HRB 38 - Proposals on Exchanges, Premium Assistance and Uniform Benefit Summary
Released August 18, 2011I Download as a PDF August 18, 2011 --
In recent days, the governing Agencies (HHS, DOL and IRS) responsible for implementing the Patient Protection and Affordable Care Act (referenced as the “Affordable Care Act” or “ACA”) have been busy. A number of proposed guidance have been issued, specifically relating to Exchanges, premium assistance (“Health Insurance Premium Tax Credit”), and perhaps of most interest to employers, the uniform benefits summary, now dubbed the Summary of Benefits and Coverage (SBC).
As background, the ACA provides that, beginning in 2014, states will have the opportunity to establish State-Based Exchanges. These Exchanges can be organized as public sector instrumentalities or non-profit entities. They can be placed under the jurisdiction of existing structures; they can be multi-state or regional. In the absence of a state establishing an Exchange, the federal government would provide the framework. There are two types of Exchanges: State-Based Exchanges and Small Business Health Options Program (SHOP) Exchanges.
Eligible entities determined to carry out the functions of a State-Based Exchange are those who are incorporated and subject to the laws of one or more states, and who have demonstrated experience and benefit coverage on a state or regional basis in the individual and small group health insurance markets; or, a state Medicaid agency. For this purpose, insurers are not considered eligible to qualify as Exchanges.
A state can combine the two Exchanges, or run them separately. According to the proposed regulations, states would have significant freedom in designing their Exchange.
The Exchange is the vehicle through which qualified health plans are offered. Individuals and employers would be able to purchase health coverage through an Exchange.
The Small Business Health Options Program (SHOP) would be operated by an Exchange through which a qualified small employer can provide its employees and their dependents with access to one or more QHPs. For this purpose, a small employer is one who employs between 1 and 100 employees on business days during the preceding year.
Approval of Exchanges
An Exchange must be approved by HHS. According to these proposals, the Exchange must submit a request for approval by January 1, 2013, in order to begin offering qualified health plans by 2014. HHS would provide conditional approval of an Exchange if a state is not quite prepared to demonstrate its readiness by January 1, 2013. States can also apply to operate an Exchange for 2015, or subsequent years.
Premium Assistance: Health Insurance Premium Tax Credit
Certain individuals, specifically those whose household income is between 100 and 400% of federal poverty level, may be entitled to premium assistance, known as the “health insurance premium tax credit,” to help in the purchase of health coverage through an Exchange. The governing Agencies have issued proposed regulations defining who qualifies for the new premium tax credit. These regulations, as they are developed, are in proposed form only; and thus, it is not yet time to dwell on the specifics of the regulations. The proposals relating to premium assistance do suggest a couple of points of importance to employers.
Also beginning in 2014, employers employing 50 or more full time equivalent employees may become subject to an excise tax if the employer does not offer coverage that satisfies standards (to be determined), or if the coverage is “unaffordable.” One of the issues that has caused employers most angst is determination of what is unaffordable. The law provides that if the cost of employer-provided coverage is more than 9.5% of household income, then it will be deemed unaffordable. Employers do not know their employees’ household income. The proposal suggests that future guidance will provide for a safe harbor for determining household income; this safe harbor may look something like this: If the cost of individual coverage does not exceed 9.5% of the employee’s W-2 wages, the employer would not be assessed a penalty. Again, this is only a suggestion for future guidance. Unless and until regulations are issued and finalized, we will not know; but, this does give a good indication that there may be some relief for employers as they plan for 2014.
Uniform Summary of Benefits and Coverage
The ACA requires that a uniform benefits summary be developed and made available. The Agencies have issued a proposed template for this uniform benefits summary, referred to as a summary of benefits and coverage (SBC), and a proposed uniform glossary of coverage and medical terms to be used in the SBCs. These are not finalized documents yet; they are only proposed.
According to the proposal, the documents would have to be provided by insurers issuing individual and group health plans, and by employers or their designated plan sponsors or third party administrators of self-funded plans.
Timing of SBC Disclosure. The SBCs would be provided to applicants, enrollees, and individual policyholders prior to coverage, 30 days before any renewal, and 60 days before any material change in benefits. The Agencies continue to look at how the SBCs can be provided in conjunction with already required summary plan descriptions, so as to minimize administrative burdens.
Method of providing SBC. It is proposed that the documents could be provided in paper or electronically, as long as the Department of Labor’s electronic disclosure rules are satisfied.
About the Author: Karen R. McLeese is Vice President of Employee Benefit Regulatory Affairs for CBIZ Benefits & Insurance Services, Inc., a division of CBIZ, Inc. She serves as in-house counsel, with particular emphasis on monitoring and interpreting state and federal employee benefits law. Ms. McLeese is based in the CBIZ Leawood, Kansas office.
The information contained herein is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations. The information contained herein is provided as general guidance and may be affected by changes in law or regulation. This information is not intended to replace or substitute for accounting or other professional advice. You must consult your own attorney or tax advisor for assistance in specific situations. This information is provided as-is, with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein. As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.