by Joseph Berardo, Jr., CEO and President, MagnaCare and Thomas B. Considine, COO, MagnaCare
The uncertainty surrounding the viability of the Affordable Care Act (ACA) from a legal perspective has, for the most part, been resolved by the Supreme Court decision of June 28, 2012, upholding the federal law. The ruling, however, failed to alter the extensive employer obligations and deadlines coming due in the next 16 months. In fact, the country is more likely to see more uninsured individuals in response to the increased burden put on employers.
Up until now, practicality dictated a measured response to implementation in the face of the significant constitutional challenges. While employers generally waited, federal agencies charged with policing compliance under ACA proceeded to establish its enforcement mechanisms. Employers must now focus on the extensive work that will be required to avoid penalties and meet the fast-approaching deadlines.
To successfully fulfill some of the more burdensome and time-sensitive requirements, employers need to be aware of the dates and what is expected of them. They should also learn more about self-insurance, a cost-effective alternative to the traditional, fully insured health plan approach. Health insurance has played a key role in putting the US healthcare system into its current state of crisis, with many experts in the field predicting that insurance rates will continue to climb as a direct result of ACA.
Summary of Benefits and Coverage
Of immediate concern is the requirement that sponsors of group health plans provide employees with a uniform Summary of Benefits and Coverage (SBC). Drafting a compliant SBC can be a daunting task. It must minimally include a description of coverage, uniform definitions of standard insurance and medical terms, cost-sharing requirements, coverage exceptions, reductions or limitations, renewability, continuation of coverage provisions, coverage scenarios, contact information for questions and information for obtaining a list of network providers. The contents of the SBC must:
- Not exceed 12 point font on four double-sided pages
- Be presented in a "culturally and linguistically appropriate manner"
- Utilize "terminology understandable by the average plan enrollee," which can vary widely from plan to plan
The SBC requirement is effective as early as September 23, 2012, depending on whether or not a plan has an open enrollment period. Significant sanctions will be imposed for failure to provide the SBC: a $100 per day penalty for each failure (per each enrollee who does not receive a compliant SBC in the time required) and an additional $1,000 for any failure the Secretary of Health and Human Services (HHS) determines is willful.
Other important dates include:
January 1, 2013—Reporting the cost of employer-provided coverage. Beginning with 2012 W-2 forms, employers must include the aggregate "value" of all applicable employer-provided coverage. IRS Notice 2012-9 provides 23 pages of guidance supplementing the 19 earlier pages of IRS Notice 2011-28. These notices set out a number of fact-specific applications and exceptions to the reporting requirement, and describe how to calculate the cost of the coverage.
Employee contributions to Flexible Spending Accounts (FSA): $2,500 limits imposed.
Employers sponsoring an FSA program on a calendar year basis must have logistical changes in place. Certain non-calendar year plans that begin before 2013 have a later effective date. IRS Bulletin 2012-26 and Notice 2012-40 outline the details. That the plan amendments required to set the $2,500 cap may be made retroactively before the end of 2014 provides some relief.
Increase in Medicare taxes for "highly compensated" employees.
Wages, including non-cash fringe benefits in excess of $200,000, will be subject to an additional 0.9%tax (from 1.45 to 2.35%). Employers must be prepared to identify the point at which an employee meets the threshold, withhold the additional tax and comply with reporting requirements. IRS Form 941, Employer’s Quarterly Federal Tax Return and the W-2 must all reflect the amounts withheld.
March 1, 2013—Written notice to employees about the existence of health insurance exchanges in their state. The notice must include:
- Information on services provided
- How the employee can contact the exchange
- Eligibility for tax credits
- The possible loss of employer contribution if an employee elects exchange coverage
Complicating this obligation, the majority of states have yet to either form or decide to form an exchange. Each state must notify HHS by November 16, 2012, whether it intends to establish an exchange. Failure to make timely notification results in a state’s exchange being run by the federal government. This, combined with the lack of federal guidance, leaves employers in a position to scramble to meet obligations under this requirement once a determination is made with respect to the applicable state exchange.
Because of continued rising costs, the burden of compliance, and the myth that the exchanges will solve the country’s coverage woes, a number of employers with less than 30 employees may decide to stop providing health coverage without penalty.
