Be careful about what constitutes affordable care

Originally posted December 13, 2013 by Keith R. McMurdy on

When considering what constitutes affordable coverage under the Affordable Care Act, some employers have come to me and said “Well, I will just charge everybody 9.5 percent of employees’ pay.” And on its face, that seems to be what the rule permits. But, as with other components of the ACA, Congress may have overlooked that our old friend ERISA already has a little something to say about what employees can be charged as a contribution.

Generally, ERISA does not require plans to provide the same benefit coverage to all employees. But the plan’s offerings have to be made in a manner that is non-discriminatory. HIPAA makes it illegal to charge different contributions to employees based on health factors. Specifically, an employer cannot charge some employees more than any other similarly situated individuals based on medical conditions, claims experience, receipt of health care services, genetic information or disability. But HIPAA does allow an employer to make other distinctions in benefits that are offered in the cost to employees, provided the distinctions are not discriminatory.

In order to avoid discrimination, plans have to limit their distinctions between employees to “bona fide employment-based classifications.” The most common examples are things like full-time or part-time status, geographic locations and salaried versus hourly employees. In some instances, it may even be permissible to charge different rates based on time of service, but employers have to be wary of age discrimination rules. However, what is clear is that the plan has to define the rules and explain how the rules apply to each classification of employee.

What employers should be considering as they prepare their compliance program for 2015 is how they define these job classifications. For example, take two employees who do the exact same job, but one makes $10 per hour and the other makes $10.50 per hour simply because they have been employed a year longer. If the employer charges both of these employees 9.5% of their wages for health insurance contributions, there would be discrimination between them because they are similarly situated employees being charged two different rates for the same benefit coverage. Absent plan rules that explain the distinction, this difference in contributions would be discriminatory and arguably impermissible under ERISA.

So before assuming that everyone can be charged 9.5% of box 1 of their W-2s, consider what ERISA already has in place. It is not that it can’t be done this way, it is only that it has to be done properly, with the right plan language and with the correct limits in place. The ACA compliance is also ERISA compliance and employers should seek assistance for staying in line with both.


The information in this Legal Alert is for educational purposes only and should not be taken as specific legal advice.

ACA subsidies reliant on ‘self-reporting’ with absence of employer mandate

Originally posted by Gillian Roberts on

Industry insiders are beginning to find holes in the Affordable Care Act employer mandate delay announced last week by the Obama administration and U.S. Department of Treasury. The biggest hole so far, say brokers and media alike, is self-reporting for subsidies.

Thom Mangan, CEO of United Benefit Advisers and EBA advisory board member, says he had one main question for the Treasury after the announcement: What about the people who were going to potentially be eligible for subsidies if their employer was not offering “affordable” coverage, as the ACA stipulates? That answer came Friday from the Obama Administration. “It’s crazy,” Mangan says. “It’s self-reporting … Employers don’t have a mandate to go and report if a person is eligible for subsidy. Some people will just apply and they may be at 400% of poverty level, they may be 50%, whatever they report is whatever goes through.”

The announcement, which Mangan says was expected from the Treasury, came in a 606-page document that not only answered his aforementioned question but made clear that all subsidy verification would rely on self-reporting until 2015. Mangan says he predicts there are going to be “plenty” of people who are not qualified for subsidies getting them anyway. “We’re in for an awful 2014, 2015 for the IRS trying to figure this out,” he says.

A Mercer statement Monday on the subsidy loophole nodded to even more potential confusion. “Public exchanges, which are slated to be operational in 2014, may still reach out to employers to verify applicant eligibility for health insurance,” the statement said.

“It will be state by state, and it’s just going to be part of your tax return,” Mangan says about the possibility of some states pursuing verification. “I just moved to Illinois and it was pretty simple in my W2 paperwork, there’s a box [asking if you have health insurance] that if you didn’t check it, you’re going to get flagged.” He caveated that Illinois is ahead of other states in preparing paperwork of this nature already. With some states verifying and others potentially not, the budget could get tricky.

Also contributing to new budgeting problems for the ACA is the missing funds from employer penalties in 2014. Despite the varying sources that say between 94% and 98% of employers already offer coverage, Mangan says there were definitely some businesses planning to pay the fine and not “play.” He explains: “There were still some employers in the high part-time or low-wage industries that never provided benefits. They have 300% annual turnover in the fast food industry … that was more of a logistical nightmare than providing health insurance.” In fact, the Congressional Budget Office had estimated that the penalties from employers would add up to approximately $10 billion in 2014.

“I’d say the CBO had it spot on in terms of what we won’t collect in the end,” Mangan says.

Meanwhile, business groups and insurance brokers and agents immediately celebrated the extra time allowed for employer shared responsibility reporting, un-burdening employers who do not currently offer coverage, or were considering making a change, from making a decision on whether they would pay or play until 2015.

Brian Kalish contributed to this report.

Counting to 90: ACA and the waiting period

Original article

By Keith McMurdy

Under the Affordable Care Act, once we decide who we have to offer coverage to, then we have to decide when they get the coverage. Generally the new rule is that a waiting period for coverage cannot exceed 90 days. More recently, the IRS has given us proposed rules on the 90 day waiting period. As with all proposed rules, they are not final until they are final, but these do give employers some additional guidance on how to maintain the correct waiting period.

The proposed regulations define a waiting period as “the period that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of a group health plan can become effective.” What this means is that once eligibility requirements are met (meaning that an employee is "full time"), coverage must begin 90 calendar days after eligibility is obtained. This includes weekends and holidays. If day 91 falls on a weekend or holiday, the plan sponsor may elect to have coverage be effective earlier than the 90th day, for administrative convenience, but may not delay coverage past the 91st day. So plan sponsors should eliminate any plan provisions that provide that coverage begins at some time after the 90th day (like the first day of the month after the expiration of the 90 day period.)

The proposed rule also provides that a plan may impose eligibility criteria such as completion of a period of days of service (which may not exceed 90 days), attainment of a specific job category, or other criteria, so long as they have not been designed to avoid compliance with the 90 day waiting period. For example, a plan provides coverage only to employees with the title of manager. John is hired on September 1, 2014 as an associate. On April 1, 2015, he is promoted to manager.  John must be offered coverage no later than July 1, 2015. This does not mean that John might not have otherwise been offered coverage as a full-time employee. So be wary of reading too much into this job classification option. We still have to measure how many hours John works even as an associate.

Also, there had been some question about certificates of creditable coverage being required after January 1, 2014. The proposed rules provided that these certificates will be phased out by 2015 because ACA's prohibition on exclusions from coverage due to pre-existing health conditions renders them obsolete. Since pre-existing condition exclusions have to be eliminated for plan years beginning on or after January 1, 2014, these certificates are no longer necessary.  But they still have to be provided throughout the 2014 plan year.

There are other specifics in the proposed rules that will have to be fleshed out and, again, these rules are proposed and subject to change. But they serve as an ongoing reminder that plan sponsors have to be watchful of how they administer their plans and must make sure that their stated eligibility rules satisfy the requirements of both ERISA and ACA.