Forecasting ACA Change: Three Crystal Balls Needed

In a sign that the Affordable Care Act will be this year’s first legislative battle, President Obama went to Capitol Hill on January 4 for a special strategy session with Democrats to protect the healthcare reform law, the same day Vice President-elect Pence met with congressional Republicans to map how they would dismantle the law.

President-elect Donald Trump and Republican majorities in the U.S. Senate and House of Representatives have a New Year’s Resolution: “repeal and replace” the Affordable Care Act soon after Inauguration Day on January 20.

With Republicans in control of the White House and both chambers of Congress for the first time in ten years, repeal of President Obama’s healthcare reform law, including the employer mandate to offer affordable coverage, would appear certain.

But nothing is certain in Washington DC in 2017. In fact, there is so much uncertainty about the Affordable Care Act that three crystal balls are needed to forecast ACA change: for policy, process and timing.

Healthcare Policy Crystal Ball

President-elect Trump and congressional leaders have been specific about what parts of the healthcare reform law they would eliminate and what parts they would retain as part of a replacement package.

On the chopping block will be the 40% “Cadillac” excise tax, the individual mandate to enroll in coverage or pay fines, the employer mandate to offer full-time employees affordable and minimum value coverage or pay steep penalties and premium tax credit subsidies that help the uninsured pay premiums for coverage on the ACA exchanges.

From the standpoint of employer compliance, this means that section 4980H, “Employer Shared Responsibility,” could disappear, and with it employer determinations of full-time employee status using “look-back” measurement and “going forward” stability periods, as well as Forms 1094 and 1095 reporting requirements to file coverage information with the IRS and furnish employees with information statements.

Retained as part of an ACA replacement package would likely be language preventing insurers from excluding pre-existing conditions from insurance coverage, eligibility of dependent children to enroll in parents’ health plans up to age 26 and a ban on annual and lifetime coverage limits.

Included in a Republican healthcare reform alternative would be new ideas like allowing exchanges to offer lower-premium, high-deductible health plans as an alternative to the ACA-mandated “essential health benefits”; a new tax credit to purchase individual coverage across state lines for those not covered by Medicare, Medicaid or an employer plan; and a shift of regulatory responsibility from Washington DC to the states.

Legislative Process Crystal Ball

In the 115th Congress how things are done may prove more important than what things are done, especially in the U.S. Senate. Republicans will hold a 52-seat majority but most legislation requires 60 votes. The new president and congressional Republicans can drive policy but they can’t dictate it—they’ll need the support of at least 8 Democrats to get things done.

With one notable exception: budget “reconciliation,” a parliamentary maneuver allowing 51 senators to pass bills affecting government spending or revenue. Democrats used this process to enact the original Affordable Care Act in 2010 when they too lacked 60 votes.

Assuming all 52 Republican senators vote for reconciliation legislation, and assuming the House of Representatives approves identical legislation, there is little Democrats can do to stop it.

The dilemma for Mr. Trump and congressional Republicans is that reconciliation can be used to “repeal” ACA but cannot be used to “replace” it. Put another way, Republicans can repeal ACA with 51 votes but need 60 votes to replace it—and Democrats are not likely to play ball if Republicans use reconciliation to repeal President Obama’s signature achievement.

Why is this a dilemma? Because the ACA has been in place for seven years and 20 million Americans are estimated to have health insurance coverage today because of the law. With all of its problems, like soaring premiums and insurers quitting the exchanges, the ACA has expanded coverage—and Republicans cannot be seen to be taking away health insurance from 20 million people.

How will the legislative process unfold?

How to repeal ACA while protecting health insurance for millions of Americans? A new word has been added to the Republican strategy: delay. Republicans now want to repeal, delay and then replace ACA.

In other words, use reconciliation to “repeal” the Affordable Care Act, but delay the effective date for as long as two years to allow time for compromise on a bipartisan ACA amendments package.

Substantively, this scenario will involve three distinct features:

• Feature #1. Some parts of the existing ACA would be retained permanently—including the ban on pre-existing condition exclusions and the age-26 eligibility to enroll in parents’ health plans.
• Feature #2. Some parts of the existing ACA would be retained temporarily—until the replacement package has been adopted. These would include the exchanges, subsidies to help the uninsured pay insurance premiums and possibly re-insurance payments to keep insurers in the exchanges.
• Feature #3. Some parts of the ACA would disappear—possibly the Cadillac Tax, the individual mandate to enroll in coverage and the employer mandate to offer coverage to full-time employees.

Recent surveys have identified the employer shared responsibility mandate as a leading compliance concern of C-level executives. There seems little doubt that a reconciliation bill will include repeal of the employer mandate as well as requirements to make determinations of full-time status and to file and furnish annual health coverage information reports. Employer reporting may continue in more streamlined form to help IRS enforce employee eligibility for subsidies, but it’s not likely to involve the costly and complex compliance burden of existing Forms 1094 and 1095. The question is whether repeal of the employer mandate would be effective in 2017—and the legislation could accomplish that simply by reducing penalties to zero.

Recent surveys have identified the employer shared responsibility mandate as a leading compliance concern of C-level executives. There seems little doubt that a reconciliation bill will include repeal of the employer mandate as well as requirements to make determinations of full-time status and to file and furnish annual health coverage information reports. Employer reporting may continue in more streamlined form to help IRS enforce employee eligibility for subsidies, but it’s not likely to involve the costly and complex compliance burden of existing Forms 1094 and 1095. The question is whether repeal of the employer mandate would be effective in 2017—and the legislation could accomplish that simply by reducing penalties to zero.

Timing Crystal Ball

As a first step, the House and Senate in January will adopt a FY 2017 budget resolution that includes “reconciliation instructions” to legislative committees to produce ACA repeal and replace legislation.

Next, the relevant committees of the House and Senate will approve implementing legislation, probably during February, when details will emerge as to which ACA provisions are to be extended permanently, which temporarily and which eliminated. This will be a key step for employers because it will spell out the details of 2017 ACA compliance requirements.

Finally, the Senate and House are expected to approve a final reconciliation legislative package, probably in March or April, that will be signed into law by then-President Trump, effectively restructuring the Affordable Care Act and setting the stage for a future replacement plan.

Seven years on, the Affordable Care Act remains as controversial as it was when President Obama signed it into law. It has had success—20 million previously uninsured Americans now have health insurance coverage and fewer than 10 percent of Americans lack health insurance, a remarkable achievement. But that success has not come without cost—many ACA exchanges have become financially unstable as insurers exit and premiums soar—even as taxpayer-financed premium subsidies increase.

In the legislative battle over the Affordable Care Act Republicans and many Democrats agree that the ACA is in need of repair. But even more important is the need for national consensus on healthcare reform.

Republicans and Democrats, including Mr. Trump, understand that “repeal, delay and replace” is a political strategy not a national goal. The goal has to be healthcare reform that enjoys broad national support, and Americans will be looking for progress toward that in 2017.