Health care reform
The benefits standards for the Patient Protection and Affordable Care Act (PPACA) will be different for large employers’ plans compared to the required standards for small employers and individuals. Businesses with 50 or more full-time-equivalent employees are considered large employers by PPACA.
Large employers who want to avoid penalties and ensure that their health care plans comply with the new law will be able to model their plans after one of several "safe harbor" designs, which will be developed by the Internal Revenue Service (IRS). All plans offered by large employers must meet standards for “minimum value.”
What’s “minimum value”? For a large employer, the plan must cover at least 60% — on average across the plan — of an employee’s health care costs in a given year. So, if an employee incurs $1,000 in health care expenses, the plan must cover at least $600, with the employee responsible for the balance through a combination of deductibles, co-pays and co-insurance. (This arrangement is sometimes referred to as a “60% actuarial value.”)
Large employers who want their health care plans to align with the Affordable Care Act can ensure compliance by using one of the following methods to determine minimum value:
Offering a plan that is accepted onto any of the “metal” coverage tiers on a public Health Insurance Exchange. Plans on the public exchanges are categorized into four tiers, from “Bronze” to “Platinum,” with increasing richness of coverage offered.
PPACA establishes three types of assistance to help lower-income people pay for health insurance: Medicaid expansion, tax credits and reduced cost-sharing.
People with incomes between 100% and 400% of the federal poverty level (ranging from approximately $23,500 to $94,000 for a family of four) are eligible for tax credits to help pay insurance premiums for coverage purchased through an exchange. Tax credits will be available to employees who (a) don’t have access to group health coverage, (b) have low-value group health coverage (below 60% actuarial value), or (c) are offered coverage that is unaffordable (with premiums exceeding 9.5% of the employee’s household income).
Basically, if an employee does receive a tax credit to purchase insurance on an exchange, his or her employer will be subject to a penalty of $3,000. This applies whether the employer’s coverage fails to meet minimum standards, is unaffordable, or both.
The “minimum value” component will assure employees who work for large companies that their health benefits package provides comprehensive coverage.
Impact on employers:
Employers will need to make sure that their benefits plans meet the minimum value standard and modify their plans if they do not. Otherwise, these employers may face penalties of $3,000 for each employee who gets coverage and a subsidy through the Public Exchange.