The ACA’s Effects on the Employer Insurance Market
Answering Your Questions and Analyzing Your Choices
NOTE: The following article is the second of a three-part series, “Employer Responsibility for Health Coverage: Are You Ready for 2014?” This month, we provide answers to some of the most frequently-asked questions employers are posing about health reform, to help you anticipate the ACA’s impact…plan for coming changes…and analyze your choices. The series is based on our recent webinar, presented by David Herbst, Partner, Tax, Employee Benefits and Global Compensation, Manatt; Joel Ario, Managing Director, Manatt Health; and Jay Vogel, Principal, The Camps Group. To view our complimentary webinar with detailed information on employer obligations and options under the ACA—or to download a hard copy of the webinar presentations—click here.
Did you miss part one of our series with a full guide for employers on understanding the ACA’s terms, meeting its requirements and avoiding its penalties? Click here to view the article.
Will Employers Face a Surge in Enrollment?
Employers start by asking one big question. Are they currently excluding a significant number of employees to whom they now will need to offer coverage? For many, the answer is “yes.” The ACA defines full-time employees (FTEs) as those working 30 or more hours per week each month during the prior calendar year. Until now, many employers have required employees to work at least 40 hours a week to be eligible for coverage. With the new 30-hour standard, employees who may have been considered part-time now have full-time status. Therefore, many employers—particularly those in the retail sector—will see a surge in enrollment under the ACA.
How Is Dependent Coverage Being Affected?
Employers generally are offering employees coverage for their dependents. (Under the ACA, dependents are defined as employees’ children younger than 26.) Because of the escalating cost of healthcare, however, many employers are basing contributions on the single employee, with less of a contribution for dependents. In simple terms, that means the employer may cover 80% of the single premium, but if the employee brings on dependents, the employer may cover only an additional 50%.
Are Insurance Companies Changing Policy Pricing for Employer Group Plans?
Prices on group policies are increasing, due both to the uncertainty around reform and the taxes and fees being passed on to insurance carriers. For example, one major insurance company attributes 5% of its 20% increase to health reform. Changes such as making policies unlimited and raising the dependent status to age 26 are driving up premiums—and employers and employees are feeling the effects.
How Are Employers Making Sure Their Coverage Is Affordable, by the ACA’s Definition?
The ACA stipulates that coverage is affordable if the employee’s required contribution is no more than 9.5% of his or her household income for the taxable year. The safest route to ensuring compliance is working with a brokerage firm to draft out your contribution levels…conducting a safe harbor test…and having an actuary certify your results to confirm your contributions are accurate and meet the ACA’s requirements.
Nonprofits, retailers and other industries with many low-wage earners face the greatest issues because, to meet affordability standards, they are being hit with a significant piece of the contribution. Therefore, they need to be extra cautious that they are not putting themselves at risk for penalties down the road. For organizations with a large number of low-income earners, it is particularly important to work hand in hand with their brokers and actuaries. They also should refer to Notice 2011-73 and Notice 2012-17 of the IRS Code for additional guidance.
Are Employer Plans Offering Enough Benefits to Meet the Minimum Value Requirement?
For the vast majority of plans, the answer is “yes.” A recent report issued by HHS (Health and Human Services) shows that 90% of individuals currently covered by employer-sponsored plans are enrolled in programs that meet the minimum value requirement. (Under the ACA, coverage provides minimum value if, on an actuarial basis, the plan pays at least 60% of the total allowed cost of benefits.)
It is still important for employers to take the precaution of running the numbers to be sure their plans meet the ACA standard. Minimum value calculators are available through brokers or on the HHS web site. Actuarial certification is also helpful though not as critical as it is for ensuring affordability. In fact, a plan would have to be watered down to the extreme for it not to meet minimum value. This is true for both fully-insured and self-insured plans. In fact, self-insured plans are often a bit richer because they can make the rules themselves.
What Should Employers Be Doing to Analyze and Finalize All Their Choices?
