By Ritter Jonas
Six years have now passed since the Affordable Care Act (ACA) was enacted. During this time, the implementation timeline has been a winding road of changes, delays and deferrals. Many of these changes will be implemented in 2016, in addition to the full implementation of the employer mandate. Here are some items to be mindful of this year and perhaps a few unintended consequences of the ACA.
Employer Mandate
Among many other changes, 2016 is the year in which full implementation of the employer mandate and its penalties take place. The employer mandate now applies to all employers with 50 or more full-time equivalent employees (FTE). While initially delayed for employers with 50–99 FTEs, those employers will now have to comply with the regulations. Employers with less than 50 FTEs are not encumbered by the requirement. The penalty for failure to comply with the employer mandate can be steep, with the penalty multiplied by the number of FTEs greater than 30.
New for 2016, employers must now offer 95 percent of FTEs and their dependent children (up to age 26) group health coverage or face penalties. This is a change from 2015, in which the requirement was 70 percent of FTEs. Penalty charges for non-compliance of the employer mandate increased in 2016 to $2,160 multiplied by the number of FTEs over 30, up from $2,080 for number of FTEs over 80 in 2015.
Employers that meet the 95 percent rule may still face penalties if the plans offered do not meet the definition of both affordable and minimum essential value. There was a modest change in the definition of an “affordable plan” for 2016. To be considered affordable, a plan’s employee-only coverage premium cannot exceed 9.66 percent of an employee’s total household income up — from 9.5 percent in 2015. Penalties could be also placed on employers who do not offer minimum essential value in the plans offered to their FTEs. Failure to comply is triggered when at least one FTE obtains a premium credit in an exchange plan and their employer’s group health coverage offering fails to cover at least 60 percent of the total allowed cost of benefits.
Reporting Requirements
Changes to PPACA reporting in 2016 have been minimal, focused primarily on the addition of penalties for non-compliance of the reporting requirements. Similar to the employer mandate, the current ACA reporting requirements apply mostly to employers with 50 or more FTEs, with a few exceptions for small group employers. Reporting is accomplished by completing U.S. Internal Revenue Service (IRS) Forms 1094-B, 1094-C, 1095-B and 1094-C. The reporting requirement is a shared responsibility with the insurance carriers, with employers completing the “C” reporting forms and insurance carriers completing the “B” forms, except for a few instances that involve self-insured group health plans. For
2016 tax deadlines, Forms 1095-B and 1095-C are due to employees by Jan. 31, 2017. Forms 1094-B, 1095-B, 1094-C and 1094-C are due to the IRS by Feb. 28, 2017, if filing on paper or March 31, 2017, if filing electronically.
For employers with less than 50 FTEs, reporting could be required under a few situations. If either the small group employer is part of a larger controlled group that represents more than 50 FTEs and/or the small group employer is self-insuring their health insurance coverage, even if they are below 50 FTEs, reporting is required.
Penalties for failure to file an informational return and failure to provide payee statements have both increased for 2016. For each return or payee statement failure, the penalty has increased to $250, up from $100 in 2015. The maximum penalty that can be imposed for each category cannot exceed $3 million.
Unintended Consequences of the ACA
Although the ACA was created with the best of intentions, there have certainly been some unexpected outcomes. On state health insurance exchanges, some insurers are losing millions of dollars and dropping out, spurring carrier consolidation that the U.S. Department of Justice (DOJ) now views as uncompetitive.
When the ACA was enacted, health insurance exchanges were set up to be destinations for individuals to compare and purchase health insurance from private insurance companies while maintaining a competitive environment. Two years in, it is no secret that the ACA exchanges are not performing as they were intended. With major insurers exiting the exchange markets, enrollment is much lower than expected and premiums continue to rise. The ACA exchange model needs much improvement before it can be declared a success.
Some people attribute the beginning of these issues to lower participation of the young and healthy on the exchanges. The concept was designed based on an estimate of the total enrollment, but also the expectation of an equal distribution of demographical enrollees (younger/older, healthy/sick). On the surface, the actual enrollment is considerably lower than expected. Initial enrollment predictions were that 20 million would be enrolled by the end of 2016. Current enrollment sits around 11 million, far short of the prediction. Enrolling the “young invincibles”, those between ages 18–34, was an important part of the plan to stabilize the exchanges. By enrolling the young and healthy and their lower expected claim costs, the claims for the older and sicker would have been subsidized, therefore stabilizing the costs to the insurers. Unfortunately, the enrollment numbers for these ages are also falling far short of expectations, with around 20–25 percent enrollment versus the 40 percent predicted. With an exchange that has a higher percentage of sicker or more costly enrollees, claims are significantly higher than expected, leaving the insurers unprepared and suffering incredible losses.
Some of the insurers’ losses can be attributed to the failure of a “reinsurance mechanism” to work as expected. From the start, there was an expectation that not all of the insurers would be profitable, so there were “safety” measures put in place. A reinsurance mechanism (called a risk corridor) was set up
to aid insurers, which required insurance companies that were overly profitable to put a portion of their profits into a fund. Insurers that were losing large amounts of money would be able to request aid from the risk corridor to stay afloat. When a majority of insurers experienced losses, a failure of the reinsurance mechanism took place. Insurers were then requesting more aid from the fund than was ever put in to it. Many insurers ended up taking losses in the hundreds of millions of dollars; others were forced to close their doors resulting in a reduction of the number of carriers in markets around the country.
Enhanced competition was also a key component of the ACA exchanges. Competition between insurance companies brought with it the expectation of better rates and choices for enrollees. With major insurance companies exiting exchange markets around the country, this is becoming an increasingly more difficult proposition. Less carrier options on the exchanges means less competition, but it is even more serious for some parts of the country. There are many states that are expected to have just one or two carrier options available, likely causing rates to increase even further. Rates are expected to increase again this year. In the coming year, some are predicting modest rate increases of around 10 percent, while others are expecting average increases of 20–30 percent.
Another unintended outcome of PPACA is carrier consolidation. As a result of the increased pressure on health insurance carriers, several mergers have been proposed. Anthem-Cigna and Aetna-Humana are two recent, well-publicized mergers. Certainly, one could understand why the insurers would want to join forces in the face of the ACA. The DOJ does not see it the same way, suing to block both mergers, which they believe violate antitrust laws and would ultimately lead to higher premiums.
The uncertainty around the future success of the ACA coupled with the upcoming election is sure to provide more twists and turns ahead. So buckle up for the road to come.
Ritter Jonas is an account executive with OneDigital Health and Benefits, formerly known as Digital Insurance and Digital Benefit Advisors.