On Monday the CBO released its much-anticipated score of the American Health Care Act, the Republican legislation to repeal and replace the ACA. The CBO projection shows a loss in healthcare coverage for 24 million Americans over the next decade, accompanied by a reduction in the federal deficit of $337 billion. The state Medicaid programs are taking the biggest hit, with a decrease in funding of $880 billion during the same time period. In the short term, the CBO projects that health insurance premiums in the individual market will increase 15-20% and 14 million fewer Americans will have coverage as soon as next year.
None of this bodes well for employer-sponsored medical plans. At the time the CBO score was released, I was speaking at the Society for Human Resource Management's 2017 Employment Law & Legislative Conference. We asked the employers in the audience to respond to a polling question – “If healthcare reform were to occur this year, what are your concerns?” Overwhelmingly, the top concern was that a rise in the number of uninsured will lead to cost shifting by providers to employer-sponsored plans.
That was the theme of a recent article I co-authored with Terry Stone from Oliver Wyman. We argued that cost-shifting fails to address the underlying causes of cost growth – it may even worsen it. Moreover, increasing the cost burden on employers will simply make it harder for them to provide affordable coverage to the many millions of health consumers – 177 million, to be precise – who receive benefits through work. You can read more about our recommendations from health reform in this report.
Be careful what you wish for. Mercer has long been a member of the Alliance to Fight the 40, a group dedicated to convincing Congress to repeal the 40% excise tax on high-cost plans. Now, while the excise tax is likely to be thrown out along with many other parts of the Affordable Care Act, GOP lawmakers are contemplating capping employees’ tax exclusion for employer-sponsored health plan premiums – and many of the threshold numbers being bandied about are more onerous than the excise tax thresholds. Unlike the excise tax, which would be paid by employers or health plans, a cap on the exclusion would mean employees would pay income and payroll tax on the value of their health coverage that exceeds the threshold amount.
Mercer's Beth Umland and Moshe Radinsky pictured on Capitol Hill.
The Alliance to Fight the 40 arranged a “Hill Day” earlier last week – non-stop brief meetings with influential policymakers. Mercer’s healthcare reform leader Tracy Watts had drawn on various resources to assemble compelling data to support protecting the tax-favored status of employer coverage – the source of health insurance for 177 million Americans – and dispatched two of the contributors, Moshe Radinsky and myself, to make the case on Hill Day while she toured mid-western states briefing clients.
Shepherded expertly around the Hill (note to self: leave the heels home next time) by Washington Resource Group veteran Geoff Manville and Alliance colleagues, we attended six meetings with key staffers. Many of these folks seemed to be working around the clock to sketch out the long-awaited ACA replacement plan, which could wait no longer. There was a palpable sense that we were in the right place at the right time – staffers had a “need to know” and the meetings were brief but intense. Our message, in four bullets:
- Benefit richness is only one factor driving cost. A cost-based tax penalizes employers with older workers, more women, in high-cost health markets.
- Capping the tax exclusion at the levels being considered will affect more employers than the excise tax.
- Indexing the cap at CPI when health cost rises at several times CPI guarantees that eventually all employees will be taxed.
- Low-income families will see the biggest increase in effective tax rate under a cap.
The first look at a replacement plan was rolled out last week – by some of the groups we met with – and it did not include a cap. Insiders say it’s still to come. Meanwhile, we’re planning another trip.
On Monday evening, just as those of us on the East Coast were getting ready to call it a day, House Republicans unveiled the repeal and replace bill we’ve all been waiting for. While we haven’t finished our analysis yet, we have selected a few of the many articles on the bill for your perusal, including a long piece in the New York Times. One major headline: The bill didn’t include a cap on the tax exclusion for individuals covered in employer-sponsored plans, which was a welcome surprise since it had been included in an earlier leaked draft. But the unpopular Cadillac tax remains. The bill “repeals” the Cadillac tax only until 2025, which means it would still cast a shadow over employers’ long-term strategic planning.
