No 12/1 Strategy for Large Employers

In 2013, many of the small employers that chose to continue offering health coverage to their employees moved their renewal date to December 1st in an effort to delay the full impact of the Affordable Care Act as long as possible. In the small group market, which consists of employers with 50 or fewer employees in most states, the 2014 rule changes will result in big rate increases for many of these groups because of the new essential benefits that must be included in small group plans, the new cost-sharing limitations, including a $2,000 maximum deductible, and the new modified adjusted community rating standards.

Groups with 51 to 100 employees are now in the same boat as companies with 50 or fewer employees were this last year because, starting in 2016, the definition of “small group” for plan design and rating purposes changes to 1-100 employees. This means that a group with 75 employees would be treated as a large employer in 2014 and 2015 but as a small employer in 2016. So, to help their clients avoid the possible skyrocketing premiums that could kick in when they become a “small group,” some brokers have been recommending that these groups also move their effective date to December 1st – that way, in theory, the new small group rules wouldn’t apply to them until December 1st, 2016.

Unfortunately, that strategy won’t work for many of these mid-size employers. That’s because, in order to take advantage of some transitional relief that’s provided in the final rules on the employer shared responsibility requirements, these companies are not allowed to push back their effective date. Basically, if they keep the same effective date that they had on December 27, 2012, then groups with 50-99 full-time-equivalent employees (FTEs) can wait until their anniversary date in 2016 to start offering affordable coverage to their employees. But if, anytime after December 27, 2012, they move their effective date to a later month, they don’t qualify for this relief.

Similarly, larger employers with 100 or more FTEs that have non-calendar-year plans (plans that don’t start on January 1st) could also qualify for transition relief that would help them avoid any employer mandate penalties until their renewal date in 2015, but, again, changing their effective date could disqualify them.

Here’s what the final regs say:

d. Requirement of No Change to Plan Year

The transition guidance for applicable large employer members sponsoring non-calendar year plans set forth in section XV.D.1 of this preamble are available for a non-calendar year plan only if that plan’s plan year was not modified after December 27, 2012, to begin at a later calendar date. For example, if, as of December 27, 2012, an applicable large employer member sponsored a non-calendar year plan with a plan year starting on July 1 and later changed the start of the plan year to December 1, the transition guidance for applicable large employer members sponsoring non-calendar year plans set forth in section XV.D.1 of this preamble would not apply.

Guidance for Brokers

For brokers who are trying to advise these large employers, they need two things:

1) A thorough understanding of the final rules so they can answer their clients’ questions.

2) A tool to help their clients determine the impact of the legislation not only on their bottom line but also on their employees. Ultimately, both of these will factor into the employer’s strategy – or at least they should.

To help with your understanding of the law, HPA will continue to post relevant information that will help you learn about the most important provisions in the law. And to help you provide actionable information to your clients, HPA has a new tool available called the Insight Catalyst Report (ICR), which provides employers with the guidance they need to make an informed decision. To learn more, please sign up today for one of our upcoming webinars.

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