Featured Health Business Daily Story, Oct. 2, 2012
Reprinted from AIS's HEALTH REFORM WEEK, the nation’s leading publication on the business implications of the massive changes for the health industry mandated by reform.
Of all the provisions in the health reform law that have stirred widespread confusion, many of them relate to requirements on employers under the statute. And of all the employer requirements producing befuddlement, perhaps none has generated more than has the mandate for employers with more than 200 full-time workers to automatically enroll employees in a health benefits plan.
The Department of Labor (DOL), which is responsible for compliance with the provision, already has recognized some of the difficulties by saying its guidance on automatic enrollment (AE) will not be ready for implementation in 2014. As a result, DOL stated, “until final regulations…are issued and become applicable, employers are not required to comply” with the AE provisions. But how long this grace period will extend is unknown, and that’s part of what’s causing a lot of concern among major employee benefits consultants and their employer clients.
The effective date of the AE requirement itself is not known, notes Chantel Sheaks, a principal in government affairs at Buck Consultants, who says there could wind up being different dates for existing employees versus new hires. AE itself “has been one of the silent issues” for employers in the reform law, and if the feds want some of those requirements to become effective in January 2014, “we need it out now,” she tells HRW, referring to regulations regarding them.
But Sheaks acknowledges that DOL is “overwhelmed with hard and fast deadlines” on other provisions of the reform law and that it therefore could be a while before the department gets to focus on specifics of AE. The DOL statement that employers don’t have to comply with AE now, she adds, was “very helpful,” especially since the lack of an effective date meant the provision could have been construed to have taken effect in September 2010 along with some other reform-law requirements.
On the surface, explains Sheaks, AE seems like a “very easy concept,” since it is used in defined-contribution benefits such as 401(k) retirement plans. She continues, however, that unlike in 401(k)s, it is unclear who employers have to enroll automatically, how the 90-day period that the reform law allows for AE would work, and what happens for the many employers that have high turnover in terms of such aspects as providing COBRA benefits-continuation notices for workers who leave after a short time.
The definition of full-time equivalents (FTEs) for purposes of coverage under the AE provision also is an issue, according to Sheaks. While the IRS considers 30 hours to be full time for other provisions that agency enforces, it is unclear whether this applies to AE, which DOL rather than the IRS oversees. Sheaks says her firm has retail clients that have many employees “with sporadic hours” and/or who don’t want to pay for health care coverage. A related question, she says, is what happens with multifranchise owners that have far fewer than 200 employees in each franchise but more than 200 if all of those franchises are considered as the same company, as she fears will be the case. This could discourage expansion by franchisees, she asserts.
Another open question, says Sheaks, relates to the “look-back period” to determine if an employee is eligible for AE. For purposes of the employer “pay-or-play” mandate requiring employers except for very small ones to either supply affordable health insurance or pay a penalty, that period is three months — based on the assumption of 120 work hours per month. But this wouldn’t work for AE, Sheaks points out, because, among other issues, employers have only 90 days in which to enroll new workers. While the “logical answer,” she contends, would be to let the terms of the employer’s health plan determine who is eligible, whether DOL will go with that is unknown.
Enforcement is another open issue, she continues. The complication is this provision is governed by DOL’s Fair Labor Standards Act (FLSA) unit rather than by the tax code or the Employee Retirement Income Security Act (ERISA). The FLSA unit, she notes, does not generally deal with health care issues, so it is having to involve DOL’s Employee Benefits Security Administration unit, which creates “another layer of confusion.” And there is no penalty specified for violation of the AE provisions.
With all these questions hanging, what are Buck’s employer clients doing? Sheaks responds that some clients she is working with are devising a “default plan” into which they would automatically enroll workers. But this creates its own issues, she says, because it is not like a default plan in a 401(k) since there are many factors specific to health care to consider. She cites, for instance, the question of whether a low-cost HMO would be appropriate if it doesn’t have a network hospital close to the employee’s residence. Similarly, Sheaks tells HRW, in 401(k)s, employees opting out of a plan they were automatically enrolled in would get back the market value of their contributions, but this doesn’t apply to health insurance, where it is not feasible to refund premiums, especially since there may have been claims paid.
The employer’s goal, she explains, therefore could be to enroll a qualifying employee in a relatively low-cost plan that meets the needs of multiple employees as well as the 60% actuarial value test that exempts employers from penalties under the pay-or-play mandate. While a few clients are planning to do this with high-deductible plans they were going to offer anyway, “a lot of people are waiting for the [November] election,” Sheaks says. She predicts postponement of the AE mandate perhaps to 2015 even if President Obama is elected in light of the “mad rush” to get other provisions into effect in 2014, and says election of a Republican could result in immediate postponement of AE or just killing it by not issuing regulations.
Ed Fensholt, senior vice president and director of compliance services at employee-benefits firm Lockton Companies, says one possibility would be delaying the AE and pay-or-play requirements together, especially since “we don’t even have proposed rules” for pay or play. A one-year delay, he says, could allow guidance on the two provisions to come out together. The idea would be to get the two requirements “to fit together seamlessly” and preferably not have either obligation apply during the first 90 days of employment, he adds.
“Our clients feel like this rule could not be deferred enough,” he quips to HRW. That’s because, he says, there are so many administrative issues associated with AE even aside from its cost. For example, says Fensholt, it appears that under AE those FTEs who don’t want health insurance — perhaps because their spouse already has it or they are covered under a parent’s plan — would have to be enrolled in it and then opt out.
He says Lockton actuaries have analyzed the financial effect based on an assumption that the FTEs who have had or who in 2014 get an opportunity to enroll in an employer’s health insurance plan but didn’t or don’t do so are automatically enrolled in a plan. The assumption is that 75% of those employees will opt out, with the result being that the employer’s costs go up by 4.4% because of this whole scenario, he explains.
Lockton’s clients, he continues, generally subsidize 75% to 80% of the cost of an employee’s health insurance. So even a small percentage of additional enrollment stemming from AE and pay-or-play requirements would result in big new costs, he says. As a result, Fensholt adds, some clients now are looking for a “bare-bones” plan that wouldn’t meet the 60% actuarial requirement for avoiding the employer penalty but would offer enough that it meets the individual-mandate requirements. If employees choose it and do not go into the insurance exchanges to supplement it, then employers don’t have to absorb the pay-or-play penalty.
There also are numerous other remaining AE questions that cloud any strategy, according to Fensholt. These include:
Will the feds dictate the amount of coverage employers must provide in AE?
Must employers also enroll a worker’s dependents under the AE provision?
How much time do employees have for opting out?
Can “opt outs” be retroactive?
What kind of notice would employers have to provide employees subject to AE, and when?
Must employers furnish AEs to all FTEs even if the health insurance plan now doesn’t provide for this?
© 2012 by Atlantic Information Services, Inc. All Rights Reserved.
Chantel Sheaks is one of 30 industry experts participating in New Health Insurance Business Models for a Post-Reform World, a two-day conference on Oct. 4-5 in Washington D.C. Visit www.AISHealth.com/roundtable/october2012 to review the Full Program and see the “Who’s Who” of health business leaders you’ll interact with during seven Health Business Roundtables on compelling bottom-line issues for health care professionals.
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