Farewell Mandates? ACA Likely to Change Substantially Under Trump Administration

Employer mandate and Cadillac tax are among provisions being targeted

By Stephen Miller, CEBS Nov 11, 2016
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The day after Donald Trump won the U.S. presidential election, Senate Majority Leader Mitch McConnell said that the U.S. Senate would move to swiftly try to repeal the Affordable Care Act (ACA). "It's pretty high on our agenda as you know," the Kentucky Republican told Politico on Nov. 9. "I would be shocked if we didn't move forward and keep our commitment to the American people."

But there's a hitch: advocates of "repeal and replace" of the ACA need 60 votes in the Senate to overcome a Democratic filibuster—and the Nov. 8 election didn't put that many Republican senators in place (51 Republicans, 48 Democrats, with a runoff election to be held in Louisiana).

"Without a filibuster-proof Republican majority in the Senate, Democrats are sure to make every effort to block any proposal to fully repeal the ACA," said Chatrane Birbal, senior advisor, government relations at the Society for Human Resource Management.

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In light of that challenge, President Trump and GOP congressional leaders are expected to first make a grand gesture of trying to repeal the ACA, and then start negotiating with Democrats on changing the law in ways that can attract enough senators from both parties to pass the 60-vote threshold. Alternatively, Republicans may use the process of budget reconciliation—in which a simple Senate majority is needed to pass measures related to revenues and spending.

Much of the ACA was originally passed by Democrats in 2010 using reconciliation.

"In terms of repeal, even Republicans—including the president-elect—support keeping some parts of the ACA that are popular, such as the insurance market reforms, allowing children to stay on their parents' plans until age 26 and the ban on pre-existing condition limits," said Steve Wojcik, vice president, public policy at the Washington-D.C.-based National Business Group on Health, which represents employers.

That said, there are several key provisions that are likely to be targeted for elimination in the absence of full ACA repeal.

Employer Mandate

"The employer and the individual mandate are back on the table," Wojcik said. The employer mandate requires organizations with 50 or more full-time or equivalent employees to provide ACA-compliant health care coverage to their full-time employees (those working on average 30 or more hours per week) or to pay steep penalties. The individual mandate requires all adults without insurance coverage to buy an ACA-compliant policy or pay a tax penalty.

"Philosophically, employers believe that offering benefits should be voluntary. The mandate goes against that philosophy," Wojcik said. "But the big issue is that all of the reporting, tracking and other administrative burdens associated with implementing the employer mandate would go away without it," and these have been an enormous and costly compliance burden for many employers.

Some health policy analysts believe the ACA's employer mandate might be repealed in the fiscal year 2017 reconciliation bill, which may come together in March. The ACA then might be replaced in a fiscal year 2018 reconciliation bill. 

Short of repealing the mandate, a fallback could be changing the ACA's definition of a full-time employee entitled to employer-provided coverage—currently an employee who works 30 hours or more per week—to the more traditional definition of an employee who works 40 hours per week. If that happens, "employers will need to think about whether they are going to take away the benefits that were extended to the 30-to-40 hour people," said Kim Buckey, vice president of compliance communications at Birmingham, Ala.-based DirectPath, a health care compliance firm.

Eliminating the mandate also would let employers choose whether to offer health benefits as they see fit, and allow them to provide a wider range of offerings including "slim-down plans for part-time employees or in industries with high turnover," Wojcik explained. The ACA eliminated these so-called "skinny" or "lite" plans that provided low-cost coverage for basic health care but failed to insure against substantial in-patient hospitalization, for instance.

J.D. Piro, New York City-based leader of Aon Hewitt's health law group, also expects to see "if not a complete overhaul, certainly a significant revision of the individual and employer mandates."

How likely is this? "Sixty votes could be hard," Wojcik said. "If they want to make those changes, they'll probably have to use the reconciliation process. But they could do it. There is a budget implication for eliminating the employer and individual mandates, as well as some of the taxes that were part of the ACA. I think it's doable as a result of the election."

