The IRS recently released draft instructions for 2015 employer shared-responsibility (ESR) forms. These instructions provide several, mostly helpful, clarifications for completing the individual statements and IRS transmittal (due in early 2016), including a relaxed standard for use of the “98% offer” method and some relief for employers with reporting duties for multiemployer plan populations. Draft 2015 instructions were also released for the form which insurers and certain others will use to report on enrollees’ minimum essential coverage (MEC).
Following up from a July House Committee hearing, key GOP House lawmakers are taking aim at controversial Affordable Care Act (ACA) guidance requiring self-insured and large-group insured nongrandfathered health plans to "embed" individual in-network out-of-pocket (OOP) limits in family coverage limits by the 2016 plan year. In a recent letter to Health and Human Services (HHS) Secretary Sylvia Burwell, the Republican chairmen of the three committees with jurisdiction over the ACA objected to the new requirement. House Education and the Workforce Chairman John Kline, R-MN, has asked for a one-year enforcement delay, but it’s unclear at this time whether changes will be made to the May guidance from HHS, IRS, and the Labor Department.
Regulators assured employers and insurers in the private marketplace they will not face transparency reporting under the ACA until they have an opportunity to comment on proposed rules. Qualified health plans on public exchanges using the HealthCare.gov IT platform will begin transparency reporting first, followed by other state-based exchanges, according to a CMS proposal. A triagency FAQ confirms that transparency reporting requirements for employers and insurers for other plans may differ from the requirements in the CMS proposal.
A new tool from the Robert Wood Johnson Foundation compares what essential health benefits (EHBs) state benchmark plans offer beyond the 10 required by ACA, current as of March. ACA requires nongrandfathered health plans in the individual and small-group markets to cover health services and items in10 general EHB categories but states have some discretion in choosing an EHB benchmark plan, so benefits beyond the ACA-required ones may vary from state to state. Additional information on EHBs and benchmark plans can be found in a Cigna analysis, updated in May, and an overview by the National Health Law Program released in August. States had until June 1 to select a new benchmark plan for the 2017 plan year. HHS is expected to publish a list of state benchmark plans for public comment before final federal approval is granted.
Congress continues its August recess. Both chambers are scheduled to return to legislative session on September 8.
As employers are in the throes of open enrollment, the IRS issued guidance on requirements for minimum value plans. This guidance comes after a reported "glitch" in the HHS minimum value calculator that made it possible for a plan to obtain a minimum value of 60% while excluding coverage for hospital inpatient services. This most recent guidance states that plans that don't include coverage for hospital inpatient services or physician services (or both) won't qualify as minimum value coverage in 2015. Due to the late notice, employers with plans that were able to comply due to the glitch and are in a binding contract will be allowed for the 2015 plan year. The good news is that employees who qualify for subsidized coverage and want to sign up for more comprehensive coverage in the public exchange will be allowed to do so and their employer will not be penalized. So, a win on both accounts. Employers are required to communicate to employees on this issue if such a plan has been offered. Expect vendors with these products to respond accordingly with enhanced plan designs for 2016.
With the open enrollment season for January 2015 plan year upon us, or frightfully close, there is a lot of speculation about what really qualifies as a “minimum value” plan. Reports that HHS may update the minimum value calculator to correct a “glitch” have some employers reviewing their compliance strategy.
Employers have been getting ready for the ACA employer shared responsibility (ESR) requirements for several years now. The ESR requirements were originally scheduled to go into effect in 2014, but in 2013 regulators delayed implementation until 2015. Mercer survey data suggests that in 2014, most employers were already in compliance with two of the primary provisions — offering a plan that met the minimum value (MV) requirements and had affordable contributions.
The one ESR criteria where employers were lagging was in expanding coverage to all employees working 30 or more hours per week. This expansion will come at quite a cost for employers with large numbers of variable-hour employees who were not previously offered medical benefits. The dilemma for companies in this situation has been how to expand coverage to meet the ESR requirements and avoid tax penalties while managing the resulting financial impact to the bottom line.
You can count on challenges such as this to generate a market response, and this time has been no different. The market has produced several options that did not exist pre-ACA. The first response was the “skinny medical plan.” These plans include ACA-mandated preventive care paid at 100% (in-network). No other medical coverage is provided (no physician visits, hospital inpatient care, or Rx drugs unless preventive). Skinny plans count as minimum essential coverage (MEC), but don’t meet the minimum value requirement.
These plans were very controversial when they hit the market. Based on current guidance, a skinny plan would qualify as MEC and, if offered to all employees working 30+ hours per week, would satisfy the first part of the ESR requirement — allowing employers to avoid the “a” assessment. Mercer’s Survey on Health Care Reform in 2014 showed that about a fourth of employers would consider offering (or already did offer) a MEC plan with an actuarial value of less than 60%.
Another plan introduced by the market as a response to the ACA requirements was a MV plan that does qualify as a 60% minimum value plan (using the HHS calculator), but does not include coverage for inpatient hospitalization. Here’s the thinking behind them:
- The ACA outlines 10 categories of essential health benefits (EHBs) that must be covered by insured plans in the individual and small group markets.