Other big issues? The Medicaid expansion would be frozen in 2020 and then phased out, and Medicaid funding would be converted to block grants. This is a concern for employer health plan sponsors because of the likelihood that an increase in uncompensated care would result in cost-shifting to group plans by hospitals and other health care providers. How Medicaid is treated in the bill also looks to be the biggest potential roadblock to its passage: four GOP senators have already said they won’t sign on to changes in Medicaid funding that “could result in a reduction in access to life-saving health care services.” That would be enough to stop the bill if no Democratic senators vote to pass it.
Of course, the current bill is likely to change, especially since the Congressional Budget Office hasn’t yet scored the bill to determine any future impact on the deficit. “Mark-up” begins in the House on Wednesday. That’s the period during which lawmakers can amend the bill before putting it to a vote. We’re busy reading the bill ourselves and evaluating the impact it will have on employer-sponsored plans – where, as we keep reminding Congress, 177 million Americans are now covered.
Almost immediately following the swearing in, President Trump signed his first executive order directing HHS, DOL, Treasury and other agencies within the government to waive, defer, grant exemptions from or delay provisions of the ACA that impose financial or regulatory burdens, to the extent allowed under the law. So what exactly is allowed? Here are the three main ways the administrative branch can exert influence over the ACA:
- Agencies can modify or revoke final rules through rulemaking process
- Agencies can decline to enforce (though not permanently ignore) statutes or final rules
- Proposed regulations can be ignored or revoked
Much has been written speculating about actions that will be taken under the executive order. The agencies could start to influence the individual mandate (by not enforcing penalties), subsidies (by seeking approval for temporary spending authority to reimburse insurance companies for plan design credits already paid), birth control coverage (making exemptions for religious non-profits) and Medicaid (allowing states more flexibility). However, the executive order should not affect the coverage of those currently enrolled in public exchange plans, since those plans are locked in for this year.
From an employer perspective, perhaps the biggest concern is the long term health and viability of the individual market. The ACA was designed to strike a delicate balance between requiring coverage to support a risk pool and insurance requirements to issue coverage, although that alignment has not been satisfactorily achieved thus far. Subsidies for health plans and the individual mandate are both “balancers” that were baked into the ACA, and removing or undermining them while the rest of the law remains in effect could have a negative impact on market stability. Market instability is bad for everyone, not just the individual market and those who rely on it.
Much has been written recently about President-Elect Trump’s nominee for Secretary of Health & Human Services, Rep. Tom Price (R-GA). A former orthopedic surgeon from suburban Atlanta, Price has served six terms in the House and is currently Chairman of the House Budget Committee. A recent article in The Washington Post reports Congressman Price "got into government to get government off his back."
He has been one of the strongest critics of the ACA and campaigned with Trump early on because Trump said he would repeal Obamacare. Price’s vision for health reform is laid out in legislation he introduced in 2015, the “Empowering Patients First Act.” Many of his proposals are similar to those outlined in House Republican leaders’ “Better Way” reform proposal.
Price would like to scale back much of the federal government's role in health care in favor of a free-market framework built on privatization, more flexibility for states, and tax code changes including a cap on the employee tax exclusion for employer-provided coverage. His vision includes repealing the ACA and reducing Medicare and Medicaid spending. These health entitlement cutbacks could have significant consequences for employers and corporate America by ultimately leading providers to shift more cost to private payers -- largely employer health plan sponsors.
As the Republican Congress moves to repeal and replace the ACA, Price will be a key player in negotiations with lawmakers, and the Center for Medicare & Medicaid Services (CMS) within HHS would actually set up and administer a replacement plan. In the meantime, there are some regulatory steps that HHS and other agencies could take to undermine the law, such as modifying or revoking final rules through the notice-and-comment rulemaking process. Agencies can also simply decline to enforce rules for a time.
Of particular interest to employers should be Price’s oversight of CMS’s Center of Medicare and Medicaid Innovation, which has supported experiments in health care payment reform such as encouraging a shift from fee-for-service to value-based models. Price in general does not support limiting physician discretion, which may put the fate of these programs in question.
