, the Equal Employment Opportunity Commission’s regulations about company wellness programs, which he said made it harder for companies to encourage employees to participate in the programs.
Congress’ use of the reconciliation bill means it can’t eliminate the ACA’s regulatory requirements. But Gelfand said President Trump’s announcement of a regulatory freeze suggests “drastic changes” are possible in the way the federal government enforces various parts of the ACA.
“After six years of working to comply with the system, there’s a lot of trepidation about what the change might mean,” he said. “There are more questions than answers right now, but certainly there is the potential for a vast amount of change.”