By Bill Ford, CLU JD CPCU ARM AAI CIC

The PPACA hereinafter referred to affectionately as Obamacare, has created a sea change in how to deal with the whole problem, structure and cost of employee health benefits. This paper will review the impact and options available to employers in two parts. The first segment deals with employers having less than fifty employees. And the next segment will discuss the 50 and over employee employer.

Obamacare has no impact on small employers. They are not required to offer any benefit under the law. Any small employer that elects to offer benefits is doing so voluntarily. The reasons for considering this include but are not limited:

1.      Attract and retain better employees,

2.      Provide benefits because it is a moral obligation or desire,

3.     Offer tax free income equivalent to the employees through benefits, 

4.     Include compensation that is tax deductible as a business expense to the employer and,

5.      Avoid FICA, and SUTA .

The under 50 employer may purchase group insurance. This is not recommended because group is the most expensive option to consider. Group is sold as the cheapest on the basis of group buying power generating better terms and conditions. This is incorrect and untrue. Insurance is risk pooling and the operation of large numbers. A group is a small risk pool that does not have the advantage of predictability because it is not large enough as a group to meet the law of large numbers. This leads to excessive cost and group always has this as a problem and this flawed structure and platform cannot overcome.

Another option is a HRA type approach where the employer creates individual HRA accounts and places funds in those accounts for the employee to use to purchase their own insurance. These individual policies are cheaper than group and the employer has more certainty of cost and expense. The problem with this is what the employee may or may not buy. There will be material differences on the coverage they procure. Any return or refunds on claims go to the employee’s HRA account and are lost to the employer. Depending on plan structure this may become a real headache for the employer.

The third approach is to try and self insure. Cigna and other carriers are pushing this on employers with as few as twenty five employees. Their structure provides the employer with a known minimum and maximum out of amount they will have to pay in the plan year. This is somewhat analogous to a paid loss retro in property and casualty. The problem is the cost to do this verses buying individual policies is very great and returns the employer into the same affordability problem they have with group plus the exit strategy is potentially more costly, demanding and time consuming.

The fourth approach is to create a 105 plan document. This is referred to as a MERP or Medical Expense Reimbursement Plan. This document represents the promises the employer makes to the employees for the benefits they will provide them. The plan then is funded by primary individual high deductible health insurance policies using a $5,000 deductible. The employer then provides additional coverage underneath this primary card through a secondary card that pays the supplementary benefits when covered claims occur. This second card is funded by the employer from savings realized by buying the individual policies instead of purchasing group coverage. Any employee withholding is applied to the individual policy premiums. If the small employer is under five participants or so,  lower the primary deductible to limit exposure under the secondary payment card. 

Each employee has two cards they present for service. The first establishes the billing codes and reimbursement rates. The second pays for claims below the primary card deductible subject to the 105 plan document limitations and structure. This approach saves $3,000-$4,000 over the self insured or group approaches. It may not save as much compared to the HRA alternative but it does insure every employee receives the same group benefit instead of a fixed contribution.  

The employer drives any employee who qualifies for subsidy on the exchange to the exchange and purchases the policy for them there. The employer then receives the tax subsidy less whatever withholding they collect from that employee. This is another cost reduction strategy that the small employer can use to their benefit. These subsidies are triggered when the employee is within 400% of the federal poverty level of income. For 2013 this number of a family is as follows:

A family of four then has to have an income greater than $94,200 to lose their eligibility for a subsidy on the state exchange. This is why the employer should use a 105 plan document and drive the ones with income less than this amount to the exchange then claim the lion’s share of the subsidy on their tax return. An example of how a small employer can make Obama Care work for them.

Any employee reaching age 65 goes into Medicare which the employer can pay plus the employer can also elect to pay for a Medicare supplement. Under group this is not allowed.

The under 50 employer is a winner from Obama care if they implement the 105 plan structure as outlined in option 4. It enables them to attract and retain key employees with a good and affordable group health plan. If the employee leaves the employer simply hands them their policy and they assume the next monthly payment. No more experience rating of the group and no more Cobra premiums and losses.

The employer can decide if they wish to provide benefits or not. If they decide not to there is nothing else they need do. If they choose to provide them then using this approach is far and away the most cost effective vehicle and the greatest value available.

For additional information, contact Bill at cford1331@yahoo.com or 770 485 8104