Now is the Time to Plan for Changes in the Health Law

By David E. Schweighoefer and Lacie L. O'Daire

The laws requiring changes to health care and benefits provided by employers are either already in force or will be in force in the next year or two. The impact upon you and your business will be greatly dependent on the actions you take in 2013.

If you have fewer than 50 full-time employees (counting certain part-timers as full-time equivalents), then the new law does not affect you, except for changes that medical insurance companies will be making to all of their health plans which may impact your coverages and costs. However, if you do not currently provide health insurance, or it does not currently comply with new law requirements, you may choose to provide health insurance to your employees and receive tax credits from the federal government, through 2014, in order to reduce your costs. Regardless of what path a small employer chooses, however, the tax penalties and the requirement to offer health insurance will not apply to you. However, if you grow in the future and begin nearing that level of employment, there are some decisions which you will need to make, so it's important to remain vigilant.

If you employ over 50 full-time employees, you need to pay attention and take immediate action. For this purpose, even if you don't feel large, you are referred to as a "Large Employer" or an LE. If you are an LE and currently provide health insurance to your employees, you will be exempt from many of the new law requirements if you make no changes to your current plan. Your plan will be "grandfathered." If you have a plan and you do not do any of the following, you can maintain your grandfathered status. The prohibited changes are:

  • You may not increase the employee cost over certain inflation-adjusted amounts, including co-pays, co-insurance and deductibles;
  • You may not reduce the employer contribution to the cost by more than 5%;
  • You may not significantly cut or reduce benefits; and
  • You may not add a new annual limit on benefits or tighten an existing annual limit (with at least one exception).

If you qualify as a grandfathered plan, you are exempt from some - but not all - of the new law requirements. You are exempt from the requirement to provide preventative care coverage, the additional patient protections in the selection of medical providers and in preauthorization, the requirement that premiums must not discriminate in favor of the highly-paid, the guaranteed coverage requirement, and the new non-discrimination rules on coverage under the plan for fully-insured plans.

However, even if you are grandfathered, you still must comply with the following requirements:

  • Extension of coverage to dependents (not spouses) up to age 26;
  • Elimination of lifetime and annual limits by 2014;
  • Elimination of pre-existing conditions exclusions;
  • Limits on rescissions of coverages in the case of fraud or intentional misrepresentations.

Therefore, you may find it important that you qualify to be grandfathered. We understand, though, that many insurers are telling their clients that they cannot be grandfathered, or that it will be too costly. If grandfathered status is important to you, we recommend that you shop carefully and be wary of some of the information which you are receiving. If you qualify as a grandfathered plan, be sure to avoid making the changes that are outlined above, since they could jeopardize your grandfathered status.

If you are an LE and do not have a grandfathered plan, your plan - beginning in 2014 - must meet all of the requirements set out above (there are 9, in case you are counting). If it does not, there are two sets of tax penalties that could potentially apply to you. In addition, even if you do comply, but at least one of your full-time employees seeks coverage from one of the exchanges, you could be subject to a penalty. One of these penalties is not onerous; in fact, some employers will choose to incur the penalty instead of paying for the coverage. The other could be quite onerous and needs your full attention.

There are a number of time-sensitive considerations that employers must monitor:

  • You could reduce the number of people who must be offered medical insurance under your health plan by strategically selecting a period of time - at least three months and not more than 12 months before 2014 - to test for full-time or part-time status. This is known as the “look-back” safe harbor.
  • A second consideration - if you are considering a merger, acquisition or re-structuring, and the principal purpose of the restructuring is to cover individuals under a grandfathered plan - is that the health plan you offer will lose its grandfathered status.

So what actions should be taken? Here are our recommendations:

  • Determine if you are an LE; if yes, go further;
  • Determine if you have a grandfathered plan, whether that is advantageous to you, and how to maintain grandfathered status;
  • If you are not, or will not, be grandfathered, then determine the cost of upgrading your current plan to meet the new law requirements; compare that with the penalty for not doing so and determine if you will comply;
  • If you are going to comply, then you still need to take steps to be sure that no employee who is offered comparable coverage goes to an exchange;
  • If you are not going to comply, determine how to pay the penalties;
  • Regardless of what action you take, you will have additional payroll reporting requirements; make sure that you understand and comply with them;
  • Check with your insurer to see if they are prepared to issue the new Statement of Benefits and Conditions; the format has been changed extensively, and all insurers must comply;
  • Review all notices to employees as they pertain to insurance plan changes well in advance of the new notice requirements, and remember to think of required board-level meetings or other decision-making processes that need to occur in time for proper notice of changes to employees.

The new law is extensive and there is no one-size-fits-all approach. Please contact us if we can assist you in making your decisions.