ACA 'Play or Pay' Day of Reckoning Looms
With an October open enrollment deadline, employers need to get serious about their healthcare benefit decisions. But do they have enough information to act?
By Tom Starner
When the U.S. Supreme Court allowed the Affordable Care Act's individual mandate to stand last June, the luxury of waiting and wondering came to a screeching halt.
Yet, despite the decision, some in the healthcare benefits space, including employers, held out hope that the ACA might be dismantled after the election should Mitt Romney prevail. When that didn't happen, most employers and health care benefit consultants realized it was time to get serious about dealing with the ACA's most controversial, and at this point confusing, component -- the "public option" mandate and its corresponding healthcare insurance exchanges, which become effective Jan. 1, 2014 along with other related employer-related ACA provisions.
The so-called "play or pay" phase of the ACA will force many, though not all, employers to decide whether or not to provide, or continue providing, employee healthcare benefits. Basically, ACA "play or pay" requires all large employers to offer affordable healthcare coverage to their employees and their dependants or pay penalties.
In some industries -- for example, those with highly educated, salaried full-time workforces, the ACA will not do much to change the status quo regarding the decision to offer healthcare benefits. But for industries such as retail, hospitality and manufacturing -- ones with seasonal, part-time and lower paid workforces - the "play or pay" component could prove to be a very difficult challenge. According to experts, that will be especially true for employers in those specific industries with more than 50 but not a large number of employees (49 is the cutoff for the "play or pay" regulation).
Adding to the confusion and uncertainty, ACA critics say the federal agency responsible for the ACA -- the Department of Health and Human Services -- has been less-than-clear about specifics regarding "play or pay."
David Lewis, president and CEO at Operations Inc., an HR outsourcing and consulting firm in Norwalk, Conn., estimates that about 40 percent of the most commonly asked questions about the ACA "play or pay" component and related issues are un-answerable. Why?
"Because legislators have not thought through the legislation enough to address many upcoming issues," Lewis says, adding that while brokers historically are the source of advice and consultation on benefit-related information, in the case of ACA most brokers are under-informed and likely to be unable or unwilling to deliver sound advice.
"This has the makings of a disaster of so many proportions because the employer choices are not yet defined and open enrollment starts in October 2013, not January 2014," Lewis says.
In addition, Lewis says, while people believe that ACA penalty amounts ($2,000/$3,000) were essentially going to be the only ways an employer could be penalized within ACA rules, a corresponding rise in healthcare coverage costs when this portion of the law takes effect are projected to be potentially staggering.
"No one anticipated what could be a 20-50 percent increase in premiums before the penalties come into play, all as a result of the ACA," he says.
Regarding the state insurance exchanges, Lewis says sending employees to find coverage via the "public option" as it stands is akin to sending them out in a fleet of new cars in the first model year, fully aware that the car company providing the cars had limited quality testing and control in place. In short, it would be like leaving employees with an untested, poorly conceived product to use.
According to the latest numbers, state decisions for creating health insurance exchanges had 18 states declaring for a state-based exchange, 26 defaulting to the federal exchange and seven states planning for a partnership exchange with the federal government. The number of states defaulting to a federal exchange causes much uncertainty, according to Lewis.
Lewis won't get an argument from one large employer group, the National Association of Manufacturers, a manufacturing trade group based in Washington.
Joe Trauger, NAM's vice president of HR policy, says the organization initially was opposed to the ACA, but now is trying to work with HHS to reduce potential downsides and help where it can from a "logistical standpoint." Even so, he says, NAM remains in the dark about many ACA specifics.
"We still don't know how the exchange system will work, or what the rules, prices, products will be," he says. "We are dealing with a lot of unknowns and the logistics of the ACA are problematic right now. An HR executive of any company should be concerned."
Trauger essentially takes Lewis' car analogy further, saying that, rather than sending employees out in badly designed cars, these soon-to-be enforced aspects of the ACA -- if they were an automobile -- would not even be in the blueprint stage.
"We don't know what it looks like and even if it is a car," he says. "There have been broad sketches, but we're still not sure how it's going to work. We have not really heard from the administration how they intend to deal with many play or pay issues."
Trauger says that, because 97 percent of manufacturers already offer generous health benefits to their employees, NAM singles out skyrocketing healthcare costs -- something he says is not really dealt with by the ACA -- as the single biggest obstacle for NAM members to maintain that high percentage of healthcare benefits.
"Escalating healthcare costs are job killers, forcing manufacturers to pay more in premiums rather than investing in their business and creating jobs," he says.
In the meantime, Trauger adds, NAM continues to let HHS know it is troubled about what will happen over the next six months.
"We need to start having a responsible, realistic discussion about being ready," he says. "The individual market is where things are going to happen, but the ACA will have an impact on group market and self-insured employer market as well through higher insurance premiums and healthcare costs."
Patrick Haraden, principal of Longfellow Benefits, a benefits consulting firm in Boston, says that while no one in the administration is saying the exchanges will not be ready on time, he has a sense there will be an 11th hour change of mind that will extend deadlines.
"We say to clients, 'these are the rules so let's assume everything is going forward,' " Haraden says. "Employers need to make sure they meet the minimum ACA guidelines to be safe."
Those basic public option guidelines include making sure one of the plans offered meets a specified actuarial value that is easily obtainable on the HHS website. Plans also must be affordable and anyone who is considered a full-time employee must be covered.
Haraden adds that employers operating in multiple states face the biggest challenge, due to the uneven status of the state exchanges.
"That's where a lot of the unanswered questions are," he says. "The ACA says you must treat everyone the same, but states may not have similar rules or plans. Guidance on specific issues such as those has been less forthcoming from the agencies."
Michigan-based employment attorneys Amy Christen and Kathy Kudner, members at Dykema Gossett, a national law firm, says the biggest challenge right now for employers is wrestling with the decision of offering healthcare benefits as part of their compensation package. The decision is exacerbated, Cristen says, as the play or pay aspect of the law comes online.
"The best advice we can give is whatever else you do, do not take a head-in-the-sand approach," Christen says. "You need to verify whatever you can, do not take anything as truth until you check it out completely. And no matter what industry you may be in, try your best to answer employee questions and concerns. If you ignore these issues, you do so at your own risk."
Kudner adds that if you haven't already done so, it's critical to involve senior management as soon as possible, especially the CFO.
"The CFO needs to know now what to expect, because you do not want to go to them in October and say healthcare benefits costs are going up more than usual because of healthcare reform," she says. "It's better to provide all the facts to them now, and avoid any surprises six months out."
Kudner explains that much of the upfront work in dealing with upcoming ACA changes involve hard numbers crunching, a skill that many HR departments are not set up to do. Her advice is work with employment attorneys or benefits consultants to start mapping out a strategy as soon as possible, if you haven't started already.
"There are some tools out there to help employers, especially those with seasonal workforces," she says. "But you need to be tracking these changes now, not in four or five months."
Christen says she expects that none of her current clients will eliminate healthcare coverage for employees in 2014. But looking ahead to 2016 or 2017, the market could see a ripple effect if the exchanges are working and one large employer makes the move to shed healthcare benefits.
"When you consider the ACA, you need to look at the short-term costs versus the long-term costs," Christen says. "There is no question that in the short term, it's going to cost employers more. But long-term, if it works there could be cost benefits. Right now, though, we just don't know how or if it will work."