A few weeks ago, we joined with Aflac Inc. (NYSE:AFL) to run a webinar on the possible effects of the Patient Protection and Affordable Care Act (PPACA) on the commercial health insurance community.

Webinar attendees submitted 44 questions about topics more substantive than “How do I find a recording of the webinar?” (The answer to that question: Please click here. Fill out a registration form and you will get access to the webinar archive.)

Last week, we also answered questions about topics such as, “Why does everyone seem to refer to PPACA in a different way?”  

The underlying, unspoken question seemed to be, “What will happen to me?” and “What does all of this mean for dental and vision insurance?”

This week, we take on questions about matters such as employee counting and producer compensation.

Please note that that, in many cases, we’re basing these answers on our understanding of draft government regulations or batches of draft federal agency “guidance” that are not even officially finished, let alone imbued with any kind of binding authority.

Even if some regulation or ruling does have binding authority, lawmakers, regulators, interest groups and others are still using many different strategies to block or change PPACA, and just about every individual regulation or ruling related to PPACA. That means any answer we give here is subject to dramatic change.

The bottom line is: Think of these questions and answers as a tool for starting conversations about PPACA with your favorite legal, accounting and legislative affairs advisors, not as a substitute for competent professional advice.

1. Is the government imposing the PPACA tax penalty for employers that fail to offer a minimum level of health benefits based on the number of full-time equivalent (FTE) employees, or also on part-time employees?

2. Is the penalty for not offering coverage based on the number of true, full-time eligible employees, or the total of the full-time eligible employees plus the additional FTEs also? 

The Internal Revenue Service (IRS) will actually be using at least two sets of employee counting rules for purposes of applying PPACA.

The IRS expects to use one set of rules to count how large the employer is, to figure out what the employer is big enough to have to worry about the “shared responsibility” standards– also known as the “play or pay provisions.”

The IRS expects to use a second set of employee counting rules to determine the size of the penalty that the employer must pay.

The IRS explained its approach to counting employees in a set of PPACA coverage requirements answers posted in December 2012.

The current IRS formula for counting employer-size FTEs includes part-time workers.

“To be subject to these employer shared responsibility provisions, an employer must have at least 50 full-time employees or a combination of full-time and part-time employees that is equivalent to at least 50 full-time employees,” the IRS says in one answer. “For example, 100 half-time employees equals 50 full-time employees.”

When an employer is calculating its coverage mandate penalty payment, it will have to pay a number equal to “the number of full-time employees the employer employed for the year (minus 30) multiplied by $2,000, as long as at least one full-time employee receives the premium tax credit.”

The IRS goes on to note that, “for purposes of this calculation, a full-time employee does not include a full-time equivalent.”

In other words: One set of rules indicates that an employer with few full-time employees and many part-timers could be subject to the PPACA employer coverage standards.

In real life, however, it looks as if only employers with a combination of 20 true full-time workers and enough part-time workers that the part-timers amount to 30 part-time equivalents will actually end up making penalty payments. An employer with 10 true full-time workers, 40 half-time workers and lousy health benefits would not have to pay the penalty, but an employer with 20 true full-timers, 60 half-time workers, and lousy health benefits would have to pay the penalty.

3. If the employee has a family that is covered by the plan, and the cost of the family coverage exceeds 9.5 percent of the employee’s W-2 wages, does the plan count as being affordable? If so: That seems to penalize the single employee.

The Sibson Consulting division of Segal has a great explanation of the IRS final rule on the “9.5 percent test.”

The IRS is being nice to everyone when it comes to letting them out of having to pay the PPACA “shared responsibility” penalty taxes, but stingy when it comes to letting workers qualify for the new PPACA health insurance purchase subsidy – the premium assistance tax credit – as a result of lack of access to affordable coverage.

As long as an employer offers bronze-level, employee-only coverage such that each employee’s share of the premiums is less than or equal to 9.5 percent of the employee’s W-2 wages from that employer, that employer has met the PPACA employer health coverage standards.

If John Doe, a single employee, finds that his share of the premiums for the employee-only coverage would exceed 9.5 percent of his entire household income, he can qualify for the premium assistance tax credit.

 

But: Does can escape from having to pay the new PPACA tax to be imposed on individuals without a minimum level of health coverage even if his share of the employee-only coverage exceeds just 8 percent of his household income. In other words: It’s a little easier for him to get out of paying the penalty than to get a tax credit.

If Jane Smith, a married employee, finds that her contribution for family coverage would exceed 8 percent of her family’s household income, she could escape from having to pay the new PPACA no-coverage tax.

But: Even if Smith’s share of the premiums for the family coverage exceeded 9.5 percent of her income, she could not get a premium assistance tax credit and use the money to pay for family coverage. The government is not planning to do anything new to help workers with families pay for the spouses’ and children’s benefits in situations in which the workers’ share of the cost of those benefits would be unaffordable.

Some are speculating that the IRS took this approach partly to hold down the cost of the premium assistance tax credit program, and partly to encourage employers to continue to subsidize the cost of the family members’ benefits, rather than cheerfully shipping the family members off to the exchanges. Employers will have the legal right to send the family members to the exchanges, but they will end up looking mean. 

4. Annual enrollment falls right at the same time as the Medicare annual enrollment period. How does the government think it can handle all of that from a systems perspective?

