Following initial attempts by GOP leadership to cap the tax exclusion for employer-provided health benefits, the reconciliation bill, narrowly passed by the House of Representatives by a vote of 217 to 213, contains changes to the Affordable Care Act that primarily focus on the individual insurance market and Medicaid reform, but also has provisions that would benefit large employers. Importantly, the American Health Care Act (AHCA) delays the ACA’s Cadillac Tax from 2020 to 2026, significantly increases the contribution limits for Health Savings Accounts, and immediately rolls back all of the other ACA taxes, except for the increase in the Medicare payroll tax on high-income taxpayers, which is phased out in 2023. It also:
- Repeals the employer penalty. However, the underlying mandate to offer coverage would remain in the law and could be enforced by an ERISA lawsuit, and the IRS reporting requirements would remain in place along with the penalty for non-reporting. Regardless of the mandate, we anticipate that large employers will continue to provide coverage with or without a federal mandate for talent recruitment and retention reasons.
- Does not change the ACA’s benefit mandates on large employers. This is despite initial attempts by GOP leadership to cap the tax exclusion for employer-provided health benefits. For example, the requirements to provide dependent coverage until age 26, the prohibition on annual and lifetime limits, first-dollar coverage for preventive care, and 90-day waiting period limitation all remain in place along with their penalties for noncompliance ($100 per day, per covered individual).
- Does not resolve the ACA issue about which state benchmark plans large multi-state self-insured employers are supposed to use for the annual and lifetime limits mandate.
- Makes significant changes to the Medicaid program and substantially increases state flexibility through an expanded waiver process, which could have unintended impacts on ERISA preemption and will have to be carefully watched.
- Authorizes $130 billion for State Patient and Stability funds to provide financial help to high-risk individuals, promote access to preventive services, and channel cost-sharing subsidies in the individual market. However, it is not clear if this will be enough to adequately fund the programs.
- Does not immediately resolve the cost-sharing reduction subsidy issue, which may cause carriers to continue their departures from the ACA exchange marketplaces.
The bill now goes to the Senate where its fate is uncertain. A number of Senators have indicated they will write their own legislation that may incorporate elements of the House bill, and Senate Majority Whip John Cornyn (R-TX) announced Thursday there would no “arbitrary deadlines” for the healthcare legislation in the Senate, setting up an open-ended process. If the Senate bill differs significantly from the House version, the House can either agree to the Senate bill as written or the two chambers will need to reconcile their differences in a conference committee. While the Senate works on its bill, the House will turn its attention to tax reform, creating a new opportunity for policymakers to potentially reduce the ability of employers to deduct the cost of providing health care coverage to employees.