From about the time the ink dried on the Affordable Care Act, employers have been weighing health plan design changes in anticipation of the law’s 40% excise tax on high-cost plans slated for 2018. As design considerations become more urgent, so do the “dual-track” public policy activities of health plan sponsors (and Mercer) urging Congress to repeal or modify the tax — while simultaneously helping regulators develop workable rules to implement it.
Bipartisan support is growing in Congress for repealing the tax. Employer and labor groups cheered the recent introduction of bipartisan Senate legislation (S 2045) from Sens. Dean Heller (R-NV) and Martin Heinrich (D-NM), as well as a measure from Senator Sherrod Brown (D-OH). Brown’s proposal aims to attract Democratic support by including language calling on Congress to offset the resulting loss of revenue, and Democratic presidential candidate Bernie Sanders (I-VT) and nine Democrats have signed on as cosponsors. The Heller-Heinrich bill is cosponsored by 14 additional Republicans, including Senate Finance Committee Chairman Orrin Hatch (R-UT). Momentum is building for similar legislation in the House, where a majority of lawmakers are cosponsoring one of two separate repeal measures (HR 2050 and HR 879), and the Ways and Means Committee is set to approve repeal as part of GOP budget “reconciliation” bill.
The Congressional Budget Office estimates that the tax would generate $87 billion from 2016–2025, mainly from employers trimming health benefits to stay under the tax’s cost thresholds and paying workers more taxable wages instead. Many doubt the tax would raise anything close to that amount. Still, the revenue issue is a big problem for repeal proponents. It’s a key reason the White House is currently lobbying against full repeal and many Democratic Senators are hesitant to sign on to any repeal bill.
Meanwhile, House lawmakers are drafting legislation to modify the tax by adding a second, actuarial value-based safe harbor test for plans, increasing the inflation index for the tax's cost thresholds, and excluding employees' pretax HSA contributions from calculation of the tax. This proposal, depending on its final form, could save many plans from the tax and serve as a compromise if the repeal effort falters. Mercer actuaries have met with Hill staff to help develop this approach.
Where do we go from here? The repeal debate will intensify over the coming months, and Republicans may include repeal in a fast-track “reconciliation” bill, should they decide to move one. Efforts will also be made to tuck repeal language into other legislative vehicles with tax provisions, such as Highway Trust Fund legislation, a tax “extenders” package, or possibly a catch-all spending bill that may be required before Congress adjourns for the year. Would the provision, packaged in a larger, “must-pass” bill, draw a presidential veto? Stay tuned.
Of course, if the full repeal effort falls short, Treasury and IRS will have to issue rules, which will likely be complex. Mercer and others have responded to Treasury’s two calls for comments on key issues. In responding, stakeholders have emphasized that, although the tax may have been intended to discourage rich health care benefits, cost is also driven by other factors, such as geographic location and the age and health status of enrollees. Treasury/IRS officials are sympathetic to certain employer concerns, but express doubt about their ability to effectively address concerns under the statute’s current language. Responses to Treasury’s second call for comments are due Oct. 1, at which point the rule-writing process will begin in earnest. At this point, it seems reasonable to expect proposed regulations in early 2016 and final regulations close to the end of 2016.