In the Broadway musical Hamilton, King George famously sings to his former colonies a song titled, “What Comes Next?” This is a question many are posing in the aftermath of what some are calling the biggest upset in political history. As a leader in benefits administration, our clients (employees, employers, and their benefits consultants) have long relied on us to help them with their benefit delivery challenges. This was true prior to the passage of the Affordable Care Act, during the past six years, and will be true for the foreseeable future.
The seemingly unstoppable forces of healthcare inflation, regulatory compliance, and competitive labor markets will continue to put a premium on creative strategies combined with skilled execution to ensure employer benefit programs balance cost, compliance, and employee attractiveness. It is in this context that we step back and ask, “What comes next?” now that Donald Trump has won the presidential election. It may help to remember the context of the political environment that created Obamacare in the first place.
At the time, there was a tremendous backlash against the policies of the previous administration, the state of the economy, and the promise of a new type of leader who could represent the previously underrepresented Americans. (If you’re thinking this sounds similar to the 2016 election, you’re not too far off.) It was in this context that a revolutionary piece of legislation was passed by a single vote by the party in charge of the House, Senate and Executive branch.
Possible Changes to Healthcare Reform
Many analysts are commenting on the more likely scenarios of the “repeal and replace” theory in which President-elect Trump and the Republican majorities tweak the individual market to enable carriers to sell across state lines, continue to expand Medicaid in the form of block grants, and reduce the regulatory burden on employer-provided insurance. However, it is also possible that revolutionary changes are on the horizon. One possible source of such a revolutionary change may be found in the convergence of tax policy, the health insurance markets, and the desire to reduce the burden on businesses.
How do you cut tax rates for all without increasing the deficit? One of the tactics suggested by Republicans in the past is to close loopholes (provision in the law that reduces tax liability) in exchange for lower marginal rates. One of the biggest loopholes is the exclusion of health insurance from taxes. While this will clearly be a win for some and a loss for others, such a move would substitute a progressive tax structure (i.e., marginal rates) for a regressive tax structure that includes health insurance exclusion. If marginal rates go down for everybody, the impact of the change on individuals will be obscured. An additional advantage of this tactic is that it eliminates the fight around the Cadillac Tax, allowing for its repeal without any impact to the federal budget.
Individual Health Insurance Market
The current state of the individual market is chaos. Faced with disadvantageous risk pools, dismantling of both the risk adjustment transfer payments and the out-of-pocket assistance promised by Obamacare, insurance companies are exiting this market. Stabilizing (or providing a substitute for) this market is crucial to keeping the Republican promise that it will not leave the 20 million Americans who have benefited from the ACA without insurance.
One way to stabilize this market would be to support policies that make it the most desirable market for the 150 million Americans that currently get their insurance through their employers. Insurance companies would welcome the influx of new fully insured clients and be even more enthusiastic if some of the limitations on the policies they sold in this market were relaxed.
Burden to Businesses
Obamacare has certainly increased the regulatory and compliance burden of employer-provided health insurance, but the ultimate burden for businesses is that they are the designated market for health insurance at all. Relieving employers of this responsibility would likely be a positive outcome for most employers, especially smaller employers.
What These Healthcare Changes Would Mean
While a revolutionary change employing the three tactics above is certainly possible, it is just as likely that a gradual implementation of these critical reforms will be the preferred alternative. It is also important to remember that nothing will change overnight. Revolutionary change, while possible, is difficult. Perhaps tax reform starts with a gradual reduction in the deductibility of employer-provided group coverage at certain income levels. Perhaps individual market reforms begin by allowing more plan designs to be sold, some without the mandates and out-of-pocket limitations that transfer unacceptable risk to insurers. Perhaps the erosion of employer-provided health insurance starts by allowing small employers to implement premium reimbursement plans for employees going to the individual market.
So, where does this leave the employer-driven benefits market we know today? As health insurance moves from an employer-chosen plan that is enrolled in, to an individually-selected plan that is purchased, leading employers will be forced to reevaluate their role in helping their employees with their overall financial wellness – of which health insurance will still be a foundation.
Additionally, the early experiments with private exchanges have shown us that when employees have more choices, they tend to choose lower value plans with lower premiums. This trend will increase the value of supplemental and ancillary insurance plans which still work much better in a group environment. As the economy grows and labor markets tighten, employer fringe benefit programs will increase in importance regardless of the role of health insurance in employer benefit programs.
“What Comes Next?”
Whether “repeal and replace” amounts to a revolution or a gradual series of rollbacks without a clear direction, the continued pressure of healthcare inflation, regulatory compliance, and tightening labor pools will force both employers and benefit consultants to apply innovative and creative strategies for employee benefits. In any event, the landscape will not change overnight. The passage of Obamacare took two years. In the meantime, the strategic delivery of these benefit programs will remain critical to their overall effectiveness.