How the Senate Health Bill Would Hit the Employer Insurance Market

Some changes to the individual market could have ripple effects for the majority of Americans who get insurance through work.

AP Photo/LM Otero
July 9, 2017, 8 p.m.

As Republicans in the House and now the Senate have grappled with repealing Obamacare, most attention has focused on how their bills would affect people on Medicaid and individual insurance exchanges.

But the Senate GOP measure—which leadership hopes to bring to a vote this month—would also have some substantial impacts on the employer market, particularly if states decide to weaken protections against large costs for consumers. The effects could be widely felt; nearly 10 times as many people receive coverage through an employer than through the individual market, according to the American Benefits Council, the employer-sponsored benefits lobby.

The Senate proposal could change coverage offered by large employers (including restrictions on out-of-pocket costs), loosen regulations for small-business health plans, weaken the employer mandate, and remove the ability of workers who don’t have access to affordable employee-based plans to use premium tax credits.

Changes to Out-of-Pocket, Annual and Lifetime Limits

The bill would make substantial changes to the individual market, including building off of an already-existing waiver that would allow states to alter essential health benefits.

This, experts say, could have a ripple effect on what large-employer coverage looks like. Changes to the essential health benefits can affect annual and lifetime limits along with limits on out-of-pocket costs for large employers. This is because large-employer plans can choose the definition of essential health benefits from any state for the purposes of determining these limitations.

“[I]f large employer plans continue to be allowed to select any state’s definition of essential health benefits for the purposes of the out-of-pocket maximum requirement and the ban on annual and lifetime limits, then the effects could reach large-employer plans anywhere in the country,” wrote Matthew Fiedler, a fellow in economic studies for the Brookings Institution’s Center for Health Policy.

The American Benefits Council previously warned the Senate Finance Committee against ceding this much power to the states. “For large, multi-state employers whose employees live and work across the country, the potential for states to impose varying requirements on national employers would undermine” the existing uniform framework, the group said in a May letter to Chairman Orrin Hatch.

In a recent statement, council President Jim Klein reiterated this concern, saying the group is committed to the “preservation of the federal framework that makes nationwide benefits sponsorship possible for large multi-state employers.”

Small Business Health Plans

For small businesses, the language would make it easier for them to purchase coverage that circumvents state regulations. “[The draft] contains a long section to exempt association health plans from state insurance regulation, a provision that has received virtually no debate to date and undermines state regulation as the Republicans boast they are turning it back to the states,” health care expert Timothy Jost told National Journal.

The American Academy of Actuaries recently wrote to Senate leadership saying that the small-business health plans—which it says in effect are federally certified association health plans—would create market instability because they can operate under different rules.

“The consequence of different rules for AHPs versus state-regulated insured plans is a fragmentation of the market resulting from an unlevel playing field,” the group wrote. “This is likely to lead to cherry-picking, adverse selection, and increased costs for sicker individuals.”

But the move was defended by the National Restaurant Association. “This important next step in health care reform allows small, independent restaurants to pool together across state lines through their membership in a trade or professional association like the National Restaurant Association, to purchase health coverage for their employees and their families,” said the group’s director of health care policy, Robin Goracke.

Restrictions on Tax Credits

Republicans also placed stricter limits on who can access the premium tax credits in the individual market. Under the Affordable Care Act, if an employer offers coverage that is unaffordable for a person, that employee is eligible for the tax credits on the marketplace.

The Senate proposal would prohibit individuals with access to any employer-sponsored coverage from becoming eligible for the credit. Jost and Sara Rosenbaum noted in a Health Affairs Blog post that this would broaden the Affordable Care Act’s “family glitch,” where affordability under the current system is determined by the individual employee coverage and does not consider the higher cost of a family plan.

Repealing the Employer Mandate

A very visible change that has been consistent among most Obamacare-repeal proposals is the zeroing out of the employer mandate. The Congressional Budget Office estimates that zeroing out the mandate penalty would cost the government $171 billion in revenue. Large employers are required to pay this penalty if they do not provide at least 95 percent of their full time workers with health care coverage that is affordable and provides minimum value.

“Without the employer mandate, employers have quite a bit more flexibility, particularly in defining the threshold for full time work,” said Larry Levitt, senior vice president for special initiatives at the Kaiser Family Foundation.

Jost did note, however, that the bill is technically repealing the penalty but not the requirements associated with the mandate.

CBO says that eliminating the penalty would cause some employers to not offer health insurance. Additionally, the office says there is a larger demand for insurance among employees so that they can avoid paying the individual mandate penalty. Eliminating that penalty as well would cause some employers to not offer coverage because the demand would be reduced.

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