Asking “What If?” About a Repeal of the Employer Mandate
Among the many notable provisions of the Tax Cuts and Jobs Act passed late last year was the repeal of the Affordable Care Act’s (ACA’s) individual mandate. In fact, one could even say this news got lost in the shuffle of the slashed corporate tax rates and the changes to individual deductions.
But the fact remains that taxpayers will no longer be subject to a penalty if they aren’t covered by a qualifying health plan, effective for months beginning after December 31, 2018. So could the employer mandate be next to go?
Indeed, legislation has been proposed to eliminate penalties for applicable large employers that don’t comply with the ACA’s “play or pay” rules. One industry group pushing for repeal is the American Benefits Council (ABC). The President of the ABC, James Klein, believes the individual and employer mandates are “inextricably linked,” and to repeal one without the other is “inequitable.”
Those in favor of doing away with both point to two adverse scenarios that employers may eventually face because of the individual mandate’s repeal:
- Rising absenteeism and declining productivity. Employees covered by employer health plans may opt to drop coverage to avoid paying their share of premiums. As a result, they may then avoid seeking medical care when they need it because of the high cost of services without the buffer of health benefits. Ultimately, employees may suffer more serious illnesses, missing many days of work and severely limiting their productivity.
- Skyrocketing health care costs. Individuals not covered by employer plans will no longer have to buy coverage in the individual marketplace or face a penalty. Like workers who drop employer coverage, these people generally won’t seek medical care when they need it and, instead, will present themselves to emergency rooms when their conditions become acute. Many of these patients won’t pay their bills, ultimately passing on the cost of hospitals’ uncompensated care to others.
In the political sphere, the Utah Republican chairman of the Senate Finance Committee, Orrin Hatch, has characterized the employer mandate as among “the most egregious aspects of [the ACA].” His U.S. House of Representatives counterpart, Ways and Means Committee Chairman Kevin Brady of Texas, believes eliminating the employer mandate (along with other changes) “would help treat some of [the ACA’s] symptoms, [such as] rising premiums, fewer choices, uncertainty and instability.”
Opposition to the employer mandate, however, may not be sufficient to make its repeal a reality — at least not very soon. This is because of not only political opposition by ACA supporters, but also the fact that a repeal would increase federal expenditures to fund tax subsidies to individuals who would buy care via Health Insurance Marketplaces (commonly known as “exchanges”) when their employers stopped offering health benefits.
Questions to ponder
Even with a repeal unlikely now, the mere possibility warrants serious consideration by employers of how to respond should it become a reality. Here are some questions to ponder:
- If we were to drop coverage completely, how would doing so affect our ability to attract and retain employees, both in general and regarding those within particular demographics?
- How likely is it that our competitors would drop coverage?
- If we stopped offering coverage altogether, would employees still be able to affordably secure coverage through a Health Insurance Marketplace (assuming they still exist)?
- If we were to drop coverage, would we want to share a portion of the resulting savings with employees to blunt their increased financial burdens of buying insurance on their own?
- If we take that approach, should we use a vehicle such as a Health Savings Account to maximize the tax efficiency of such contributions, or simply increase base compensation?
- Should we continue to offer health care benefits, but shift to a plan design that’s less robust than that required by the ACA?
- If we were to go that route, how specifically would we modify our coverage?
- If we drop or reduce health care coverage, could or should we create a different kind of low-cost alternative benefit, such as subsidized employee access to specified urgent care centers?
- Should we consider offering, instead, a limited benefit fixed indemnity insurance plan? (These plans pay out a specified amount of money directly to employees to pay for particular medical services.)
In addition to asking themselves these questions, employers would need to think about how they would communicate any changes to employees. A reduction or elimination of health care benefits would, more than likely, put a dark cloud over your organization, so you would need to clearly convey any silver linings.
For example, employees need to know that the cost of providing health care benefits has become an overwhelming burden that severely inhibits your ability to invest in new products or services, implement quality improvements, and maintain a competitive pricing strategy. Workers must understand that their job security may be threatened under these conditions.
Timing of changes
Yet another area to consider is the timing of changes. If health care benefits were to be substantially reduced or eliminated, many employees might need several weeks or longer to adjust accordingly.
Finally, if the employer mandate is eliminated, employees will probably learn about it in advance and want to know how you intend to respond. Suppose you decide that, if given the opportunity to drop health care coverage, you wouldn’t change anything immediately. In this situation, it would be important to strike a balance between reassuring employees that they won’t be losing their benefits and letting them know you reserve the right to change your mind down the road.
Gauging the probability of a repeal of the employer mandate, or any other major legislative change, is exceedingly difficult. Still, there’s no harm in mulling the possibility and brainstorming some ways you might react.