The so-called Individual Mandate has been a widely unpopular provision of the Affordable Care Act (ACA).  Most Republicans want to repeal it and several Democrats want to change it.  And as members of Congress talk about ways the ACA could be modified or improved—options to change the Individual Mandate are being explored.

This is music to the ears of nearly 17 million individuals who have coverage through the individual insurance market.   

The Individual Mandate applies a penalty which is (the greater of) $695 or 2.5% of household income for people who are uninsured.  There are some exceptions to the rule for people who have a religious objection to insurance or experience a financial hardship.

But the Individual Mandate is viewed by many as a necessary evil.

There still needs to be a rule or system in place that encourages more people to obtain health insurance, and account for another ACA provision that prohibits preexisting conditions from being a factor when establishing premiums or determining eligibility for coverage.

In other words, the Individual Mandate is supposed to encourage healthier people to obtain coverage to offset the risk of unhealthier people. However, many people argue the Individual Mandate isn’t working the way it was intended since insurance companies are exiting markets due to bad risk and around 27 million people continue to be uninsured.

Some members of Congress are now exploring the idea of auto-enrollment as an alternative to the Individual Mandate. Under this concept, anyone who is uninsured would be automatically enrolled in a low premium health insurance plan, and would have to proactively waive coverage if they didn’t want it.

This idea is being compared to a process that some employers use for their 401(k) plans. Some employers automatically enroll employees into their 401(k) plans to avoid filling out lots of paperwork or review complicated financial statements.  Employees need to notify their employer if they want to opt out. And employers who use an auto-enrollment process see far greater participation rates in the 401(k) plan.

Some members of Congress think an auto-enrollment process would be the ideal replacement to the Individual Mandate, but it might be a more complicated process when it comes to health insurance. There would have to be a system in place to identify who was uninsured, enroll them in a plan with a private insurance company, determine eligibility for subsidies, and give them the ability to opt of coverage.  The logistics alone may make auto-enrollment infeasible, but it’s at least something on the table as Congress continues to explore new ways to change the ACA.  

No, this article isn’t about the possibility of the age rating ratio changing from 3:1 to 5:1. This article focuses on a different change that’s about to happen in the individual and small group markets.

What is the age rating ratio?

The Affordable Care Act (ACA) established an age rating ratio relative to premiums for plans purchased in the individual and small group markets on or after January 1, 2014. Age is a key factor in establishing premiums, and the ACA allows insurance companies to charge older people a premium three times that of a younger person.

For example, a person age 64 or older can be charged three times that of a 21-year-old.

Anyone under the age of 21 is charged the same rate.  Meaning the premiums are the same for children age 0, 1, 2—all the way up to age 20, and this is where changes will occur in 2018. 

For plans purchased or renewed on or after January 1, 2018, there will be single premium used for children age 14 and under, and then premiums will increase each year for anyone age 15 and older.

The rating factors used for children will also change next year.

Currently, children age 0-20 pay a premium which is 63.5% of that of a 21-year-old. The rating factors for children age 0-20 will increase and range from 76.5% to 97% of that of a 21-year-old (depending on the age of the child).

These changes are being implemented to better align the actual cost of coverage for children and to mitigate large premium increases that currently occur when a child goes from age 20 to 21.

The Department of Health and Human Services (HHS) finalized these changes in its 2018 Notice of Benefit and Payment Parameters.

In September, Senators will return to Washington D.C. from their August recess. Almost immediately, they’ll begin taking on healthcare (again), but this time Democrats and Republicans will jointly consider changes.

The Senate Health, Education, Labor and Pensions Committee has scheduled hearings to take place on September 6 and 7.  The primary purpose is to discuss ways to shore up the individual market, where double-digit premium increases in combination with fewer plan options has become the norm.  Governors and state insurance commissioners, along with members of Congress, are expected to participate in the hearings.

The likely topics of consideration are expected to include:

• Guaranteeing funds for the cost-sharing reduction subsidies.
• Ensuring the Individual Mandate is enforced, or devising a new way to incentivize uninsured   Americans to obtain coverage.
• Providing additional funds to insurance companies who experience higher than expected claims.
• Reauthorizing the Children’s Health Insurance Program (CHIP), where funding is currently set to expire on September 30.