With 2014 right around the corner, employers whose coverage renewal dates coincide with the New Year should start planning now. They should be working with their brokers, performing the appropriate tests to ensure their plans meet all of the ACA’s requirements for affordability, coverage and value. By about 120 days before the renewal process begins, the broker should be analyzing and negotiating the plan to confirm it includes all of the appropriate options. By 60 days before renewal, that process should be complete.
Private exchanges are a new option for employers this year. Some marketplaces—for example, New York—did allow multiple insurers to offer coverage, though they didn’t use the term “exchange.” The concept, which is gaining in popularity, lets an employer offer a lump-sum benefit, giving employees a set amount of dollars they can use to choose between multiple plans and potentially multiple carriers. This approach is something employers should consider when doing their due diligence, prior to their renewal periods.
Can Employees Purchase Individual or Group Coverage through an Exchange?
Large employers--those with 50 or more FTEs or FTE equivalents--do not currently have the option of participating in Exchanges. Employees of large employers can seek coverage through Exchanges. It’s important to remember, however, that large employers will be assessed a penalty, if their employees receive tax credits or cost-sharing reductions.
Small employers can offer group-sponsored coverage through SHOP (Small Business Health Options Program) Exchanges. Employers choose a “metal level” of care from bronze up to platinum, and employees can select any plan within that level.
What Are Most Employees Likely to Do?
Exchanges will offer a lot of choice. In reality, however, going to the market directly—as opposed to through Exchanges—will offer the greatest array of plan designs. Predictions are that most individuals—if they are on a plan with strong contributions and low out-of-pocket expenses—will continue to receive coverage through their employers.
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Using the Premium Assistance Option to Purchase Coverage for Medicaid Beneficiaries in the Exchange
In their January 22, 2013 draft regulations, the Centers for Medicare and Medicaid Services (CMS) proposed letting states use Medicaid/Children’s Health Insurance Program (CHIP) funding to purchase coverage for eligible beneficiaries in the individual market, including through Qualified Health Plans (QHPs) in Exchanges. As CMS notes in the draft’s preamble, there are several reasons a state might use “premium assistance” to buy Medicaid-eligible adults coverage through an Exchange:
- Premium assistance allows an individual to keep the same health plan and provider network, even if his or her income fluctuates above or below Medicaid eligibility levels. Premium assistance breathes life into the Affordable Care Act’s (ACA’s) promise of a seamless continuum of Insurance Affordability Programs. It protects people with incomes less than 400% of the Federal Poverty Level (FPL), who tend to experience frequent income changes, from having to switch plans and providers.
- Premium assistance provides Medicaid beneficiaries the same access to providers as privately-insured patients—and ensures those providers receive the same payment. It should reduce—and potentially eliminate—cost shifting among payers.
- Premium assistance allows children who are eligible for Medicaid or CHIP to enroll in the same health plans as their parents who are receiving tax credits through QHPs.
- Premium assistance facilitates multi-payer patient and delivery reform, driving quality and performance improvements across government and private insurance products.
Understanding the History—and the Issues
Premium assistance is not new. Under Section 1906 of the Social Security Act, states have had the authority to use Medicaid premium assistance to “wrap around” employer coverage for Medicaid-eligible adults. Medicaid programs could cover some or all of the premium and cost-sharing obligations of an individual’s employer-based coverage, as well as any additional benefits available through the state’s Medicaid program. In 2006, premium assistance was extended to CHIP.
Although it’s been a long-standing option, states have not widely adopted premium assistance. The opportunity to use premium assistance for purchasing coverage through Exchanges, however, has awakened new interest in the program. Although it offers many benefits, premium assistance also comes with a range of challenges, inherent in blending the legal, policy and operational complexities of the public and private markets. Key issues include:
- Covered benefits. Under the ACA, states must offer non-disabled adults under 65 an Alternative Benefit Plan (ABP). States considering providing premium assistance to Medicaid beneficiaries enrolling in QHPs must compare the QHP’s package with the ABP. Since both the QHP and the ABP must include the same 10 categories of essential health benefits defined in the ACA, there is likely to be considerable overlap. If there are benefits missing from the QHP that the ABP offers—such as non-emergency transportation or family planning—CMS will need to waive them or the state Medicaid agency will have to cover them.
