Not many people like to play games that have a lot of rules. That’s why games like checkers or connect four are favorites. When you only have to remember a few simple rules, it makes the game so much more enjoyable.
I wish I could say the group health insurance world was like a game with a few simple rules. But that’s just not so!
For most employers, one of the biggest challenges of their group health insurance program is knowing the rules and regulations set out by the government. Not only that, staying in line with those rules and regulations can be a struggle!
I find that most of the prospective clients I talk with are unfamiliar with these laws and don’t realize their group health insurance plan is out of compliance.
Being out of compliance can cause a business to face large fines and penalties from the government.
Is your group health insurance plan in compliance with the law?
To educate our clients about this very important issue, we have put together a three-part series about group health compliance. In this series, we cover the three laws that govern group health insurance programs in the United States: ERISA, Section 125 of the IRS tax code, and the Affordable Care Act (ACA).
This article takes an extensive look at the Affordable Care Act. In it we cover:
- What is the Affordable Care Act?
- What ACA regulations apply to all group health plans?
- How are group health plans categorized?
- What about tax-favored arrangements like HRAs, FSAs, and Cafeteria Plans?
- Does the ACA have requirements for self-funded group health plans?
- Are there additional ACA compliance requirements?
What is the Affordable Care Act?
The Affordable Care Act, also known as ACA or Obamacare, was signed into law in 2010.
This law intended to lower the cost of health care and to make sure that all Americans would be able to get health care.
This law mandated certain employers to offer group health insurance to their employees. Also, insurance companies could no longer exclude individuals based on pre-existing conditions. And, this law required certain health services to be covered under a company’s group health plan.
To satisfy this law, group health plans are subject to many regulations. If your business does not comply with the regulations, you can face hefty penalties.
What ACA regulations apply to all group health plans?
This requirement applies to ALL group health plans. You are allowed to require new employees to wait before being added to your group health plan. That waiting period can be no longer than 90 days. Your employees must have the opportunity to enroll in your plan after their first 90 days of work.
Essential Health Benefit Coverage
Another requirement of all group health plans is offering “essential health benefits.” Your plan can not set a dollar limit on “essential health benefits.” According to the ACA, the 10 essential health benefits are:
- Ambulatory patient services (outpatient care you get without being admitted to a hospital)
- Emergency services
- Hospitalization (like surgery and overnight stays)
- Pregnancy, maternity, and newborn care (both before and after birth)
- Mental health and substance use disorder services, including behavioral health treatment (this includes counseling and psychotherapy)
- Prescription drugs
- Rehabilitative and habilitative services and devices (services and devices to help people with injuries, disabilities, or chronic conditions gain or recover mental and physical skills)
- Laboratory services
- Preventive and wellness services and chronic disease management
- Pediatric services, including oral and vision care (but adult dental and vision coverage aren’t essential health benefits)
In regards to these “essential health benefits,” the ACA asserts that group health plans cannot set a dollar limit on these services. That means that coverage will not run out for individuals with costly medical conditions.
While your plan can not set a dollar limit on these services, your plan can set frequency or visit limits.
For instance, your plan can limit the number of well-child visits your plan members can schedule every year. Or, your plan can limit the frequency of covering new hearing aids through your group health insurance.
The ACA also eliminated group health plans from excluding individuals based on pre-existing conditions. A pre-existing condition is a medical condition for which you have received treatment or diagnosis before enrolling in a health insurance program.
Your group health plan must verify that employees have not been excluded from your group health insurance because of a pre-existing condition.
Employer Payment Plans
One final requirement of all group health plans is ensuring that employees are not being paid by the employer to get a personal health insurance plan.
How are group health plans categorized by the ACA?
In addition to the above requirement, the ACA outlines further requirements for group health plans depending on how the group health plan is categorized.
All group health plans fall into one of the following three categories:
- Grandfathered Status Plans
- Large Group Health Plans
- Small Group Health Plans
Let’s take a look at each of the categories and the regulations that apply to each.
