Despite “Play Or Pay” Delay, Employers Keep Strategizing
The Obama administration’s surprising July 2 decision to delay a key portion of the federal health care reform law gave Minnesota employers some breathing room as they mull strategies for adapting to the new “play or pay” provision.
While the news was met with positive responses, the general consensus from local experts—including employers, health-insurance brokers, and attorneys—is that companies should stay focused on strategies for maintaining costs and take advantage of the extra time.
In Twin Cities Business’ latest Health Care Reform Dialogue Webinar, which was held June 19, three experts outlined the primary strategies that employers were considering as they anticipated the pay-or-play rollout in 2014. The provision, which will now take effect in 2015, requires large employers—those with 50 or more full-time equivalent (FTE) employees—to offer a certain level of health insurance coverage to their employees or be subject to monetary penalties. (For details on the provision, click here.)
During TCB’s webinar, Ed Wegerson—a partner at Minneapolis-based law firm Lindquist & Vennum, LLP, who for three decades has focused on employee-benefit matters—detailed several strategies that he’s hearing from large employers.
The postponement of the play-or-pay provision “probably isn’t going to change employers’ strategies much—but it gives them time to sharpen their analyses and be more thoughtful in their approach,” Wegerson says. The delay might encourage employers to drop coverage and send workers to the MNSure health exchange in 2014, when the mandate requiring individuals to procure insurance is rolled out but play or pay is yet to be implemented. This so-called “drop and dump” strategy, however, is “somewhat short-sighted,” as the move may lead to disgruntled employees, and companies will be back to square one come 2015, when play or pay is enforced, he says.
Another strategy employers are considering is offering a plan that meets the “minimum essential coverage” standard but not the “minimum value” benchmark, says Greg Thurston, director of benefits at Edina-based Doherty Employer Services. Even most low-cost, low-value plans, including those primarily restricted to preventative health care, constitute minimum essential coverage, he says, and offering such plans can help employers avert a $2,000-per-employee penalty. Such employers could still face a $3,000 annual penalty, but that fee must be paid only for employees who procure a plan through the MNSure health exchange and receive a premium tax credit for their enrollment. Just how many employees will opt to purchase insurance on the exchange remains a major unknown for employers, Thurston adds. (To determine if your plan meets “minimum value,” click here.)
A May Wall Street Journal story suggested employers are recognizing that they may be able to avoid some penalties by offering very limited plans—even those that lack key benefits like hospital coverage.
Some companies have implemented changes in anticipation of play or pay, despite the delay. Thurston tells the story of a mortgage company and Doherty client that was fearful of incurring roughly $150,000 in penalties due to not having a plan for its employees. The company was struggling to meet insurance carriers’ participation requirements, as many workers were waiving coverage because they were remaining on their parents’ or spouse’s plans or were unwilling to pay a premium. The company, which employs more than 100 people, opted for a defined contribution model; employees can pick between 20 different plans, and the employer contributes a flat monthly payment, regardless of what plans employees select. The move helped the company meet carriers’ minimum participation requirements, and it is now poised to avoid penalties.
Others are awaiting further guidance before making major changes. For example, Ann Ruschy—chief talent officer for Minneapolis-based consulting and staffing firm Salo—says her company offers a full suite of benefits to those of its 350 employees who work full-time. Salo’s benefit plan is up for renewal in April, and when the company expected play or pay to take effect in 2014, it was focused on how to track employee eligibility, as some of its workers shift between full- and part-time.
But the company “hit the pause button” when it heard of the delay, because it wants to be assured what exactly the provision will entail, as some are speculating that it may be altered in the coming year, says Ruschy.
“It’s not procrastination,” she says. “It’s just good business sense to see what exactly the changes are going to be before investing resources.”
One option for employers is dropping coverage altogether and absorbing an after-tax, $2,000 penalty for each full-time employee (minus 30 FTEs) that isn’t offered coverage. But experts say few employers are giving that alternative serious consideration.
While she routinely receives inquiries into whether employers are considering dropping coverage, PK Kriha,
senior vice president of employee benefits at the Minneapolis office of consulting firm Marsh & McLennan Agency, says that “to date, none of our clients are considering doing that—all of them are looking to ‘play.’”
