Deconstructing ACA “Repeal and Replace”

The efforts to “repeal and replace” the Affordable Care Act (ACA) have occupied a good deal of recent media attention. This should not come as a surprise, since the ACA’s repeal was one of the centerpieces of Mr. Trump’s campaign, and it has also been a staple of Republican campaigns and legislation for the past eight years. The U.S. House of Representatives has voted to repeal or cripple the ACA on 60 separate occasions during that time. (For an excellent summary of these efforts, please see the November 2016 paper, prepare by Stephen Redhead, Health Policy Specialist, and Janet Kinzer, Senior Research Librarian, Congressional Research Service, entitled Legislative Actions to Repeal, Defund, or Delay the Affordable Care Act.)

aca repeal and replace

Image credit: Phil Roeder via flickr

While the mantra “repeal and replace” has become ubiquitous with reference to the ACA, for important political, budgetary and procedural reasons, these are really two different concepts, with radically different consequences. “Repeal” has a very different political calculus than “repeal and replace.”

What an ACA Repeal Really Means:

Despite their campaign promises, Republican lawmakers lack sufficient votes to repeal the ACA outright. This would require 60 votes in the Senate; Republicans have 52. So they must instead rely on a special budget strategy—referred to as “reconciliation”—that permits them to repeal those provisions of the ACA that directly impact federal spending. Created by the Congressional Budget Act of 1974, reconciliation allows for expedited consideration of certain tax, spending, and debt limit legislation. In the Senate, reconciliation bills aren’t subject to filibuster. Because any controversial bills in the Senate tend to attract a filibuster, the Senate Parliamentarian reviews the bill and decides whether it qualifies for reconciliation. Under the so-called Byrd rule, reconciliation bills can only make legislative changes that affect the federal budget. A previous ACA repeal bill was approved for budget reconciliation, which passed by the Senate in December of 2015. The bill was vetoed by President Obama, however.

The ACA is a massive law with 10 titles and hundreds of provisions. Of these, it is the insurance reforms, the individual and employer mandates, and the exchanges/marketplaces that are the most well-known. But the ACA also includes Medicare reforms, workforce provisions, FDA approval of biosimilars, and the many other provisions.

Repeal – The Reconciliation Process

Of all of the ACA’s many provisions, the following items are those that can be addressed by reconciliation in a stand-alone “repeal” measure (i.e., that can pass be a simple majority in the Senate):

  • Individual mandate penalty reduced to zero
  • Employer mandate reduced to zero
  • 40% excise tax on so-called Cadillac plans repealed (currently delayed until 2020). The excise tax may be replaced with a cap on the amount excluded from the employee’s income for employer-sponsored health plan coverage.
  • Increase the dollar limit on flexible health spending account contributions for Section 125 cafeteria plans (currently set at $2,600 for 2017)
  • Federal government subsidies for individuals to purchase exchange coverage reduced to zero (likely to be phased in over time)
  • Federal government “risk stabilization” payments to insurance companies reduced to zero (likely to be phased in over time)
  • Federal government payments to states adopting the optional Medicaid expansion reduced to zero, with Medicaid payments as block grants

A complete list of ACA provisions that are subject to repeal under the reconciliation process can be found in Table 3 of the Congressional Research Service paper cited above.

Replace – Requires 60 Votes

In contrast, the following items may not be repealed using reconciliation. This means that 60 votes will be required in the Senate to proceed:

  • Coverage mandates for insured and employer self-insured group health plans:
    • Coverage of adult children to age 26
    • Prohibitions on imposing:
      • Preexisting condition coverage exclusions
      • Waiting periods exceeding 90 days
      • Annual and lifetime dollar limits on essential health benefits
      • Reporting requirements (e.g., Summary of Benefits and Coverage)
      • Other ACA insurance mandates (the full list is set out below)
    • Additional ACA Requirements for Non-Grandfathered Plans:
      • Coverage of preventive services without cost-sharing (the regulatory interpretation of “preventive services” as including contraceptive coverage is likely to be changed eventually by new regulations under a Trump Administration)
      • Limits on employee cost-sharing
      • Independent external review of denied claims for plans not already subject to IRO under state insurance laws
    • Insurance Market Reforms
      • Small employer insurance plans required to offer coverage of all ten essential health benefits
    • The requirement to report the cost of employer-sponsored health plan coverage on Form W-2 cannot be repealed via budget reconciliation

Any attempt to repeal these provisions through normal legislative channels would be subject to a filibuster. Consequently, these provisions would remain in effect even if the ACA revenue provisions were repealed under a reconciliation measure. (A complete listing of the insurance market reforms is provided in the accompanying tables.)

