By David Bottoms, REBC, RHU, CLU, CHFC
Senior Vice President, Benefits
The American Healthcare Act (AHCA) was passed by the U.S. House of Representatives on May 4, 2017. When the bill was introduced publicly prior to its passage, I thought I ought to read it. Doing so proved to be much easier than the task of reading the Affordable Care Act (ACA) had been in 2010 given that, at 123 pages, the AHCA is about 2,600 pages shorter than the ACA.
That said, despite its brevity, there remains a good deal of confusion regarding what the AHCA actually means for individuals, businesses, and, in general, the state of healthcare in the United States.
While I can’t pretend to assess the full impact of a bill which has a scope touching every American, most businesses and a healthcare sector that comprises roughly 20% of the national economy, I will endeavor to lay out the key factual elements within the AHCA that pertain directly to employers and are likely to impact the 50% of Americans who presently receive their healthcare coverage through an employer provided healthcare plan.
For starters, the core enforcement mechanisms within the ACA, the individual mandate and the employer mandate penalties, are dialed down to $0 retroactively to January 1, 2016. This means that any large employer who had been required under the ACA to provide “affordable” and “minimum essential” coverage and had failed to do so would be off the hook for ACA’s significant tax penalties. Likewise, any individual who had failed to purchase coverage would also avoid the tax penalties that would have been otherwise assessed.
Additionally, the ACA’s “Cadillac Tax” which was slated to impose a 40% excise tax on high cost health plans is delayed until January 1, 2025.
Effective January 1, 2018, ACA’s imposed limits on Flexible Spending Account (FSA) limits are removed. This means that employers who wish to do so could increase the maximum amount well in excess of the current $2,600 annual limit.
Part and parcel with this adjustment, Health Savings Account (HSA) contributions are also expanded effective January 1, 2018 such that annual contributions could be up to the dollar amount of the plans out-of-pocket limit.
The legislation further indicates that, effective January 1, 2018, over-the-counter medications can, once again, be paid for using FSA, HSA, and HRA account funds.
Importantly, the proposed law does not make changes to some of the more popular elements of the ACA. This specifically means that dependents would be able to remain on their parent’s plans until the age of 26 and the requirement that insurers offer coverage without the imposition of pre-existing condition limits would remain intact.
In order to reassure the health insurance markets that the removal of the individual and employer mandate will not result in mass defections from the insurance risk pool, the law aims to encourage continuous coverage through the imposition of a 30% surcharge, beginning in the 2019 plan year, for individuals and employees working for small employers who sign up for coverage without being able to demonstrate that they have had continuous health care coverage during the previous year. To protect individuals who may have temporarily lost coverage due to a job change or an administrative issue, “continuous coverage” is defined as coverage over the previous 12 months without an intervening gap in excess of 63 days.
The proposed legislation does not make reference to the employer reporting requirements under the ACA given that the reconciliation process being used by Republicans to advance the legislation in such a way to avoid a filibuster by Democrats in the Senate does not extend to the scope required for administrative adjustments of that sort. Nonetheless, the removal of the employer and the individual mandate penalties makes reporting significantly less important, especially in 2020 when the ACA’s cost sharing subsidies would be phased out in favor of the AHCA’s refundable tax credits for purchase of individual coverage. To that end, many speculate that, at a minimum, employer reporting requirements will likely be streamlined under administrative direction from the Secretaries of the Department of Health & Human Services, Internal Revenue Service, and Department of Labor.
All in all, the American Healthcare Act would likely have nominal impact on the employer based healthcare market and that is by design as the employer market is a relatively healthy portion of the American health insurance sector. That said, as the bill now moves to the Senate, expect to see a number of changes to the House bill which will warrant the recalibration of assumptions and strategies.