Commentary: When it comes to healthcare reform, what you don’t know really can hurt you.
With so many moving parts and delays, it’s been understandingly difficult for employers to figure out exactly what their responsibilities are when it comes to the Affordable Care Act. And with the deadline for employers with 50 to 99 full-time equivalent employees to comply with the ACA’s employer provisions and mandate fast approaching, businesses that haven’t yet solidified their plans are running out of time to do so before the clock strikes midnight on December 31.
Also see: “Budget act strikes ACA auto-enrollment provision.”
Fortunately, there is still time for employers to identify and apply a number of strategies that can help mitigate the effects of healthcare reform on their businesses.
What changes will 2016 bring?
Before we dive in to the strategies employers can use to deal with healthcare reform, let’s start with an overview of the big-ticket items that are changing next year:
ALE definition. By law, the employer provisions and mandate of the ACA only apply to what are defined as “applicable large employers” – i.e., those with 50 or more full-time equivalent employees. While ALEs with fewer than 100 FTEs were granted transition relief in 2015, beginning in 2016 all ALEs with 50 or more FTEs will be required to comply with the ACA’s employer provisions and mandate.
Also see: “Cost of ACA health premiums are rising.”
MEC offer requirement. Under the Tier 1 penalty of the ACA, employers are required to offer minimum essential coverage to at least 95% of their full-time employees and their eligible dependents (defined as children to age 26). While that requirement was reduced to just 70% for 2015, it will increase back to 95% beginning in 2016.
Affordability requirement. As part of the ACA, the IRS is tasked with setting the threshold percentage used to determine whether health coverage offered by an employer is considered “affordable.” Beginning in 2016, the IRS will increase the threshold percentage will by one-tenth of a percentage point (from 9.56 to 9.66), which means that healthcare plans will not be considered affordable if an employee’s contribution to the plan for employee-only coverage exceeds 9.66% of the employee’s household income.
There are a number of strategies employers can use to navigate the costs and complexities of healthcare reform and mitigate the effect the ACA has on their business, including:
1. Reducing the number of full-time employees on staff. If an employer doesn’t meet the 50-FTE threshold, it can’t be considered an ALE. Employers whose employee counts hover around this number and opt to go with this strategy should be cautious, however, and still devise some sort of mechanism to keep track of employee hours.
2. Applying the “measurement period” concept to seasonal and variable-hour employees. To help employers calculate whether or not an employee should be considered “full-time,” lawmakers created measurement and stability periods as part of the ACA. Measurement periods allow employers to monitor an employee’s hours for a given period (between three to 12 consecutive months) in order to determine whether the employee meets the requirement to be considered a full-time employee.
A longer measurement period is often attractive because it may reduce the number of plan-eligible employees based on the hours worked over this extended period of time. The downside is that longer measurement periods must, by law, be accompanied by longer stability periods, which could mean an employer may be required to continue covering someone long after they’ve changed to part-time status.
3. Making Medicaid- and Medicare-eligible employees aware of their options. It is perfectly OK for employers to educate Medicaid- or Medicare-eligible employees about their options when it comes to choosing a healthcare plan. In fact, choosing Medicare or Medicaid over an employer-sponsored plan can prove to be a much better choice for an employee. Employers need to be very careful, however, to not go beyond educating employees about their options.
4. Offering only one minimum qualifying and affordable plan. Under the ACA, only one of an employer’s plans needs to meet minimum qualifying and affordability requirements. As long as just one plan meeting these requirements is offered to employees, an employer is safe from penalties.
5. Offering minimum essential coverage plans. Minimum essential coverage plans are designed to provide the minimal coverage an employee needs to meet the requirements of the individual mandate. While only offering a MEC is certainly appealing due to the low cost, it’s not necessarily an advisable course of action. MEC plans are relatively “skimpy,” and could saddle an employee with significant out-of-pocket expenses if they encounter a serious and expensive medical condition. Instead, employers who want to offer MEC plans should also offer other plan options. If an employee still chooses a MEC plan, then the responsibility remains with the employee.
6. Offering qualifying coverage that isn’t necessarily afford able. Alternatively, employers could quit worrying about making their coverage affordable and just focus on making sure it fits the requirements of qualifying coverage. While this strategy might leave an employer open to the softer Tier 2 penalty, it will protect employers from the more significant Tier 1 penalty.
7. Not offering spousal coverage. While limiting/excluding spousal coverage would have been unheard of just 10 years ago, today it’s becoming more and more accepted and common. Per the ACA, an employer is only required to provide coverage for its employees and their eligible dependents. If completely excluding spousal coverage seems extreme, another cost-saving option is to surcharge for spousal rates if the covered spouse is eligible for coverage through his or her own employer.
Also see: “Should employers consider spousal surcharges?”
Employers can pick and choose among any of the strategies above, or use any combination of the above, in order to reduce their costs. Each strategy comes with its own sets of pitfalls and caveats, however, and employers should thoroughly consider all of the ramifications of any strategy they choose to employ.
Tony Nista is vice president, medical underwriting & analytics at G&A Partners. Prior to joining G&A Partners in 2015, he held various underwriting, consulting and operational leadership roles with large national carriers, regional HMOs, PEOs and brokerage consulting firms.
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