House GOP Unveils ACA Replacement Plan; SHRM Opposes Proposed Changes to Tax Treatment of Employer-Sponsored Health Benefit

Jul 1, 2016
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On June 22, the House GOP Task Force on Health Care Reform released its proposal to repeal and replace the Affordable Care Act (ACA) with new health care policies aimed at reducing government regulation and lowering costs. 

Upon release of the paper, SHRM issued a press statement applauding the task force's recognition of the important role employers play in providing quality, affordable health benefits to employees and their families, while also expressing opposition to the proposal to cap the excludability of employer-sponsored health coverage from taxation. The excludability of employer-sponsored health benefits is a decades-old pillar of tax policy which, if changed, could unintentionally erode the employer-based system.

The task force's proposal, a key priority for House Speaker Paul Ryan (pictured), does contain a number of provisions that SHRM advocates in support of, including repeal of the ACA's definition of 30-hours-a-week employment as full time; repeal of the 40 percent excise tax (the "Cadillac tax") on high-value, employer-sponsored health care benefits; and promotion of employer-sponsored wellness programs and medical liability reform as a strategy to reduce health care costs.

Additional Details on Proposals of Relevance to the HR Profession:

  • Repeal of the ACA's definition of 30-hours-a-week employment as full time. HR professionals express concerns with the ACA's definition of "full time" as an employee working 30 hours a week because this is inconsistent with standard employment practices and benefits coverage requirements in the U.S. and because it conflicts with other federal and state laws. Therefore, SHRM supports efforts to restore the traditional definition of full time for purposes of health care coverage as an employee who averages 40 hours of work per week. 
  • Repeal of the 40 percent excise tax (the "Cadillac tax"). The excise tax is effective January 1, 2020, and applies to benefits exceeding certain thresholds ($10,200 for individual coverage and $27,500 for family coverage), excluding stand-alone dental and vision plans. It is indexed to the Consumer Price Index, not health care cost inflation. Because of how the tax is structured, many employers are expected to be subject to the 40 percent excise tax. Employers have already begun to scrutinize their health benefits offerings and will make necessary changes to avoid the excise tax as 2020 approaches. As a result, some employees will be negatively impacted due to an increase in cost-sharing and higher co-pays and deductibles; this could cause some workers to decline employer-provided health care. SHRM supports efforts to repeal the excise tax.
  • Promotion of employer-sponsored wellness programs. Wellness programs are a critical component of employers' overall benefits offerings and health care strategies to promote healthy lifestyles for employees and reduce health care costs. In recent years, a growing number of employers have incorporated wellness programs into their health and wellness offerings. In fact, a January 2015 SHRM survey found that 76 percent of HR professionals' organizations offered some type of wellness program, resource or service to employees. Among these respondents, about one-half reported that employee participation increased in 2014, as well as in 2012 and 2013, indicating a pattern of increased use of wellness initiatives over time. In addition, more than two-thirds of respondents from organizations that offered wellness initiatives indicated that these programs were effective in reducing the costs of health care. Wellness initiatives will continue to be an integral part of the benefits package employers offer to recruit and retain employees. Therefore, SHRM encourages Congress and federal agencies to avoid creating confusing and conflicting requirements for wellness programs. 

    The Equal Employment Opportunity Commission (EEOC) has challenged employer wellness programs, claiming that the medical screenings are not voluntary and, therefore, are in violation of the Americans with Disabilities Act and, in some cases, the Genetic Information Nondiscrimination Act. The EEOC has issued final regulations on the subject; however, the final rules limit the incentive an employer can offer to encourage participation in a wellness plan to 30 percent of total costs of "employee-only coverage," even though the ACA expressly permits employers to offer incentives based on the cost of the wellness program the employee selects (whether employee-only or family coverage).

  • Promotion of medical liability reform. SHRM supports the Help Efficient, Accessible, Low-cost, Timely Healthcare (HEALTH) Act (H.R. 4771), which is included in the task force's paper. The HEALTH Act would strike a balance between protecting patients harmed by medical malpractice and preventing unnecessary and costly litigation that contributes to rising health care costs. Specifically, the plan will cap noneconomic damage awards, ensuring that plaintiffs can recover full economic damages and that patients will not have their damages taken away by excessive lawyer contingency fees.
  • Cap on the excludability of employer-sponsored health coverage from taxation. The task force's plan proposes to adjust the cap based on geography and omits employee contributions made on a pretax basis to a health savings account from counting toward the cost of coverage for purposes of the cap. SHRM opposes this proposal. Because of the strategic use of health care in the workplace, any health care reform legislation must support employer flexibility and innovative strategies and must preserve the favorable tax treatment of employer-sponsored coverage. Allowing employers to determine the best health plan model for them, based on the needs of their workforce and the organization, is critically important to ensure employee satisfaction and reduce health care spending. If the tax treatment of these benefits is changed, it will negatively impact millions of Americans and their families as it will amount to a tax on a portion of their benefits, thus reducing their total compensation. Furthermore, this proposal could unintentionally lead to the erosion of the employer-based system.

The four representatives who led the Task Force on Health Care Reform in developing the proposal outlining health care reform legislative priorities for the next Congress and new administration included Tom Price (R-GA), Budget Committee; John Kline (R-MN), Education and the Workforce Committee; Fred Upton (R-MI), Energy and Commerce Committee; and Kevin Brady (R-TX), Ways and Means Committee. (These committees have jurisdiction over health care issues.) It is expected that the Republican presidential nominee and House GOP members will tout the new health care plan at the upcoming conventions and on the campaign trail leading up to November's elections. Congressional activity is not likely in the current Congress. The chance of this proposal becoming legislation with any hope of becoming law will depend on the Republicans' ability to win the White House as well as maintain control of both chambers of Congress. Without securing both branches of government, the proposal will likely be left on the drawing board.

SHRM has been actively engaged in discussions with the House GOP Task Force on Health Care Reform and is a member of the National Coalition on Benefits, which advocates for preserving the tax treatment of employer-sponsored health benefits. SHRM will continue to encourage Congress to seek alternatives that support and strengthen employer-sponsored health care benefits, which are an important part of Creating a 21st century workplace.

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