How Would Trump Healthcare Reform Impact Employer-Based Insurance?

Would the AHCA or BCRA Change Insurance Offered by Employers?

Employees walking to work in the city at sunrise
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Although the debate about health care reform is often focused on the individual insurance market (ie, for people who don't get coverage from an employer) and Medicaid, the legislation under consideration would result in some important changes to the insurance that employers offer to their workers.

The Affordable Care Act (ACA) has been in place since 2010, and Republican lawmakers have been working to repeal it ever since it was enacted. President Obama's veto pen kept the law intact until 2017, but once President Trump took office, there was a path for Republicans to move forward with their repeal efforts. 

On May 4, lawmakers in the House passed their health care reform bill, the American Health Care Act (AHCA), 217 to 213, and sent it to the Senate. The legislation needed 216 votes to pass, so the win was a very narrow margin.

The Congressional Budget Office had not yet scored the final bill before the House voted; three amendments were added since the CBO previously scored the bill in March, so the full impact of the AHCA was unclear, even after the bill had passed out of the House. The CBO score on the final version of the bill was published on May 24—nearly three weeks after the House passed the legislation.

The AHCA: Take One

The road to repeal has been somewhat rocky, with a sharp divide among House Republicans in terms of what parts of the ACA should be changed or repealed. The AHCA was introduced in March 2017, but was pulled minutes before a scheduled vote in the House on March 24, after several hours of debate, due to lack of support.

House Speaker Paul Ryan (R, Wisconsin) initially said that Republicans would move on with other items on their agenda, but by the following week, the AHCA was back on the table. The debate since then centered around trying to find a middle ground to unite the Republicans who were opposed to the AHCA. That was a challenge, as those lawmakers are on both the moderate and ultra-conservative ends of the GOP spectrum.

There were at least 33 Republican representatives who opposed the AHCA in March, and although Republicans have a majority in the House, they can only pass legislation if no more than 22 Republicans vote no (all Democrats have been united against ACA repeal from the start).

AHCA With MacArthur Amendment and Upton Amendment: May 4th Vote = Pass

Negotiations in April and early May included three additional amendments: the invisible risk sharing program amendment, the MacArthur Amendment, and the Upton Amendment.

The invisible risk sharing program amendment was added in early April, and calls for $15 billion in federal funding over nine years to help stabilize individual health insurance markets.

The MacArthur Amendment, introduced in April by Rep. Tom MacArthur (R, New Jersey), allows states to waive some of the ACA's consumer protections, including the essential health benefits requirements, age ratio rules, and community rating.

As long as states take some very basic steps to support their insurance markets, they would be allowed to reduce the scope of the essential benefits that have to be covered by individual and small group plans. They would also be able to allow insurance companies to charge higher premiums to people with pre-existing conditions who don't maintain continuous coverage. A person with a gap in coverage of at least 63 days in the previous 12 months would be charged premiums based on medical history (ie, higher premiums if they have health conditions) for the first 12 months after enrolling in an individual market plan (alternatively, regular AHCA rules would apply in states that don't seek a waiver; applicants with a gap in coverage would be charged 30 percent higher premiums for one year, regardless of medical history).

The MacArthur Amendment garnered support from the conservative House Freedom Caucus, but it pushed moderate Republicans further away from the AHCA, amid concerns that people with pre-existing conditions would lose the protections that they've gained under the ACA.

The Upton Amendment, introduced in May by Rep. Fred Upton (R, Michigan), provides $8 billion over five years for states that waive pre-existing condition protections, in order to help the states offset some of the additional premiums that people with pre-existing conditions would pay. Although there are concerns that that $8 billion over five years will be insufficient, and that the amendment actually runs at cross purposes with the ACHA's continuous coverage requirement, the Upton Amendment swayed some moderates to support the AHCA, and the bill squeaked through the House on the afternoon of May 4.

