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  • September 25, 2013

    The Affordable Care Act: Get Ready - The Exchange is Coming

    Written By: Felicity S. Hanks

    Employers took a sigh of relief this summer when the administration delayed implementation of the Affordable Care Act (“ACA”) provisions requiring large employers to provide health benefits to at least 95% of full-time workers. Although there have been significant delays to the implementation of ACA , one key part of the law is ready to go into effect - the Health Insurance Marketplace, otherwise known as “the Exchange.” 

    What is the Exchange?

    The Exchange is essentially an online store where individuals and small businesses will have the opportunity to find and purchase healthcare coverage. ACA requires that almost all individuals have a certain basic level of health insurance coverage by January 1, 2014. The Exchange is geared to help individuals easily understand and locate that coverage. When entering the Exchange, qualifying individuals may be diverted to Medicaid or to other appropriate programs. Those that do not qualify will proceed to the marketplace to shop for coverage. All plans offered through the Exchange will comply with minimum mandatory coverage levels and will be sorted by metallic indicators: platinum, gold, silver and bronze. An insurer will charge the lowest premium for bronze plans and the highest premium for platinum plans.

    The ACA contains no obligation for small businesses (less than 50 full-time equivalent employees) to provide healthcare. However, small employers are permitted and encouraged to do so by purchasing coverage through a small-business tailored Exchange called Small Business Health Options Program (“SHOP”). In the SHOP, employers will pick a metallic level of coverage for their employees and set their contribution amount. In the first year, small employers will only be able to choose one product for their employees, thereby limiting employees’ choices in healthcare coverage and options.

    Businesses with less than 25 employees may qualify for a partial tax credit if the business purchases employee coverage through the SHOP. The credit will depend on the number of employees, the average wage of employees, and whether the business is a non-profit. The tax credit is an incentive for small employers to provide coverage for employees; however, the incentive runs out after two consecutive years of accepting the credit.

    What are an employer’s requirements vis a vis the Exchange

    All employers covered by the Fair Labor Standards Act [1] are required to provide employees with  notice of the Exchange. Notice should be provided to all employees before October 1, 2013. For employees hired after October 1, notice must be provided within 14 days of hire. On September 11, 2013, the Department of Labor (“DOL”) issued an announcement that employers cannot be fined or penalized under the law for failing to provide employees with notice. The announcement can be accessed at http://www.dol.gov/ebsa/faqs/faq-noticeofcoverageoptions.html.

    This notice requirement applies to all employers of all sizes and has no effect on an employer’s decision to offer health care coverage to employees. The notice must advise employees of the existence of the Exchange, a description of the services offered in the exchange, and that the Exchange will be up and running on October 1. The notice will also include basic information which an individual will have to reference when shopping in the Exchange, such as contact information and Employer Identification Number. If applicable, the notice must also provide basic information about the health coverage offered to the employee, including whether the coverage meets the minimum value standard and is intended to be affordable. The notice also advises the employee that they may be eligible for a premium discount through the exchange if the healthcare offered is not affordable or if certain circumstances are present (i.e. if wages vary week to week). Notice about the Exchange may be distributed to employees by entities other than the employer, including third-party administrators, insurers or multi-employer plan administrators.

    The DOL drafted sample notices to assist employers in satisfying this ACA obligation – one model is for employers that currently offer a health plan to their employees and the other is for employers that do not. Where an employer offers healthcare to certain categories of employees but not others (i.e. full time vs. part time employees), the employer should send the appropriate notices to those employees being offered coverage, and those who are not. The sample notices are accessible through the DOL website at: http://www.dol.gov/ebsa/healthreform/. We have seen many employers using the sample form in lieu of preparing their own.

    Should small employers shop in the SHOP?

    Maybe. Whether an employer will want to utilize the Exchange will be a personal and individualized decision. As there is no obligation for small employers to provide health care for employees, many employers may decide to stop providing it. In making a decision, employers may want to consider not just their bottom line; but also, the effect that providing coverage may have on their employees. There are both positive and negative factors to consider when deciding to use the SHOP. For example, for the first year of the Exchange, employers can only choose one product for their employees. Therefore, employers are tasked with choosing a plan that fits all of the needs of all of their employees. This result may not be beneficial to all employees, and employers may want to allow their workers to seek more personalized and possibly less costly plans in the Exchange. Conversely, employers who provide coverage give employees the ability to pay for coverage with pre-tax dollars, whereas an individual purchasing coverage through the Exchange will not be afforded that tax benefit. Employers may also want to evaluate their business philosophy to determine whether the morale benefit of offering coverage to their workforce outweighs the potential cost.

    There are numerous other considerations employers will have to make in the coming year regarding their healthcare practice. However, many of the financial and practical aspects of providing healthcare will not be uncovered until the Exchange is live and the premiums and products for health coverage become known. We recommend that all employers take steps to determine what decisions will work for you and your employees.

    [1] An employer is generally covered by the FLSA if it employs one or more employees who are engaged in, or produce goods for, interstate commerce and has an annual gross volume of sales made or business done greater than $500,000. FLSA also covers hospitals; institutions primarily engaged in the care of the sick, the aged, or the mentally ill who reside on the premises; schools for mentally or physically disabled or gifted children; preschools, elementary or secondary schools, institutions of higher education; and federal state and local government agencies.
     


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    This article is informational only and employers should always consult with experienced legal counsel, and in this instance their insurance brokers, to determine their obligations under the ACA and what options are available through the Exchange or the private market.