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Employer Strategies Under Affordable Care Act

There are a few ideas around the affordable care act that you might categorize as alternative strategies making their rounds in the employee benefits world.  I am going to discuss three such strategies and my opinions on them here.

The first such strategy is one discussed in a Wall Street Journal article not too long ago.  It is a strategy to avoid the $2,000 penalties under 4980H for not providing coverage to employees.  The law and regulation clearly state that minimum essential coverage (MEC) must be offered to employees to avoid these penalties, but no substance is given to the term MEC.  Therefore, as long as an employer provides MEC that complies with other portions of the law and other regulation, it is meeting this requirement.  In the large group and self funded group markets, plans must not provide all of the essential health benefits.  Therefore a plan that only provides, for example, preventive service benefits can be offered in these two markets, and would qualify as MEC.  Therefore an employer can offer only a “bare-bones” or “skinny” plan, without regard to the actuarial value being above the minimum value threshold of 60%, and avoid paying the $2,000 penalties per year for each full time employee after the first 30.  This seems as though it may be a strategy for employers that aren’t currently providing coverage, or that do not want to in the future, to avoid penalties without incurring much in terms of cost.  The problem is, that most of the times, those employers are ones that employee fairly low paid employees and most of those employees would qualify for subsidies at an exchange.  If one of those employees goes to an exchange and does get a subsidy the employer would incur a $3,000 per year penalty.  Those penalties would be incurred for each such employee that gets a subsidy, up to a maximum of the total penalty that would have been incurred for not providing any coverage.  So it is likely that the employer is not going to avoid as much penalty cost as they anticipate, perhaps none at all if many employees get a subsidy and trigger the $3,000 penalties.  It is also important to remember that the penalties are not tax deductible and therefore their true cost is much more compared to the cost of paying for employer sponsored insurance.   This strategy may also lead employees to believe that the employer sponsored plan is enough insurance and may leave employees open to financial catastrophe if a costly health condition develops quickly.

A second strategy, and one that is very similar to the first one discussed, is to offer a comprehensive benefit plan with 60% actuarial value, but the employer contributes very little to the cost of this group insurance.  In this instance, the coverage would meet the minimum value requirement, and for higher paid employees would also be affordable.  So unlike the first strategy, for some employees, this strategy would avoid the possibility of the $3,000 penalties being incurred as well.  But it does still have the same issues with lower paid employees, that if they qualify for and receive a subsidy at an exchange, they would trigger the $3,000 penalties and these may add up quickly.  I do believe, that for an employer simply looking to avoid penalties without incurring much cost, that this strategy is somewhat superior to the first one.  The employer is providing employees access to comprehensive medical insurance through a group plan.  This in itself may be beneficial to employees if individual plans are much more costly than their group counterpart in the given market.  It is also a comprehensive insurance plan, as opposed to one that provides little benefit and may be misunderstood like the “bare-bones” plans in the first strategy.  Neither of these strategies is a good one for most employers that have to compete for employees.

A third strategy is one for employers that do provide affordable, comprehensive coverage to employees, but cannot afford to do so for spouses and dependent children as well.  These employers often pay most of the cost for EE only coverage, but little or nothing toward the cost of covering a spouse or child.  The problem with this, under PPACA, is that this strategy prevents those spouses and children from getting subsidized coverage at an exchange, simply because the one parent is getting affordable coverage from the employer.  This portion of the law makes little sense, and perhaps it will be revised, but as it stands, some households that are not being offered affordable coverage for the whole household cannot get an exchange subsidy simply because one adult in the household receives an offer of affordable coverage for just themselves.  One strategy by an employer to help out such employees is to not offer coverage to spouses.  Instead of offering spouses coverage and not paying any of the cost, the employer simply makes spouses ineligible.  These spouses, would therefore be able to get a subsidy at an exchange since they are not being offered any MEC from another source.  In some companies, this may spouses of employees obtain coverage the family can afford.  So this is a strategy that an employer may want to consider, not to reduce cost, but to help employees and their families.


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