Last week, Republicans got one step closer to repealing portions of the Affordable Care Act (“ACA”) when the House of Representatives passed the American Health Care Act (“AHCA”). Due to procedural issues and division within their own party, the American Health Care Act faces significant challenges in the Senate. Its provisions do shed light on the Republican strategy and types of reforms we may expect to see in any final legislation. Below is a summary of the AHCA and its potential impact on Iowa employers if it is ultimately successful.
ACA provisions repealed by the AHCA
The following provisions would be effectively repealed by the AHCA commencing on January of the year cited below:
- Individual Mandate Penalty (2016)
- Employer Mandate Penalty (2016)
- Actuarial values for health plans (2020)
- 3 to 1 age rating (increased to 5 to 1 unless a state adopts a different standard) (2018)
- Premium and cost sharing subsidies for low income individuals (2020)
- Small business tax credits (2020)
- Limit on health FSA contributions (2017)
- Increased penalty on using HSA funds for non-qualifying medical expenses (2017)
- Increase in Medicare payroll tax rate (2023); tanning bed tax (2017); health insurance issuer tax (2017); pharmaceutical manufacturers tax (2017); medical device excise tax (2017); chronic care tax (2017); annual limit on deduction for salaries in excess of $1 million for public corporations (2017); reduction in threshold for medical expense reduction dropped from 10% under ACA to 5.8% (2017)
ACA provisions retained by AHCA
- Guarantee Issue
- No annual and lifetime limits on essential health benefits
- Prohibition on pre-existing condition exclusions
- Limitation on out of pocket maximums and deductibles
- Requirement to extend dependent coverage to age 26
- Coverage of preventive care with no cost sharing
- Cadillac Tax (postpones until 2026)
- 6055/6056 reporting
- Health insurance marketplaces
- Prohibition on gender rating
- Medical loss ratio requirements
- Wellness incentives
- Independent external review
- Out-of-network emergency services covered as in-network
- Summary of benefits & coverage and other transparency requirements
WHAT IS LEFT TO THE STATES?
- Community Rating; states may allow insurers to use health status when rating for individual market applicants who have not maintained continuous coverage (2018)
- Essential health benefits; a state may redefine (2020)
- A state may utilize a different age rating standard (AHCA increases federal standard to 5 to 1)
- Medicaid expansion (2020)
WHAT ARE THE REPLACEMENT REFORMS?
- Flat annual tax credits (between $2,000-$4,000) adjusted for age if individual purchases an individual policy or unsubsidized COBRA coverage. Credit phases out for income earners between $75,000 and $115,000. (2020)
- Late enrollment penalty (30% of premium) for individuals who are not continuously covered. (2017)
- Provides funding for state high-risk pools for states who have waived community rating requirements. (2018)
- Increases HSA contribution limits, increases catch up contributions, allows reimbursement of OTCs. (2018)
- Numerous Medicaid reforms.
WHAT WOULD BE THE IMPACT OF THE AHCA REFORMS ON IOWA EMPLOYERS?
The AHCA reforms would provide some additional flexibility for large employers by effectively repealing the employer mandate by reducing the penalty to $0. As a result, large employers with 50 or more full time equivalents could redefine their health insurance eligibility criteria and premium contribution levels. Employers would still be required to provide annual reports on the coverage offered to their full time employees; however, it remains to be seen whether employers would continue to have to track employee hours in order to accurately complete these reports. Employers would also be allowed to choose their own cap on health FSA contributions and could contribute more to employee HSAs.
Many of the insurance market reforms implemented by the ACA would continue to apply so group coverage is likely to look similar to what it does today. Small employers purchasing insurance in the small group market may see changes in the policies offered by insurers if the actuarial value requirements are repealed. Note, however, that under the AHCA the cost sharing and deductible limitations would continue to apply.
Other potential changes in the small group market could include a change in the definition of essential health benefits which are currently required to be covered by non-grandfathered policies in the individual and small group market. All plans (including large and self-funded employers) could not impose lifetime or annual limits on essential health benefits. Given the current political environment in Iowa, it is likely Iowa would adopt its own essential health benefit definition. It is also possible Iowa may adopt its own age rating policy which would impact the individual and small group market.
PRE-EXISTING CONDITIONS AND MEDICAID
Much of the controversy associated with the AHCA relates to its impact on individuals and the Republican reforms relating to pre-existing conditions and Medicaid. While employers may be inclined not to focus on these issues, they are ultimately important for employers given their impact on the ability to recruit and retain employees.
Iowa employers may face more pressure to offer employees comprehensive coverage even without the employer mandate if the individuals they employ lose Medicaid coverage or the ability to purchase affordable, comprehensive coverage in the individual market. It may also be more difficult for Iowa employers to fill part-time jobs as individuals opt for full-time benefit eligible positions.
Finally, given the AHCA proposals relating to pre-existing conditions, there would be renewed focus on credible coverage certificates given an individual would need proof of continuous coverage without a significant break to avoid higher premiums and health status ratings in the individual insurance market.
While the AHCA still faces significant hurdles, several of its provisions that impact employers, such as repealing the employer mandate and providing greater emphasis on HSAs enjoy widespread support and are likely to end up in final legislation.