2017 is right around the corner and with it are major changes to employer health care laws. President-elect Donald Trump, who campaigned on a commitment to repeal the Affordable Care Act (ACA), is continuing to make the end of Obamacare a centerpiece of his transition team. Trump has still not released a detailed proposal for an Obamacare replacement, but his nominee for secretary of health and human services offers clues for what may be in store.
Representative Tom Price is a six-term Republican congressman and former orthopedic surgeon. Price has been introducing bills offering a detailed, comprehensive replacement plan in every Congress since 2009, when Democrats first started to work on the legislation. Both Price and Trump have advocated for free market solutions, the end of different penalties for non-compliance and fees, and changes to FSA and HRA regulations.
Eliminating the Individual and Employer Mandate: What Does This Mean for Businesses?
Before we dive too deeply into potential changes, it’s important to understand that whether you love or hate Obamacare, it won’t simply “go away” as soon as Trump takes the oath of office. For starters, both Trump and Republicans have signaled that certain ACA provisions like eliminating pre-existing condition exclusions or allowing extended coverage of adult children up to age 26 will continue.
Additionally, keep in mind that Republicans lack the supermajority necessary to repeal the law outright. Should Republicans try to repeal it, Democrats would likely filibuster against a repeal. Only a Republican-led supermajority would be able to stop the filibuster. Since Republicans don’t have this supermajority, they’ll need to find other avenues to dismantle Obamacare provisions like the mandate to buy or provide health insurance or face financial penalties. The most likely approach is the budget reconciliation process. This process would allow Republicans to eliminate the individual and employer mandates to buy health insurance as well as eliminating the so-called “Cadillac Tax” on certain plans.
Eliminating the individual and employer mandate to buy health insurance would effectively kill state exchanges– assuming Congress hasn’t already dismantled them altogether. Last month I wrote about the challenges posed by the so-called “death spiral”, which occurs when there are not enough young, healthy adults to offset the higher costs associated with care for older, sicker Americans. The result is a steady uptick in premiums, further driving young, healthy adults away from the exchanges, which in turn drives up premium costs for everyone. The Affordable Care Act tried to prevent this death spiral from occurring by mandating everyone have health insurance or face penalties come tax time. But even this mandate doesn’t seem to have been enough to keep premiums steady for both individual state exchanges and small business exchanges. It’s unclear how Trump and Price plan to address this problem.
What Happens if Businesses Are No Longer Required to Provide Health Insurance?
Currently under the Affordable Care Act, businesses with 50 or more full-time employees are required to provide health insurance coverage. Unfortunately, as many small business owners know, determining the number of full-time employees on staff is not always easy. For example, many retailers hire additional employees in advance of the holiday shopping period. The same holds true for service-based catering or event companies where employment can swell during peak summer months. Staffing companies also faced a challenge. Employment can increase or shrink overnight based on client needs. Staffing companies struggled to not only determine full-time employment counts, but also whether they should pass “pay-or-play” costs on to the companies that contract with them.
The IRS issued guidelines to determine the FTE (full-time employee count) using the look-back period rules, but some companies have complained that the rules are burdensome and confusing. Companies that were required to offer health care but opted not to do so faced a $2,000 penalty per employee. Despite early complaints about
Eliminating employer-mandated health care may alleviate some administrative and accounting burdens. However, for small business owners who do want to provide employees with health insurance, eliminating exchanges like the SHOP Marketplace may make it more difficult for smaller businesses to afford flexible, quality coverage options. This is one development I’ll be watching closely in the coming months.
New FSA and HRA Rules: What Business Should Expect
Throughout his campaign, Trump reiterated his commitment to allow insurance to be sold across state lines and changes to HRA and FSA rules. Here’s a brief of overview of the changes we can expect once Trump is inaugurated:
- End the prohibition on employer HRAs
Prior to ACA, many employers funded HRAs (“health reimbursement arrangements”) that employees could use as reimbursement for qualifying health care expenses on a tax-free basis. Employers could also reimburse employees who chose to purchase individual insurance policies as long as employees provided proof of payment. ACA effectively killed this reimbursement option with an excise tax of $100 per day per affected individual until corrected. Expect changes to this rule in 2017.
- Remove the cap on FSAs.
In 2017, the cap for FSAs (“flexible spending accounts”) is set at $2600. Expect changes to this cap – or an outright removal– this year. An FSA allows employees to put away pre-tax money to use for certain out-of-pocket medical expenses. With out-of-pocket expenses growing, FSAs offer a considerable tax advantage.However, as of 2011 when FSA caps were first introduced, the average FSA participant was only contributing $1400 per year– well under the original $2500 federal FSA cap that went into effect with ACA. (The cap has since risen.) Furthermore, only one in five Americans who were eligible for an FSA even contributed to one. It remains to be seen what impact eliminating the FSA cap will have on an individual’s health care cost burden.
- Eliminate fees.
Trump and Republicans are poised to eliminate a host of fees, including the fee on health insurance issuers and the medical device tax and the Patient-Centered Outcomes Research Trust Fund.
- Allow minimum premium plan.
ACA mandated all health insurance meet essential health benefits. Assuming Trump and Republicans choose to do away with this requirement, this would open the way for a return of minimum premium plans “mini med plans” that offer low caps for benefits coverage in exchange for low premiums.For example, prior to ACA McDonald’s required employees to pay $56 per month for a plan that offered $2,000 in annual benefits. In 2010, Denny’s offered its hourly employees a mini med plan that capped doctor’s benefits at $300 per year and offered no inpatient coverage. Under ACA, these plans failed to meet essential health benefits and were phased out. While it’s unclear whether McDonald’s, Denny’s or other companies will re-introduce these plans for low-wage workers, the option might be back on the table.
For now, uncertainty is the only thing that’s certain. Business owners will need to wait and see which fees and rules are eliminated or restructured in the coming months.
Scott Foster is President of Wellco. Scott and Wellco have provided award-winning systems to measurably improve health conditions and costs. Wellco specializes in engagement, metrics, integration and high-value care. For more information visit, www.Wellcocorp.com
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