With Health Care in Disarray, What's the Smart Play for CHROs?

4/21/17

HR leaders watching the first 100 days of the Trump administration may have concluded that, for the moment, making no bold health care strategy moves is the wise course of action.  After all, there is no clear path for health policy even though a new deal in the works is rumored.  Both Trump and Congress seem to be wrestling with irreconcilable differences, and the effort to find 216 House members willing to agree to a single proposal has become an exercise in quiet desperation.  Off Capitol Hill, opinion is shifting as people focus on what might actually happen to the Affordable Care Act.  Still, hunkering down and monitoring may not be sufficient.  Should a health care bill become law, it could be harmful to employers who now provide coverage, which means contingency planning may be prudent.

How best to describe where we are?  The epic statement came from the President himself on Day 46.  "Very complicated issue…unbelievably complex subject.  Nobody knew that health care could be so complicated."  But other equally insightful revelations have emerged.  On the right, it was the House Freedom Caucus which blocked Speaker Ryan's initial attempt to get repeal and replace over to the Senate.  The Caucus is chaired by Mark Meadows, a Republican Congressman from the North Carolina mountains deep in Trump country.  When a reporter ventured into his home town to find out what his constituents thought about their representative shutting down both the President and the Speaker, he was told by the mayor that "People like the Affordable Care Act.  They don't like Obamacare."

That schizophrenia may perfectly capture where many are in the ACA debate today.  Just before Congress left town two weeks ago, a Gallup poll revealed that for the first time since the law was enacted, a majority of Americans—55%— approve of it.  Just five months ago, only 42% did.  Topping it off, another poll showed a plurality of Americans preferring a single payer system "where all Americans get their health insurance from one government plan."  Even 35 percent of Republicans support that concept.  A third poll found that 60% of Americans favor expanding Medicare to provide health insurance to every American.  Remember that for millions of Americans, the Affordable Care Act not only established a generous benefit, it established the promise of one for the 177 million Americans now receiving employer provided coverage, many of whom are fearful of losing it.  Therefore, reducing or taking away either may be very difficult if not impossible.

Why might that impact your company's health care strategy?  This administration, unlike the prior one, is not pressuring or even encouraging carriers to offer individual plans on the ACA exchanges.  While the Democratic leadership in Congress is pleased with itself for saving the ACA so far, the fact remains that the law contains no requirement that carriers participate in it.  Instead of a stick, the ACA has a carrot, the cost-sharing reduction subsidy, or CSR.  It offsets the losses that carriers would otherwise suffer by offering coverage on the ACA exchanges.  The Trump administration has sent mixed signals on the CSR subsidies, mostly negative, and there is a lawsuit filed by House Republicans in 2014 challenging aspects of its legality that is now sitting in the DC Circuit with a favorable ruling from the lower court for the plaintiffs.  Rate filing decisions for 2018 must be made in the next few weeks, and in this kind of environment, it doesn't come as a surprise that some carriers are issuing public announcements that they will be exiting the 2018 exchange market while others are quietly slipping out the back door.

If this trend continues, we may see a situation within the next 12 months in which the news won't be that there is just one carrier on several ACA exchanges.  Rather, the news may be that there are no carriers on certain exchanges and the policies being offered by those remaining are beyond reach for many applicants.  Should that day come, the issue of what it will take to keep carriers in the game and who pays the bill will likely move to the top of the political agenda.

That brings us to another revelation from the first 100 days.  What do several influential think tanks on both the right and left, the House Republican leadership, and the Wall Street Journal editorial board have in common?  The desire to eliminate the ability of employers to deduct the cost of providing health care to their employees.  This means that if health care and/or tax reform legislation ever emerges from Congress, there is a chance that the deductibility of health care will be significantly eroded or eliminated.  After all, if the CSR subsidies are to continue, the bill must be paid and what pockets are within reach?

In view of the above, HR leaders might spend time imagining a world in which companies can no longer deduct the funds they utilize to provide health care to employees, their dependents and retirees.  Yes, the employer community and organized labor will fight hard to preserve the deductibility, but there will be forces fighting just as hard to ensure the subsidies remain and are fully funded.

Specifically, you may wish to assess what the financial impact on the company would be should deductibility be removed.  How large would be the impact?  Would your company pay the taxes and continue business as usual?  Or would it fundamentally reconsider how health care would be provided?  How might your peers and competitors respond?  If a reconsideration were undertaken, what options would you have on the table?  Is there a change in public policy that might help you mitigate the impact of the loss of deductibility?  Would that change be attractive to your peers such that it ought to be on the table during the debate and pushed hard by the employer community?  And finally, where does your company ultimately want to be with respect to health care?

While there is time to begin this thought process, employers should have a clear vision by the time the Senate receives a House bill.  While many unexpected things have happened over the past few months, it is hard to imagine Republicans going into the 2018 midterms with nothing to show on health care other than a few ACA regulation revisions.  Therefore, we should assume the Senate will take up health care legislation before then, and it is in the Senate where the future of employer provided care may be decided.  How will you be positioned in that debate?