ACA Changes Ahead But Staying Course Remains Prudent

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Article co-written with Dennis Fiszer, First Vice President and Chief Compliance Officer for HUB International – East Region

The election of Donald Trump as President of the United States generates new ambiguity in the already complex world of health care reform. This article shares observations about the road ahead based on the new political landscape and the concepts most likely driving the new vision of health reform.

Although President-Elect Donald Trump and Vice-President-elect Michael Pence have not yet released a detailed proposal, each has spoken numerous times about health reform during the campaign. Those speeches and the recent appointment of Andrew Bremberg to lead the Health & Human Services transition team give us a window into policy views that President-elect Trump is likely to support. An overview of such possible health reform initiatives is outlined below.

Executive Summary

President-elect Trump actively campaigned on ACA “repeal and replace,” and the Republican majorities in Congress suggest a greater likelihood for wholesale changes…but change is not necessarily guaranteed.  Nor is it guaranteed that the new wave of reform, if passed, will make individuals or employers entirely happy. 

There were several key areas that Mr. Trump addressed in his campaign:

• Allow individuals to fully deduct the cost of health insurance

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• Allow insurance to be sold across state lines

• Expand Medicaid grants to states

• Remove barriers to free markets for drug products

• Expanded use of Health Savings Accounts (HSA)

Even with the House and Senate majority, the Republicans do not have enough votes to force a complete ACA repeal.  (In fact, they lack enough control to overcome a filibuster.)  On the other hand, the GOP will hold broad power to direct ACA-related spending and to change tax provisions embedded in the law.

Health Insurance Deduction

Individuals would be allowed to fully deduct their health insurance premiums. Although limited deduction for health expenses (not premiums) is currently allowed when expenses exceed a specific IRS threshold, as a general matter only people with very significant expenses see any meaningful tax relief.  Expanded deduction for premiums may help spur coverage, but the deduction would also reduce federal revenue and require more tax revenue elsewhere. 

Buying Health Insurance Across State Lines

Republicans have championed this idea for decades.  In its simplest form, the concept would enable employers based in one state to access coverage written in another state.  (For example, a New York-based employer stuck with an unwanted “small group” designation seeks to buy coverage from another state with a more desirable insurance market.) On its face, this change would appear positive, but such a rule could quickly erode the viability of local markets. Network issues may also create a practical or operational barrier. There are also financial concerns about policy pricing changes based on coverage obtained in a less expensive state being used to deliver coverage in a more expensive location. (For example, Missouri versus California.)

Expand Medicaid

In addressing problematic aspects of the ACA, President-elect Trump has proposed expanding Medicaid grants to the states and enabling the states to cover more of the local population. 

How would he fund this expansion? Anticipated offsets from approximately $11 billion now being funded by the federal government to pay for undocumented individuals who utilize federal and state governments for benefits for which they are not eligible. Although different sources measure that amount differently, immigration changes represent perhaps the most controversial and highly sensitive issues currently before Congress and real legislative change could be difficult. 

Prescription Drugs

President-elect Trump has also spoken in favor of directing the FDA to immediately enact safety standards to enable prescription drug importation.  (Buying drugs abroad is disallowed by the FDA, but often practiced via the Internet.) Such a change would presumably force the markets to globally adjust prescription drug pricing.  Supporters of this change contend that Americans are effectively subsidizing world prescription drug costs by forcing inflated domestic prices for medication. 

Health Savings Accounts

The President-elect has consistently spoken about promoting HSA-usage and even made reference to the accounts in his victory speech. Andrew Bremberg, leading the HHS transition, would likely propose significantly higher contribution limits and federal “seed” contributions via tax credits (similar to the proposals he shaped for Wisconsin Governor Scott Walker in his failed presidential bid).  Republicans also advocate new rules that would permit limited access to prescription drug coverage without compromising a taxpayer’s ability to fund the HSA.

Employer Mandate?

Although he has emphasized ACA “repeal and replace,” Mr. Trump has not specifically discussed elimination of the employer mandate. Since he has discussed repeal of the individual mandate, not referring to the employer mandate seems conspicuously absent to some. In fact some experts speculate that if ACA is repealed, that an element of the employer mandate might survive in the “replace” version. (For example, perhaps with a higher attachment threshold, such as 100 full-time employees instead of 50; or with more gentle aggregation rules to quantify the size of ALE.) Therefore, at least for now, we believe employers should prudently stay the course as relates to ACA mandate compliance, certainly so long as tax penalties remain in effect.

Cadillac Tax

Some employers in the midst of cost containment decision-making have expressed uncertainty about the election. If the law is repealed, would the Cadillac tax automatically be eliminated? It may be, but a Trump proposal to eliminate the Cadillac tax could be tied to a cap on the employer deduction of health coverage premium. Again, this possibility reflects an aspect of the proposal Andrew Bremberg floated for Scott Walker (which may resurface as Bremberg is now attached to the Trump public policy team). 

Proposals similar to this cap have periodically appeared in Republican health reform proposals dating back to President Reagan’s time, so there is still hope that the idea may end up tabled again.

State Law Wildcard?

If the Trump administration and Republicans successfully join to repeal the ACA, but then propose a “replace” version that fails to meaningfully satisfy Democratic concerns, we might see a resurgence of health reform initiatives at the state level. For example, Massachusetts drafted its own version of health care reform prior to the ACA. So if a successful ACA repeal were ever enacted, employers might actually find themselves in a tougher compliance situation as we could begin seeing a proliferation of Massachusetts-style reform initiatives around the country. 

Of course, employers could cogently argue that states generally lack the power to legislate in the employee benefit zone (under the ERISA preemption doctrine), but until such concerns were fully resolved by the judiciary, employers could find themselves stuck with mushrooming compliance burdens depending on where they operate. Stay tuned!

Robert Fiorito, HUB Insurance
Robert Fiorito, HUB Insurance
Dennis Fiszer, HUB Intenrnational
Dennis Fiszer, HUB International

Disclaimer: Information current as of November 16, 2016. HUB International is closely monitoring the transition of Executive power, as well as legislative leadership adjustments that may occur.

Robert Fiorito serves as Vice President, HUB International Northeast., where he specializes in providing insurance brokerage services to the restaurant industry. As a 20-year veteran and former restaurateur himself, Bob has worked with a wide array of restaurant and food service businesses, ranging from fast-food chains to upscale, “white tablecloth” dining establishments. For more information, please visit www.hubfiorito.com. For more information on HUB’s Employee Benefits practice, please visit www.hubemployeebenefits.com