What Health Reform May Mean For Employer-Sponsored Health Insurance

Employers provide insurance coverage for about 160 million Americans, and health care represents the largest cost after salary for many employers.  Unemployment due to the Covid-19 pandemic has led to a decrease in people eligible for employer-sponsored insurance, and the economic downturn threatens the viability of many businesses. Health care costs were down in 2020, but many project a return to health care inflation exceeding economic growth in 2021 and beyond. Pressure to enact health care reforms will continue in the 117th Congress.

The November 2020 election did not provide a mandate to pursue large structural changes in health care, but the Georgia Senate elections and the Democratic Senate takeover will make passage of some health care reform much more likely. The Biden Administration is also likely to use its executive power to enact elements of health care reform as well. Each proposed reform has implications for employer-sponsored health insurance and may have differential impacts on employees and employers.

Modifications to the Affordable Care Act

The Affordable Care Act (ACA), after surviving a decade of attempted repeals and four years of unenthusiastic stewardship during the Trump Administration, appears likely to withstand its current Supreme Court challenge with or without administrative or legislative action. The major impacts of the ACA on employer-sponsored health insurance include requirements to cover adult children up to age 26 and offer preventive services with no cost sharing, elimination of annual and lifetime maximums, prohibition of excluding pre-existing illnesses, some new taxes, and rules about affordability of premiums and out-of-pocket costs for employees.

The Biden campaign pledged to increase premium subsidies and place a ceiling on the portion of income Americans would spend on both premium and out-of-pocket health care costs. Both of these proposals are incorporated into Biden’s proposed $1.9 trillion COVID relief bill. Increased subsidies would help bolster the individual exchange markets in many states by encouraging more healthy Americans to purchase subsidized insurance. Strengthened individual insurance markets could encourage some employers to provide a fixed subsidy and discontinue directly providing health insurance, although current ACA rules prohibit employees who are eligible for an Individual Coverage Health Reimbursement Arrangement (ICHRA) from also receiving federal subsidy to purchase an exchange health insurance plan. Employers not offering “affordable” coverage today could face financial penalties if employees newly eligible for exchange subsidies enroll in exchange plans.

Antitrust enforcement

Over the last decade, efforts to “bend the cost curve” have focused on reforms that pay for value, not volume. But prices, not volumes, have been driving employers’ costs higher. Federal antitrust enforcement could contribute to reversing this trend.

The healthcare industry has experienced increasing provider consolidation which raises prices and has even been shown to decrease quality of care. Horizontal and vertical mergers will likely increase due to the financial pressures of the pandemic, as many hospitals and physician groups have seen dramatic declines in revenue and high margin elective procedures.

More aggressive antitrust enforcement could discourage consolidation and decrease leverage providers hold when negotiating prices with employers. These efforts could gain bipartisan support given the critical role competition can play in a health market, but would likely be opposed by health care providers who are the largest employers in many communities. Xavier Becerra, President Biden’s pick for HHS Secretary, took on market-dominant providers while serving as California’s Attorney General, but regulators might hesitate to oppose mergers given pandemic-related provider financial distress.

Civil rights enforcement

The Biden campaign pledged to reinvigorate civil rights enforcement, including addressing racial disparities, LGBTQ rights, reproductive rights for women, and rights for people with mental illness. Much of Biden’s civil rights agenda can be advanced through executive orders and executive branch action. The President’s appointment of the first ever cabinet-adjacent level health disparities advisor signals the seriousness with which the incoming administration plans to address these issues.

The Biden Administration has already issued an executive order stating that antidiscrimination rules apply to gender identity and sexual orientation. This supports the growing move of employers to provide coverage for transgender care. Increased enforcement of the Mental Health Parity and Addiction Equity Act (MHPAEA) could require employer-sponsored health plans to improve access through widening their mental health treatment networks. Employers will likely breathe a sigh of relief with the termination of a 2020 Executive Order which threatened to prohibit federal contracts with firms which offered diversity training.

Interventions to lower drug prices

The United States has the highest drug prices in the world, and specialty drugs drive a substantial portion of medical inflation in employer-sponsored health insurance plans. Most developed countries use some form of price control or community-wide purchasing to address drug costs. The US has so far rejected this approach, but reforms proposed during the 116th Congress suggest policymakers are taking another look at exerting federal influence on drug prices paid by employers.

In Congress, House Democrats passed the Lower Drug Costs Now Act which would have given employers access to prices negotiated by Medicare for the top 250 drugs. A bipartisan proposed Senate bill last year would have discouraged drug manufacturers from raising list prices faster than inflation was projected to lower costs for employer populations. No legislation was passed, but the door is now open to legislative action to address drug costs beyond Medicare and Medicaid.

The Trump Administration finalized policies that would end drug rebates in Part D plans, tie Part B drug costs to rates negotiated by foreign countries and allow states to import drugs from other countries. All three policies face legal opposition. If they were to go into effect, they would primarily affect Medicare beneficiaries, not employer populations.

There are promising developments with value-based pricing for high-cost drugs in Medicaid, although these have not yet been shown to lower total costs. Employer-sponsored health plans have value-based pricing pilots underway that hold promise, but data on lowering cost and improving quality are limited.