1. Grandfathered Status Plans
Grandfathered status group health plans are not subject to most ACA regulations. Only a very small percentage, 22.5% or less, of all group health plans have a grandfathered status plan. To be a grandfathered plan, the plan must have:
- Been in existence since March 23, 2010, and covered at least one person since that time
- Maintained the same benefits
- Not increased the cost to the employees
Requirements for Grandfathered Plans
Even with “grandfathered status,” the ACA outlines requirements for your plan.
Notice of Grandfathered Status
Whenever you provide a summary of plan benefits to your group health participants, you will also need to provide a “Notice of Grandfathered Status.”
With a grandfathered plan, you will also need to maintain records that document your plan as of March 23, 2010. Along with this documentation, you will want to keep any other documents that pertain to your grandfathered status.
It may seem appealing to have a grandfathered plan and avoid the other ACA requirements. The biggest problem with these plans is that they can not under the law add improved benefits for their employees. This limits these group health plans from offering benefits reflecting advancements in healthcare and technology.
2. Small Group Health Plans
A small group health plan is a plan provided for a business with less than 50 full-time employees.
The ACA does not require these businesses to provide their employees with a group health plan.
If you are a small business that provides group health for its employees, the ACA lays out the following three requirements:
Employee Contributions Toward Premium
According to the ACA, employees can not contribute more than $8,150 for individual coverage or $16,300 for family coverage annually.
Health Insurance Exchange Notice
As the employer, you must provide a written notice to each new employee within the first 14 days of employment informing them that they are not required to enroll in the group health plan.
Summary of Benefits and Coverage
For all employees enrolled in your plan you must provide a Summary of Benefits and Coverage, commonly known as an SBC. This document must be in plain language so that your employees can understand what they are reading.
This document must include:
- An overview of plan benefits, cost-sharing, and limitations
- Examples of how the plan works
- Information on how to obtain copies of plan documents
- A standard glossary of medical and insurance terms
If you are fully-insured, your insurance company will provide your SBC. If you are self-funded, a Third-Party Administer will provide your SBC.
3. Large Group Health Plans
A large group health plan is a plan provided for a business with more than 50 full-time employees. The ACA refers to these businesses as “applicable large employees” or “ALEs.”
ALEs are required to provide group health insurance for their employees. If they don’t provide this insurance coverage, ALEs will pay a penalty to the government for each of their employees.
ALEs are also subject to more ACA requirements than grandfathered status plans and small group health plans.
For large group health plans, the ACE requires that your plan be affordable and provide minimum value.
One of the goals of the ACA was to ensure that group health insurance would be affordable for employees who enroll. For a group health plan to be affordable, your employee’s contribution can not exceed more than 9.78% of their household income.
Practically, most businesses rely on their employee’s W2 to determine the affordability of their plan. Using their lowest-paid full-time employee’s W2, the employer can calculate the total amount they can require their employees to contribute to their group health plan.
In 2021, the employee’s contribution will not be allowed to exceed 9.83 percent of their household income.
Providing Minimum Value
The other requirement of large group health plans is that they provide minimum value. This means that the plan must pay for at 60% of covered health care expenses and provide substantial coverage of inpatient and physician services.
This requirement states that your employees can not pay more than 40% of the actual value of the benefits on your group health plan. Employee contributions to premium are not included in this amount.
Because this can be complex to calculate, the help of an employee benefits consultant is necessary.
“Play or Pay” Penalties
If you are a large employer and don’t offer a group health plan to your employees, you will pay a penalty. These are known as “Play or Pay” penalties.
Basically, the employer “plays” by offering group health. And they “pay” if they don’t.
If you don’t offer group health insurance, you will be required to pay $2, 570 per full-time employee after the first 30 employees.
Let’s calculate this for an employer with 100 full-time employees.
|100 employees -30 employees = 70 employees
70 employees X $2,570=$179,900
What about tax-favored arrangements like HRAs, FSAs, and Cafeteria Plans?
