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Future of the Affordable Care Act & Potential Impact on Employer Sponsored Health Benefits - November 17, 2016

Since the recent election, many are wondering about the future of the Affordable Care Act (“ACA”) and health care reform.  Given Republicans have campaigned since 2010 on repealing the unpopular Act, it is extremely likely portions of the Affordable Care Act will be repealed.  Whether the Republicans will be able to repeal the Act in its entirety and what they will replace it with is uncertain.  We can, however, provide insight into possible repeal and replacement efforts based on the Republicans’ actions to date.

 

PROCEDURAL ISSUES

As a preliminary matter, because the Republicans do not hold 60 seats in the United States Senate, Democratic Senators can filibuster most legislation that comes before them.  There is one exception to the filibuster for budget reconciliation bills.  For this reason, any legislation proposed by the Republicans repealing the Affordable Care Act would either need to have some bipartisan support or be passed through budget reconciliation bills. 

 

In late 2015, Congress passed budget reconciliation legislation (H.R. 3762) that would have repealed significant portions of the Affordable Care Act.  The bill was vetoed by President Obama in January and Republicans did not have the votes in Congress to override it.  Because budget reconciliation bills require only a simple majority to pass and Senate Democrats cannot filibuster these bills, the Republicans will need to use this process again unless they can find some compromise with Senate Democrats. 

 

While the Republicans did not attempt to repeal all of the Affordable Care Act and limited the repeal to those portions which had a clear budgetary impact, they could try to argue non-budgetary items (such as insurance market reforms) should be included by arguing the provisions are so intertwined as to make them inseparable.  Given the uncertainty of which route the Republicans will take, this post will discuss both measures as well as potential replacement reforms in a Republican led government.

 

REPEALING PORTIONS OF THE ACA

The easiest path for Congressional Republicans is to effectively repeal or defund those portions of the Affordable Care Act with a clear budgetary impact, similar to the bill passed in late 2015.  This would include:

  • Removing any penalty on individuals for failing to have health coverage;
  • Removing any penalty on employers for failing to provide coverage;
  • Eliminating tax credits or federal subsidies to assist lower income taxpayers and small businesses with purchasing insurance on the Health Insurance Marketplace; and
  • Ceasing to fund the Health Insurance Marketplaces and Medicaid expansion.

 

While not specifically referenced in the earlier bill, the ACA’s information reporting requirements which commenced in 2015 would be unnecessary and would likely no longer be required if the individual and employer mandates are essentially repealed.

 

Such a reconciliation bill is also likely to repeal the following tax measures included within the Affordable Care Act:

  • Indoor tanning and medical device taxes;
  • Annual fees on health insurance issuers and drug manufacturers;
  • Medicare Part A tax increases;
  • Removing the deductibility of Medicare Part D retiree drug subsidy payments;
  • Cadillac tax;
  • Limitation on health FSA contributions;
  • Limitations on reimbursement of over-the-counter drugs as reimbursable medical expenses under health FSAs, HSAs, MSAs, and HRAs; and
  • Increase in the penalty assessed to HSA holders for using HSA funds on expenses that are not qualifying medical expenses.

This most recent repeal effort preserved the following portions of the ACA, known as the insurance market reforms:

  • Dependents covered until age 26;
  • No lifetime or annual limits on essential health benefits;
  • No pre-existing condition exclusions;
  • Rating limitations;
  • Summary of Benefits and Coverage; and
  • Waiting period limitations.

For your reference, we have prepared a summary of the ACA’s reforms. The highlighted provisions are those that H.R. 3762 proposed repealing which serves as a guide to the provisions most likely to be repealed if a similar measure was used in 2017.

 

REPEALING & REPLACING THE ACA

If the Republicans are successful including all of the ACA provisions in the budget reconciliation process or garnering enough support from Senate Democrats to defeat a filibuster, then a full repeal of the ACA is likely.  Both Congressional Republican leaders and President-elect Trump have indicated they would not repeal the ACA without replacing it.  While we cannot predict with certainty what these replacement reforms will be, the following is a summary of Republican proposals published in June 2016 which provides some insight.

