Re-reforming Health Care Involves 'What Ifs'

Congressional efforts to repeal and replace the ACA are under way, but what’s ahead is uncertain

Stephen Miller, CEBS By Stephen Miller, CEBS March 14, 2017
Re-reforming Health Care Involves What Ifs

House Republicans Withdraw ACA Replacement Bill;
Affordable Care Act to Remain 'Law of the Land'

House GOP leaders, with support from President Donald Trump, withdrew the American Health Care Act (AHCA) from further consideration on March 24, in a dramatic acknowledgement that they had been unable to find sufficient votes to repeal and replace the Affordable Care Act (ACA).

"ObamaCare will remain the law of the land," House Speaker Paul Ryan, R-Wis., said during a press conference shortly after the bill was pulled. "We're going to be living with ObamaCare for the foreseeable future."

With the ACA remaining as law, employers should plan to continue complying with its wide-ranging coverage mandates and all employee tracking and reporting requirements. (See the SHRM Online article House Republicans, Short of Votes, Withdraw Health Care Bill.)

The story below was posted prior to the developments described above.

​President Donald Trump and the 115th Congress are working to repeal and replace the Affordable Care Act (ACA), but there remain many unknowns about what will change and when, leaving employers to carefully weigh benefit plan adjustments going forward, said speakers at the Society for Human Resource Management's 2017 Employment Law & Legislative Conference.

On March 13—the same day that the Congressional Budget Office (CBO) reported that the GOP's proposed American Health Care Act (AHCA) would lower the federal budget deficit but lead to an additional 24 million Americans becoming uninsured—a figure that Republicans immediately disputed—experts in benefits law at the conference provided an overview of what's happening and, perhaps, what to expect.

The AHCA is the "repeal and replace" bill introduced by House Republican leaders last week. As the legislation advances through Congress, "It's important for HR professionals to make our voices heard, so that Congress understands the magnitude of the employer-sponsored health care system that covers a majority of Americans," said Chatrane Birbal, senior advisor on SHRM's government relations team.

According to the U.S. Census Bureau, Birbal noted, 55.7 percent of Americans have employment-based coverage. (See her detailed analysis of the CBO report and SHRM's perspective on how employer-provided health care would be changed.)

The Proposed AHCA

The GOP's approach to reforming health care reform, Birbal explained, starts by moving to repeal and replace specific ACA provisions through the budget reconciliation process, under which tax- and revenue-related legislation aren't subject to a filibuster and can be passed by the Senate with a simple majority (which is 51 votes; Republicans currently hold 52 out of 100 seats in the Senate, although Vice President Mike Pence can break a tie vote).

The AHCA was drafted as a fiscal year 2017 reconciliation bill, and its key provisions would:

  • Reduce the employer mandate penalty to zero for failure to provide health care coverage. But the employer mandate would remain on the books and can only be repealed through future legislation.
  • Reduce the individual mandate penalty to zero if an individual fails to maintain minimum essential coverage. But to encourage people to obtain coverage, the AHCA creates a 30 percent premium surcharge for individuals who go more than two months without health insurance.
  • Delay until 2025 the "Cadillac tax"—the 40 percent excise tax on high-cost employer-sponsored health coverage, which kicks in above certain dollar thresholds. Under current law, the tax is scheduled to go into effect in 2020. (In committee, the bill was amended to extend the delay by an additional year, until 2026.) 
  • Provide tax credits to people who do not get coverage through their job, replacing the subsidies the ACA gives to those with lower incomes. The refundable tax credits (those who don't owe income taxes would receive a direct payment instead of a deduction) would be tied to age, with people under 30 eligible for a credit of $2,000 per year, increasing steadily to $4,000 for those over 60. Individuals enrolled in group health plans would not eligible for the tax credit unless they are enrolled in COBRA coverage that is not subsidized by the employer.
  • Expand health savings accounts (HSAs) intended to help people save money for health costs, nearly doubling the amount of money that individuals can contribute, and repeal the ACA's limits on the amount an employee may contribute to a health flexible spending account (FSA).

