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What Employers Need to Know About State-Level Healthcare Reform

Health StrategyAs Election Day gets closer, health care reform continues to make headlines. Recently, Democratic candidate Hillary Clinton outlined her plan for health care reform in the New England Journal of Medicine (NEJM). Clinton’s plan would modify the Affordable Care Act (ACA) with a series of tweaks to reduce out-of-pocket costs for individuals and families. According to NEJM, Republican candidate Donald Trump chose not to respond to their request for plan specifics, although he has states unequivocally in the past that repealing ACA is a top priority. Trump’s replacement plan hinges on deregulation and opening the free market to allow purchasing across state lines and more health savings accounts.

While much of the attention this election cycle is focused on the presidential race, a shift in which party controls Congress could have an equally significant impact on healthcare reform. No matter your individual political leanings, if you run a business, it’s critical that you understand how changes to the political landscape could impact your legal requirement to offer healthcare benefits. For example, Republicans are looking to the budget process as an opportunity to repeal ACA. Possible elements of a so-called “repeal and replace proposal” include removing the individual mandate and employer mandate.

As I discussed in an earlier article on the role of Congress and healthcare reform, eliminating the employer mandate to provide coverage could significantly change the healthcare landscape as we know it. Should Congress also add a premium tax credit for individuals without employer-sponsored coverage, this could dis-incentivize employers from offering coverage in favor of other benefits.

Even if Republicans take back the White House and maintain their lock on Congress, political pundits predict it is unlikely Republicans will hold enough seats – or maintain sufficient party unity – to completely repeal and replace Obamacare. In fact, the most likely outcome is that Republicans will allow states to become “laboratories of experimentation.” How could action by the state influence employee-sponsored health benefits?

What Changes are Coming at the State Level?state health insurance

One possibility to watch closely in 2017: states opening their health insurance marketplaces (also known as “exchanges”) to larger employers. A Health Insurance Marketplace, also known as a Health Insurance Exchange, is available in every state as a public option for individuals and small employers to purchase medical and dental insurance. Currently, states have three options for how they operate these marketplaces.

  1. A state may choose to establish and operate its own state-based Marketplace
  2. A state may choose to operate a state partnership Marketplace in collaboration with the federal government)
  3. A state may wholly defer to the Federally Facilitated Marketplace.

You can find a map of state, partnership and federal exchanges by state by following this link.

In 2016, 13 states chose option 1, 11 chose option 2 and 27 chose option 3. Small employers (1 to 50 employees) are allowed to purchase group insurance/HMO coverage for their employees on the Small Business Health Options Program (SHOP) Marketplace. Starting in 2017 with approval from Health and Human Services (HHS), states will have the option to open their Marketplace to larger employers.

This change would occur on a state-by-state basis, and would not be consistent for all states. States with older employed populations, for example, are less likely to open up their exchange. Such a change would also be of limited value to companies with multi-state employers.

States Innovation Waivers: What to Expect

Starting next year, states will be able to purchase “Innovation Waivers” (also known as 1332 waivers) that allow them to modify parts of ACA. Innovation Waivers are designed to allow states to develop their own approach to health care reform– as long as these reforms continue to provide “affordable, comprehensive health insurance.” States may request a waiver from ACA requirements related to private health insurance, subsidies and marketplaces, as well as individual mandates and employer mandates.

There’s a catch, of course. Even with a waiver, states must still offer a solution that stays within the limits of ACA. This means four things:

  1. Enrollment: The state must ensure coverage is at least as comprehensive as the ACA.
  2. Affordability: The state must ensure the solution provides coverage and cost-sharing protections against excessive out-of-pocket spending that are equivalent to ACA.
  3. Comprehensiveness: The state solution must cover a comparable number of residents.
  4. Deficit neutrality. The state solution can’t add to the federal deficit.

Finally, it’s important to note that the state waivers do not apply to Medicaid. States wishing to modify their Medicaid programs must seek permission under section 1115. This is completely independent of the Innovation Waiver under section 1332.

Confused? So are the states, apparently! Thus far, only a fraction of states including Hawaii, Massachusetts and Vermont have publicly released waiver applications. Both Hawaii and Vermont are seeking to waive the requirement to maintain a Small Business Health Options Program (SHOP) exchange. Instead, they’d like to allow small businesses to continue purchasing qualified health plans directly from insurers.

Other states are interested in modifying Medicaid under section 1115. In 2014, the Journal of Health Politics, Policy and Law published an article about the possibility of “super waivers” that would combine 1332 and 1115. Kentucky’s governor has expressed interest in pursuing a so-called “super waiver” or “twin waiver”, as are Arkansas legislators. Earlier this year, the Obama Administration published a list of guidelines for the 1332 waivers, which seemed to rule out a possible super waiver. However, given this year’s political climate, it’s possible a new administration could issue different rule.

ColoradoCare: A New Way Forward?

Another state to watch closely is Colorado. This November, Coloradans will vote on the “ColoradoCare” amendment. ColoradoCare would create a resident-owned, non-governmental health care financing system designed to provide comprehensive, affordable health care for every Colorado resident. It could be good news for businesses, too. Nationally, employers on average pay 13.5% of payroll for employee health care benefits, according to the Bureau of Labor Statistics. ColoradoCare would only charge a 6.67% premium tax on payroll. Plan proponents estimate that it would eliminate 59% of workers’ comp costs. The plan would virtually eliminate administrative burden on employers. Under the plan, employers would have no administrative responsibility for employee health benefits other than administering the payroll tax.

Final thoughts:

Innovation waivers give states the right to improve upon ACA. But with potential changes coming at the Federal level in 2017 pending the outcome of November’s elections, some states are holding off on releasing any plans. Additionally, it remains to be seen how many states choose to expand their exchanges to include larger employers. In the volatile state marketplaces, ballot initiatives like ColoradoCare are worth watching closely. These initiatives could demonstrate a new way forward for states– and have a significant impact when it comes to reducing employer healthcare costs and alleviating administrative burdens.

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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