Editors note: This article is directed at brokers who have clients in the low wage work space and have in the past been asked to recomend budget friendly ACA solutions for hourly workers.
In the wake of the recent failure to repeal, replace or repair Obamacare, it is an opportune time to evaluate and grade some of the most misguided strategies adopted by well-intentioned employers, particularly service sector employers who had not previously offered benefits to their hourly work force.
If you are a broker and see yourself in one or more of the strategies below, take heart it is not too late to make the necessary course correction, who knows when and if any changes will be coming out of Washington.
1) MEC Only
This approach is most commonly adopted on the advice of your well intentioned local TPA. While this strategy technically complies with 4980H(a) the so-called “sledgehammer” penalty, it is also administratively bloated and wastes employer contributions on far too many expenses not associated with claims. Why? From our experience with hundreds of actual MEC plans, the 63 Preventive Services (required for a self-funded group to be considered a MEC plan) generate claims that average between $12 to $15 per member per month. MEC Only plans (we have reviewed) require contributions of $50 to $60 per employee per month. Obviously this claims ratio is popular among TPA’s, but a terrible value proposition for the end user. We have found that once these numbers are disclosed, it is difficult to support.
NOTE: For a marginally higher contribution (typically a total of $70 to $90 dollars per member per month) employers can add substantial insurance benefits that both enhance the preventive MEC services (MEC Plus) and make these plans a far greater value per dollar spent.
2) MVP (Minimum Value Plans)
As in the MEC Only example, the mistake is in the honest attempt to avoid certain penalties by adding a level of (mostly unnecessary) risk to your MEC solution. The problem (and mistake) is the assumption that the cost or risk of protecting the employer from exposure to penalty is less than the penalty itself. The so called “Minimum Value” or 4980H(b) penalty was intended to force employers into certain minimum standards for plan design. In reality, these standards are too high and potentially could cost the employer (and/or the reinsurer) far too much in potential claims to justify taking on the risk. This is particularly true when you compare the “worst case scenario” of an employee choosing to apply for a subsidized enrollment in a state or federal exchange (the action that triggers the “B” penalty) to basically ignoring the penalty, which could potentially cost the employer around $266 per month (far less than the cost to avoid the penalty)
NOTE: Our experience with hundreds of thousands of employees who might voluntarily quit an employer sponsored health plan (even a relatively limited MEC Plus Indemnity benefit) is less than 1%. In other words, not really a tangible threat.
3) Under Contributing
Many employers are confused by the ACA cost sharing parameters which allow up to 9.66% of the employees monthly gross salary to be passed along to the employee via payroll deduction. Low cost ACA solutions were never considered when this guideline was put into the law.
Through our experience working with low income hourly employees, contributions to health insurance that cost more than $0.20 to $0.25 per hour will dramatically reduce participation in the offered plan. At $70 to $90 per month (for a combined MEC & Indemnity plan) we often successfully convince employers to take on the entire cost of the plan. This accomplishes two important goals (1) You assure the minimum amount of participation required by the offering carrier and (2) You deter employees from choosing to enroll in an exchange plan. As pointed out above, when offered to employees at or below a $0.20 (per hour) cost share, the basic MEC Plus ACA compliant solution will satisfy the larger penalty and garner enough participation to assure carrier approval, while acting as an effective deterrent to employees from seeking subsidized exchange coverage (which could expose the employer to a B penalty)
NOTE: While enrolling employees where there is a payroll deduction involved, it is an effective strategy to point out that “this plan will satisfy your (almost $700 per year) individual penalty” This information generally reinforces your cost sharing levels are a good deal for them.