House Republican Health Plan Could Disrupt Employer-Based Coverage

The House Republican health plan’s proponents claim it won’t “upend” employer-sponsored health insurance, but elements of the plan nevertheless appear likely to disrupt the current employer-based system.

The plan’s supporters argue that by repealing health reform’s “Cadillac tax” and replacing it with a cap on the amount of employer premium contributions that can be excluded from workers’ taxable income, the plan would be better for employer-sponsored insurance than health reform.  In fact, both similarly discourage employers from offering costly, overly generous plans. 

Moreover, two other key features of the House Republican plan could prompt many employers that now offer health coverage to their workers to drop it.  That contrasts sharply with the Affordable Care Act (ACA), which was carefully designed to avoid disrupting employer-sponsored insurance.  Here’s why:

• Universal tax credit.  The plan’s credit to buy individual-market health insurance would be available to anyone not offered job-based coverage, Medicare, or Medicaid.  As we’ve explained, tax incentives to purchase health insurance in the individual market can encourage employers to drop health coverage on the assumption that their workers can instead buy coverage on their own.  But unlike the ACA’s premium tax credits, which are available only to those with incomes below 400 percent of the poverty line, the House Republican plan would make the credits available irrespective of income, including to higher-wage workers (who benefit most from the existing tax subsidy for employer-sponsored insurance) and/or the owners or managers who decide whether their firms should continue to offer health coverage. 
• No employer mandate.  Under the ACA, large employers must offer health coverage or pay a penalty.  The House Republican plan would repeal this requirement without replacing it with a policy that penalizes, or otherwise discourages, large employers for dropping their health coverage.  Large employers that now offer less generous coverage or contribute less to the cost of their workers’ premiums would be those most likely to no longer offer health insurance.  There would be a less of a difference between what they provide today and the value of the plan’s universal tax credit, which would be set only at the amounts needed to purchase a skimpy, perhaps catastrophic pre-health reform plan in the individual market, rather than a more comprehensive plan.

Workers losing employer-sponsored insurance due to these changes would be at serious risk of becoming uninsured or underinsured.  That’s because, as we’ve pointed out, the House Republican plan would repeal or severely undermine health reform’s coverage expansions — eliminating the marketplaces and their subsidies, blocking more states from taking the Medicaid expansion, and prompting expansion states to drop it over time.  It would also convert Medicaid to a “per capita cap” or block grant, shifting significant costs to states and forcing them to cut Medicaid deeply.

Furthermore, it would eliminate or weaken most of health reform’s market reforms and consumer protections that apply to the individual market.  For example, older individuals and people with pre-existing health conditions who don’t have continuous health coverage would face much higher premiums than under current law, and insurers in the individual market would no longer have to offer a comprehensive array of benefits or limit annual out-of-pocket costs. 

Finally, as noted, the plan’s new universal tax credit would likely be inadequate in size, and there would be no replacement for health reform’s cost-sharing subsidies, which help people with marketplace coverage and incomes below 250 percent of the poverty line pay their deductibles and co-payments.

Low-income workers, particularly those in poorer health, would be especially vulnerable.  They would likely lack access to Medicaid and be unable to find affordable, comprehensive coverage in the individual market.  Many could thus end up without health coverage or forgoing needed care.