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Health reform a waiting game for some mid-market firms

Employers spurred to action by health care ruling; others take chance on repeal

Health reform a waiting game for some mid-market firms

Many middle-market employers that waited for the U.S. Supreme Court to rule on the constitutionality of the health care reform law now are scrambling to enact employee health plan provisions effective in 2013 and 2014, benefits experts say.

And some are still waiting, hoping the law will be repealed if GOP presidential candidate Mitt Romney wins the White House and Republicans gain control of the Senate and retain control of the House, according to a survey of 4,000 employers conducted by Mercer Inc. immediately after the Supreme Court's recent ruling upholding the bulk of the Patient Protection and Affordable Care Act.

Playing the waiting game could be dangerous for these employers, experts warn, because of the potential for regulatory fines and litigation filed by employees alleging violations of the new law (see related story).

The vast majority—56%—of employers surveyed by Mercer said they were awaiting a ruling by the nation's highest court before developing a strategy to respond to the law's provisions slated to go into effect in 2014 and beyond. While 40% said they will begin taking action now that the court has ruled, another 16% said they will continue to wait until after the November elections.

“There was that period of time where people were...just burying their heads in the sand. Now, all of a sudden, people are starting to stick their necks up and take notice,” said David Levitz, president of employee benefits at GCG Financial Inc., a Bannockburn, Ill.-based broker specializing in middle-market employers.

“There is still a cadre of companies out there that just aren't doing anything. If they had followed the sage advice of their advisers, they should at least have done actuarial modeling by now. For those that haven't, they're like deer in the headlights,” said Mark Holloway, vp and director of compliance services for Kansas City, Mo.-based Lockton Cos. Inc.'s health reform advisory practice.


“There is a group, especially in the middle-market environment, who want to put their heads in the sand and not do anything until forced to,” said Jay M. Kirschbaum, practice leader in Willis Group Holdings P.L.C.'s human capital practice in St. Louis. “I tell them "a man should look for what is and not what should be.'”

Karen Vines, vp-benefits for IMA Inc.'s Wichita, Kan.-based brokerage operations, said one reason many middle-market employers have been reluctant to act is they still do not have clear guidance on many provisions of new statute from the government agencies responsible for implementing the law.

“The challenge is that we don't have the clarity from regulators on some provisions. You have to make a plan based on what you know. Business owners tend not to make plans without having all of the information they need,” she said.

For example, employers are awaiting guidance on the definition of full-time employee. Under the new law, employees who work 30 or more hours each week must be allowed to enroll in their employer's health benefit plan, but it is unclear how many months of a year that employee must work to be considered fulltime, said J.D. Piro, national practice leader in the health law group at Aon Hewitt in Norwalk, Conn.

“We have been focused on the definition of what a full-time faculty member looks like from the very beginning,” said Paul Meese, executive director of organizational development and human resources at the Longmont, Colo.-based Front Range Community College. “In education, it is not uncommon for part-time instructors to work at multiple colleges.”


Some employers with health plans that renew midyear were caught off guard when the IRS announced last month that the annual $2,500 Flexible Spending Account contribution cap set by the new law will not apply for plan years that begin before Jan. 1, 2013.

“I know a client that changed their plan year to a calendar year just because of that confusion,” said Joy Sellstrom, senior counsel at Seyfarth Shaw L.L.P. in Chicago.

“Some of the off-calendar year plans already reduced the FSA contribution to $2,500. Afterwards, the guidance came out and said they didn't have to unless their plan started after Jan. 1, 2013. But that was too late” for that employer because the benefit plan had already been changed, said Patrick J. Haraden, principal at Longfellow Benefits, a middle-market broker in Boston.

While middle-market employers appear to be on track in preparing summaries of benefits and coverage and including the cost of coverage on employee W-2 wage and income statements—two provisions that took effect this year—some other provisions continue to perplex many employers, benefit experts say. Among them are:

• 105(h) nondiscrimination rules. This section of the IRS code formerly affected mostly self-funded plans, if the plan structure and access discriminated in favor of highly compensated employees. However, under the new law, “the IRS wants to apply this to fully insured plans and make it a corporate penalty of $100 a day per non-highly compensated employee for every day of discrimination,” Ms. Vines said. “Envision a restaurant that doesn't offer group coverage to the wait staff. They could face a huge discrimination fine, potentially putting them out of business.”


• Definition of minimum essential benefits. “One of the things that employers would like to better understand is essential health benefits. That has implications if you buy coverage on a fully insured basis vs. self-fund. Non-essential benefits can be capped, though essential benefits cannot be. It could get messy,” said Scott Weltz, consulting actuary at Milliman Inc. in Brookfield, Wis.

• Women's contraceptive coverage. “It's not resolved because regulators took comment up until the middle of June asking payers to cover but not allowing them to recover their costs,” Ms. Vines said.

• Auto enrollment for employer groups of 200 or more. “It is one of the requirements of grave concern to employers,” said Tracy Watts, a Washington-based senior consultant at Mercer. “If a lot of people truly come back into the plan, that's a huge cost. The current average opt-out rate is 18%. Just say half of them come back in, that grows your cost by 9%.”

• Notification requirement for employers to advise employees on the availability of the insurance exchanges. “We don't know for sure that the public exchanges are going to be ready, what they're going to look like, or how they are going to interact with employers,” Ms. Watts said. “Even if you meet all of the plan design requirements (under the law), should one of your employees wander into an exchange...the exchanges are likely to reach out to the employer to find out whether the employee's coverage is qualifying. But we don't know how they are going to reach out to the employer.”

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