The White House’s decision to delay the employer health-care mandate with its pay or play penalties that were scheduled to go into effect next year under the Affordable Care Act (ACA), will most likely have little impact consumers, but it has some experts wondering if the administration is ready to make the reform work.
Before the July 4 holiday, the Obama administration announced it has delayed the data reporting requirements for the employer mandate which includes eligibility verification of income and coverage required for enrollment in public exchanges.
Only time will tell whether companies get their reporting systems in order or whether the recent actions bode a chink in the armor of health reform. Employers are now in the position of deciding whether to move forward with the plans they already have formulated or defer those plans till 2015.
“It really is a bit like going off to college freshman year,” says Karen Pollitz, senior fellow at the Kaiser Family Foundation. “You initially face uncharted waters, but come sophomore year you settle in.”
That being said, many major corporations have already sunk money into the administrative infrastructure modifications and educational communication requirements that come with a plan design change, says David Kautter, managing director of the Kogod Tax Center at American University. “It is unlikely these companies will shift gears.”
Right now, consumer-directed and high-deductible health plans are likely to be on employers’ radar and will stay there long term. To entice employees, employers will offer rewards, premium subsidies or health reimbursement accounts to try these plans, according to Julie Stone, a senior consultant at Towers Watson.
Still, the year-long postponement of the employer mandate is potentially giving a temporary pass to some employers who may table plans to extend coverage to all employees who work 30 hours or more per week.
In theory, deferring coverage expansion could save an employer money in 2014, some will conclude that their longer-term business interests are best served by moving forward as planned, says Michael Thompson, principal in the PricewaterhouseCoopers Human Resource Services practice.
Thompson claims part-time and seasonal workers who may have been gearing up for employer health coverage next year can apply for coverage on the public exchanges where the rules for income and coverage verification may be more relaxed,
“These may be among the first consumers who head to the public exchanges, along with people who are unemployed or face the offering of an unaffordable company plan,” says Dave Marini, division vice president and managing director at ADP Strategic Advisory Services. “Affordability is a huge factor in health benefits purchasing,” Marini says.
Affordability challenge to youngest purchasers
Experts claim premium increases for employed workers are expected to stay within the 5% to 6% range this year, a reprieve from the average double digit increases that have pressured consumers in recent years.
But affordability could be a challenge to younger and lower income workers, according to the ADP Research Institute’s 2013 Annual Health Benefits report.
The mandate that premium costs for 50 to 64 year olds cannot be more than three times the cost paid by the youngest insurance purchasers has many experts questioning future affordability. If a young person has to pay the full premium, he or she would be paying more than his/her actuarial value for coverage, Thompson says.
Still, concern about these increases may be over stated, he claims.
Most young people will qualify for a subsidy because they haven’t reached their full earning potential and do not make more than four times the federal poverty level. The ACA affords an income tax credit to people who earn between two and four times the poverty level (between 47,100 and $94,200 for a family of four based on 2013 poverty guidelines), claims Thompson. What they pay will be limited based on their income, not the premiums themselves. Plus, a catastrophic exchange offering designed to the under-30 age group will give them the actuarial value of their demographic, he says.
Subsidies will be set by the second lowest silver cost plan premiums for a 40 year-old non-smoker, according to the Congressional Budget Office which estimates the average monthly premiums for the second-lowest cost silver plan will be $433 a month or $5,200 per year for an individual.
Kansas Insurance Commissioner Sandy Praeger says that while there will be variation from state-to-state, early reports indicate increases may not be as significant as some had projected. What’s more, the increased benefits included in the plans, which will reduce the out-of-pocket costs to consumers, are important to consider when calculating the value of the coverage, she says.
Young smokers beware
Yet another recent--but less publicized administration announcement--says a computer glitch will limit penalties as high as 50% that were to be levied on older smokers in the individual market but potentially pressure younger employees who would have received a lesser penalty charge.
Current IT systems are not able to process the age surcharge variance in combination with the three-to-one age-banding requirement, explains Pollitz. While it is too early to predict how this change will play out, she says, some critics warn that insurers will charge a standard penalty. While this may help older smokers, younger smokers may face higher penalties than originally intended.
Employees can also opt-out of health insurance all together, but that choice comes with an individual penalty, the greater of $95 dollars or 1% of income this year. This is an option employees on the lower end of the pay scale may choose, Marini says.
While the penalty is indexed for inflation and increases with income, unfortunately a 2014 penalty won’t show up on tax returns until 2015.
“All of a sudden, you’ll experience a feeling of horror when you look at your tax return two years out,” says Kautter. By then it will be too late for you to shift gears before 2016.
There’s no question that it will take time from all parties involved to get a full grasp on the new health-care mandates, but experts offer consumers the following tips to prepare for open enrollment:
Pay attention to benefits in your state. Rates in both the exchanges and employer plans differ by state, so it’s important to know the regs in your state. Visit the administration consumer education marketplace at HealthCare.gov. State insurance departments and navigators in the state exchanges are also reliable sources.
Ask questions. Consumers in employer-sponsored plans will have increasing incentives available to them. Take advantage of these offerings, says Stone, for real-dollar savings.
Be open-minded. Some bare-bones employer plans may leave lower income earners inadequately protected. Investigate the offerings in your state’s public exchange, says Pollitz. The alternative may offer lower premiums, higher cost sharing and better protection, enabling you to avoid “some buried land mines” in these skimpy plans
Take personal responsibility. Understand the consequences of your actions, says Thompson, especially if you opt-out of coverage. “We won’t solve the underlying cost issues of healthcare unless everyone is in the game.”