Employers, human resource departments, and business consultants are still trying to wrap their heads around the Affordable Care Act (ACA) and what health care reform means for their business and employees. Here are three key regulations every employer should know about health care reform:
Health Insurance Exchanges
1. Individual Mandate
As of 2014, the ACA requires everyone to obtain minimum essential coverage for themselves (and their dependents) or pay a penalty. The penalty is phased-in starting in 2014 at $95 or 1% of income to $695 in 2016 or 2.5% of income.
Minimum essential coverage includes coverage under government sponsored programs (e.g. Medicare, Medicaid), an eligible employer-sponsored plan, or a health plan offered in the individual market.
Minimum essential coverage does not include coverage consisting of excepted benefits, such as dental-only coverage, and employer-based coverage that is not offered through an "eligible employer-sponsored plan," such as a Health Reimbursement Arrangement.
To read more about the individual mandate and exceptions see: Individual Health Insurance Mandate Tax Penalty FAQ.
2. Employer Mandate for Applicable Large Employers
Beginning in 2015*, all "applicable large employers" must offer "minimum essential coverage" that is "affordable" to their employees. Applicable large employers who fail to offer minimum essential coverage that is affordable will be required to pay a "penalty" on their tax return.
Applicable Large Employers – If a company employed an average of 50 or more full-time equivalent employees during the previous calendar year, it is considered an applicable large employer for the current year.
Minimum Essential Health Benefits (EHB) – Minimum EHB is a set of health care service categories that must be covered by certain plans starting in 2014. These will vary by state, and will be finalized by each state’s Department of Insurance.
Employer Tax Penalty - If an applicable employer decides not to offer the minimum EHB by 2015*, the employer may have to pay a penalty. Read how to calculate the business tax penalty here.
Small Businesses with under 50 FTEs? If the company has less than 50 FTE employees, the mandate and tax penalties do not apply.
* [Updated July 11, 2013] The employer mandate and penalties are now delayed until 2015. See: Why the ACA Employer Mandate Delay is Great for Your Business.
3. Exchanges ("Marketplaces")
As of 2014, health insurance coverage for individuals and small businesses will become available through new state Health Insurance Exchanges (aka "Marketplaces"). Each state Health Insurance Exchange will be operated in one of three ways: state-operated, state-federal partnership or federally-facilitated.
ACA requires all states to create two types of Exchanges:
American Health Benefit Exchange "AHBE": An individual Exchange
Small Business Health Options Program ("SHOP"): A group Exchange for employers with 100 or less employees (eligibility will vary by state)
Under the statute, only Qualified Health Plans (QHP) can be offered on the Exchanges. A QHP provides essential health benefits, follows established limits on cost-sharing (like deductibles, co-payments, and out-of-pocket maximum amounts), and meets other ACA requirements. Additionally, all plans will be guaranteed issue.
Most importantly, the key tax credits (e.g. the small business healthcare tax credits) and tax subsidies (e.g. individual health insurance tax subsidies) will only be available for coverage purchased via a state health insurance Exchange.
Required Employer Notice of Exchanges
Employers must inform all current employees and any new hires about the existence of the Exchange in their state and how employees can access it. The notification must include:
Written notice informing employees about the state’s Exchange.
Notification to employees if the plan offered by the employer is inadequate, meaning it does not meet the actuarial value of 60 percent.
- Notification to employees that if they purchase a health plan through the Exchange, the employee may lose the employer’s contribution to health benefits offered by the employer.
Originally, employer notification was required by March 1, 2013 however this has been delayed. The Department of Labor expects that the timing for distribution of notices will be the late summer or fall of 2013, which will coordinate with the open enrollment period for Exchanges. Read more about the employer ACA exchange notice requirement being delayed here.
New Options with Health Insurance Exchanges & Defined Contribution
With new ACA regulations and health insurance exchanges, many employers are asking:
Should I continue to provide a group health insurance plan? (Can I afford to offer a group health insurance plan?)
Should I cancel our group health insurance plan, and send employees to the state health insurance exchanges? If so, should I help employees with their insurance premium costs by offering a Health Reimbursement Arrangement (HRA)?
For many employers, the second option will make more sense. Rather than paying the costs to provide a specific group health plan (a "defined benefit"), employers will instead fix their costs by establishing a monthly dollar amount (a “defined contribution”) that employees choose how to spend.