Adapting to New Disclosure Requirements, Benefit Changes

Among other new disclosure requirements, employees must be notified whether health plans their employers offer provide “minimum essential coverage” and “minimum value.”

While most employers are focused on whether they will be subject to the “play-or-pay” provision, the Affordable Care Act also mandates changes to what information must be disclosed to employees.

For example, the U.S. Department of Labor on April 23 released new information regarding the summary of benefits and coverage (SBC) disclosure requirement—which dictates that, for plan years beginning in 2014, employees must be notified whether the plan provides “minimum essential coverage” and “minimum value.”

The Affordable Care Act mandates that, beginning in 2014, most individuals must have health insurance or face a penalty for noncompliance. Minimum essential coverage refers to the type of coverage an individual will need in order to avoid a monetary penalty—$95 per uninsured person or 1 percent of household income in 2014, $325 per uninsured person or 2 percent of household income in 2015, and $695 per uninsured person or 2.5 percent of household income in 2016.

For a plan to meet “minimum value,” it must pay at least 60 percent of the total cost of allowed benefits under the plan.

It must now be plainly denoted on SBC forms whether plans meet these thresholds. To access the new SBC template, as well as examples of completed SBC documents, click here.

In addition to the new SBC disclosure requirement, employers must also provide written notice informing employees about health insurance exchanges and potential eligibility for premium tax subsidies. (If the plan offered by the employer meets the “minimum essential coverage”  and “affordability” requirements, the employee is not eligible for subsidies.)

For an example of a notice that should be distributed by employers who offer a health plan to some or all employees, click here. For an example of a notice that would be distributed by employers that do not offer insurance, click here.

Such exchanges are mandated by the health reform law, which granted states the choice to build their own or face a federally imposed version. Minnesota elected to build its own, called MNsure; Governor Mark Dayton in March signed a law to establish the exchange. Open enrollment begins October 1, at which point Minnesotans may review their insurance options; they may begin purchasing coverage through MNsure starting January 1. (To learn more about MNsure, click here.)

Why Does It Matter?

The disclosure requirements might like seem minor logistical changes, but they could have a broader impact on plans offered by employers.

“We’re giving employees more information, transparency if you will, which may lead to more ‘consumerism,’” said Ed Wegerson, a partner at Minneapolis-based law firm Lindquist & Vennum, LLP, who has more than three decades of experience in employee-benefit and executive-compensation matters. “I’ll hazard a prediction that plans will probably become less generous and more uniform,” as more information becomes available. He uses the analogy of Expedia: “When people see all these fares out there, [employers] will move to become the lowest cost, because that’s what people focus on.”

In addition to new disclosure requirements, the Affordable Care Act also changes the way in which employers enroll their workers in health plans. For example, while it may previously have been common practice for employers to offer coverage to new employees the first month after a 90-day waiting period, they now need to offer coverage within that 90-day period. And employers with at least 200 full-time employees will be required to automatically enroll employees in their medical plans; employees would then need to opt out of the plan if they don't want to participate.

Thompson Aderinkomi—who serves on MNsure’s board— says the additional disclosures may represent a positive step for employees, but “just giving more information will not make everything better.”

He suggests that employers “need to embrace simplicity and design” in order to communicate openly with employees regarding health reform and other matters, and he foresees an emerging market in which entrepreneurs will develop new tools for streamlining the ways in which employers share health insurance information with their workers.

New Benefits Are Rolled Out, But There Are More to Come

In addition to new disclosure requirements and other changes, the Affordable Care Act has also mandated changes to plan benefits.

The initial wave of health care reform in 2010 ushered in several new requirements; for example, coverage expanded to dependents through age 26, and pre-existing condition exclusions were eliminated for children. By 2011, over-the-counter drugs could no longer be reimbursed without a prescription, and there was an increase in penalties for using health-savings account distributions for reasons other than medical. In 2013, flexible spending accounts covering medical reimbursement were capped at $2,500 per employee. That's just to name a few.

And there is more change to come: Beginning in 2014, plans offered by large employers—those with 50 or more full-time equivalents—will be prohibited from putting annual or lifetime dollar limits on things that are considered “essential health benefits,” which comprise 10 categories, ranging from emergency to mental health services. Individual and small-group plans, meanwhile, will be required to comply with all components of essential health benefits.

Aderinkomi says, however, that the shift is expected to be less pronounced here than in other states, as “we’ve been enjoying many of these as Minnesotans for quite a while.”

While these changes reside primarily in the realm of health insurance companies, they have an impact on employers and employees. (For example, the cap on flexible spending accounts reduced pre-tax benefits for some people.)

And one new restriction could impact the way in which employers offer plans to executives and other high-level employees. The Affordable Care Act dictates that fully insured plans cannot provide benefits that favor highly compensated employees. The Internal Revenue Service is still defining what constitutes discrimination in these instances, but the penalty is $100 per day per employee who is not covered by the “discriminatory” plan.