One answer is that government workers didn’t write all of those PPACA rules; they just have to implement the rules as well as they can.

Another answer is that the U.S. Department of Health and Human Services (HHS) already has postponed implementing several PPACA provisions. It’s conceivable that HHS could find a way to postpone the exchange system start date.

A third answer is that Medicare Part D prescription drug program is a pretty big program, too, and that the Centers for Medicare & Medicaid Services (CMS), an arm of HHS , got that program up and running in 2006 with some screaming and hollering, but not all that much genuine chaos. 

5. Will plans outside of the exchange for individuals also have some sort of “enrollment” window?

That’s for states to decide.

In this Florida legislative analysis, for example, officials look at recommendations for setting individual market open-enrollment rules in Florida.

PPACA forbids states from letting health carriers use personal health information to make decisions about whether to issue coverage to an applicant after Jan. 1, 2014. But Public Health Service Act (PHSA) Section 2702(a) lets a state establish open-enrollment periods for individual coverage both inside and outside the exchange.

Individuals will be able to apply for coverage on a guaranteed-issue basis only during the open-enrollment period, or after they have gone through specified changes in life, such as a marriage, a divorce or the birth or adoption of a child.

Carriers and regulators use open-enrollment rules to reduce the risk that some consumers will game the system by paying for coverage when, and only when they know they will have high medical bills.

Many health policy specialists say making the exchange and non-exchange open-enrollment periods the same can reduce the risk that consumers with high health cost will swamp either the exchange plans or the non-exchange plans. 

6. Can an employer claim a combination of a high-deduction major medical group plan and a supplemental plan, such as a critical care or disability insurance arrangement, and meet the minimum affordability requirements?

To meet the PPACA coverage standards and avoid paying the penalty tax, an employer must provide what HHS defines as “minimum essential coverage.”

We don’t think that CMS clearly addressed composite plans – health plans created from combinations of several different, complementary insurance policies and related products – in the proposed minimum essential coverage rule it published in February.

If, for example, XYZ Insurance Company created an employer plan incorporating a hospitalization plan from Company A, a physician services plan from Company B, a health savings account from Company C, etc., could that count as one acceptable health plan for minimum essential coverage purposes? Would each company that supplied components of the package have to issue a separate PPACA “summary of benefits and coverage” SBC? Would each component supplier have to provide coverage for the full package of “no out-of-pocket cost” preventive services required by PPACA?

CMS and the IRS said in proposed minimum essential coverage regulations that they released Feb. 1 that they would create a process for letting plan sponsors find out whether certain other types of coverage would qualify as being minimum essential coverage. CMS seems to be saying that it wants to focus on deciding which other types of alternative coverage would count as minimum essential coverage. The IRS seems to be saying that they expect CMS to run the minimum essential coverage qualification process. Once they figure out who’s in charge in this area, the safest approach might be to ask officials there about how they want to regulate multi-vendor health plans. 

7. If someone has a rider on an individual plan, what happens to that rider and the cost of the plan in 2014?

The PPACA rules and regulations don’t seem to address the topic of riders. It looks as if riders on existing, grandfathered policies might continue to exist in more or less the current form in 2014, but as if those grandfathered policies might prove to be part of stranded, closed blocks of business.

The general assumption is that high-cost individuals cling to policies in closed bocks of business and drive up the rates for those policies.

In the case of grandfathered PPACA policies, the consumers with the strongest incentive to cling to the in-force policies might be relatively young, healthy, low-cost, high-income enrollees who will not qualify for significant health insurance purchase tax incentives and will get no benefit from being able to buy policies on a guaranteed-issue basis. Our guess would be that, if younger, healthier policyholders cling to the pre-PPPACA legacy policies, the cost of any surviving pre-PPACA individual policy riders could be reasonably stable. 

8. Do health reimbursement arrangements (HRAs) have a role to play in this new world of health care? Can the employer fund 100 percent of the deductible if it chooses to do so? 

Federal agencies don’t seem to like to HRA and health savings account (HSA) plans all that much, but they seem to be resigned to the idea that health account plan arrangements will continue to exist, and the exchanges will offer high-deductible health plans.

Jody Dietel recently wrote in BenefitsPro.com that she believes that most HRAs can continue to exist, but that it’s not clear whether an HRA that qualifies as a flexible spending account is still allowed.

We are not aware of a PPACA provision that prevents employers covering 100 percent of the cost of an employee’s deductible.

9. What am I missing? Without a doubt, there is going to be more time spent by the agent helping and educating the client/business owner. How will I get paid to do all of this for a client? And, in your opinion, will agents be compensated for helping clients on the exchange? If they are compensated, how much? 

Managers of the federal exchanges and most state exchanges seem to be saying that they want to get out of the middle and let the insurers and producers resolve compensation questions on their own.

10. We have heard anecdotally that rates could go up 50 percent to 100 percent above what they are now. How does that affect the cost issues and contributions? 

PPACA supporters seem to think that the warnings about big health rate increases are exaggerated. If rates go up a lot, that, obviously, will raise employers’ costs, and, within the complicated boundaries set by PPACA, employees’ costs. But it seems as if PPACA supporters will resist acting on PPACA cost-effect warnings until they’ve seen evidence that PPACA has had big effect on costs.

Next week: More answers.

See also: