The individual healthcare exchange is a topic that was originally the focus of a lot of controversy—not the least of which was a result of its initial slow implementation. But now that we’re a year into using the exchange, let’s take a closer look at what it is and how it affects employers.
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The healthcare exchange is an online marketplace where individuals can purchase a health insurance plan. By allowing individuals to quickly see multiple health insurance options and make comparisons—all while knowing that every option presented meets the Affordable Care Act (ACA) minimum standards—the healthcare exchange brings more visibility and simplicity to buying individual health insurance plans.
The healthcare exchange is also the forum in which individuals who qualify can receive health insurance premium subsidies in the form of advance tax credits.
Sometimes the healthcare exchange is referred to in the plural (healthcare exchanges) because there are separate exchanges set up by individual states. But they represent the same larger idea.
How do Healthcare Exchanges Affect Employers?
First, let’s start by noting that employers that are subject to the Employer Shared Responsibility portion of the ACA have the option to either provide health insurance to full-time employees or pay a penalty for not doing so. Currently, any employer with 100 or more full-time equivalent employees is subject to this provision. Starting in 2016, this will also be applicable to employers with 50 or more full-time employees.
An important note here: If an employer subject to this provision opts to provide affordable health coverage that meets the minimum standards set forth by the ACA (in terms of coverage and affordability), then its employees who opt to use the healthcare exchanges won’t be eligible for tax subsidies, even if their income would otherwise qualify. It is the receipt of the tax subsidy that triggers the penalty for employers, not the use of the exchange in general.
As such, if the employer opts to either forgo providing health insurance (and elects instead to pay the penalty associated with this action) or opts to provide insurance that does not meet the ACA’s minimum requirements, then its employees would have the option to instead receive their health insurance—and possibly tax subsidies—via one of the healthcare exchanges. When this occurs, in particular regarding the subsidies, it can set the stage for the employer penalties to accrue. (Since the penalty is part of the shared responsibility portion of the ACA, it’s also called the “shared responsibility payment.”) This is the primary way any healthcare exchange will affect employers.
Another way employers are affected by the healthcare exchanges is the fact that employers have an obligation to notify employees that the exchanges are an available means to get insurance coverage—regardless of whether the employer offers health insurance. This is the “health insurance exchange notice.” This notice should let employees know that the health insurance exchange exists and that they may be able to get cheaper coverage by using it, but they may also lose employer contributions toward their health insurance by doing so (if applicable). The Department of Labor has sample notices for employers to use for this purpose. The notice must be given to all new hires, regardless of whether they are full-time or part-time.
*This article does not constitute legal advice. Always consult legal counsel with specific questions.
About Bridget Miller:
Bridget Miller is a business consultant with a specialized MBA in International Economics and Management, which provides a unique perspective on business challenges. She’s been working in the corporate world for over 15 years, with experience across multiple diverse departments including HR, sales, marketing, IT, commercial development, and training.