Open Enrollment 2016 a Critical Time for Health Plans

After this year health care plan sponsors will only have two more open enrollment periods to make changes before the introduction of the much-maligned “ACA Cadillac Tax.”

Now is the time for health plan sponsors to consider how they will confront the excise tax programmed into the Patient Protection and Affordable Care Act (ACA), according to Mercer experts.

The firm hosted a webcast Wednesday on preparing for employee health plan open enrollment for the 2016 plan year, noting the excise tax under the ACA is looming large. Mike Sinkeldam, a principal for Mercer’s Health and Benefits practice, explained that Internal Revenue Code section 4980I, as enacted by the ACA, imposes a 40% nondeductible excise tax on employers, health insurance issuers, and/or other entities administering health plan benefits if the aggregate value of “applicable employer-sponsored coverage” exceeds a specified annual dollar limit. 

“As health plan sponsors, you really need to start thinking seriously about how this impending tax will impact your business,” Sinkeldam warned. “Will you have to cut down on the rich end of your plan spectrum? If you don’t and your plan triggers the tax in 2018 or later, is this cost going to get passed on to employees or be absorbed by the employer?”

One important fact about the excise tax to consider is that the maximum value threshold applies to any group health plan that is made available to an employee by an employer and “is excludable from the employee’s gross income under IRC Section 106, or would be so excludable if it were employer-provided coverage [within the meaning of IRC Section 106].” Thus, both the employer- and employee-paid portions of premiums are taken into account.

The excise tax applies to both third-party insured and self-funded plans, Sinkeldam observed, as well as governmental plans and coverage that provides health insurance to self-employed individuals. According to Mike Boucher, Health and Benefits Solutions Leader at Mercer, the impending tax sets a pretty challenging value bar for plan sponsors of all types to hit.

“Just considering that costs have increased by 3% to 8% annually for the last decade or longer, it’s really not hard to imagine a large number of plans running into the excise tax come 2018,” Boucher said, “Even if they are operating today below the threshold, that doesn’t mean they will still be fine two or three years down the road.”

NEXT: Addressing ACA requirements 

Business groups to this day continue to challenge the tax’s implementation, Mercer observed, with some suggesting up to a third of all health plans could trigger the ACA excise tax if the requirements aren’t eased.

“The numbers make it very clear that employers need to take an active role right now, alongside their employees and the insurance providers, to understand and carefully manage these costs,” Boucher added. “They need to start taking this active role today. The 2016 open enrollment period is the perfect opportunity to get the ball rolling.”

Due to burgeoning pressure from the ACA, Mercer expects more sponsors to use the 2016 open enrollment period to introduce consumer driven health plans (CDHPs) and higher deductible health plan options.

“About half of employers we surveyed have a CDHP or high-deductible health plan right now,” Boucher said. “We anticipate that number will grow to about two-thirds by the end of 2016, and this is up from a base well below 20% a decade ago. Use of health savings accounts and health reimbursement accounts will also increase. Much of this is in response to the ACA excise tax.”

He suggests plan sponsors should use the open enrollment period to consider whether to use any of the “different types of surcharges that are quickly coming into the focus.” One common example is promoting health accountability through tobacco surcharges, Boucher noted. “You have to be mindful about how you’re applying these surcharges and how they apply in one plan or across plans. You don’t want to get yourself into trouble by applying a surcharge inequitably.”

Andrea Alarcon, legal consultant and senior associate at Mercer, summarized the open enrollment period as “the time to give participants a chance to change their benefit selections.” But, she said, with the right approach open enrollment can give employers a chance to reinforce the value of benefits packages.

“It’s also a good time to make any other announcements required during the year, so you aren’t duplicating efforts,” Alarcon said. “Perhaps if you’re going to have a dependent coverage eligibility audit, for instance, you can let them know when and how this is going to happen. Something else that is important, open enrollment periods are not actually legally required by the Employee Retirement Income Security Act (ERISA)—but they are required in many vendor contracts and collective bargaining agreements, so you have to pay attention when you’re setting the dates.” 

NEXT: Other open enrollment considerations 

Generally an open enrollment period will run two to four weeks, she explained. The plan sponsor could take that time to circulate things like the summary plan description, the summary of material modifications and, if present for a given year, a summary of material reductions.

“These are the big annual ERISA requirements,” she said. “They don’t necessarily have to be communicated during open enrollment, but it’s a great opportunity to hit two birds with one stone and more efficiently satisfy the disclosure requirements.”

Sinkeldam observed there are some ERISA requirements for all these forms and notices, so sponsors must carefully manage the process, often in conjunction with a consultant or provider.

“The three delivery methods that ERISA recognizes for mandatory disclosures are by hand, by mail or by electronic delivery,” he said. “On the electronic delivery side, it’s important to note there are two types of situations. One is for employees with access to a computer and email day in and day out. The key here is to make sure you’ve got something in place to ensure actual receipt. You should have a way to prove the information was delivered and absorbed.”

Then there is the other side—people without access to computers on a daily basis. According to Sinkeldam, sponsors have to be very cautious to get proper consent from these groups before going digital with plan disclosures.

“Make sure that when you are setting up your lines of communication, you distinguish between those employees with access and those without access to computers, and how you're going to treat them,” Sinkeldam. “In general you can get permission to do a lot of this digitally, even for employees without daily computer access, but there will almost always be some people who want paper, and you’ve got to make that available.”