 

  1. Expanding Consumer Driven Health Care Options.  The Republican proposals include expansions of Health Savings Accounts (“HSAs”), including raising the maximum contribution level and expanding eligibility.  They also propose facilitating private exchanges and allowing employers to reimburse individual insurance premiums and encourage expansion of health reimbursement accounts (“HRAs”).
  2.  

  3. Tax Credits.  The Republican proposals include a “universal, advanceable, refundable tax credit,” adjusted for age, for individuals who do not have access to job based coverage, Medicare or Medicaid. The credit is to be used toward the purchase of health insurance with any excess available for contribution to an HSA.  
  4.  

  5. Limits on Pre-Tax Payment of Premiums.  The Republicans propose to cap the amount that can be excluded from an individual’s income for payment of health insurance premiums through employer cafeteria plans.  Plans that cost more than the cap would need to be included in the individual’s income.  HSA contributions would be exempt from any cap.
  6.  

  7. Purchasing Coverage Across State Lines.  The Republicans propose removing any barriers to purchasing insurance licensed in another state in order to increase competition.
  8.  

  9. Pooling Opportunities.  The Republicans propose allowing small businesses to band together to offer health plans such as association health plans.  Their plan also proposes allowing individuals to similarly establish purchasing pools for individual coverage.
  10.  

  11. Patient Protections.  The Republican proposal includes some provisions similar to those popular provisions in the Affordable Care Act, including prohibiting an insurer from declining coverage to individuals with pre-existing conditions, allowing dependents to remain on their parents’ plan until age 26, and disallowing rescissions.  The proposal would also reinstitute the portability protections first passed in 1996 under HIPAA, give states the flexibility to set their own insurance rating age ratio (currently 3 to 1 under the ACA, the proposal proposes to set the default at 5 to 1); and provide federal funding for high risk insurance pools.  Insurers could only charge “standard rates” to individuals who sign up for individual insurance after experiencing a qualifying life event (such as divorce or job loss) or who sign up for coverage during a limited one time open enrollment opportunity at implementation.  Individuals who do not sign up during this one time enrollment opportunity and who later want coverage and have not experienced a qualifying life event could get coverage but at more expensive rates.

     

  12. Medicaid & Medicare Reforms.  The Republicans would end funding for Medicaid expansion which, unless a state chose to continue eligibility for these individuals, would mean millions of Americans would lose their Medicaid coverage.  The tax credit (discussed above) is intended to bridge this gap.  The Republicans also propose to cap federal funding for Medicaid and turn control over the Medicaid program to individual states. With respect to Medicare, the Republicans propose measures to strengthen Medicare Advantage plans, repeal the Independent Payment Advisory Board and the Center for Medicare and Medicaid Innovation created by the ACA, raise the eligibility age from 65 to 67, and give beneficiaries a choice between private plans and traditional Medicare.
  13.  

  14. Miscellaneous.  The Republican proposal voices support for employer wellness programs, medical liability reform, and studying the potential impact of removing the antitrust exemption for insurance companies.

 

SUMMARY OF POTENTIAL IMPACT TO EMPLOYERS

Under a partial repeal, employers with 50 or more employees are likely to experience the most significant relief as they would no longer be penalized for failing to offer full time employees health coverage and would avoid the burden of implementing and administering the employer mandate.  Premiums generally, including in the large and small group market, are not likely to be reduced under a partial repeal given these plans would likely still be subject to the insurance market reforms and premiums could rise.  All employers would avoid the Cadillac tax.

 

Under a full repeal, employers of all sizes are likely to experience much more flexibility in how they design their benefit plans. If Republicans are successful in implementing their replacement proposals, employers may have more benefit choices, including out of state insurers, private exchanges, newly allowed insurance pools or reimbursing individual employee premiums through HRAs.  More employers and their employees may move toward high deductible health plans/health savings accounts and plans that cost less than any limit the Republicans place on the cost that can be excluded from an employee’s income. What is unknown at this time is how the Republican proposals will impact health care costs and insurance premiums.  

 

Until such time as legislation repealing or revising the Affordable Care Act is signed into law and implemented, employers must continue to comply.  To discuss these and other health care reform issues, feel free to contact me or your Davis Brown attorney at (515) 288-2500.