The Affordable Care Act (the “ACA”) makes sweeping changes to the current health insurance landscape. Though some of these changes are already in force, the most significant provisions of the ACA become effective on January 1, 2014. This includes the “pay or play mandate,” the individual coverage mandate, and certain significant taxes and fees that are imposed on employers.

While many employers are already in the midst of planning for these significant changes, other employers have yet to examine how these new requirements will impact business operations, health coverage costs, benefit plan design, and coverage of employees. Employers are required to notify existing employees of their coverage options by October 1, 2013 (See Technical Release No. 2013-02 for a discussion of this notice requirement). Practically speaking, this means that employers must have a compliance plan in place well before the January 1, 2014 effective date of these changes. Given the significant impact of these requirements, and given the fast-approaching deadlines, we have been urging employers to begin analyzing these issues now so they have a strategy in place that will enable them to continue normal business operations while complying with the myriad of complex new requirements. Key decisions that need to be made well in advance of 2014 include:

  1. Whether to continue offering group health coverage on/after 2014. We have not seen a significant push from employers to completely eliminate their health plans. However, the cost increases in 2014 are significant enough that many employers are analyzing this option and considering it for the future.
  2. If the employer will continue to offer coverage, what (if any) steps the employer should take to offset the significant cost increases associated with the new requirements. The ACA requirement to provide coverage to all full-time employees will result in a significant cost increase, especially for employers who do not currently provide coverage to these employees. Even if an employer currently provides coverage to all full-time employees, the individual mandate will cause more employees and dependents to enroll, thereby increasing costs by virtue of the “woodwork effect.” There are also significant taxes (e.g., the transitional reinsurance fee and the patient-centered outcomes research fee) that will further raise costs for employers. For many employers, these cost increases are prohibitive. Accordingly, employers should analyze whether it is prudent/necessary to make plan design changes, revise employment practices, implement wellness programs, and/or take other steps to offset cost increases.
  3. Whether any action needs to be taken to avoid the pay or play penalties. Generally, the pay or play penalties apply to employers that either (a) do not offer coverage to at least 95% of their full-time employees or (b) offer coverage to at least 95% of their full-time employees, but such coverage is either unaffordable or does not provide minimum value. Accordingly, employers need to analyze issues such as:
  • Who qualifies as a full-time employee? To make this determination, employers must look at the hours its employees work during a “standard measurement period” beginning in 2013. Accordingly, employers should already be reviewing this issue.
  • Is coverage offered to at least 95% of these employees?
  • If not, what plan design or employment practice changes must be made to alter this result?
  • Does the current plan offer affordable coverage that provides minimum value?

These are just a few of the issues that employers should be working through before 2014 (see this brief presentation for a more detailed four-step analysis). While many of the new requirements are very complex, we believe there is still time to properly analyze these questions and develop a solid compliance strategy that will help control inevitable cost increases, while still complying with the new requirements. However, time is of the essence because 2014 is right around the corner.