By Joanna Antongiovanni
The Affordable Care Act (ACA) has brought with it a new language. With 2,600 pages of law and over 18,000 pages of guidance, these new regulations are reshaping the health insurance landscape. All of it can be overwhelming to a business owner who would rather be concentrating on how to grow their business rather than focusing on avoiding tax penalties because they are, or are not, offering adequate health insurance coverage. Terms like “minimum value,” “minimum essential coverage,” “affordability,” and “variable hour employees,” can make heads spin.
Here are few concepts to help navigate through this new volatile world.
When putting the benefits plan together, be sure to review the provider network. Provider networks (hospitals, physicians, urgent care clinics, etc.) are one of the assets of an insurance company and can make one carrier look more attractive than another. For example, if XYZ insurance company covers all the hospitals in a major metropolitan area as “in-network,” that could be an attractive advantage. The reverse could also be true . . . if an employer knows the hospital around the corner is where most employees would receive care, purchasing a product with access to that provider might be important. Expect to see the carriers get creative with network options in an attempt to be more competitive. Concepts like Exclusive Provider Organizations (EPO), Accountable Care Organizations (ACO), and “skinny networks” (as described in the example above) are strategies to reduce the price of insurance, allowing companies an alternative to remain competitive.
Self-funded plans can be a fit for any size business owner, assuming they are a healthy risk. The ACA brings major changes in how fully insured health plans are underwritten, rated and sold. One of the key changes for employers with less than 100 employees is the concept that they will no longer be “experience rated.” Prior to 2014, many states allowed for a risk adjustment factors, where healthier groups paid less for insurance. While the ACA does apply to the self-funded market, many other provisions will not apply, which makes the self-funded strategy a popular and viable option. Self-funded plans will continue to be subject to federal regulation under ERISA and will continue to avoid the payment of state premium taxes; and, will continue to remain exempt from the state insurance regulations and state-mandated benefit requirements.
Self-funded plans will not be subject to the ACA rating requirements effecting small employers. In addition, they exclude some of the same taxes and fees and they will have a greater flexibility in plan designs.
Insurance carriers and Third Party Administrators are rolling out new “level funding” products . . . and while the concept isn’t entirely new, the attractiveness is. Level funding will closely resemble a fully insured plan yet provide the potential for a refund of surplus dollars at the end of the plan year. Level-funding is available to small employers with 10 or more employees and generally requires a health questionnaire on each employee (or the group’s claims experience, if available) to determine if the group is a health risk. While not guaranteed, this is certainly a viable alternative and a cost containment strategy some employers could benefit from using.
Employers with a calculation of over 50 full time employees and equivalents are considered an Applicable Large Employers (ALE). Counting of the employees’ hours of service has never been more important. The ACA generally defines a full-time employee as 30 hours of service per week. This definition is for purposes of the ACA health insurance requirements only and does not change an employer’s definition of full-time for other purposes like retirement plans, wage and hour rules, and other benefits.
An employer’s scheduling strategy is a key part of ACA compliance. Employers must decide to manage full-time status on a month-by-month basis (30 hrs wk or 130 hrs a month), or implement an optional IRS safe harbor look-back measurement period approach. It may be difficult for some employers to monitor a weekly or monthly count of hours, especially if they have a large number of hourly employees, but if employers keep hours of service to 1560 a year, that may be easier to calculate.
A subsidy from the IRS is a “tax credit.” An employer gives an employee a W-2 so the IRS knows who works for whom – if an employee signs up for health insurance at an exchange, and qualifies for a subsidy (tax credit) the IRS will contact the employer for “shared responsibility” payments. Employers will need to prove they are offering “minimum essential coverage” to avoid the “A” penalty; and, “minimum value coverage at an affordable price” to avoid the “B” penalty. If an employer is fully insured, the insurance company will tell employers if their plan is ACA complaint when it comes to minimum essential coverage (MEC) or minimum value (MV) requirements.
Insurance also has to be affordable for employees, or there’s another penalty. An insurance company will not determine the affordability factor, employers must do that. To avoid the penalty, an employee’s 2015 contribution for self-only coverage cannot exceed 9.56 percent of their income. In addition, there are three safe harbors for what income and premium amount to use (W-2, rate of pay, and a percentage of the federal poverty level). These safe harbors could be considered a strategy of compliance for employers, as well.
All employers offering insurance should be evaluating their current situation with a thorough review of funding options and plan-design alternatives (including network alternatives) and should be on the lookout for increased employer compliance to avoid unnecessary penalties.
Joanna Antongiovanni, SGS, is an Associate Director at Wortham Insurance, Risk Management & Benefits, and is Past President of the Texas Association of Health Underwriters. firstname.lastname@example.org
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