Ignore – No Change

There is alternative to the handling of the ACA insurance market reforms, which are enforced through an excise tax penalty imposed on the employer. The Penalty is $100 per affected individual, per day, and it applies to any employer (regardless of the size of its workforce) that offers a group health plan that fails to comply with the ACA’s market reform requirements. Congress could reduce the excise taxes to zero. Or the the Trump Administration might adopt a non-enforcement policy regarding some certain market reform violations, but still enforce other popular market reforms (e.g., coverage of adult children up to age 26).

The “state of play”

There are currently at least five separate “repeal and replace” proposals. There are no stand-alone “repeal” proposals. Among other things, there is widespread concern that the repealing the ACA without providing a replacement would destabilize the insurance markets, and even lead to the collapse of the non-group market. The reasons for this collapse are explained in compelling fashion in a study by the Urban Institute, which claims that repeal of the ACA without replacement would devastate the non-group market “causing 7.3 million . . . people to become uninsured” as a result of three factors:

  • Eliminating premium tax credits and cost-sharing assistance would make coverage unaffordable for many of the people currently enrolled, causing them to drop coverage. Those with the fewest health problems would drop their coverage fastest
  • Eliminating the individual mandate penalty would reduce the incentive to enroll for healthy people who can afford coverage
  • Insurers would remain subject to the requirement to sell coverage that meets adequacy standards to all would-be purchasers, and they would remain subject to the prohibition against charging higher premiums or offering reduced benefits to those with health care needs

While we find the Urban Institute’s analysis compelling, Congressional Republicans are almost certainly aware of this risk, and they may be prepared to appropriate funds necessary to stabilize the insurance markets pending passage of comprehensive ACA replacement legislation.

The impact of repeal and replace on Government programs (Medicare and Medicaid)

Medicare

The ACA made some valuable, and correspondingly costly, changes to Medicare. Among other things, it expanded Medicare coverage to include certain preventive services, like mammograms or colonoscopies, without charging Part B coinsurance or deductible. In addition, the ACA phased out the prescription drug “donut hole.” Finally, the law took steps to ensure the Medicare program’s long-term solvency. All of this would be rolled back in the case of a full-blown ACA repeal. But at least one of the major replacement plans proposes to leave the ACA changes to Medicare intact. Presumably, this is a nod to popularity of the phase-out of the prescription drug donut hole.

One replacement plan (proposed by Rep. Paul Ryan) does not stop here. It instead proposes “transforming the [Medicare] benefit into a fully competitive market-based model using premium support.” Under the Ryan plan, beginning in 2024, Medicare beneficiaries would be given a choice of private plans competing alongside the traditional fee-for-service Medicare program on a newly created Medicare Exchange.

Medicaid

Medicaid is another matter entirely. The ACA vastly expanded the reach of the Medicaid program. The matter of Medicaid’s regulation post-ACA was further complicated by the Supreme Court’s ruling in 2012 that states were free to reject the ACA Medicaid expansion.

Before the ACA, Medicaid provided health care for children, pregnant mothers, the elderly, the blind, and the disabled.” The ACA expanded Medicaid’s reach to all low- income individuals. The Republican members of Congress roundly criticized this expansion, noting that the program’s expansion under the ACA accounts for more than 15 percent of all health care spending in the United States. This, they claim, is unsustainable.

The “Ryan” Plan’s approach to Medicaid is representative of the various “replace” proposals. Like the other plans, it makes radical changed to Medicaid that go well beyond mere repeal. This and the other plans offer two alternative approaches that states can elect: per capita allotment and block grants.

