In spite of the many headlines and healthcare bills that have centered on repealing or replacing the Affordable Care Act (ACA), the healthcare landscape in the United States today looks remarkably similar to the way it did when the ACA was passed seven years ago: The majority of Americans still receive insurance through their employers.
To date, the ACA has supported the growth of consumer-directed healthcare and account-based healthcare, such as health savings accounts (HSAs), flexible spending accounts (FSAs) and health reimbursement arrangements (HRAs). It has also given rise to a robust debate about the longstanding tax exclusion on employer-sponsored healthcare.
After multiple failed attempts at repealing the ACA, the focus for the Trump administration and Republican leaders in Congress is now likely to shift to tax reform. The ACA is ultimately a tax law – and though the current tax structure for employer-sponsored health insurance works, it won’t for long. Starting in 2020, the so-called “Cadillac tax,” which is arguably the number one issue for employers in healthcare today, will be levied on insurance companies who provide employer-sponsored health benefits whose value exceeds legally specified thresholds. The concern is that by limiting the tax preference for employer-sponsored health insurance, this controversial 40-percent excise tax will burden employees. The Cadillac tax was originally to take effect in 2018, but the effective date was delayed by the Consolidated Appropriations Act to 2020. The tax is projected to be imposed on plans that cost more than $10,800 for single health plans and $29,100 for non-single (e.g., family) plans.
Already the looming Cadillac tax is leading employers to adjust the plans they offer employees. According to the American Health Policy Institute survey in 2015, 19 percent of employers were already curtailing or eliminating FSAs in order to avoid triggering the excise tax; and 13 percent were curtailing or eliminating employee contributions to HSAs. A separate survey, published in August 2017 by the National Business Group on Health, found that uncertainty surrounding the surcharge is influencing efforts to control healthcare costs for nearly 10 percent of large employers surveyed. The NBGH survey also found that 90 percent of large employers are likely to offer consumer-driven healthcare plans by 2018, with 39 percent of employers offering only higher deductible plans by that time.
In 2015, 164 million people below age 65 got insurance coverage from employers, and most of them said they were satisfied with what they received. To protect these consumers – and all Americans – from rising healthcare costs, it is essential that both employer-sponsored and consumer-driven healthcare plans remain accessible and affordable. Not only does employer-sponsored healthcare help to self-regulate the marketplace – employers want to keep costs down and competitive benefits serve to attract and retain top talent – but it also fosters an environment where high-quality healthcare can be provided to Americans in a cost-effective manner. In a tax reform package that protects the tax exclusion on employer-sponsored healthcare, there are likely to be opportunities to insert provisions that are also friendly to HSAs and consumer-driven healthcare plans.
