January 1, 2015 will usher in the next phase of the Affordable Care Act. This phase will be the employer mandate. Initially, the employer mandate was to take place this year; however, it was postponed due to the belief that it would cause increasing confusion in a marketplace that was already ripe with confusion.
A built-in confusion from the start is attributable to the employer mandate being expressed as a "No Coverage Penalty” or, alternatively, as an "Inadequate Coverage Penalty".
The initial law stated that all large employers (50 or more employees or full-time equivalents) would be required to offer "minimum essential" medical coverage to at least 95% of their employees or face an annual No Coverage Penalty. This Penalty is only triggered, however, if at least 1 of its employees purchases a health insurance policy on an ACA Exchange and qualifies for an insurance premium tax credit under the IRC. The No Coverage Penalty is an annual Penalty that equals the product of $2,000 times the number of its employees in excess of 30. However, in 2015 only employers with 100 or more employees or full-time equivalents will be required to meet the mandate. In January 2016, all employers (50 or more employees or full-time equivalents) will be required to follow the mandate.
The Inadequate Coverage Penalty is triggered whenever at least 1 of its employees purchases a health insurance policy on the ACA Exchange and qualifies for an insurance premium tax credit and one of the following requirements is met:
The Inadequate Coverage Penalty is an annual Penalty that equals the product of $3,000 times the number of its employees qualifying for an insurance premium tax credit, but not to exceed what the No Coverage Penalty would have been had it applied to the employer. The employee contribution of 9.5% of W-2 earnings (for the preceding year) is something an employer will need to capture to be certain that all of their employees fall under the contribution criteria. The last requirement is satisfied if the plan's share of the total cost of benefits provided to employees under the health plan is at least 60% of those costs. How is this calculated? One of the following three approaches are used to determine minimum value:
Minimum Value Calculator
This calculator is based on continuance tables and a standard population sample of typical self-insured employer plans, and permits certain plan inputs regarding the plan's coverage options in order to get a determination as to whether the plan provides "minimum value". The sample population would not include claims data for plans that are required to provide essential health benefits. An employer that uses the calculator, while offering essential health benefits outside the parameters of the calculator, would be permitted to add this amount to the minimum value. Plans would be able to input information on the benefits offered under the plan with specified cost-sharing features (e.g., deductibles, coinsurance and out-of-pocket maximums).
Safe Harbor Checklists
Some plans may be allowed to utilize the safe-harbor checklists to determine their minimum value. A plan would compare its coverage to a checklist that describes the cost sharing attributes that apply to the four core categories: 1) Physician Care, 2) Hospital and Emergency Room Care, 3) Pharmacy Benefits, and 4) Lab and Imaging Services. If equal to or better than any of the safe-harbor checklists, the plan would meet the minimum value threshold.
What happens if the employer’s plan doesn’t fit the safe-harbor checklists or contains non-standard features that are not contained in the minimum value calculator? Then, the employer may request certification from an actuary. The actuary would base this certification on utilization, pricing tables, etc. (for example, the non-standard features may include a quantitative limit on the number of physician visits or covered days in a hospital). The actuary may need to make adjustments to account for the non-standard features while calculating the initial value and there may be plans that receive actuarial certification without the use of a calculator.
It is important to note that most employers in this size category (i.e., 50 or more full-time employees and full-time equivalent employees) offer programs to their employees that meet or exceed ACA standards. However, for employers who have never offered health care coverage, the 60% of the "minimum value" threshold may be a good starting point. Even though these benefits may not be as robust as employees prefer, it would be a beginning and hopefully the employer would be able to improve benefits over time. Of course, if providing these benefits is a financial hardship to the employer, they may well opt to pay either the No Coverage Penalty or the Inadequate Coverage Penalty. It is safe to say that over time the government may increase these employer mandate penalties for employers who are non-compliant. If you have doubts of how to calculate your plan's minimum value, we strongly suggest you seek a professional who is calculating these valuations on a day-to-day basis.
For more information regarding this topic, please contact your local UHY Advisors professional or the author of this article:
John DePalma, MPH
Employee Benefits Consulting Services, Inc.