A recent survey* of business leaders conducted by Friedman LLP, showed some counterintuitive results when it came to the proposed repeal of the Affordable Care Act (“ACA”).
A majority of respondents who were subject to the employer mandate of the ACA indicated they would offer either the same level of health care coverage (58%) or more coverage (23%) should the mandate be repealed. These responses were independent of the size of the company, measured by annual revenue. These results are contrary to the rationale of the sponsors of the American Health Care Act, the House of Representatives’ proposed ACA repeal and replacement law, who claim that employers are suffering under the ACA.
While few in number (5 out of more than 480 respondents), those indicating that they would not offer any health care coverage to employees, unless mandated to do so, overwhelmingly represented companies with less than $20 million in annual revenue.
In addition, when asked their view on eliminating the individual mandate and the net investment income tax, more than 61% of respondents were in favor while only 18% thought it was a bad idea. Surprisingly, 20% were indifferent on the matter.
Why offer health insurance?
So, why would 81% of employers, regardless of business size, continue to offer coverage or even increase the coverage provided, in the absence of a mandate? Several factors seem to enter into their analysis:
- In the competitive labor market that still exists in some industries, employee benefits can be a determining factor in the hiring decision;
- Employee benefits, including health care, are often used by employers to minimize the amount by which wages must rise to retain existing employees, while also saving employers money on payroll taxes;
Historical note: employer provided healthcare insurance is an outgrowth of World War II wage and price controls. Since wages were frozen and workers in key industries were demanding raises, the War Labor Board ruled that contributions to insurance and pension funds did not count as wages, averting strikes in key wartime industries.
- Some employers recognize that the overall health of their workforce is a key element in productivity, and therefore bottom line, growth; and
- Inertia – they’ve always done it, everyone expects it, and they are unaware of alternatives or are too busy running their businesses to take the time to evaluate the costs and benefits to both the business and the employees.
Where do things go from here?
The first attempt to repeal and replace the ACA after the Republicans took control of both houses of Congress and the Executive Branch in January was withdrawn for lack of support.
In response, the President and Congress are trying to tweak their proposal to satisfy both those members of Congress who don’t want the government to spend anything to subsidize the health care marketplace and those who want to retain the parts of the ACA that favor consumers:
- allowing children to remain on their parents’ policies to age 26;
- no lifetime caps on insurance payments;
- no discrimination for pre-existing conditions; and
- eliminating out-of-pocket costs for some preventative care.
An idea that has gained traction among both conservatives and liberals – although not in the White House or Congress – is to allow individuals to buy into some existing government programs. Veterans not otherwise eligible for healthcare would be allowed to participate in VA medical care which, despite what you may have read in the papers or heard on TV, is efficient and generally provides quality health care. Those over 55 and not yet eligible for Medicare would be able to buy into that program while certain low-income workers would be allowed to buy into Medicaid.
A final note
The provisions of the ACA are administered at the federal level, primarily through regulations promulgated by the IRS and the Department of Health and Human Services. Tom Price, secretary of the Department of Health and Human Services, has stated that he intends to reverse parts of the ACA, such as free birth control as a preventative benefit through regulations, even if Congress doesn't repeal the law. The government could also give the states more authority in determining Medicaid eligibility rules, including work requirements for qualification.
Finally, House Republicans sued to block some of the ACA subsidies that reduce co-pays and deductibles for lower income people who purchase insurance through the exchanges. The suit alleges that while the subsidies were part of the legislation, the funds for them were never appropriated by Congress and were illegally diverted by administrative action. The House was successful at the lower court level and President Obama appealed the decision. It is now up to the House and President Trump to determine how to proceed.
Other tax reform insights in this series:
- Insight 3:Companies using independent contractors are at risk for taxes and penalties.
- Insight 4: Questions loom over the net benefit of international tax proposals.
- Insight 5: Almost 40% of businesses selling online are not prepared for states’ broader interpretations of economic nexus.
- Insight 6: Businesses would likely alter their entity structure and finance models based upon tax changes.
*Friedman LLP conducted the web-based survey in early 2017 among companies across the United States, with a focus on the New York, New Jersey, Pennsylvania, and Connecticut areas. The survey compiles responses from 483 senior leaders of companies across industries including technology/computer services, manufacturing/distribution/wholesale, healthcare, retail, real estate, financial services, architecture/engineering, marketing and advertising, nonprofits, law, and more. The size of the companies surveyed ranged from below $10 million in annual revenue to over $500 million. The respondents include business owners, company presidents, chief executive officers, partners, directors, chief financial officers, controllers, and managing directors. All insights in this series are based upon the specific responses of the business leaders who participated in our survey.