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Article written by Ron Sanders and originally posted on

KENTUCKY (8/5/15) — On Jan. 1, employers and employees are facing much higher health care premiums, regulations and paperwork.

The greatest cost impact will be to employers with 50 to 99 employees who will face new Affordable Care Act requirements.

Insurance companies are predicting a deluge of new plan applications as thousands of small companies attempt to sign up their companies and employees. One insurance agent said that his company is expecting 20 to 30 times the number of new applications over Jan. 1, 2015 when employers with 100 or more Full Time Equivalent employees were mandated to supply coverage. Employers planning to offer health care insurance on Jan. 1, 2016 should not wait to begin the process.

Failure to understand the rules and have a strategy for compliance can have serious financial consequences to a business and its employees. Employees of such companies may have to pay more for coverage.

Employers will want to understand the new plan designations under the ACA. Minimum Essential Coverage and Minimum Value Plans are confusing. MEC covers some “first dollar” wellness coverage; and, MVPs have very high deductibles for hospitalization, doctors, prescriptions and lab work.

One hospital executive told SurfKY News that the $5,000 and $6,000 deductibles were creating problems because “our patients don’t have that kind of money”. High deductible plans are cheaper to the employer but an employee that has a large claim must spend thousands of dollars on health care before meeting the deductible and the plan kicks in.

When signing up employees for a new plan next year, employers need to let employees know that (if the employee is being covered under a state exchange i.e. KYNECT) he or she will lose eligibility to receive subsidy benefits in the exchange. Employees (especially with families that need coverage) may want to reject employer coverage and sign up for a plan in the state exchange.

Under such scenarios, the employee will not be able to get a subsidy but family members may be eligible. Furthermore, the employee may have a much lower deductible in the exchange for similar premium costs.

For 2016, many insurance companies are requiring employers to “auto enroll” and pay 100 percent of a Minimum Value Plan. If an employee wishes to have better coverage, employers may require employees contribute a portion or all of the additional premium.

The plan chosen by the employee cannot cost the employee more than 9.5 percent of an employee’s household income, the employer must pay the premium over the 9.5 percent threshold; otherwise, that employer could face a fine of $3,000 (called the B penalty) if that employee applies for a subsidy in a state exchange.

Employers (with 50 or more employees) that choose not to provide coverage that meets MEC will face fines of $2,000 (called the A penalty) per employee after a 30 employee grace.

For example, an employer with 65 employees who does not offer coverage will be fined for 35 employees (65 – 30) at $2,000 per employee or $70,000 for the year. That fine is not deductible from federal income taxes.

Insurance companies are getting new data on another provision of the ACA – no caps on annual or lifetime benefits. Insurance companies are experiencing some very large claims a few of which will cost millions of dollars each.

Some low cost plans are forecast to double in January. Employers overall are more optimistic predicting a 10 percent premium increase next year. Time will tell which is correct.

A third big cost driver is the tax on the so called “Cadillac Plans.” This is a 40 percent non-deductible tax on health care plans costing $10,200 or more for individual coverage or $27,500 for family plans regardless of the cost split between the employer and employee.

A fourth cost driver is the reporting requirement. Employers with over 50 employees must give each employee Forms 1095-C (the statements for 2015) no later than Feb. 1, 2016 (Jan. 31, 2016, being a Sunday).

These same employers must file 1094-C and 1095-C reports with the IRS for the 2015 calendar year no later than Feb. 29, 2016 (or March 31, 2016, if filed electronically). The required IRS forms must contain data tracked month-to-month in 2015, detailing employees’ hours worked as well as employees’ access to employer-provided health care and employee contributions to employer-provided health care. Companies failing to make required reporting will face additional penalties over the A and B.

Staffing companies are among those employers affected by the changes. John Rutledge Sr., vice president of Assurance Agency’s Staffing Practice, had some advice that is important for all employers:

“The most important items staffing firms need to pay attention to are, 1. selecting an option early – by Sept. 1 or shortly thereafter. There are options for staffing firms but not many, and the health insurance industry will experience unprecedented volume the last four or five months of the year; (2) pay attention to how catastrophic claims will be handled under each option – with the possibility of one or more catastrophic claims, it’s important to understand the implication; and, (3) make a decision right now on how you’ll handle the ACA reporting – this can be outsourced and it will be expensive but many vendors, who do this, are already beginning to turn business away. Many, many staffing firms will find themselves unable to get help with this very important item if they don’t act now.”

For employers with 100-plus full-time employees or part-time equivalents, penalties for noncompliance with the ACA’s requirements will be assessed in 2016 based on 2015 data. For those with 50 to 99 full-time employees/equivalents, penalties will be assessed in 2017 based on 2016 data.

In conclusion, employers need to begin planning for 2016 to be in compliance and establish a clear strategy to control costs.

Employers should be prepared to educate their workforce about upcoming changes. Employees can then make better decisions and enjoy significant savings.

Ron Sanders
SurfKY News Group, Inc.