How Tom Price Could Transform Employer Health Coverage

In late November, President-elect Donald Trump announced that he had selected House Budget Committee chairman Tom Price, a former orthopedic surgeon, to be secretary of Health and Human Services (HHS). If confirmed by the US Senate, Price - a staunch critic of the Affordable Care Act (ACA) - will oversee the new Administration's efforts to repeal and replace President Barack Obama's signature healthcare reform law.

"With real, patient-centered reforms we can build a more innovative and responsive healthcare system - one that empowers patients and ensures they and their doctor have the freedom to make healthcare decisions without bureaucratic interference or influence," Price said on his congressional website.

While the details of any process for replacing the ACA are yet to be determined, Price's past legislative activity may indicate what the incoming Administration and GOP congressional leaders have in mind. Beginning in 2009, Price has sponsored the Empowering Patients First Act, a bill he has reintroduced, with modifications, in every subsequent Congress. That legislation seeks to promote healthcare coverage but does not include a mandate requiring employers to provide insurance to employees. Among its many provisions, the act would:

* Provide refundable, age-adjusted tax credits for people to buy insurance if they don't have access to coverage through an employer or government program.

* Promote the use of health savings accounts (HSAs) by providing a one-time $1,000 tax credit for HSA contributions and increasing the allowable HSA contribution so that it's equal to the maximum IRA contribution level.

* Make health insurance available to those with pre-existing medical conditions by helping states set up new high-risk pools or other programs for such enrollees.

* Set new rules to allow insurers to sell policies across state lines.

On many key points, Price's ACA alternative mirrors the provisions in House Speaker Paul Ryan's blueprint for health reform released In June, including an emphasis on expanding the use of HSAs, allowing employers to provide a defined contribution healthcare benefit, and - controversially - capping the deduction for premiums in employer-sponsored group health plans.

Tax-Exdusion Cap

The Empowering Patients First Act would derive part of its funding - to offset individual tax credits - from limiting the employer tax exclusion or deduction of healthcare premiums at $8,000 for individual coverage and $20,000 for family coverage.

Unlike the ACA, however, there is no 40% excise tax on employers' high-value health plans in Price's bill. The ACA's so-called Cadillac tax, now scheduled to take effect in 2020, would apply to plan premiums over $10,200 for individuals and $27,500 for families.

"I think employers would be much happier with a cap on the deduction than they would be with a 40% excise tax on premiums," said Brian Pinheiro, chair of the employee benefits group at lawfirm Ballard Spahr in Philadelphia. "The lost deduction is a lot less punitive when you look at it on an after-tax basis. If your effective corporate tax rate is under 40%, which for most companies it would be, the deduction is going to be a cheaper alternative."

When the House GOP blueprint was released last summer, proposing to tax employer-plan premiums above a to-be-determined dollar amount, the Society for Human Resource Management (SHRM) issued a statement opposing the proposed changes in the employer deduction. "Such a change would drive workers from employer plans and negatively affect the benefit offerings that employers so carefully createfortheir employees," said Mike Aitken, SHRM's vice president of government affairs. "Any healthcare reform legislation must support employer flexibility and innovative strategies and preserve the favorable tax treatment of employer-sponsored coverage."

Defined Contribution Healthcare Price's Empowering Patients First Act would also allow employers to grant employees, on a

nondiscriminatory basis, pretax dollars to select either an employer-sponsored plan or to purchase a policy on the individual (nongroup-plan) market - giving a big push to the so-called defined contribution healthcare concept.

Currently, employers can only use this approach when employees are selecting among employer-provided group plan options, as on a private healthcare exchange. Employers are barred, from instance, from providing employees with pretax funds in a health reimbursement arrangement to purchase health policies on a public exchange, through a broker, or directly from an insurance provider.

This would be a real reversal,' said Pinheiro. 'Many employers were upset when the Obama Administration shut down the ability for employers to just provide money on a pretax basis for employees to purchase their own health insurance on the open market-a trend that many saw as the wave of the future.'

For organizations that presently self-fund their health coverage, he added, "It's about predictability. If you say, as an employer, we're going to provide employees with $8,000 a year to purchase a plan, you then know what your healthcare spending is going to be at the beginning of the year" regardless of the medical costs that workers may incur. "That makes the defined contribution approach much safer for a lot of employers."

Organizations offering fully insured coverage would have more leeway to provide a flat-dollar subsidy to employees rather than paying a percentage of plan premiums, giving employers greater control over their spending and future budgeting.

If the Trump Administration opens up defined contribution healthcare under an enacted ACA replacement, 'I'd expect many employers will eventually go that route,' Pinheiro said.

Pooled Multistate Pians

In another provision addressing employer-sponsored health insurance, under the Empowering Patients First Act 'small businesses would be allowed to band together across state lines, increasing their bargaining power for group plans, and giving them freedom from state-mandated benefits plans,' said Arthur Tacchino, chief innovation officer at SyncStream Solutions, a health benefits software firm based in New Orleans.

Multistate small business plans that pool together 'will certainly need to be regulated, and it is likely that the details will be laid out in detailed regulations to come from the Trump Administration,' Tacchino added. "It's likely they will have to register with some governing body, and there will be criteria regarding how and with whom they can band together. It's also likely that healthcare agents and brokers will play a role in helping them to navigate it."

A Possible Framewoti

The Price-sponsored legislation 'would certainly lead to repeal of the ACA and many of its provisions,' Tacchino noted. 'However, this is not the final form of ACA repeal and replace endorsed by the Trump Administration-it's just the clearest picture we have of what the Administration might endorse.'

He added, 'Healthcare reform in 2017 may not look like what is proposed in the Empowering Patients First Act, but it will probably take several important cues from Tom Price's plan.'