Per capita allotment

Under the per capita allotment approach a total federal Medicaid allotment would be available for each state to draw down on. The amount of the federal allotment would be the product of the state’s per capita allotment for the four major beneficiary categories—aged, blind and disabled, children, and adults—and the number of enrollees in each of those four categories. The per capita allotment for each category would be determined by each state’s average medical assistance and non-benefit expenditures per full-year-equivalent enrollee during the base year (2016), adjusted for inflation. The per capita allotment would be designed to grow at a rate slower than under current law.

Block Grants

Under the block grant option, a state that opts out of the per capita allotment could automatically receive a block grant of federal funds to finance their Medicaid program. States would then be free to manage eligibility and benefits generally as they see fit without the need to apply to the Department of Health and Human Services for waivers.

Individual and Group Market Reforms*

Provision Effective Date Section Title/Heading
(1) PPACA §1201§10103(e); PHSA §2704 Plan years beginning on or after September 23, 2010 Prohibition on preexisting condition exclusions for enrollees who are under 19 years of age.
(2) PPACA §1001§10101(a)HCERA §2301(a); PHSA §2711 Plan years beginning on or after September 23, 2010 Ban on annual and lifetime dollar limits on essential health benefits. Applies to group and individual insurance markets, and group health plans, including grandfathered group and individual plans. Annual or lifetime limits are permitted for items and services that are not part of the essential health benefits.
(3) PPACA §1001HCERA §2301(a); PHSA §2712 Plan years beginning on or after September 23, 2010 Rescissions permitted only for fraud or intentional misrepresentation of material fact and with prior notice to the enrollee. Applies to group and individual insurance markets, and group health plans, including grandfathered group and individual plans.
(4) PPACA §1001; PHSA §2713 Plan years beginning on or after September 23, 2010 Group and individual insurance contracts and group health plans (other than grandfathered plans) must cover the following preventive health services with no cost-sharing:
• Evidence-based items/services with a rating of “A” or “B” in the current recommendations of the U.S. Preventive Services Task Force (USPSTF).
• Immunizations recommended by the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention (CDC).
• Evidence-informed preventive care and screenings provided for in the comprehensive guidelines supported by the Health Resources and Services Administration (HRSA) for infants, children and adolescents.
• With respect to women, additional preventive care and screenings provided for in guidelines supported by HRSA.
(5) PPACA §1001HCERA §2301(a)§2301(b); PHSA §2714 Plan years beginning on or after September 23, 2010 Group health plans that provide dependent coverage must make coverage available to age 26. Grandfathered group health plans may delay to plan years commencing on and after January 1, 2014, for adult children eligible to enroll in an employer-sponsored plan.
(6) PPACA §1001§10101; PHSA §2715 Plan years beginning on or after September 23, 2010 Group health plans must provide summaries of benefits and coverage (SBC) explanation that meets standards developed by HHS.
(7) PPACA §1001§10101(d); PHSA §2716 Plan years beginning on or after September 23, 2010, but enforcement suspended (Notice 2011-1, 2011-2 I.R.B. 259) Insured group health plans (other than grandfathered plans) must satisfy benefits-related non-discrimination rules under §105(h)(2) prohibiting discrimination in favor of highly compensated individuals in terms of eligibility and benefits.
(8) PPACA §1001; PHSA §2717 Plan years beginning on or after September 23, 2010 Group and individual market policies and group health plan (other than grandfathered plans) must establish quality programs and report quality data to HHS and to enrollees during each open enrollment period. Required elements of a quality program include:
• Improve health outcomes through activities such as quality reporting, effective case management, care coordination, case management and medication and care compliance initiatives, including through the use of the medical home model.
• Implement activities to prevent hospital readmissions through a hospital discharge program that includes patient-centered education and counseling, comprehensive discharge planning and post-discharge reinforcement by an appropriate individual.
(9) PPACA §1001; PHSA §2718 Plan years beginning on or after September 23, 2010 Bringing down the cost of health care coverage: Health insurance issuers provide an annual accounting for coverage offered (including grandfathered health plans) and rebates to enrollees if medical loss ratios are not met.
(10) PPACA §1001§10101(g); PHSA §2719 Plan years beginning on or after September 23, 2010 Internal appeals/external review:
• Issuers in the group market and group health plans must have an internal claims and appeals process based on existing DOL claims and appeals procedures, updated by standards established by HHS.
• Non-group plans must have an internal claims and appeals process based on existing law, updated by standards established by HHS.External Review: Issuers in the group market and group health plans must comply with applicable state or federal external review requirements.
(11) PPACA §10101(h); PHSA §2719A Plan years beginning on or after September 23, 2010 Group health plans must provide patient protections, including more choice of health care professionals, coverage of emergency services, and access to pediatric care and obstetrical or gynecological care.

