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 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.
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.
It has been a month since the American Health Care Act was pulled because House Republicans lacked the votes to advance it to the Senate. Here’s a run-down of all that has happened since then, including our perspective on what it means to employers.
Individual Options in the Public Exchange
Over the past month, after Humana announced that it will no longer offer plans on the public exchange and Anthem announced that it is nervous, we have been seeing articles about parts of the country where Obamacare options could go from one to zero. Insurance companies are trying to decide whether to participate in the exchange market in 2018 as they wait for Washington to provide some much-needed clarity and stability.
Last week, health insurers met with Seema Verma, the new Medicare administrator. Their biggest concern is the future of cost-sharing reductions (CSRs) paid by the administration that now go to the companies covering about seven million individuals to help lower deductibles and co-payments. While the Obama administration paid the subsidies, House Republicans sued, arguing that payments made by the executive branch and not appropriated by Congress were unconstitutional. A federal district court judge agreed but allowed the subsidies to continue while the case is being appealed, and the next court date is May 22. Interestingly, Kaiser Family Foundation released an analysis that showed eliminating the CSRs would actually result in a net increase of $2.8 Billion to the Federal government in 2018 for higher premium subsidy payments. In addition to the CSRs, insurers also worry about enforcement of the individual mandate penalty. Without it, healthier people might consider going without insurance, which drives up costs for the insured.
What employers need to know: The funding for the CSRs is critical for the insurance companies because it will saddle them large immediate costs and affect their pricing of future policies. Without the subsidies, rates are estimated to increase an additional 20% on top of required increases for 2018. The health of the individual market is important to employers as outside options for COBRA coverage and pre-65 retiree medical coverage. In addition, shortfalls in the individual market will result in cost-shifting to other markets, most likely employers since they cover the largest portion of the US population.
Attempts to Revive the AHCA Continue
Following the failed attempt to pass the AHCA in the House, the White House urged continued efforts aimed at bridging differences between GOP moderates and conservative Freedom Caucus members who believe the AHCA did not do enough to drive down insurance premiums. Just before Congress left town on Friday, April 7, for its two-week Spring recess, House Republicans agree to add language to the bill that would establish a federal risk-sharing program providing $15 billion to states over nine years. The change did not convince the Freedom Caucus members, who had earlier met with Vice President Mike Pence to discuss their support for getting rid of three ACA regulations -- essential health benefits, which mandate what services insurers must cover; community rating, which says insurers can't charge sick people more for insurance; and guaranteed issue, which says insurers must cover people with pre-existing conditions.
Talks between the White House, House GOP lawmakers produced a compromise proposal on April 26 that would let States to opt out of essential health benefit regulations and loosen the rules on when insurance companies can charge higher premiums. In exchange, states would have to set up a high-risk pool where older, sicker people could buy coverage, likely at much higher prices. It remains unclear, however, whether the proposed changes will attract enough votes to move the bill out of the House.
What employers need to know: There is still interest in repeal/replace, but the reality that it will take time seems to have sunk in – especially given that even if the House is able to pass a bill, there will be more issues to navigate in the Senate.
Trump Has Options While Waiting for Lawmakers
There was an interesting piece in the New York Times outlining what the Trump administration could do to the ACA in the absence of legislative changes. It could weaken enforcement of the individual mandate; not fund CSRs and make premium subsidies less generous; allow states to impose work requirements under Medicaid expansion; and redefine essential health benefits (although this would require a lengthy re-write of current regulations). What the administration can’t change is the employer mandate or taxes created under the ACA. Nor can it increase in premiums for older Americans. Most recently, HHS issued a stabilization rule aimed at addressing some of the insurance companies concerns in the individual insurance market. It addresses premium payment requirements, shortening the open enrollment period, pre-approval verification for special enrollment requests, and flexibility on plan designs within the metal categories (essentially, allowing higher cost sharing in order to lower the premium costs).
What employers need to know: The longer it takes for lawmakers to reach consensus, the more important these types of actions will be. Employers should be aware of any actions that potentially could result in cost shifting -- which is everything on the list.
Here’s the bottom line. More than 177 million Americans get their health coverage through an employer. American businesses are a critical partner for success as the Trump Administration and lawmakers navigate the future of health insurance. We strongly support actions that seek to slow healthcare cost growth and limit cost-shifting to private payors.
In our recent policy paper, we recommend the creation of a “President’s Healthcare Leadership Council” to drive transformation and boost transparency in healthcare. In setting health policy for the coming years, the federal government has an important opportunity to support the collaboration needed to drive value throughout the entire health system.
After their failed attempt to pass ACA repeal and replace legislation, President Trump and House Speaker Ryan indicated that they were “moving on” to other legislative priorities. On Tuesday, we learned that Republicans have restarted their conversations about healthcare. On Wednesday, Bloomberg reported the GOP was discussing a new vote as early as next week.
At Mercer, we believe that the current healthcare system is unsustainable, but we urge that changes be made without undue haste and with careful consideration of the many complex factors at play in our system. We are actively advocating for new health savings account rules and the repeal of the Cadillac tax and, as I said in my blog post earlier this week, we stand ready to support lawmakers in shaping policies that will address the underlying causes of healthcare cost growth.
Our conversations with employers across the country echo these priorities. For instance, the morning of the day the bill was pulled, I gave a speech at the North Carolina Business Group on Health annual conference. I asked the group of benefits professionals if they could ask one wish of the President and Congress, what would it be? Responses included:
- Healthcare coverage for all
- Consideration of the consequences of cutting federal funding for Medicaid and public health programs
- Consideration of the consequences of cost-shifting to older pre-Medicare-eligible Americans
- Help addressing unnecessary/inappropriate care, ER visits, and opiate use
- Help with escalating prescription drug costs
- Relief on the ACA reporting requirements
What would your "one wish" be?
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.