It’s that time of year when staffing firms are making decisions on what ACA health plan option(s) will be implemented for 2016. Unfortunately, the rules have changed … again. Last November, the Treasury Department decided to impose new rules requiring minimum value plans to include “substantial” hospitalization and physician services.
The market has responded with new options for staffing firms, however, the universe of MVP plans is small and not every plan is a fit for every staffing firm. As such, an uninformed buyer may find themselves in a pickle come 2016. That pickle can include costly IRS penalties. Therefore – as stated in the courtroom – it’s important to uncover the truth, the whole truth and nothing but the truth.
There are both fully insured and partially self-insured health plan options – each one has potential drawbacks. The ACA requires that no annual or lifetime limits be placed on health benefits. Think about that: no maximum cap – period. When the Treasury required hospitalization be part of MVP plans, this introduced the possibility of catastrophic risk. Without hospitalization, the possibility of a catastrophic claim is remote at best. With hospitalization, the risk is real. Fully insured carriers assume this risk for a premium. Those premiums are expensive and generally will be tied to participation outcomes. In fact, some fully insured plans will not provide final rates until after enrollment. That means a staffing firm won’t know its costs until after it’s purchased the plan and enrolled individuals. This isn’t a very good business approach, because bill rates may be found insufficient due to unexpected costs only after client contracts have been signed.
Unfortunately, some insurance brokers have submitted quotes that didn’t disclose to the carrier the entire full-time workforce of the staffing firm. Those quotes can be invalid and are subject to participation and eligibility audits that could render the proposal void. Further, what if nobody enrolls in the MVP plan? Will the carrier even issue a policy in that situation? If not, the employer could find itself without a plan to offer employees throughout the year, thus exposing themselves to the A and/or B penalties.
Partially self-insured options give the employer more flexibility but will still carry participation and/or underwriting requirements because any partially self-funded plan should include stop-loss insurance, sometimes referred to as reinsurance. The underwriter of the stop-loss policy issues quotes based on assumptions and contingencies, just as underwriters of fully insured policies do. Stop-loss quotes are not guaranteed offers with no qualifications. Stop-loss policies are considered “excess” insurance that layer on top of the self-insured portion of the plan and may carry separate limitations, exclusions, maximum reimbursements or may not even cover every individual.
A broker with significant expertise and experience in dealing with self-insured plans and stop-loss should be able to deal with these underwriting issues, but those who aren’t experts in self-funding may inadvertently place their clients in programs that won’t cover the full catastrophic risk possibility. That’s a scary position considering million dollar or multi-million dollar claims do occur with regular, albeit limited, frequency.
Because MVP plans can be pricey and tricky to procure, some staffing firms are sticking with MEC plans as the only option and rolling the dice on how many employees may incur the B penalty – thinking the exposure for employees purchasing coverage through the Exchange is limited and less costly than paying for MVP coverage. Is that a wise approach? Let’s call the next witness…
The Whole Truth
Staffing Industry Analysts’ 2014 Temporary Employee Survey found that 25 percent of temporary employees were planning on purchasing coverage through the Exchange. The 2015 survey found 38 percent of temporary employees surveyed actually are purchasing coverage through the Exchange. That’s an alarming number not being talked about.
Furthermore, on September 17, CMS rather quietly announced they would not be sending notices to employers to alert them when an employee is receiving a subsidy until later in 2016; however, this will not delay the required payment. In effect, employers won’t know how many subsidy penalties to accrue for, they’ll just get hit with the bill.
Because ACA penalties are not tax deductible, every B penalty of $3,000 costs a tax paying entity (such as a S-corp or C-corp business) more than $3,000 to break even. At a combined 40 percent state and federal income tax rate, a non-deductible $3,000 expense means the business would need to earn $5,000 in revenue to break even after the expense. Think about 10 percent of your full-time workers multiplied times $5,000. That may be a sobering thought.
Now, compare that to making a tax deductible expense for employees who actually take health coverage. It would seem offering MVP coverage makes sense if the data is anywhere near accurate. Plus, remember those ridiculously complicated forms you’ll be filing after the first of the year to report to the IRS which of your employees were full-time for even one month? Yes, I’m talking about the 1094 and 1095 forms you’ve been losing sleep over. Those forms will be self-reporting non-compliance to the IRS if you’re not offering MVP coverage, which could be an invitation for an audit. That holds true for staffing firms offering MVP coverage, but not meeting the ACA’s Affordability provision.
Nothing But the Truth
There are options for staffing firms, however, as the old adage goes “there’s no such thing as a free lunch.” For an underwriter to offer taking 100 percent financial liability that’s unlimited for hospitalization/catastrophic claims, somebody has to make sure enough premium revenue is paid into the underwriter’s loss fund. The thought that an underwriter will offer low or no participation in a plan that puts them at risk for virtually unlimited claims is the stuff of fairy dust and unicorns. Currently, the best underwriting offers take the risk away from the employer but require enough premium volume in the form of an employer funded MEC plan – or at least a fairly significant participation level – else the premiums are extremely high.
It’s a hard health insurance market and the underwriters are in charge of setting rates and contingencies. While the ACA may prohibit carriers from setting participation requirements, carriers can still require minimum contributions and set rates as high as they want depending on participation outcomes. They have all the risk, so they’ll use all the rules to protect themselves.
Another adage that comes to mind is “if it sounds too good to be true, it probably is.” Marketers suggesting MVP plans without participation or required premium levels are telling a story that’s either too good to be true or which may not be the truth, the whole truth and nothing but the truth. Proposals need to be reviewed carefully and contingencies need to be explored and understood.
There are MVP options available for staffing firms, but the number of options are few and not every option will fit every firm’s needs. Some companies only want a pure compliance play: “Get me out of all penalties as cheaply as possible.” While others not only want compliance, but also real health benefits that help attract and retain talent at a reasonable and predictable cost. Still other staffing firms are conversing with clients about how their ACA strategy can reduce turnover and bring a better qualified candidate for placement. The health plan options that fit these three scenarios are different and yet, when modeled out side-by-side, depending on actual enrollment, it’s amazing how similarly we see these options impacting bill rate.
Staffing firms should ask to see the full proposal including underwriting assumptions and contingencies and not just rely on marketing materials from the agent or broker. At some point, employer applications will need to be filled out and contracts signed. Settling soon on an option where you know your cost, understand your exposure and get ahead of what will surely be the busiest fourth quarter in the health insurance industry since the ACA took effect.