By Bill Kerrigan
As employers prepare health benefit budgets and contributions for the 2017 Annual Enrollment cycle, the potential for employees who previously waived coverage to enroll has increased with the Affordable Care Act (ACA). The Individual Shared Responsibility provision of the ACA changes the outlook for many employees who had opted-out of an employer sponsored plan. If the monthly cost of coverage factoring in any wellness incentives is comparable to the fee imposed for not having coverage, then the ACA creates a financial incentive for the employee to enroll in the employer sponsored plan.
Individual Shared Responsibility is a fee assessed on individuals who do not have health insurance that qualifies as minimum essential coverage (MEC). By definition, employer sponsored plans are considered MEC so an employee who enrolls is exempt from paying the fee. In 2016, the fee for not having qualifying coverage is the greater of 2.5% of household income or $695 per adult to a maximum of $2,085 which equates to $57.92 per month at the lower end. In comparison, the average cost of an unsubsidized Bronze plan for a 40-year old male, non-smoker in 2016 is $236 [1] per month while the average contribution of a single employee enrolled in an employer sponsored HSA-qualifying HDHP is only $64 per month.[2]
Individuals are exempt from the fee if coverage is unaffordable (the minimum amount paid for employer-sponsored coverage or a Bronze level health plan is more than 8.13% of actual household income).[3] For most employees covered under a large employer sponsored plan, the cost of coverage is unlikely to meet this exemption definition. According to the Kaiser Family Foundation, 2015 Employer Health Benefits Survey, 96% of large employers with at least 100 full-time equivalent employees offer at least one health plan that meets both affordability and minimum actuarial value.[4] Additional exemptions are available related to religious beliefs and hardships (e.g., homelessness, eviction, foreclosure, domestic violence, death of a close family member, and unpaid medical bills).
According to the PWC, Health and Well-being Touchstone Survey[5] results from June 2015, 84% of employees on average participate in employer sponsored health plans. Employees have historically waived medical coverage for a variety of reasons including:
- Other Coverage (e.g., through the plan of a spouse)
- Risk Tolerance (e.g., willingness of the healthy, invincible to forego coverage to save payroll contribution)
- Affordability
The issue of affordability is most pronounced in low-wage industries where medical participation rates are much lower. The Bureau of Labor Statistics, National Compensation Survey, March 2015 found the medical take-up rate in the retail and leisure and hospitality industries to be much lower than financial services, utilities, and professional firms.[6] Lower wage employees, particularly in states that expanded Medicaid, are more likely to be eligible and enrolled in public assistance.
An eligible employee who previously waived coverage for affordability reasons now must balance the cost of the Individual Shared Responsibility fee with Medicaid eligibility and the monthly health plan contribution. These employees will need to understand this complicated decision and the consequences of declining coverage. To the extent employees decide to enroll in the employer sponsored plan, it is presumable that many will elect the plan with the lowest contribution (potentially a high deductible health plan). Although the out-of-pocket cost may continue to be unaffordable, the employee at least avoids the Individual Shared Responsibility fee and gains both 100% preventive care and catastrophic coverage.
Employers setting budget rates for 2017 and beyond should weigh the potential consequences of higher participation rates. Although increasing health plan participation has many positive outcomes including spreading risk and increasing employee attraction and retention, the direct financial cost should be understood. In a self-insured plan, financial costs related to enrollment include the following:
- Health Plan Administrative Service Fees
- Stop Loss Fees
- Medical Claims including greater exposure for catastrophic claims
- Benefit Service Administrative Fees
For fully-insured plans, the premium applies whether or not the enrolled employee utilizes the plan. To the extent that utilization is lower for these individuals who enroll in the plan but are prevented financially from affording the cost-share, future renewals should be lower.
With imperfect employee understanding, increases in participation rates related to Individual Shared Responsibility are likely to be gradual. Employers should review their benefit strategy to weigh the impact of potential enrollment growth on both budgets and assist employees in navigating their options. Improving employee health literacy (e.g., understanding of insurance choices) maximizes the value of the benefit programs and fosters a more trusting environment for employers to pursue other health benefit initiatives focused on excess utilization.
[1] Kaiser Family Foundation, The Coverage Gap: Uninsured Poor Adults in States that Do Not Expand Medicaid – An Update, January 21, 2016, http://kff.org/health-reform/issue-brief/the-coverage-gap-uninsured-poor-adults-in-states-that-do-not-expand-medicaid-an-update/
[2] The Kaiser Family Foundation and Health Research & Educational Trust, Employer Health Benefits 2015 Annual Survey.
[3] Internal Revenue Service, http://www.irs.gov/affordable-care-act/individuals-and-families/aca-individual-shared-responsibility-provision-exemptions
[4] Kaiser Family Foundation, http://kff.org/report-section/ehbs-2015-summary-of-findings/
[5] PWC, Health and Well-being Touchstone Survey, June 2015, http://www.pwc.com/us/en/hr-management/publications/assets/pwc-touchstone-survey-results-2015.pdf
[6] Bureau of Labor Statistics, National Compensation Survey: Employee Benefits in the United States, March 2015, Bulletin 2782, Table 9, http://www.bls.gov/ncs/ebs/benefits/2015/ebbl0057.pdf
For more information contact Bill Kerrigan at info@kerriganreid.com
Kerrigan Reid LLC 