By Ryan Glushkoff
Now that we have established a baseline of the current health of the employee benefits market in our previous blog post, let’s start look at the various trends that could affect its health going forward. We’ll start by talking about the elephant in the room…The Affordable Care Act – or as most people who hate it love to call it – Obamacare.
While I do not know exactly what is going to happen, I do know that any repeal and replace plan is unlikely to significantly alter the employer-sponsored insurance system and is more likely to affect those who buy health plans on their own through the individual market, or who gained coverage through Medicaid.
So, what will probably remain?
With that in mind, let’s first talk about the current parts of the ACA that do impact employee benefit offerings and that probably won’t change. The first is that health plans are required to cover certain preventative services at no cost to members. The specific preventative services vary whether you are a man, woman or child – but they are listed here on healthcare.gov. Since many plans are requiring employees to pay a larger share of the bill when getting care, employers may keep this even if the law changes because it keeps their employees healthier. The calculation employers are going to continue to make is that a little preventative care up front actually pays off in the long run.
The second is that health insurance policies can’t set limits on how much they will spend covering essential benefits for a customers (before the ACA, some plans had annual or lifetime coverage caps that could leave people with big medical bills if they had medical conditions that cost more than their plan covered.)
The third is that young adults under the age of 26 can remain on their parent’s health plan. This is one provision that Republican leaders have cited as one of the pieces of Obamacare that they would seek to keep. Some states have it in their state laws too – so even if the ACA is repealed at the federal level, the state laws will still exist and need to be followed. The concept of allowing young adults under the age of 26 to remain on their parents plan is a good thing for the size of the employee benefits market because more dependents will be able to participate.
What is on the chopping block?
Now let’s turn to the parts of the law that will change. The biggest change will likely be the removal of the Employer Mandate, which requires large employers to offer coverage or pay a penalty. While coverage amounts didn’t change dramatically when the mandate went into effect because nearly all the employers subject to the mandate already offered coverage, the administrative burden it imposed on HR teams has been significant. That’s where the real opportunity for change is. Currently, applicable large employers are required to measure the hours employees work, perform complex calculations on those hours to determine if the employee should be offered coverage, and annually report the numbers to the IRS. Whether this administrative task will survive the repeal and persist in the replacement is anyone’s guess.
By the way, the reason they haven’t done away with the reporting requirements yet is that the IRS needs the data. If an employee is offered coverage by an employer or if they are enrolled in an employer plan, that employee is disqualified from going into Healthcare.gov and buying an individual insurance policy and claiming some federal subsidies from differing that cost. The IRS needs to know who got those offers in 2016 because they want to know if someone got federal taxpayer money that they were not entitled to.
So long, Cadillac!
The second area of change will be the “Cadillac Tax” – this is a 40% excise tax on plans that exceed $10,200 in premiums and family plans exceeding $27,500 in premiums. Even though its implementation has already been pushed back to 2020, I think it is likely to go away because it has support from Republicans, Democrats and industry trade groups. However, the issue with getting rid of it is that this part of the ACA is that it is a major funding mechanism for the rest of the ACA.
Spillover to the individual market
There is another way any potential changes to the health law could affect people currently covered by employer-sponsored insurance: those same people might need to buy coverage on their own through the individual market if they ever lose their employer coverage. Before the ACA, insurance companies selling plans through the individual market were allowed to deny coverage to people with pre-existing conditions or charge them more for coverage – but currently under ACA, that is no longer allowed. So all the changes being considered in the individual market could have a peripheral effect on the employee market.
The last thing I’ll mention about the ACA is that it’s repeal could actually be a good thing for the size of the employee benefits market. Last week, the Congressional Budget Office published a study titled How Repealing Portions of the Affordable Care Act Would Affect Health Insurance Coverage and Premiums, which states that there could be an increase in the number of people with employment-based insurance. They cited this increase at 11 million people.
To put that in perspective, the CBO also publishes projections on the size of the employer market. In their latest study from March 2016, 155 million people receive employment based health insurance coverage, and at the time, they were forecasting this number to decrease by 2% over the next 10 years to 152 million people. So if the ACA is repealed, the employee benefits market could go from a negative 2% growth rate to a 7% growth rate. No matter what business you are in, it’s definitely better to be in a market that is growing instead of shrinking!