With the 2017 Republican tax bill signed into law and the delayed effective dates passing by, many individuals and businesses are curious about the impact it will have on health insurance and other benefit programs.
The Impact to Individuals
The biggest change and likely the one we’ll hear the most about is the repeal of the individual mandate. Under the Affordable Care Act (ACA), Americans were required to buy health coverage or pay a penalty. Beginning in 2019, this ACA penalty has been eliminated. There are varying opinions on what this may do to the individual market. The unknown is whether the loss of the mandate will cause insurers to exit the marketplace, leaving many without coverage or options to obtain coverage. Without the mandate, the Congressional Budget Office (CBO) projects that between 2018 and 2019, the number of uninsured people will rise by 3 million.
The fear is that without the mandate, more people will get rid of their coverage and insurers will not be able to maintain offerings that are financially viable, and this would cause a mass exodus of available policy options, which will spark rate increases. The CBO, a group that provides nonpartisan, independent analyses of budgetary and economic issues, leans in this direction.
Some believe that the individual mandate is crucial to maintaining a viable health insurance market, because it forces younger and healthier people to buy coverage. This helps offset the cost of coverage for patients who are less healthy. The individual mandate is one of the more disliked provisions of the ACA, but it enables one of the most popular; the requirement that insurers offer coverage despite pre-existing conditions, at the same cost as those without.
Others believe that while the CBO shows a growth in uninsured people by 2028, this finding is impossible to calculate accurately. It’s a guess, as there’s no way to determine how many maintained coverage simply to avoid the penalty. They argue that while some feel removing the mandate means death to Obamacare, the law was already collapsing. They cite the Centers for Medicare and Medicaid Services, which estimate that 1,565 counties have only one health insurance carrier in the Obamacare exchange. Even worse, some states such as Arizona, Iowa, and Kentucky have only one carrier statewide.
Regardless on which side of the argument one falls, it’s important to note that the new tax law does not immediately or directly take away anyone’s health insurance. In addition, the tax change impacts the deductibility of medical expenses for individuals. At the time the TCJA was passed in 2017, medical expenses can be deducted if they exceed 10% of adjusted gross income. This threshold was lowered to 7.5% for 2018 and 2019. The new tax law change has little or no impact on Medicare or Medicaid.
The Impact on Employers
The new law will have little impact on employer sponsored benefits. Some basic provisions that will go unchanged are:
- Protections for pre-existing conditions
- Employer mandate requiring employers with 50 or more full time equivalent employees to offer health insurance
- Reporting requirements
- Medical expense deduction
A separate bill has also been signed into law delaying the so-called “Cadillac tax” through 2022. The Cadillac tax was designed to slow the rising cost of healthcare and help pay for components of the ACA. The Cadillac tax is a 40% tax on the most generous employer-provided health insurance plans—those that cost more than $11,200 per year for single coverage or $30,150 for family coverage in 2022. It was a tax on employers and was supposed to take effect in 2018, but Congress has delayed implementation twice. The House recently voted to repeal that part of the ACA entirely, with a Senate companion bill in the works, so full repeal may be in the works in the future.
Despite the changing healthcare landscape, there are still many options available to employers to improve their benefit plans. Through a Qualified Benefit Assessment, employers can improve efficiencies and mitigate cost on benefit related programs. For more information on the tax changes and other benefit related topics, or to discuss how an assessment of your employee benefits plan can benefit you and your company, meet with an advisor that can help you gain confidence and clarity for the future.
With over 20 years of experience in the insurance and financial industry, Noel brings unique insight in designing various life, health, disability and retirement plans.