It's unclear if President-elect Donald Trump or the Republican-led Congress will drastically overhaul the employer-based health insurance market, where about half of Americans get their coverage and which has mostly stayed intact under President Barack Obama.
Instead, pushed by rising healthcare costs, employers likely will continue on their own to alter benefits that require workers to pay for more of their healthcare upfront—a development that long preceded the Affordable Care Act. In addition, even more energy will be devoted to expanding health savings accounts, a prized conservative apparatus, and installing a cap on the tax exclusion for employer benefits, which the ACA already tried to do.
“We're kind of in the status quo, but the status quo is still telling us that small employers are dropping insurance, that premiums are still rising and benefit design is getting less generous through high deductibles and other modifications,” said Jean Abraham, a health economist at the University of Minnesota and a former senior economist with the President's Council of Economic Advisers. “That's still going to expose workers to more out-of-pocket costs for their healthcare.”
The ACA touched employer-sponsored insurance in two primary ways. The first was through the law's employer mandate, which required all companies with more than 50 employees to offer health coverage. The second was the so-called “Cadillac” tax, a 40% surcharge on the value of employer-based health premiums above certain thresholds, which was delayed until 2020 due to opposition from employers and unions. The ACA also created small business exchanges, where companies with less than 50 employees could offer subsidized coverage, but they have attracted little interest.
A repeal of the ACA would eliminate those provisions, and it'd immediately ease benefits reporting requirements for companies.
“Employers are going to be ecstatic,” said Robert Laszewski, a healthcare consultant in Washington. “They will be deregulated dramatically.”
However, Republicans have made it clear they will go after the politically potent tax provision that excludes health benefits from income and payroll taxes. That tax exclusion “has contributed to the lack of growth in take-home pay that has frustrated many American families,” House Speaker Paul Ryan (R-Wis.) wrote in his policy paper earlier this year. Most health economists agree the tax break is regressive, benefiting the highest-income workers the most and partially responsible for stagnant wages. That's also why economists vehemently support the ACA's Cadillac tax.
Ryan has proposed instituting a cap on that tax exclusion, but Republicans have not listed how high those caps would be. He also argues his tax exclusion policy is a “fundamental departure from Obamacare's Cadillac tax.” But in reality, Ryan's policy aims to achieve the same goals—forcing companies and workers to choose less generous coverage, reducing consumption of healthcare services, and raising federal tax revenue as companies boost taxable wages to make up for the lower benefits.
“It's likely that most health plans would change their design to avoid hitting the threshold by shifting compensation away from healthcare and toward take-home pay,” Ryan's paper reads of the cap, echoing exactly what policy experts have said would happen under the ACA's Cadillac tax.
But proposals that chip away at that tax break “have been met with a lot of stakeholder opposition, and I don't see that stakeholder opposition fading at all this time around,” said Katy Spangler, senior vice president of health policy for the American Benefits Council, a lobbying group representing some of the largest companies in the country.
Employers and employees both benefit from that exclusion, and diminishing it would push costs onto taxpayers elsewhere, she said. And that's precisely why the Cadillac tax has faced so much resistance.
“I would be dumbfounded if the entire exclusion were lifted,” said Joel Wood, senior vice president of government affairs for the Council of Insurance Agents & Brokers, adding that he hasn't seen any signs from Trump that he “would weaken the employer system.”
Even if Congress and the Trump administration don't push through a cap on the employer tax break, employers will continue to decrease the generosity of coverage because “they're trying to hold the line on premium growth,” Abraham said.
Employers were already cost shifting to control higher healthcare spending, which has grown moderately the past several years but has still outpaced inflation and wage growth. Companies have gravitated toward high-deductible health plans as a way to keep premium increases low for their workers, but that has meant more commercially insured people have felt the sting of healthcare prices when they go to the doctor, hospital or pharmacy.
“If you think about the average worker making $50,000 with a $5,000 or $6,000 deductible, that's a pretty hefty portion,” Abraham said.
To blunt the effect of those higher upfront costs, conservatives have pushed for broader use of health savings accounts, which allow people to stash money tax-free for their healthcare expenses. Ryan said in his policy paper that HSAs lead to “greater flexibility, portability and autonomy to patients,” which employer coalitions have rallied behind.
“There's going to be more flexibility and more ability to contribute to the accounts, and to make it easier and more user-friendly and reduce some of the restrictions on the plans,” said Steve Wojcik, vice president of public policy at the National Business Group on Health.
The new administration may allow HSAs to be used for prescription drugs before the deductible is met, insurance premiums, over-the-counter medications and expanded wellness services, Wojcik said. However, lower-income people may not have as much money to sock away into an HSA, possibly neutering the effectiveness for many.
“There's evidence that high-income people are holding these health savings accounts and are benefiting from this tax shelter,” Erin Trish, a health policy professor at the University of Southern California, told Modern Healthcare in September.
Repealing the ACA's employer mandate is expected to have little impact on employers. Initially, observers thought the mandate would lead many companies, most of whom were already offering employee benefits, to stop offering coverage because paying the penalty was a cheaper option.
But that largely didn't happen. In general, employers continued to offer healthcare as a tool to attract and keep good employees. Likewise, they'll continue to do so long after the mandate is gone.
“The employer mandate frankly doesn't bind that many firms, and it probably wouldn't be a terrible thing to get rid of,” said Tom Buchmueller, a health economist at the University of Michigan. Companies most likely to stop offering insurance are those in the lower-wage hospitality and retail industries, he said.
Self-insured companies and other business groups have made it clear they will demand better value and quality in the care their workers receive. Some businesses have worked directly with health systems on bundled payments or narrow networks, and will push more providers to lower the costs they ultimately pay.
“What we heard and continue to hear with increasing fervor is that the organizations that are paying for healthcare will not tolerate increasing premium costs and will take radical measures to get higher value for their spending,” Frank Williams, CEO of technology and consulting firm Evolent Health, said on an earnings call this week.
