PDF Last week I wrote about the confusing incentives for employers who offer health insurance for their employees. Are the penalties, excuse me, the “assessable payments”, a sufficient deterrent to keep employers in the health care coverage providing business?
Yet those penalties are only the half of it.
The wheel of progress?
Employers also face penalties if their plans fail to measure up to the law’s standards.
- It must have an actuarial value of at least 60
- Employee share of the premium must be “affordable”
The definition of affordable gets interesting. The cost of employee only coverage cannot exceed 9.5% of household income.
9.5% of household income
Get that? Household income!
How does an employer know what an employee’s household income is unless both spouses work for the same employer?
And if the employee’s spouse is covered under her own employer plan do you combine both premiums and compare that to both incomes?
Is this over an entire year?
What happens when an employee is on FMLA and continues to pay for their health care?
Or on workers’ compensation?
Or on some form of leave without pay?
But the employer only needs to be concerned IF the employee declines the employer sponsored cover AND IF they purchase insurance on the exchange, AND IF they need a federal subsidy.
If the affected employees continue on the employer sponsored plan, then nothing happens.
No employers will be expected to know:
- household income
- whether an employee purchases insurance on an exchange
- whether an employee gets a federal subsidy
- the actuarial value of the health plan
Through the looking glass
Lurking off in the future is the dark cloud of an excise tax on “high value health plans,” so called “Cadillac plans.” But in the ultimate wisdom of congressional legislators, value here means cost. This conflicts with the notion of providing a plan that has an actuarial value of at least 60.
Plan sponsors can avoid the excise tax by reducing the cost which they do by reducing the actuarial value. Since the threshold for the excise tax is not indexed to inflation, employers may face the prospect of choosing between paying an excise tax for offering a “Cadillac plan,” or paying a $3,000 fine for offering a plan that does not meet the 60% actuarial value test.
One of the biggest criticisms of the US health care system is its high adminstrative costs. A certain portion of that administrative overhead isn’t even counted in the health care costs measures because it is borne by employers.
Does this sound like administrative simplification? Does this sound like a program designed to encourage employers to offer comprehensive health care coverage? What will employers do when they need to add additional benefits staff just to keep pace with new regulations that have nothing to do with their core business?
The future of employer sponsored health care faces a challenging future.
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