Recent proposals aim to overhaul how prescription drugs are priced to respond to patients’ concerns over high drug costs. As more ambitious efforts stall in Congress and the courts, policymakers may gain focus on more vigorous enforcement of laws prohibiting brand name manufacturers from obstructing generic and biosimilar competition to lower costs for all purchasers.

Price transparency

The Trump Administration issued final regulations requiring hospital price transparency effective January 1, 2021, and health insurance plan transparency effective January 1, 2022. These regulations require hospitals and insurance plans to publish their contracted rates on public websites and in machine-readable format so that third parties can use this data in decision tools and other applications. Hospitals sued to stop the rules from going into effect but lost in both district and circuit courts. The Biden Administration has not yet revealed its position on these rules.

We believe that this transparency has the potential to improve costs in employer-sponsored insurance in part because employers will be better able to ascertain which insurers offer the best discounts. However, neither providers nor insurance carriers are eager for their prices to be in the public domain. Additionally, the majority of medical expenses are incurred by a small portion of the population, and only a minority of total medical costs are ‘shoppable.’ Regardless of whether the ultimate impact of price transparency is limited, employers with self-insured plans should be aware that they are responsible to make sure their plan administrator complies with these regulations.

Telehealth regulations and payment rates

Nine in 10 employers have offered telemedicine for the last 4 years, but the uptake was usually very low. The pandemic has changed all of that. Many providers who once required in-person visits have transitioned to providing many services via videoconference, most notably in behavioral health. Virtual care could help control medical costs in the future, as it’s hard to order ancillary tests for patients who are cared for remotely. Of course, if virtual visits are simply additive rather than replacing in-person visits post-pandemic, they may not lead to lower costs.

The Biden Administration can promote telehealth if it extends or makes permanent the Office of Civil Rights discretion which eases HIPAA restrictions. The Centers for Medicare and Medicaid Services (CMS) will also determine ongoing Medicare payment rates for telehealth visits. Many commercial health plans follow Medicare’s lead on payment levels, and Medicare payment levels will also either encourage or discourage providers from continuing to offer robust telehealth services.

Reinsurance

Many states, including those with Republican legislative majorities, have lowered premiums and stabilized their exchanges with reinsurance programs through ACA Section 1332 waivers. These programs attract healthier members through lower premiums, and help recruit additional insurers to the market by decreasing risk.

Employer-sponsored health insurance plans often already purchase reinsurance for exceptionally expensive cases. However, products currently available from commercial reinsurers provide limited protection as they either exclude exceptionally expensive cases after the first year or raise premiums for employers with members with ongoing expensive care.

Community-wide reinsurance, modeled after successful exchange plan programs, could spread the financial risk of exceptionally expensive patients, including those who require genetic therapies or ongoing specialty medications. This could help lower premiums and reduce the possibility that employees with expensive illnesses in their families face discrimination in the workplace. It would also mitigate concerns over risk selection as more employers adopt individual market strategies like ICHRAs. Community-wide reinsurance would be easiest to accomplish in fully-insured plans regulated by states and would be most effective if it included active price and utilization management programs.

Rules to Prevent Surprise Billing

Surprise medical bills afflict patients with unexpected medical debt. This practice also raises employer costs, as hospital-based providers such as anesthesiologists, emergency department physicians, radiologists and pathologists use the threat of sending patients surprise medical bills to negotiate higher payments from insurers. These payments, in turn, get passed along to employers in the form of higher premiums.

The Consolidated Appropriations Act bans surprise billing as of January 1, 2022. The Act requires providers to notify patients that they are out-of-network at least 24 hours before elective services. Providers who deliver emergency care out-of-network must resolve billing disputes through arbitration with their patient’s health insurance carrier. Arbitrators will not be able to consider either billed charges or Medicare and Medicaid allowed charges when making their determination. Recent research showed that median arbitration awards in New Jersey were 5.7 times the prevailing in-network rate. The Department of Health and Human Services will implement the surprise billing ban through regulations promulgated in 2021.

This legislation will help lower patients’ total cost for care for many emergency procedures. If HHS regulations lower provider leverage, the ban on surprise bills could lead to a decrease of costs for employers for many services in specialties that had previously engaged in surprise medical billing.

Conclusion

The policies outlined here will impact employer-sponsored health insurance without changing the role employers play as the primary insurance provider for people of working age in America. Medicare for All, which was supported by many Democrats in the presidential primaries, would transfer the responsibility for insuring Americans to the Federal Government. However, President Biden instead supported a public option for those who buy their own coverage or opt out of employer-sponsored coverage. A public option offering broad networks with low out-of-pocket costs made possible through Medicare-like unit prices could attract many employees and propel some employers to exit the health insurance market. Such a plan might be especially attractive to older and sicker members, which could lower the average cost of those who remained on employer-sponsored health insurance.

For now, employer-sponsored health insurance is likely to remain the mainstay of health care finance for those under 65 and not covered by Medicaid. Yet with Democrats in control of the executive and legislative branches, the likelihood of substantial new legislative and regulatory health care reform over the next two years is now squarely in the realm of the possible.