President Trump has long been calling for a repeal of the Affordable Care Act (ACA) – unofficially dubbed “ObamaCare” – with the goal of replacing it with a better and more affordable alternative.
However, despite the fact that Congressional leaders are already setting the stage for the repeal process, it has been a speculation whirlwind over what that replacement platform will be, how it will be implemented and what it could mean for small-business owners across the nation.
What is the Affordable Care Act?
Signed into law by former President Barack Obama in early 2010, the ACA is a health care reform law that extends affordable health coverage to 20 million previously uninsured Americans, mainly by:
- Protecting against discrimination for pre-existing conditions, gender and lifetime caps;
- Expanding Medicaid eligibility; and
- Offering cost assistance through a health insurance marketplace.
In fact, the ACA enabled 5.3 million taxpayers to claim a total of $19.2 billion in premium tax credits as a form of cost assistance in 2016, according to the Internal Revenue Service (IRS).
By creating a health insurance marketplace, the ACA allows purchasers to make apples-to-apples comparisons when evaluating plan options – all of which must meet a minimum essential benefits standard. This includes a variety of benefits, such as preventive care, maternity and mental health services, and prescription drugs.
Under the ACA, all Americans are required to have health coverage through either a private provider, government-based program like Medicaid or Medicare, or a health insurance marketplace. Those who fail to maintain basic health insurance face a per-month fee on their year-end federal income taxes for every month without coverage.
Over the past several years, the ACA has been widely used by Americans, both young and old. Despite a concern over the health care law experiencing a potential “death spiral,” more than 11.5 million individuals signed up for or re-enrolled in an exchange-based plan for 2017 – an increase of nearly 300,000 from last year, according to the Centers for Medicare and Medicaid Services.
Pros and Cons of the ACA for Small Business
There are nearly six billion small businesses in the U.S. – and their employees account for more than half of our nation’s workforce. Before the ACA was passed into law, nearly 50% of uninsured Americans were small-business owners, employees and their dependents. Of all private-sector businesses in the U.S., 90% have fewer than 20 full-time equivalent (FTE) employees and 96% have fewer than 50 FTEs, according to a recent survey by the Kaiser Family Foundation.
However, the ACA doesn’t affect all businesses in the same way – its impact depends largely on an employer’s size. For instance, small businesses with 50 or more FTEs and whose annual earnings exceed $250,000 face an employer mandate to provide health insurance, as well as a Medicare Part A increase, under the ACA – or are slapped with a hefty tax penalty. More than 96% of businesses with 50 or more FTEs now offer health coverage to their employees.
On the other hand, small businesses with fewer than 50 FTEs are not obligated to offer health insurance. Those that do, however, are eligible to purchase coverage through the Small Business Health Options Program (SHOP) marketplace, which offers a variety of health plans within a certain budget. These employers may also qualify for cost assistance, such as tax credits and/or breaks.
Over the years, small-business owners have voiced a mix of both satisfaction and concern over the cost and quality of health coverage under the health care law.
On one side, it has been argued that the ACA has:
- Allowed entrepreneurs to start their own businesses;
- Increased buying power through the SHOP marketplace;
- Provided comprehensive coverage with minimum essential benefits;
- Extended access to affordable health plan options; and
- Offered cost assistance to those who qualify.
However, small-business owners have also argued that it has:
- Hindered job growth and hiring;
- Led to a reduction in employees’ hours to part-time status;
- Passed costs onto consumers or shareholders;
- Resulted in more out-of-pocket costs for larger employers; and
- Forced them to switch insurance carriers frequently due to insurers being reluctant to write policies for small businesses.
Setting the Stage for a Repeal
As promised during his campaign trail, Trump is pushing to immediately repeal the ACA and simultaneously pass a new health care reform law – putting Republicans in the nearly impossible position of having mere weeks to replace a law that took two years to pass.
Despite the lack of clarity surrounding a replacement platform, Congress has already taken the first steps toward repealing and replacing the ACA. A resolution has been passed for a repeal bill through the budget-reconciliation process, which requires a simple majority vote in the Senate – as opposed to the customary filibuster-proof vote.
