Obamacare Aftermath: Four Recommendations for Reform

Sep 26, 2013

A House-led effort to defund the President’s health care law has, once again, failed to pass the Senate. Despite the House efforts, it appears the law is here to stay. As Chamber President and CEO Tom Donohue said in March: “outright repeal is not a practical option.”

However, as Donohue also wrote, “Just because we’ve been saddled with a burdensome law doesn’t mean we have to settle for a dysfunctional health system.”

Below are four reforms we should focus on now to address variation and disparity in access, cost and quality, and ease the law’s burden on business and the public in the coming months.

Restore the 40-hour work week: One of the most basic ways to put some sanity back into employer-based health care benefits is to revise the health care law’s definition of full-time employee.

Under the health care law, employers with 50 or more full-time equivalent employees must offer health insurance to all full-time workers and their dependents or else potentially pay a penalty. The statute defines full-time as an average of 30 hours a week in any given month. (This flowchart will help you figure out if your business qualifies.)

This new definition of the workweek is already resulting in significant structural changes to our labor market. Businesses are restructuring their workforce and reducing their employees’ hours to avoid costs that could potentially bankrupt their companies.

The Chamber and other business groups are supporting H.R. 2575, the Save American Workers Act, which would reinstate the traditional 40-hour-per-week definition to full-time work and remove the incentive for businesses to cut hours.

Repeal the medical device tax: The new device tax, which took effect in January 2013, takes a 2.3% bite from medical device manufacturers’ total revenues. That levy lands on a wide range of medical devices and health care technologies—everything from tongue depressors to cardiac stents to radiotherapy equipment. (Consumer medical goods purchased at the retail level, like Band-Aids, are excluded.)

The tax is a key funding source for the president’s health care plan: it’s projected to generate $3.2 billion per year in revenue over the next decade, according to the Tax Foundation.

But the tax also brings potential negative consequences for an industry that up until now has been a U.S. leader. Those unintended consequences include a slowdown in technological innovationreduced quality of care for patients, and a hit to U.S. jobs in the middle of a sluggish recovery. And that has officials in Washington debating what to do about the increasingly unpopular tax.

bipartisan coalition in Congress is fighting for repeal. Earlier this year, the Senate voted 79-20 on a non-binding resolution to repeal the measure. 

Supporters have also pushed to include the repeal either in the temporary spending bill or in upcoming legislation needed to raise the nation’s debt ceiling once the government runs out of borrowed money on Oct. 17. That effort has drawn the ire of Senate Majority Leader Harry Reid, who said that such an idea is “stupid.”

Remove the contribution limit on FSAs and permit use of HSA/FSA to purchase over the counter (OTC) items: Consumer-directed plans, including Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs), have provided a low cost and increasingly popular way to enable employees to save money when they choose lower cost health care services and products.

Under Obamacare, employee contributions to health flexible savings accounts (FSAs) are limited to $2,500 per year, indexed by the consumer price index in subsequent years. Before that, it was up to employers to set the contribution limit; the average for most companies’ FSAs had been about $5,000.

At the same time, HSA and FSA funds will no longer be permitted to purchase certain items, including most over-the-counter medication without a prescription. These changes may have produced revenue on paper, but they are both counterproductive in trying to bend the health care cost curve downwards and get costs under control.

These restrictions on HSAs and FSAs should be eliminated. The Chamber is supporting S. 610, the “Family Health Care Flexibility Act,” which would repeal limitations on HSAs and FSAs.

Repeal the Health Insurance Tax: In January 2014, insurers will be hit with a health insurance tax (HIT). The HIT is a fixed-dollar amount distributed across health insurance providers: $8 billion in 2014, $11.3 billion in 2015–2016, $13.9 billion in 2017, and $14.3 billion in 2018.

The HIT singles out health insurance policies purchased on the fully-insured market where 88% of small business owners purchase their coverage. Not only will this tax be shifted to small businesses, but it will also raise the cost of health care for their employees. A study by former Congressional Budget Office director Douglas Holtz-Eakin shows the HIT will cost families about $5,000 in higher premiums over the next decade.

Without any action to repeal the HIT, the future could be bleak. A recent study by the NFIB Research Foundation found the tax would result in as many as 262,000 fewer private sector jobs and would reduce national economic output by as much $35 billion by 2022.

Bipartisan legislation has been introduced in the House by Representatives Charles Boustany (R-La.) and Jim Matheson (D-Utah) would repeal the HIT. Together with its Senate companion bill, more than 200 bipartisan cosponsors have signed on to take action and lift an unnecessary burden off the back of our nation’s job creators.

In addition to these reforms, the U.S. Chamber’s Health Care Solutions Council recently released a report outlining recommendations for advancing real health care reform. The report suggests ways to leverage the successes in the employer-sponsored health care system, and proposes changes—both regulatory and legislative—to build on private sector advances in improving value.

In part II of this post, we'll look at four more reforms that would lessen Obamacare’s most onerous burdens on businesses and consumers

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