Op-Ed originally published in The Business Journals.
After some false starts, Republicans in the U.S. House of Representatives finally passed the American Health Care Act (AHCA), as amended, the first step in a potentially slow road to repealing and replacing the Patient Protection and Affordable Care Act (ACA).
It remains to be seen if Trumpcare will actually live up to its promises to be better than Obamacare, and whether what emerges from the U.S. Senate will look anything like the AHCA.
Even Mick Mulvaney, head of the Office of Management and Budget, recently conceded as much. Now the Senate, which has a far slimmer Republican majority than the House, must undertake its own deliberations on healthcare legislation, and then attempt to reconcile with the House.
One plausible outcome may be that some parts of the ACA, such as rules for handling pre-existing conditions, will be retained. Another possible outcome is that the two legislative bodies in Congress are unable to reach a compromise bill and Obamacare is left in place with some minor fixes.
As this federal legislative process plays out, here are two issues that businesses may want to consider:
1. What level of health insurance coverage to offer employees
The AHCA, as passed by the House, eliminates the ACA Employer Mandate that requires companies with 50 or more employees to offer affordable health insurance to all full-time employees.
This provides companies with the question of whether to maintain the level of coverage they currently provide, change that level of coverage to reduce their insurance premiums, or not offer insurance to employees. Of course, this assumes that such companies will decide purely on the Employer Mandate.
Even those companies that had initially been spurred to provide health care coverage by the Employer Mandate may decide to maintain their current level of coverage, if for no other reason than to be competitive in a tightening labor market for skilled workers. If the Republican rhetoric around the AHCA proves to be true, these companies should expect to see a reduction in their premium costs, which will make it an easier decision to maintain or improve their current level of healthcare coverage for full-time employees.
The AHCA, as currently written, also provides companies the opportunity to reduce insurance coverage for employees. This is achieved through the MacArthur Amendment, which allows states to get waivers for some ACA insurance regulations, including the ACA’s essential health benefit standards.
Under the MacArthur Amendment, states could establish their own set of “essential health benefits.” That means that states can eliminate what many would see as fundamental benefits, such as maternity care, prescription drugs and mental health care, from the definition of “essential health benefits.” Junk plans offering little in the way of benefits could easily satisfy the requirements for annual, lifetime and out of pocket spending limits, which apply only to “essential health benefits.”
The Brookings Institute noted in an article of May 2, 2017, that under the amended AHCA, “ a single state’s decision to weaken or eliminate its essential health benefit standards could weaken or effectively eliminate the ACA’s guarantee of protection against catastrophic costs for people with coverage through large employer plans in every state.”
That article explained that this result was a function of the current healthcare regulations, which “permit large employer plans to apply any state’s definition of essential health benefits for the purposes of determining the scope of the ban on annual and lifetime limits and the requirement to cap out-of-pocket spending.”
Another plausible option as a result of the AHCA is to allow companies to drop employee health insurance coverage entirely, leaving employees to obtain their own insurance through whatever market exchanges or programs are available to them. Depending on their level of income, employees would be eligible for tax credits to offset premium costs. The employer would not be penalized for not offering health insurance.
Not offering health insurance to employees would significantly reduce healthcare costs for companies, the single largest component of their benefit costs. This may be an attractive option for companies that offered insurance coverage only because they were required to do so by the ACA’s Employer Mandate. The Congressional Budget Office may have contemplated this possible outcome in evaluating an earlier version of the AHCA, estimating that 7 million individuals would lose employment-based coverage by 2026.
Eliminating the healthcare coverage requirement provides companies the opportunity to enjoy lower healthcare expenses, which provides the potential for higher profit margins. It also shifts the burden of healthcare costs to employees and taxpayers, who ultimately provide the funding for the tax credits that offset premiums for lower income citizens.
Perhaps this is not the scenario House Republicans had in mind, but it is a very real possibility. President Trump’s stated plans to no longer make healthcare insurance costs tax deductible for businesses as part of his contemplated tax reform only provides further incentive for companies to eliminate healthcare insurance for employees.
2. Data gathering and reporting of employment information will continue
The ACA requires large employers to track certain employment data to meet the requirements of Internal Revenue Code (IRC) Section 4980H and reporting under IRC Section 6056 (and Section 6055 for Self-Funded groups).
Under the AHCA, as proposed, applicable large employers are required to continue to track this employment data to meet IRS requirements through at least 2019. It’s notable that the AHCA expressly contemplates its own reporting requirements beyond 2019 regarding offers of health coverage by employers. How this reporting requirement will translate to IRS rules is unknown.
However, this tells us that regardless of what happens with current healthcare legislation, data reporting of employee information that started with the ACA is going to continue. Federal and state governments are going to want companies to continue to provide government agencies with employment information. With the ACA, it is employment status and healthcare coverage status. Other regulations, such as the EEO-1 form, seek other information like salaries, gender, race, and age. The states are taking it upon themselves to require employers to collect even more granular employment data.
Even if government didn’t require it, companies that can gather, consolidate and process their employment data into meaningful insights will see tremendous benefits. This will require the use of technological innovation in data collection. Those companies that do not pay attention risk ceding competitive advantages to their competitors.
If nothing else, the true legacy of Obamacare for business may be that it drove technology innovations that made it easier for companies to gather and consolidate data that allowed them to make smarter decisions.
3. Obamacare is still here
In the meantime, Obamacare remains the law of the land and all signs are that the IRS intends to continue to enforce employer compliance with ACA requirements. Expect the IRS in June or later to identify companies that are not in compliance with the ACA’s Employer Mandate, with notices to follow, the first step in a possible IRS audit.
If your company has not filed the required ACA information with the IRS for either 2015 or 2016, it should do so immediately. This will minimize any financial penalties that may be levied by the IRS for either noncompliance or for late filing of information. Waiting out the process is not a recommended option.
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Original article is featured on The Business Journals.