 

Health Insurance Market Reforms*

Provision Effective Date Section Title/Heading
(1) PPACA §1201; PHSA §2704 Plan years beginning on or after January 1, 2014 Prohibition on preexisting condition exclusions or other discrimination based on health status.
(2) PPACA §1201; PHSA §2701 Plan years beginning on or after January 1, 2014 Fair health insurance premiums.
(3) PPACA §1201; PHSA §2702 Plan years beginning on or after January 1, 2014 Guaranteed availability of coverage.
(4) PPACA §1201; PHSA §2703 Plan years beginning on or after January 1, 2014 Guaranteed renewability of coverage.
(5) PPACA §1201; PHSA §2705 Plan years beginning on or after January 1, 2014 Prohibiting discrimination against individual participants and beneficiaries based on health status.
(6) PPACA §1201; PHSA §2706 Plan years beginning on or after January 1, 2014 Nondiscrimination in health care.
(7) PPACA §1201; PHSA §2707 Plan years beginning on or after January 1, 2014 Comprehensive health insurance coverage.
(8) PPACA §1201HCERA §2301(a); PHSA §2708 Plan years beginning on or after January 1, 2014 Prohibition on excessive waiting periods.
(9) PPACA §10103(c); PHSA §2709 Plan years beginning on or after January 1, 2014 Prohibition on denial of participation in approved clinical trials.

Tables used with permission. © 2017 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com2017.

New Limitations on Short-Term Healthcare Policies: What You Need to Know

Short-Term Healthcare

Image credit: Michael Havens via flickr

On October 31st, the US Departments of Labor, Health and Human Services and Treasury (the Departments) issued a Final Rule pertaining to short-term healthcare policies. Here are the details:

Short-term health policies are exactly as they sound: healthcare policies, limited in duration, that are meant to function to fill a gap in coverage some individuals may face during their lives if they transition between jobs or group health plans. They are currently limited to twelve months of coverage.

What the Departments have found is there is a growing practice of individuals purchasing short-term policies (which are generally cheaper than exchange policies) and then paying the IRS penalty (short-term policies are not considered Minimum Essential Coverage), which has become a cheaper option. In some cases, individuals are even allowed to renew their short-term policy past the twelve month period, further solidifying the policy as their primary coverage.

It is speculated those opting to go this route are healthier individuals that just want to ensure they have some coverage. These healthier individuals are exactly what the Affordable Care Act needs in the exchange risk pool to balance things out. This is why there was such a concerted effort to close the door on this practice and push these individuals to the exchanges.

To combat this practice and further diversify the exchange risk pool, the Departments have issues a Final Rule, which changes the twelve month maximum for short-term policy coverage to three months. This will be effective for any policies with policy years beginning January 1, 2017. It should be noted that the limit will not be enforced on any 2017 policies, sold before April 1, 2017, in states with existing approved 12 month limits providing the policy expires in the 2017 calendar year.

The full ruling can be found here.

This change won’t cause a seismic shift in the exchange risk pool, but with some of the projected rate increases being reported for 2017 and beyond, even small steps certainly help in chipping away.

Of course, in light of last night’s election results, much of the Affordable Care Act will be under a cloud of uncertainty for the foreseeable future, so stay tuned…

Let’s Combat Rising Health Insurance Costs!

The big news in the world of politics last week was the reported increases employers are facing due, in part, due to insurer costs related to the Affordable Care Act. Media accounts have health insurance exchange open enrollment renewals pegged at an average increase of 28% with some having to pay double their current rates

We will leave it to the politicians to duke it out over the specific causes of the increase and who is to blame. As employee benefit advisors, we prefer to focus on how we can help employers get out from under these significant cost hikes, while still providing your employees with robust, cost-effective benefit packages. One solution that is generating positive results and cost savings for businesses is self-funding their health insurance.

