Employers must tread carefully in selecting employee benefit plans and avoid the temptation to implement healthcare cost‑saving tactics that push the boundaries of federal law. Otherwise, they may find themselves in the crosshairs of the Patient Protection and Affordable Care Act.
The holidays are quickly approaching and many employers are in the throes of insurance renewals and open-enrollment. During this most-wonderful-time-of-the-year, employers must tread carefully in selecting employee benefit plans and resist the urge to jump on the bandwagon of "skinny" plans, cash opt-out offers, and related healthcare cost‑saving tactics that push the boundaries of the federal law.
As a quick refresher, the Patient Protection and Affordable Care Act ("ACA") imposes a penalty on employers with 50 or more full-time or full-time equivalent employees who fail to offer health coverage to all full-time employees (and their dependents) and/or offer health coverage that is not affordable or fails to meet minimum value standards. A plan will provide the required minimum value if it covers at least 60% of the total costs of all benefits provided under the plan. Regulations issued by the U.S. Department of Health and Human Services ("HHS") this past February authorized employers to calculate the required minimum value using an on-line minimum value calculator.
Pitfall No. 1: "Skinny" Plans
"Skinny" or "bare bones" health plans generally do not provide coverage for in-patient hospitalization services or physician services (or neither). A plan that does not provide these services is obviously going to be a lower cost plan with lower premiums as compared to a typical employer-sponsored group health plan.
For some employers, a "skinny" plan appears to be a cost-efficient alternative to providing minimum essential health coverage for employees under the ACA. Do not be deceived: new guidance from HHS and the U.S. Department of the Treasury (including the Internal Revenue Service) (collectively, "Departments") indicates that "skinny" plans do not satisfy an employer's obligations under the ACA. In November 2014, the Departments issued Notice 2014-69, closing the loophole on "skinny" plans, and giving notice to employers that "skinny" plans, in fact, do not meet minimum value standards under the ACA.
The Departments had become aware that promoters of "skinny" plans were telling employers that "skinny" plans would meet the minimum value standard as calculated by the on-line calculator, albeit barely. For example, an offered "skinny" plan may have a minimum value calculation of 59.5%, which would meet the minimum value threshold of 60% only if rounded upward.
Notice 2014-69 states that a plan that excludes in-patient hospitalization services or physician services will not provide minimum value and that new rules will be issued soon to clarify this point.
Until the new rules are issued, employers are not permitted to use the on-line minimum value calculator to demonstrate that plans excluding in-patient hospitalization services or physician services provide minimum value. Most importantly, "skinny" plans should not be adopted for the 2015 plan year unless, prior to November 4, 2014, the employer entered into a binding agreement to implement a "skinny" plan or started enrollment in a "skinny" plan that would begin on or before March 1, 2015. If a "skinny" plan is offered as the only employer-sponsored plan in 2015, the employer must not state or imply that the plan provides minimum value. Any disclosures made to employees before November 4, 2014, must be revised accordingly.
Pitfall No. 2: Cash Opt-Out Offers
Another alleged cost-saving tactic making big news in the ACA world is "cash opt‑out offers." An example of a cash opt-out offer is where an employer gives an employee the choice to either:
- Enroll in the employer-sponsored group health plan and pay a portion of the premium for employee-only coverage; or,
- Receive a cash payment in exchange for not enrolling in the group health plan.
So, what's the problem with these so-called "cash-or-coverage" arrangements? They potentially violate not only the ACA, but also a myriad of other federal laws including the Internal Revenue Code ("Code"), the Employee Retirement Income Security Act ("ERISA"), and the Health Insurance Portability and Accountability Act ("HIPAA").
Nondiscrimination provisions, originally implemented by HIPAA, but also contained in ERISA and the Code, prohibit group health plans and insurers from discriminating against individuals in terms of eligibility for benefits or premium rates based on a health factor. Without diving into the minutiae of ERISA and the Code, employers must understand that offering only certain employees, perhaps those with severe medical conditions, cash in exchange for their opting out of the group health plan violates the nondiscrimination provisions.
Pitfall No. 3: Reimbursement for Purchase of Individual Health Plans
A similar pitfall occurs when employers reimburse employees who purchase individual health plans. Many employers believe this tactic does two things:
- Fulfills their ACA obligation to provide affordable health insurance to full-time employees; and,
- Exempts the employer from otherwise having to comply with ACA requirements.
This assumption is false and could result in harsh penalties. ERISA and the Code operate in such a way that an employer's reimbursement arrangement morphs into its own group health plan, as defined by ERISA and the Code. As a result, the employer's reimbursement arrangement becomes subject to all of the provisions of ERISA, the Code, HIPAA, and the ACA which apply to group health plans, such as the market reform requirements of the ACA. As you can imagine, violations of this four-headed hydra of federal law spell substantial penalties for employers unless properly structured.
Remaining Uncertainty for 2015: The United States Supreme Court Takes a Second Bite at the ACA Apple
The United States Supreme Court has agreed to hear a case this term involving the ACA. The issue is whether tax-credit subsidies may be extended only if the individual purchases health insurance on a state-run exchange, or whether tax-credit subsidies can also apply to purchases from the federal ACA exchange. Some scholars have speculated as to the Supreme Court's likely decision; however, such speculation is just that: speculation. Oral arguments for this case are expected to be held in March 2015 with a decision expected in mid-2015. The Court's decision is highly anticipated and is certain to play a major role in the future of the ACA. Employers need to keep an eye out for the Court's decision which most likely will be front-page news.
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