Implementation of the Affordable Care Act could potentially cost the University millions of dollars in taxes on health insurance expenditures, though the University has experienced few consequences from the legislation so far, said Director of Benefits Drew Murphy.
Because the University is self-insured — meaning it uses only the names and administrative services of health insurance plans but takes on all financial responsibility for insurance claims itself — not all fees the ACA has enacted thus far have affected Brown, he said.
“Overall, the impact (on the University) has been less than for most employers,” Murphy said.
Before the ACA enacted a 2011 reform allowing young people to stay on their parents’ insurance plans until the age of 26, the University let students opt out of its plans and continue under their parents’ coverage through age 25, Murphy said. He added that the rule — which extends coverage Brown offers by a year — has cost the University roughly $75,000 annually, a small addition to the $30 million spent on health insurance each year.
Though the ACA has also prohibited providers from denying insurance to people with preexisting health conditions, that change did not affect Brown, since the University never denied people coverage for that reason, Murphy said.
But most policies the ACA outlined have yet to take effect, making future consequences for Brown uncertain, said Karen Davis, director of human resources.
One such consequence is referred to as the “pay or play tax,” Murphy said.
The tax would require employers to provide access to health insurance — whether affordable or not — to 95 percent of full-time employees, a term still ambiguously defined in the law. Should a full-time employee go to his or her state health exchange to purchase insurance and the employer be found to have violated this requirement, the employer would be taxed $2,000 for each full-time employee, Murphy said.
That tax would cost the University $7.5 million, he said. “They call it the sledgehammer tax.”
Murphy added that if the employer complied with the rule but the health insurance options were not affordable for employees, the employer would be taxed $3,000 for each full-time employee who went to the state health exchange to purchase affordable insurance.
The pay or play tax will not take effect until January 2015, Murphy said.
One of the most important potential effects of the ACA is the “Cadillac Tax,” said Kenneth Chay, professor of economics. The policy would tax health insurance plans that provide coverage above a certain dollar amount, he said, adding that the tax acts much like the Federal Income Tax with higher tax rates for higher incomes.
The University would have to transfer additional costs to employees or change their health plans to avoid the 40 percent tax on the excess money included in the plan, Murphy said.
“Most employers will change their plans” as a result, he said.
“We essentially provide too good of a health plan,” Chay said.
But Murphy said the University is not concerned about the Cadillac Tax, because it is currently not slated to take effect until January 2018.
The politics surrounding the ACA are still changing, and by 2018 a new president will be in office, Davis said. “There is no way to predict what will happen between now and then.”
The University “will keep an eye on it,” Murphy said.
“Brown may not be affected at all in the first year,” Murphy added, though inflation rates and the rising cost of health care could make the effects of the Cadillac Tax “catastrophic” by 2021.
“The state also has its own taxes that are increasing,” Davis said. “It’s not getting any cheaper.”
Rhode Island has been a leader on health issues for the past few years, Davis said. But the state health exchange, HealthSource RI, has used mostly federal funds and may not be self-sustaining in the future, she said.
Ira Wilson, professor and chair of the department of health services, policy and practice, wrote in an email to The Herald, “The ACA is solving some problems and creating some new ones, but the problems with our health care system have been 100 years in the making.”
“Students and employees should be worried about the underlying problems in the health care system, not just the ACA,” he wrote.