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Dropping health coverage would disadvantage employers
updated on July 28, 2017
Republican efforts to pass sweeping legislation to repeal and replace the Affordable Care Act (ACA) came to an apparent end on July 28, when the Senate
failed to pass even a stripped-down "skinny repeal" measure. That defeat leaves in place the ACA's wide-ranging obligations for employers with 50 or more full-time employees or equivalents to provide ACA-compliant health coverage to employees who work at least 30 hours per week, and to track and report all employee hours to the IRS, along with other administrative requirements.
But going forward, the GOP is likely to seek, with possible bipartisan support,
specific targeted reforms, and these efforts may include a renewed push to eliminate the individual and employer mandates and to ease employer reporting requirements.
So, how would the absence of the ACA's individual and employer mandates affect employer-sponsored health benefits?
Absent the Individual Mandate
Scuttling the individual mandate penalties would allow workers to opt out of participating in an employer-sponsored plan—or any other health coverage—to avoid paying plan premiums, explained Damian Myers, a benefits attorney with Proskauer in Washington, D.C. Such a move may not be wise, but it would no longer
trigger penalties of up to 2.5 percent of household income or $2,085 per person.
Although some employers may be prompted by the replacement of the ACA to stop providing coverage altogether, "the coverage losses attributable to employer-sponsored coverage would likely come primarily from eligibility changes and employee opt-outs," Myers said.
"Most employers allow employees, through cafeteria plans, to choose to enroll in health coverage and pay premiums on a pretax basis or not enroll and keep the cash compensation," he explained, and some employers provide additional compensation—such as opt-out bonuses—to employees who choose not to enroll.
"The reality is that in the absence of a tax penalty for people who do not maintain coverage, some will simply choose not to have coverage, especially when it would result in additional cash compensation," Myers said.
Absent the Employer Mandate
The employer mandate, or "play or pay," is codified in the
ACA's "shared responsibility" provisions that require applicable large employers with 50 or more full-time employees (or the equivalent hours among part-time employees) to provide coverage to those working 30 hours or more per week.
Under the ACA, large employers that don't offer
minimum essential coverage to at least 95 percent of their full-time employees and dependents will be liable if at least one full-time employee receives the premium tax credit for purchasing coverage through the ACA's public exchange/marketplace. On an annual basis, this tax assessment is equal to $2,000 (indexed for inflation) for each full-time employee, with the first 30 employees excluded from the calculation.
A second penalty, equal to $3,000 (indexed) for each full-time employee who receives the premium tax credit, applies to a large employer that does offer minimum essential coverage to at least 95 percent of its full-time employees/dependents if that coverage does not also meet the ACA's parameters for
While the Senate and House bills would effectively end the employer mandate, that doesn't mean employers would jump to drop their coverage altogether—but many might pare back employee eligibility.
"Prior to the ACA, employers had more flexibility to define classes of employees eligible for health care as long as the employer complied with existing nondiscrimination requirements," Myers pointed out. For example, employers often excluded from health coverage part-time employees, interns and temporary staff without regard to the number of hours those employees worked. The ACA's definition of full-time employee overrides employment classifications such that some previously excluded employees became "full-time" solely by working at least 30 hours per week.
"If the employer mandate is repealed, it is possible that employers will revert back to the classification-based eligibility system," Myers said.
By the Numbers: If the Employer Mandate Were Gone
In February and March, 1,229 benefit managers throughout the U.S.—including HR professionals, in-house counsel and C-suit executives—replied to law firm
Littler's 2017 employer survey. When asked how they anticipated their organizations would respond if the ACA's employer mandate were repealed:
"The vast majority of respondents that would continue to provide coverage despite revisions to the employer mandate indicates that employers are committed to providing health insurance for their full-time employees," said Steven Friedman, co-chair of Littler's employee benefits practice in New York City. "However, the results suggest that a repeal of the mandate would give employers more flexibility to set work schedules based on the needs of the business, without fear of triggering a requirement to provide health insurance."
"Only 4 percent of respondents anticipated dropping coverage for some employees if they were relieved of the ACA’s employer mandate," the survey report noted. "That said, the fact that 18 percent of respondents would allow more employees to work over 30 hours a week if the mandate were repealed shows one way [the employer mandate] is hurting businesses."
