Despite last week’s cold snap, the bloom of cherry blossoms along Washington DC’s Tidal Basin is now under way – a peaceful sight that belies this stormy moment in Congress, where new healthcare legislation is being debated and the headlines seem to shift from moment to moment. However, one thing is for sure: any legislation affecting the US healthcare system must consider the impact on employer-sponsored health insurance – the source of coverage for 177 million Americans, 16 times the number enrolled in public exchanges.
That’s why the leadership of MMC companies Mercer and Oliver Wyman created a health policy group to help formulate MMC’s views on ACA repeal-and-replace legislation. Our efforts led to the issue of a policy paper that showcased original Mercer research on changing the tax treatment of employer-sponsored coverage.
Last month, we took this research to the US House of Representatives to meet with policymakers actively working on the newly proposed American Health Care Act, or AHCA. We demonstrated that the excise tax on high-cost plans, currently law under the ACA, is not an effective method of penalizing rich “Cadillac” plans because plan design is only one factor affecting plan cost and often less important than location and employee demographics.
This would also be true of a cap on the employee individual tax exclusion for employer-provided health benefits, a provision included in an early draft of the AHCA and favored by powerful voices such as House Speaker Paul Ryan (R-WI), House Ways and Means Chair Kevin Brady (R-TX) and new HHS head Tom Price. Mercer had also modeled the impact such a cap would have on the effective tax rates of Americans based on their income. The hardest hit, by far, would be lower-paid workers with families. Some staffers faced with this information for the first time were visibly struck.
When the bill was released for mark-up, the cap on the exclusion was not included, and the Cadillac tax was delayed until 2025 (and possibly 2026). But while we were pleased with this outcome, we also knew the bill was a long way from becoming law and the cap could easily resurface.
It was my privilege to meet last week with Senators Rob Portman (R-OH) and Tom Carper (D-DE), both members of the Finance Committee; Senator John Cornyn (R-TX), Majority Whip and Member of the Finance Committee; and Senator Orrin Hatch (R-UT), Chairman of the Finance Committee. I urged them, first and foremost, to preserve the health benefit tax exclusion, and secondly, to liberalize HSA rules. I also discussed the potential impact of proposed cuts to the Medicaid program, and our concern that a surge in uncompensated care would cause providers to shift cost to private group plans – making it harder for employers to continue to provide adequate coverage to their workers.
Our work is far from done. I look forward to returning to Washington as the legislative debate continues – to advance the goal of preserving and enhancing the employer-sponsored healthcare system that is a stable source of good health coverage for approximately half of all Americans.
Join me on LinkedIn to continue the conversation. How will changes in healthcare policy have an impact on your organizations and people?
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.
This has been a busy week for healthcare in DC -- and the week’s not over yet! On the heels of the leaked Republican reconciliation bill language last Friday (that is already being described as out of date), the governors arrived over the weekend for a National Governors Association meeting that included dinner at the White House on Sunday. While the President tweeted that they “might” talk about healthcare, you can be sure the future of the Medicaid program and, more specifically, Medicaid funding, was at the top of the governors’ list of topics. Certainly, the 31 states that expanded Medicaid fear the funding implications of a block-grant program.
On Monday, the White House hosted a meeting with executives from the insurance companies to discuss government action required to "save" the failing individual market and convince (or perhaps, strong-arm) the carriers to stay in the game. Earlier this month, HHS announced revisions to the deadlines to file individual products to be offered in 2018 on the public exchange. This allows more time for legislative and regulatory action that might influence carrier decisions.
On Tuesday, the POTUS addressed the full Congress for the first time. He took a few minutes to lay out his five requirements for a replacement strategy. I’ll give you the short version below, but I recommend you also check out this Vox article, in which Sarah Kliff decodes the actual wording of each:
- Ensure Americans with preexisting conditions have access to coverage
- Help Americans purchase coverage through the use of tax credits and expanded health savings accounts
- Give states the resources and flexibility they need with Medicaid to make sure no one is left out
- Implement legal reforms to protect patients and doctors from unnecessary costs (presumably malpractice lawsuits) -- and bring down drug prices
- Allow the sale of health insurance across state lines
Meanwhile, it is widely reported that the Republican version of the reconciliation bill is changing constantly as various contributors attempt to balance the requirements of a very divided party -- all the while knowing that the Senate is working on its own replacement plan. We understand members of the House are reviewing the new bill and it is scheduled to go to committee for mark up next week.
Like I said, it’s been a busy week -- and there is no sign of the pace slowing anytime soon.
A leaked discussion draft of House Republican legislation to repeal and replace much of the Affordable Care Act (ACA) largely tracks earlier GOP proposals, including a cap on the employee tax exclusion for employer-provided health coverage. The February 10 draft includes the following proposals:
- Tax exclusion for employer-provided coverage capped. The draft would repeal the ACA's “Cadillac” tax now slated to begin in 2020. Instead, a cap would limit employees' federal income tax exclusion for the value of employer-provided coverage starting in 2020. (Employers would have additional payroll taxes if cost exceeds the cap.) Cost determinations for the cap would apply many of the same coverage inclusions and exclusions used for the Cadillac tax, but contributions to health savings accounts (HSAs) would not count. The cap is set at the 90th percentile of the employee and employer cost of group health coverage, as determined by the Department of Health and Human Services. The draft doesn't call for any cost adjustments for age, sex, or geography.
- Shared responsibility eliminated. Employer and individual shared-responsibility assessments would be effectively eliminated after 2015.
- Premium tax credits modified. Beginning in 2020, enrollees could get age-based premium tax credits ranging from $2,000 to $4,000 per year for individual coverage and unsubsidized COBRA. Individuals with access to employer coverage could not receive any tax credit.
- Employer's ACA reporting not addressed. The draft does not address ACA's current employer reporting responsibilities, so employers should plan to report for 2016. Beginning in 2020, health coverage providers would report on covered individuals and employers would report on premium costs to enable IRS administration of premium tax credits and the capped tax exclusion for employer coverage.
- ACA taxes repealed. ACA-related taxes would be repealed -- some at the end of 2016 and others in later years.
- Relaxed HSA limits and rules. Starting in 2018, permitted annual HSA contributions would increase to the maximum deductible/out-of-pocket limits for high-deductible health plans, and HSA rules would be eased in several respects.
- Medicaid expansion eliminated. Medicaid expansion would be repealed after 2019 and replaced with per capita Medicaid payments up to capped amounts.
These proposals will likely change before lawmakers introduce a bill, likely within weeks. In the meantime, Mercer will continue to advocate on behalf of our clients. Our recently released public policy point of view -- Health Reform and American Businesses: Critical Partner for Success -- demonstrates how important it is that the collective voice of employers be heard during the ACA ‘repeal and replace’ discussions and planning. You can make your voice heard through membership in plan sponsor and business groups or by contacting your congressional representatives in the House and Senate.
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.