Restaurants, hotels and other hospitality companies that have not traditionally offered health insurance benefits to employees are struggling to meet the mandate to provide a plan or face penalties starting in 2015 under the Affordable Care Act (ACA).
That need has prompted the insurance industry to respond with cost-effective strategies to help companies with low-wage employees avoid some of the penalties for not providing health insurance coverage.
“There are gaps in the regulations that have allowed the insurance industry to create products to address this issue,” said Daniel L. Meracle, a partner at Benefitdecisions, Inc.
Smart Business spoke with Meracle about which health benefits solutions make sense for businesses in the hospitality industry.
What plans are available to address the need for companies to avoid penalties while controlling costs?
The ACA does not mandate that doctor or hospital visits, prescription drugs or laboratory services be included in the definition of minimum essential coverage (MEC). MEC is what employers are required to provide or pay a penalty of $2,000 per employee, minus the first 30 employees.
Also, self-funded plans do not have to offer coverage for any of the 10 essential health benefits. However, all group health plans must provide ‘recommended preventative services’ at 100 percent with no deductible, copayments or coinsurance. That leaves an opportunity for self-funded MEC plans that provide unlimited coverage for preventive services as the only benefit.
MEC plans are funded at the maximum liability level of about $50 per person, per month. An employer can have the employee pay the entire $50 premium or the employer can pay part or all of the premium. Just by offering MEC to employees, the employer avoids the $2,000 penalty while meeting the employee’s requirement for having coverage, so the employee isn’t liable for the individual mandate of $95 or 1 percent of income, whichever is greater.
In addition to the MEC, employers can add another layer of benefits by providing a limited medical plan that pays first dollar, meaningful benefits for emergency room, doctor’s office visits and prescriptions — the expenses that really impact the budgets of lower wage employees. Those plans start at $50 to $80 a month, and employers can have employees pay all or nothing.
Even if employees pay the entire cost, they can benefit by using pretax dollars if the plan is offered by the employer, rather than purchasing the coverage individually.
But wouldn’t the limited medical plan option still leave companies liable for penalties related to minimum value and affordability?
Yes, an employer would need to offer the next level of coverage, which is a minimum value plan, or be subject to a $3,000 penalty if an employee purchases a plan on the exchange and receives a subsidy. To meet the affordability test, the employee must pay no more than 9.5 percent of his or her income for the employee-only coverage.
However, you’re dealing with a smaller pool of employees at this point because, even at 9.5 percent of income, it’s going to cost the employee about $2,000 a year for a plan that has a deductible that ranges from $2,000 to $6,000. Employees will not see the value in that, since their contribution and the deductible will represent more than 45 percent of take home pay and they will decide to pay the individual penalty or take the MEC.
Therefore, many employers will stop after the first two options — MEC and limited medical benefits — and risk the liability of the $3,000 penalty because they will not be affected by that many employees. If you start with 10,000 employees and wind up with several hundred that actually go to the exchange, get coverage and receive a subsidy, you’ve reduced your liability tremendously from having to pay $2,000 per employee for all employees.
Even if the employee goes to the exchanges and receives a subsidy, their remaining cost for the plan and the same deductible levels of $2,000 to $6,000 will be a large portion of their take home pay, so many of them will not purchase the coverage in the exchanges either.
A number of insurance carriers have developed MEC and limited medical benefits plans because they see tremendous market potential in them. ●
Insights Employee Benefits is brought to you by Benefitdecisions, Inc.