To learn more about the AHCA's provisions, see the SHRM Online articles:

The GOP leadership would like the House to pass the AHCA and send it to the Senate by the end of April, but the measure could be amended by the House or, likely more substantially, by the Senate, Birbal said. Look out for conservative Republicans who oppose central planks of the AHCA, she pointed out. Some say the AHCA's proposal for age-based, refundable tax credits to replace the ACA's income-based subsidies to purchase insurance is an unacceptable new entitlement.

[SHRM members-only toolkit: Managing Health Care Costs]

Regulatory Changes

The administration can also deploy the regulatory process to modify compliance requirements, by using federal agencies such as the departments of Labor, Treasury, and Health and Human Services (HHS) to roll back or replace Obama-era rules.

For instance, while the ACA's requirements that employers track and report to the IRS the benefits they provide to full-time employees would still be in effect if the AHCA were to pass, the administration might issue new regulations that could phase out reporting requirements over time, Birbal explained. "In the meantime, failure to report to the IRS will result in information-reporting penalties," she warned.

According to a recent poll by SHRM of its members, Birbal noted, HR's biggest ACA challenges are:

  • Reporting requirements (forms 1094-B/C and 1095-B/C)—cited by 62 percent of respondents.
  • Tracking employee hours—cited by 49 percent.

But the administration is likely to hold off on significant regulatory efforts around health care in the hope that Congress will pass the AHCA, Birbal said. "If it doesn't pass, we expect to see regulatory changes introduced in the second half of the year," she noted. Doing so, however, generally requires a notice and comment period that could delay any compliance changes into next year.

Cadillac Tax vs. Capping the Tax Exclusion

One of the most contentious issues around health care reform, and the reform of health care reform, is funding. Unlike earlier GOP proposals, the AHCA does not cap the tax exclusion for employer-provided health benefits, which would have required employers to deduct payroll taxes, and employees to pay income taxes, on the value of employer-provided health benefits above a certain threshold. SHRM and other employer groups oppose both a cap on the tax exclusion and the Cadillac tax.

However, efforts to cap the tax exclusion could resurface, either as a Cadillac tax replacement in an amended AHCA or as a separate revenue generator within a comprehensive tax reform bill expected later this year, said Tracy Watts, Washington, D.C.-based senior partner and national practice leader for health care reform at Mercer, an HR consultancy.

An early draft of the AHCA repealed the Cadillac tax but capped the tax exclusion at the 90th percentile of current average health plan premiums. Once a health plan's premium cost exceeds that 90th percentile, premium value in excess of that threshold would have been treated as taxable income to the employee and subject to payroll taxes payable by both the employee and the employer.

HHS Secretary Tom Price, while serving in Congress, had supported the Empowering Patients First Act, which would have derived part of its funding—to offset individual tax credits much like the AHCA's—by limiting the employer tax exclusion at $8,000 for individual coverage and $20,000 for family coverage, Watts pointed out.

A reason to oppose both a tax-exclusion cap and the Cadillac tax, Watts said, is because "it's not just plan design that determines how costly a plan is." For instance, employers with a workforce that skews toward older employees, or those with more dependents, will have increased plan costs, as will plans in regions of the country with higher average health care costs such as the Northeast and the West.

Another Approach

Looking further out at possible health coverage trends, Watts noted that late last year the 21st Century Cures Act was signed into law. Among other provisions, the legislation allows small employers with fewer than 50 full-time workers to fund, with pretax dollars, a new type of stand-alone employee health reimbursement arrangement (HRA) that, unlike standard HRAs, can be used by employees to purchase individual policies on the open market. The practice is being called defined contribution health care.

"After six years of the ACA's coverage and compliance requirements, we're seeing some larger employers lobbying Congress to allow organizations with 50 or more employees to fund HRAs to purchase individual policies," in place of employers providing group health benefits with burdensome and costly obligations, said Watts. "It's a development to watch."

Related SHRM Articles:

House GOP Leaders Prepare for Vote on ACA Replacement Bill, SHRM Online Benefits, March 2017

GOP's Health Care Bill Highlights an HSA Divide, SHRM Online Benefits, March 2017

Will the GOP's ACA Replacement End the Employer Mandate and Required Reporting?SHRM Online Benefits, March 2017

'Cadillac Tax' Remains in GOP Health Care Repeal, Replacement BillSHRM Online Benefits, March 2017

SHRM Health Care Reform Resource Page

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