Price’s nomination signals that big health policy changes are coming, though details and timing are in flux. We are closely monitoring developments with an eye to the impact on employers. Our intention is to help serve as a voice and advocate for the employer-sponsored health benefits system that provides coverage to 170 million American workers, retirees, and their families. As we formulate policy positions in support of that system, we will share them with the employer community and look forward to working together to meet the challenges and opportunities ahead.
Starting the day after the Presidential election, I have devoured every bit of information about the fate of the Affordable Care Act as we know it. From “repeal and replace” to the new “r” word – repair – there has been an abundance of positioning and pontification on the topic. Meanwhile, we have just published a Marsh & McLennan Companies Health Policy Paper that reflects our best thinking from both Mercer and Oliver Wyman as it relates to the road ahead for healthcare reform.
We’ve built our position on the basic premise that businesses in the United States provide health care for 177 million Americans and spend more on healthcare than the federal government spends on Medicare. We believe therefore that any efforts to improve the current system should simultaneously take action to preserve and expand employer-sponsored health coverage, and enact policies that promote efficiency and quality in the larger US healthcare system. You can read our policy paper here. We will be blogging on our four specific recommendations over the next few days.
While working on the policy paper, we have also been busy talking to lawmakers and staffers on Capitol Hill and in the administration. Check out Beth Umland’s post on our participation in “Hill Day” and how we have been sharing our own research and projections with lawmakers to help them understand the implications of various proposals that would affect employer-sponsored health insurance. We know they are listening because the themes we are promoting have started to surface in news articles and attributed quotes. A shout out to our friends at the American Benefits Council, Alliance to Fight the 40, ERISA Industry Committee, and the Council of Insurance Agents & Brokers for all they are doing to advocate for employer-sponsored health coverage.
Now is the time for employers to make sure their voice is heard. While many aspects of what we have seen so far in the Republican outline address other segments of the marketplace, it is important to remember that additional cost pressure in the individual market and Medicaid could lead to new sources of uncompensated care that will undoubtedly result in cost shifting to private payors. In addition, while everyone agrees that the excise tax should be repealed, lawmakers are looking for other options to replace that tax revenue. Employers have a stake in all of these policy issues.
Businesses across the US and their benefits teams work tirelessly to provide the best benefits possible by making efficient use of the budget dollars available to support these programs. We are in the early stages of a major transformation in how people access care and how care is delivered. It is being led by employers and innovative providers that are focused on the best ways to harness technology, consumerism, and advances in value-based reimbursement. The potential quality improvements and savings are vast. We are on this journey together – and everyone in America wins when we are successful.
Robert Pear and Reed Abelson, The New York Times
- The campaign to repeal the Affordable Care Act has stalled as Republicans struggle to come up with a replacement and a key senator, Lamar Alexander (R-TN), has declared that the effort is more a repair job than a demolition. *A must read*
Sarah Kliff, Vox
- This article shines a light on the disconnect between Republican statements criticizing high deductibles and cost sharing and their support for policies that promote high-deductible health plans paired with health savings accounts. Sarah Kliff argues that until Republican rhetoric and policy positions align, it will be hard for the party to coalesce on a plan. *Interesting perspective*
Allison Bell, LifeHealthPro
- Here’s what the actuaries have to say about some popular health law proposals. *Worth the time*
J.B. Silvers, The New York Times
- This op-ed by a former health insurance executive covers the ramifications of “repeal and delay” for the individual insurance market. He agrees that the ACA has its flaws, but repealing it without a viable replacement is not an option if the replacers really want to use private insurers to meet society’s goals of access, affordability and quality in healthcare. *Interesting perspective*
Julia Belluz and Sarah Frostenson, Vox
- Our interest in this article is the reminder that broader immigration reform efforts could impact provider access. It’s certainly a topic to watch since provider shortages present challenges for health plan sponsors. *Skim this one*
With President Trump promising an ACA replacement bill of his own “very soon” and congressional Republicans struggling to reach agreement, two GOP senators – Bill Cassidy of Louisiana and Susan Collins of Maine – are proposing to let states choose their own path. Under the newly-proposed “Patient Freedom Act,” states would have three choices: To continue to operate under the ACA, to implement their own reforms with some federal funding and strings attached, or to design their own reforms without federal help.
