Examine practical issues for employers to consider when selecting a health plan.
An employer must consider the practical implications of various plan designs in light of PPACA requirements.
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Practical Issues for Employers to Consider
The practical considerations can be more challenging than the legal considerations. Under PPACA, group health insurance policies maintain participation requirements. When a group falls below those requirements, the group is at risk of a rate increase or cancellation.
For example, an employer with 101 full-time employee equivalents earning near minimum wage has not offered health coverage in the past, but because this employer falls in to the category of an applicable large employer (see Step Two) it will be required to offer a plan that has minimum essential coverage. It also has to be qualified and affordable under PPACA to avoid penalties of the employer mandate (see Step One). Affordability under PPACA requires the employee to contribute no more than 9.66% of his or her salary. Employees earning close to minimum wage may not be interested in using 9.66% of their wages to purchase health insurance, thus causing participation concerns for the insurer when participation falls below contract-mandated levels at or before renewal.
When the employer is selecting a health plan, the insurance provider may increase rates because of low participation, or may terminate the plan all together. Because the employer cannot shift this cost to employees without violating PPACA rules, this will be an added cost to the employer in the form of employer assessed penalties under the employer mandate. If the employer offers affordable coverage, the employee will not be eligible for an exchange subsidy, and thus is at risk of violating the individual mandate if he or she does not enroll in a plan. If the plan is terminated or too cost prohibitive in future years then the employee is forced to the exchange, penalizing the employer. Adequate employer communication is crucial to aligning the interests of employer and employee.
Don’t choose a plan that looks good on paper, but creates a revolving door for your employees at the exchange. This can exponentially increase your compliance burdens.
Insurance companies actuarially must have participation. An employer must offer an affordable plan by “law,” but your employees might not participate in the plan due to the high relative cost or lack of desire to have a health plan. Participation requirements then create a certain tension between employer and insurer that renders it difficult (perhaps impossible) to anticipate if the plan options will survive in-tact until next year, much less years to come. A prudent strategy under current law is to consider partially or wholly self-insuring certain tiers of coverage, and then consider if the status quo survives, self-insuring provided protection from participation requirements (i.e. an employer is not concerned about “self-participation.”).
Document, Document, Document
No matter the plan(s) chosen, there will be increased need to document compliance and keep proper records to assure safe and effective navigation of PPACA. Employers should seek competent counsel/tax advisors to ensure all the many laws and regulations that affect selecting a health plan have been met.
If an employee decides not to obtain coverage through the employer, and seeks a subsidy on a state exchange, the employer must demonstrate to government regulators that the employer has offered that employee qualified and affordable coverage. If the employer is successful, it will avoid the excise tax under the employer mandate. Proper documentation and record-keeping will prove crucial as these procedures begin to be implemented.
PPACA adds additional requirements to existing ERISA requirements such as 1512 Notices, which must be given to employees. A paper trail is important in navigating PPACA successfully no matter the course of action chosen by the employer and can be much more manageable when the proper plans are chosen. This will decrease employee sentiment of a “bad plan” and government inquiry by keeping employees with the employer and off the exchange.
Signing the Contract
Another important aspect to consider is the legal ramifications of signing the contract. While a full discussion of the basics of contract law is beyond the scope of the 8 Step Prep, it is important to remember that a health plan is a contract negotiated by the employer and the insurance provider. Employers should beware of aggressive negotiation tactics sometimes taken by insurance providers, and seek assistance of experienced counsel in negotiating these contracts.
For example, before open enrollment, a broker or provider orally agrees to waive or reduce a participation requirement for a group policy (likely your minimum value plan for newly eligible employees). Later on, towards the end of enrollment, the provider communicates to the employer that because participation is too low, rates will increase. Because negotiating health plans is so time sensitive, the employer has limited options after commencing the enrollment period. In such a case, the employer may want to explore various potential remedies with counsel while being mindful to comply with ERISA and other regulations throughout the process.
Current Issues to Consider When Selecting a Health Plan
We asked insurance broker Tyler Mackie, of Mackie Financial Group, to discuss with us important practical issues to consider when selecting a health plan.
- What changes have you observed in plan selection in the wake of PPACA?
Companies like BlueCross previously had hundreds of options for health policies. We are seeing a steady reduction of options as plans conform to the ‘metallic’ rating structure of PPACA.
- What in your opinion is crucial to selecting a plan?
While so many issues factor into plan selection, an employer first needs to select a plan that gets used. In other words, the employer must be able to accurately forecast participation. For example, if there are 180 employees, the employer needs enough information to confidently say ‘90 employees will enroll in this plan.’ Another crucial issue is the quality of the network in the plan.
- What changes in plan selection do you see coming in the future?
Under the current PPACA model I believe we will see a steady decline in HSA utilization. Of course, there can be certain tax advantages to HSAs. But because PPACA has eliminated high-deductible plans, their effectiveness is severely reduced; I believe they will become obsolete over time.
Current Trends in Plan Selection
Without proper planning, PPACA can drive a wedge between employee and the employer. However, for the employer who knows what plans his employees want, and effectively communicates to his employees, it is possible to find a solution that complies with law and benefits both employer and employee for health and tax purposes.
When selecting a health plan, some employers may prefer to pay the high cost of current major medical plans in order to attract, retain, and motivate employees. This may be more common plans like a PPO or HMO, or alternative arrangements including HSA, HRA, MEWA or other type of plan or plans. Keep in mind that plan selection can be limited by law, requiring equal treatment of all employees when the employer pays part of the premium because the employee participation ceilings are based on percentage of income (9.5%).
Employers anticipating low utilization of minimum value plans, might consider offering self-insured minimum essential coverage to insulate employees from the individual mandate, while also protecting the employer from the non-offering employer mandate, and opening new options to employer and employee (such as non-coordinated voluntary indemnity). Large employers would likely consider this alternative, especially given proposed regulations to auto-enroll groups with over 200 employees (akin to 401k auto-enrollment); this would avoid auto-enrollment into one of the non-MEC plans.
MEC plans offer efficient compliance to employers who choose to auto-enroll employees in MEC plans. Employers can develop different tiers of coverage to allow those employees who desire to opt-out of the MEC plan and opt-in to more expansive, major medical policies. By offering a spectrum of plans to employees, and efficiently utilizing self-insured MEC policies when appropriate, certain employers will be able to efficiently design health plans.
Employers need to weigh the costs of compliance with the practical impact different health plans will have on employees. It is important to remember that the administrative burden of not offering the right suite of plans to employees may be as expensive, if not more expensive than the employer mandate, and just as unpopular as no employer coverage at all. Effective communication and detailed knowledge of all classes of employees can produce a solution beneficial to both employers and employees.
LBMC can help you navigate through the extensive ACA requirements, determine any penalty exposure, and develop strategies to eliminate or reduce future penalty exposure.