American Health Care Act: What's the Impact on Employers?

AHCA: Separating Fact from Hysteria

Any opinions, predictions or prognostications in this article are the author’s and may not necessarily represent the views of Benefitfocus.

There’s been a lot of noise out there – both for and against – Republican efforts to “repeal and replace” the Affordable Care Act (ACA). 

Unfortunately, most of the noise – from both sides of the issue – has been full of misinformation and mischaracterization.

Make no mistake, I'm not advocating for the enactment of an ACA “repeal and replace” bill. Nor am I cheering for the bill’s demise. But what I do want is to cut through some of the noise to provide you with an explanation of how the American Health Care Act (AHCA) would change the law (should it ever be enacted).

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AHCA would mostly impact a relatively small group of people.

Much of the recent debate over the AHCA has centered around issues relating to the individual health insurance market, which is currently a very small part of the overall health insurance market.

Employer-based health insurance covers roughly 150 million Americans. Medicare covers approximately 60 million seniors, and around 70 million people are covered through Medicaid. That leaves somewhere between 17 to 20 million consumers in the individual market.

Not to minimize the importance of the individual market, but it's important to understand that the most heated concerns over the AHCA only impact a small fraction (less than 10 percent) of Americans.

Few changes have been made to the original AHCA bill.

Despite the increased level of news coverage, the AHCA bill that passed the House of Representatives is really not much different than the original bill that failed to receive a vote in March.

In fact, only three substantive amendments were made to the AHCA between then and May 4, and each amendment is limited to the individual market. These are:

  • An amendment to establish an “invisible high-risk pool,” with $15 billion in funding.
  • An amendment to 1) allow states to waive the 5-to-1 age band for determining premium rates and substitute a higher age band (e.g., 7-to-1 or even 25-to-1), and 2) allow states to waive the federal “essential health benefits” (EHB) requirement, and substitute the state’s own EHB standard. States are also permitted to strengthen the “continuous coverage” rule by allowing insurance companies to charge higher premiums to people with a health condition who lose their health coverage and fail to obtain new coverage within 63 days.
  • An amendment to add $8 billion in funding for states that elect to strengthen the continuous coverage rule (intended to protect individuals with pre-existing conditions).

What aspects of AHCA should employers care about?

It's important to re-emphasize that much of the AHCA does not impact the group market. However, there are a number of changes called for under the bill, which are mainly viewed as positive changes by the employer community. These changes include, but are not limited to:

Repeal of the Employer Mandate Penalty

Repeal of the employer mandate is retroactive to 2016. This essentially means that even if an employer did NOT comply with the employer mandate requirements for the 2016 plan year, this employer would NOT be subject to penalties (should the bill be enacted). In addition, because the Obama Administration has yet to enforce the employer mandate for the 2015 plan year, enactment of the AHCA – and the resulting repeal of the employer mandate – would mean that the employer mandate will have never been enforced.

It's important to point out that if the employer mandate is repealed retroactive to 2016, this means that for 2017 and beyond, employers would no longer be required to, among other things, count employee hours worked over a measurement period; employers would no longer be required to offer a health plan that is “affordable”; and the plan would not have to meet the “minimum value” test. 

Repeal of the Industry Excise Taxes

Data shows that the ACA's excise tax on insurers increases premiums by 3 to 5 percent (because the tax is passed through to the consumer).  Repeal of the tax should therefore reduce premiums by 3 to 5 percent in future years. In addition, repeal of the medical device tax and the PHRMA tax should also reduce premiums slightly because currently, these taxes are passed through the consumer.

Cadillac Tax Delay  

While the Cadillac tax is not fully repealed by the AHCA, it is delayed until 2026. It's important to note that while a direct cap on the tax preference for employer-sponsored insurance was not included in the AHCA (as a replacement for the Cadillac tax), a direct cap could be considered yet again during the tax reform debate.

Other Issues of Note

Here are some additional items employers should keep an eye on in the coming months:

President Trump’s Jan. 21 Executive Order 

Although President Trump’s executive order on Jan. 21 – which essentially told federal departments to do as little as possible when it comes to implementing the ACA – raised some questions, it's well accepted that the executive order was more for show than anything else. As a result, the executive order has had very little, if any, practical impact.

However, messaging from the White House – that the “law is imploding” and that “Republicans will repeal the law” – continues to insert a level of uncertainty in the market, and among the American public, regarding the manner in which the Trump Administration will implement the ACA. The Congressional Republican “repeal and replace” efforts are also contributing to this uncertainty.

The bottom-line is this:  The ACA remains the law of the land. And the Trump Administration continues to enforce the ACA in the same manner the Obama Administration enforced the law (i.e., limited enforcement activity with the emphasis on compliance).

Pre-Existing Conditions

As mentioned above, the AHCA bill now includes an amendment that would allow states to permit insurance companies to develop premiums based on a person’s health condition. However, under the amendment, insurance companies would STILL be prohibited from developing premiums based on a health condition in ALL cases. Instead, the ONLY instance in which an insurance company could develop premiums based on a person’s health condition is if 1) the person lost their health coverage and 2) the person failed to re-enroll in a new health plan within 63 days.

This condition of maintaining “continuous coverage” is important because it limits the number of people who would be impacted by this amendment. Unfortunately, the media and other commentators have mischaracterized this amendment as taking away the ACA’s existing protections for pre-existing conditions for everyone. Again, the only time an insurance company can develop premiums based on a person’s health condition is if that person failed to maintain continuous coverage.  It's also important to note that this amendment ONLY applies to individual market plans.

At this point, it's unclear how maintaining continuous coverage would be reported. It's likely that the “creditable coverage” forms that were used in the group market prior to the enactment of the ACA could be once as used as a tool for determining continuous coverage.

Waiver of EHB Requirement

The AHCA would allow a state to waive the federal EHB requirement. Unfortunately, the media and other commentators have claimed that Republican members of Congress were repealing the Federal EHB requirement. But that's not what this provision would do.

In short, the federal EHB requirement would remain in the law, and the only way to change the federal requirement is if a state affirmatively waives the Federal EHB standard and puts in place the its own EHB standard.

There is question as to whether this waiver of the federal EHB requirement would violate the Senate's “reconciliation” rules. If the Congressional Budget Office (CBO) determines that this waiver would NOT impact spending or tax revenue, then this waiver would indeed violate the “reconciliation” rules, and it would be removed from the overall bill.

Want more info?

To hear more from me about the AHCA bill, including its chances in the Senate and potential impact on employer-based health care, download this free on-demand webinar from Benefitfocus!