The expected repeal of the ObamaCare mandate to buy health insurance means that states will soon have to step in and decide whether to create their own mandates.
The requirement that everyone must purchase insurance or pay a fine is a bedrock principle of ObamaCare, but it’s also one of the most unpopular parts of the law.
GOP leaders have tried for years to find a way to repeal it, arguing that it’s an unaffordable burden on working class Americans. Now, by including a provision that eliminates the penalty in the tax bill, Republicans are on the cusp of achieving a major legislative victory.
Outside experts and supporters of ObamaCare predict chaos in the insurance markets if the tax bill passes and the mandate is repealed.
Premiums are expected to rise significantly and insurers could leave the marketplace. The Congressional Budget Office estimated that about 13 million more people would be without insurance in 10 years.
States have the power to potentially blunt the damage if they choose to enact their own mandate penalties, but even officials in the most liberal states could face a bruising political battle.
“The idea of penalizing people for not getting insurance is controversial, even in blue states,” said Larry Levitt, a senior vice president at the Kaiser Family Foundation. “The debates on reimposing the mandate are not the same as opposing Republican efforts to repeal it. It’s a different dynamic.”
Levitt noted that the idea has split Democrats in the past. For example, in the 2008 presidential campaign, Hillary Clinton’s health plan included a penalty for being uninsured, while former President Obama’s did not.
“The mandate is the most unpopular part of the Affordable Care Act, so there are political challenges in focusing a debate on just that issue,” Levitt said. “States would have to make the case that it would stabilize the market to overcome political opposition.”
There are no legal barriers if other states want to set up their own mandates, but one of the biggest obstacles is time.
If the tax bill passes as expected early next week, states will face a rapidly ticking clock to try to stabilize their health insurance markets.
“It’s faster to destroy something than to create something. For states to create a replacement infrastructure, it takes time,” said Stan Dorn, a senior fellow at the advocacy group Families USA.
Dorn said states would need to decide how much of a penalty people would pay. There would also have to be regulations about reporting requirements, and the whole package would need to pass a state legislature.
But a former Obama administration official said the administrative costs and logistics of a state-level individual mandate shouldn’t be that complicated.
“It’s something of an operational lift, but compared to what states did to implement the ACA, it’s not that hard,” said Jason Levitis, a policy expert at Yale Law School and former senior official in the Treasury Department under Obama.
Insurers have urged Congress not to repeal the federal mandate, but so far have remained quiet about state alternatives.
To date, California, Maryland and Washington, D.C., have been having public discussions about replacing the federal mandate with a state penalty.
Massachusetts has had an individual mandate on the books since 2006, when it was enacted under the law known as RomneyCare. The Massachusetts mandate is more stringent than the federal one, so other states may not want to follow that template exactly.
Earlier this year, officials in the District of Columbia recommended continuing to enforce the mandate if the federal government stopped. While it’s not the same as enacting a state-level mandate, experts said doing so would be the next logical step.
Much of the Republican opposition to ObamaCare’s individual mandate has been on a philosophical level; they don’t want the federal government imposing a financial requirement on Americans.
But advocates worry that the partisan divide will make state disparities even worse, just like with ObamaCare’s Medicaid expansion.
“The very states that tend to have the most people in need haven’t expanded Medicaid,” Dorn said. “Not all states are going to respond, and in a lot of states we’ll see premiums jump through the roof.”
Levitis said that if the individual mandate were repealed, state Republicans would face a reckoning.
“It’s been really easy over the past eight years to attack the mandate without understanding it, but now that it’s going away … state officials will be faced with a stark reality of what the market looks like without it,” Levitis said.
“One would hope it acts as a wake-up call,” he added.
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CVS Health said on Sunday that it had agreed to buy Aetna for about $69 billion in a deal that would combine the drugstore giant with one of the biggest health insurers in the United States and has the potential to reshape the nation’s health care industry.
