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Game Changer

ACA Employer Mandate will shrink the playing field for business with 50-99 lives.

The Affordable Care Act’s Employer Mandate, effective January 1, 2016, will require businesses to offer every employee health insurance and will now identify organizations with 50 to 99 lives as “small businesses.” Previously, businesses with 50 to 99 lives were considered large organizations – with the ability to establish their own insurance rates, known as experience rating.  The Employer Mandate will level the playing field by merging these businesses with those of two to 49 employees. Premiums for small businesses of two to 99 lives will now be determined using standard "manual" rates rather than taking into consideration their own industry code or claims history. They will be mixed into a larger pool of companies with a variety of demographics, leading to increased rates for many.

ACA Employer Mandate“The Employer Mandate is going to mean big changes for today’s small businesses. Depending on the carrier, this could mean an average increase of 18 to 38 percent for these ‘newly-defined’ small businesses,” said Joe Torella, East Region President, Employee Benefits Division, HUB International. “People who paid less in the past will likely be required to pay more, and those that paid more in the past, may now pay less.”

Who is considered an employee?

Generally, anyone working for your business will be considered an employee (with the sole exception of independent contactors), and therefore, subject to the Employer Mandate. This includes full-time, part time and many seasonal employees. Even those placed at your business by a staffing firm will generally be considered employees for purposes of the Mandate.

HUB International suggests that businesses currently approaching 50 lives or those that are considered “name brand” employers, like McDonald’s franchises, etc., should play “preventative defense” by keeping a documented list of how many employees work there and who is considered full time under the new rules.

This will help avoid audit headaches and maybe even some lawsuits from employees claiming they should have gotten benefits retroactively.

Strategies to delay the ACA employer mandates impactWhat are the options?

While the rules are changing and the complexity is deepening, working together with your HUB broker and insurance carrier, there may be options to at least delay or temporarily circumvent the impacts of the law.

Most commonly, carriers are currently encouraging businesses to renew their insurance coverage prior to January 1 in order to extend the organization’s current rates for a longer period of time (average of 16 months as opposed to a 12 month policy).

“This could be considered delaying the inevitable, but any delay and opportunity for an advantage pricing could make a lot of sense for small businesses that fall into this category,” said Torella.

Some groups may want to consider self-insurance options, Torella says, including traditional self insurance, modified self insurance or level funded programs. This may be particularly attractive to groups that are young and healthy and facing a high premium rate increase, some reaching well into the 40% range. When considering this option, be sure to check if your state allows self-funding as an option and if there are program restrictions that might materially impact the value of such options. Various states will differentially view and moderate such solutions. In fact, those plans that have been self-insured or in an association in the past, may not have access to this solution anymore, depending on the state.

Other groups may consider joining a professional employer organization (PEO). If your business must be a part of a larger group pool to determine insurance premiums, this could be a good option. PEOs are a co-employment relationship where employees work for one larger umbrella, sharing human resources, benefits, workers’ compensation, etc. The controlling employer bears legal responsibility, but the insurance costs may be lower.

Intersecting with the Cadillac Tax

Because the Employer Mandate will mean insurance rate increases for many smaller employers, the ACA’s Cadillac Tax – an excise tax on “Cadillac” healthcare plans - could be triggered sooner. Applying to every size company, even those under 50 lives, the Cadillac Tax will first take hold in early 2020 (see HUB’s Cadillac Tax e-book for more information).

The Employer Mandate will probably lead some of the smaller employers down the same path as the larger employers – offering supplemental or voluntary benefits and making them available on a post tax basis so they don’t count toward the Cadillac Tax. This will help attract and retain employees especially if employers have to cut back on health care benefits.

Ultimately, the Employer Mandate was created to provide more accessibility to insurance policies and to get more Americans into the insurance pool. As small businesses navigate their way through this impending ACA provision, they will need to rely on their HUB advisor to work together with insurance carriers to determine the best option for each individual business.