HR Hero Line

Healthcare reform and state exchanges

by Gary S. Fealk

Employers should be aware that big changes are on the horizon as a result of the passage of the Affordable Care Act (ACA) and the U.S. Supreme Court decision upholding the law as constitutional last year. This article briefly discusses provisions addressing state health insurance exchanges and the mandate that employers provide health insurance to employees. 

Offer health insurance, or pay a penalty
In 2014, employers with 50 or more full-time employees must either offer health insurance coverage constituting “minimum essential coverage” or pay a $2,000 annual tax ($166.67 per month) for each full-time employee (in excess of 30 employees). “Full-time employee” (FTE) is defined as an employee who works 30 or more hours each week. For the purpose of calculating an employer’s total number of FTEs, the hours of part-time employees are aggregated and counted as equivalent to an FTE, but only for determining “large employer” status for “play or pay” purposes. Smaller employers are exempt from the play-or-pay mandate.

For a more in-depth discussion of what constitutes full-time employees and large employers under the ACA, read the HR Hero Line article “IRS issues guidance on ACA’s ‘play or pay’ rules.”

Effective January 1, 2014, each state is authorized to create exchanges from which individuals and small employers can purchase health insurance. If a state fails to create an exchange and comply with federal regulations, the U.S. Department of Health and Human Services (HHS) is tasked with establishing and operating an exchange within that state.

For the purpose of the health insurance exchange provisions, a “small employer” is an employer with 100 or fewer employees. Beginning in 2017, states may choose whether to allow employers with more than 100 employees to offer coverage for their employees through an exchange. Participation in an exchange by individuals and employers is completely voluntary, and employers may continue to offer (and individual so may continue to accept) coverage through nonexchange health insurance providers.

To ensure that the health insurance offered through the exchanges satisfies a minimum threshold of coverage, a health plan offered through an exchange must be certified by the exchange (under HHS regulations) as a “qualified health plan.” Essentially, a qualified health plan must satisfy three requirements.

  • First, it must provide coverage that includes “essential health benefits.” Under the Act, essential health benefits include coverage for ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance abuse care, prescription drugs, rehabilitative and habilitative services, laboratory services, preventive and wellness services, and pediatric care (including pediatric oral and vision care).
  • Second, for a health plan to be deemed to provide “essential health benefits” and thus constitute a “qualified health plan,” it also must satisfy limits on cost-sharing. In 2014, the sum of the annual deductible, coinsurance, and copayments for a health plan that provides essential health benefits cannot exceed the limits applicable to a so-called high-deductible plan (currently, $5,950 for self-only coverage and $11,900 for family coverage).
  • Third, the level of coverage that a qualified health plan must provide must satisfy one of five actuarial thresholds in soon-to-be-prescribed HHS regulations, which are categorized based on an actuarial calculation.

Exchanges are required to be fully operational by January 1, 2014. Some states have already established state-based exchanges, but many are still studying the options.

Bottom line
Many employers not currently providing health insurance will be required to begin providing coverage or pay a penalty tax in 2014. Employers that are eligible to participate in the state exchanges will want to pay close attention when your state announces its operational health insurance exchange sometime later this year. Doing so will allow you to fully consider your options in complying with the health insurance law.

Gary S. Fealk is an attorney and shareholder in Vercruysse Murray & Calzone, P.C., in Detroit, Michigan. You can reach him