The Senate's Bill

In June, Senate Republicans introduced their version of the bill, titled the Better Care Reconciliation Act (BCRA). They have introduced a few variations of the BCRA; here's an explanation of the differences between the AHCA and the BCRA

The Senate has also introduced a "repeal and delay" measure, which is essentially a repackaged version of a bill that Congress passed in 2015 (H.R.3762), but which President Obama vetoed. Senate Republicans' new version of H.R.3762 is titled the Obamacare Repeal Reconciliation Act of 2017 (ORRA). You can read a summary of the bill, as well as the CBO's analysis of the bill. It's unlikely that the ORRA will win enough support among Senate Republicans to pass, as several of them have expressed reservations at the idea of repealing the ACA without a replacement ready to go.

Impact on Employer-Sponsored Coverage

The AHCA already passed the House, but the Senate's version of it (the BCRA) is different in quite a few ways. If the Senate version passes, the House would have to agree to the changes before it could be sent to the President.

But if the reform legislation were to be enacted as-is, how would it impact people who get their health insurance from an employer? Most of the focus around the AHCA and BCRA has been on how coverage would change for people who buy their own individual market insurance or receive Medicaid. But what about employer-sponsored plans?

The ACA has brought about numerous changes to employer-sponsored health insurance. Let's take a look at the impact the AHCA and BCRA would have on health insurance that people get from their employers.

Large Groups: Elimination of Employer Mandate

Employers with 50 or more employees would no longer be required to offer health insurance. Under the ACA, employers with 50+ employees must offer their full-time employees affordable health insurance that provides at least minimum value (i.e., covers at least 60 percent of average medical costs). If they fail to do so, they're subject to a tax penalty. The AHCA would eliminate that penalty, retroactive to the beginning of 2016. So the ACA's rule requiring large employers would technically still be on the books, but there would be no repercussions for employers that didn't follow it.

To be clear, the vast majority of large employers were already offering health benefits before the ACA made it a requirement. But they didn't all offer coverage that was both affordable (defined by the ACA in 2017 as employee-only coverage that doesn't cost more than 9.69 percent of household income) and comprehensive. Some employers required employees to pay premiums that didn't fit the ACA's definition of affordable, and other employers—particularly in the service industry and jobs with high turnover—offered "mini-meds" that covered a small amount of medical care with very low benefit limits (for example, a plan that covered routine doctor visits but limited total benefits to $5,000 or $10,000 for the whole year, which doesn't go far if the employee is hospitalized).

An analysis by Health Affairs based on pre-ACA data (2009), found that 38 percent of large employers could have faced penalties under the ACA if their benefits had remained unchanged once the employer mandate took effect.

If the employer mandate penalty is eliminated, some large employer might revert to offering bare-bones coverage, and some might start requiring employees to pay a larger share of the premiums. This wouldn't be popular with employees, so it's likely that there wouldn't be a full shift back to pre-ACA coverage. But it's something to watch, especially if your employer increased your benefits in the last few years as a result of the ACA.

Small employers—defined as fewer than 50 employees—have never been required to offer coverage, so repealing the ACA's employer mandate would not impact them. However, the AHCA and BCRA would eliminate, as of 2020, the tax credits that low-wage, small employers can now use to offset premium costs for up to two years of coverage. Although this isn't a widely used provision of the ACA, its elimination might make it harder for some small businesses to afford coverage.

The Congressional Budget Office estimates that by 2018, the number of people covered by employer-sponsored insurance would drop by 2 million under the AHCA, and by 2026, a total of 3 million fewer people would have coverage under employer-sponsored plans. Under the BCRA, the CBO estimates that 4 million fewer people would have employer-sponsored health insurance in 2018, but that by 2026, only 2 million fewer people would have employer-sponsored health insurance (compared with how it would be in 2026 if the ACA were to remain intact).

Some of those are people who would simply opt out of their employers' plans once the individual mandate penalty is eliminated under the AHCA or BCRA. But others are people whose employers would stop offering coverage if the employer mandate penalty is eliminated by the AHCA.