Whatever happens will be small in nature compared to the repeal and replace efforts that were undertaken earlier this year.

The underlying question…

Can Democrats and Republicans come up with a mutually agreeable compromise?

Republican leaders have concerns about financing these healthcare programs without any type of fundamental reform included. For that reason, it’s likely Republicans will try to negotiate some of their agenda items into any healthcare bill that is taken into consideration.

It appears one of the items that could be put on the table is the expansion or enhancement of Health Savings Accounts (HSAs). This was an item included in previous House and Senate repeal bills, and there isn’t a lot of controversy surrounding this provision, although some Democrats are concerned that increasing HSA contribution limits will primarily benefit the wealthy.

Another area for compromise may be with the Employer Mandate.  This largely unpopular provision has been criticized by unions and labor organizations who have been long-time supporters of the Democratic party. Republicans also attempted to zero-out the penalties associated with the Employer Mandate with their previously proposed repeal and replace bills.  Some have suggested a compromise could include redefining an applicable large employer as being one with 500 or more employees and redefining a fulltime employee as one who works 40 hours per week.

Open Enrollment Period is only two months away—there’s not much time for Congress to act. If anything happens, it’ll need to happen quickly.

A Flexible Spending Account (FSA) is one of the few benefits an employer can provide that will often pay for itself.

Yes, there are still some expenses that employers will incur when using a third-party administrator for the FSA—but there are payroll tax savings that will offset some if not all those expenses.

The Federal Insurance Contributions Act (FICA) is a payroll tax imposed on employees and employers to fund Social Security and Medicare. FICA taxes amount to 15.3% of the employees’ wages, but the tax is split equally between the employee and employer.  The employee is assessed a 7.65% tax, and the employer is also assessed a 7.65% tax.

A key feature of FSAs is that your contributions are not subject to taxes, including the FICA payroll tax. Not only does the employee save taxes on their contributions, but the employer also reduces their FICA tax liability by offering an FSA.  In many instances, employer tax savings are equal to or greater than the administrative expenses associated with an FSA.

There’s a simple formula to determine when contributions will provide enough tax savings to offset the FSA administrative expenses:

Annual FSA Administrative Expenses ÷ 7.65%

Let’s assume the annual cost for an employer to administer an FSA is $1,000. We’re going to take that expense and divide it by the employer’s FICA tax percentage (which should be entered as .0765).

$1,000 ÷ .0765 = $13,072 (rounded to nearest dollar)

When total employee contributions are at $13,072, the employer will save $1,000 in FICA taxes, which is the exact amount of the administrative expenses for the FSA in this example. This formula tells the employer their break-even point.  And, if contributions exceed $13,072, the employer’s FICA tax savings will be greater than their administrative expenses. 

An FSA is truly a benefit that can pay for itself. Plus, there are two different kinds of FSAs an employer can offer.  Health FSAs and Dependent Care FSAs.

1. Health FSAs allow employees to pay for out-of-pocket medical expenses with tax-free dollars.
2. Dependent Care FSAs allow employees to pay for things like daycare with tax-free dollars.

By offering both FSAs, an employer can easily meet or exceed their break-even point—making it a win-win for everyone.

Several states have continuation coverage laws in place, and Illinois is no different.  In fact, the state of Illinois has three different continuation coverage laws:

1. Illinois Continuation
2. Illinois Spousal Continuation
3. Dependent Continuation

Each law applies to fully-insured group health plans and HMOs that are issued in the state of Illinois. The length of continuation coverage and the persons eligible for coverage vary depending on which law is in play.

There’s also the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) which imposes a continuation coverage requirement under federal law. COBRA only applies to employers with 20 or more employees however Illinois continuation coverage laws apply to employers regardless of the businesses’ size.  And this is where most of the non-compliance with Illinois state law occurs.

Many employers have mistakenly assumed they don’t have to comply with Illinois continuation coverage laws if they are subject to COBRA.  There has been an assumption that COBRA rules replace Illinois continuation coverage rules, but that assumption is inaccurate.

In fact, Illinois employers with 20 or more employees, offering a fully-insured group health plan or HMO, must offer eligible individuals the ability to continue coverage under COBRA and the applicable Illinois continuation coverage law. The individual then must choose to continue coverage under one law or the other.

