Risk & Compliance

Uncertainty Flares Again for Health Benefits

Following this week's elections, CFOs are again in the dark about the outlook for the cost, delivery, and quality of company-sponsored health care.
David McCannNovember 11, 2016
Uncertainty Flares Again for Health Benefits

For years after the 2010 enactment of the Affordable Care Act, CFOs were frustrated by uncertainty over how the law would impact costs as its various provisions were rolled out. Repeated and prolonged litigious and legislative battles over the ACA exacerbated the murky outlook.

2016_11_ACAchartThe anxiety has decreased in recent times as employers’ costs associated with the ACA proved lower than many expected, except for those with large numbers of part-time workers. At the same time, growth in the cost of group health care has moderated significantly, although it’s highly debatable how much of that can be traced to the ACA’s influence.

Now, with the election of Donald Trump and Republicans’ impending assumption of majority control in the Senate, it appears that health care is about to become the subject of intense national discord for the second time in a decade. And the outcome of that struggle is far from certain. If CFOs want predictability, and they do, they may again be out of luck with regard to health benefits for some time to come.

Trump likely would chafe at the idea of a drawn-out process of resetting health care, but some experts believe it could take up to two years.

“Everything will have to be looked at — the impact on the federal budget, the deficit, insurance rates, employers, hospitals and other medical providers, drug manufacturers, device manufacturers, and consumer advocates,” says J.D. Piro, national practice leader in the health and benefits consulting group at Aon Hewitt.

When it comes to the question of whether the ACA should be repealed and replaced, as Trump and congressional Republicans have vowed, companies are hardly united in their views. Generally, the larger the organization, the more likely it is to favor keeping the ACA around (see chart, above), at least in some form.

“For larger companies, making changes to their health benefits is a bigger deal,” says Beth Umland, director for employer research for health and benefits at Mercer, the human capital and employee benefits consulting firm. “They’re also farther ahead of the curve in meeting ACA requirements.”

But the fact is that there are still enough Democrats in the Senate to prevent the law’s wholesale repeal, if they stay united in that resolve. Indeed, Republicans are not regarded as likely to quickly cause the roughly 20 million Americans who are insured because of the ACA to lose that coverage.

Quick Strikes

What all that means, many observers say, is that in the short term we’ll more likely see the repeal of some individual ACA provisions.

Most prominently, the excise (or “Cadillac” tax) on higher-cost health plans is expected to be repealed — and in fact, there is bipartisan support in Congress for that change. Also on for the chopping block may be the employer mandate, which requires businesses with 50 or more full-time-equivalent employees to provide health insurance to at least 95% of their full-time employees and dependents or pay penalties.

“I think [Congress] will look at pieces of the ACA quickly — score some points by repealing the excise tax and the employer mandate, as well as the individual mandate,” says Brian Marcotte, CEO of the National Business Group on Health, a coalition of 420 mostly large employers.

Getting rid of the Cadillac tax would ultimately benefit most companies. “That tax wasn’t really about taxing rich benefit plans, despite what it was called,” notes Marcotte. “Being indexed to general inflation, when medical inflation was running [well above] that, meant that it would eventually be a tax on all plans.”

Companies exerted great efforts to manage health-care costs to ensure that they wouldn’t be subject to the excise tax, at least upon its initial implementation, currently scheduled for 2020. “Many employers have told us that they’ve made changes to their plans, usually shifting cost to employees, that they would not have made” were it not for the excise tax, says Umland.

Does that mean companies can back off those efforts now that the excise tax appears headed for a heave-ho? “It’s hard to give that piece of advice, because you could get caught out,” Umland says. “Until the law changes, we have to advise our clients to plan for it.”

Also of note, it’s possible that the excise tax could be replaced with some other kind of tax-generating measure related to the provision of employer health benefits. But what that might look like, and if and when it might happen, are up in the air.

Expunging the employer mandate would not actually inspire many companies to stop offering health insurance. But it would relieve them from reporting obligations — proving to the government that they are in compliance with the employer mandate — which some observers have described as onerous. “There would be less paperwork,” Umland notes.

Repealing the ACA’s mandate for individuals to have health insurance or face a tax penalty would have little effect on most companies. Some had worried that legions of younger, healthier people would join their employers’ health plans in order to avoid the penalty. But for the most part that didn’t happen, as the penalty was much less than the cost of insurance.

Are Partial Changes Practical?

Almost everyone agrees that certain popular insurance-industry reforms would remain in effect, including the extension of coverage for dependents to age 26 and the ban on denying coverage based on pre-existing conditions.

The former will keep some dependents on companies’ benefits rolls, but the latter will have virtually no impact on costs, as group health plans have always covered employees and dependents regardless of pre-existing conditions.

A key question is how feasible it will be in practice to dismantle parts of the ACA while leaving others intact. The economics of the law, with respect to its financial impacts on the insurance industry, the government, employer benefit plans, and individual insureds, were balanced rather precariously.

“If you legislatively pull out parts of it, what happens to the rest of it?” says Piro. “That’s going to depend on what you replace it with. The repeal part is easy. The replace, not so much.” To date, despite Republicans’ longstanding and steadfast opposition to the ACA, no legislation has been proposed that details what a replacement could look like, and Trump has said little about what he favors other than a repeal.

Marcotte, for his part, is most concerned about the potential consequences for the ongoing changes in the way medical providers deliver and get paid for their services.

The ACA provided a Medicare program under which provider groups — Accountable Care Organizations — that hit certain care-quality and cost targets would qualify to share in the savings. But as providers went about reorganizing their practices to take advantage of the program, they began to apply their new processes beyond Medicare patients.

“It’s hard for physicians to do things differently across their patient base,” Marcotte says. “If you’re under a pay-for-performance or alternative payment model, that’s going to trickle down and you have movement in the right direction from commercial payers as well as the government.”

The fear is that the Republican-controlled executive and legislative branches could act to alter or eliminate funding for the cost-sharing program. “We need to continue those payment and delivery reforms, because that’s where the savings is going to come from,” says Marcotte. “We can’t lose sight of how providers are reimbursed and how we provide accountability in the system.”