What Would Happen to Covered California After ACA Repeal?

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Republican members of Congress are talking about repealing and replacing the Affordable Care Act (ACA), which has left many Californians wondering what will happen to their coverage under the state's federally subsidized exchange plans.

Within the ACA is the individual mandate—the requirement for individuals to have health insurance or pay a tax penalty. Additionally, employers with 50 or more full-time workers must provide affordable coverage to their employees and dependents or face penalties.

President Donald Trump, however, signed an executive order on Jan. 20 directing federal agencies to use their discretion to waive or delay taxes or penalties under the ACA while lawmakers work to repeal and replace the act.

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

State Exchanges

The ACA allowed individuals to purchase insurance through state-based exchanges and expanded access to Medicaid.

States could set up their own exchanges, but if they chose not to do so, the federal government provided a platform for state residents to purchase plans. California has its own exchange—known as Covered California—and the government health care assistance for low-income individuals is called Medi-Cal.

"It is very likely that absent an alternative subsidy funding source, or significant state or federal replacement language, Covered California and other state exchanges would implode," said Adam Abrahms, an attorney with Epstein Becker & Green in Los Angeles.

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Donald Trump Administration

For more information about Donald Trump's workplace policies and how they affect HR professionals, check out the SHRM resources provided below:

· SHRM's post-election coverage
· Trump's work policies · First 100 days

Damian Myers, an attorney with Proskauer in Washington, D.C., said that, without the individual mandate, there would be no tax penalty incentive to drive healthy people to enroll in Covered California. And the absence of the ACA's premium subsidies and cost-sharing reductions "might cause the coverage available to be unaffordable for many, if not most, people seeking coverage on the marketplace," he said.

"A residual effect would likely be an increase in Medi-Cal enrollments, as low-income Californians would move off the exchange and could potentially qualify for Medi-Cal," Abrahms noted.

Without the subsidies and individual mandate, the exchange would become much less attractive to insurance carriers, said Timothy Verrall, an attorney with Ogletree Deakins in Houston, and they would likely exit as soon as possible.

Choices of coverage in the exchanges would dwindle, and fewer people would be able to purchase coverage without the federal subsidies, which could cause a collapse without formally taking away the exchanges, Verrall added.

He noted that the states could continue to facilitate exchanges, but it would be a costly proposition to do so without federal subsidies.

Federal Activity

There are a number of bills that have been introduced by Republican members of Congress to repeal and replace the ACA, but they're all over the place, Verrall said.

Myers said an outright repeal of the ACA seems unlikely because that would require a filibuster-proof 60 votes in the Senate.

"Nevertheless, Congress can use the budget reconciliation process—which only requires a simple majority—to repeal revenue-related portions of the ACA, such as the individual and employer mandates, the premium subsidies and cost-sharing reductions, and the so-called 'Cadillac tax' and other fees and taxes," he added.

Myers said that nothing is certain at this point, but it appears that Congress is gravitating toward a proposal that was introduced in the prior congressional session. 

"This proposal would repeal the individual and employer mandates, eliminate premium subsidies and cost-sharing reductions, and eliminate ACA taxes and fees—such as the Cadillac tax, PCORI fee, medical device tax and Medicare tax on wealthy individuals." 

Some of the more popular ACA reforms, like the prohibition on pre-existing condition exclusions, the elimination of annual and lifetime limits, and required coverage for dependent children through age 26, would remain in place, he said.

Verrall noted that there may be a push toward expanding access to health savings accounts.

Possible State Fixes

States won't know what direction to take until they know more about what the federal government is going to do, Verrall said. "Although, it wouldn't be surprising if California does something to mitigate the gap," he added.

"Although no bill has yet to be introduced, it is very likely that the strong Democratic majorities in both houses in the California Legislature would offer a comprehensive California health care plan," Abrahms said. "This could take the form of a mini-ACA with individual and employer mandates and increased taxes."

He noted that influential labor unions and other interest groups are pushing for a California universal health care plan.

HR's Role

"HR professionals and others need to be especially vigilant this year in watching both the federal and state legislative actions on health care," Abrahms said. "This is especially true when entering into long-term commitments on health care plans or policies, as well as when negotiating collective bargaining agreements with unions."

But employers shouldn't make any changes yet. Until there is something official or binding from the federal government, rather than just an expression of intent, employers should continue as they have been to date with their compliance regime, Verrall said.

He noted that if the employer mandate goes away, businesses that had struggled to comply with it—such as retail, restaurant and hospitality industries—may not feel so financially pressed.

"If they don't have to worry about being penalized, that may help them be more viable," he said. 

Myers said that any changes to the ACA, including those that impact the marketplaces, are likely to have a delayed effective date.

"That would give HR professionals time to plan and implement any required changes," he said.

Related SHRM Resource:

SHRM Health Care Reform Resource Page

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