The transaction, one of the largest of the year, reflects the increasingly blurred lines between the traditionally separate spheres of a rapidly changing industry. It represents an effort to make both companies more appealing to consumers as health care that was once delivered in a doctor’s office more often reaches consumers over the phone, at a retail clinic or via an app.
The merger comes at a time of turbulent transformation in health care. Insurers, hospitals and pharmacy companies are bracing for a possible disruption in government programs like Medicare as a result of the Republicans’ plan to cut taxes. Congress remains at an impasse over the future of the Affordable Care Act, while employers and consumers are struggling under the weight of rising medical costs, including the soaring price of prescription drugs. And rapid changes in technology have raised the specter of new competitors — most notably Amazon.
A combined CVS-Aetna could position itself as a formidable figure in this changing landscape. Together, the companies touch most of the basic health services that people regularly use, providing an opportunity to benefit consumers. CVS operates a chain of pharmacies and retail clinics that could be used by Aetna to provide care directly to patients, while the merged company could be better able to offer employers one-stop shopping for health insurance for their workers.
But critics worry that customers could also find their choices sharply limited. The deal risks leaving patients with less choice of where to get care or fill a prescription if those with Aetna insurance are forced to go to CVS for much of their care.
On Sunday, the two companies emphasized their ability to transform CVS’s 10,000 pharmacy and clinic locations into community-based sites of care that would be far less expensive for patients.
“We think of it as creating a new front door to health care in America,” CVS Health’s chief executive, Larry J. Merlo, said in an interview.
The merger would establish a new way of delivering care, with nurses, pharmacists and others available to counsel people about their diabetes or do the lab work necessary to diagnose a condition, Mr. Merlo said. “We know we can make health care more affordable and less expensive.”
Mark T. Bertolini, Aetna’s chief executive, said that by using CVS’s locations, the company can provide people with a better way of accessing medical care.
“It’s in their community. It’s in their home,” he said. He added, “CVS has the draw. People trust their pharmacist.”
It is the development of community-based clinics — capable of delivering care with the technology and health information available from both parties — that could prove to be the biggest change brought about the deal.
The hope would be that consumers would not only be able to see savings by going to a retail store to treat a sore throat but also have better oversight of a chronic illness, such as diabetes or heart disease. They could get advice on how to lose weight, or undergo tests to monitor their health.
“If they can drive the adoption of the care delivery model, that’s a big deal,” said Ana Gupte, a senior health care analyst for Leerink Partners.
The merger agreement came as another factor weighs on the minds of all in the health care industry: Amazon, which has been rumored to be preparingfor an entry into the pharmacy business. Jeff Bezos, the Amazon chief executive, and his e-commerce juggernaut have already overturned many industries: book buying, retail shopping, groceries and Hollywood, using fierce customer loyalty and enormous reach as cudgels against incumbent players.
But CVS and Aetna have had a business partnership dating back seven years, and have steadily converged into similar visions of how the health care industry was evolving. Conversations about a deeper bond eventually crystallized into deal talks within the last two months, according to a person with direct knowledge of the discussions.
Although neither chief executive mentioned Amazon by name, both said that what they were creating was a compelling opportunity in and of itself.
“Chasing our competitors has never been a solution,” Mr. Bertolini said. He added, “Our competitors will do what they do.”
Many companies are seeking shelter in the arms of their former adversaries, with well-known medical groups like the Cleveland Clinic joining with Oscar Health, an insurer. With federal officials blocking traditional mergers — like the megadeal that featured Anthem and Cigna, the nation’s largest insurers, and one involving Aetna and its rival Humana — companies are looking at combinations that take them beyond their traditional lines of business.
Many analysts view the combination of CVS and Aetna as a defensive move by the companies. CVS Health, which also recently signed an agreement with Anthem to help the insurer start its own internal pharmacy benefit manager, is looking to protect its business with Aetna as it fends off rivals like UnitedHealth Group’s OptumRx and others. Aetna, foiled in its attempt to buy Humana, is searching for new ways to expand its business.
