The Patient Protection and Affordable Care Act of 2010 (ACA, Public Law 111-148) is changing how employers provide healthcare benefits to their employees and retirees, and at what level. Most state and local government employers provide full-time workers and eligible retirees with the option of health-care coverage, but over the next decade, the ACA will require governmental employers that sponsor group health plans to provide specified levels of health-care benefits to certain employees or face financial penalties. The ACA and the federal regulations for its implementation will provide options for how these benefits may be provided, and states are likely to add their own requirements. Public-sector employers must stay abreast of all new requirements, evaluating whether they need to adjust their health-care programs and operations in order to comply.
The Government Finance Officers Association (GFOA) recommends that state and local government employers that sponsor group health plans implement a process for reviewing federal health-care benefit requirements at least quarterly to ensure that they are aware of any newly issued or soon-to-be issued regulations. This level of monitoring will allow plan sponsors to implement the most cost-effective approaches to ensuring compliance with the ACA while offering appropriate benefit levels and options to employees and retirees. In establishing the monitoring process, state and local government employers that sponsor group health plans should consider the following issues:
- Staffing levels and expertise. The staff that governments allocate to monitor and develop viable options for addressing changing health-care benefit requirements should have appropriate levels of expertise. These staff members should coordinate with any external experts the government retains to address issues related to the government’s health-care coverage. Such experts include health insurance brokers and similar professionals, attorneys, consultants, and actuaries.
- Communicating with employees. Governments should ensure that their communications with employees about health-care coverage include basic information about the ACA and the use of the exchanges or marketplaces, and ways they may affect employees’ coverage.1 (See the GFOA best practice, Communicating Health-Care Benefits to Employees and Retirees). Plan sponsors also need to issue all the employee communications the ACA requires, such as the New Health Insurance Marketplace Coverage Options and Your Health Coverage notice and the Summary of Benefits and Coverage document.2
- Maintaining grandfathered status. Some ACA requirements do not apply to employment-based health plans that were in existence on March 23, 2010, when the law was enacted, and have not been modified substantially since then; these are referred to as grandfathered plans. Government employers need to work closely with their insurance providers and plan administrators to assess the costs and benefits involved with maintaining grandfathered status under the ACA. Employers that are undergoing significant structural changes in plan design and cost sharing might want to forgo grandfathered status so they can implement strategies that will provide more flexibility in plan design and pricing. In other cases, jurisdictions might find it more advantageous to limit future benefit changes in order to retain grandfathered status.
- Complying with the requirements. Sponsors of fully insured governmental plans need to work closely with their insurance providers, and sponsors of self-insured plans with their third-party administrators, to determine whether their health-care plans comply with the many ACA requirements currently in effect, as well as those that will become effective in the coming years. If necessary, plan sponsors need to consider how they can begin altering their health-care plan designs to comply. Potential areas of change include coverage for “essential benefits”3 with no lifetime or annual dollar limits, the elimination of preexisting condition exclusions, the elimination of waiting periods, coverage of adult children until their 26th birthday, and provisions for wellness benefits, clinical trials, quality reporting, and information sharing. Employers also need to identify any operational changes (e.g., staffing requirements, software changes) that may be required for compliance, along with the potential economic impact on the plan sponsor, employees, and retirees.
- Segregating retiree health-care plans. Retiree-only health-care plans are exempt from many of the new group health plan standards required by the ACA, as well as many provisions of the Health Insurance Portability and Accountability Act (HIPAA). Accordingly, plan sponsors should assess the advantages of segregating retiree-only plans to allow more design and pricing flexibility. Segregating the retiree plan might make it easier to determine the premium costs associated with active and retiree plans, and to allocate these costs to each group in an equitable manner.