In late January, Trump issued an executive order instructing regulatory bodies to minimize burdens on implementing an ACA appeal. In addition, members of both the Republican party and anticipated cabinet have proposed seven replacement platforms, including one Democratic plan.
Most of these plans call for repealing portions of the ACA, such as mandate penalties and subsidies, while leaving the insurance marketplace reforms in place. This would have a significant impact on small-business owners – more than 80% of whom receive subsidized coverage through the ACA, according to the Department of Health and Human Services (HHS).
In turn, this would affect health insurance coverage and premiums. In fact, the number of uninsured Americans could increase by 18 million during the first year following enactment, according to a recent report by the Congressional Budget Office and Joint Committee on Taxation. This may lead to an additional 20-25% hike in premiums, as participation declines.
Ultimately, the goal is to establish a final replacement platform by consolidating the proposed plans into one. Once the bill(s) gain momentum within a feasible timeframe, efforts will require Democratic support to reach the 60-vote threshold.
However, the ACA’s “repeal and replace” process remains in limbo, as leadership of Congress, key congressional committees and the HHS work to vet platform options, weigh funding, collect bi-partisan buy-in and make budgetary assessments, according to Andrea Esselstein, Health Care Reform Advisory Services Team Leader at Oswald Companies.
Dismantling the ACA is proving to be more complex than anticipated by the Trump administration. As a result, it appears that Congress and the Republican party are coming to terms with a more gradual timeline. In fact, it’s likely the changeover will be a several-year process.
“All of the people who are benefiting from the exchange-based coverage or who have subsidies in the exchange – that would need to be phased out slowly,” said Esselstein. “It wouldn’t just be an immediate change.”
However, the recent confirmation of Tom Price as the new HHS secretary will likely help to trigger a consolidation of the proposed bills into a replacement platform, as he will play an integral role in administering the final plan.
Key Themes Among Proposed ACA-Replacement Platforms
Stakeholders are currently waiting for a distinct pattern to emerge among the potential replacement platforms – none of which are on the House or Senate floor yet. So far, all of the proposed plans share a few key similarities, according to Esselstein.
First, the ACA’s provisions for pre-existing conditions, lifetime caps, Medicaid expansion and dependent-child coverage until age 26 are likely to remain in place. Second, the minimum essential benefits standard will almost certainly be eliminated – making it more difficult for businesses to form apples-to-apples plan comparisons.
In addition, the priority in Congress is shifting toward tax reform as the first key initiative. In an effort to increase revenue, all proposed plans will – in one form or another – eliminate or reduce the tax benefits for employer-sponsored health plans.
“If this is the case, far fewer employers will have an incentive to offer health insurance to their employees,” said Esselstein. “It will also impact employees because that tax exemption will eventually be passed onto them, and they’ll see it in their paychecks.”
As part of the tax reform, employer and individual mandates will likely be repealed or altered, providing tax relief to employers with 50 or more FTEs. This will have a significant impact, given that 6.5 million taxpayers were subject to a total of $3 billion in tax penalties in 2016, according to the IRS.
Additionally, the Cadillac tax – an excise tax on high-cost plans that takes effect in 2020 – is almost guaranteed to be repealed.
“There’s no silver bullet to avoid the Cadillac tax, so it’s a major stress point among a lot of employers and the union,” said Esselstein.
Although the Trump administration continues to push for a repeal of the ACA, there is still a great deal of uncertainty surrounding the replacement platform and the timetable for its implementation. As this new phase of health care reform unfolds and information becomes more solidified, we will continue to provide updates on how it will impact small-business owners.
UPDATE: On March 6, 2017, House Republicans released long-anticipated legislation to repeal and replace the Affordable Care Act. The 123-page proposed bill is expected to move quickly through the House of Representatives mark-up process, which will then be followed by a revision and negotiation stage. If the bill passes in the House and advances to the Senate, language within the final version may shift. However, one thing is for certain – the American Health Care Act is now in motion. For more information, read this advisory from Oswald Companies outlining the proposed health care legislation.
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