The “strings” tied to the federal funding option have elements in common with other GOP proposals. Federal money that otherwise would have been used for subsidies and Medicaid expansion under the ACA would fund a tax credit to help people who buy their own insurance. The amount of the credit would not vary based on income. States could create a high-deductible catastrophic plan into which the uninsured would be automatically enrolled. The tax credit would cover the premium with enough left over to pre-fund a health savings account to help with expenses before the deductible kicked in. Although they would be automatically enrolled, people could opt out of this plan – in other words, there would be no individual mandate. (BTW, the employer mandate would go away under this option as well.)
This proposal was meant to appeal to both ACA fans and foes. “At some point in this process, we will need a bill that can get to 60 votes,” Senator Cassidy said at a press conference. “Now you can say to a blue-state senator who is invested in supporting Obamacare, ‘You can keep it, but why force it on us?’”
But with neither Republicans nor Democrats in the mood to compromise on this highly politicized issue, the proposal has not been met with enthusiasm on either side. Still, given the state of American politics today, a “red state, blue state” solution bears watching among the many proposals vying for our attention. The actual Patient Freedom Act bill was introduced Wednesday – the same day that Senator Rand Paul introduced a bill of his own (more on that later, after we’ve read it).
Meanwhile, during his confirmation hearing on Tuesday, HHS nominee Tom Price would not directly answer questions about whether he is working with President Trump on an ACA replacement plan to be revealed shortly, as the President has stated – the plan that will provide “insurance for everybody” and be “much less expensive and much better.” All Price would commit to is that he has had conversations with the President about healthcare.
A founding member of the House Freedom Caucus, Rep. Mick Mulvaney (R-SC) is known as a budget hawk -- a deficit hardliner and one of the key Republicans who led the charge to oust former Speaker of the House John Boehner in 2015. As President Trump’s pick to lead the Office of Management and Budget, Mulvaney will be tasked with keeping tabs on government revenue and spending and overseeing the Trump administration’s regulatory actions, which also means he’ll play a central role in health care and entitlement policy.
Mulvaney was one of the leaders of the effort to defund or delay the ACA that resulted in a 16-day government shutdown in 2013. He also pushed to shut down the government in 2015 instead of continuing to fund Planned Parenthood. As OMB director, he’ll be head of the office responsible for implementing any future shutdowns. Democrats have criticized this willingness to shut down the government and default on the national debt.
Some are predicting that Mulvaney may soon find himself at odds with the Trump administration’s mixed signals on fiscal discipline -- specifically, Trump’s promise of large tax cuts coupled with big spending on infrastructure and assurances that he won’t touch Medicare or Social Security. Not only will Mulvaney be responsible for pointing out when the budget doesn’t add up, he’s also been a leading advocate for Medicare reform, commenting in 2011 that we “have to end Medicare as we know it.” He’s actively supported proposals to privatize Medicare or impose other major changes to the program, and he’s argued that cutting programs like Medicare was the only way to “balance the budget.”
Mulvaney’s will be an important voice in a powerful agency that must approve any new major federal regulations. Trump has already issued a moratorium on new federal regulations and wants his cabinet to look for "job-killing" rules that should be repealed. If Mulvaney doesn’t quite get to make the rules, he will certainly have a lot of influence in whether they live or die.
Last week’s flurry of activity in DC has turned into a full blizzard following the release of the Republican bills to repeal and replace the ACA. It’s proving challenging to see through this political storm, so I thought I’d share what we know so far.
Two bills collectively named The American Health Care Act included some surprises for employers -- the biggest of those being the delay, not repeal, of the Cadillac Tax from 2020 to 2025. The cap on the employee tax exclusion included in a “leaked” version of the bill was not included.
