In the aftermath of last week’s election of Donald Trump as president of the United States and the Republicans’ retention of control over both the House and the Senate, many are beginning to assess the impact of a Republican controlled Congress and presidency on the future of the Affordable Care Act (ACA).
On many occasions during the campaign, Trump made no secret of his desire to repeal the ACA on “day one,” but offered little insight into his views on health care policy. Post-election, Trump and his advisers have begun to rethink whether immediate outright repeal is possible or even advisable.
While the Republicans have a majority in both houses, they lack the Congressional supermajority needed to defeat any filibuster by the Democrats aimed at stopping a repeal bill. Further, pulling the rug out from under the 20-plus-million Americans who have obtained health coverage under the ACA either through Medicaid expansion or on state or federal Health Marketplace Exchanges would cause major disruption to the health industry and insurance markets and would be politically unpopular with affected individuals, many of whom voted for Trump, who would now be without replacement health coverage.
Rather than outright repeal, Trump and the Republicans have at their disposal several levers which can operate together to severely undermine the stability of the ACA’s intricate tripod of individual and employer mandates, insurance industry reform, and governmental assistance in the form of subsidized coverage on the Exchanges and Medicare and Medicaid expansion.
As we sort through the possible outcomes, previous Republican efforts to offer alternatives to the ACA as well as recent statements made by Trump are instructive. After a recent meeting with President Obama, there are new signals from Trump and his advisers that he may adopt a more conciliatory approach than outright repeal, favoring instead a “revise and replace” strategy. For example, Trump signaled that he favored popular insurance reforms, such as coverage of adult dependent children up to the age of 26 and the elimination of pre-existing condition exclusions for all participants.
What does all of this mean for employers who sponsor health coverage for their employees and dependents? Below is a brief overview of some of the regulatory and legislative possibilities that could develop over the coming months and years.
To be sure, nothing is certain. Key to this endeavor is the budget reconciliation process, which allows Congress to reconcile a previously adopted budget resolution without the supermajority needed to pass new legislation. Note that this process can only be used for provisions of the ACA that affect government revenue and outlays.
- Eliminate the individual and employer mandates through the budget reconciliation process. Under the ACA, both individuals and employers are incentivized to maintain health insurance coverage through penalty mandates. Elimination of these mandates would throw a serious wrench into the continued viability of the exchanges and would mean that individuals would no longer be required to have health insurance and large employers would no longer be required to offer health insurance coverage to their full-time employees in order to avoid penalties. Elimination of the individual and employer mandates would also obviate the need for employer and insurer reporting to individuals and the Internal Revenue Service on Forms 1094 and 1095, which were created solely to support the IRS in enforcing these mandates.
- Eliminate premium subsidies and cost-sharing reduction for insurance bought on the exchanges and the small-business tax credit.
- Eliminate the so-called “Cadillac Tax” on the high cost of health coverage, which had already been delayed to go into effect in 2020. This tax has never been popular with employers and unions, and the Democrats had signaled their willingness to consider reform and/or repeal of this provision.
- Remove the prohibition on employer stand-alone health reimbursement arrangements and employer premium payment plans. Before the ACA, many employers funded HRAs that employees could use to buy or be reimbursed for qualifying health care expenses on a tax-free basis. Alternatively, pre-ACA, some employers reimbursed employees for the purchase of individual insurance policies, as long as the employee provided substantiation of the payment of the premiums.
- Eliminate the Transitional Reinsurance Fee and the Patient Centered Outcomes Research Institute Fee. The reinsurance program is scheduled to end after 2016 because law makers assumed that after three years of experience with the new markets, insurers would have the ability to estimate costs and price their plans correctly.
- Remove the $2,500 cap, as adjusted for inflation, on health care flexible spending accounts. The cap for 2017 is $2,600.
- Eliminate the fee on health insurance issuers and the medical device tax.
- Eliminate Medicaid expansion to individuals up to 138% of the federal poverty level.
- Eliminate Medicare tax on wealthy individuals.
Other tools available to the Trump administration to undermine the ACA could include:
- Declining to appeal House v. Burwell, which held premium subsidies and cost-sharing reductions under certain state-based exchanges to be invalid.
- Delaying federal lawsuits in different stages of litigation dealing with the ACA’s cost-sharing subsidies, its contraception mandate, and its risk-corridor program, all of which may be moot under a Trump administration.
- Declining to enforce and/or modify existing final federal regulations under non-tax related provisions of the ACA, like rules regarding preventive care mandates, including birth control and withdrawing proposed regulations governing nondiscrimination under Section 1557 of the ACA affecting transgender coverage.
- Declining to issue non-discrimination regulations on fully-insured health coverage.
- Permitting employers to offer employees minimum premium plans or mini-med policies once the essential health benefits are no longer required.
- Appointing a new Labor Secretary who chooses to take a more lax approach to the independent contractor/employee classification rules.
Longer-term proposals being floated by the Republicans could be part of a larger overhaul of the Income Tax Code and health care/insurance industry regulation. These could include expansion of Health Savings Accounts. HSA expansion has been mentioned as a cornerstone feature of any Trump health care agenda. Limits on HSA contributions would be increased, and the barriers to eligibility for setting up an HSA would be considerably relaxed.
Another long-range plan could involve taxation of employer-provided health insurance coverage. Past Republican health-care reform proposals have included a proposal to tax employer-provided health insurance coverage above a certain income threshold (as low as $30,000 in certain proposals).
That would greatly affect employers by limiting the deduction they could take for employer-provided health insurance and increasing FICA and FUTA withholding obligations on amounts that must now be included in employee’s income. Individuals without employer-provided insurance would be allowed to deduct health insurance premiums on their tax returns on a more favorable basis than those currently available. (Medical expenses currently must exceed 10% of adjusted gross income.)
Other long-range proposals floated by Republicans are expansion of the sale of insurance across state lines to increase competition and return to pre-ACA HIPAA creditable coverage protections. These would have limited open enrollment windows and state high- risk pools to better protect the insurance industry from adverse selection.
Some Republicans are looking to provide states with more leeway to define Medicaid eligibility and turn Medicaid into a block-grant program, shifting the burden of financing Medicaid to the states. Others want to decline to reauthorize Hillary Clinton’s signature Children’s Health Insurance Program (CHIP).
While much uncertainty remains in the post-Obama health care landscape, one thing is certain: there will be changes to the ACA, and efforts are underway to abandon most if not all of the health-care reforms implemented by the Obama administration since 2010.
Employers will need to keep abreast of developments in the health-care arena to understand how they will affect the programs they sponsor as a part of their total rewards strategy, as well as to enable the health, well-being, and productivity of their employees.
Susan Nash and Amy Gordon, partners at the law firm McDermott Will & Emery, practice primarily in the areas of health-care reform and health and welfare benefit plans.