Reform by Any Other Name
Healthcare Reform Panel
Prescription for Change
Not a Bitter Pill
Cut Out the Middle Man
“While the subsidies will help make health coverage affordable for some, the subsidies may trigger a penalty for employers. If an employee goes to the exchange to buy health insurance and qualifies for one of the two the ACA subsidies, that could trigger a penalty for the employer if the employer fails to offer affordable, minimum-value health coverage to all their full time employees,” Grassli says.
All plans offered in the exchange must be “qualified health plans,” which includes the “essential health benefits package”(EHBP). The three elements of the EHBP are coverage for the 10 essential health benefits (see sidebar), specific cost-sharing (out of pocket) limits, and coverage that meets minimum value.
It gets even more confusing. Plans in the exchange are classified in four Olympic-medal type categories. In the Bronze package, participants are responsible for 40 percent of healthcare costs (the 60 percent balance is paid by the plan). This bronze level plan is considered a minimum value plan. The Silver, Gold and Platinum programs pay 70, 80 or 90 percent of those costs. Obviously, the more precious the medal of the name program, the more expensive the plan will be for the employee.
But the law does provide some control over what carriers can charge for monthly premiums in individual and small employer plans. After January 1, 2014, carriers will no longer be able to consider factors like pre-existing conditions, gender, health status, claims history and occupation, when they are determining month premium charges. Premiums will only be varied under four circumstances: for age (3:1 ratio for adults), tobacco use (subject to wellness program rules), geographic rating areas within a state, and single or family tier.
How stringently this will all be enforced is, of course, an unknown at this point. There are caps for out-of-pocket expenses, no lifetime caps on coverage, and all plans have to pay 60 percent of medical expenses at a minimum.
Employer Shared Responsibility
The third and final element of “The Big Three” is employer shared responsibility, where all large employers (defined as 50 or more full-time or full-time employee equivalents) must offer health coverage to all employees who work 30 hours or more per week (and their dependents) or pay a penalty. This provision imposes a penalty not a tax, (unlike the individual mandate tax) and therefore this requirement also applies to all large employers including nonprofits and other non-taxable entities. All children ages 26 and younger are considered dependents under this section, but strangely, spouses are not.
“The employer shared responsibility provisions can be confusing, so if you think of it as having two main questions, it’s easier to tackle. First, is the employer large or small? If small, the employer need not comply with this particular ACA provision. However, they are still subject to still other ACA provisions if they opt to offer coverage. If large, go on to the second question which is how are all full-time employees accurately identified and offered coverage so the penalties can be avoided,” Grassli says. “Once you identify who should be offered coverage, the health insurance you offer cannot be just any coverage. The monthly premium must be affordable (see sidebar) and the plan must meet minimum value.” Minimum value is analogous to the Bronze plan in the exchange (the plan must pay at least 60 percent of the total covered costs under the plan).” Mini-med plans probably don’t meet this, and catastrophic plans don’t meet it either.
What if an employer opts to pay the penalty rather than pony up and offer health insurance plans? Grassli says that could be a real possibility for some large employers, but many employers find offering benefits would be less expensive than paying the penalty, and even if not, they want health coverage to be part of the benefits they provide to their employees.
The healthcare reform act provides the following penalties for non-compliance under employer shared responsibility provisions:
When coverage is not offered to all (95 percent) full-time employees, the penalty is $2,000 a year times the number of FTE (minus the first 30), assessed monthly ($167 per month per FTE). If coverage is offered, but not defined as affordable, or doesn’t meet minimum value, the penalty is $3,000 a year multiplied by the number of employees who go to health exchanges or who qualify for tax credits or cost-sharing reduction, or $2,000 annually, whichever is less (again, assessed monthly).
“If all of this seems overwhelming, you are not alone,” Grassli says. “Besides the Big Three, there are several other ACA provisions employers must be aware of and comply with if they want to avoid penalties under those provisions. The best advice I can give to employers is to get educated.” GBS and other health insurance brokers, as well as tax professionals and attorneys who practice in this area, should be able to help employers comply with the law. “A lot of information out there is inaccurate, so be careful where you are getting your information.”
“This is not a static area of the law right now, and you need to stay updated with the regulations as they are issued if you want to avoid penalties. Identify and understand the provisions you need to comply with. The more you understand, the less overwhelming it will become.”