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.
“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.
What 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.