Pressing On Despite a Weakened ACA
Despite challenges, the Affordable Care Act (ACA) remains in place with many provisions that will continue to directly affect employer group health plans.
The repeal-and-replace effort came up short in Congress in 2017. While this effort may be restarted by the Trump administration’s recent actions, this complex scenario will take time to play out.
The basic course of the ACA is set for 2018. Some analysts are saying that the flurry of administration activity on Oct. 12, 2017 will have its primary impact on healthcare in 2019, but that there may still be an impact on the ACA in 2018.
In 2018, understanding the current ACA environment for employers remains important, including compliance issues, making cost-efficient high-deductible health plans more attractive to employees, and concerns about the stability of ACA state health exchanges.
Employer Shared Responsibility
At the top of the list of ACA compliance issues is the employer shared responsibility reporting. “Applicable large employers” (ALEs) with 50 or more employees must provide an individual plan year 2017 Form 1095-C to each covered employee by Jan. 31, 2018. ALEs that file 250 or more 1095-C employee reports must electronically transmit their group 1095-C to the IRS by Mar. 31, 2018. ALEs with self-insured health plans must file a 1094-C report to verify they met “affordability” requirements for minimum essential coverage, or make an employer shared responsibility payment to the IRS.
Most employers want simplified shared responsibility reporting. A Mercer survey of nearly 300 health benefit professionals reported on Sept. 28, 2017, that 95% wanted simplification.1
The Trump administration must be aware of the employers’ desire for this, since regulatory simplification was high on its list of campaign promises. But with the ACA replacement still dominating the agenda, efforts to simplify ACA regulations may be slow.
By now, most employers have established the preferred safe harbor that they use to verify their plans meet affordability requirements and avoid the employer shared responsibility excise tax. Intuitively, “rate of pay” and “form W-2” are the two affordability safe harbors that most resemble the approach many employers use to administer their health plans.
Some consultants are reminding employers to consider the third safe harbor, federal poverty line (FPL), which may be administratively simpler than the other two.
The affordability safe harbor calculation is part of the 2017 plan-year ACA 1094-C report that employers file with the IRS. It is too late for most employers to add a new FPL health plan strategy for the 2018 plan year, because a qualifying FPL plan would have to be in place during open enrollment, which is already underway for most employers. For employers who begin their plan year later than Jan. 1, 2018, however, the FPL safe harbor may still be possible if they can quickly implement an FPL-based plan.
To use the FPL affordability safe harbor, the employee contribution for single coverage in the lowest-cost plan must be no higher than 9.56% of the 2018 single FPL rate of $12,060 for mainland employers.2 The formula for this is .0956 x $12,060 ÷ 12 months = $96.08 per month. If employers offer an individual health plan in 2018 with a monthly premium below $96.08, they would meet the minimum essential coverage requirements and the FPL safe harbor requirements.
That standard can be achieved by increasing the individual deductible to a level such as $3,000 or $4,000 to bring the monthly premium below $96.08. Prudent employers may want to keep premiums well below that figure to ensure that increases, corrections, or other changes don’t push monthly premiums above the $96 threshold.
What if employees don’t want coverage that has such a high deductible? The safe harbor rules do not require anyone to use the qualifying plan, only that it is offered. One more caveat applies to the FPL safe harbor for employers who are not self-insured. Many insurance carriers require an employer to pay half of the employee’s monthly premium, said John Garner, Chief Compliance Officer of Bolton & Company. Depending on the number of employees who use the FPL plan — and in Garner’s experience, that number is very low — paying half the employee monthly premiums could be burdensome.
Enhancing High-Deductible Health Plans
Many employers want rule changes that make high-deductible health plans (HDHPs) more rewarding for employees. Several changes have been proposed. Permitting higher contributions to health spending accounts (HSAs) that fund HDHPs was favored by 92% of the Mercer survey participants or respondents.1 That was followed closely by another proposal, at 87%, to allow HSA contributions up to the level of the out-of-pocket maximum in an HDHP. Currently, these HSA changes are not listed as priorities of the Trump administration.
The administration nearly enacted one HSA change that many employers favor: a safe harbor category for chronic condition medications and treatments that could be paid by employers even before employees pay the deductible. This would make HDHPs more attractive to employees with chronic conditions such as diabetes or asthma. Most people with chronic conditions avoid HDHPs in favor of traditional plans that are more expensive for employers. Employees might find HDHPs more attractive if they had little or no cost for medications and treatments that manage their chronic conditions.
The Trump administration explored this option in June 2017, but stalled short of action. The administration drafted an executive order to create a chronic condition safe harbor in HSAs.
The ACA also contains a safe harbor to cover preventive drugs before the deductible is met. But this provision was “quite narrowly defined and did not include medications that are used to prevent the progression of disease,” said Stacie Dusetzina, Asst. Prof. of Pharmacy and Public Health at the University of North Carolina-Chapel Hill.3
As a result, the draft executive order could increase access to preventive care for people with chronic conditions enrolled in HDHPs. Many employers already pay the full cost of insulin and other medications to manage chronic conditions; this proposal would let them do the same for HDHPs .