Piro suggest that there may even be enough bipartisan agreement to avoid a nasty fight. "A lot of Democrats have indicated they might be willing to relax the employer mandate," and some are looking at the individual mandate and whether it has failed to encourage the healthy uninsured to buy health insurance, he noted.

"Whether you have to get to reconciliation in order to beat a filibuster overlooks the fact that there might be some Democrats [in the Senate] who believe there's a better way to promote coverage than through these mandates," Piro said. "So we're a long way from having to make a filibuster or reconciliation determination."

However, "It's certainly not too soon for employers to start thinking about the implications that repealing the employer mandate or revising the definition of full-time employees will have on their benefit strategy," Buckey said. "Once again, there's going to be a sea-change in employee benefits."

In the meantime, "the ACA is still the law of the land," advised Scott Behrens, an ERISA compliance attorney at Lockton Companies, a benefits brokerage and consultancy based in Kansas City, Mo. "Prudent employers will want to continue to comply with the ACA, including the play-or-pay mandate and reporting requirements"—including furnishing Forms 1095-C to employees and making all required filings with the IRS—"until formal guidance relieves them of those compliance obligations."

Some believe it could take months, or years, for those new regulations to be issued, while others think the political motivation exists to move swiftly toward that end.

For tax year 2016 ACA information reporting, the IRS in Notice 2016-70 extended the deadline for furnishing forms to employees from Jan. 31, 2017, to March 2, but left the deadline for filing forms with the IRS intact (Feb. 28 for paper/mail submissions or March 31 for electronic filing).


[SHRM members-only toolkit: Complying with and Leveraging the Affordable Care Act]

Cadillac Tax

The 40-percent excise tax on employer-sponsored health coverage that exceeds certain benefit thresholds, set to take effect in 2020, "is perhaps in a category by itself since there is widespread bipartisan support for eliminating it," Wojcik said. "Employers as well as unions and others oppose this tax as a flawed way to hold down health plan costs. Ultimately, it will just raise the cost of employer-sponsored coverage without attacking the problem, which is the continued growth in health care expenses beyond wage growth and growth of the overall economy."

"Both Democrats and Republicans have proposed repealing the Cadillac tax," Piro said." The upshot: The odds are now greater that the much reviled levy will never be implemented.

But not everyone is certain the tax is dead. "While President-elect Trump expressed support for a repeal of the 40-percent tax on the campaign trail, other legislative priorities including tax reform and the impact of repeal on the federal deficit could result in further delay, modification or replacement of the excise tax," said SHRM’s Birbal.

For instance, "the tax treatment of employer-sponsored health care benefits could come under scrutiny as lawmakers look to find ways to pay for tax reform and reduce the federal deficit," Birbal said. Proposed changes in the tax treatment of employer-provided health coverage were included in the U.S. House Republican's task force report on health care reform earlier this year, she noted. Trump, however, has not indicated his support for those measures.

SHRM advocates repealing the Cadillac tax and noted in a policy statement its opposition to limiting the tax exclusion for group plan premiums, along with other positions. 

Expanding HSAs

Another issue that will have a high priority on the Republican agenda is increasing the flexibility and enhancement for health savings accounts (HSAs), flexible spending accounts (FSAs) and health reimbursement arrangements (HRAs), such as by allowing higher contribution levels and more options regarding how account funds can be spent. For instance, one proposal would restore the ability to use FSAs for purchasing over-the-counter medications.

"Donald Trump is very supportive of these proposed changes and [House Speaker Paul Ryan's] blueprint for health reform included them as well," said Wojcik.

"Trump has been a big proponent of high-deductible plans and HSAs, so I'd expect to see legal and regulatory changes that will encourage their use," said Buckey.

"Promoting HSAs also supports greater health insurance portability," which is another goal Trump favors, she added. To that end, Trump also has proposed allowing those with individual health policies to fully deduct premium payments from their tax returns, just as, for group plans, employers can deduct the value of premiums they pay and employees can exclude their share from taxable income.

"Businesses are allowed to take these deductions so why wouldn't Congress allow individuals the same exemptions?" a health care position statement on the Trump campaign's website noted.

