Like you, I’ve exposed myself to information overload when it comes to Affordable Care Act. I’ve read countless articles, waded through loads of comments, attempted to comprehend the technical documents, and sat through some workshops/lectures. Now I feel like I’ve come out the other end of a meat grinder. And, even worse, I’m still confused.
But unlike you, I’m not a business owner. So if I had to put myself in your shoes, I’d be thinking about blocking time with an attorney and insurance agent to help me wade through it all. But I’m not a business owner. I’m the editor of a staffing news site, so as such I did the best thing I could. I interviewed three insurance agent experts about ACA.
The Q&A below took place between me and Mark Lam, John Rutledge, and Kurt Murray of Assurance. Though the information they provided is about as accessible as ACA can be, it does run on the lengthy side. So for the abridged version, just see this fantastic quote from Kurt:
“We all here get frustrated with the misinformation and doom and gloom being perpetuated throughout the whole industry by uninformed insurance brokers, insurance carriers, and media outlets,” he wrote in an email. “… It paints the picture that there are few options and some should pay the penalty. The only time we’ve seen that as a viable option is in the smallest of agencies – those under 70 or so temps. We’ve been placing major medical coverage for our staffing clients for years. This can be done, and it’s being done.”
From what I understand, the government is asking employers to do two things with their health insurance: make it “acceptable” and make it “affordable.” Correct so far?
Correct. “Applicable large employers” – those who average 50 or more full-time employees – have a choice to either provide health insurance to their full-time employees or pay an excise tax penalty. In most scenarios, providing coverage actually is the lowest-cost option due to the tax advantages gained by offering coverage. That coverage has to meet a 60% actuarial value target, and be offered on an affordable basis for employees.
Alright, so with “acceptable,” this means offering a major medical plan with at least 60% actuarial value – and actuarial value is how much medical coverage the plan pays for (on average) versus out of the employee’s pocket, correct?
Yes. Most comprehensive group health plans will have no trouble meeting the 60% target. In fact, in some markets, insurance carriers are reporting that they are having a hard time coming up with a 60% plan, as various state and federal mandates for coverage levels effectively require them to provide a higher actuarial value.
I’ve heard that most plans are between 70 and 80% (with Pittsburgh averaging upwards of 90%!), so the thinking is that a lot of people should bring their plan down to the 60% range. Would you say that’s true, and would advise a similar strategy?
We suggest every large employer have their broker run the calculation on existing major medical plans to determine the AV and make sure the plan meets the minimum. From there, it’s an individual decision on whether the employer wants to adjust the plan based on the business needs. For example, a staffing company who is primarily or exclusively in the professional fields probably wants to maintain a richer plan than a staffing company that is exclusively or primarily in light industrial space.
OK, so moving on to “affordable.” This means plans cost employees (on average) less than 9.5% of their household income (in the single-person tier only, not dependents), correct?
This is something that is confusing due to the way the law was passed and signed. The statute – the bill that President Obama signed – does indeed state that coverage is affordable if it doesn’t exceed 9.5% of family income, and that is the rule. However, employers typically will never know household income, and wouldn’t find out if their coverage met the affordability guidelines until they were penalized for not meeting it. The IRS provided a safe harbor for employers in which employers will not be held liable for penalties if the amount they charge participants for employee-only coverage does not exceed 9.5% of their Box 1, W-2 wages. As long as that parameter is met, the employer won’t be in violation of the regulation even if the employee eventually qualifies for a subsidy due to the cost not meeting the family income criteria.
As long as your plan satisfies these two things (acceptable and affordable) you won’t be penalized, correct?
Yes, as long as you meet the minimum value and affordability guidelines, you are not subject to a penalty in the event the employee gets subsidized coverage.
If and when employers do this, will they see several employees opting instead for the aggressive federal plan?
