Original content from United Benefit Advisors (UBA)
After a month and a half of working through startup issues with its HealthCare.gov online health insurance marketplace, the Obama Administration turned heads by announcing on Nov. 14 that the federal government will not enforce many of the Patient Protection and Affordable Care Act (PPACA) requirements that are scheduled to take effect in 2014. Instead, coverage that does not meet the “insurance market reforms” may still be provided for renewals with policy years beginning between Jan. 1 and Oct. 1, 2014
Simply put, if your health care plan was canceled, you can keep it through 2014 if your state allows this and your insurer chooses to offer a renewed policy. The announcement came in response to concerns voiced by both sides of the partisan aisle over the fact that millions of Americans were being dropped from insurance plans that no longer meet PPACA standards. The House of Representatives on Nov. 15 approved a slightly amended fix than the one announced on Nov. 14; the later change would allow insurance companies to sell old plans to new customers as well as to customers who previously had them. In contrast, the White House extension only applies to customers who were already enrolled.
While it may feel like the rules of health care reform shift continually, it has grown clear that employers have several options for providing health care coverage to their employees. Currently, it seems small groups have five viable options: 1) state marketplaces; 2) SHOP marketplace; 3) private exchanges; 4) co-operatives and 5) going direct to carriers. For large groups viable options include: 1) state marketplaces; 2) private exchanges; 3) self-funding and 4) going direct to carriers.
The first option seems relatively simple: direct employees to the marketplace in the state where they reside to purchase individual coverage. Keep in mind that the marketplaces are state-specific, so there will be variations in benefits and network access based on that particular state’s offerings — something to consider if an employer has employees in different states. For large employers, this approach will bring penalties starting in 2015.
The second option, the SHOP exchange, is a good coverage alternative for employers with 50 or fewer employees if certain requirements are met. In Massachusetts, for example, employers participating in SHOP must contribute at least 50 percent of the premium amount. In addition, employers with one to five employees must have 100 percent of the employees enrolled, and employers with six to 50 employees must have at least 75 percent of the employees enrolled. For some employers, a SHOP marketplace may offer the additional advantage of certain tax credits. Employers with more than 50 employees are not currently eligible for the SHOP marketplace.
Private exchanges appear to hold great promise, but many are still in the early stages of their development. On the other hand, a growing number of private exchanges are available to interested employers. In the “defined contribution” model prevalent with private exchanges, employers benefit from fixed costs by choosing how much they will contribute to an employee’s health plan — a strategy gaining popularity for its ability to control benefits expenses.
The last few options — co-ops, self-funding and going direct to the carriers — are the traditional modes for purchasing employee health coverage. Still viable options, these methods of providing health insurance remain the most popular coverage choices for most employers.
A critical issue for employers to consider when deciding what option works best for their business is the tax status of contributions. After Dec. 31, 2013, employer contributions for individual health insurance coverage are taxable to the employee as regular compensation and subject to income tax and FICA tax. For the employer, the contribution may be a tax deduction as a business expense, but the employer must still pay FICA taxes. From the employee’s perspective, employer contributions for health coverage are tax-free only if they go towards a group plan. In addition, any payment by an employee for the purchase of individual coverage through a public marketplace or private exchange must be paid with post-tax dollars (although premium costs in excess of 10 percent of income may be deductible on the employee’s tax return). These tax consequences are key considerations for any employer grappling with the healthcare options for its employees down the road.