The health-insurance broker says “the big question is how to manage increased costs”—and she anticipates that industries most affected by the provision (say, restaurants, which employ many variable-hour employees) will possibly pass along costs to consumers. In other words, if it costs more for a restaurant to insure its workers, its menu prices may climb too.
A major benefit of the delay is that it grants employers time to wait for digital tools to be refined, tools that can aid businesses in tracking things like employee hours, Kriha adds.
Small Employers Are Strategizing Too
While small employers are not subject to play-or-pay penalties, they too are strategizing as other components of the health care law take effect, including new taxes. Some may restructure benefits by, say, switching to a high-deductible plan with a health savings account (HSA) or by reducing other non-health benefits in order to offset rising costs, says Wegerson.
Both small and large employers may consider offering multiple plans to employees. Thurston, however, warns that transparency is paramount; employees may become disgruntled if they believe their plan is more robust than it truly is.
Dan Schmidt, vice president of St. Paul-based office-supply retailer Great River Office Products, says he consults with a third-party broker when determining health insurance offerings for his 14-employee business. He wants to continue offering his high-deductible plan that includes an HSA, but he, like other employers, is wary of rising premium costs.
While some small employers may simply drop coverage and allow workers to procure insurance from MNSure, Schmidt says that would be a last-resort option, and it’s important that a structure is in place where brokers can assist individuals as they shop for plans. “You’d be throwing your employees to the dogs if you just told them to go to the exchange” without providing them any form of assistance, he says.
Ideally, Schmidt says, he’d “like to see ‘defined contribution’ become the way of the future for small employers”—granting more tax advantages to companies that provide a set amount of funds to workers and allow them to spend it as they choose.
Karen Wentworth is a manager at Lakeville-based specialty chemicals business Hobo, Inc., and her husband is a majority owner. Their company employs 25 full-time workers and offers a plan with an HSA, as well as an “80/20” plan—one that requires the insurance company to pay 80 percent of the medical costs and the insured to cover the remaining 20 percent.
Depending on whether rates climb significantly, Hobo may drop the 80/20 plan or opt for a higher-deductible HSA plan, Wentworth says. But her company is in a “wait and see” pattern, largely because Hobo’s plan year runs from August 1 through July 31.
Some companies may consider shifting their plan dates from December 31 to January 1 (or vice versa) in order to achieve the lowest costs when accounting for new taxes and fees.
“You’d Be Remiss To Delay”
Employers are biting their nails over expected premium increases. Despite widespread concern over anticipated “rate shock,” however, recent filings from carriers in California actually included lower rates than expected, says Julie Bunde, director of product management and product and market solutions at Bloomington-based HealthPartners.
If nothing else, the play-or-pay delay allows employers to see how rates may change over the next year.
Many hailed the delay as a concession to businesses. Amanda Austin, director of federal public policy for the National Federation of Independent Business, described the move as “the latest evidence that implementation of this terrible law is going to be difficult if not impossible, and the burden is going to fall on the people who create American jobs.”
“Temporary relief is small consolation,” Austin said in a press statement. “We need a permanent fix to this provision to provide long-term relief for small employers.”
Despite speculation that the delay will give opponents of the law more time to lobby against reform and potentially alter the provision, Bunde assures that the postponement will not lead to the end of the ACA.
“This delay in no way means the end of health care reform. It’s just giving employers more time to determine how they will proceed when the changes come,” she says.
Meanwhile, many Minnesota companies remain in a state of uncertainty. About half of the participants in a real-time poll conducted during TCB’s June health care webinar said that they are large employers, and will thus be subject to play-or-pay penalties. Seventeen percent of those employers indicated that they expect to face multiple penalties under the new rule, another 17 percent said they expect to incur no penalties, and 7 percent said they still haven’t determined whether they’re a small or large employer, or if they’ll face penalties.
Despite the postponed law, “this is an opportune time to make sure you’re strategizing and developing a plan,” says Marsh & McLennan’s Kriha. “You’d be remiss to delay.”