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Delay strategy

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For the past four years, state insurance regulators, carriers, individuals and advisors have been readying themselves for the Jan. 1, 2014, implementation date for certain key aspects of the Patient Protection and Affordable Care Act (PPACA).

At the beginning of July 2013, it was announced that the employer mandate portion of PPACA was being delayed until 2015. This employer mandate requires employers that employ 50 or more employees to provide insurance to all employees or face penalties. Namely, fines.

In preparing to meet the requirements of the employer mandate provision by the original 2014 deadline, employers had put a tremendous amount of time and energy studying the issue and adjusting their business plan accordingly. By bumping the employer mandate to 2015, here are a few additional adjustments employers and their benefits advisors are now going to have to address:

How does this change their employer benefit plan strategy?

How does this affect, modify, or alter their employee retention or requirement strategies as it relates to how benefits are valued or perceived to be valued by employees?

Does this change their workforce management plans and policies, especially with regards to employees who are “working less than 30 hours per week”?

Here are the options that an employer may consider, along with possible reactions from employers:

Option 1: Stay the course.

In my opinion, the vast majority of employers fit into this category.

Employers have being studying the provisions within the employer mandate and have developed their plans assuming these provision will be put into place. The delay does not, in my opinion, change their course. The employer understands that this provision is simply delayed, not repealed.

If an employer was planning to exit from providing benefits, this doesn’t change their course. The penalties written into the employer mandate provision are still expected to be in place as of 2015, making 2014 a transition year. Also, contributing to employer’s decision to stay the course is that the public exchanges are expected to be operational come January 1, 2014.

Therefore it is conceivable, without any additional clarifications, that employers can implement their exit strategy without having to pay any penalties in 2014 and then address the penalties in 2015.

Specific to the employee, there is an open question regarding subsidies: if the employer implements their exit strategy and the employee is driven to the individual exchange market, will there be funding available?

If an employer had implemented or is planning to implement workforce management rules that limits hours work to less than 30 hours, or if an employers has or is reducing their workforce to less than 50 employees, again, the delay will not change their direction since the provision is expected to be enforced one year later.

If an employer was planning to continue to provide benefits to employees, the delay in the implementation of the employer mandate, again, will not alter their strategy.

Pushing this provision out another year does not change the strategy. In fact, I would argue that if there are potential issues it is better to confront them now to move past them and not later.

Option 2 : Change direction.

It is possible that in delaying the implementation of the employer mandate, there may be employers that will change their course of action.

For example, employers at or near the 50 employee requirement may have been implementing a workforce management policy requiring employees to work less than 30 hours, thus keeping to the definition of “full time employee” for the purposes of providing benefits within PPACA. In some cases, they may have also reduced headcount to stay under the 50 employee mark.

In delaying the implementation of the employer mandate, will this cause the employer to change course? It is possible, but they will do so assuming that the provisions will fundamentally change. 

Employers prefer certainty and stability in policy and direction. What is certain to an employer is that the provisions written into PPACA today are expected to be implemented in 2015, rather than 2014. I suspect employers will follow through on what they have put into place at this point. There may be a minority of employers that will reverse course, but most likely this will be the result of other business forces and issues.

For example, an employer that has implemented their plan to reduce their workforce to under 50, will continue to do so, but will have additional time to reach their target. It still does not change the fact that the employer is reducing their employee count.

A second example are employers that may have decided to exit from providing benefits, and in delaying the mandate, does this cause them to change direction? Probably not. Employers that fall into this category will continue to implement the direction they have decided to follow for business reasons that are unique and important to them.

Option 3: Intermediate staging area.

It is possible that this delay will provide employers with the opportunity to move their employees into a private exchange while the government moves forward to finishing the implementation of the employer mandate. This intermediate step has certain benefits.

In placing their employees into a private exchange, it provides the opportunity for employees to feel the exchange experience, have a voice in the benefits that fit their risk profile and to be an active “buyer” of benefits;

Employers can shift to a defined contribution strategy, leaving flexibility to drive their employees into the public exchange (exit strategy) if and when they are up and running; or, to maintain the defined contribution approach implemented in 2014 and shift to a “stay the course” strategy in 2015. 

This intermediate staging area could be attractive to the medium size employer.

They employ far more than 50 employees, they have not necessarily chosen to implement an “exit strategy” but the amount of payroll deduction the employee contribute into the plan has resulted in what is similar to a defined contribution approach to their benefits strategy. The remaining component is to give control to the employee to select from a menu of plans and benefits that fit their individual risk profile.

While it will be interesting to see how the one-year delay ultimately impacts employers decision, the bottom line is that the wmployer mandate is still on track to become a requirement. Regardless of how most feel about the PPACA, other elements of it that are scheduled to be implemented in 2014 – individual mandate, public exchanges, introduction of new taxes – remain on track for implementation. The employer mandate delay may end up giving employers time to implement these other requirements that have not been delayed – yet.

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