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Voucher mandate cut from reforms

Employers relieved as Congress nixes complex requirement

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WASHINGTON—Employers were pleasantly surprised last week when congressional negotiators agreed to strip a provision in the health care reform law requiring employers to offer low-wage employees company-paid vouchers to purchase coverage in state health insurance exchanges.

Business groups and others who feared the provision's cost and administrative complexity welcomed the repeal of the voucher provision as part of the federal budget package, H.R. 1473, which cut more than $38 billion in federal spending. The House and Senate passed the legislation Thursday.

The provision originally was inserted in the health care reform measure by Sen. Ron Wyden, D-Ore., as the legislation was working its way through Congress.

“Employers detested it. Administratively, there would have been so many challenges,” said Gretchen Young, senior vp with the ERISA Industry Committee in Washington.

“It was a complicated provision, with many unanswered questions,” said Paul Dennett, senior vp-health care reform with the American Benefits Council in Washington.

Under the provision, employees would have had to meet two conditions to be entitled to the employer-funded vouchers: their family income could not exceed 400% of the federal poverty level, and the premium contributions their employers require them to make must be between 8% and 9.8% of their income. In 2011, 400% of the federal poverty level for a family of one is $43,560 and $89,400 for a family of four, according to the Department of Health and Human Services.

If those conditions were met, those employees would be entitled to receive a voucher from their employers, and the value of the voucher would not be tied to the plan in which the employee actually was enrolled.

Instead, the voucher's value would be equal to what the employer would pay if the employee were enrolled in its plan that offered the “largest” premium contribution by the employer. Then, the employee could use the voucher to purchase health insurance coverage from a state health insurance exchange. The exchanges are authorized under the reform law and are slated to be set up by 2014.

If the cost of a policy purchased by an employee through the exchange was less than the value of the voucher, the employee could have pocketed the difference in taxable cash.

The provision, to have gone into effect in 2014, would have been costly for employers with large numbers of low-paid workers—such as retailers—who are required to pay a high percentage of the premium.

And, depending on how the legislative language was interpreted in subsequent regulations, it also could have been costly to employers that offer employees a choice of health care plans ranging from relatively low-cost to very expensive plans.

Experts say the provision almost certainly would have resulted in adverse selection, inflating employer costs.

For example, a young, low-paid employee working for a company with a high concentration of older, less healthy and expensive-to-insure employees could have received a voucher with a value much higher than the cost of buying coverage in an exchange, especially if the employee purchased a lower-cost high-deductible plan. Under the reform law, exchanges can base premiums on the age of policyholders.

As a result, employees remaining in the employer's plan would be the most costly to insure, pushing up employers' health insurance premium costs.

Many parts of the provision were not clear. For example, the legislative language said the employer voucher contribution would be equal to the amount the employer would have paid if the employee had been “covered under the plan with respect to which the employer pays the largest portion of the cost of the plan.”

Experts have said it wasn't clear if “largest portion of the premium” referred to the percentage of the premium paid by employers or actual dollar amount paid by employers.

In addition, the law was unclear on whether the voucher provision applied to full- and part-time employees or how “household income” would be calculated.

“There were so many unknowns,” Ms. Young said.

While benefit experts had no inkling that the voucher provision would be included in the budget bill, they were not surprised that congressional negotiators and the Obama administration accepted its inclusion.

The provision never had broad support and was included in the reform measure to retain Sen. Wyden's support at a time when “every vote mattered,” said Chantel Sheaks, a principal with Buck Consultants L.L.C. in Washington.

Repeal of the voucher provision could foreshadow other Republican-led efforts to modify or repeal other provisions of the health care reform law as part of other “must-pass” bills this year and next.

“This could be a curtain-raiser,” said Frank McArdle, a consultant with Aon Hewitt Inc. in Washington.