On April 25, 2017, a new proposal tweaking the repeal-and-replace legislation surfaced. Called the "MacArthur Amendment" because it was proposed by Representative Tom MacArthur, it has not been subject to any debate and may or may not move forward. The MacArthur Amendment has significant implications for the individual health insurance market, especially with respect to affordability and availability of coverage. Those issues are important, but they are not our focus here. This alert provides a brief summary of the ways in which the MacArthur Amendment could affect employer group health plans.
By way of background, the Affordable Care Act (the ACA) was passed in 2010. In March 2017, following promises to repeal and replace the ACA, the American Health Care Act (the Act) was introduced in the House of Representatives. A vote on the Act was scheduled, but was postponed once it became clear that it would not pass. An amendment was offered in early April, but that amendment did not appear to alter the vote count. It is not yet clear how the vote count would be affected by the MacArthur Amendment.
In a previous alert, we described the impact of the Act on employer plans. The bulk of the information in our previous alert remains correct, because the MacArthur Amendment changes only certain aspects of the Act. Most importantly, even with the MacArthur Amendment, the Act would eliminate the individual mandate, the employer mandate, and the employer penalties. The Act would defer the Cadillac Tax but otherwise would not change the basic tax treatment of employer-sponsored health insurance. Because the MacArthur Amendment allows states to obtain waivers with respect to essential health benefits, however, the MacArthur Amendment could result in significant changes to employer group health plans.
Under the ACA, health insurance policies must cover ten "essential health benefits." The essential health benefits are broad categories, such as outpatient care, inpatient care, preventive care, and prescription drugs. Within those categories, states have a certain amount of flexibility to establish the specific scope of each benefit. Under the MacArthur Amendment, an individual state could obtain a waiver and set its own categories of essential health benefits
A state waiver of essential health benefits would reduce premiums and would allow employers to shift more of the cost of care to employees. This is true for two reasons.
First, the essential health benefits do not just establish minimum benefit requirements—they are also linked to a number of other protections in the ACA:
- Mandated Benefits. If a state obtains a waiver and reduces the essential health benefits, group health insurance policies could cover fewer benefits. (Self-funded plans are not required to provide coverage for the essential health benefits.) For example, a state could decide that health insurance policies do not need to cover prescription drugs.
- Annual and Lifetime Limits. Under the ACA, employer group health plans (whether insured or self-funded) cannot impose annual or lifetime dollar limits on any essential health benefits. If a state obtains a waiver and reduces the essential health benefits, annual and lifetime limits could be revived on specific benefits. So, if a state excludes prescription drugs from the essential health benefits, an employer group health plan could impose an annual or lifetime limit on all prescription drugs.
- Out-of-Pocket Maximums. Under the ACA, once the employee's out-of-pocket costs reach a certain dollar amount, the employer group health plan (whether insured or self-funded) must pay 100% of the benefits. The out-of-pocket maximum does not apply to all medical expenses—but it must apply to care that is covered by the plan, and provided by an in-network doctor, for an essential health benefit. So, if a state excludes prescription drugs from the essential health benefits, an employer group health plan might not count an employee's prescription drug costs toward the out-of-pocket maximum.
Second, the essential health benefits of a single state affect self-funded employer group health plans outside of that state. An employer with a self-funded plan is not required to cover the essential health benefits. To the extent that the employer does cover essential health benefits, however, the employer must follow the rules discussed above regarding annual limits, lifetime limits, and out-of-pocket maximums. But which state's essential health benefits apply? Under the ACA, an employer with a self-funded health plan can choose any state as its point of reference for essential health benefit purposes. If even one state obtains a waiver and eliminates prescription drug coverage from the list of essential health benefits, any employer with a self-funded health plan—no matter where the employer is located—could impose annual and lifetime limits on prescription drugs and could exclude prescription drugs from the out-of-pocket maximum.
We expect that even if the MacArthur Amendment were to become law, most employers would continue to offer robust health plans, including prescription drugs coverage, because benefits are an important part of recruiting and retaining talented employees. However, if a state eliminates a category of essential health benefits, employers would have much more flexibility and control over what the plan itself must pay for the newly deregulated benefit. By reducing the plan's costs, employers would be able to drive down the plan's premiums.