We don’t believe we will see a mass movement towards the Exchanges, because coverage offered through the Exchange is NOT the federal employee plan, nor will it be “affordable” if an employer follows the guidelines, as employees in that scenario that opt out of their employer plan lose access to the federal subsidies. Coverage purchased through the Exchanges is also purchased on an after-tax basis. Once employees start seeing the real costs of coverage, and the impact it has on their bottom line, they’ll see that their employer plan is probably the best bet for them.
I’ve heard the thinking behind the federal plan is to drive down healthcare carriers’ costs. Do you believe this to be true?
This is a common misconception. The intent of the ACA is to expand coverage to those people who are currently uninsurable. The net effect of all the protections they had to put in place – which includes, among other things, billions of dollars in new taxes on insurance carriers – to avoid abuse of this system will actually drive costs up. These increases will be mitigated for low-income taxpayers who qualify for taxpayer subsidies, but for people not entitled to those subsidies, they’ll find the cost of coverage to be higher if they purchase it on their own.
A big question among staffers with this is, “OK, this all sounds fine, dandy, and easy, but what if insurance carriers refuse to work with us on this?”
This is a philosophy being promoted in some circles and in some cases due to misinformation. Our agency is already placing major medical insurance for temporary workers and we believe the insurance markets will see this law as an opportunity to grow their “membership” – the number of people they insure. In fact, if an insurer were to refuse to insure an employer, that same insurer could likely be insuring the same people through the exchange(s) using community rating and without being able to apply underwriting. That’s a lose/lose scenario for an insurance company. We have multiple insurance carriers who say they will work with staffing companies and we may even see special products developed to address this area. An accomplished benefits broker who understands both the ACA and the staffing industry should have no trouble finding coverage for staffing companies. The key is choosing the correct benefits advisor.
We’ve talked mostly about the “play” option so far. What do you think of the “pay” or penalty option?
Each employer will have different demographics that will affect the answer to this question, but by and large we have found that paying the penalty does not result in any significant savings. There are many factors that weigh on this, such as the tax break on health insurance premiums, employee morale costs (extra turnover, etc.), and more. For example, because the penalty for not offering coverage at all is a non-deductible excise tax of $2,000, the actual impact to a tax paying employer (depending on combined federal and state income tax rates) is likely to be closer to $2800 where a contribution to an insurance plan is tax deductible. Very small staffing firms may actually be better financially by paying the penalty because the penalty for the first 30 full-time employees is “free.” Our proprietary financial modeling computer program has thus far shown the cost for providing insurance to be significantly less than the cost of the penalty is the norm in the vast majority of cases.
What would you say to employers who are looking for loopholes to exploit?
The IRS, HHS, and DOL are all actively looking for employers who try to find and exploit loopholes, and they are already quickly shutting the loopholes down. Once January 1, 2014, rolls around, the government will have much more up-to-date and comprehensive information on employers, their plans and how they are being administered than ever before, which will make abuses of the system much easier to detect.
The hardest part of this seems to be actually calculating your actuarial value (60%) and affordability (<9.5%). Are there places where employers can go to enter info and easily figure this out?
The government has published this actuarial value tool that can be used to determine whether the plan meets the 60% target. Affordability is relatively straightforward, even for minimum wage employees. However, just complying with those two criteria isn’t necessarily going to result in the most cost-effective plan for the employer. Employers need to work with their brokers to develop a strategy that is both in compliance with the ACA and well-positioned for the future. Health insurance coverage, as we know, is in the midst of a transformation, and with all the moving parts to the ACA, it is vital that employers not only get into compliance but lay the seeds for a long-term strategy that will continue to keep them competitive and nimble as the insurance landscape evolves in the coming years.
Is there anywhere else we can point people for more information on this?
We invite people to check out our webinar today (April 11) at noon CST. It’s called Staffing ACA Regulatory Provisions Forum and Mark Lam will be orchestrating it. The first half will talk about staffing-specific concerns with ACA, and the second half will be an open forum for questions and immediate feedback. Otherwise feel free to reach us via email at email@example.com, firstname.lastname@example.org, or email@example.com.