By Jay Hancock
In the debate over repealing Obamacare, everybody is correctly focusing on what happens to the Medicaid expansion programs and the subsidized plans sold through the Affordable Care Act online exchanges. But there’s a potential threat to another, much bigger part of the health insurance market.
Employers are worrying that when it comes to providing affordable health insurance for their workers, the Republican cure might be worse than the disease.
Many are concerned an ACA replacement may cause the same sort of adverse selection – young people fleeing coverage and leaving older, sicker and more expensive folks in plans – that has hurt Obamacare plans for individuals.
Here are some things to keep in mind as the Trump administration and congressional Republicans present their repeal-and-replace proposals:
Employer-sponsored plans cover more than 150 million people. That is much larger than the market for individual plans sold in and outside the exchanges – 20 million. Or on Medicaid – 60 million. Despite increasingly higher deductibles for workers, rates in employer-sponsored plans have been stable compared with individual plans in the Obamacare marketplaces.
If Republicans don’t want to strand millions without coverage, their replacement plan needs revenue. They could opt to keep the Obamacare taxes, which is what the Cassidy-Collins bill does. But that would create something that looks a hell of a lot like Obamacare, which they promised to repeal.
One alternative is taxing worker medical benefits as income or at least taxing a portion of the benefits. Republicans have talked about this for years as a way to cut the connection between employment and health coverage. The goal is to level the playing field between job-based plans and the non-job plans that don’t enjoy as many tax benefits. The idea would be to give everybody – regardless of employment status – credits to buy coverage wherever they want, through their job or outside.
But employers hate this idea because it would result in an effective pay cut for most workers who then would have to pay hundreds or thousands extra in income tax on the value of their medical benefits. Raising the cost of coverage by taxing it reduces the chances that employers would offer it and that workers would accept it.
Even worse from an employer’s point of view, tax credits could give young healthy workers the means to ditch their employer’s plan and directly buy cheaper individual coverage. That would drain employer plans of good risk and load them up with expensive sick people.
Employers also would hate to be taxed on medical benefits along with their workers. The value of medical benefits – as much as $30K for a top-shelf family plan – now does not count toward employer payroll taxes for Social Security and Medicare. Companies worry that lawmakers may view hiking payroll taxes as an attractive revenue source for their ACA replacement.
On all of these concerns, many individual companies are very reluctant to talk about it, especially since the stakes aren’t clear to the average human resources vice president. Plus, no one wants to end up the target of a Trump tweet. But their interests are at risk, and they have an obligation to share their concerns, so you should query them. Barring that, big business proxies in Washington and state capitals are happy to chat.
Jay Hancock (@JayHancock1) joined Kaiser Health News in 2012 from the Baltimore Sun, where he wrote a column on business and finance. Previously he covered the State Department and the economics beat for the Sun and health care for The Virginian-Pilot of Norfolk and the Daily Press of Newport News.