In addition to your group health plan, if your business offers HRAs, FSAs, or a Cafeteria Plan to your employees, those tax-favored arrangements will also need to comply with ACA requirements.
While HRAs, FSAs, and Cafeteria plans are linked to your group health program, they are not an actual part of your group health insurance.
If you have these arrangements in place, your Third-Party Administrator or Employee Benefits Advisor can help you with these compliance issues as well.
Does the ACA have requirements for Self-funded group health plans?
While almost everything that applies to a fully-funded group health program also applies to self-funded group health programs, there are a few differences.
- Self-funded plans don’t have to provide the 10 essential health benefits. Self-funded plans can determine which benefits will be provided to plan members.
- Self-funded plans that are small group plans must report the coverages they are offering (or not offering) under Section 6055 of the IRS tax code using forms 1094-B and 1095-B.
- Self-funded plans that are large group plans must report their coverages under Section 6056 of the IRS tax code using forms 1094-C and 1095-C.
Your Employee Benefits Advisor can help you with these reporting requirements.
Are there additional ACA compliance requirements?
Yes. There are additional ACA compliance requirements outlined by the ACA. These requirements only apply to select businesses.
Here are 6 additional requirements outlined by the ACA:
1. Additional Medicare Tax
If you have employees who earn more than $200,000 in a calendar year, you will need to withhold an additional 0.9% of their wages for an additional medicare tax.
2. Coverage of Preventive Services
Guidelines for preventive services must be monitored to reflect new scientific and medical advances. When new services get approved, they must be covered by your group health plan. If you have a self-funded group health plan, you will need a Third-Party Administrator to help you with this requirement.
3. Medical Loss Ratio Rebates
Insurance companies sometimes give rebates to eligible plan enrollees if they have not spent a minimum percentage of premium dollars on members’ health care expenses and services. Rebates must be given to policyholders by September 30 of each year. This rarely happens. This regulation does not apply to self-funded programs.
4. PCORI Fees
For self-funded plans, the employer must report and pay fees to fund the Patient-Centered Outcomes Research Institute using IRS Form 720. This must be filed by July 31. Businesses that utilize HRAs are considered self-funded. If your business utilizes HRAs, you will need to report and pay these fees. If you use HRAs, your Third-Party Administrator will help you with this requirement.
5. Form W-2 Reporting for Employer-Provided Health Coverage
If your business files more than 250 W-2 forms, you must report the cost of health coverage to each employee annually on the W-2. This must be given to each employee by January 31 each year.
6. Section 1557 Nondiscrimination Requirements
This is only applicable to entities that administer a health program that receives federal financial assistance such as hospitals accepting Medicare or doctors who accept Medicaid.
Need help with compliance issues?
The ACA is just one government regulation that employers need to satisfy. In addition to ACA, your group health plan must also comply with ERISA and with Section 125 of the tax code.
For most businesses, ensuring they are in compliance is a complicated matter and can be very daunting!
The language of these laws is complex. When you add that to the complexity of group health insurance, it’s easy for businesses to be out of compliance.
When I meet prospective clients for the first time and we go over their group health plan, I often find compliance issues. I also find that many of these prospects have not had an Employee Benefits Advisor who has taken the time to educate them on these government regulations and help them with their compliance issues.
Your Employee Benefits Advisor should play a very active role in helping you create your group health insurance program, analyze your employees’ claims, incent wellness among your employees, and review all your compliance issues.
If you would like a second set of eyes to look over your group health insurance program, our team has developed a six-step strategy to help businesses design a long-term group health program. In a few short meetings, we can quickly assess if we have the tools available to help you take control of your group health costs and reduce your premiums.
In the meantime, if you would like to further educate yourself on compliance issues, I’d recommend digging into these issues by checking out these two articles:
What is Section 125? (Compliance Issues for Group Health Plans)
Group Health Compliance: Is My Business ERISA compliant?
6 Step Strategy to Creating an Effective Group Health Insurance Plan
Why Does Group Health Premium Go Up Every Year?