As it relates to Applicable Large Employers and their requirement under the Employer Shared Responsibility provisions of the Affordable Care Act, medical coverage must be ‘affordable’ and meet minimum value established under the law. There are many additional caveats around affordability.
Affordability refers to the employee premiums for self-only coverage for the lowest-cost plan offered by the employer and must not exceed the affordability threshold for the taxable year. See our Benefit Limits page for these statistics.
Since employers are not likely to know employees’ household incomes, employers have several safe harbors they may use to establish their employee premium costs to comply with the rules:
- W-2 wages.
- Rate of pay
- Federal Poverty Line
Aggregate Stop Loss
A policy that can be purchased by an employer who is self-funding health benefits to cover the entire cost of all claims for all covered members on their health plan. It is impacted by plan design, provider reimbursements, the age/gender demographics of the population to be covered as well as any specific stop loss purchased.
It commonly reimburses the employer anything over 110% to 125% of the expected costs after the end of the group’s policy period. It can be purchased in a variety of coverage periods going back in time or forward in time for 3, 6, or 12-month increments (sometimes even longer). Groups can also purchase an option to get short-term loans for claims that exceed monthly limits.
Applicable Large Employer
As defined by Health Reform legislation, an Applicable Large Employer is any company (including IRS control groups) that has averaged 50 or more full-time employees or full-time equivalents. The number of hours and calculations are defined by law.
Applicable Large Employers must comply with ACA reporting on an annual basis and are subject to ACA penalties related to offering health insurance to eligible employees and under certain conditions.
Average Total Number of Employees (ATNE)
ATNE is a method of counting employees used by insurers to establish the quoting segment (small or large group) for a given employer group. ATNE refers to the sum total of ALL employees, regardless of full or part-time status and eligibility for the benefit.
The Cadillac Tax refers to a tax component of the ACA that has been delayed until 2022. At that time, an excise tax of 40% will be imposed on employer-sponsored health coverage over certain thresholds regardless of whether it is employer or employee-paid if it is coverage excludable from the employee’s gross income. The current proposed annual thresholds are $10,200 for single and $27,500 for family coverages. Amounts in excess of the thresholds would be subject to a further 40% tax. Exceptions include “qualified” retirees and high-risk professions such as those employed to repair or install electrical or telecommunication lines.
The liability for paying the tax on Fully Insured Group Health Plans is on the health insurer. Employers are liable for contributions to Archer Medical Savings Accounts or HSAs. For any other applicable employer-sponsored coverage, the “person that administers the plan benefits” must pay the tax.
As federal agencies have not issued any proposed regulations, there are many outstanding questions on how this tax will work. For example, the annual threshold is based on the EMPLOYER’s entire benefit package of which the health insurer may not be aware and may only handle the medical portion but the rule requires the tax be paid by the insurer which could impact ancillary coverages like dental, vision, life, and disability.
Also referred to as Section 125 plans, Cafeteria Plans offer employees a choice of paying for benefits from their paycheck on an annual basis. The employer and their employees have tax advantages for doing so but also have to follow rules for any changes made to those elections. These plans are also required to have a written document outlining this called a “POP document” or “Premium Only Plan” or “Premium Conversion Plan” document.
Cafeteria Plans cover:
- Full Flex Plans or Defined Contribution Plans: employees are given a set amount of money from the employer to apply to a variety of plans and benefits. Employees pay the difference of any remaining costs or receive remaining amounts as compensation.
- Premium Only Plans: permits an employer and its employees to pay for benefits on a pre-tax basis.
- Flexible Spending Accounts.
Prior to ACA, employers could reimburse employee premiums for individual coverage under this rule. In October 2018, the Trump Administration issued guidance that this would change sometime in 2019. Look for more on this as time goes by.
Community Rating (Community Rated)
Community Rating is a method of pricing health insurance without respect to the health condition(s) of the group or individual(s) to be covered. All small group ACA Plans are underwritten in this manner and some Association Plans. Insurers file their premiums for the upcoming year with each state’s Department of Insurance who must approve the rates.
Employee Retirement Income Security Act (ERISA)
ERISA protects the interests of employee benefit plan participants and their beneficiaries. It places requirements on plan sponsors to provide certain plan information to participants, establishes standards of conduct for plan managers and other fiduciaries, establishes enforcement provisions to ensure plan funds are protected and that qualifying participants receive benefits, even if a company goes bankrupt.
Specific to health benefits, this law:
- Established the ability for employers to offer self-funded health plans
- Required plans to provide information about the plan and its funding to participants including Plan Documents
- Provides responsibilities for those who manage and control plan assets
- Requires a grievance and appeals process for participants and gives the right for people to sue for benefits or breaches of fiduciary duty.
- Amendments since it was passed in 1974 include: ACA, COBRA, HIPAA, the Newborns’ and Mothers’ Health Protection Act, the Mental Health Parity Act, and the Women’s Health and Cancer Rights Act.
ERISA doesn’t generally apply to plans maintained by Federal, State or local governments or churches.
