How Would Trump Healthcare Reform Impact Employer-Based Insurance?

Would the AHCA Change Insurance Offered by Employers?

Employees walking to work in the city at sunrise
Oli Kellett/Stone/Getty

Ever since Donald Trump won the presidential election in November 2016, the future of healthcare reform has been uncertain. 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.

The AHCA, Take One

The road to repeal has been somewhat rocky, however, with a sharp divide among House Republicans in terms of what parts of the ACA should be changed or repealed. The American Health Care Act (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 has centered around trying to find a middle ground to unite the Republicans who were opposed to the AHCA. That's proved tricky since 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, and although Republicans have a majority in the House, they can only pass legislation if no more than 22 Republicans vote no (all Democrats will vote no on measures to gut the ACA without a replacement at least as robust; the AHCA is far less robust than the ACA).

The AHCA, Take Two

Negotiations were underway before lawmakers headed home for the Easter recess, and Republican leaders are hoping to vote on a modified AHCA soon after the recess ends. Even if enough support is mustered for the legislation to pass the House, it faces an uphill climb in the Senate.

But if the AHCA were to pass, how would it impact people who get their health insurance from an employer?

Most of the focus around the AHCA 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 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 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, that would grow to 7 million. Some of those are people who would simply opt out of their employers' plans once the individual mandate penalty is eliminated under the AHCA. But others are people whose employers would stop offering coverage if the employer mandate penalty is eliminated by the AHCA.

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 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, 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, however, that would be modified to 5:1, unless a state opted to keep the ACA's age band ratio in place. 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).

Small Groups: 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.

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 would suspend the Cadillac tax from 2020 to 2025, with no excise tax being applied during that time. It 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.

Still Under Negotiation: Essential Health Benefits and Community Rating

In an effort to get House Freedom Caucus members to support the AHCA, lawmakers have considered relaxing 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 groups cannot be charged higher total premiums based on employees' medical history.

Lawmakers have proposed letting 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, and small employers with seriously ill employees (or dependents) might find that coverage becomes more expensive. These concerns are being weighed against the need to reduce premiums enough to get healthy employees to enroll in coverage, and it's still a work in progress.

What's Not Changing

Some consumer protection aspects of the ACA are widely popular, and aren't slated to change under the AHCA. 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.
  • Waiting periods for coverage when employees are newly eligible for coverage cannot exceed 90 days.
  • 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).

Sources:

Congress.gov, H.R.1628, The American Health Care Act of 2017. Introduced to the House as a Whole on March 20, 2017.

House.gov House Rules Committee Amendment (invisible risk-sharing program) to H.R.1628 (the American Health Care Act), April 6, 2017.

House.gov Manager's Amendment to the American Health Care Act, Policy Changes, March 20, 2017.

House.gov Policy Amendment to the Manager's Amendment to H.R.1628, March 24, 2017.

Kaiser Family Foundation, Summary of the American Health Care Act, April 2017.

Continue Reading