Health reform law penalties influence how companies design benefits packagesReprints
Employers have several strategies to choose from as they prepare for potentially game-changing requirements of the health care reform law that kick in next year.
Even barebones health plans likely will comply with some requirements, and regulatory changes have eased at least temporarily the chances that an employer would be penalized for not complying with the law.
But penalties remain possible next year for employers with at least 100 workers that fail to offer health insurance to full-time employees that meets minimum essential coverage and minimum value requirements of the Patient Protection and Affordable Care Act, which defines full-time as employees working 30 hours or more a week.
Under February guidance, the Treasury Department eased the rules for 2015. While employers with at least 100 workers still face a $2,000 per employee penalty for failing to offer health insurance to full-time employees, in 2015 they only have to offer coverage to 70% of full-time workers. In addition, when computing penalties for not offering coverage, up to 80 workers can be excluded.
The guidance delays until 2016 stricter thresholds of offering health insurance to 95% of full-time employees, while, also starting in 2016 and continuing in succeeding years, employers not offering coverage will only be able to exclude the first 30 employees in calculating the penalty they must pay.
In addition, the newest guidance delays the coverage mandate entirely until 2016 for employers with 50-99 full-time employees.
The temporary easing of the percentage coverage test is especially important to employers with a significant number of employees working 30 to 35 hours a week that they consider part-time and do not offer health insurance.
“Generally, in planning for 2015, everything has been issued that employers need to know,” said Steve Wojcik, vice president of public policy at the National Business Group on Health in Washington.
Beyond 2015, several key issues have yet to be resolved (see related story).
The changes already made give employers more time to consider their coverage design options.
The delay has “pushed back employer thinking on the issue,” said Sharon Cohen, a principal at Buck Consultants L.L.C. in Washington.
But some employers already have taken action.
For example, Cumberland Gulf Group last year said employees working as few as 32 hours a week would be eligible for group coverage in its self-insured plans, down from the prior 40-hour requirement.
Other employers, though, reduced hours of employees they considered part-time and did not offer coverage to avoid the looming health care reform law $2,000 per employee penalty.
For example, the University of Akron in Ohio, facing millions of dollars in additional costs, while its overall budget had a deficit of $30 million, last year reduced the maximum hours for about 400 part-time employees from 32 hours a week to less than 30.
Other employers are willing to offer coverage to more employees, but are looking for less costly designs.
Some benefit experts say employers, especially those in the low-margin retail and hospitality industries, are actively considering new, very low-cost plans to employees, who previously, because they considered them part-time, were not eligible for coverage.
Such plans have been dubbed “skinny” or “barebones,” so named because they might cover only preventive services and a fixed number of medical provider office visits.
As such, they would comply with the health care reform law's most basic coverage requirement and not be liable for the law's $2,000 per employee penalty for not offering minimum essential coverage, which the PPACA defines very broadly and loosely.
“Basically, just about any employer plan would pass muster,” said Amy Bergner, managing director of human resource solutions at PricewaterhouseCoopers L.L.P. in Washington.
While such plans could fail the PPACA test of offering a minimum value plan, a $3,000 penalty would be triggered only if affected employees also were eligible for federal premium subsidies and used them to buy coverage in a public health insurance exchange.
“A lot has to happen before the $3,000 penalty is triggered,” said Ed Fensholt, senior vice president and director of compliance services at Lockton Benefit Group in Kansas City, Missouri.
Employers offering barebones plans also could pay the entire premium to reduce the likelihood that employees would seek coverage in public exchanges.
“The goal is to avoid penalties,” Mr. Fensholt added.
While there is employer interest in such an approach, consultants say there also is caution.
“Most large employers are somewhat skeptical,” said PwC's Ms. Bergner. One reason for that skepticism: Regulators at some point could conclude that the plans do not offer minimum essential coverage, exposing employers to the $2,000 per employee penalty.
“There is enough risk that many employers are deciding that this is not the right path for them,” Ms. Bergner said.
It also is possible that lawmakers could change the definition of a full-time worker.
Last month, for example, the U.S. House passed, with 18 Democrats signing on, a measure sponsored by Rep. Todd Young, R-Ind., that would define full-time employees as those working an average of 40 hours per week.
Some Washington observers believe the bill, or a compromise version, could win support in the U.S. Senate.
“This is an issue that has bipartisan appeal. I would not rule it out,” said Gretchen Young, senior vice president of health policy for the ERISA Industry Committee in Washington.