Answering Your Questions and Analyzing Your Choices
NOTE: The following article is the first of a three-part series, “Employer Responsibility for Health Coverage: Are You Ready for 2014?” This month, we provide answers to some of the most frequently-asked questions employers are posing about health reform, to help you anticipate the ACA’s impact…plan for coming changes…and analyze your choices. The series is based on our recent webinar, presented by David Herbst, Partner, Tax, Employee Benefits and Global Compensation, Manatt, Phelps & Phillips, LLP; Joel Ario, Managing Director, Manatt Health Solutions; and Jay Vogel, Principal, The Camps Group. To view our complimentary webinar with detailed information on employer obligations and options under the ACA—or to download a hard copy of the webinar presentations—click here.
Did you miss part 1 of our series with a full guide for employers on understanding the ACA’s terms, meeting its requirements and avoiding its penalties? click here to view the article.
Will Employers Face a Surge in Enrollment?
Employers start by asking one big question. Are they currently excluding a significant number of employees to whom they now will need to offer coverage? For many, the answer is “yes.” The ACA defines full-time employees (FTEs) as those working 30 or more hours per week each month during the prior calendar year. Until now, many employers have required employees to work at least 40 hours a week to be eligible for coverage. With the new 30-hour standard, employees who may have been considered part-time now have full-time status. Therefore, many employers—particularly those in the retail sector—will see a surge in enrollment under the ACA.
How Is Dependent Coverage Being Affected?
Employers generally are offering employees coverage for their dependents. (Under the ACA, dependents are defined as employees’ children younger than 26.) Because of the escalating cost of healthcare, however, many employers are basing contributions on the single employee, with less of a contribution for dependents. In simple terms, that means the employer may cover 80% of the single premium, but if the employee brings on dependents, the employer may cover only an additional 50%.
Are Insurance Companies Changing Policy Pricing for Employer Group Plans?
Prices on group policies are increasing, due both to the uncertainty around reform and the taxes and fees being passed on to insurance carriers. For example, one major insurance company attributes 5% of its 20% increase to health reform. Changes such as making policies unlimited and raising the dependent status to age 26 are driving up premiums—and employers and employees are feeling the effects.
How Are Employers Making Sure Their Coverage Is Affordable, by the ACA’s Definition?
The ACA stipulates that coverage is affordable if the employee’s required contribution is no more than 9.5% of his or her household income for the taxable year. The safest route to ensuring compliance is working with a brokerage firm to draft out your contribution levels …conducting a safe harbor test…and having an actuary certify your results to confirm your contributions are accurate and meet the ACA’s requirements.
Nonprofits, retailers and other industries with many low-wage earners face the greatest issues because, to meet affordability standards, they are being hit with a significant piece of the contribution. Therefore, they need to be extra cautious that they are not putting themselves at risk for penalties down the road. For organizations with a large number of low-income earners, it is particularly important to work hand in hand with their brokers and actuaries. They also should refer to Notice 2011-73 and Notice 2012-17 of the IRS Code for additional guidance.
Are Employer Plans Offering Enough Benefits to Meet the Minimum Value Requirement?
For the vast majority of plans, the answer is “yes.” A recent report issued by HHS (Health and Human Services) shows that 90% of individuals currently covered by employer-sponsored plans are enrolled in programs that meet the minimum value requirement. (Under the ACA, coverage provides minimum value if, on an actuarial basis, the plan pays at least 60% of the total allowed cost of benefits.)
It is still important for employers to take the precaution of running the numbers to be sure their plans meet the ACA standard. Minimum value calculators are available through brokers or on the HHS web site. Actuarial certification is also helpful though not as critical as it is for ensuring affordability. In fact, a plan would have to be watered down to the extreme for it not to meet minimum value. This is true for both fully-insured and self-insured plans. In fact, self-insured plans are often a bit richer because they can make the rules themselves.
What Should Employers Be Doing to Analyze and Finalize All Their Choices?
With 2014 right around the corner, employers whose coverage renewal dates coincide with the New Year should start planning now. They should be working with their brokers, performing the appropriate tests to ensure their plans meet all of the ACA’s requirements for affordability, coverage and value. By about 120 days before the renewal process begins, the broker should be analyzing and negotiating the plan to confirm it includes all of the appropriate options. By 60 days before renewal, that process should be complete.
Private exchanges are a new option for employers this year. Some marketplaces—for example, New York—did allow multiple insurers to offer coverage, though they didn’t use the term “exchange.” The concept, which is gaining in popularity, lets an employer offer a lump-sum benefit, giving employees a set amount of dollars they can use to choose between multiple plans and potentially multiple carriers. This approach is something employers should consider when doing their due diligence, prior to their renewal periods.
Can Employees Purchase Individual or Group Coverage through an Exchange?
Large employers--those with 50 or more FTEs or FTE equivalents--do not currently have the option of participating in Exchanges. Employees of large employers can seek coverage through Exchanges. It’s important to remember, however, that large employers will be assessed a penalty, if their employees receive tax credits or cost-sharing reductions.
Small employers can offer group-sponsored coverage through SHOP (Small Business Health Options Program) Exchanges. Employers choose a “metal level” of care from bronze up to platinum, and employees can select any plan within that level.
What Are Most Employees Likely to Do?
Exchanges will offer a lot of choice. In reality, however, going to the market directly—as opposed to through Exchanges—will offer the greatest array of plan designs. Predictions are that most individuals—if they are on a plan with strong contributions and low out-of-pocket expenses—will continue to receive coverage through their employers.