Voluntarily providing health coverage: 4 scenarios

According to the October 2011 NARI Member Profile Study, 53% of NARI member companies provide group health-care insurance to their employees.

As a business owner, providing health insurance to employees up until this point has been a personal business decision, and for most NARI companies that are small businesses, it continues to be. If an employer chooses to provide coverage to their employees, they will have several ways to do so.

I want to continue to provide the exact same coverage (including coverage type/provider) that I am currently providing.

If the company currently provides a group health-care plan, they have an option to continue to do so by offering a plan that satisfies the federal requirements. New rules apply to insurance carriers, requiring them to offer coverage to anyone who applies without any pre-existing condition limitations, in addition to a very generous, expanded package of benefits. Insurance carriers will charge higher premiums for these policies, which require coverage of more risks—more sick people likely will elect the coverage—and which are rich in benefits covered.

Should I keep a grandfathered plan in place?  The employer also may wish to continue its current plan by continuing to grandfather their health plan option. This is important for small and large employers who have a small population of people (i.e. upper management) covered by a generous health plan and the employer wants eligibility to remain restricted. Otherwise, the employer would need to make that plan available to all employees when new discrimination rules apply.  Grandfathering also shields companies from certain requirements such as clinical trial coverage, 100% preventive care, provider access and more.

Businesses should consider their reasons for grandfathering a plan. Grandfathering locks companies into health-care plans for as long as they want and restricts access to the plan from other classes of employees down the line. This, in turn, makes the grandfathering option usually a more costly one because once companies are locked in, they are subject to large premium increases over time by the carriers.

Again, since small employers can choose to provide or not provide health-care to employees, it’s important to make sure that having this specific plan option is significantly more beneficial for a business reason than changing to a different policy with lower costs. Companies can obtain pricing for both grandfathered and non-grandfather policies easily, so it may be worthwhile to check. Grandfathering contradicts many other discrimination concepts and mandate rules, so insurance experts are following the grandfather rule to see if it’s revised or, at some point, eliminated completely.

I want to provide coverage to my employees as a group health plan in or out of the exchange.

An “exchange” is an online insurance tool for anyone to use to learn about, select, price, enroll and bill insurance coverage. The exchanges will provide different plans from various carriers, and every coverage feature will be in compliance of the basic essential plan coverage required—and will go up from there.

Business owners who are voluntarily sponsoring a group health plan can do this privately, in the previous instance, through an insurance broker or consultant. This could be considered convenient to many small business owners, as brokers will be able to easily follow requirements and manage the carriers.  And claims will be handled more efficiently through a broker. They can also handle administrative requirements easily.

Owners also can elect to sponsor group health care through the exchanges.  It is not yet clear what the role of a broker or insurance consultant will be when coverage is purchased through an exchange.  Decisions such as that are still unknown and subject, in some cases, to state rules.

Business owners are free to be as involved or uninvolved in guiding employees through exchanges. Either employers can allow employees to choose the coverage they want or they can set up group plan recommendations/defaults from which they can choose. If the employer is not so involved and just directs employees to the exchange but does not contribute toward the coverage, suggesting coverage options or limiting choice is any way is not advisable.  If the employer is involved and subsidizes exchange coverage—because there will be hundreds of coverage options to choose from—it is recommended that employers sponsoring plans through an exchange limit options to some degree.

If exchange use is promoted by their employer, employees may choose a variety of carriers.  Although the exchange bills employers directly, they will run a risk of miscalculations by carriers, and most likely those will go unnoticed on bills. Close monitoring of bills will be necessary.  If an employer sponsors and contributes to a health plan or encourages enrollment, claims payment becomes a business concern.

Regardless of size, an employer’s sponsored group plans will have to abide by many disclosure requirements, and for some items, like the mini-summary, the insurance carriers inside/outside of exchanges will prepare it for the company. But that is not the case with all obligations, such as Form W-2 reporting and the exchange education required before March 1, 2013.  Even if the carrier provides an item, the employer sponsoring the plan must distribute it, usually by first class mail.

One final note—only time will tell, but insurance plans inside or outside of an exchange are not expected to have significant price differences. The law restricts most policies in the exchanges from costing more.

I want to provide coverage to employees by reimbursement of individual policies.

Employer reimbursement of individual employee coverage, even if the policy is labeled as such, is considered a group coverage in the eyes of the federal government.  If the carrier or policy fails to follow federal law – such as rules that obligate group insurance to pay in a certain way due to Medicare— the failure by the carrier could mean the employer is exposed to additional expenses, including reimbursing the federal government for claims for that individual. Other federal laws that usually apply and are problematic include COBRA and federal employment discrimination laws on age, sex and disability discrimination.

Business owners who choose this option also should be mindful of collecting proof of premium payment so the reimbursement of individual premiums can be pre-tax, or else the employer should pay for the policy directly. Again, if the employee is covered by a carrier through the exchange, resolving claims and billing might be difficult. When issues do arise, the employer may be forced to pay out of pocket and, in addition, may be blamed for the problems because they opted for proving reimbursement rather than sponsoring a group plan.

I want to provide additional compensation to employees by increasing compensation, without obligations or oversight of use of that compensation.

Small business owners may find themselves in situations where either they do not want to sponsor a program, but they want the total compensation package to be competitive, or, if the employer does have a group policy, one or more of their employees opts out in favor of other coverage. In that case, owners may want to provide employees additional compensation.

Increased income is taxable and will increase the individual employee’s tax liability and the employer’s employment tax and withholding obligations. Employees who use the money for coverage generally cannot buy it with pre-tax dollars, especially where the employer is not involved in offering the program.

If the employee takes the pay increase but doesn’t end up getting health-care coverage, the employee will be subject to the penalty. Small business owners must have proof that they are less than 50 employees and exempt from having to provide insurance. This will need to be documented and provided to the government if there is an investigation. Larger employers (more than 50 full-time employees) would pay the $2,000 per full-time employee penalty, minus the first 30 employees.

What does it all mean for me?

As a small business owner, having expertise and knowledge in your business is essential; having expert knowledge in health-care reform is not always possible. By arming yourself with a basic knowledge of requirements and potential risk areas, you will be able to consult with a professional and intelligently choose the right option for you.

Read Other, big impact items regarding healthcare for information on how to avoid additional penalties and government enforcement.

| 10/12/2012 12:00:00 AM | 4 comments
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