The merger could also fundamentally reshape the business of overseeing drug coverage for insurers, an industry that is dominated by three large players and that has increasingly come under scrutiny over the past year as public anger over high drug prices has expanded beyond the usual culprits — most notably the pharmaceutical industry — to lesser-known players like pharmacy benefit managers.
Under the terms of the deal, CVS will pay about $207 a share, based on Friday’s closing prices. Roughly $145 a share of that would be in cash, with the remainder in newly issued CVS stock. The deal is expected to close in the second half of next year, subject to approval by shareholders of both companies as well as regulators.
Antitrust approval has become an interesting question in the Trump administration, which bankers and lawyers had thought would be more tolerant of consolidation than its predecessor.
A combination of a drugstore company and an insurer is considered less problematic than a merger of two players in the same business, which could reduce competition and hurt consumers. Such concerns ultimately sank Aetna’s efforts to buy Humana, and Anthem’s push to buy Cigna, when the Obama administration signaled its opposition to such consolidation.
CVS’s proposed takeover of Aetna is a so-called vertical merger, combining companies in two different industries. But while such deals have traditionally met little opposition in Washington, the Justice Department has sued to block AT&T’s $85.4 billion takeover of Time Warner on the grounds that it would create too powerful of a content company.
Both CVS and Aetna played down the prospects of regulators moving to block their deal. The breakup fee for the transaction is not especially large, reflecting that belief.
Mr. Bertolini asserted that the companies would not raise prices for consumers. “It doesn’t make sense for us to charge people more when we want more people in the store,” he said.
But analysts and other merger experts warn that the deal could be blocked by federal antitrust officials who worry that it could lessen competition. One area of focus may be Medicare; both companies are significant players in offering prescription drug plans to Medicare beneficiaries.
While the companies said they want to lower costs, CVS also makes money on rebates from drug makers and on filling prescriptions through its pharmacies.
David A. Balto, an antitrust lawyer who has been sharply critical of combinations among insurers and pharmacy benefit managers, said that he was wary of having retailers in charge of people’s health. He argued that doctors may be in a better position to treat illness than retail executives.
“Who do you want to run the health care system?” he said.
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The IRS has announced that it will begin mailing employers letters informing them of their potential liability for a "pay or play" penalty for the 2015 calendar year in late 2017. However, before any penalty is assessed and notice and demand for payment is made, employers will have an opportunity to respond to the agency.
What Will the Letter Contain?
The IRS plans to issue Letter 226J to applicable large employers (ALEs)—generally those with at least 50 full-time employees, including full-time equivalent employees, on average during the prior year—if it determines that, for at least one month in the year, one or more of the ALE's full-time employees was enrolled in a qualified health plan for which a premium tax credit was allowed (and the ALE did not qualify for an affordability safe harbor or other relief for the employee). Letter 226J will include, among other things:

• A penalty payment summary table, itemizing the proposed payment by month;
• An "employee premium tax credit list" which lists, by month, the ALE's employees who for at least one month in the year were full-time employees allowed a premium tax credit and for whom the ALE did not qualify for an affordability safe harbor or other relief;
• A description of the actions the ALE should take if it agrees or disagrees with the proposed penalty payment; and
• A response form.

The response to Letter 226J will be due by the response date shown on the letter, which generally will be 30 days from the date of Letter 226J. Letter 226J will also contain the name and contact information of a specific IRS employee that the ALE should contact if the ALE has questions about the letter.
How Does an ALE Make a Pay or Play Penalty Payment?
If, after correspondence between the ALE and the IRS, the IRS determines that an ALE is liable for a penalty payment, the IRS will assess the payment and issue a notice and demand for payment, Notice CP 220J. That notice will instruct the ALE on how to make a payment, if any. Notably, an ALE will not be required to include a payment on any tax return that it files or make a payment before notice and demand for payment.
Click here for more information from the IRS.
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