- Through at least 2015, states were allowed to choose their own benchmark plan to define EHBs.
- Large insured or self-funded group health plans are not required to cover any/all EHBs. But, if EHBs are covered, the plan cannot impose annual or lifetime dollar limits on the EHBs (but visit or treatment limits generally okay).
- Coverage of EHBs is factored into calculating MV…and apparently, a plan can get to an actuarial plan value of 60% using the HHS calculator without covering inpatient hospitalization.
Currently, these plans would qualify as MEC and MV and, if offered to all employees working 30+ hours per week with affordable contributions, would satisfy both parts of the ESR requirement, thus avoiding both of the potential assessments.
Let’s consider the employee’s perspective to understand the issue with these new market developments. Based on current guidance, both of these new plan offerings satisfy the individual mandate. On the other hand, an individual’s eligibility for subsidized coverage in the public exchange could be compromised if the employee is enrolled in a skinny plan, or is eligible for an employer’s affordable minimum value plan (that excludes coverage for hospitalization), even if they don’t enroll in the employer plan.
The question is…will HHS update the calculator?
It appears that change is coming, but the timing is unknown. There is speculation that HHS will update the calculator to require coverage of “core” benefits” like inpatient hospitalization. This means your plan would no longer satisfy both parts of the ESR requirement and you may be subject to the “b” assessment if any full-time employee received tax-subsidized exchange coverage. It is probably too late to update the calculator for the 2015 plan year. But don’t be surprised if adjustments are made for 2016.
While it is beneficial to be poised to take advantage of the latest market developments, when it comes to the ACA it’s a good idea to have a “plan B” in case things change.
The Washington Post ran an article over the weekend that is getting a lot of attention. The article suggests that there is a “glitch” in the calculator developed by HHS, because it allows a plan that excludes coverage for hospitalization to meet the 60% minimum plan value requirement. Is that a glitch that will be corrected, or did the government intend to allow a loophole in the calculator used by self-insured plan sponsors to determine if a plan meets the 60% plan value requirement? Let’s explore this issue from two employer angles — the “a” requirement and the “b” requirement. Under the Shared Responsibility provision, employers must do two things to avoid assessments.
- Make an offer of Minimum Essential Coverage (MEC) to “substantially all” full-time employees (defined as 70% of full-time employees for 2015 but as 95% for 2016 and beyond) to avoid the “a” assessment of the employer shared responsibility requirement. (The “a” assessment is $2,080 (indexed) times the number of full-time employees.) Last year, attention was drawn to the “skinny medical plans” that meet the MEC requirement by providing 100% preventive care and not much else. Regulators have not yet closed this loophole for meeting the MEC requirement. In addition to fulfilling the “a” requirement, MEC also satisfies the individual mandate requirement.
- For full-time employees with household income under 400% of the federal poverty level, employers must offer a 60% minimum value plan with affordable contributions for individual coverage (defined as 9.5% of an employer affordability safe harbor or 9.56% of an employee’s household income). The “b” assessment is $3,120 (indexed) multiplied by the number of full-time employees who get subsidized coverage on the public exchange. The regulators provided three safe harbors for determining affordability and a calculator to determine plan value. The ACA defines 10 categories of Essential Health Benefits (EHBs), but the law does not require a self-funded employer-sponsored plan to cover EHBs. EHBs are:
- Ambulatory patient services.
- Emergency services.
- Maternity and newborn care.
- Mental health and substance use disorder services.
- Prescription drugs.
- Rehabilitative and habilitative services.
- Laboratory services.
- Preventive and wellness services and chronic disease management.
- Pediatric services, including oral and vision care.
Should some of the EHBs be required — such as physician visits and hospitalization? Perhaps this is an issue the regulators will decide to take on. Perhaps they will make changes to the calculator. We will have to wait and see.
Prior to the ACA, no one knew the actuarial value of their medical plan. Now we all do. So who is most likely to be interested in these loopholes? Probably employers with the greatest number of variable hour workers not eligible for full-time employee benefits prior to the ACA — especially if they offered these employees a mini-med plan. So are these loopholes really just creating the opportunity for replacement mini-med plans?
From our latest health care reform survey, we learned that 8% of employers currently offer employees a medical plan option that has a value of less than 60% and another 15% are considering it. If you would like to provide a very low-cost plan, consider these options to supplement your current strategy:
- Offer the minimum MEC plan — think skinny plan — to everyone (full-time and part-time) just to avoid the “a” assessment.
- Offer a minimum MEC plan (less than 60%) alongside all your plans just to give those who don’t want to spend the money on a better plan to buy something to avoid the individual mandate penalty. A very low-cost 60% plan could also meet this objective. Remember that employees who are eligible for an employer’s affordable 60%+ plan will be ineligible for subsidized public exchange coverage, even if they don’t enroll in the employer plan.
- Shop for the least expensive plan that meets the 60% criteria if the number of newly eligible under the new 30+ hour definition of full-time is going to break your budget.
Parting advice on this topic: There is always a chance the regulators will tighten the requirements, so having a “Plan B” is a good idea.
