As yet another attempt to kill the Affordable Care Act (ACA) heats up in Washington, employers wondering how a new law might affect their benefit plans are advised to stay tuned. And with lawmakers facing a short timetable, at least some answers should be coming soon.
Lawmakers wanting to repeal and replace the ACA—also known as Obamacare—are under pressure to pass a bill by September 30. If a bill is passed by that deadline, Senate Republicans would need just 50 votes, along with a sure tie-breaking vote from Vice President Mike Pence, to pass the measure under budget reconciliation rules. If a bill isn’t passed by September 30—when the reconciliation rules expire—60 votes will be needed to thwart a Democratic filibuster.
In June, Senate Republicans came up one vote short when they tried to replace the ACA by passing an amendment to a bill passed by the House, the Health Care Freedom Act. Any new vote is also expected to be extremely close.
The latest effort, referred to as the Graham-Cassidy bill, would remove the employer and individual mandates, make revenue from the ACA’s tax increases available to states through block grants, and scale back funding for Medicaid over time.
Insight for employers
Although it’s far from certain the Graham-Cassidy bill can pass the Senate and clear the House, Eric Schillinger, a contributor to Federal Employment Law Insider and attorney with Trucker Huss, APC, in San Francisco, thinks the net effect would be a reduction in employers’ costs—more so in regard to the costs of legal compliance rather than the actual costs of benefits. He says enrollment in employer-sponsored health insurance likely would decrease to some extent as well.
Since the proposed bill would repeal the ACA’s employer mandate penalties, employers would be able to scale back group health plan eligibility without triggering tax penalties, Schillinger says. “Presumably, such eligibility changes would reduce an employer’s administrative costs, such as tracking full-time status and determining coverage affordability under what are currently very complex formulas,” he says.
Schillinger says the removal of the individual and employer mandate penalties would at least simplify employers’ reporting requirements under Internal Revenue Code Sections 6055 and 6056 (Forms 1094 and 1095).
The bill also would change the rules for health savings accounts (HSAs) to allow HSA funds to be used to pay premiums for high-deductible health plans in the individual insurance market. Schillinger says such a change, coupled with the elimination of the employer mandate, would enable employers to terminate their comprehensive major medical plans and instead subsidize their employees’ individual insurance coverage with tax-free HSA contributions.
“The ‘hands off’ approach of paying for employees’ individual insurance premiums is less expensive than sponsoring a major-medical plan from an administrative and legal-compliance standpoint,” Schillinger says. “That said, not every employer would take advantage of this opportunity to replace [its] current medical coverage with HSA contributions.” Instead, he says, employers would likely consider a number of factors such as industry benchmarks, the stability of the individual insurance market, and the nature, size, and diversity of the workforce.
Bill’s key points
With regard to employer-sponsored health insurance, Schillinger says the key changes include:
- Reducing the employer mandate penalties to $0;
- Expanding contribution limits for HSAs (effective in 2018) and making a number of other changes to HSA rules;
- Repealing the ACA’s prohibition of tax-free reimbursement of most over-the-counter medications by health flexible spending accounts, HSAs, and similar arrangements; and
- Repealing the ACA’s limit on employer deductions for prescription drug plans that receive retiree drug subsidy payments.
John R. Hickman, an attorney with Alston & Bird LLP in Atlanta, Georgia, also has been reviewing the bill and says it “provides employers almost all of the health care reform ‘fixes’ included in the prior House and Senate health care reform bills.” He calls the HSA changes a “significant improvement.” In addition, he says the bill contains additional options for catastrophic plan coverage.
“The most significant omission on the employer side is delay/repeal of the so-called Cadillac tax on high[-]cost health coverage,” Hickman says. “Perhaps this last aspect can be addressed if the bill moves forward.”
What employers should do
Schillinger says the possibility of the bill becoming law “is too remote to make any changes to plan design,” so employers just need to understand the proposed changes so they can make their views known to their elected representatives.
Also, Hickman says employers need to stay abreast of developments. “For now, employers will need to proceed as if the ACA remains fully intact but continue to monitor developments on this important bill,” he says.
Need to learn more? House Republicans have wrestled with plans to replace the Affordable Care Act (ACA). But how close will lawmakers come to killing the ACA altogether? Regardless of whether the debate resumes again over coverage for preexisting conditions, repeal of the Cadillac tax, and tax break caps on employer-provided health insurance, businesses will have to comply with whatever law remains. At the same time, organizations will need to balance those compliance obligations against the need to secure cost-effective health insurance coverage that meets employees’ needs and doesn’t break employers’ bank. The fact is that the vast majority of employers are turning to consumer-based plans such as health reimbursement arrangements (HRAs) and health savings accounts (HSAs) as well as other cost-management techniques to make it work. Karl Ahlrichs, of Gregory & Appel Insurance, and John Hickman, Esq., of Alston & Bird, LLP, will present “Obamacare Unwrapped: Health Care Compliance Obligations and Design/Cost Considerations for HSAs and HRAs in the Post-ACA World” at the 22nd Advanced Employment Issues Symposium in Las Vegas on November 16. This session will provide a comprehensive, timely overview of current legal obligations and design and cost considerations for HSAs and HRAs as ACA mandates are loosened and new incentive structures emerge. For more information on AEIS, click here.