A self-funded health insurance plan is one in which an employer retains the financial risk of covering employees’ health care costs with the option to insure against the cost of catastrophic claims. Contracting with a third-party payer, administrative services organization, or an insurance company, an employer will pay a third party to administer the benefits, pay claims and perform certain limited fiduciary functions.

There are many benefits to self-funding including plan design choice, cost transparency and cost savings. Self-funded employers have much more flexibility in their plan design than insured employers, as they are not subject to state coverage mandates. They also have insight into the actual cost of care, administrative costs and any loaded fees or additional expenses to the plan. Other benefits of moving to self-insurance include eliminating a number of taxes, fees and administrative costs incurred with a fully funded plan.

Once an employer has made the conversion to self-funding, they can achieve savings of anywhere from 5% to 15% depending on their cost structure. Self-insurance remains a powerful weapon in the war on burgeoning benefit costs. Employers who make the change can reap immediate benefits and avoid, or at least slowdown, some of the significant and inevitable cost increases on the horizon.

If your company is in the process of renewing your health insurance for 2017, or if a renewal is on the horizon, we can help. You owe it to your business and employees to talk to us about self-funding. Speak to one of our team of brokers, consultants, underwriters and actuaries for self-funding advice and a free, no-obligation quote. In the end, you may chose to go a fully funded route, but you should know your options especially in light of the projected increases.

Contact us today using the form below to discuss self-funding health insurance further.

You might also be interested in our FREE white paper on self-funding. This helpful eguide was written by our funding experts and will give you more detail about how exactly self-insurance works.

Identity Theft Coverage Now a Tax Deductible Employee Benefit

identity theft coverage

Image credit: GotCredit via flickr

With the growing threat of data breaches and hacking incidents on the rise, having identity theft protection is quickly becoming as important as home or auto coverage. Forward-thinking employers looking to attract and retain top talent have been adding identity theft protection to the benefit offerings, but to date, there has been no financial incentive to do so for the employer.

The U.S. Internal Revenue Service (IRS) recently announced in Announcement 2016-22, that identity theft protection could be offered to employees on a tax-free basis regardless of a prior data breach. In the past, the IRS has offered the tax-free perk to employers ONLY if a data breach has occurred. This latest move allows employers to move from being reactive to proactive and use identity theft coverage as an attractive perk.

Spring is a market leader in developing the most attractive and appropriate employee benefit packages for employers of all sizes. We offer an excellent Financial Protection Plus identity theft protection product for individuals and families, through a relationship with LifeLock; the leader in Identity theft protection for ID and credit fraud.

LifeLock provides a series of proactive services to protect your employees’ identity and provides a Million Dollar Protection™ Package.

For less than $10 per month, employees can purchase protection against identity theft, ID and credit fraud and more.

Services are available for individuals and families via online enrollment through secure, encrypted servers.

For more information on how you can get these critical services to offer to your employees, please contact our team today!

Two Additional ACA Taxes Delayed

aca taxes delayed

Image credit: handikapinfo via Pixabay

With the 2-year delay of the “Cadillac Tax” getting the lion’s share of the publicity surrounding the passage of last month’s omnibus spending bill in Congress, two additional important Affordable Care Act (ACA) taxes were also delayed with little fanfare.

The Health Insurance Tax (HIT) was suspended for one year to 2017. The HIT is a tax on health insurance carriers in the form of a per subscriber, fixed-dollar fee that insurers pay into based on their premiums written. While this tax doesn’t directly impact employers, it has been widely speculated that most insurers would pass most if not all of the cost of the HIT onto their customers in the form of rate hikes, benefit reductions and co-payment increases. The suspension of the HIT provides an estimated 2.5-3% savings on fully insured insurance premiums.

Also delayed for two years, is the implantation of the tax on medical device manufacturers. This is a 2.3% tax on revenue from medical device sales. This tax was poised to deal a significant blow to the medical device manufacturing industry as it dug into money otherwise spent on research and development and would likely result in steeper prices for life-saving medical devices.

It is important that employers know these taxes exist and that they have been delayed. While they may not impact most businesses directly, their cost will almost certainly be passed on to businesses and consumers in some fashion when implemented.

