Many long-term care providers are worried about rising health insurance costs for groups. Health insurance costs will climb 15% to 40% for groups in 2014. However, there are opportunities to manage this expected cost increase to a level that is affordable. Long-term care providers should educate themselves, so that they can challenge their insurance agents to help them navigate this heavily regulated arena, which has the potential for large penalties if not administered correctly. The $2,000 and $3,000 penalties are NOT tax deductible nor reimbursable under state Medicaid programs.
The best part of the law is also the most expensive part: elimination of pre-existing conditions as a reason to exclude an individual from coverage. Other reasons that costs will rise substantially include that there will be no upper limits on any coverage (including mental health and substance abuse) and that 100% of preventive care is included with no copays or deductibles.
Selecting the right employee contribution amount will be key to achieving your goal for your health insurance plan.
Factors to consider include: not exceeding 9.5% of income, remaining competitive in your hiring market, and the employer’s desire to increase or decrease numbers of participants.
Employers with 50 or more full-time employees can be subject to penalties if they do not offer “creditable coverage” to a least 95% of their employees. “Creditable coverage” is defined as covering at least 60% of costs and being affordable (employee contributions can be no more than 9.5% of household income). This “60% of costs” is the Bronze Plan (Obamacare minimum).
Some examples of how the penalties work:
1. For an employer with 300 employees who offers no coverage or offers creditable coverage to less than 95% of its employees: 300-30 = 270 x $2000 = $540,000.
2. For the same employer of 300 who offers creditable coverage to at least 95% of its employees, but it is not “affordable” to 12 employees. These 12 employees would then get the tax credit (subsidy). The employer penalty will be the smaller of 12 x $3000 = $36,000 or 270 x $2000 = $540,000, thus $36,000.
For those employees who do not take advantage of creditable coverage offered, the penalty is the greater of $95 per adult and $47.50 per child (family max $285) or 1% of income in 2014. Typical employee contributions to health insurance costs are in the range of $50 to $60 per pay period ($60 x 26 = $1560/yr). Comparing this number to the penalty table below, one will likely conclude that most employees earning $12.00 per hour will decline coverage. If an employee is offered creditable coverage they are not eligible for the premium tax credit regardless of their income and the employer pays NO penalty.
Flat Fee Percent of Income:
Amount Level Maximum Example
2014 $ 95 or 1% $285 $12/hr x 2080hrs x 1%=$250
2015 $325 or 2% $975 $12/hr x 2080hrs x 2%=$500
2016 $695 or 2.5% $2,085 $12/hr x 2080hrs x 2.5%=$624
Affordability safe harbors for employers are as follows:
a. W-2 wages x 9.5%. This is the least expensive to employer because it will maximize employee contributions, but is somewhat complicated to administer.
b. Rate of Pay: hourly rate x 130 hrs x 9.5%. Employers may charge an employee deduction that floats with income i.e. 9.5% of income at each pay-rate. This is somewhat more expensive than “a” above because of using 130 hours vs actual hours.
c. Set EE contribution at 9.5% of federal poverty level (approx. $11,500)…$42 per pay period. This method is the simplest to administer but most expensive to employers.
Employers may choose to use any or all of the safe harbors, for all employees or any reasonable category of employees, provided it does so in a uniform and consistent basis for all employees in a category. Multiple plan offerings ARE permissible with larger employee contributions for higher level plans.
Some implementation rules include:
- Coverage must begin within 90 days of the date of hire (not 90 days plus first of month)
- Employers may charge 50% more for tobacco users (but not more than 9.5%)
- Employers with more than 200 employees will be required to auto enroll all new full-time employees. Employees may then reject coverage because they don’t wish to pay their share.
Solutions
1. Employers are required only to “offer” a plan that meets the Obamacare requirements, with an employee contribution that cannot exceed 9.5% of the employee’s household income and that covers 60% of cost. This meets the requirement of creditable coverage. If you offer “creditable coverage” to 100% of full-time employees, does that keep you clear of the fines no matter what employees choose to do? Yes! My experience as a long-time SNF operator is that most employees who earn $8 to $15 per hour will reject insurance due to cost.
2. LTC business insurance has an offering through a TPA (Third Party Administrator) in which the plan pays based on the Medicare fee schedules rather than through a network (PPO). This model has saved more than 20% in 2012. It has the additional advantage of controlling future cost increases, as Medicare will likely keep costs in line with CPI. Large insurers use a base of medical costs. This model will likely have a small number of administrative issues surrounding providers’ acceptance of pricing. It can be used as a lower cost option to encourage coverage. It has been successfully in use by the TPA since 2006.
3. For companies of 30 buildings or more, captives both on shore and off are available at a reasonable cost.
4. Some employers are considering offering a “mini-med” plan which offers preventive care and other minimal coverage without major medical. At this time, some believe this will avoid the $2000 penalty on all employees, but incur the $3000 penalty on those employees who receive a subsidy through an exchange.
5. Self-insurance through the big insurers like United Healthcare is being offered to employers with as few as 10 covered lives.
6. Fully insured groups with early 2014 renewals might renew early (Dec 1) and have a 15-20% increase vs. 30-40% Jan 1st. This is not available to self-insured plans.
The Affordable Care Act has a daunting number of rules and regulations. Employers along with their insurance agents must learn to navigate these in order to achieve the desired result of managing health insurance costs while providing the benefit to employees.
Richard Brame has owned and operated skilled nursing facilities for 30 years. He is now the owner of LTC Business Insurance, which focuses entirely on long-term care facilities.
