BenefitsPro: Industry Insiders Ponder AHCA Impact on Group Market
The amended version of the American Health Care Act, which narrowly passed out of the House of Representatives last week, faces an uncertain fate in the Senate, where several Republicans are already airing concerns over the bill the White House is touting as a repeal of the Affordable Care Act.
At least two Republican Senators, Rob Portman of Ohio and Dean Heller of Nevada, have said they would not vote for the bill, while other Republicans have vowed to rework or completely rewrite the bill.
Amendments to the bill that allow states to apply for waivers from the ACA’s essential health benefit requirements, and loosen the existing age rating requirements on insurers, were enough to win over House members of the conservative Freedom Caucus, who blocked the original version of the bill in March.
And $8 billion in additional funding to states to help cover the premiums of higher risk consumers was added to insulate moderate Republicans from blowback over the Congressional Budget Office’s score of the first bill, which estimated 24 million Americans would lose health coverage by 2026.
The latest version of the AHCA retains provisions that kill the ACA’s individual and employer mandates.
For the group market, industry experts are cautioning employers from being lulled into complacency.
“Employers need to stay the course on ACA compliance — it is still the law of the land,” says Garrett Fenton, an attorney in the employee benefits practice at Miller & Chevalier. “Media outlets are billing this as a big victory but it’s vital to keep in mind that we have a long way to go.”
In fact, the very provisions that were added to win over the Freedom Caucus in the House are likely to be targeted by Senate Democrats committed to obstructing any effort to roll back the ACA, says Fenton.
In order to pass a version of the AHCA with a simple majority, Republican Senators will have to hue to strict budget reconciliation rules. Under the so-called Byrd Rule, legislation passed through budget reconciliation in the Senate must be directly related to federal outlays and be revenue neutral.
The tax provisions of the AHCA clearly satisfy the Byrd Rule. But the provisions to waive essential benefit and age ratings requirements are not directly related to the budget, but are health care regulations.
Ultimately, the Senate parliamentarian, Elizabeth MacDonough, will determine which aspects of the AHCA can be passed under reconciliation, and which cannot.
“She may be the most important cog in this process,” says Fenton. “The repeal bills that Republicans previously passed that President Obama vetoed did not include state waivers of essential benefits, so it’s not an issue that’s been tested.”
Sen. Ted Cruz has publicly suggested Vice President Mike Pence, the presiding officer in the Senate, can overrule the parliamentarian. That gambit would put the Senate in “uncharted territory,” says Fenton.
“This can be expected to be a bumpy road, and probably a long one,” he says.
Annual, lifetime benefit waivers impact on group market
The Senate is not expected to take up consideration of the AHCA until the Congressional Budget Office issues a new score of the bill.
Most expect substantial changes in the upper chamber, which makes gauging the AHCA’s implications for the employer market tricky. But as written, the option to waive Obamacare’s coverage requirements could affect the benefits offered through the group market, says Fenton.
The AHCA retains Obamacare’s prohibition on lifetime and annual limits for essential health benefits. Under existing law, employers can use any state’s interpretation of the ACA’s 10 essential benefits to base group coverage.
Some states have more expansive interpretations of essential benefits. In granting states the option of winnowing Obamacare’s essential benefit list, large employers could base coverage on any one state’s new interpretation of essential benefits, meaning they could place annual and lifetime limits on services like maternity, mental health, and preventative care, if those were cut as essential benefits.
“In theory, it would only take one state to use the waiver to allow any employer to impose new limits,” says Fenton. “There are a lot of variables at play, but the potential for significant impact is there. Employers could use new coverage limits as a cost control measure.”
Potential new taxes on employer-provided health benefits?
The AHCA retains the Obamacare’s Cadillac Tax, but pushes its effective date out to 2026.
An early draft version of the AHCA stripped the Cadillac Tax and replaced it with a 90 percent cap on the tax exclusion on employer-provided health benefits. That provision met immediate blowback from employer advocates, and was promptly cut.
While the version of the AHCA sent to the Senate does not include new taxes on benefits, some insiders worry lawmakers may again be tempted to tap the option.
“I have a nagging feeling it will crop up again,” says Kim Buckey, vice president of client services at DirectPath, a provider of compliance and benefits communication services to Fortune 1000 companies. “The AHCA retains of lot of Obamacare’s provisions, and I’m scratching my head as to where the money will come from. I’m not sure the stake is through the heart on the idea of taxing benefits.”
The preferential tax treatment of employer-provided health benefits costs the Treasury Department about $250 billion in foregone revenue annually, according to the CBO.
That sum could be needed as a source of revenue for the AHCA if some lawmakers move to have the Cadillac Tax stripped in the Senate.
“Funding health care is a big jenga puzzle — anytime you move one piece you risk the whole thing coming down,” said Buckey.
House Republicans also retained the considerable boost to health savings accounts in the passed version of the AHCA. Tax-free contribution limits are doubled to $6,500 for individuals and $13,100 for families, the list of qualified medical expenses expanded, and the tax penalty on non-qualified expenses is reduced from 20 percent to 10 percent.
Any version of health care reform that encourages wider adoption of HSAs will create new responsibilities for employers, says Buckey.
“We think it’s great that the limits are expanded, but HSAs introduce more complexity when so many workers don’t understand basic concepts of their health care coverage,” she says.
The changes for HSAs are slated to take effect in 2018. Beyond changes to summary plan documents, employers are going to have to be prepared for deeper investments in education initiatives if they plan to take advantage of HSAs paired with high-deductible plans.
“Employees are going to have to understand how the accounts work, and the complexity of funding them for the short or long term,” says Buckey. “That should raise some red flags for employers — there would need to be a lot more communication on their part.”
Reporting requirements not going anywhere
Perhaps more than any aspect of the ACA, employers most loathed 1094 and 1095 reporting requirements.
The employer mandate may be gone with the AHCA, but reporting requirements remain.
“The AHCA interestingly doesn’t do anything related to employer reporting requirements,” says Arthur Tacchino, an attorney and co-founder of SyncStream, a provider of ACA compliance software.
That reality is lost on some employers. Tacchino says he knows of some large employers that are not following up on reporting requirements for next year, under the assumption that they won’t have to.
Whatever becomes of health care reform — Tacchino expects substantial changes notwithstanding the hurdles the AHCA faces in the Senate — employers will still have reporting requirements.
“They may not be taxed but they will still have to file paperwork,” he says. “The message we’ve been preaching for months is whatever becomes of the ACA, it is the law of the land and employers have to be compliant for the time being and going forward.”
And if the law changes? “There will be reporting requirements — that’s been reflected in every Republican proposal to date. Whether it’s a 1095 form or a new form, employers will be tied to reporting, whether they like it or not.”
(Nick Thornton covers retirement advising and financial matters at BenefitsPro.com.)