It's notable that the earlier CBO analysis (published in late March) of the AHCA had projected that the number of people with employer-sponsored plans would decline by 7 million by 2026. In the later analysis, the CBO noted that the reason for the smaller decline in the number of people covered by employer-sponsored plans (3 million instead of 7 million) is because individual market coverage options would be of poorer quality and less accessible in states that seek waivers under the MacArthur Amendment.

The CBO is projecting that fewer employers will consider the individual market a good alternative to group coverage for their employees, and will thus continue to offer group coverage, even though they may not have done so if the MacArthur Amendment hadn't been added to the AHCA. Although the CBO has not yet scored the BCRA with the Cruz Amendment, employers would presumably have similar reservations about sending their employees to the individual market to purchase their own coverage if that amendment were to be implemented as part of the BCRA (the Cruz Amendment would allow insurers to offer non-compliant health plans as long as they offer a few basic ACA-compliant plans as well).

FSA Contribution Limits: Eliminated After 2017

The ACA limits contributions to Flexible Spending Accounts (FSAs) at $2,600 in 2017, indexed for inflation. The AHCA and BCRA would remove this limitation after the end of 2017, reverting to a system under which the employer sets the maximum amount that can be contributed to employees' FSAs.

HSA Contribution Limits: Increased as of 2018

For people who have HSA-qualified high-deductible health plans, the current contribution limit for health savings accounts (HSAs) is $6,750 for a family, and $3,400 for a single individual. The contributions are pre-tax, and can be made by the employer or the employee, or a combination of both.

Under the AHCA and BCRA, the contribution limits would be increased to equal the maximum out-of-pocket costs allowed on health plans. In 2017, that's $7,150 for a single individual, and $13,400 for a family. In 2018, it's scheduled to increase to $7,350 for an individual, and $14,700 for a family.

If employees can contribute additional funds to their HSAs, they'll end up with lower taxable income, and pay less in taxes.

Small Groups: Higher Premiums for Older Employees

The ACA does not require small employers to offer coverage, but if they do, the coverage itself is regulated by the ACA. Non-grandfathered small group plans (as well as individual market plans that people buy themselves) have limits in terms of how much higher premiums can be for older enrollees versus younger enrollees.

Under the ACA, the ratio is 3:1. That means a 64-year-old enrollee cannot be charged any more than three times a much as a 21-year-old enrollee.

Under the AHCA and BCRA, however, that would be modified to 5:1 (or higher, if the state uses a waiver), unless a state opted to keep the ACA's age band ratio in place (in their analysis of the BCRA, the CBO projects that most states would elect to allow the 5:1 ratio). With a 5:1 ratio, older enrollees could be charged five times a much as younger enrollees (that's the cost the insurance company charges, which is paid partially by employees and partially by employers; the amount that employers require employees to pay can vary by age, but there are federal age discrimination rules that apply).

The MacArthur Amendment in the AHCA allows states to use an age ratio greater than 5:1, which means that small business employees over the age of 50 could potentially be charged more than five times as much as 21-year-old employees.

Small Groups: Possible Elimination of Metal Level Requirements

The ACA requires non-grandfathered small group plans to conform to the ACA's metal level designations: bronze, silver, gold, or platinum. This is a measure of actuarial value (the percentage of health costs that a plan is expected to cover across the full population of enrollees; the actual coverage percentage for a specific individual will depend on how much health care is used). Bronze plans cover roughly 60 percent of costs, silver plans cover roughly 70 percent, gold plans cover roughly 80 percent, and platinum plans cover roughly 90 percent (with a +/- 2 percentage point range at each level, so a silver plan can have an actuarial value anywhere in the range of 68 percent to 72 percent).

Under the AHCA, the requirement that small group (and individual) plans conform to metal level actuarial value ranges would be eliminated after the end of 2019. That would mean more variation in plans, and would make it a little harder to compare apples to apples when looking at multiple plans.