However, despite its advantages, some analysts believe the draft executive order would rely on the IRS to determine what care and medications are covered. “You’re asking the IRS to define something the IRS has never had to define before,” said Kim Monk,3 a pharmaceutical expert at Capital Alpha Partners, which tracks laws and regulations for financial institutions. This raised questions for industry experts, such as: would the safe harbor extend to insulin or expensive drugs that treat rare diseases? Some experts believe this safe harbor would reduce pressure on pharmaceutical manufacturers to contain or decrease prices.
Health Exchange Woes
Currently, very few employers send employees to the ACA’s state health exchanges. That might change in 2019 due to the Oct. 12 executive order to open new individual market options that employers could offer employees (see The CEO’s Desk on page 5). But in 2018, why should employers care about the financial health of exchanges?
If fewer people are insured through state exchanges, the number of uninsured people will increase. Healthcare organizations that are contracted to employer health plans also provide care to the general public. These healthcare organizations will suffer more losses as a result of providing uncompensated or under-compensated care to uninsured people. Analysts assume healthcare organizations will shift part of this loss to employers by increasing 2019 employer health plan rates, but there are fewer options to shift costs to employers in 2018.
As a result, healthcare organization losses in 2018 may cause higher employer health plan costs in 2019. This complex equation has many moving parts that are in play right now, but fast-moving events in Washington D.C. appear to offer some rays of hope.
First, President Trump’s Oct. 12 decision to end cost-sharing reduction (CSR) payments to ACA health insurers made headlines, but it was not a surprise to most insurers. Trump began signaling this intent several months ago. Most health insurance providers factored the loss of CSRs into their 2018 plans, which is one reason why rates are up more than 20% in many states.4 “Plans that are priced for the threat will take a small haircut (loss in 2017), but they can still make money, even without the payments, next year,” said one NY Times columnist.5
Second, a new round of deal-making in Congress may produce legislation that could increase participation in the state health exchanges. Trump’s move to end CSR payments put pressure on Congress to authorize the CSRs,6 which Congress did not do when it originally passed the ACA. According to Oct. 16 news reports, Senate bi-partisan talks might produce a two-year deal to:
- Fund the CSRs
- Fund the extensive communications campaign to support ACA enrollment
- Make it easier for states to obtain waivers to customize ACA rules to their needs
- Continue the popular ACA protection against exclusion of pre-existing conditions
- Make low-cost, high-deductible “copper” plans open to all ACA enrollees (not just those under age 30, as it is now)
In this blizzard of factors affecting health markets, predicting ACA enrollment levels and their impact on employer health plans is virtually impossible. But the Trump administration is supporting a deal in Congress to stabilize the ACA in 2018, with a longer plan to make the ACA unviable economically in 2019 or 2020. That longer plan includes state waivers and expanded ACA copper plans, plus the Oct. 12 initiatives to open new health insurance options that could pull younger low-income and healthier middle-income people out of ACA state exchanges.
Despite the volatile status of the ACA, employers must continue to comply with its provisions. By seeking improvements to high-deductible health plans and continuing to integrate health plans with employee productivity programs, employers can increase the value of their health plans for all stakeholders — regardless of the long-term fate of the ACA.
- The Health Reform That Employers Would Like to See: Mercer Survey Results. Sept. 28, 2017. Retrieved from https://www.mercer.us/our-thinking/healthcare/the-health-reform-that-employers-would-like-to-see-mercer-survey-results.html
- S Miller. Don’t Overlook 2018 Change in ‘Affordability’ Safe Harbor Percentage. Society for Human Resource Management. June 9, 2017. Retrieved from https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/2018-aca-affordability-safe-harbor-percentage.aspx
- Kaplan S, K Thomas. Draft Order on Drug Prices Proposes Easing Regulations. NY Times, June 20, 2017. Retrieved from https://www.nytimes.com/2017/06/20/health/draft-order-on-drug-prices-proposes-easing-regulations.html
- Kamal R, C Cox. An Early Look at 2018 Premium Changes and Insurer Participation on ACA Exchanges. Kaiser Family Foundation. Aug. 10, 2017. Retrieved from https://www.kff.org/health-reform/issue-brief/an-early-look-at-2018-premium-changes-and-insurer-participation-on-aca-exchanges/
- M Sanger-Katz. Trump Is Trying to Gut Obamacare. Here’s Why His Plan May Fail. NY Times, Oct. 13, 2017. Retrieved from https://www.nytimes.com/2017/10/13/upshot/trump-is-telling-obamacare-insurers-he-doesnt-support-the-market.html
- A Roy. Sorry Everybody, but Trump Hasn’t Instigated the Obamacare Apocalypse. Forbes. Oct. 14, 2017. Retrieved from https://www.forbes.com/sites/theapothecary/2017/10/14/sorry-everbody-but-trump-hasnt-instigated-the-obamacare-apocalypse/#1ab585a47099