There has been a deluge of regulatory activity involving the Affordable Care Act (“Obamacare”), or the ACA. Some developments, such as the general postponement of the employer mandate until 2015 (and the recent postponement until 2016 for employers with 50-99 full time equivalent employees), have received significant press attention. Others involve details of interest primarily to lawyers and insurance companies. The most recent ACA regulatory developments that may be of interest to employers and HR professionals include:
Recently issued regulatory FAQs deal with a number of topics including wellness programs that punish tobacco users with higher premiums. The expanded rules provide details on how employers can offer a reward of up to 50 percent of the cost of group health plan coverage for tobacco non-users or, alternatively to smokers who participate in programs that are directed at preventing or reducing tobacco use. The highlights of the new FAQs include:
- A compliant wellness plan that charges tobacco users a premium “surcharge” (that is, it offers a premium reduction for non-use) must also make the premium reduction available for employees who complete tobacco cessation education program that is offered at the time of initial enrollment or annual reenrollment. For smokers who do not undertake the cessation education program, the premium surcharge can remain in place for the balance of the plan year. This is because the plan is not required (but is permitted) to provide another opportunity to enroll in the program later in the plan year.
- Wellness programs which condition any premium “reward” on attaining a particular standard (such as obtaining a stated weight reduction or cholesterol level) must offer a reasonable compliance alternative to those who cannot attain the standard because it is medically inappropriate. The FAQs make it clear that the participants’ doctor (not a physician working for the program) should recommend an alternative compliance activity, such as participation in a weight reduction program for a participant who cannot attain a stated weight reduction for medical reasons. The wellness program, not the individual’s doctor, can then select a specific compliance activity (such as a particular weight loss program) but cannot be involved in the determination of whether that program should be offered to any particular participant for medical reasons.
For now, older smokers in particular may have a reprieve from the maximum premium penalties permitted under ACA rules. This is because of the ACA enrollment system that restricts the disparity in premiums between younger and older workers. This “glitch” will restrict enforcement of the maximum premium penalty at least until June, 2014 in accordance with a White House announcement. Market forces and state-imposed limits may also restrict smoker surcharges, which now average around 15 percent of premiums.
The Mini-Med Plan Lives On?
For larger employers, the prospect of covering their employees with a “fixed-indemnity” plan is still alive under the ACA. A recent Wall Street Journal article reports that AlliedBarton Security Services is offering its employees a low cost, non-compliant fixed indemnity plan as an alternative to a plan that meets ACA requirements. It expects that many of its security guard employees will elect the inexpensive coverage (say $80 per month) that pays a fixed amount for specific services regardless of actual cost. This would include plans that, for example, pay a flat $70 for a doctor visit and $20 towards each prescription. Catastrophic coverage is not included and the plan can carve out areas from coverage such as hospitalization and mental health services. This type of coverage has been criticized as substandard but still be may popular with younger, low paid workers who can spend less on cheaper coverage and even incur a penalty for not having ACA-compliant coverage for less cost than the cost of their employer’s more expensive plan. The bottom line for employers is that, if they offer at least one plan that meets ACA requirements, they may not be penalized by failing to offer “affordable coverage” to their employees. Regulators are aware of this situation and do not view it favorably. Recent guidance provides different requirements for fixed-indemnity group and individual policies, and it is unclear how these rules will impact group health plans when the employer mandate kicks in for larger employers in 2015.
The ACA extended a ban on discrimination in health care benefits that has applied to self-insured plans for years to fully insured plans. The ban prohibits group health insurance plans from favoring highly compensated employees in terms of eligibility for such benefits or the value of such benefits. The general intent is to prohibit employers from offering enhanced or subsidized health care benefits to highly compensated management employees while at the same time not providing equivalent health benefits to rank and file employees. Enforcement of the new ACA provisions, which contain severe financial penalties for non-compliance, was formally postponed until publication of new IRS regulations which were expected to be in place by 2014. Recently, Treasury officials have advised that there will be further delay while the IRS wrestles with related regulatory concerns including the thorny issue of whether an employer violates the ACA non-discrimination rules if it offers the same coverage to all employees and rank and file employees choose to obtain coverage elsewhere, such as through a government sponsored health insurance exchange. While the IRS sorts this out, no enforcement action will be taken. However, it is still advisable for employers with fully insured plans to avoid obvious mistakes, such as offering executives free or subsidized health coverage, providing health coverage only to management employees, and making benefits available to dependents of highly paid executives that are not available on equivalent terms to dependents of other covered employees. Employees should avoid offering extended group health coverage (other than as required by COBRA) to departing executives as part of a severance package. This practice not only violates the ACA non-discrimination rules that the IRS is likely to finalize, but also ignores the terms of the group health plan, which typically extend coverage only to employees who satisfy an active employment requirement.