Employer-sponsored Plans Should Prepare to be Taxed

By: Brady Bizarro, Esq.

The latest news in the repeal and replace saga is that congressional Republicans are pushing to get a bill to the Senate by the end of this month. The ambitious timeline means that lawmakers and independent analysts will have very little time to review the components of the bill. The lack of transparency is already causing problems within the Republican Party itself. Yet, parts of the bill have leaked, and there are some provisions which will prove controversial across the political spectrum; specifically those that affect employer-sponsored health insurance.

The new plan, for which President Trump has signaled support, would offer aged-based tax credits that are paid for by taxing employer-sponsored health insurance plans. Employer groups across the country are already signaling their opposition to this idea, which is essentially a new version of the Cadillac Tax which is part of the Affordable Care Act and was delayed until 2020.

Why do House Republicans wants to tax employers? The truth is that Republicans want to keep as many people covered by health insurance as possible, and that means subsidizing care. Lawmakers have identified taxing employer-sponsored plans as one of the only feasible ways to raise enough revenue to pay for these tax credits.

This is unwelcome news for the self-insured industry because if the replacement bill also eliminates the coverage mandates and essential health benefits, we could see more movement from employer-sponsored coverage to individual plans, especially among younger and healthier workers. If the government gives workers tax credits to buy individual coverage, and that coverage can be very skimpy and cheap, then healthy people will be tempted to buy individual coverage outside of their employer plan. All the more reason for employers to transition to self-funding to be able to offer quality care and competitive prices to keep young, healthy workers on their plans.