Employers, insurance and the health care law

 The Affordable Care Act requires large employers with 50 or more full-time employees to offer health insurance coverage. The Affordable Care Act requires large employers with 50 or more full-time employees to offer health insurance coverage.The health care reform act signed by President Obama in March 2010 will require nearly every U.S. citizen and legal resident to have affordable health coverage by 2014.

The Patient Protection and Affordable Care Act mandates that prior to that date, individuals will be responsible for obtaining “minimum essential coverage” for themselves and their dependents, or pay a penalty.

The Act contains a provision that requires large employers — those with 50 or more full-time employees — to offer health insurance coverage. Large employers who do not offer health coverage will be hit with a penalty if one or more of their full-time employees buy health insurance from a state-regulated health insurance exchange through which the employee is eligible to receive federal subsidies because of low-income status.

Ed Beaudette is an employee benefits broker at the Fresno office of James G. Parker Insurance. He said that his office could save an employer a lot of time and stress by soliciting quotes from insurance companies and finding a package that has benefits and prices that fit the employer’s needs.

“An employer does not have time to go through 25 pages of proposals,” said Beaudette.

One of the foundations of the health care act is that each state is required to set up and operate a health benefit exchange. These exchanges will initially act as a marketplace for small groups as well as individuals. The California Health Benefit Exchange will provide separate exchanges for the individual and small group markets.

Each exchange will have its own guidelines, but what those guidelines will be is anyone’s guess. Vic Gunderson, a benefits consultant at Der Manouel Insurance Group in north Fresno, said the insurance industry is waiting for the state to decide how the exchange system is going to be set up.

“We still don’t know some of the stuff,” Gunderson said. “We’re waiting for the exchanges to come out with the guidelines.”

Gunderson said that business owners will have several options, such as the insurance marketplace or going online, but he feels that many will buy their policies through the state exchange.

“What the employer will do depends on what the state decides,” Gunderson said.

The exchanges will offer four tiers of coverage options: Platinum, gold, silver and bronze. These “metals plans” are based on the percentage of full actuarial value of benefits the plan is designed to provide, with platinum at 90 percent, gold at 80 percent, silver at 70 percent and bronze at 60 percent. The actuarial value is an estimate of how much the insurance plan will pay of an average person’s medical expenses. The higher the actuarial value covered by the plan, the higher the premium will be. The platinum plan will have higher premiums but lower out-of-pocket and cost-sharing expenses; the bronze plan will have lower premiums while out-of-pocket and cost-sharing expenses will be much higher.

Once the exchanges are up and running, however, large employers will not be able to avoid the insurance requirement by shrewdly limiting a certain number of their employees to less than 30 hours per week — the threshold for full-time employment. The PPACA insurance requirement affects those employers with at least 50 full-time equivalent employees, an equation that includes part-time employees as well.

For example, if a firm has 35 full-time employees working 30 or more hours per week and 20 part-time employees, all of whom work 24 hours per week — 96 hours per month — the part-time employees’ hours would be divided by the minimum number of hours worked each month by a full-time employee. Twenty employees multiplied by 96 hours each comes out to 1,920 hours, which is then divided by 120, and the total of full-time equivalent employees comes out to be 16. Add the 35 full-time employees to the 16 full-time equivalent employees, and the employer has 51 full-time employees and is therefore considered to be a “large employer.”

In general, large employers who do not offer coverage will pay a penalty if one of more of their full-time employees is eligible for federal subsidies. The penalty will be $2,000 annually (paid in monthly increments) multiplied by the total number of full-time employees (excluding the first 30). If no full-time employees are eligible for federal subsidies, then no penalty will be imposed.

Employers with fewer than 50 full-time employees will not be subject to the same fate as their larger counterparts if they do not provide health insurance, so the federal government will offer tax credits to small businesses as a means of encouraging them to provide employee health benefits.

“It all depends on what they can afford,” said Ralph Lopez, an agent at Valley Regional Insurance in Fresno. “We offer high-deductible policies, like health savings accounts. If you go to a higher deductible, you don’t pay for all of those doctor visits up front that you may not use.”

Lopez prefers health savings accounts to flexible spending accounts, where employees have a portion of their earnings deducted to pay for medical expenses. One disadvantage to using an FSA is that most have a set limit on benefits, and any funds that are not used by the end of the plan year are lost. This is known as the “use it or lose it” rule.

Unlike a flexible spending account, HSA funds roll over and accumulate year to year if not spent. Another plus is that any funds put into an HSA are not subject to federal income tax when they are deposited.

Lopez said that he fears that some individuals will do the same thing with their health insurance coverage that has been done since auto insurance was made mandatory: Buy a policy in order to meet the measure and then quit making payments.

Individuals who fail to maintain minimum coverage will be subject to a penalty of $750, and while those who try to sneak by without this coverage won’t face property seizure or liens on their home, they may get an unpleasant surprise at tax time the following year.

“You may not get a tax refund,” Lopez said.

The new law will add to the concerns that employers face when it comes to offering health benefits to their employees. Since most employers don’t know what an employee’s household income is, they will have no way of knowing if their plan is truly affordable or not. Many will be at risk of being penalized because they are unable to take action that would satisfy the requirements.

Lopez said that with the current challenge to health care reform that is in the hands of the U.S. Supreme Court, along with the presidential election this fall, he has some advice for those employers who are not quite sure which route to take.

“Hang on to what you have until next year,” Lopez said. “What happens in November might change things.”