The International Foundation of Employee Benefit Plans, based in Brookfield, Wis., also surveyed employers from across the country earlier this year.
Among the findings: if the ACA employer mandate were repealed, 96 percent of employers surveyed would continue to provide health benefits for workers. Of the organizations stating they would discontinue coverage, 64 percent said it would be due to the high cost of health care coverage.
Along similar lines, an April 2017 study for the Mercatus Center at George Mason University in Arlington, Va., polled owners or managers at businesses with 50 to 199 employees. Among the 330 respondents, 96 percent said their businesses offer health insurance benefits to stay competitive with other companies or out of a sense of responsibility, while only 4 percent offer these benefits because of legal requirements or other factors.
[SHRM members-only HR Q&A:
How has the Affordable Care Act affected employers that use part-time employees?]
Staying Competitive for Talent
Beyond excluding certain classes of employees, would a substantial number of employers stop offering health care coverage entirely with the employer mandate?
"Employers and employees continue to believe that offering health benefits is an important way to recruit, retain and value talent," said Chatrane Birbal, senior advisor for government relations at the Society for Human Resource Management (SHRM). "Employer-sponsored health benefits will remain a competitive benefit as they provide employees affordable, continuous, predictable health care coverage."
Employers have offered health care benefits in growing numbers since World War II, and the share of individuals insured by employer-sponsored coverage continued to grow before the ACA was passed, Birbal noted.
According to SHRM's
2017 Employee Benefits survey report, 99 percent of SHRM members' organizations offered full-time employees health care coverage this year. Back in 2010, the year that the ACA was signed into law, 98 percent provided employees with a health insurance plan.
Among SHRM members, "The portion of employers providing health insurance to their workers hasn't changed materially since the ACA was enacted," said SHRM researcher Tanya Mulvey, the survey's project leader. A good bet why is that "benefit offerings are the second biggest reason employees look for another job, behind salary," she added.
"Despite the uncertainties in the U.S. around health care, employers must remain consistent and understand the needs of their employees, one of which is quality health benefits at an affordable cost," said Sach Jain, CEO of San Francisco-based Carrum Health, a bundled payment platform for self-insured employers.
That's not to say that all employers would continue providing health benefits, however. If employer mandate penalties were reduced to zero, "I expect certain companies to stop offering health coverage by the end of the year," said benefits attorney Juliana Reno, a partner at Venable LLP in New York City. "These would be the same employers—generally those with a substantial number of low-wage, high-turnover positions—that offered little or no health coverage before the ACA and added coverage primarily to avoid penalties."
She added, however, that "other companies view health benefits as a tool for recruiting and retention, and I do not expect them to make many changes. In between, it is going to be a balancing act."
Loss of Employer Coverage Estimated
Buried in the Congressional Budget Office's
June 26 forecast that 22 million more Americans would lack health insurance in 2026 under the Senate's
Better Care Reconciliation Act (BCRA) was another finding: 4 million Americans currently with employment-based coverage would lack insurance next year, followed by smaller drop-offs in subsequent years, if the Senate bill to repeal and replace the Affordable Care Act (ACA) became law.
Effects of the Better Care Reconciliation Act on Health Insurance Coverage for People Under Age 65
(Click on graphic to view full table in a separate window.)Source: Congressional Budget Office,
Cost Estimate for H.R. 1628, Better Care Reconciliation Act of 2017, Table 4.
That's not a huge share of the more than 177 million people—61 percent of all covered Americans—who,
according to the U.S. Census Bureau, get their health insurance through an employer. But 4 million is still a sizeable number of workers.
However, although some employers may be prompted by the replacement of the ACA to stop providing coverage altogether, "the coverage losses attributable to employer-sponsored coverage would likely come primarily from eligibility changes and employee opt-outs," as benefits attorney Damian Myers noted above.
Related SHRM Articles:
Employer-Sponsored Health Plans May Rise in Perceived Value,
SHRM Online Benefits, June 2017
Will the GOP's ACA Replacement End the Employer Mandate and Required Reporting?,
SHRM Online Benefits, March 2017
Related SHRM Resources:
How ACA Employer Provisions Differ from the Republican Health Care Bills (comparison chart)
SHRM Health Care Reform Resources for Employers
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