As an insurance representative with 17+ years in the business, the Patient Protection and Affordable Care Act has been the most challenging and time consuming regulatory task I have faced. The law as approved March 23, 2010 has not significantly changed from its inception. The several thousands of pages of proposed guidance, transitional relief and practical procedures have attempted to codify what the original laws intent was, and with a few exceptions, the Internal Revenue Service (IRS) and Health and Human Services (HHS) have done just that.
The task of carrying out the regulation will be challenging, but the framework is clear. The general mission of PPACA was to provide affordable health care to an expanded population in the US. Principally the protective provisions in the law were geared toward low-income individuals and the uninsurable. The law has (for the most part) effectively provided access to care for those two populations. Not that all will be happy with their share of the costs, but it will meet the principals established within the law. However at some significant administrative burden, tax implication, employer headaches, crippling costs to other large employers and potential financial pain for others.
As most of you are aware, the 1/1/2014 date is the big date for PPACA. This is the date the “exchange” based health care options come to fruition. This will create a myriad of new insurance options for people to consider. For small employers, you will be exempted from the shared responsibility provisions within the law. Be cautious to review controlled group and business attribution rules, before you concluded you are a small employer. IRS Section 414 aggregations rules were included within the PPACA regulations. Even with a small employer status, you will still faces challenges in making sure your employees, who expect health benefits, are provided access to coverage. Small employers will also have the complexity of having to determine if offering coverage will limit access to individual exchange options for some of their employees.
Moreover, it is critical to understand that employees making more than 400% of poverty have no percentage of wage rate protection on the individual exchange. What is over 400% of poverty? $47,000 for a single person would put you over the 400% threshold. So while an employee earning 300% of poverty will have a safety net within health reform (in most situations), an employer plan will be the primary protection from rate shock that most wage earners over 400% of poverty will rely on for their coverage. Why? Let’s look at the estimated insurance numbers for a 57-year-old earning $47,000 per year. The premium estimate for a “silver- 70% value” plan will be $9,147 per year. This represents an after-tax premium of over $762 per month or almost 20% of the employee’s gross wage. This creates a potentially new class of uninsured people. Let’s call them the financially uninsurable and they will be comprised of the middle to upper middle class.
A careful analysis of any employer benefit plan should be considered, whether you are large employer facing tax penalties or a small employer just generally concerned with their own employees health care options. There will be new vehicles for coverage, but each chosen vehicle can come with an impact to some portion of your insured population. Also when considering these options, don’t forget to include the impact of the Section 125 pre-tax deduction. This is a significant benefit (typically estimated as a 25% reduction in premium through pre-tax employment credit). This “Advanced Premium Credit” of sorts is not something that should be given up too quickly. Post-tax and pre-tax premiums should be compared on a net cost basis.
Where should I start? When will we know more about rates and exchange availability? In my opinion, it is a micro evaluation of employees’ circumstances vs. budgeted cost. Doing a data analysis early can help to plan for obvious insurance solutions in late 2013. In general, an understanding of employees’ financial situations and current coverage options tells the tale. Should we continue to be players within the health insurance delivery model, partner with the Small Business Health Option Program or seed the job to the individual exchange exclusively? That is the question and the answer is in a review of your specific employee population’s details.