Recently proposed legislation affecting the Affordable Care Act (ACA) alleviates much of the law’s burden on employers. And even though the bill will probably face several rounds of changes, the provisions undoing employers’ responsibilities are relatively uncontroversial and will likely be left alone, experts say.
Speaker of the House Paul Ryan (R-Wis.) has said the bill could see the floor of the House by the end of the month. And if it becomes law, the next step will be to roll back the ACA regulations, he said.
What the Bill Does
If the American Health Care Act (AHCA) is adopted as is, employers will no longer have to comply with the ACA’s employer mandate, which requires larger employers to offer workers affordable health insurance. It doesn’t entirely repeal the mandate though; instead, it merely reduces the fine for noncompliance to zero.
Republicans had to make the change in this way because they don’t have the 60 votes necessary to avoid a filibuster in the Senate. Instead, they’re using a budget process known as “reconciliation” that requires only 51 votes (Republicans have 52 seats in the Senate). It’s a workaround, explained Eric Schillinger, an associate at Trucker Huss. But it means they can only address the financial aspects of the law.
The bill also delays the “Cadillac Tax” on high-value plans until 2025 and makes it tax-deductible. The tax couldn’t just be removed or zeroed out because without it, the bill would add to the deficit, Schillinger said. And if a bill adds to the deficit, lawmakers can’t use the reconciliation process.
The AHCA also would make a few smaller changes to employer plans. One provision effectively expands how much employees can put into flexible spending accounts, Schillinger said. For employers, that may result in some savings because when employees put money in, it’s pretax, so employers save on Social Security and Medicare taxes.
What doesn’t change, however, are employers’ reporting requirements. Some may cease to exist because the provisions to which they relate may no longer exist, but others, such as reporting on employee’s eligibility for the individual tax credit, still would be relevant, Schillinger said; “There will still be […] some employer reporting required but it’s likely to be at a reduced level.”
For a full review of the bill’s provisions, see ACA Repeal Proposal Released; Cadillac Tax Remains.
Implications for Employers
Generally, these changes are good news for employers, according to Maggie Platzer, an attorney with Dinse Knapp McAndrew. The bill undoes a lot of what affected them under the ACA+, she said.
Smaller employers, however, could feel some pain if the bill, as it is expected to do, causes individuals to drop out of the exchange. Many small employers shed employees into the exchange and gave them raises to buy their own coverage, Platzer said. If employees no longer have that option, those businesses could find themselves choosing between pay cuts or declining to offer health insurance.
At the Society for Human Resource Management’s (SHRM) recent employment law and legislative conference, a senior partner at consulting firm Mercer LLC agreed that many small employers will have to make a difficult decision.
The change also means that workers will no longer have an alternative to COBRA and may not want to retire until they become eligible for Medicare, Mercer’s Tracy Watts told attendees March 13. “These are real important reasons why we care about the individual market,” she said. “Any policies that strengthen the individual market, we’re all for. But it has to address the cost of healthcare; it can’t just be a bailout.”
Like the weakening of the employer mandate, the Cadillac Tax delay also is good news for employers, Schillinger said. It’s a big deal because a substantial percentage of plans were set to become subject to the 40% tax in a few years. The 5-year delay is the second delay for the tax, he said, and it calls into question whether Congress is really serious about it ever taking effect.
And while the bill will almost certainly undergo changes, the provisions affecting employers aren’t particularly controversial and may be left alone, Schillinger said. A handful of Republicans have expressed opposition to or concern with the bill, he said, but most will probably get in line. The employer provisions are probably not what’s holding it up, he said.
So how will the larger employers react if these changes are adopted? “I think it’s going to vary from employer to employer,” Platzer said. Some may reduce benefits, but many larger employers will continue providing the same coverage. In many cases, companies are still offering the same coverage they had in place before the ACA, she said, and did not need to make any major changes to comply with the law.
Schillinger offered a similar prediction. “I think that really depends on the industry the employer’s in,” he said. A lot of companies with higher-income, specialized workforces already had generous eligibility rules; the employer mandate just made them track use and report on it, he said, but didn’t really drive changes to their plan eligibility.
However, companies with low-wage, variable-hour workforces like those in the restaurant or retail industries had to add that benefit for full-time employees, Schillinger added: “I think a lot of them may take another look at whether they want to go back to what they were doing before or [land] somewhere in the middle.” He warned, however, that employers with collective bargaining agreements may face additional obstacles in reducing coverage.
And as for the Cadillac Tax delay, that may have the effect of keeping high-value coverage in place for some employees, Schillinger said. Some employers had started thinking about scaling back coverage to avoid being subject to that tax, he explained. “I suspect some may delay that.”
But even though it seems that the ACA’s burden on employers will be reduced in the coming months, companies shouldn’t make any drastic changes yet. The bill is in its early stages and probably won’t be adopted as is. It looks pretty good for employers right now, Platzer said, “but don’t stop doing anything yet.”
Kate McGovern Tornone is an editor at BLR. She has almost 10 years’ experience covering a variety of employment law topics and currently writes for HR Daily Advisor and HR.BLR.com. Before coming to BLR, she served as editor of Thompson Information Services’ ADA and FLSA publications, co-authored the Guide to the ADA Amendments Act, and published several special reports. She graduated from The Catholic University of America in Washington, D.C., with a B.A. in media studies.