Moving toward Affordable Care Act compliance

One year ago I spoke to employers about the U.S. Supreme Court decision regarding the Affordable Care Act (ACA). My clients were, like me, surprised by the court’s decision to uphold the health care reform law. Yet employer groups in general were still hopeful that the November elections would lead to a repeal of the law and thus remove one more potential worry from their list.

That did not happen, and starting in January 2013, the view regarding ACA implementation for many employer groups morphed from moderate interest to outright panic. As 2013 continues to unfold, there are still more questions than answers as to how employers and employees will respond to the law’s various provisions.

One of the biggest questions relates to the cost of coverage that will be available in Wisconsin’s federally operated insurance marketplace. Speakers at a recent health insurance marketplace summit sponsored by the Wisconsin Institute for Public Policy and Service (WIPPS) assured the audience that at least one insurer would offer coverage in the marketplace in each region of Wisconsin. Yet speakers also warned of increased premium costs because of various ACA provisions. Speakers reminded the audience, however, that coverage offered in the marketplace will likely be more comprehensive that most current plans, which may help justify a premium spike.

Another question that still awaits an answer is whether the marketplaces will be fully functional and accessible to Wisconsin consumers. The federal government has assured us that the marketplace will be operational as of Oct. 1, 2013. However, speakers at the WIPPS summit repeatedly expressed expectations of marketplace “clunkiness” and “glitches.” Coupled with uncertainty about how informed Wisconsin consumers will be about the marketplace, it is difficult to predict its ultimate success.

All this uncertainty creates complications for employer groups in evaluating their role in providing employee health coverage. Despite these complications, employer groups can take steps to move toward compliance with the ACA. Here are some considerations by employer size:

Small employers (<50 FTE employees): There is no question that these organizations will be able to offer employees coverage in the health insurance marketplace. Wisconsin will have two “marketplaces”: the federally facilitated marketplace through which employees who have incomes between 100% to 400% of the federal poverty level can qualify for cost-sharing subsidies and premium assistance, and the marketplace outside the federally facilitated marketplace, which the Wisconsin insurance commissioner expects to be strong. Small employers should also determine whether their businesses qualify for tax credits for providing employee health coverage. The tax credit increases from 35% to 50% in 2014. More information about the tax credit is available at



Medium-sized employers (50 to 100 FTE employees): Employers who fall within this category or expect to fall within this category very soon have the most challenging decisions to make. These employers fall within the “pay or play” provision of the ACA, which means that if one of their full-time employees receives financial assistance through the marketplace, the employer could pay a financial penalty of between $2,000 and $3,000 per full-time employee, depending on the coverage offered and some other conditions. Employers in this category that already offer employee health coverage must determine if that coverage meets the ACA’s “affordability” and “minimum value tests” (i.e., it costs the employee no more than 9.5% of the employee’s household income and the employer pays for at least 60% of the cost of coverage).

If the employer’s coverage meets that test, the employer must decide whether it will continue to offer that level of coverage. Such employers may also consult with an insurance broker about an early renewal of the current policy to delay ACA implementation. Other available options are similar to those options being considered by employers that do not offer any coverage. These other options may include becoming self-insured, offering bare-bones coverage, offering wellness plans or in-house medical services, or paying the penalty. As to this last option, speakers at the WIPPS summit did not believe there would be a mass exit by employers offering health coverage to the extent those employers traditionally offer coverage and rely on a very skilled workforce.

Large employers (>100 FTE employees): Of the three groups of employers, this group seems to have the least concerns about ACA implementation, at least currently. However, insurers have expressed concern that premiums will likely increase for all policies. Although we will not know the extent of that increase until later in 2013, there are steps that large employers can take to reduce employee health coverage costs in the future. One of those steps is jumping on the employee wellness bandwagon by taking advantage of the expanded incentives under the ACA for encouraging employees to live healthier lifestyles (the ACA increases the maximum permissible reward for participating in a wellness program from 20% to 30% of the cost of employee-only health coverage and increases the maximum reward to as much as 50% for tobacco-reduction programs).

Another issue that larger employers should address is whether the employer’s current benefit package may be subject to the 40% excise tax that takes effect on “Cadillac plans” in 2018 (i.e., those plans that cost roughly more than $10,200 for single coverage and $27,500 for family coverage). If so, the employer should start making plans to adjust its plan to avoid the tax. Easing into those adjustments is likely to create less angst among employees than making an abrupt change in 2017.

Finally, employers of all sizes should notify their employees of the ACA marketplace by Oct. 1, 2013, regardless of whether they offer coverage. The U.S. Department of Labor has issued two Model Notices that employers can use: one for employers that do offer employee health coverage and one for employers that do not offer employee health coverage. The Model Notices are available at The Office of Commissioner of Insurance has also posted useful guidance for Wisconsin employers, available at

Barbara Zabawa is an attorney in the Madison office of Whyte Hirschboeck Dudek S.C., where she leads the firm’s Health Care Team.

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