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Health Care Reform: What is going on with ‘repeal and replace?’

March 10, 2017

By Scott Lyon, Senior Vice President

On Monday evening, House Republicans introduced legislation that seeks to repeal and replace the Affordable Care Act (ACA).  The single most important thing to remember, at least at this moment in time, is that until the Affordable Care Act is not the law of the land, it is the law of the land.  All of the requirements, regulations and penalties still apply until the U.S. House of Representatives and the U.S. Senate agree on final language, affirmatively vote on repeal and send new legislation to the President which he then signs. That won’t be easy and it will take some time.

As SBAM reviews the legislation, we do that through the lens of the small business community.  Over the next weeks and months, there will be much written on the provisions – good, bad and indifferent.  Our goal is to help you understand what provisions will impact your business, as well as how and when things may play out.

The package of bills was released by the Energy and Commerce Committee and the Ways and Means Committee.  Between now and 2020, the intent is to phase out the Affordable Care Act and phase in the replacement.  Combined, the bills are designed to end the employer and the individual mandates by reducing the penalties for non-compliance to zero. Additionally, they will repeal the litany of taxes installed to pay for the Affordable Care Act including the tax on health insurance premiums, medical device tax, tanning tax, Medicare Part D tax, etc.  The current method of premium and out-of-pocket subsidies would be replaced with a new form of subsidy for people purchasing coverage in the individual market based upon age with an income cap.  The Small Business Tax Credit would end as well.  Given that very few small businesses took advantage of this, it most likely won’t be missed by many.  The “metal tiers” that resulted in Platinum, Gold, Silver and Bronze level plan designs and essential minimum coverage would also go away.  

The popular ACA provision that allows children to remain on their parent’s health insurance plan until age 26 is carried over in the new bills as are the restrictions on annual or lifetime benefit amounts. Health Savings Accounts (HSAs) would be expanded through a significant increase in the allowable contribution limits to $6,550 for an individual and $13,100 for a family and includes a catch up provision of up to $1,000 for people aged 55 or older.  It also allows over-the-counter medications to be considered qualifying expenses for HSAs and Section 125 flexible benefit plans.  

Insurance carriers would be allowed to expand their age ratio (the distance from the lowest premium to the highest) from a factor of 3:1 to 5:1. The requirement that insurance carriers spend 80% of premiums for claims in the individual and small group market is maintained.  There is also a provision that gets at one of the serious problems of the current law – individuals carrying insurance only long enough to get a medical condition taken care of and paid for by insurance and then dropping out of the insurance market.  The proposal is that consumers who maintain continuous coverage, without a break in coverage of 63 days or more, couldn’t be denied insurance because of pre-existing conditions.  However, if there is a break in coverage of 63 or more days, the insurance premiums can be increased by 30% for up to one-year.  There will be serious debate over this provision – is it strong enough to force people to purchase insurance vs. is it too harsh?

Employers will still have to report the value of the health care benefit on the W-2 and significant dollars would be allocated to help cover the costs of individuals with serious medical conditions.  The bill allows for flexibility at the state level as to how to get at this either through high risk pools, reinsurance or similar measures.

As you might expect, there is a lot more to this including significant changes to the expansion of Medicaid which would turn to a block granted program in 2020 based upon a per capita formula.  Meaning the decisions about who is covered, what is covered, etc. in Medicaid would be a state by state decision for the states, including Michigan, that expanded Medicaid under the ACA.  Topics of debate may be how the Medicaid Expansion population will be accounted for in the block grant era.

There is a long way to go before this proposal becomes law, if it ever becomes law as currently written.  First, the full Energy and Commerce and Ways and Means Committees will review the bills, offer amendments, etc. and from there the bill must go to the Budget Committee and the Rules Committee before heading to the full House of Representatives.  Next, the bills would be passed through a budget reconciliation process, the same way the ACA was passed. Then on to the Senate for their work and eventually to the President for his signature or veto.  

Now, my opinion on what to expect…  When dealing with upwards of a third of our economy, there is a lot at stake.  Personally, I worry that the GOP is headed toward making the same mistake that the Democrats made with the Affordable Care Act; to date, there does not seem to be much that gets at the cost of health care which drives health insurance premiums higher.  Additionally, I think the GOP is in a bit of a jam.  They can’t do the sexy economically-positive stuff until they resolve the shortcomings of the Affordable Care Act.  And it’s going to be easy to make mistakes along the way (big or small) in the new legislation.  When that happens, expect that the news media will search for anyone who has been “harmed” by the proposed changes and put them front and center on the nightly news, social media, etc.  The media and Democrats will ignore the fact that the Affordable Care Act demise was eminent once Republicans regained control, and will only compare the differences, with emphasis on anything that looks “less good.”

Right or wrong, depending on your political stance, when the Affordable Care Act was signed into law in 2010, the Genie got out of the bottle.  Health care via health insurance is now seen by many as an entitlement, with expensive subsidies being provided by our friends in Washington.  The subsidies mask the true cost of health insurance, which makes the Affordable Care Act attractive to the less financially well off and those that believe in the entitlement.  Any changes to this will be met with fierce opposition.

Where are we headed, no one really knows?  My guess, costs will continue to go up (because health care is a need) and the GOP will get flack for not having reduced costs.  The only smoke screen to that (politically) is to offset cost increases with larger subsidies, making it look more and more like next big U.S. entitlement.  The big question.  How does the U.S. afford that with exploding costs on other entitlements (Social Security and Medicare) as America ages?  I don’t have a good answer for that.  And all of that is what has had me concerned about the world that our children will inherit.  Scary stuff, if you extrapolate current expenditures, the potential for higher interest rates on debt and an aging society.  And if President Trump’s big attempt to grow GDP doesn’t work effectively, look out…

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