Open enrollment season has previously resulted in confusion and near-disarray among employers and HR departments struggling to navigate a new set of rules accompanying the Affordable Care Act. This year, many of the more substantive mandates are now in the rearview mirror and employers can breathe a bit easier going into the 2016 open enrollment season. However, that doesn’t mean employers don’t have their work cut out in terms of preparation.
As ACA Employer Shared Responsibility has employers scrambling to complete employee headcounts and prepare for reporting requirements, there are many steps consumers and employers can take to ensure they have all their ducks in a row going into the New Year.
A review: ACA Shared Responsibility requirements
With IRS Form 1094 and 1095 deadlines around the corner, employers are hustling to prepare and finalize headcounts. Many employers are feeling anxious about delivering an accurate form to each employee by the end of January. Some payroll companies are prepared to do this task, just as they complete an employee’s W-2. Surprisingly, some payroll companies are not yet ready. It is essential that an employer reports their company’s total headcount. Employers are often surprised to find that they are an Applicable Large Employer (ALE) – and not in fact a small business (fewer than 50 full-time employees). They need to calculate/aggregate part-time hours and also union employees, even when the union workers get coverage through a union plan, to their employee totals.
This year, Shared Responsibility for ALEs – or employers with 50 to 99 employees – gets underway. This regulation already applies to employers with 100 or more employees. Under the ACA, this can dramatically impact an employers’ decision-making as it pertains to medical plans. Employers need to ensure they’re correctly counting employees and meeting the necessary requirements as mandated by the ACA to be sure they are either above or below the employee threshold.
More employers in the size range of 50 to 300 employees are seriously considering self-insuring their medical and dental plans. This “pay as you go” option involves employers paying only their employees’ claims as they are incurred, and eliminates the possibility of paying for another employers’ poor claim experience and insurance company profits. Of course employers buy “stop loss” insurance so large individual claims don’t financially hurt the employer. Stop loss also limits the employer’s liability in a really high claim year.
Employers are also considering joining Captive Insurance agreements. A Captive is a form of self-insurance whereby the insurer is owned wholly by the insured, in combination with other employers. While this form of self-insurance may be intimidating to traditional employers, Captives can be a smart move financially for employers looking to spread their risk. As medical costs continue to rise, employers are considering all available options to keep down costs.
The pros and cons of HSAs after the ACA
Consumers are also moving toward alternative means of ensuring their out-of-pocket costs are managed. Individuals already enrolled in a high-deductible health plan are increasingly giving more thought to enrolling in Health Savings Accounts (HSAs). HSAs essentially create a “health care IRA,” allowing consumers to stash away pre-tax dollars for medical expenses. These expenses can be paid for from the HSA in a current plan year, or saved until a later time. Often employees prefer to save the account for use in retirement, since the HSA dollars are never taxed, if used for medical expenses.
However, as a result of the ACA’s Cadillac Tax, which mandates an excise tax on high-cost health plans offered by employers, HSAs may be more costly than they are beneficial. If a health plan costs more than a specified amount, a 40 percent tax is incurred on the amount that exceeds this threshold. Because HSA dollars are counted toward this Cadillac Tax threshold, it’s important to communicate with your benefits advisor or HR department to consider your options before putting your money into an HSA. But since the Cadillac Tax doesn’t kick in until 2018, employees are encouraged to use HSAs to their fullest advantage until then.
Open enrollment is a good time for employers and consumers to take a hard look at their health insurance options. As employers, be clear and honest in communicating any changes to health care offerings. We have seen employers try to dance around bad news and skirt difficult issues. This usually results in disappointment and more often distrust. Employees are often much more savvy than employers give them credit. Honesty will at least satisfy and disarm the most skeptical employees.