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Fall open enrollment for the 2015 group health plan year is being dominated by employer frustration and uncertainty about implementing coverage and IRS reporting requirements under the health care reform law's employer coverage mandate.
“Open enrollment is going to present employers with some huge challenges this year,” said Steven Friedman, shareholder and employee benefits practice group co-chair at Littler Mendelson P.C. in New York. “There are quite a few hidden traps in the reform law's mandate that could ensnare employers.”
The mandate requires employers with 100 or more employees to offer health care benefits to 70% of their full-time workers — defined as any employee who works an average of 30 or more hours a week — beginning in January. In 2016, the coverage mandate will be tightened to require employers — to avoid a stiff health care reform law penalty — to offer coverage to 95% of their full-time employees. In addition, the mandate, starting in 2016, will be extended to employers with at least 50 full-time employees.
Experts say much of benefit managers' concern has been focused on the Patient Protection and Affordable Care Act's rules requiring most employers to certify that benefits-eligible employees and their dependents have been offered minimum essential coverage, and that employees' premium contributions fall within cost-sharing limits established under the law.
“The reporting requirements under ACA are probably the No. 1 issue that we're dealing with right now,” said Adam Solander, a Washington-based associate at Epstein Becker & Green P.C.
Starting in January, employers will need to track benefits eligibility of their full-time employees and submit annual reports to the IRS to document their group plans' compliance with the law. The first reports are due in early 2016 for employers with at least 100 employees.
Unfortunately, experts said, the IRS has yet to finalize the reporting forms and filing instructions employers must use, and has issued little practical guidance for benefit managers and/or third-party administrators tasked with collecting and maintaining the information necessary to fulfill the requirement.
In the absence of more complete federal guidance, employers “appear to be all over the map” in their readiness to capture and organize the required information, said Sarah Bassler Millar, a partner at Drinker Biddle & Reath L.L.P. in Chicago.
“One of our clients engaged their payroll provider to establish a really robust tracking system for the purpose of gathering all of this information, but that was a project that kicked off a good six or eight months ago, and it was a really expensive undertaking,” she said. “I would say that the vast majority of employers probably don't have the time or resources to put something like that together right now.”
Many employers appear content to postpone developing a concrete reporting strategy, at least until regulators finalize the reporting forms and instructions.
“I'm waiting on final guidance from the agencies as to what it is they're actually looking for and in what form,” said Bruce Elliott, compensation and benefits manager for the Alexandria, Virginia-based Society for Human Resource Management, which has about 340 full-time employees. “I'm putting things in place now that at least let us track enrollees and the levels of coverage we offer to make sure it meets the affordability threshold. But in terms of actually reporting on all of this, we really don't know what to do yet.”
Experts also say they have cautioned clients about legal risks associated with efforts to reduce their exposure to the law's rules on providing coverage to their full-time employees.
For example, more than 20% of more than 1,200 employers polled earlier this year by New York-based benefits consultant PricewaterhouseCoopers L.L.P. said they were considering reducing employees' hours or cutting full-time staff to avoid an influx of newly eligible workers.
That could open employers to civil litigation and regulatory action under the Employee Retirement Income Security Act that bars companies from changing an employee's job status solely to reduce or terminate their eligibility for benefits. But experts also say an employer may escape ERISA liability by demonstrating a legitimate business reason to reduce employees' hours apart from shrinking its medical costs.
“I don't think you can answer this question in a vacuum,” said Adrienne Publicover, a San Francisco-based partner at Wilson Elser Moskowitz Edelman & Dicker L.L.P. “I think the bigger point is that employers need to be thinking about these issues now, not in January.”
Another cost-cutting measure experts say they have warned their clients against includes the continued use of employer payment plans, wherein employers provide cash reimbursements to employees for some or all of the health care premium cost for coverage they purchase in the individual markets.
In September 2013, the IRS declared that employer payment plans are subject to the same requirements as other group health care plans, and cannot be integrated with individual policies to satisfy those requirements.
“That's something that we've come across quite a bit, more than I wish was the case,” Epstein Becker's Mr. Solander said.
Tax penalties for offering an employer payment plan in lieu of a compliant group health plan can be as high as $36,500 per benefits-eligible employee per year.
“Some companies have been marketing these to smaller employers as a way to get around the ACA, but the IRS is very tuned into this and is ready to enforce it,” he said.