Federal regulators have come out with semiofficial guidance that could affect employer clients who are trying to shut down their health plans and send the enrollees to the public exchange system.
Officials at the U.S. Department of Labor, the U.S. Department of Health and Human Services (HHS) and the U.S. Treasury Department have rejected three strategies for “sending the workers to the exchange” in a new set of answers to frequently asked questions about implementation of the Patient Protection and Affordable Care Act (PPACA).
In the PPACA FAQs Part XXII, officials oppose three exchange-shift strategies. The officials base the answers on the reasoning used in an official batch of guidance on health reimbursement arrangements (HRAs) that was published in September 2013, and two more sets of guidance that were published in May.
The officials say the general principle is that employers cannot meet the PPACA employer coverage mandate standards described in Internal Revenue Code Section 4980D by combining an “employer health care arrangement” with individual health insurance policies.
For more on which employers the FAQ guidance could affect, and how, read on.
1. Your client just gave the workers cash and told them to buy their own health coverage.
If the employer simply gives the workers a raise and lets them spend it however they want, that might not cause a problem.
If the employer tells the workers to use the money to buy health coverage, that qualifies as “group health plan coverage” under Internal Revenue Code 9832(a) and other laws.
2. Your client offers workers brain tumors or other high-risk conditions cash to leave the standard group health plan.
Officials say that arrangement would violate both the Employee Retirement Income Security Act and the Public Health Service Act.
Offering only high-risk employees a choice between cash and coverage constitutes discrimination based on health factors, officials say.
One reason is that, from officials’ perspective, offering a sick employee cash to leave the plan means that the true cost of health coverage for that employee is the out-of-pocket premium that all enrollees pay, and the amount of cash that the employer offers the employee to leave the plan. If an employee who would normally pay $2,500 for coverage is offered $10,000 to leave the plan, officials treat $12,500 as the full price the employee must pay to stay in the group health plan.
3. Your client is putting cash into an Internal Revenue Code 105 reimbursement plan and having workers use the cash in that plan to pay for exchange coverage.
Officials say they have heard that some vendors are selling IRC Section 105 exchange shift programs.
One problem is that the programs are group health programs, and employee participation in the programs makes the employees ineligible for PPACA exchange subsidies, officials say.
Another problem is that the Section 105 program itself would be subject to all of the PPACA rules that apply to group health plans, such as the requirement that the plans cover basic preventive services without imposing deductible or co-payment requirements on the enrollees. Because the program would not meet the PPACA group health plan requirements, the employer could end up having to pay penalties, officials say.