- Examining coverage options. Plan sponsors should consider alternative coverage options. One possibility is assessing the expansion of Medicaid coverage under the ACA and determining what portion of the government’s workforce might qualify for Medicaid benefits, based on family income. In addition, plan sponsors should examine their prescription drug plan design and coverage for retirees to determine whether it would be beneficial to maximize available subsidies under Medicare Part D. Determining all potential cost-saving options can help a plan sponsor control the overall cost of the plan and calculate and reduce other postemployment benefit (OPEB) liabilities.
- Preparing for fees and taxes. The pass-through costs resulting from new ACA fees and taxes that are assessed directly on health insurers could raise premiums and increase health-care costs for employers and employees. These include the Transitional Reinsurance Fee, the Comparative Effectiveness Research Fee, the Health Insurance Industry Fee, and the “Cadillac” excise tax.4 Plan sponsors need to understand the potential impacts of these fees and taxes, and determine whether changes to plan design or collective bargaining agreements may be needed to address the increased costs.
- Special compliance considerations for self-insured plans. Self-insured plans are similarly required to comply with the many ACA requirements currently in effect, as well as those that will become effective in the coming years. Sponsors of self-insured plans will be responsible for paying the costs associated with the Transitional Reinsurance Fee, the Comparative Effectiveness Research Fee, and the Cadillac excise tax. Self-insured plans will also need to consider how they should address the operational issues created as a result of new ACA requirements (e.g., developing a process for appealing health-care coverage claims and reviewing eligibility for clinical trials). Governments that self-insure their health coverage should coordinate with their third party administrators, as well as their finance officers, human resource professionals, and attorneys to be sure they are adequately prepared for ACA compliance.
- Preparing for potential penalties. Plan sponsors are required to offer health insurance coverage that complies with the ACA’s provisions, or to pay penalties. Employers will be subject to significant penalties if a full-time employee who is not offered health-care coverage (or is offered coverage that is not affordable or does not provide minimum value under the ACA) receives a tax credit subsidy to purchase coverage on a health insurance exchange or marketplace. The ACA defines a full-time employee as an employee who works an average minimum of 30 hours per week. Plan sponsors should consult with appropriate staff members (including finance officers, human resources professionals, and attorneys) and check the government’s policy documents, including collective bargaining agreements, to determine which employees are considered full-time under the ACA.
- Using state exchanges. The ACA requires each state to offer an exchange where individuals, small employers, and, ultimately, large employers can purchase health insurance. Plan sponsors, in consultation with their finance officers, human resource staff, and consultants, need to determine whether paying penalties for some or all full-time employees to purchase health-care coverage through an exchange might produce a better financial outcome than continuing to provide separate self-insured or fully insured health benefit plans. Such decisions should consider potential effects on recruitment and retention, as well as local or state requirements to provide coverage to governmental employees.
1 Information on the exchanges is available at www.healthcare.gov.
2 The notice, titled New Health Insurance Marketplace Coverage Options and Your Health Coverage, is intended to inform employees about the marketplaces and how they will work. The Summary of Benefits and Coverage document should provide employees with simple and consistent information about their health plan benefits and coverage.
3 Essential benefits under the ACA include emergency services, hospitalization, laboratory services, maternity care, mental health and substance abuse treatment, outpatient or ambulatory care, pediatric care (including oral and vision), prescription drugs, preventive care, and rehabilitative services.
4 The Transitional Reinsurance Fee will be used to mitigate the impact of high-dollar claims in the individual market. The Comparative Effectiveness Research Fee funds research performed by the Patient-Centered Outcomes Research Institute, established under the ACA to evaluate and compare health outcomes and the clinical effectiveness of services that treat, manage, diagnose. or prevent illness or injury. The Health Insurance Industry Fee applies only to insured businesses and will be based on each insurer’s share of the taxable health insurance premium base. Under the Cadillac tax, plans that cost more than a set amount in 2018 ($10,200 annually for individual plans and $27,500 for family plans) will be taxed at 40 percent of their costs above that limit; however, amounts increase for retirees who are older than 55 and for employees engaged in high risk professions. Beginning in 2019, the ACA matches the benefit limit to the urban consumer price index.