FAQ: Nondiscrimination Provisions and Recent Federal Announcements Regarding State-based Health Exchanges

FAQ: Nondiscrimination Provisions and Recent Federal Announcements Regarding State-based Health Exchanges

The federal Patient Protection and Affordable Care Act (ACA) includes a non-discrimination provision that affects all employers providing health care coverage to their employees.  The provision prohibits employers from restricting participation in their health plan based on an employee’s salary or wage, and from requiring lower wage employees to contribute more toward health care premiums than higher wage employees.  Employers violating this provision will face a penalty of $100 per day per employee impacted by the violation.  However, the rules implementing this requirement are still being drafted and no penalties will be issued until they are finalized.

Separately, the federal Department of Health and Human Services (DHHS) has announced a delay for one component required of the state-based health insurance exchanges that support small employers.  State health insurance exchanges are required to offer two separate programs, one for individuals and one for small employers.    Each will include a variety of both insurers and health plans, and while the coverage will all be similar due to the reform requirements, not all insurers will choose to provide coverage in both programs.  The ACA identifies the option for small employers as the Small Employers Health Options Programs or the SHOP.

Small employers can purchase coverage through the SHOP similar to purchasing coverage on the open market.  As designed in the ACA, the SHOP will offer small employers two options for how they purchase coverage.  The first option is to select one group policy into which all eligible employees will enroll. The second option is for the employer to choose a level of coverage that they will make contributions toward (such as the silver, gold or platinum level) and employees will individually choose any health plan offered within that level.

Due to the complexities surrounding the component that allows an employer to choose a level of coverage rather than a specific group health plan, the DHHS is postponing the requirement to include this option in the state SHOPs until 2015.  This decision does not delay the requirement for state exchanges to be open for enrollment by September 2013, or begin offering coverage in January 2014, and it does not eliminate small employer access to the exchange.  It merely delays one component that the SHOP must offer to small employers.

The following are Frequently Asked Questions regarding the non-discrimination provision and the recent announcement regarding the SHOP:

Discrimination

How does the law describe “discrimination” as it applies to the offer of health benefits/health care coverage to employees?

Section 2716 of the ACA states the following: “(a) IN GENERAL – the plan sponsor of a group health plan (other than a self-insured plan) may not establish rules relating to the health insurance coverage eligibility (including continued eligibility) of any full-time employee under the terms of the plan that are based on the total hourly or annual salary of the employee or otherwise establish eligibility rules that have the effect of discriminating in favor of higher wage employees.”

What does the description of discrimination mean in plain terms?

The federal Departments of Labor and Health and Human Services are interpreting this section to mean that employers are precluded from: a) offering coverage to only those full-time employees that have hourly wages or annual salaries exceeding a set amount; or b) offering higher wage employees lower premium contributions or richer benefit packages if those same options are not also available to lower wage employees.

What about part-time employees – am I subject to these same restrictions if I offer coverage to my part-time employees?

Not at this time.  The discrimination restrictions currently apply to coverage provided to full-time employees only.  However, the Departments of Labor and Health and Human Services are still developing the final rules that will govern this issue and it is possible they will include requirements that extend to part-time employees as well.

What if I am a small employer and not required to provide coverage, may I still determine which employees I want to provide coverage to?

While there is no requirement for small employers to provide coverage to their full-time employees, the federal Department of Labor is still contemplating whether a small employer may offer coverage to only certain employees.  Such employers can continue their current offerings until a final decision has been made.

We currently pay 100% of the health care premiums for our managers, while requiring non-management employees to make premium contributions.  Is this still allowed?

Typically employers are allowed to establish different fringe benefits for classes of employees.  However, this is an issue that is currently being contemplated as the Department of Labor finalizes the non-discrimination rules.

Will there be a penalty for violating the non-discrimination requirement?

The stated penalty for violating the non-discrimination requirement is $100 per day per employee impacted by the requirement.  However, no penalties will be issued until the rules are finalized.

Small Employer Exchange Option

I heard state exchanges are delayed until 2015, is this true?

No.  States that have chosen to operate exchanges are still required to issue coverage to enrollees in 2014.  Recently the DHHS delayed one component of the exchange that pertains to small employers.  The exchange must include two options for small employers – it must allow small employers to either purchase a single health plan that all of their employees will enroll in, just like coverage is purchased today; or allow the employer to select a level of coverage that coincides with a benefit tier (bronze, silver, gold or platinum) but not a specific health plan.  If a small employer chooses to pay for coverage within a benefit tier instead of a specific health plan, the employer’s employees will individually choose any health plan available within that tier.  As an example, if the employer chooses the silver benefit level and there are 13 health plans offered within that level, each individual employee will be able to choose among those 13 plans.  If this option is chosen, an employer will contribute a set amount to coverage (ensuring that the amount sufficiently adheres to the affordability requirement) and employees will pay the remaining premium difference. It is only this aspect of the SHOP, the ability for the small employer to select a benefit tier instead of a specific health plan, that has been delayed until 2015.

Why is the benefit tier/employee choice component being delayed?

Group coverage is typically less expensive than individual coverage but in order for an insurer to establish premium rates for a group policy, there must be a common group.  By allowing employees to choose any available health plan rather than enrolling them into a single group health plan, the traditional group structure is eliminated.  Insurers and exchange organizers are thus struggling with how to rate such a product that is offered on a group level but amasses enrollment based on individual enrollment rather than group enrollment.  The DHHS has delayed just this aspect of the SHOP to further explore the best means to move forward with this option.

Why are people upset this component is being delayed?

Many supporters of the federal law believe that employees should not be forced to accept just one health plan from their employer.  Rather than dismantle employer sponsored coverage or force employers into a defined contribution approach to providing health coverage, they compromised and tried to develop options for employees covered under employer plans offered through the state exchanges.  Those supporters are concerned that by delaying this component for a year the basic goal of providing options to employees will ultimately be eliminated.

Is it true small employers will no longer have access to the exchange?

No.  Small employers will still be able to buy coverage from the exchange if they would rather participate in the government program rather than purchase coverage in the private market.  The exchange will be open for enrollment to small employers beginning in September 2013 for coverage that will be available in January 2014.

Who can purchase coverage from the exchange?

Exchange coverage will be available for both individuals and small employers with fewer than 50 employees.  Large employers, those with more than 50 employees, are specifically prohibited from purchasing coverage from the exchange at this time.

Will the exchange be the only place for small employers to buy health care coverage in 2014?

No.  Small employers will have multiple avenues to choose from when determining which health plan to purchase in 2014.  In addition to the exchange, there will still be an active and viable private market from which small employers may still choose coverage.  The same options with regard to coverage from association or membership type plans will also still be available.  Employers should explore coverage offered through entities such as Costco, local chambers of commerce and trade associations.  These options typically offer the most affordable coverage for small employers as they are able to offer less expensive large group rates instead of small group rates.

Donna Steward, President, Kiawe Public Affairs

This publication is intended to inform employers about provisions of the Patient Protection and Affordable Care Act and how those provisions may affect them.  This information should not be construed as legal or tax advice, and readers should not act upon the information contained therein without professional counsel.