COBRA versus State Continuation

There are different rights, protections and requirements under each law. For example, Illinois Continuation generally requires coverage to be offered to employees and their covered dependents for up to 12 months after a reduction in hours or termination of employment that results in a loss of coverage. Illinois Continuation also does not allow the premium to exceed the group rate. 

On the other hand, COBRA typically requires coverage to be offered to your employees and their covered dependents for up to 18 months after a reduction in hours or termination of employment that results in a loss of coverage. COBRA also allows the employer to set the premium at 102% of the group rate to account for administrative expenses.

Based on unique circumstances, an individual could be inclined to choose to continue coverage under one law over the other based on the length of coverage that can be elected and/or the maximum premium that can be charged, among other things.

Bottom line, every state has its own continuation coverage laws, and not all of them work the same way as Illinois.

It’s important to know which continuation coverage laws apply to you, and whether you must offer continuation coverage under one, the other, or both. 

Not sure which law applies to your business?  You may be overdue for a compliance audit. We offer Complimentary Compliance Audits to all businesses. 

Group health plans are almost always subject to the Employee Retirement Income Security Act of 1974, also known as ERISA.

This means employers must follow certain rules, such as:

• Provide participants with important information in writing about plan features and funding.
• Establish an appeals and grievance process for participants to receive benefits from the plan.
• Provide fiduciary responsibilities for those who manage and control plan assets.
• Give participants the right to sue for benefits and breaches of fiduciary responsibility.

There are three instances when a group health plan would not be subject to ERISA:

1. The group health plan is a church plan, which means it must be maintained by a church or convention of churches that are exempt from taxes under IRS Code Section 50 For example, a Catholic church that provides a group health plan to its priests will be exempt from ERISA. It should be noted that organizations who affiliate themselves with a religion are generally still subject to ERISA. Examples are universities or hospitals who are affiliated with a religion.
2. The group health plan is a governmental plan, which is a plan established or maintained for employees of a government or governmental agency. For example, a group health plan established for employees of a township, city or state will be exempt from ERISA. However, in some instances, a governmental plan could lose its exemption status if any private sector employees can participate in the plan.
3. The group health plan is considered voluntary, which means:

• there are no employer contributions,
• the employer does not endorse the plan,
• the employer receives no financial consideration or other benefit by offering the plan,
• and enrollment in the plan is completely voluntary.

It can be easy for a plan that seems like it’s voluntary to be viewed as nonvoluntary, so it’s hard to qualify for this exemption. The exemption may cease to apply if an employer negotiates terms of coverage, associates its name with a plan, recommends a plan, assists with claims or disputes, or allows premiums to be paid through a Cafeteria Plan.

The bottom line is that most group health plans are subject to ERISA. Other employer-sponsored plans such as dental, vision, life, disability, Health FSAs and HRAs are also subject to ERISA in most instances.

The easiest way for an employer to start complying with the requirements of ERISA is by preparing a written document, often referred to as a Wrap Document, which provides participants with the important plan information they’re supposed to receive in writing.

On April 13, the Centers for Medicare and Medicaid Services (CMS) released the final Market Stabilization rule with hopes to lower premiums, stabilize the Exchange and the individual health insurance market.  Here are five key takeaways you need to know:

1.  2018 Open Enrollment Period

The standard 90-day Open Enrollment Period will be shortened to a 45-day window in 2018. The next Open Enrollment Period will start on November 1, 2017 and end on December 15, 2017.

Anyone applying for coverage during Open Enrollment Period will be issued an effective date of January 1, 2018.

2.  Special Enrollment Periods

There will be no more honor system when applying for coverage during Special Enrollment Period.  The Exchange will require supporting documentation to verify a Qualifying Life Event did indeed occur.

3.  Unpaid Premiums

Insurance companies will be permitted to collect unpaid premiums from the previous year if an individual wants to enroll in coverage with the same insurance company the following year.

This is intended to prevent the number of people who avoid making premium payments during the last few months of the year unless they get sick.

4.  More Plan Choices 

There will be more flexibility in achieving actuarial values relative to metallic tier status. This should permit more plan choices, but we ’ll have to wait and see how many insurance companies continue to participate in the Exchanges and the individual marketplace.

5.  Network Adequacy

States will have the power to determine if plan networks are adequate and have enough doctors and hospitals for individuals to receive medical care—not the federal government.