Under the BCRA, the metal level actuarial value requirements are not changed at the federal level, but states would have the freedom to waive or change the requirements using 1332 waivers, which would be granted with much less stringent requirements under BCRA rules (1332 waivers are part of the ACA, but the ACA has strict guidance in terms of how and when they can be granted; the BCRA would eliminate most of those requirements).

Cadillac Tax: Suspended Until 2026

The ACA's Cadillac tax has already been delayed until 2020, but it's made some employers nervous as they look a few years down the road. The Cadillac tax is a 40 percent excise tax on the portion of total premiums above a pre-determined level. It's intended to target only the highest-cost plans, but critics worry that over time, it would apply to a growing number of plans, due to health care cost growth outpacing inflation. And in areas of the country where health insurance is particularly expensive (like Alaska, for example), it would apply to much more than just the top-tier plans.

The AHCA and BCRA would suspend the Cadillac tax from 2020 to 2025, with no excise tax being applied during that time. Both versions of the legislation would schedule the tax to take effect in 2026, but it's possible that additional legislation could be implemented between now and then to eliminate the tax altogether, as it's unpopular on both sides of the political aisle.

State Flexibility: Essential Health Benefits

In an effort to get House Freedom Caucus members to support the AHCA, lawmakers included the MacArthur Amendment to allow states to relax the standards that apply to essential health benefits and community rating.

Under the ACA, non-grandfathered small group plans (and individual market plans) must cover the ACA's essential health benefits, and small groups cannot be charged higher total premiums based on employees' medical history.

The MacArthur Amendment allows states decide whether to enforce those rules, in an effort to bring down premiums for healthy enrollees. The trade-off, of course, is that people with pre-existing conditions in states that opt to implement lax requirements might find that the small group plans available to them are not as robust as current plans. 

If states seek waivers to allow higher premiums for people with pre-existing conditions who experience a gap in coverage, that would apply in the individual market, rather than the group market.

The BCRA takes a slightly different approach, by granting states the right to use 1332 waivers to make changes that could include redefining essential health benefits. As noted above, the BCRA has a much less restrictive process for allowing states to obtain 1332 waivers (compared with the ACA). The CBO projects that nearly half of the country's population lives in states that would seek 1332 waivers to reduce the scope of what's counted as essential health benefits if the BCRA were to be enacted. This would impact both individual and small group plans within those states, with coverage becoming less robust over time. 

Protection Reduced for Lifetime and Annual Maximums & Out-of-Pocket Limitations

Under the ACA, all non-grandfathered plans—individual, fully-insured group plans, and self-insured plans—had to eliminate annual and lifetime benefit caps (ie, a plan can't cap total benefits at $1 million or $5 million anymore, as was often the case pre-ACA).

All non-grandfathered plans also have to limit in-network out-of-pocket costs to no more than a pre-determined amount (in 2017, it's $7,150 for a single individual).

But both of those rules only apply to essential health benefits. If a state seeks a waiver and reduces the scope of the ACA's essential health benefits, the rules regarding lifetime/annual maximums and out-of-pocket limitations would be relaxed. Things that are no longer considered essential health benefits would no longer have those protections.

What's Not Changing

Some consumer protection aspects of the ACA are widely popular, and aren't slated to change under the AHCA or BCRA. Here's what's likely to stay the same on employer-sponsored plans:

  • Young adults can remain on a parent's health plan until age 26.
  • Annual and lifetime benefit caps are prohibited (to the extent that they apply to essential health benefits; as described above, increasingly lax requirements for essential health benefits would erode the prohibition on annual and lifetime benefit caps)
  • Waiting periods for coverage when employees are newly eligible for coverage cannot exceed 90 days (this could be changed under the BCRA's Cruz Amendment—which may or may not be in the final version of the bill—but it would be at each state's discretion).
  • Out-of-pocket costs are capped (2017 limit is $7,150 for an individual and $14,300 for a family; in 2018, the limit is $7,350 for an individual and $14,700 for a family). However, as described above, out-of-pocket limits only apply to essential health benefits.
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