Health Benefits Landscape Morphing Due to ACA

May 6, 2014 ( – Reactions to new costs and lingering unknowns from the Patient Protection and Affordable Care Act (ACA) are creating a metamorphosis of traditional employer health benefits designs.

For one thing, according to Frasier Ives, senior vice president and Employee Benefits Compliance leader in the East area for Wells Fargo Insurance Services, the ACA will create employee migration in or out of employer health plans. The individual mandate may drive them into plans, while the cost of unsubsidized coverage and employer changes to benefit plan designs may drive them out. Employers need to understand how these drivers affect their employees to understand the risks to their own costs, Ives told attendees of the  Retirement & Benefits Management Seminar, hosted by the University of South Carolina Darla Moore School of Business, and co-sponsored by PLANSPONSOR.

Keeping in mind the new ways employees will have to get health care coverage and the new costs associated with the ACA, employers are modifying their benefit programs, Ives also pointed out. He expects to see growth in spousal exclusions or surcharges. “You don’t want to be the only employer left to insure sick spouses,” he said. A recent report from the Employee Benefit Research Institute (EBRI) noted this could also drive employees who were previously covered by a spouse’s plan back into their employers’ plans (see “Excluding Spouses from Health Coverage Could Backfire”).

Ives also suggested there may be a reverse discrimination emerging among larger employers, who will use salary banding to set premium rates for employees, making employees who are more highly paid pay more for health care coverage, and subsidizing more of lower-income employees’ premiums. Employers would do this to encourage participation in the health plan, to reduce their risk profile and get better premiums.

Ives noted private exchanges are also growing as a way for employers to shift health care costs to employees (see “Evidence Suggests Private Exchanges Are a Win-Win”). He expects, over time, employers will not increase the contributions they make towards employee health benefits choices, increasing employees share of cost even more.

There have been reports that some employers will drop health care coverage altogether in response to the ACA. Ives warned this may seem cheaper, but it doesn’t take into account tax subsidies for employers for offering health care coverage. In addition, it decreases the total compensation package employers offer, making them less attractive to new job candidates.

Ives noted there is still guidance needed concerning automatic enrollment requirements of the ACA and nondiscrimination rules, so the benefits landscape will continue to morph, with the end result as yet unknown.

Ives told seminar attendees there are certain ACA-related fees for which they need to budget. The Patient-Centered Outcomes Research fee—which will be assessed for seven years—applies to essentially all employer-sponsored group health plans. The Transitional Reinsurance fee will be assessed for three years to help stabilize public exchange marketplaces. It also applies to essentially all employer-provided group health coverage (other than stand-alone dental and vision). The Health Insurers fee is ongoing and applies to insured health plans (including medical, dental and vision). It is a tax on health insurance industry by market share—about 2% to 2.5% of premium in 2014; rising to 3.5% to 4.0% thereafter.

There are also certain reporting requirements to remember (see “SECOND OPINIONS: ACA Employer Reporting Requirements – Part II”):

  • Form W-2 Filing Requirement - Generally requires all employers to report the aggregate total cost of “applicable employer-sponsored coverage” first effective January 2013 for 2012 calendar year. Transition relief for 2012 (and until further guidance is issued) for employers who filed less than 250 Forms W-2 for the preceding year.
  • Minimum Essential Coverage (MEC) Requirement – Requires any entity that provides “minimum essential coverage” to an individual to report certain information to the Internal Revenue Service (IRS), and provide a written statement to the covered individual. Ives says this is needed to enforce the individual mandate rule. It is delayed until 2015 calendar year (to be first filed in February/March of 2016).
  • Large Employer Requirement – Requires “applicable large employers” to report certain information about all of their full-time employees concerning the health coverage the employer is offering, and provide a written statement to each full-time employee. Ives said this is needed to enforce the employer “play or pay” mandate rule. It is delayed until 2015 calendar year (to be first filed in February/March of 2016) (see “Treasury Modifies rules for ACA Employer Mandate”).

In addition, employers should consider whether they will be impacted by the Cadillac plan excise tax effective in 2018 (see “All Eyes on 2018 and How to Avoid Excise Tax”).

What Should Employers Be Doing Now?

Ives said employers should understand if, and when, the employer “play or pay” mandate will apply to them. Identify how many “full-time employees” they have and determine if any of the key transition relief applies to them (i.e., midsized employer, non-calendar year, or partial MEC relief).

Employers should identify and quantify financial risks under the ACA. Determine the optimal measurement period strategy for determining whether employees are full-time, and review systems  to confirm management of hours and measurement periods. Employers should also determine “affordability” and actuarial value of existing plan options.

Finally, Ives suggested employers assess the potential financial impact of the “play or pay” mandate and the Cadillac plan excise tax exposure on business operations (see “Retiree Health Benefit Changes Affect Company Reporting”). Assess changes to be implemented to plan designs, contributions, and eligibility criteria, and start developing implementation and employee communication strategies.