By Sarah Caldwell
Tax manager
JTaylor & Associates
The Affordable Care Act: What Has Happened and What Is to Come
The Patient Protection and Affordable Care Act, "ACA," or "Obamacare" as it is known to supporters and critics alike, was supposed to reduce the number of uninsured in America and improve access to healthcare services. Since the law's passage in 2010, an estimated 20 million people have gained health coverage. However, due to the structure of the law, with many provisions delayed or not taking effect until years after its passage, the economic impact on individuals, companies, and the marketplace is still taking shape.
The law, which is as expansive as it is controversial, will continue to affect healthcare costs, employer hiring decisions, and tax policy for years to come. This article will focus on three areas that should be on the minds of CEOs and managers as they make plans for the future.
Impact on Healthcare Cost According to the Kaiser/HRET Survey of Employer-Sponsored Health Benefits covering years 1999 to 2015, employer-sponsored plans have seen an average increase in premiums of 4 percent a year since the ACA was passed. Premium increases averaged 5.5 percent a year prior to the ACA.
The Urban Institute published a comparison of 2015 and 2016 exchange premiums (for individuals not covered under an employer plan) for the lowest-cost silver plans indicating that the change in premiums was vastly different depending on location. Although the national average was an 8.3 percent increase, Texas saw a statewide increase of only 1.2 percent, and Fort Worth-Dallas saw a 6.7 percent decrease. Austin experienced a 15.7 percent increase attributed to a third of the insurers leaving the market.
Beyond the impact on premiums, the ACA's regulatory burdens have increased other employer expenses. In a survey by the International Foundation of Employee Benefit Plans (IFEBP), employers noted the primary increase in non-premium cost for 2016 relates to reporting, disclosures, notifications, and general administration of the ACA. The majority cited gathering data, interpreting forms, determining reportable individuals, and meeting deadlines for IRS forms as the most challenging aspects of the law.
Company Reactions Despite predictions that employers would drop healthcare coverage en masse from employee benefit plans, employer-sponsored coverage levels have remained consistent. According to the IFEBP, only a small number of employers have taken action to reduce employee coverage by decreasing their workforce, hours, or hiring. In contrast, some employers have increased the number of covered employees. Attracting and retaining employees was the primary reason for maintaining coverage.
However, to contain costs, employees are being asked to bear more of the expense. Employee premium increases have averaged 5.5 percent (single coverage) to 5.9 percent (family coverage) from 2010 to 2015 with employers absorbing an average of 4.2 percent over the period. Other common strategies include increasing out of pocket limits, in-network deductibles, copayment and coinsurance, prescription drug costs and dependent coverage.
Most companies in the IFEBP survey did not feel positively about the ACA, but conceded there were aspects they would like to keep if the law were repealed, such as elimination of pre-existing conditions exclusions, coverage of children until age 26, and no cost sharing for preventative care.
Excise Tax Increases for 2016 There are two tiers of employer-shared responsibility payments imposed for noncompliance. In the first, a payment is assessed for applicable employers who (1) do not offer minimum essential coverage as required and (2) have at least one full-time employee who received a premium tax credit to enroll in coverage. This payment will rise to $2,160 annually for 2016.
If an employer offers coverage as required but (1) it is not affordable (as defined by regulators), does not provide minimum value, or fails to meet other requirements, and (2) a least one employee obtains a premium tax credit, they will be subject to a second tier payment, which will increase to $3,240 annually in 2016.
For individuals, thepenaltyin 2016 for failing to maintain coverage increases to the greater of 2.5 percent of the excess of household income over the personal exemption for the tax year or a flat dollar amount of $695 for each taxpayer and dependent, generally.
Employers are also taking action to avoid triggering the 40 percent excise tax on high-cost plans, referred to as the Cadillac Tax, effective in 2020. The Cadillac Tax is expected to be the greatest cost driver for employers in the implementation of the ACA. Employers will be responsible for calculating the excess benefit subject to the tax and must notify the IRS and each coverage provider. The tax itself is paid by the coverage provider, which may or may not be the employer. Although not necessarily liable for the tax, it's expected that the cost will be passed through to employers and their employees. The IFEBP found the most popular method to avoid Cadillac Tax was use of high-deductible plans.
Conclusion Although the law has added layers of compliance and administrative burdens, more Americans are now enrolled in healthcare coverage and positive changes such as the elimination of pre-existing condition clauses have taken place. It's still too early to tell the net financial impact of the ACA. With the November presidential and congressional elections coming up, the American electorate may further weigh-in on the direction the country should go regarding required health insurance coverage, and because of that, the ultimate future of the ACA remains to be seen. Company leadership should seek guidance from their legal, financial, and accounting advisors to help navigate this uncertainty.
