Reform by Any Other Name
Healthcare Reform Panel
Prescription for Change
Not a Bitter Pill
Cut Out the Middle Man
“Fact or fiction,” asks Rachel Reimann, senior compliance consultant at SelectHealth, “President Obama started giving away free vasectomies last year?
“There is a lot of information out there about the Affordable Care Act. And even more misinformation.”
The vasectomy example illustrates an almost-truth of the ACA. Vasectomies are not covered as preventive under the ACA, but sterilization—for women—is now considered a preventive service under the law.
“The goal of preventive care, such as regular checkups and screenings, is to help you avoid illness and to detect problems when they are most treatable,” Reimann says. “Women’s services like birth control, breast cancer screening and breastfeeding supplies are just a few of the services that are now defined as preventive.”
Essential Health Benefits
One of the key mandates of the ACA is “essential health benefits.” Preventive care services is just one of the 10 categories of benefits that are now defined as “essential,” or required, for all individual or small employer plans. Additional EHB categories include ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance abuse, prescription drugs, rehabilitative and habilitative services and devices, lab services and pediatric services.
Though EHB requirements don’t apply to self-funded or large employer (currently 50 or more employees) plans, the EHB they do cover may not have any annual or lifetime dollar limits.
The ACA-mandated EHB categories are incredibly broad. The federal government has allowed each state to choose a benchmark plan to determine the details of what services must be covered within each category. Utah chose the PEHP Basic plan as its benchmark.
“Benchmark plans set a standard for benefits in each category but the specific benefits may vary between carriers and even plans,” Reimann says. “Insurers can substitute benefits within a category with other benefits that are substantially equal in actuarial value.” It is important to note, however, that substitution between categories is not permitted.
“We hear from a lot of small business owners who are worried that if they don’t offer insurance coverage that they will have to pay a penalty,” Reimann says. “That is fiction.”
Only large employers are subject to the “shared responsibility” (often called “pay or play”) provision of the ACA, which imposes two types of penalties for not providing sufficient health coverage to employees.
These penalties are triggered by one or more full-time employees receiving a premium tax credit or cost-sharing subsidy in a health insurance marketplace (online insurance exchange). The first penalty comes when a large employer fails to offer “minimum essential coverage” to all of its full-time employees and their dependents. (Most employer-sponsored plans will meet the minimum requirement.) The resulting penalty is an annual fine of $2,000 multiplied by the number of full-time employees, minus 30.
“If an employer with 100 full-time employees only offers coverage to 85 employees, he or she will have to pay a penalty of $140,000 if one or more of those employees buy insurance in the marketplace,” Reimann explains. That number is calculated by multiplying $2,000 times 70 full-time employees (the company’s 100 employees, minus 30).
The second penalty applies when the employer offers minimum essential coverage to its full-time employees, but the coverage isn’t affordable (it costs more than 9.5 percent of the employee’s household income) or doesn’t provide minimum value (where the insurance pays for at least 60 percent of expected covered healthcare expenses). In this case, the employer is subject to an annual fine of $3,000 multiplied by the number of employees who receive subsidized health coverage in the marketplace.
Reimann turns to the same example of an employer with 100 full-time employees to illustrate this penalty. “If the coverage is not affordable and 10 of them get subsidized coverage in the marketplace, the employer will be responsible for $30,000 in penalties—$3,000 for each of those 10 employees.”
“While the Affordable Care Act penalizes large employers who do not offer coverage, it incentivizes small business that do,” Reimann says. Small employers may be eligible for an insurance premium tax credit of up to 50 percent to encourage them to begin or continue offering coverage. To qualify, the employer must have fewer than 25 full-time employees, pay those employees an average annual wage of less than $50,000, pay at least 50 percent of their employees’ premiums and purchase a qualified health plan in the marketplace.