The proposed legislation repeals much of the ACA by 2020. In addition to the Cadillac tax, key provisions of interest to employers are:
- Employer and individual mandate penalties eliminated for 2016 and later years. Individuals or small groups with coverage gaps would pay a 30% premium surcharge to their insurers beginning as earlier as 2018.
- Age-based tax credits starting in 2020. Credits begin to phase out for those making more than $75,000 per year ($150,000 joint filers). Credits won’t be available to those with access to employer coverage, but can be used for unsubsidized COBRA coverage.
- Most, but not all, ACA taxes, assessments, and fees eliminated
- Several changes would affect account-based plans, including increasing HSA limits to the maximum deductible/out-of-pocket limits for HDHPs ($6,550 single/$13,100 family for 2018).
- Medicaid expansion eliminated after 2019
The bill leaves intact most of the ACA’s plan design mandates, such as the ban on lifetime and annual dollar limits, plan eligibility to age 26, the ban on insurers’ charging more or denying coverage based on pre-existing conditions, caps on out-of-pocket expenditures, and essential benefit provisions.
The employer shared responsibility reporting can’t be repealed through the reconciliation process and continues for now. Employers can expect new W-2 reporting in 2020 which will help the IRS administer the restructured premium tax credits for individuals.
The Republican leaders’ goal is to pass the bill out of the house the week of March 20 and – less feasibly -- out of the Senate by April 7. But the timeline, and the language of the bills, could change. The Congressional Budget Office hasn’t yet scored the bill to determine any future impact on the deficit. The bills have also met stiff opposition from some Congressional Republicans, governors, medical groups and the AARP. Despite the opposition, Republicans pushed legislation through the House Ways and Means Committee in the wee hours of Thursday morning and the House Energy and Commerce Committee Thursday afternoon. Meanwhile, Speaker Paul Ryan is giving the hard sell and President Trump is negotiating.
The path Congress will take to repeal and replace the ACA has been anything but clear. Since the election, many approaches have been discussed, some that could take up to two years to implement. Trump is asking Congress to move more quickly. Last week, a committee of House Republicans released four bills that suggest a new direction. In an article in Health Affairs, author Timothy Jost says “…they are not aimed at destroying the ACA, but rather at trying to calm insurers and a nervous public. Some may even pass on a bipartisan basis. This is a very interesting development.”
Each bill is focused on a different piece of a replace strategy, addressing areas that seem to be creating the highest levels of angst. The first three are aimed at insurance company concerns in hopes of stabilizing the individual insurance market:
verification of eligibility to enroll and receive a government subsidy
expand the age category ratios for insurance company pricing
tighten the grace period for non-payment of insurance premiums
The fourth bill affirms a commitment to continuing to ban pre-existing condition limits, an issue that has captured the attention of members of both individual and group health plans.
These bills are to be the topic of a House Energy and Commerce hearing on Feb 2, which is a first step in the vetting process. While these bills do not directly address employer concerns, movement to stabilize the individual market sooner rather than later is a welcome response that will benefit individual and group health plans alike.
With adoption of a fiscal 2017 budget plan on January 13, Congress has taken the first legislative step toward achieving Republicans’ plan to repeal much of the ACA under fast-track budget rules. The plan, or “budget resolution,” instructs House and Senate committees to write budget “reconciliation” legislation by a non-binding January 27 deadline that knocks out key parts of the law. GOP leaders aim to put a bill on incoming President Trump’s desk within weeks, but the timing and shape of a repeal measure -- and replacement legislation that's taken on new urgency -- is unclear amid party differences over legislative process and policy details.
Treasury and IRS have extended relief for employers that offer "opt-out arrangements" paying employees who decline employer-sponsored health coverage. In recently issued final ACA premium tax credit regulations, the regulators said they are still evaluating issues related to the arrangements. Until further guidance is issued, employers making opt-out payments are not required to increase the employees' required contribution for affordability purposes under employer shared responsibility provisions, unless the arrangement fails to meet standards for relief provided under prior guidance.