Companies Face Huge Healthcare Decisions, Despite Delays

Employers may be getting a temporary reprieve from the “pay-or-play” employer mandate of the Patient Protection and Affordable Care Act, but that doesn't mean other healthcare reform requirements won't be hitting them soon.

On July 2, the Treasury Department and White House announced that some employer reporting requirements and the employer shared responsibility penalty of the healthcare reform law have been pushed forward to 2015.

Many other aspects of the ACA remain in effect or are close at hand, despite the delay.  It's crucial for employers to address benefit design issues, with or without the “pay-or-play” delay, right now, says Frank Morris, head of the law firm Epstein Becker & Green's Labor and Employment practice.  

By Oct. 1, for example, companies must provide current employees with a notice that describes the availability of new private and public healthcare exchanges (assuming that these are operational by that date).  And companies must provide the per-employee cost of health coverage on each employee's W-2 form by the start of next year. According to the ADP Research Institute, part of payroll services and employee benefits firm ADP, many employers have already started to include those figures on ahead of the mandate.

Companies will also have to ensure that their plans are up to par. Among the requirements for group health plans, according to Linda Rowings, director of compliance for United Benefit Advisors, an independent employee benefits advisory organization: all pre-existing condition limitations must be removed; the out-of-pocket maximum cannot exceed $6,350 for individual and $12,700 for family coverage; and essential health benefits—such as emergency services, hospitalization, maternity and newborn care, prescription drugs and mental health services—cannot have annual dollar limits. Those requirements become effective for new and renewing plans on and after Jan. 1, 2014, 

As a concession to businesses, and in an attempt to facilitate the post-reform transition, some plans were allowed to be temporarily “grandfathered.” This status, and exemption from immediate benefit changes, applies to plans in existence as of March 23, 2010, when the ACA was passed, provided they have not had any significant change in coverage, such as increasing deductibles or eliminating condition-specific coverage. The fact that the out-of-pocket limits also apply to all non-grandfathered plans is also surprising many, Rowings says. Many in the large group market are taken aback by the fact that the limits apply across the board, she says.

Companies will also have to ensure that their plans cover dependents for longer—a requirement most health insurers have already transitioned to.  Plans must already cover dependent children to age 26 even if the child has access to their own employer-provided coverage. ADP recommends that companies consider dependent eligibility audits to evaluate those plans and track dependents' eligibility.

While employer reporting may be delayed, a penalty for non-affordability remains in place for the coming plan year.  Companies will be assessed a per-employee penalty of $3,000 if healthcare costs exceed 9.5 percent of their income, or fails to cover at least 60 percent of medical claims.

Then there is also the so-called “Cadillac tax” to plan for. Employers offering health insurance that costs more than $10,200 for an individual, or $27,500 for a family plan, would be assessed a non-deductible, 40 percent tax on whatever amount exceeds the set threshold. While the disclosures on high-value plans aren't due until at the start of 2018, companies that want to transition employees out of high-value plans will want to begin that process now.

“If you are not taking proactive steps now to control your costs you will be quite likely hit with a 40 percent, non-deductible excise tax,” Morris says. “If you are the chief of benefits or human resources, you don't want to be explaining to the CFO and CEO why your organization is paying this extra tax. The only time you can do something about it is now, not in 2018.”

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??“The delay is a reflection of the fact that the government systems and processes were not yet in place and fully tested, and even some of the rules about reporting aren't finalized.”

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There are also some incentives in the ACA that companies won't have to wait to take advantage of. For example, the ACA increases the allowed wellness incentive from 20 percent of the cost of coverage to 30 percent for plan years that begin on, or after, Jan. 1, 2014. According to Morris,companies should ramp up their offering of wellness programs, an effort that by improving employee health and decreasing their utilization of healthcare services will drive down benefit costs.

“Because it is a process, and takes time, an employer cannot just sit back and wait to see what happens,” Morris says. Other cost-saving moves that companies should consider: value based purchasing and steering employees to retail clinics that offer lower-cost services. “Anything that can maximize employee health, but minimizes costs, is on the table,” he says. “The focus is on bang for the buck.”

What's on Hold? 

The delayed requirement is that employers with 50 or more full-time or full-time equivalent employees must offer “affordable, minimum value coverage” to most employees that work more than 30 hours a week. “Minimal essential coverage” must cover 95 percent of full-time employees. Companies would be assessed a fine, administered by the IRS, for failing to meet requirements.  