[Update: HHS Secretary-nominee Rep. Tom Price, R-Ga., has been the chief sponsors of the Empowering Patients First Act, which among its many provisions would promote the use of HSAs by providing a one-time $1,000 tax credit for HSA contributions and increasing the allowable HSA contribution so that it's& equal to the maximum IRA contribution level.]

Wellness Program Incentives

The administration is likely to address "preserving or even extending wellness programs," Piro said, perhaps revisiting Equal Employment Opportunity Commission (EEOC) final rules that were issued in May.

When those rules were released, Nancy Hammer, senior government affairs policy counsel at the Society for Human Resource Management (SHRM), said that "the EEOC failed to change many of the aspects of the rules that SHRM… felt served as roadblocks to employers trying to improve the overall wellness of their employees and keep their health care costs in check."

Said Piro, "If the administration wants to encourage the advancement of wellness programs, they'll be looking at which of those regulations help and encourage that goal, and which act as disincentives."

Health Care Costs

To address the rising cost of health care, which remains "the big issue for employers," Wojcik said, the Trump administration may support applying more broadly some of the payment and delivery reforms that have been initiated in Medicare as part of the ACA. "We're hoping that those continue and expand to compliment what's happening in the private sector, to move away from fee-for-service and to move to alternatives"—such as a comprehensive primary-care payment model—"that promise more effective and efficient care."

"Trump has talked about increased focus on transparency in doctor and hospital costs, which points to more focus on consumerism—and supporting employees to become consumers by focusing on health care literacy issues," said Buckey.

[SHRM members-only toolkit: Communicating with Employees About Health Care Benefits Under the Affordable Care Act]

Piecemeal Approach

Speaker Ryan's health care blueprint, spelled out in a 37-page "A Better Way" issue brief released in June, lays out "what [the GOP House] is going to try to enact in stages, changing certain parts of the ACA, such as eliminating the employer and individual mandates, eliminating the Cadillac and other taxes, and reducing the administrative requirements on employer plans," Wojcik said. "They're going to be taking these piece by piece, step by step. The days of trying to repeal everything wholesale are probably going to be over," despite what GOP congressional leaders are saying in the immediate aftermath of the election.

No one can say with certainly what exactly will happen or the extent that the two parties will work together on reforming health care reform, but, Piro said, "I have heard a rumor that Donald Trump likes to negotiate things."

Employers: Coverage Mandate Is Top Health Care Concern

Nearly half (48 percent) of U.S. employers say the employer mandate is their primary health care concern going into the next administration, according to a post-election pulse survey by Aon.

"Not surprisingly, there is heightened interest in the fate of the employer mandate, which currently places significant reporting obligations on employers, including how they report coverage, track service, and determine value and affordability," said J.D. Piro, leader of Aon's health law practice. "But it's important to realize that in the short term these mandates—and the Affordable Care Act reporting obligations and penalties—remain in effect."

According to the consultancy's survey of more than 800 employers, conducted approximately a week after the election, other top areas of concern for employers include:

  • Prescription drug costs – 17 percent
  • "Cadillac" excise tax – 15 percent
  • Tax exclusion limitations on employer sponsored health care – 10 percent
  • Paid leave laws – 8 percent

"While details remain to be seen regarding policy proposals to address prescription drug pricing, this is an area that employers will keep a close eye on as drug costs continue to increase," said Piro. "Employers will also be tracking the future fate of the excise tax to see how the 115th Congress handles this important matter."


Related SHRM Online Articles:

How Tom Price Could Transform Employer Health Coverage, SHRM Online Benefits, December 2016

ACA Replacement Would End Mandates, Add Tax on Benefits, SHRM Online Benefits, July 2016

After ACA Repeal, Most Employers Would Keep Some Provisions, SHRM Online Benefits, May 2016


Related SHRM Resources:

2016 U.S. Presidential Elections and HR Issues

2016 Post-Election Overview: SHRM Government Affairs

Related Trump Policy Statements:

President-elect Donald J. Trump Statement on Healthcare

Trump-Pence Campaign Statement on Healthcare Reform

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