When the Affordable Care Act was signed into law nearly eight years ago, there was a lot of criticism about a number of different provisions. Some said that the guaranteed issue rule, while noble in its goal to allow anyone who wants health insurance to buy health insurance, would lead to adverse selection and higher insurance rates. Others said that the premium tax credits and expanded Medicaid would blow up the budget. And still others said that the modified adjusted community rating provision would hurt a carrier’s ability to rate based on risk. Even with all that criticism, it could be argued that the two most controversial and unpopular provisions of the massive health care law were the individual and employer mandates. And now, eight years later, those two provisions are both in the news again.
Individual Mandate Update
The individual shared responsibility provision of the ACA, as a reminder, says that most Americans must 1) have minimum essential coverage, 2) qualify for an exemption, or 3) pay a penalty.
Minimum essential coverage can be a grandfathered or non-grandfathered plan in the individual market, a grandfathered or non-grandfathered employer-sponsored plan (including skinny MEC plans), or a government program like Medicare, Medicaid, or CHIP.
There are several possible exemptions from the individual mandate penalty, including exemptions for members of certain religious groups, members of a health care sharing ministry, and people who would have to spend more than about 8% of their income on the lowest-priced plan available to them.
Those who do not have a minimum essential coverage or qualify for an exemption must pay a tax penalty of $695 per adult and $347.50 per child (with a cap of $2,085 per family) or 2.5% of the applicable household income, whichever is greater.
The individual mandate works hand in hand with the guaranteed issue provision and the premium tax credits—we can’t require insurance companies to accept all applicants regardless of health status unless we also require healthy people to purchase coverage, and we can’t require people to purchase coverage if they can’t afford it unless we provide them with some form of financial assistance. Think of these provisions as the legs of a three-legged stool; if one of the legs is removed, it falls over. That’s exactly the argument the Supreme Court made in its King v. Burwell ruling in 2015: “These three reforms are closely intertwined. As noted, Congress found that the guaranteed issue and community rating requirements would not work without the coverage requirement. And the coverage requirement would not work without the tax credits.”
It’s possible, though, if Republican lawmakers get their way, that we could soon see the key individual coverage requirement removed. As you probably know, the House and Senate have each passed massive tax overhaul bills and are now trying to reconcile the legislation in committee. The Senate’s version of the tax bill includes a repeal of the individual shared responsibility requirement, and this could have a huge impact on the individual market.
As Reuters reports, eliminating the individual mandate “while keeping the rest of Obama’s Affordable Care Act intact is expected to cause insurance premiums to rise and lead to millions of people losing coverage, policy experts say.” Specifically, Reuters cites a Congressional Budget Office report that premiums would increase by 10% per year and 13 million people would lose their health coverage in the next ten years without the mandate.
There is no guarantee that the final bill will include the mandate repeal or that the bill will become law, though. Once the committee agrees on a unified version, the House and Senate must vote again, and not every Senator who voted for the original bill has pledged support for the final bill. Susan Collins (R-ME), for instance, voted for the tax bill only after receiving assurances that additional legislation would be passed to prop up the individual market. If that does not happen, she says she may not vote for the final bill.
Among the American public, the tax bill is very unpopular due to analyses that it benefits the wealthy and, over time, will increase taxes on lower-income individuals. Republicans are looking for a win and definitely want to pass the bill, but a lack of public support could make the final vote difficult for a number of lawmakers. Stay tuned…
Employer Mandate Update
The employer mandate is in the news as well. As you’ll recall, the ACA’s employer shared responsibility provision was originally scheduled to go into effect in 2014 but was postponed for one year to 2015.
This requirement says that “applicable large employers” (ALEs) must offer affordable, minimum value coverage to their full-time employees or face a tax penalty.
- An applicable large employer is one with 50 or more full-time equivalents.
- A full-time employee is one who averages 30 hours per week or more. Each full-time employee counts as one full-time equivalent, and part-timers count as a fraction of a full-time employee. So two employees who average 15 hours per week would add up to one full-time equivalent.
- Any employer-sponsored plan is considered minimum essential coverage, but a plan must cover hospitalization and have an actuarial value of 60% or more to provide minimum value.
- Affordable means that the amount employees must pay for minimum value coverage is less than 9.69% of their household income in 2017 (9.5% in 2015).
If an applicable large employer does not provide minimum essential coverage to at least 95% of its full-time employees, it pays an across-the-board penalty $2,260 in 2017 ($2,000 in 2015) on all but its first 30 full-timers. If an employer offers minimum essential coverage but it is either unaffordable or does not provide minimum value, employees can waive the coverage and purchase an individual plan. In that case, the employer pays a penalty of $3,390 per full-time employee receiving a subsidy.
There’s been much speculation that the employer mandate would not actually be enforced or may be repealed altogether. However, as Fox Business reports, IRS commissioner John Koskinen, who recently stepped down from his position, decided on his way out the door to begin enforcing the employer mandate back to 2015, which means that employers could owe two to three years of penalties. Employers who may be subject to the penalty should watch their mailboxes as they may soon receive a letter from the IRS.
How Will These Developments Affect Insurance Agents?
Clearly, both the individual mandate and the employer mandate have had a big impact on the way insurance agents do business for the past few years, so any changes to the way these provisions are enforced will also have an impact.
If the individual mandate is eliminated, some of your individual clients may decide they no longer need coverage. Some of the employees of your group clients may make a similar decision. That’s the immediate impact. Long-term, experts predict that it may cause premiums to go up and carriers to pull out of the market, both of which would make it more difficult to sell individual plans going forward. That’s the bad news.
Another way to look at this, though, is that a repeal of the individual mandate would give your clients the freedom to purchase the coverage they need for their families without the fear of being penalized. For example, healthy individuals may find that a short-term health plan, which is not considered minimum essential coverage for individual mandate purposes, provides comprehensive coverage at a lower premium than ACA-compliant plans, so you may find yourself selling a lot more short-term coverage. Put another way, without the individual mandate, the market may be able to deliver solutions that your clients actually need, and that will create an opportunity.
The enforcement of the employer mandate is less likely to have a major impact. Most large employers already offered comprehensive health coverage before the ACA became law, and those that didn’t decided long ago whether they wanted to “play or pay.” Some ran the numbers and decided it would be less costly to pay the penalty than to offer coverage. Others decided to purchase watered-down “MEC” or “minimum essential coverage” plans to get around the penalty. And, of course, some employers decided to start offering comprehensive coverage.
At most, we would expect those that have recently considered dropping coverage if the employer mandate were repealed or not enforced to maintain their group plan for now, but you shouldn’t expect this recent development to help you win or cause you to lose much business. Still, being able to inform your clients and prospects about the latest developments will help you to continue to add value and be a trusted advisor. Remember, your clients are relying on you to make sense of the confusing and often conflicting information they hear or see in the media.
AHCP will continue to monitor these developments and will let you know if anything changes. Be sure to check our broker blog regularly for the latest information.