Now that both the “Patient Protection and Affordable Care Act” (PPACA) and the reconciliation “fixer” bill, the “Health Care and Education Reconciliation Act” have been signed into law, employers must take a new look at the offering of health insurance benefits. Yesterday we looked at "To Offer, or Not to Offer?" Up today is "Managing Plan Costs and Avoiding Penalties."* 

Employers will need to take specific steps to make sure their plans meet new requirements in order to protect employers from “shared responsibility” penalties (the “free-rider” or employer mandate) and to protect employees from “individual responsibility” penalties (requiring individuals to have qualified health insurance). Further, the structure and value of a plan may have serious implications for employers as well.

Purchasing Traditional Insurance: Employers purchasing a fully-insured plan (a traditional health insurance product in which the insurer pays claims and takes on the risk) will need to verify that said plan is a qualified benefit going forward – by October of 2010 plans will need to meet new requirements relating to lifetime/annual limits, rescissions, and excess waiting periods. They will need to allow individuals up to the age of 26 to be listed as dependents. When the shared responsibility provisions kick in, in 2014, employers will need to verify that plans meet the essential benefits requirement (to be defined by the Secretary of HHS) and the actuarial requirements laid out in the law. There will be limitations on imposing annual limits, and firstdollar coverage of prevention with no cost-sharing will be mandated for everything selected by the U.S. Preventative Services Task Force. Starting in 2011 these plans will need to have new limits on Health Savings Accounts and Flexible Spending Arrangements as well. Also, starting in 2014, there will be a tax specifically on fully-insured products, which could result in increased costs associated with these plans.

Self-Insuring: The alternative will be to self-insure (employer can form an ERISA plan in which the employer pays claims, manages risk, and will likely use an insurance company only to administer claims and offer stop-loss insurance for high-cost claims), which will shield employers from both state coverage mandates and the new health insurance tax, but will entail two key new risks: the employer will then become responsible for seeing to it that the plan meets all the new requirements (as well as new outside requirements under the Genetic Information Nondisclosure Act, the Mental Health Parity Act, and others), and, if the plan’s costs per beneficiary exceed certain amounts after 2017, the plan sponsor will be fined by the so-called “Cadillac tax.” Self-insured plans will need to report their costs and may be forced to
“rebate” money to beneficiaries if the plan’s administrative costs exceed 15% starting in 2011. Depending on what definitions are developed for administrative costs, this could potentially be very challenging for plans attempting to innovate cost-containment strategies.

Sending Employees to the Exchange: Employers wishing to have a firm grasp on health insurance costs will have the option of offering Exchange plans to their employees – small employers will be eligible at the outset, and states may allow large employers to participate starting in 2017. This may allow a defined contribution from employers, provided the contribution was significant enough to avoid “responsibility” penalties.

// Update - Part III "Offering Other Health-Related Benefits" is here.

*This information is not not legal advice, but is intended to serve as an outline to the new realities employers face in this landscape of compliance responsibilities.