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PPACA: The webinar answers, part 4

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A few months ago (translation: eons ago, in Patient Protection and Affordable Care Act [PPACA] Implementation Time), we teamed up with Aflac Inc. (NYSE:AFL) to organize a webinar on the possible effects of PPACA on our readers.

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.)

Recently, we started doing our best to find answers to the questions with some meat to them, such as, “Why won’t employers simply send their workers to the small-group exchanges?” and, “What will happen to consumers who decide to go without coverage and pay the uninsured scoundrel penalty, then repent later and decide to buy coverage?”

This week, we take on questions about matters such as how employers can avoid paying the “shared responsibility penalty” (tax on employers who do not provide what the drafters of PPACA have defined to be a minimum level of affordable coverage).

To repeat what we’ve been saying in the other batches of answers: We’re doing this mainly to create a framework readers can use to think about all of this, not because we think these answers are a good substitute for competent professional advice.

If you would think twice about reading a medical textbook and then taking your appendix out, please think twice about reading these answers and assuming that you know all you need to know about PPACA.

1. How is this law going to affect agents offering Medicare Advantage and Medicare supplement products?

The exchange provisions will not directly affect agents who sell Medicare products – except that you might get a lot more questions about how government health programs pay and relate to agents. 

Other PPACA provisions could have dramatic effects on Medicare coverage, by, for example, leading to the creation of more “accountable care organization” plans; reducing Medicare provider compensation in ways that end up reducing the number of providers that take Medicare; and killing off Medicare Advantage plans with high claims costs. 

2. Are the government’s actuarial value and minimum value calculators — tools for determining whether coverage meets the PPACA “employer shared responsibility” requirements — available for brokers to use? If so, what is the cost?

Links to free versions of the calculators and explanatory materials are posted in the “Plan Management” section on the Regulations and Guidance section of the Center for Consumer Information & Insurance Oversight (CCIIO) website. 

If you are not an actuary, you might need help from an actuary to get much out of the calculators.

3. Won’t household income eligibility criteria be based on Form W-2 income?

When an employer is determining whether the coverage it is offering an employee is affordable for that employee, it can base that calculation on the wages it reports on the W-2 for that employee. officials at the Internal Revenue Services (IRS) said in an answer to employer shared responsibility questions

When an employee is applying for public health programs and the new PPACA “premium assistance tax credit” (PATC), then the employee will use a “modified adjusted gross income” (MAGI).

The MAGI figure will be based partly on income reported on the W-2 and any 1099 forms, along with a variety of other sources of cash, such as alimony, cash from prizes and reimbursements for moving expenses, according to the text of PPACA and analysts at the Congressional Research Service.

4. If the employee’s share of the premium for “affordable” coverage cannot exceed 9.5 percent of the employee’s W-2 wages from the employer in question, why does an employer need to know the employee’s household income?

Our understanding, based on IRS guidance, is that an employer simply needs to know what the employer has put on an employee’s W-2. The employer does not need to know anything about the employee’s total household income.

5. Won’t employers in some types of businesses start making everyone 1099, rather than W-2, to avoid the effects of PPACA coverage requires for full-time workers? 

Probably. Another related question would be how PPACA might (or might not) affect the propensity of fake independent contractors to rat their employers out. The real answer here is, “Time will tell.”

6. What kinds of employers might choose to continue to pay for health benefits, and which might prefer to drop benefits and simply pay the penalties imposed on employers that fail to pay a minimum amount of affordable coverage? 

PPACA seems to require employers to provide skimpier health plans than the kinds of plans employers that now provide “good health benefits” typically offer. If that’s the case, the employers that already offer decent health benefits might keep their plans, and small groups that get subsidies might add plans.

Small, cash-strapped employers that have been offering benefits because of a sense that employees have had no other decent coverage options might be quick to breathe a sigh of relief and shove workers into the exchanges.

Large employers that have offered no health benefits, or very limited benefits, will probably choose to pay the penalty, rather than providing the benefits, but in theory, if they actually pay the penalties, the government could use the penalty money to help pay for the coverage for the employees who go to the exchanges, and health care for employees who end up being uninsured.

7. If the employer has employees working fewer then 30 hours per weeek, does the employer have to provide insurance if the employee asks for coverage?

If the employees really work fewer than 30 hours per week, no. 

8. Will hospital indemnity plans be allowed to reduce the the deductible and out-of-pocket maximums so a high-deductible health plan (HDHP) could meet the rule requiring an employer’s coverage to cover at least 60 percent of the actuarial value of the PPACA essential health benefits package?

We think that this is a question that has not yet been answered in a definitive way.

One challenge here is that, even if federal agencies decide that an employer can use a combination of a high-deductible plan and a hospital indemnity plan to meet the coverage minimum value requirements, the agencies have said they want to use a narrow definition of “fixed indemnity” plan when deciding whether such a plan that’s called an “indemnity plan” is exempt from the PPACA medical insurance requirements.

To be classified as a true “hospital indemnity plan,” and to be exempt from the PPACA ban on annual and lifetime benefits limits and the PPACA essential health benefits (EHB) package coverage requirements, an indemnity plan may have to provide a specified, fixed amount of benefits for every qualifying day, for every qualifying month, or for some other qualifying time period.

If an “indemnity policy” pays a set amount of cash each time an enrollee has a certain diagnosis or a certain treatment, federal regulators want to classify that policy as being a limited-benefit medical insurance policy, not a true indemnity policy. 

9. Say an employer wants to satisfy the employer’s obligation to provide coverage and avoid the shared responsibility penalty. What is the maximum deductible and out-of-pocket cost amount a large group plan could implement and still achieave those goals?

Our understanding, based on an answer to frequently asked questions (FAQ) posted on the website of the Employee Benefits Security Administration (EBSA), an arm of the U.S. Labor Department, is that the out-of-pocket maximum at a large-group policy will be $6,250 for individuals in 2014 and $12,500 for any type of coverage other than employee-only coverage.

That PPACA out-of-pocket maximum cost limits will be the same for any other type of coverage.

Federal regulators said in the FAQ answer that PPACA limits on deductibles, as such, don’t seem to apply to large-group plans.

It seems as if, if a large employer wanted to offer a plan with no deductible, the out-of-pocket maximums for other in-network care cost-sharing amounts, such as co-payments and coinsurance payments, could be $6,250 for individuals and $12,500 for enrollees with other types of coverage.

An employer also could offer a policy with a $6,250 deductible for holders of individual coverage and $12,500 for holders of other types of coverage, then free the enrollees from having to thinking about cost-sharing amounts other than deductibles.

In some other cases, regulators seem to be trying to build some flexibility into PPACA parameters. Regulators have ruled, for example, that the PPACA requirement that a bare-bones “bronze plan” must cover 60 percent of the actual value of the essential health benefits (EHB) package really menas that the plan must cover 58 percent to the 62 percent of the actuarial value of the EHB package. 

The IRS has suggested that the requirement that an employer must offer a minimum level of affordable coverage to “all” year-round, full-time employees simply means that the employer must offer a minimum level of affordable coverage to 95 percent of year-round, full-time employees.

It’s possible that employers and their advisors could persuade federal regulators to add wiggle a little room to the out-of-pocket maximum limits.

10. Will federal exchanges have a subsidy available? The law seems to say not. If a subsidy isn’t available, then it seems as if penalties would not apply.

As far as we can tell, HHS seems to be assuming that the federal exchanges will provide access to the same premium assistance tax credit that individuals get through the state-run exchanges.

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