- Coverage effectuation. Coverage start dates are different in Medicaid than the Exchange—with a potential five-week gap between determining Medicaid eligibility and enrolling in a QHP. In addition, Medicaid coverage must apply three months retroactively—a requirement that remains in place for premium assistance programs. In both cases, states may need to cover beneficiaries in their fee-for-service programs until QHP enrollments take effect.
- Cost sharing. Under Section 1916 of the Social Security Act, premiums are not permitted for those with incomes less than 150% of FPL—and total cost sharing can’t exceed 5% of family income. Barring a waiver, states will need to wrap around the QHP premium, design QHP products that meet cost-sharing requirements or wrap around QHP cost sharing to reach levels allowable under federal Medicaid law.
- Cost effectiveness. Proposed regulations require states to compare premium assistance costs with Medicaid coverage costs. Many state-specific factors impact the evaluation process, from what efficiencies would be achieved through QHP vs. ABP coverage… to whether capacity demands would drive increased provider rates… to how much savings would be realized from lower beneficiary churn, cross-payer reforms and streamlined administration from providing private and public coverage in one system. Ultimately, states will need CMS guidance on applying the comparability standard and determining acceptable levels of cost variation.
- Operational challenges. To ensure states achieve the full continuum of coverage anticipated in the ACA, they need to address several critical operational issues:
- Mandatory enrollment. We believe states will be able to mandate premium assistance but will need a freedom-of-choice waiver, if QHPs use a closed provider network.
- Risk pooling. It appears the ACA’s risk stabilization programs—including risk adjustments, risk corridors and reinsurance—will apply to Medicaid enrollees in QHPs.
- Plan shopping and enrollment. Questions remain around when the Exchanges will be ready to accommodate the added demands of premium assistance programs—and what interim solutions would work for 2014.
- Flow of funds to QHPs. Systems will need to be established that notify state Medicaid agencies when enrollments occur and enable them to pay the premium to the appropriate QHP.
- Benefit wraps. States will have to create approaches for providing any benefits not included in the QHP.
- Notices. States will need to notify individuals receiving ABP benefits through an Exchange of the reasons that would entitle them to opt into Medicaid and their right to access Medicaid benefits outside the QHP.
- Coverage appeals. Medicaid beneficiaries retain their right to challenge coverage decisions through a fair hearing, across both Medicaid and QHPs.
NOTE: To download a complimentary copy of our complete brief, "Purchasing Coverage for Medicare Beneficiaries in the Exchange: A Review of the Premium Assistance Option," click here.
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Manatt’s Robert Belfort and Susan Ingargiola Co-Author Chapter for HIMSS Book on Healthcare Privacy
Robert Belfort, a partner in Manatt’s healthcare practice and Susan Ingargiola, a director in Manatt Health, contributed a chapter for a new book published by the Health Information and Management Systems Society (HIMSS) titled Information Privacy in the Evolving Healthcare Environment.
The book features thought leaders providing insights into privacy and security issues in the healthcare industry. It addresses the relationship between privacy and medical ethics, the complex legal landscape impacting health information privacy, privacy challenges faced by the healthcare community and current trends and consequences.
Bob’s and Susan's chapter, "The Legal Framework for Health Information Privacy," provides a summary of HIPAA's privacy requirements, as amended by the Health Information Technology for Economic and Clinical Health Act (HITECH). In addition, it outlines other state and federal laws that are likely to affect the use and disclosure of health information.
For more information about the book, click here.
Did you miss Bob’s recent webinar, "Re-Shaping the Healthcare Privacy and Security Landscape?" Click here to view it free or download a complimentary copy of the webinar presentations.
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