IRS Extends ACA Reporting Deadlines

Recently, the Internal Revenue Service (IRS) announced the extension of a couple of the important Affordable Care Act (ACA) reporting dates.

The IRS announced that they are extending the deadline for employers distributing health coverage offers and coverage provided to employees to March 31, 2016. The IRS is also pushing back the deadline for employers to report offers and coverage provided to May 31, 2016 for paper filing and June 30, 2016 for electronic returns.

The proper form for employers to distribute to employees are Form 1095-B and 1095-C. Forms submitted to the IRS by employers are 1094-B, 1095-B, 1094-C and 1095-C.

This most recent ACA delay/modification is certainly good news for employers struggling to keep up with the increasing demand on resources to comply with the new healthcare regulations.

Of course, if you have any questions or concerns about ACA reporting, compliance or implementation, you owe it to yourself to contact us. Spring’s compliance experts are consistently tracking and studying healthcare law to ensure our clients get the best and most up-to-date advice possible on this evolving topic.

Supreme Court Upholds Federal Exchange Tax Subsidies

supreme court photo

The Supreme Court announced today, that they have decided to uphold tax subsidies for individuals purchasing their health insurance through the federal exchange.

Opponents of the subsidies argued in King v. Burwell that the millions of individuals enrolled in the federal health insurance exchange and receiving tax subsidies were ineligible because they resided in states that had not established a state-run exchange. The Supreme Court, in a 6-3 ruling, upheld the Obama Administration’s interpretation of the Patient Protection and Affordable Care Act (PPACA) and agreed that health care subsidies should not depend on where a person lives.

The entire King v. Burwell ruling can be found here.

This is the second major Supreme Court win for supporters of the PPACA, further strengthening the chances it remains in tact. So, what does this mean for employers, employees and the future of exchanges?

For employers, it doesn’t really have an immediate effect, as it is simply business as usual under the ACA.  The exchanges will continue to be a potential distribution vehicle via brokers for health and dental insurance with or without subsidies.

For employees, it signals an opportunity to once again look at the exchanges for alternatives to employer insurance offerings and investigate potential subsidies and savings.

While the PPACA is well underway in its implementation, one major component that still causes much anxiety among employers is the Cadillac Tax, which is slated to take effect in 2018. If you’d like more information about the implications of the Cadillac Tax, here is a helpful synopsis of what we do know about it currently and here is a very helpful Cadillac Tax calculator that Spring’s actuarial team developed for employers.

Of course, if you have any questions about the Affordable Care Act, let us know. Our team of compliance experts is ready to help your business navigate the rough waters of health care reform.

Photo by Jeff Kubina

The Cadillac Tax – A Growing Concern

One of the more unresolved aspects of the Affordable Care Act (ACA) is the Cadillac Tax, which is set to go into effect in 2018. Very little in the way of concrete guidance has been disseminated by the IRS and the Treasury Department. What we know at this point is that there will be an excise tax on “high cost” medical plans. According to Spring’s research, while the Cadillac Tax will likely not be a large burden right away, the projected Cadillac Tax will increase considerably in the future for many organizations.

The total cost of medical plans for the purpose of Cadillac Tax calculations will be similar to COBRA rates. The excise tax will be 40% of the medical plan costs that exceed the Cadillac Tax threshold. While the final thresholds have not yet been released, we know that they will be adjusted for group demographics such as age and gender. As of today, there have been no indications of how the thresholds will be adjusted for demographics.

Beyond 2018, the Cadillac Tax threshold is projected to increase each year with CPI. Therein lies a major problem as medical plans have had cost increases that far exceed CPI. Because medical plan costs will increase faster than the Cadillac Tax thresholds, we project that Cadillac Tax payments will increase considerably if no plan changes are made.

We are very short on guidance related to the Cadillac Tax and final regulations could be very different than what is currently expected. However, for most organizations, it’s clear that they will need to make significant changes to their medical plans over time to reduce the Cadillac Tax burden. These changes could include higher deductibles, co-pays, or out-of-pocket maximums.

Want to get an estimate of how much the Cadillac Tax may impact your business? Try out our new calculator tool and find out!