When the proposed ACA 90-day waiting period regulations were issued, employers were frustrated by the fact that the common design of “first of the month following 90 days” was not permissible. Apparently, their cries were heard, as more recent regulations provide some flexibility for employers.
The rules generally allow the waiting period to commence following satisfaction of the plan’s eligibility conditions. One example of a permissible eligibility condition is the completion of a “bona fide employment-based orientation period” that does not exceed one month. The guidance notes that the period should be for evaluation, orientation, and training but doesn’t specify any particular activities that need to be conducted during the period. So if the maximum 90-day waiting period begins on the first day after the orientation period ends, an employee actually can be required to wait more than 90 days before coverage is offered. A “first of the month following 90 days of employment” design can actually work.
Example: Husky Company has a one-month orientation period and offers coverage on the first of the month following 90 days of employment. Jake is hired on Sept. 6 and his orientation period ends on Oct. 5. He is offered coverage effective Jan. 1. Since there are less than 90 days from the end of the orientation period to the coverage commencement date, the design would be in compliance with the 90 day waiting period rules.
Sounds too good to be true — so what’s the catch? In the new ACA world, plan eligibility conditions require consideration of the employer shared responsibility (ESR) or “pay or play” rules. Compliance with the waiting period limit does not automatically guarantee compliance with shared responsibility and the required coverage start dates under each provision require particular attention.
Specifically, the ESR rules may subject an employer to assessments if it fails to offer affordable, minimum value coverage to certain newly hired full-time employees by the first day of the fourth calendar month of employment. Certain designs that attempt to take advantage of the full orientation period and full 90 day wait can create potential issues.
Example: Duck Inc. has a one-month orientation period for new-hires and offers coverage on the 91st day after completion of the orientation period. Josephine commences work on Sept. 6, completes her orientation period on Oct. 5, and is offered coverage effective Jan. 4. This complies with the 90-day waiting period rules, but could subject Duck Inc. to ESR assessments because Jan. 1 would actually be the first day of the fourth full month of employment.
Designing the eligibility rule to make coverage effective the first of the month would remedy this issue, and plans opting for this design will want to explicitly reference the orientation period when describing the effective date. For example, the eligibility rule could be worded to say that the plan has a one-month orientation period, followed by a waiting period, with coverage effective the first of the month following 90 days of employment.
While all will agree that the flexibility under the regulations is certainly welcome, continued focus on maintaining a compliant design is critical.
For a while, it seemed that the “mini-med plan” — a fairly common offering by employers with low-wage and part-time populations (such as retail and hospitality businesses) — would be a casualty of the ACA, since the law prohibits the annual dollar limits that were a key feature of these low-cost plans. But other features of the ACA — the employer and individual “shared responsibility” mandates — may be encouraging employers to consider offering a sort of cousin to the mini-med, the so-called “skinny plan.”
Why would an employer choose to do this? An employee can avoid the ACA's individual mandate penalty by enrolling in a company skinny plan, which qualifies as "minimal essential coverage" for individuals under the health law by the mere fact that it's employer-sponsored. The employer won’t disqualify the employee from public exchange subsidies if the skinny plan is the only offer it makes to that employee. And if the employee isn’t full-time, his or her receipt of public exchange subsidies won’t cause the employer to incur shared responsibility assessments.
For full-time employees (those working at least 30 hours per week), a company would also need to offer a plan that is affordable and provides minimum value to avoid shared responsibility assessments. But full-time employees who feel that the company’s standard plan is too expensive (even though it meets ACA standards for affordability) may appreciate the option of enrolling in a skinny plan, which shields them from the individual mandate penalty, even it offers relatively little coverage. While skinny plans vary in design, some cover little more than preventive care.
A survey of members of the National Business Group on Health (generally very large employers) found that 16% will offer their full-time employees a plan in 2015 that doesn’t satisfy one or both of the ACA’s standards for minimum value and affordability, alongside at least one health plan that satisfies both. It may be that some of these employers will offer a skinny plan, but the more likely scenario is that they will offer one or more plan options that would not be considered affordable for all employees.
NBGH members are very large employers, generally with 10,000 employees or more. The larger the employer, the more likely they are to offer multiple plans. In a Mercer survey of more than 700 employers of all sizes conducted earlier this year, we found that 8% of respondents offered a skinny plan in 2014 and an additional 15% were considering it. The employers in retail and hospitality were the most likely to say they were considering offering a skinny plan — 21%. Interestingly, that’s about the same percentage that offered a mini-med plan way back in 2008.
There have been a few articles and blog posts discussing the formula used to calculate affordability (and affordability safe harbors) under the Shared Responsibility provisions. HHS recently published regulations that apply a COLA adjustment to the current 9.5% threshold used for determining whether coverage is affordable from the individual’s perspective to qualify for a subsidy. The percentage will be 9.56% for 2015. However, this adjustment doesn't carry through to the employer affordability safe harbors — so the safe harbor options would still be 9.5% of FPL, W-2 wages, or rate of pay. It’s possible that the IRS will issue future guidance to align the safe harbors with the individuals’ threshold. We’ll have to wait and see — again.