Employer Shared Responsibility
Applicable Large Employers are subject to “pay or play” rules for offering affordable health insurance that meets minimum value for full time employees and their dependents or they will be subject to penalties. See our Benefit Limits page for the most recent penalty amounts and affordability percentages by year.
Family Medical Leave Act (FMLA)
FMLA refers to Federal legislation requiring that certain employers provide eligible employees with unpaid, job-protected leave due to specific family and/or medical reasons. This rule typically applies to employers with fifty or more employees but some additional rules apply.
In addition to federal legislation, many states have passed additional leave rules of their own. Some of the state rules apply to employees who reside in those states regardless of where the employer is located.
ERISA laws outline specific duties and responsibilities for plan sponsors, administrators and decision makers who control, are responsible for, or have discretionary authority over the administration of an employee benefit plan especially as it relates to the handling of funds to pay for such benefits. Although this typically refers to 401(k) and other types of pension plans, it relates also to health insurance coverage since employees are often funding a portion of the premium costs.
Fiduciaries are responsible for running the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and paying plan expenses. They must act prudently and minimize the risk of large losses and avoid conflicts of interest. They must follow plan documents to the extent plan terms are consistent with ERISA.
Briefly, Form 5500 is an employer filing required for every pension, 401(k), and welfare benefit plan. “Welfare Benefit Plans” refers to any health benefit offered to employees (medical, dental, vision, disability and life coverages). For Welfare Benefit Plans (ie Health Benefit Plans), 5500s are generally NOT required for groups under 100 participants at the beginning of the plan year except in limited instances. More information can be found here. Look for instructions and “Plans Exempt from Filing.”
This definition relates to how the ACA defines Applicable Large Employers. If an employer has at least 50 full-time equivalent employees, they are subject to the Employer Shared Responsibility and Employer Reporting Requirements under ACA.
Full Time Equivalents are counted in two ways and the sums added together as follows:
- The number of full time employees in each month who were paid for 30 hours or more per week (or 130 hours of service for the month).
- The total hours of service by month (but no more than 120 hours per employee) for all who were not full-time for that month and divide by 120 hours.
Health Insurance Portability and Accountability Act (HIPAA)
HIPAA touches a variety of aspects of HR, including employee health coverage, wellness programs, and general privacy protection requirements whether written, printed or electronic.
Health Maintenance Organization (HMO)
An HMO is a type of health plan that usually limits coverage to care from doctors and hospitals who work for or contract with the HMO. These plans are typically the lowest cost due to more control of health expenses. Here are some examples of how some (but not all) HMOs work:
- They often do not cover out-of-network care except for emergencies, out-of-area, or pre-approved services not typically available in-network;
- Requiring referrals from a Primary Care Physician to Specialists or to get other services. Also referred to as “gatekeepers.” (The opposite is “Open Access” which often means no PCP referral is needed to get care at higher levels.)
- Proactive Care Coordination between Primary Care Physicians who quarterback patient care.
- Reimbursements to the providers based on quality measurements and improvements in patient health.
- Usually requires physicians seek prior authorization for more services.
High Deductible Health Plan (HDHP)
An HDHP often refers to a plan that meets the criteria to permit an employee to contribute to an HSA; however, it is now much more common for PPO plans to have high deductibles. To distinguish between PPO plans and HSA-compatible plans, the term “Qualified High Deductible Health Plan” or QHDHP is often used for the HSA-compatible plans.
Medical underwriting refers to an insurance company practice of evaluating a group based on the current health status of its participants. An underwriter will determine whether coverage under the product will be made available and at what cost.
Medicare Part D Creditable and Non-Creditable Coverage Disclosure Notices
The Medicare Modernization Act requires employers to notify Medicare eligible members whether their prescription drug coverage is ‘creditable’ or not. Creditable means that the coverage is expected to pay on average as much as the standard Medicare prescription drug coverage. There are two disclosure notices: one to participants by October 15th and an online disclosure to the Centers for Medicare and Medicaid Services (CMS) 60 days from the beginning of the plan year.
Multiple Employer Trust
Similar to a MEWA which can operate under a trust agreement, a MET is often distinguished from a MEWA in that it’s a plan run by a union on behalf of its members. The union employees are responsible for administering, budgeting and maintaining benefits under the plan using agreed-upon stipends provided by companies employing the union workers. This ensures stability of coverage for many union employees who may work for multiple employers throughout a given year.
Offer of Coverage
Employers who are Applicable Large Employers (ALEs), those who averaged fifty or more Full-Time Equivalent employees during the prior calendar year, are required to show proof they offered coverage to eligible employees if requested by the IRS or they may be subject to penalties. An Offer of Coverage can be:
- An election form signed by the employee during open enrollment or when they become eligible;
- A carrier application completed by the employee; or
- A completed electronic form.
