The Affordable Care Act: Change and Challenge
Seemingly overnight, the Affordable Care Act has upended the rather staid and sober world of health and welfare benefit plan administration. The ACA has set in motion the most dramatic change in how health benefits are delivered in the United States since Medicare was first introduced in 1965.
Some economists estimate that over the next five years, 20% of the US economy will be affected in some manner by this legislation. Moreover, the ACA affects how other laws are enforced, in tandem or in conflict. Some that immediately come to mind include the privacy rules (HIPAA), continuing healthcare coverage (COBRA) and mental health parity (MHPAEA). I am pleased to offer expert advice to employers, administrators and third party administrators in untangling some of the difficult questions arising from the many requirements of the ACA, particularly with respect to four crucial areas that demand immediate attention:
- Employee Communications and Education
- Compliance, including plan documentation, operational review and auditing
- Benefit Program Design
- Dispute Resolution
Employee Communication and Education
This is particularly important in succession planning and maintaining continuity in benefits administration as key positions become vacant on account of retirements. The ACA contains many strict disclosure requirements, including The Summary of Benefits and Coverage (SBC) requirement.
Compliance
Most of the early changes mandated by ACA relate to what Congress saw as unacceptable healthcare industry practices, e.g., preexisting condition exclusions, lifetime limits and questionable claims practices. These are quintessential compliance mandates and require that plan sponsors amend current benefit programs and in some cases, draft notices, disclosures and forms. However, since not all plans (grandfathered plans, self-insured plans) are subject to all mandates and because other requirements might or might not be applicable, the interplay between these initial ACA changes can be very complex. The importance of what changes to include and what the amended document states is of heightened importance on account of another ACA mandate that requires group health plans and health insurance carriers to compile and provide a summary of benefits and coverage (SBC) offered by the plan sponsor. The SBC must not be more than four pages, both sides, using a minimum font of 12 points. However, the guidance issued by these agencies runs more than 100 pages, including templates and samples. Each of these will need to be customized for each plan sponsored by an employer or organization. This is a familiar source of business for consulting companies and law firms: compliance. Most, if not all employers and plan sponsors will require significant compliance consulting in order to ensure timely and ongoing legal conformity with the law, including employee, participant and beneficiary communications. The interface between PPACA and other mandates (as noted above) will make this task especially complex and will most likely require firms to offer training to human resource departments, third party administrators and claims offices. These services might be structured as a compliance review in order to determine whether documentation, plan administration and employee communications comply with statutory requirements. Moreover, the review can serve as evidence of the employer’s good-faith effort to comply with federal and state regulations governing a particular benefit program or plan. This review is performed in order to ensure that the health and welfare plan document contains MHPAEA provisions and complies with the requirements of the Act. This is extremely important given increased Department of Labor scrutiny and the significant Supreme Court decision in CIGNA Corp. v Amara (131 S. Ct. 1866 (2011)). The decision is a complex one, but in brief the Court found that the provisions of the summary plan description (SPD) and other disclosures cannot be enforced as the terms of the plan. Therefore, sponsors and administrators should review plans and any plan summaries and consider whether and to what extent they should draft formal welfare plan documents rather than rely upon insurance policies or summary booklets that describe benefits.
Benefit Program Design
Structural changes and tax incentives mandated by PPACA take effect next year (2014) and are potentially game changing; they could prompt employers to seriously reconsider what benefits they offer to employees. For example, PPACA requires all employers with more than 50 employees to offer health benefits to every full-timer or to pay a penalty of $2,000 per worker (less the first 30). The benefits must provide a reasonable level of health coverage as defined in regulations, and (except for grandfathered plans) employers will no longer be able to offer better benefits to their highly compensated executives than to their hourly employees. These requirements could increase medical costs for many companies. Noteworthy is that in many instances, the penalty imposed on employers for not offering coverage is set significantly below the cost of offering health insurance, and thus some employers will have an incentive to modify its existing program – or eliminate it. I can assist employers in striking a balance between what is required by law and yet maintaining an effective, affordable benefit program is an opportunity and challenge for employee benefit consulting firms. There are two situations when an employee might become severed from the employer plan:
Election. Under PPACA, it is possible for individuals to “opt out” of employer-sponsored insurance (ESI) for any reason and then purchase insurance outside the workplace, on the Exchange. In this situation, the employer becomes merely one of many potential vendors of healthcare, and it might not be the most desirable or affordable.
Affordability. Individuals whose employers do not offer affordable health coverage and whose household incomes are less than 400 percent of the federal poverty are eligible for federal subsidies toward policies purchased on the Exchange. It is conceivable that in some instances the employer will purposefully design a benefit program that is not affordable to lower paid employees, triggering a penalty but nonetheless reducing the employer’s aggregate cost. The result is healthcare coverage for lower paid employees but without employer liability.
Some observers have stated that when employers become more aware of the new economic and social incentives embedded in the law and of the option to restructure benefits beyond dropping or keeping them, many will make dramatic changes. The question becomes whether employers wish to remain in the healthcare business.
Dispute Resolution: resolving day-to-day issues
I am a certified mediator and arbitrator, and regularly assist in the resolution of benefit disputes, including the ACA. Typically, ACA disputes relate to claims and appeals, both internal and external review processes. Occasionally disputes arise with respect to involuntary non-network charges incurred by a participant that result in significant, unexpected financial liability for the participant.
Looking to the Future
It is unknown what type of audits or review the Internal Revenue Service or Department of Labor will undertake in enforcing the myriad of requirements under the ACA. However, based on past experience it is certain that the most severe penalties will be borne by those employers that do nothing in order to meet their legal obligations under the law. Employers that can demonstrate a good faith effort to comply are likely to be treated much less harshly by these regulatory agencies (or a court) if a shortcoming is discovered or a complaint filed.