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 Republican leaders abruptly canceled a House vote on the proposed American Health Care Act (AHCA) because it was clear that it wouldn’t pass. At a March 24 press conference, Speaker Paul Ryan, R-WI, said that the party will now "move on" to tax reform and other policy priorities.
While “moving on” might be an option for Congress, it isn’t an option for employers who collectively provide health coverage to 177 million Americans and spend over $660 billion annually on health benefits -- more than federal spending on Medicare. Given that healthcare spending rises faster than inflation, it has been an ongoing challenge for employers to provide their workers with comprehensive, affordable coverage.
But there is reason to be optimistic. In recent years, we’ve seen overall health benefit cost growth slow, and some employers have made remarkable progress in bending the trend with breakthrough strategies. We believe there are steps that employers of any size can take to make a difference in their own programs -- and that ultimately these actions will drive change in the larger US healthcare system. We are working with employers to lead meaningful change through a collective focus on these four vital aspects:
- Pay for Value: Align reimbursement with value, not volume.
- Drive to Quality: Deliver the right care at the right time, in the right setting, error free.
- Personalize the Experience: Leverage data and technology to help employees make better healthcare decisions.
- Embrace Disruption: Leverage constant changes in the system -- with internal stakeholders and external partners -- to be future-ready.
Of course, true transformation will require change and cooperation from other players in the healthcare system -- including the federal government. That is why we will continue our efforts on the Hill, pushing for policies that address the underlying causes of healthcare cost growth, new health savings account rules, and the repeal of the Cadillac tax.
In an effort to garner more support for their ACA repeal legislation, House Republican leaders revealed changes to the legislation on Monday night pending the Rules Committee vote before going to the House for their vote. Of greatest interest to employer plan sponsors is the delay in the Cadillac Tax from 2025 to 2026. The bill’s amendment repeals some of the other ACA taxes retroactively to the beginning of 2017 instead of 2018 as originally proposed. Other changes include additional funding to increase tax credits for older Americans and some Medicaid revisions.
In light of the changes, the House Freedom Caucus has indicated they won’t oppose the legislation, but they may still have enough “no” votes to kill the bill. President Trump went to the Hill on Tuesday to help the House Leaders secure support for the bill. In the meantime, the CBO is analyzing the changes and is expected to issue a new CBO score before Thursday’s House vote. The Brookings Institution doesn’t expect a meaningful improvement in the score.
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.
This article discusses the tax conundrum Republicans are facing as they try to repeal portions of the ACA. In short, legislation passed through reconciliation cannot increase the deficit beyond the budget window. With the proposed repeal of most of the ACA taxes, Republicans are using the Cadillac Tax to “smooth over the budget math.” The Cadillac Tax is disliked on both sides of the aisle so there’s still hope for a full repeal before the 2025 effective date. In the meantime, employer groups like the Alliance to Fight the 40, American Benefits Council, and ERIC continue to oppose the tax.
Employers recognize the important role of healthy communities in employee well-being. The government plays an important role in creating healthier communities through the support and funding of public health initiatives. That’s why we found The American Health Care Act’s repeal of the Prevention and Public Health Fund concerning. The fund provides money to the CDC to support disease prevention programs. The loss of funding is likely to impact:
- The federal vaccines program which ensures healthcare providers receive the vaccination doses they need and mobilizes responses to disease outbreaks.
- Public health programs aimed at preventing and reducing the risk of heart disease.
- Programs to reduce the risk of healthcare-associated infections. One-hundred percent of the money the CDC uses for this effort comes from this fund established under the ACA.
Prevention and public health funding addresses community health, and communities are where employees live. Well-being is linked to improved productivity, absenteeism, presenteeism and healthcare utilization – all factors that can impact a business's bottom line. For individuals, health and well-being affects both financial security and quality of life.
Just FYI. Since the ACA was enacted, there has been a succession of repeal and replace proposals coming out of Washington, culminating in this week’s House Republican bill. The Kaiser Family Foundation makes it easier to compare and contrast the proposed changes to specific ACA provisions with an interactive tool posted on their website. Click on a provision, for example, “Premium subsidies for individual,” to see how subsidies are currently handled under the ACA and how that changes in the proposed American Health Care Act. Take it a click further to see this same provision in any of five other proposals, including HHS leader Tom Price’s “Empower Patients First” Act from 2015. Given predictions that the AHCA will have a tough time getting to the President’s desk as currently written, you may want to bookmark this page.
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.
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.
Well, now we know. A week ago, House GOP leaders presented an outline of an ACA repeal and replace plan with a key element missing – the source of revenue to fund the tax credits that would replace subsidies to assist people buying individual insurance. Today, Politico reported that in a leaked draft of ACA repeal-and-replace legislation, GOP lawmakers are proposing to do away with all ACA taxes, including the Cadillac tax. The only source of revenue in the bill is a cap on the income tax exclusion for people receiving health benefits through an employer plan. This differs from the Cadillac tax in that it hits plan members directly, rather than the employer or the plan. The draft bill sets the threshold at relatively high levels, but it is easy to speculate that the threshold could come down if this provision alone must pay for the replace plan.
Of course, this is only a draft – a leaked draft at that – and our lawyers have only just begun reviewing it. But our earlier analyses have shown that under any cap scenario, lower-income people will see the biggest increase in their effective tax rate. Another concern is that, if the goal of the tax is to penalize the most generous plans, basing the cap on premium cost means that plans with older workers and more women, and those located in high-cost areas of the country, will be likely to trigger the tax, since these factor all influence cost as much or more than plan design.
Give the Politico article a read, and if you’re concerned about the effect of a cap on your employee population, now would be a good time to let your representatives know.
Mercer hosts a monthly Washington Update webcast, and as you'd imagine, attendance varies based on the current activity in Washington. No surprise to find a large crowd calling in yesterday to hear the latest news. Employee Benefit News shared the highlights in an article. We could see the ACA replacement plan as early as next week. Specific details are still unknown and when announced will likely be modified as the legislative process begins. Stay tuned – more to come.