Employer Group Health Plans Post-ACA: What’s Next for Employers and Workers?
The road for the Trump administration and Congress in the Affordable Care Act (“ACA”) “repeal and replace” effort will be challenging. President Trump’s administration has been clear about President Trump’s mandate to repeal and replace the ACA simultaneously, without delay. President Trump signed an Executive Order on his Inauguration Day instructing the Secretary of Health and Human Services and the heads of all other executive departments and agencies with authorities and responsibilities under the ACA to “waive, defer, grant exemptions from, or delay the implementation of any provision” of the ACA to the maximum extent permitted by law. However, even certain Republican members of Congress favor delaying the repeal until a replacement plan can be more fully developed and implemented. While the speed and timing of the repeal-and-replace effort remains unpredictable, it appears that a key factor is the replacement legislation.
Expanded Use of HSAs
Various ACA-replacement ideas have been considered. In terms of insurance coverage, many have advocated that it would be important to (i) preserve the prohibition on pre-existing condition exclusions, (ii) continue to provide coverage for preventive services and dependents up to age 26, and (iii) protect the health care subsidies. Proposals for qualified group associations are also being recirculated that could offer coverage that is exempt from state insurance laws. Employers will need to consider how any new minimum requirements impact the group health plans that they sponsor.
President Trump has advocated that the use of health savings accounts (“HSAs”) should be expanded, allowing an individual to make tax-free contributions to save for health care expenses that can accumulate, be used by any family member without penalty, and become part of the individual’s estate that passes on to his or her heirs. One response to this mantra appeared on January 4, 2017, when certain Republican members of the House released the American Health Care Reform Act of 2017 (“AHCRA”). The AHCRA would repeal all aspects of the ACA, effective January 1, 2018, and contains a provision for enhanced HSAs that include such features as allowing spouses to make catch-up contributions to the same HSA and increasing the contribution limit to match the limitation on deductibles and out-of-pocket expenses.
It is possible that an ACA-replacement program would redesign the current eligible expenses, contribution, and out-of-pocket limitations on HSAs (as well as the coupling with a high-deductible health plan), flexible spending accounts, and health reimbursement arrangements (“HRAs”). When President Obama signed the 21st Century Cures Act on December 13, 2016, the complex HRA integration rules were relaxed, allowing small employers to offer and fund HRAs, subject to certain rules, if they do not offer any group health plan to employees. Thus, the full array of approaches to replace the ACA remains to be seen.
Clearly, the expanded HSA approach would obligate individuals to anticipate health care expenses, spend wisely in their health care choices, and, more importantly, save money in the first place—which is not something that the majority of Americans have demonstrated they can do well (especially in the retirement savings front). Further, given that HSAs are mainly established with a bank or custodian independent of any employer administration, these types of programs fit squarely in the movement for portable employee benefits that workers can manage, regardless of where they are employed. Nevertheless, there needs to be a balance between employer-provided benefits and vehicles that permit individuals to save and manage their own costs, which includes a safety net.
Tax reform is also a central component of the ACA debate. President Trump has proposed a personal tax deduction for the full cost of health insurance to individuals, which was included under the AHCRA as a standard deduction of $7,500 for individuals and $20,500 for family coverage. Furthermore, given the widespread unpopularity of the Cadillac tax (including union opposition) and its likely repeal, the focus has turned to revenue replacement measures, including the tax exclusion for employer-provided health insurance.
Central to many tax reform proposals addressing the tax exclusion for employer-provided health insurance is to replace the tax exclusion with a refundable tax credit or to retain the tax exclusion, but cap the maximum amount that may be excluded. Proposals to cap or eliminate the employer exclusion would require the inclusion in income for the cost of coverage, essentially compelling employers to provide the coverage on an after-tax basis, which could then perhaps be offset by tax deductions or tax credits. Capping the exclusion also has parallels to the use of HSAs, which cap the level of fixed contributions. However, notably absent from discussions of the exclusion for employer-provided coverage is any discussion of the employer self-funded group health plan as an alternative for employers from the cost of commercial health insurance and as an efficient, cost-effective, and innovative player in the health coverage marketplace.
The existing ACA taxes, including the individual and employer responsibility penalties, the 3.8 percent tax on net investment income, and the additional 0.9 percent on Medicare payroll tax on high-income earners are being used to pay for Medicare and subsidies for families to purchase coverage on the insurance exchanges. The longer the time to repeal the ACA, the more likely that ACA taxes will impact the budget and the projected value of tax cuts, once made. From a political perspective, if ACA taxes are immediately repealed, the loss to the budget will not factor into any later tax reform, which will be more difficult to achieve without the ACA tax revenue. Also, proposals have been made to reserve any tax savings incurred from repealing the costly aspects of the ACA to fund a replacement plan.
A replacement plan or action timeline may be issued at any time. Once a final course of action is defined on a legislative front, and as various relief measures are released, it will be important for employers to determine the actions they must take to be in compliance with the new rules governing employer-provided health benefits, and evaluate the level of support they should continue to provide to their workforce when it comes to health care benefits. In some industries, it may make sense to move to a more portable model depending on the types of workers that are retained by the employer (e.g., common law employee versus independent worker). But, in other industries, it may be necessary for employers to continue to sponsor a traditional, high-quality group health plan to stay competitive and assist in ensuring the health of their workforce.
Workers need to realize the real potential of increasing the level of individual responsibility to save for health care, in addition to retirement. Former President Obama noted in his farewell address that the increases in automation in our society will lead to job loss and a new social compact will be necessary. However, under the current administration, the onus may fall more on the individual to plan for health care needs and save for their costs.
With all of the controversy over the ACA, which was years in the making, and the path that appears to lie ahead in its aftermath, perhaps it was just perfectly designed to fail and serve as another event ushering in a new and unprecedented future workplace. Whatever the ultimate outcome, it appears clear that changes are coming; it remains to be seen, however, whether the current administration will be able to materially change course.