What will happen to employer-sponsored health care coverage and benefits if the American Health Care Act (AHCA) becomes law?
Attorney John Barlament, partner at Quarles & Brady, weighed in on the murky scenarios created by the AHCA bill introduced by Republicans in the U.S. House of Representatives. Over 140 employers, agents and industry professionals attended The Alliance’s March 14 Learning Circle event in Madison, Rockford or via webinar.
Barlament provided background for the AHCA, discussed how lawmakers propose to change the Affordable Care Act (ACA) and projected what the impact of the proposed AHCA might mean for employers.
AHCA Predictions by the CBO
- By 2026, three to five million Americans could lose employer-sponsored health care coverage
- 14 million Americans could lose health care coverage by 2018
- 24 million Americans could lose health care coverage by 2026
Barlament’s analysis was delivered less than 24 hours after the Congressional Budget Office (CBO) released its non-partisan analysis of the proposed American Health Care Act (AHCA). The report sparked debate across America.
Initial Attempts to Change the ACA
There are common elements in several Republican proposals that sought to repeal or modify the ACA but failed to become law. Barlament said pieces of them have been used to construct the current AHCA bill.
Like the AHCA, some of the proposed bills sought to modify or repeal the Employer Shared Responsibility (ESR) rule by reducing employer financial penalties to zero. Also known as “pay or play,” ESR rules require employers with 50 or more employees to offer health benefits that meet ACA standards or pay a sizable financial penalty.
Again like the AHCA, many of the proposed bills aimed to expand taxpayers’ ability to use Health Savings Accounts (HSAs) to fund out-of-pocket costs in high-deductible health plans (HDHPs).
“Republicans love HSAs,” said Barlament, “It’s the perfect tax vehicle to put money into.” Money deposited pre-tax into a HSA account can be withdrawn later to pay for qualified medical expenses.
HSAs work well for taxpayers in middle income or higher tax brackets. “But pricing transparency is still a concern,” said Barlament. If you don’t know how much that medical procedure might cost, you won’t know how much you’ll need to save in your HSA.
Alliance members: Compare the costs of over 50 tests, surgeries and office visits when you log in with Find a Doctor. Watch the Tutorial Video.
A cap on the employee tax exclusion for employer-sponsored coverage has also been proposed by some health care bills in place of the ACA’s “Cadillac Tax.” The American Benefits Council and other employer groups oppose both the Cadillac Tax and any proposed cap on the tax exclusion. (The Alliance is a member of the American Benefits Council on behalf of member companies.)
President Trump’s Health Care Goals
President Trump has signed three health care-related executive orders since taking office in January 2017. To date, Barlament said they have had little to no impact on employers. In the future, executive orders could expedite judicial or regulatory action.
Barlament explained that President Trump’s vision of American health care reform has repeatedly sought to:
- Repeal the ACA
- Enable the sale of insurance across state lines
- Allow individuals to fully deduct health premiums
- Expand the use of HSAs
- Require provider price transparency
- Block-grant Medicaid to states
- Allow importation of prescription drugs
- Health care coverage for all Americans
- Lower deductibles
Barlament said Trump’s support for the AHCA to date has been “tepid.”
“Where does that leave us?” Barlament asked. He noted that Republicans will use a three-step process to repeal and replace the ACA.
A Three-Step Process to Change
- Lawmakers will use a reconciliation process to pass changes to the ACA. This process requires 50 votes in the Senate, but can only be used to make changes that impact the federal budget.
- Federal department secretaries will change rules they have power over.
- The traditional legislative process will be used to pass non-reconciliation items.
What about preventive care benefits coverage? This road map paves a partial path to how Republicans may enact ACA repeal and reform.
But questions are still on the minds of many employers, such as:
- What is the AHCA’s definition of an “essential health benefit”?
- How will HSAs be expanded?
- Will this actually work?
Republicans project that the AHCA would reduce the Federal deficit by $337 billion within 10 years.
AHCA Employer Impact
Barlament said the proposed AHCA could impact employers by:
- Reducing the individual mandate and ESR rule penalty to zero. Employers may need to report employee coverage month-by-month via a revised W-2 form.
- Allowing insurers to use age ratings that allow a 5:1 difference between lower rates for young enrollees and higher rates for older enrollees. The ACA allows a 3:1 difference.
- Providing tax credits for individuals to buy insurance. These credits are big enough that they may encourage some employers to offer extra compensation for employees to purchase their own health care insurance instead of continuing to sponsor an employee health plan.
- Delaying the “Cadillac Tax” until 2025 because “nobody likes it.” But Barlament added that if no alternative funding sources emerge, opinions could change.
- Increasing HSA limits to allow for increased out-of-pocket annual maximums.
- Removing caps on health Flexible Spending Account (FSA) contribution limits.
- Offering a COBRA subsidy.
What Remains of the ACA?
“The majority of the ACA will stay in place,” Barlament said of the proposed AHCA.
Here’s what could stay from the ACA:
- No annual/lifetime limits on essential health benefits
- No pre-existing conditions
- No excessive waiting periods
- Expanded claims/appeal rules
- Preventive care at first-dollar (but this provision may be tweaked)
- Cover children until age 26
- No rescissions
- Summary of Benefits and Coverage (SBC)
- Increased wellness plan discounts
- Section 1557 nondiscrimination rules
- Certification of HIPAA compliance
AHCA Impact on the Average American
Many provisions of the AHCA deal with non-employer-specific items. “Ninety percent of the country would not see any tax cuts,” said Barlament. “However, this bill favors the wealthy.”
The middle and upper classes could see additional health care tax credits with the AHCA as opposed to the current ACA parameters.
Meanwhile Americans with lower incomes, especially those over age 60, would see a significant increase in health care premiums. Barlament shared the CBO’s example of the AHCA’s impact on that age group.
“A 64 year-old making $26,500 a year currently pays $1,700 annually for health care premiums under the ACA,” Barlament said. “Under the proposed AHCA, that cost would increase to $14,600 annually. That’s a 750-percent increase.”
The AHCA would not allow insurers to exclude individuals for pre-existing conditions. However, individuals would be charged a 30-percent surcharge if they had a gap in health care coverage of 63 or more days.
The Kaiser Family Foundation has explored the impact of how tax credits under the ACA and AHCA might differ in this interactive map by county.
Other Changes on the Horizon
While legislators debate the future of the AHCA, Barlament said there are other changes employers should pay attention to right now.
Barlament reminded employers that as of April 1, 2017 there is a new SBC template. Whether the AHCA passes or not, employers will be required to use this new template.
“It’s in Word format and I’d advise that you start fresh with this new template and not try to modify your existing SBC,” said Barlament.
Barlament’s slides highlight judicial and legislative developments that impact disability plans, mental health parity rules and wellness plans.
That means there’s plenty for employers to monitor as they wait to see how legislators deal with the future of health reform.