8 Republican Healthcare Proposals
Part 2: Employer-sponsored insurance
This is Part 2 of HealthSherpa’s review of 8 Republican healthcare proposals, covering changes that will affect employer-sponsored insurance (both large and small). Part 1, which covers the individual insurance market, is here.
The proposals included in this review are:
- A Better Way. Paul Ryan, Speaker of the House
- Healthcare Reform. Donald Trump, President
- Empowering Patients First Act. Tom Price, Secretary of HHS
- The Patient Choice, Affordability, Responsibility and Empowerment Act. Senators Burr (R-NC) & Hatch (R-UT), Congressman Upton (R-MI)
- Patient Freedom Act. Senators Collins (R-ME), Cassidy (R-LA)
- Improving Health and Health Care: An Agenda for Reform. American Enterprise Institute
- The Obamacare Replacement Act. Senator Rand Paul
- The American Health Care Reform Act (AHCRA). Republican Study Committee
Idea #1: Repeal the employer mandate
What: The Affordable Care Act (ACA) required employers with more than 50 employees to offer health insurance to all full-time employees. This proposal would eliminate that requirement.
Why: The employer mandate requires that full-time employees (defined as those working more than 30 hours a week) are offered health insurance. Both business leaders and Republicans have argued that this acted as a new tax on business, and that employers had to cut back employees’ hours so that they would not qualify for benefits.
Idea #2: Repeal the Cadillac Tax
What: The Affordable Care Act introduced the “Cadillac tax” — a 40% tax on employer-sponsored plans exceeding $10,200 in premiums per year for individuals and $27,500 for families. In part, the Cadillac tax was intended to help pay for the subsidies provided by the ACA to low-income households.
Why: This tax is very unpopular with large employers who offer their employees high-value health insurance coverage. Note that Republican proposals do still want to penalize excessively generous employer-sponsored insurance — see below.
Idea #3: Cap tax exclusion for employer-sponsored insurance
What: Employer contributions for health insurance are tax-free, meaning that, from an economic perspective, employers can compensate employees in a tax-free manner by offering a very high-value (“gold-plated” or “Cadillac”) health insurance plan. This proposal would place a dollar cap on the amount of coverage that is tax-free, with everything above that threshold being subject to tax. This is basically a less extreme way of achieving some of the goals of the Cadillac tax.
Why: Very high-value employer-sponsored insurance plans are problematic from a macro perspective in that it can be a loss of tax revenue for the government, and it can encourage overuse of health coverage, which contributes to higher healthcare costs. These arguments, plus the need for raising revenue to pay for subsidies, are why the Cadillac tax was included in the ACA (see above).
Details:
Idea #4: Promote use of Health Savings Accounts (HSAs) by employers
What: A Health Savings Account (HSA) is an account that you or your employer can contribute tax-free money to. You can then use that money to pay for most medical expenses, and while the money is sitting in the account, you can invest it in assets like stocks and bonds.
Employers have seized on HSAs as a means of controlling costs (see chart below), and these proposals, which make it easier for employers to contribute to HSAs, and for employees to use those funds, would further those trends.
Why: HSAs are considered a great way to control healthcare spending because it is believed that people who have an HSA feel like they are spending their own money, and they will be more price sensitive when making health care purchasing decisions. This works because under current law HSAs have to be paired with a high deductible health plan where the individual pays a lot of money out of pocket before the insurance contributes.
Details:
Idea #5: Promote employer-sponsored wellness programs
What: Allow employers to provide greater discounts to employees who participate in voluntary wellness programs, and clarify the legal status of those programs.
Why: Employers have long sought to lower their healthcare costs by encouraging their employees to be healthier through “wellness programs” (a catch-all term that covers everything from gyms to nurse hotlines).
Note: Charging healthier employees less for their health insurance does risk violating the Americans with Disabilities Act, and genetic screening/testing as part of a wellness regime may also violate the Genetic Information Nondiscrimination Act.
Details:
Idea #6: Clarify that stop-loss coverage is distinct from group coverage — and therefore not subject to the same regulations
What: Stop-loss coverage is “backup” insurance that self-insured employers buy to protect themselves if their health costs are higher than expected in any given year.
This proposal clarifies that stop-loss coverage is not group coverage, and so can have lifetime limits (e.g. where insurers would only pay up to $1m for a specific person) and other provisions attached, which were not allowed under the ACA. It’s unclear if the relaxed rules would apply to the actual group health insurance plan itself.
Why: Provisions in the ACA increased the cost and limited availability of stop-loss coverage, including a ban on lifetime limits. With the ACA’s new requirement that plans cover specific essential health benefits (EHBs), a stop-loss insurer might be expected to cover a dramatically bigger sum after the ACA. This made the cost of providing stop-loss insurance (and therefore the cost of providing employer-sponsored insurance) significantly higher.
Idea #7: No pre-existing condition exclusions in the group market
What: Prior to the ACA, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) guaranteed those within the group market could obtain continuous health coverage regardless of preexisting conditions. This provision restores that protection.
Why: If the ACA is fully repealed, as Senator Paul’s proposal suggests, there will be gaps in the law that will need to be clarified, including if and how insurers can limit or deny coverage in the group market.
Note: This is a specific version of a proposal that has widespread GOP support, namely that if people maintain continuous health insurance coverage, they should not be denied coverage or charged more for health insurance if they get sick in any market (individual, small group, or large group). For more information, please see IDEA: No underwriting if you maintain continuous coverage in Part 1.
Idea #8: Small businesses can band together into Independent Health Pools (IHPs) to combine purchasing power
What: Small businesses currently purchase insurance directly from insurance companies, and the premiums that the small business pays are based on the aggregate health status of the employees of that business. This is typically determined by looking at past and recent medical history. This proposal allows small businesses to collectively purchase health insurance from insurance companies.
Why: If a small business has a single employee (or dependent of an employee) with a costly pre-existing condition, that can drive the price of insurance up to unaffordable levels for the small business. This proposal would permit small businesses to band together to purchase insurance collectively, spreading the risk of a single very sick member out across multiple businesses, and keeping premiums down as a result.
Idea #9: Extend federal protections to small businesses
What: The Employee Retirement Income Security Act of 1974 (ERISA) generally prohibits states from regulating health insurance offered by large employers. This proposal would extend that protection from state regulation to small employers as well.
Why: Extending federal protections to small employers will give them the flexibility to customize their benefits plans for their specific needs. This would also allow them to avoid state regulations requiring that the coverage they offer meet certain standards. This provision may be intended to prevent states with stringent regulatory requirements for health insurance from applying those standards to the plans offered by small employers.
Details:
Idea #10: Tax credit for small businesses
What: The ACA includes tax credits for small employers who offer health insurance that meets certain requirements. This proposal replaces that tax credit with a new one, with the maximum allowed tax credit being $1,500 more than the sum paid in premiums for an auto-enrolled plan by the small employer.
Why: Some small employers currently utilize the tax credits provided by the ACA, and this alternative tax credit would soften the blow of losing those tax credits, assuming the ACA is repealed.