The measure was delayed because the government's systems and processes were not yet in place and fully tested. “Even some of the rules about reporting aren't finalized,” says Steve Wojcik, vice president of public policy for the National Business Group on Health, an association of more than 360 large U.S. employers.

The gift of more time doesn't make the challenge of compliance any less difficult. “Businesses need to make lots of big changes and put in complex systems to comply, but we still don't have all the information from [regulators],” Wojcik says.

The requirement, originally set to take effect next January, includes an extensive reporting and disclosure regimen, intended to document employee hours. Details on the full extent of those reporting requirements will be released later this summer.

TREASURY DEPARTMENT ON THE DELAYS

The following is from a statement on the delay of certain provisions of the Affordable Care Act by Mark Mazur, assistant secretary for tax policy at the Treasury Department.

The Administration is announcing that it will provide an additional year before the ACA mandatory employer and insurer reporting requirements begin. This is designed to meet two goals. First, it will allow us to consider ways to simplify the new reporting requirements consistent with the law. Second, it will provide time to adapt health coverage and reporting systems while employers are moving toward making health coverage affordable and accessible for their employees.

The ACA includes information reporting (under section 6055) by insurers, self-insuring employers, and other parties that provide health coverage. It also requires information reporting (under section 6056) by certain employers with respect to the health coverage offered to their full-time employees. We expect to publish proposed rules implementing these provisions this summer, after a dialogue with stakeholders - including those responsible employers that already provide their full-time work force with coverage far exceeding the minimum employer shared responsibility requirements - in an effort to minimize the reporting, consistent with effective implementation of the law.

Once these rules have been issued, the Administration will work with employers, insurers, and other reporting entities to strongly encourage them to voluntarily implement this information reporting in 2014, in preparation for the full application of the provisions in 2015. Real-world testing of reporting systems in 2014 will contribute to a smoother transition to full implementation in 2015.

We recognize that this transition relief will make it impractical to determine which employers owe shared responsibility payments (under section 4980H) for 2014. Accordingly, we are extending this transition relief to the employer shared responsibility payments. These payments will not apply for 2014. Any employer shared responsibility payments will not apply until 2015.

Source: Treasury Department.

Among those most affected, perhaps in a positive way, by the delay are companies in the hospitality, restaurant, and retail sectors because they rely most on part-time and variable hour employees, Wojcik says. They, and others, however, face a significant challenge that they cannot postpone much longer—calculating, tracking, and reporting employee hours to determine whether they need to provide coverage.

“It requires quite an investment of time and resources to put systems in place if you haven't already been tracking it closely,” Wojcik says. “It is not a static situation, especially if there are acquisitions or new employment contracts coming out. Companies with variable hour employees fluctuate seasonally or based on customer demand. There are a lot of decisions that need to be made about benefits and staffing.”

“If the current rules for counting employees hold, being able to track that efficiently is a pretty big job,” Rowings agrees.

Payroll vendors are developing software solutions for employee tracking, she explains. Companies that rely on in-house payroll, however, may have a hard time accurately capturing this data and making sense of the complex formula promulgated by officials. “A lot of people are really scrambling to figure out if they even have 50 employees and what's the best strategy for moving forward,” she says.

Some major retailers and chains, among them Walmart and McDonald's, have floated plans to keep employees below 30 hours a week. 

The postponement may cause policy questions to emerge for companies that have made such a choice, Rowings says. Does it lead them to rethink that strategy? Are they experiencing employee relations and staffing issues? Are workers having trouble getting their work done because the company is so focused on a 30-hour limit?

Even companies that already offer health plans, and plan to stay the course, may face some unwanted challenges under healthcare reform.“The amount of granular detail of reporting that appears to be required under the statute is enormous,” Rowings says. “Even employers who were feeling like they were pretty on top of things are very surprised by how much reporting is going to be required.

There are still plenty of opened-ended questions that employers hope to get answered sooner rather than later. Are companies that have non-calendar year plans stuck with a January 2015 deadline, for instance, or will there be a transition-focused rule that delays compliance until the start of their 2015 plan year? And, since employers are not yet required to report eligibility, how will that affect the determination of employee eligibility for exchange subsidies? How will the exchanges know who is eligible for a subsidy and who isn't?

Will the delay of the employer mandate affect the individual mandate, which in 2014 begins fining individuals and families (at $95 and $285 respectively)?

While government officials are likely to announce other delays, companies shouldn't assume that many reporting requirements will dramatically change, Rowings says. Many are in the legislative statute, meaning that agencies have limited ability to revise or remove requirements without Congressional action.