Employers watch as Obamacare reform stalls

As President Donald Trump confronts obstacles in his pledge to dismantle the Affordable Care Act (ACA), questions and concerns continue over what a new health-care coverage system will look like — if a new system emerges at all.

Since Congress approved the ACA in 2014, about 20 million Americans who previously didn’t have insurance now do. But the burden of complying with the ACA, also known as Obamacare, has been onerous, and one of Trump’s first orders of business on the day he was sworn in was to direct federal agencies with responsibilities related to the ACA to take all actions to the “extent permitted by law” to mitigate economic and regulatory burdens of the law.

Trump’s initial effort to overhaul Obamacare failed in March when House Speaker Paul Ryan concluded the replacement bill wouldn’t garner enough support and canceled the final vote.

Though Trump said he planned to preserve some pieces, such as prohibiting insurance companies from denying coverage based on pre-existing conditions, there are ideas being floated that would result in higher deductibles, flimsier coverage and increases in the number of people without health insurance.

The uncertainty that’s swirling is worrisome to insurance industry experts and the companies they are trying to guide through the complicated process of providing health benefits to their employees.

“The primary concern is instability,” says Leo Tokar, senior vice president and client service executive in Lockton Companies’ Mountain West Series. “No one claims that ACA is perfect or ideal by any means, but businesses have spent a lot of time adapting to the law of the land. That’s required a lot of work with regulatory agencies.”

Concerns range from escalating costs to preserving the vehicle that allows companies to administer their plans on a consistent basis throughout the U.S. But perhaps the issue most troubling to employers is whether the income tax exclusion for employer-sponsored coverage will be preserved.

“Traditionally, employer-provided group health plan benefits have always been tax free,” says Mark Restum, senior compliance consultant for Arthur G. Gallagher & Co.’s Western Region. “If you tax the value of those benefits, it’s going to hurt employees or the employer will reduce the value of the benefit.”

The average cost for an individual to buy health insurance is between $7,000 and $9,000 a year; for a family it’s $15,000 to $20,000.

“If all of a sudden in your paycheck you have that portion become taxable, that’s substantial,” Tokar says.

Tax-exempt health-care benefits are one of the biggest tools businesses use to attract and retain top-notch employees, so maintaining quality health-care benefits is critical to keeping the economy humming.

“Tax exclusion is the Holy Grail of employer-provided benefits,” says John Kirke, president of benefits and total rewards at IMA. “If employers are not allowed to exempt all the funds they procure for employee benefits and have to endure a tax on that, we worry about the long-term stability of health care as an employee benefit.”

Closely tied to preserving the tax-exempt status for employer-provided health plan benefits is the Cadillac Tax, a 40 percent excise tax on high-cost employer health benefit plans now scheduled to be implemented in 2020. The Cadillac Tax would effectively cap the amount of exclusion for employer-provided coverage.

“Repealing the tax is crucial in order to ensure businesses can continue to provide employer-sponsored health coverage without facing new taxes or being forced to reduce benefits,” Restum says. “Almost all employers would eventually have to cut the health benefits they provide to avoid the 40 percent Cadillac Tax.” 

While it remains unclear where health care is headed under Trump, one thing everyone wants is for the burden of reporting and compliance to be eased.