Each insurance carrier determines the participation requirements under which a proposal is given. These requirements are filed with each state’s department of insurance and cannot be negotiated or manipulated. Most small group MEDICAL carriers require a minimum of 50% participation or 75% participation after valid waivers. A valid waiver is someone who has other health insurance coverage. The carrier also defines what it considers to be a valid waiver and this can vary from carrier to carrier.
A plan with many waivers is considered higher risk because it’s assumed employees have no other coverage available and won’t buy coverage unless there is a condition for which they need insurance instead of paying premiums as they go. (This is why insurers used to have pre-existing condition clauses that could be waived if the person maintained continuous coverage prior to joining the new plan. This is no longer permitted for medical plans under ACA rules but still remains for other types of health insurance, such as dental plans.)
In the medical small group market, insurers have set requirements needed in order to offer coverage. Small groups that do not meet participation can purchase ACA Plans for a January 1st effective date as long as their application is received by the official deadline (typically November 15th to December 15th each year).
In larger groups (51+) that are medically underwritten, low participation is calculated into the cost of the offered proposal or a carrier may opt not to offer coverage at all.
Self-funded quoting typically require 75% participation of eligible employees excluding valid waivers.
Bottom line, it’s important to track the reasons that employees waive coverage. This may provide more alternatives for your group during the quoting process.
Patient-Centered Outcomes Research Institute Fee
The Affordable Care Act imposes a fee on certain health insurance policies and self-funded plans to help fund the Patient-Centered Outcomes Research Institute. This fee applies to policy or plan years beginning on or after October 1, 2012 and ending before Oct 1, 2019. The filing and its fees are due by July 31st.
The Institute itself was established to fund research studies into Patient-Centered Medical Homes and Accountable Care Organizations.
For more information on filing and forms.
All group health plans governed by ERISA require the employer to have a written Plan Document and Summary Plan Description. These documents cover:
- Eligibility rules, special enrollments, nondiscrimination provisions, and portability
- Responsibilities and contacts for each portion of the plan including the plan sponsor and named fiduciary.
- Claims procedures and covered benefits including appeals
- Other required language and notices
People often assume the fully insured policy is their plan document; however, these only outline the insurer’s responsibilities for the coverage offered. It often only addresses state requirements, benefits covered, and claims procedures. It doesn’t address employer-specific eligibility rules or ERISA-required provisions and disclosures. A policy can be part of the plan document but must be have a ‘wrap document’ adding the required language to comply with ERISA.
A policy is a document issued by an insurance carrier that details the terms and conditions of a contract for insurance.
Preferred Provider Organization (PPO)
Preferred Provider Organizations (PPOs) refer to either a health plan that contracts with a PPO or a list of providers that contract with an entity creating a network of providers by the same name. Health Plans can use HMO, PPO, POS or EPO networks and will often refer to themselves as a HMO plan or PPO plan, depending on the type of network used. Members who use the services of an in-network PPO provider pay less in out of pocket expenses through a combination of better plan benefits and contracted discounts off of fees.
Qualified High Deductible Health Plan
A plan that meets the criteria needed to contribute to an HSA. It must meet the minimum deductible, maximum out-of-pocket limits, and apply all except preventive services to the deductible first.
The industry definition of small group is an employer with 50 or fewer employees in the prior calendar year. Some carriers use the Average Total Number of Employees, regardless of part-time or full-time status, to determine group size.
Stop Loss Insurance
Stop Loss Insurance is a general term referring to the type of insurance policy purchased by employers who decide to self-fund their health coverage. It commonly includes Specific Stop Loss and Aggregate Stop Loss coverage. It can be purchased in a variety of coverage periods going back in time or forward in time for 3, 6, or 12-month increments (sometimes longer).
Summary of Benefits and Coverage (SBC)
The SBC is a document describing benefits and coverage under a given plan including cost-share requirements, coverage limits and definitions. It is required by ACA to be distributed to all plan participants at these times: prior to initial enrollment, at renewal, within 90 days of special enrollment and within 7 business days of request.
Summary Plan Description (SPD)
The SPD is an ERISA-required document (also discussed under Plan Documents) providing plan participants with information about their rights, benefits, and responsibilities under the plan.
Third-Party Administrator (TPA)
Specific to health benefits, a TPA is a company that contracts with employers to administer portions of their self-funded health benefit programs. They typically process claims, answer questions from members and administer the plans according the Summary Plan Description. They typically offer a great deal of plan design, banking and reporting flexibility.
ERISA requires all private sector employers, regardless of size, to automatically distribute a Summary Plan Description (SPD) to all plan participants free of charge.
Insurance companies provide a booklet or certificate that explains the benefits. However, most booklets and certificates do not comply with the ERISA requirements applicable to SPDs. The easiest way for employers to comply with ERISA is to adopt a Wrap Document.
A Wrap Document is a document that ” wraps” around the insurance policy, certificate or booklet so that the plan sponsor can comply with ERISA. Basically the Wrap document fills in the gaps left by the insurance carriers so that the employer complies with ERISA requirements applicable to SPDs. In other words, most insurance company’s documents do not include ERISA required SPD language.