January 14, 2014—"Play-or-pay" mandate. Businesses with more than 50 employees face substantial penalties if health coverage is not offered to full-time employees or the coverage offered is "unaffordable" or "not comprehensive". In the case of no coverage, the employer faces penalties of $2,000 per employee. If coverage is offered but is "unaffordable" or "not comprehensive," the penalties are $3,000 per employee receiving a subsidy for exchange coverage.
Because a number of play-or-pay components require analysis of options as soon as possible, employers would be wise to consider likely ramifications, including cost impact, employee retention and penalties for intentional non-compliance in determining whether to keep, add or eliminate health coverage. A penalty of $100,000 (50ees X $2,000), however, is far less expensive than providing coverage – again, creating a financial incentive to drop coverage.
Getting Up to Speed
With the time left to develop implementation plans, employers should:
- Engage in a cost benefit analysis of available options with respect to the play-or-pay mandate
- Review any existing coverage to determine if it meets PPACA’s minimum essential benefits standard, as well the 60/40 split of employer - employee contributions
Once employers understand the cost and coverage of any current plan, they will be in a better position to decide how to proceed. A company may choose to leave an existing health plan in place if it meets the aforementioned "minimum essential coverage" and 60/40 split. Or it could decide to change existing coverage to make it "qualified and affordable." As referenced above, in some cases, based on the cost benefit analysis, a company may realize savings if it stops offering coverage and subjects itself to the tax penalties set forth in the federal law.
In the short time until the play-or-pay’s effective date of January 1, 2014, employers should investigate other alternatives. Because it is likely that insurers will be marketing new products designed to conform to ACA’s requirements, employers are well advised to explore the benefits of self-insured coverage, including its potential cost savings and favorable treatment under ACA compared to insurance-based programs.
Advantages of Self-Insuring Under ACA
Self-insured plans are not subject to many of the significant burdens imposed by ACA, including these key provisions that impose obligations on insurance-based plans:
- Essential health benefits requirements
- Comprehensive coverage for health benefits package
- Jurisdiction of state ombudsmen
- Ensuring that consumers get value for their dollars
- Administrative simplification
Specifically, the federal law does not subject self-insured health plans to the jurisdiction of the states, while insurance-based plans must comply with the varying coverage mandates, insurance statutes and regulations of the 50 states. Self-insured plans continue to be exempted from state mandates and regulation by virtue of ERISA’s preemption of state action in connection with self-insured health and welfare benefit plans. For the most part, self-insured plans are not subject to litigation in state courts or the appeal and complaint procedures of the insurance departments of each of the states.
Self-insured health plans offer employers less complex administration and greater flexibility in plan design, which often translate into cost savings. The advantages of self-insured plans are available to employers both large and small, with the actual minimum varying state by state. Employers engaged in the recommended cost-benefit analysis triggered by the January 1, 2014, effective date of the play-or-pay mandate would be remiss if they did not give the practical and economic advantages of self-insured health plans due consideration.
Employers have significant and time-sensitive work ahead in terms of addressing the upcoming deadlines for compliance with ACA. Notwithstanding the 2012 presidential election and its potential impact on the future of healthcare reform, the time has come for employers to identify their best options, develop a plan and take the necessary steps to either comply or "pay" for not "playing." Self-insured health plans are an essential element of this analysis and offer a solution to a large number of employers seeking to comply with ACA, continue offering employee healthcare coverage and keep costs down.
Disclaimer: This article is intended solely to provide general information and does not constitute legal advice. No action should be taken based on any information herein without first consulting legal counsel.
Joseph Berardo, Jr. currently serves as CEO and president of MagnaCare. In this capacity, Mr. Berardo is responsible for the management of all of MagnaCare's day-to-day activities and the strategic initiatives of the company. Mr. Berardo originally joined the company as Vice President of Sales and Marketing in January of 2003.
Tom Considine joined MagnaCare as Chief Operating Officer after serving as Commissioner of Banking & Insurance in NJ Governor Chris Christie's Cabinet. As MagnaCare COO, Considine has direct responsibility for the Company's Operations, Medical Management, Hospital & Professional Networks, Customer Service, Claims, Actuarial & Analytics, Information Technology and Legal & Regulatory Affairs.