Small Firms’ Offer of Plan Choices Under Health Law Delay

By Ric Joyner, MBA, CEBS, GBA, CFCI and the article is from the New York Times

Does this now mean that HHS, CMS and Treasury will reverse or put on hold the regulations stopping pre-taxing of premiums within Section 1515 and HRAs for individual premiums? Well, it appears so, whether or not they do so formally. Why? Because group plans can still pre-tax premiuims even if policies were purchased  in a government exchange, and now that the exchanges and subsidies won’t be ready come 2014 for small group, it leaves the door open for continuing down the small group route of defined contribution strategies deployed by  some agents. One particular strategy is “dump group-replace with individual”, because of the no underwriting within ACA after 2014. Think about it. Insurance is now portable and employees can take it with them upon leaving employment, assuming all goes according to plan after 2014 (wink). But the gliches with exchanges and ACA as dates approach, and pressure is applied, are amplifying.  An  example is listed in the below article.

“Replace the Group with Individual”,  isn’t a bad strategy if used in the right employer,  such as a fast food franchises. But replacing group for the sake of Defined Contribution, and greater potential commissions, perhaps is not in the best interest of the employees or employers. The ethos of the agent will decide which path and what are the reasons behind the decisions to go with either straight defined contribution or dump the group for individual policies.  Regardless, now that there is a delay, both defined contribution strategies are still avaiable. However, regarding individual premiums in a government exchange, where subsidies are given, there is still a prohibition in place by the mentioned regs for individual premiums through and exchange and getting subsidies are prohibited. But now that the small group exchanges are delayed will the IRS/HHS back off? “Hey Ric, you kind of wandered in this last paragraph….don’t get me wrong…the pontificating was helpful, but what is the other option for defined contribution that agents use?”  Agents use other forms of Defined Contribution as a funding mechanism for employee choice. Employee choice in benefits is created with a menu of selections for employees to spend employer funds. After choices are made and employer money is applied, the employee can use their own money pre-tax to pay for the benefits. Once choices are made by the participants, software like ours, will help employees run “paycheck and tax savings models”.  These type of defined contribution strategies are long term, rather than shorter term and good ones for everyone involved. In the past, another lingo was used for these plans and it was called “true cafeteria plans”. Now they are dusted off and are Defined Contribution Plans. Where is my palm pilot? Sorry musing in the past.

But the door is still wide open for individuals to purchase insurance and pre-tax it  in a section 125 PRA or HRA, as long as the exchanges and subsidies are not avaiable. Until such time as exchanges are ready,  both options of defined contribution for small group and individuals can still be used as effective programs. But remember with the dump the group, and provide individual coverage, there are a host of mine fields to get through. Names like ERISA, HIPAA and HHS come to mind. Confused? I am not. But then again, I read this stuff out by my pool for fun!


April 3, 2013


New York Times

Unable to meet tight deadlines in the new health care law, the Obama administration is delaying parts of a program intended to provide affordable health insurance to small businesses and their employees – a major selling point for the health care legislation.

The law calls for a new insurance marketplace specifically for small businesses, starting next year. But in most states, employers will not be able to get what Congress intended: the option to provide workers with a choice of health plans. They will instead be limited to a single plan.

The choice option, already available to many big businesses, was supposed to become available to small employers in January. But administration officials said they would delay it until 2015 in the 33 states where the federal government will be running insurance markets known as exchanges. And they will delay the requirement for other states as well.

The promise of affordable health insurance for small businesses was portrayed as a major advantage of the new health care law, mentioned often by White House officials and Democratic leaders in Congress as they fought opponents of the legislation.

Supporters of the law said they were disappointed by the turn of events.

The delay will “prolong and exacerbate health care costs that are crippling 29 million small businesses,” said Senator Mary L. Landrieu, Democrat of Louisiana and the chairwoman of the Senate Committee on Small Business and Entrepreneurship.

In the weeks leading up to the passage of the health care legislation in 2010, Ms. Landrieu provided crucial support for the measure, after securing changes to help small businesses.

The administration cited “operational challenges” as a reason for the delay. As a result, it said, most small employers buying insurance through an exchange will offer a single health plan to their workers next year.

Health insurance availability and cost are huge concerns for small businesses. They have less bargaining power than large companies and generally pay higher prices for insurance, if they can afford it at all.

The 2010 law stipulates that each state will have a Small Business Health Options Program, or SHOP exchange, to help employers compare health plans and enroll their employees.

One of the most important tasks of the exchange is to simplify the collection and payment of monthly premiums. An employer can pay a lump sum to the exchange, which will then distribute the money to each insurance company covering its employees.

The Obama administration told employers in 2011 that the small business exchange would “enable you to offer your employees a choice of qualified health plans from several insurers, much as large employers can.” In addition, it said, the exchange would “consolidate billing so you can offer workers a choice without the hassle of contracting with multiple insurers.”

Exchanges are scheduled to start enrolling people on Oct. 1, for coverage that begins in January. However, the administration said that the government and insurers needed “additional time to prepare for an employee choice model” of the type envisioned in the law signed three years ago by President Obama.

D. Michael Roach, who owns a women’s clothing store in Portland, Ore., said the delay was “a real mistake.”

“It will limit the attractiveness of exchanges to small business,” he said. “We would like to see different insurance carriers available to each of our 12 employees, who range in age from 21 to 62. You would have more competition, more downward pressure on rates, and employees would be more likely to get exactly what they wanted.”

John C. Arensmeyer, the chief executive of Small Business Majority, an advocacy group, said that the delay of “employee choice” was “a major letdown for small business owners and their employees.”

“The vast majority of small employers want their employees to be able to choose among multiple insurance carriers,” Mr. Arensmeyer said.

Small Business Majority supported Mr. Obama’s health care law.

That support was invaluable to Democrats who pushed the bill through Congress. Representative Nancy Pelosi of California, who was speaker at the time, cited the group’s research as evidence that “small businesses will benefit from health insurance reform.”

However, in recent weeks, insurance companies urged the administration to delay the employee choice option.

“Experience with Massachusetts has demonstrated that employee choice models are extremely cumbersome to establish and operate,” the health insurer Aetna said in a letter to the administration in December.

Insurers said that the administration was partly responsible for the delay because it did not provide detailed guidance or final rules for the small-business exchange until last month.

Businesses with up to 100 employees will be able to buy insurance in the exchanges. In 2014 and 2015, states can limit participation to businesses with 50 or fewer employees. Companies with fewer than 25 workers may be able to obtain tax credits for up to two years of coverage bought through an exchange. States can open the exchanges to large employers in 2017.

A few states running their own exchanges, including California and Connecticut, said they planned to offer an employee choice option next year, though it was not required by the federal government.

A stated goal of the 2010 law was to increase “consumer choice” and stimulate competition among insurers.

The law makes it easier for consumers to compare health plans by defining four standard levels of coverage, ranging from the least to the most generous. The law says an employer can pick a level of coverage and then allow employees to choose among all the health plans available at that level.