Defining Affordable . . .

[somarco]

Ann, you have a lot more group cases on the books than I do. You are going to have a lot of fun with this, I can tell.

Might want to roll yourself a fatty and mellow out for the next 18 months or so.

discriminatory testing is nothing that I've heard about.

Applies to employee benefit plans. Believe it is defined in section 105 of the IRC but it has been a long day and I could be wrong.

isn't it in place to make sure the highly compensated employees don't get a bigger benefit?

HCE's are only part of it. Plenty of other rules about benefit plans that prohibit an employer from paying more for your coverage than for mine.

affordability is based upon what the EE pays, not the employer. the higher the income, the more the EE pays, and the LESS the ER pays.

Basically what you say is true, but I am not referencing the $200k EE vs the $25k guy. I am using folks that earn roughly the same but not exactly the same. Say folks in the $30 - $50k range.

If the ER pays enough of the premium to make sure the $50k guy is not exceeding 9.5% of AGI then he is (effectively) paying more (higher percentage) of the $30k guy. It avoids the non-discrimination rules but may force the employer to pay more than they are currently paying.

Or else say screw it all and just drop the plan.

EE's complain that their employer isn't paying enough now. They all think health insurance should be free.

I see a mutiny coming.

 

[taterpeeler]

Yes, the 9.5% is the ceiling for the employee portion. Dependent coverage was not considered. This is for group insurance.

That has caused a stir, because an employee's share might be "affordable", but if the employee has to pay 100% of the cost of adding dependents, it costs too much yet still meets the Obamination definition of "affordable".

Unlike Group plans, For the Exchange, 9.5% of family AGI is the ceiling for the whole family's premium.

This will cause a math frenzy.

wait a damn minn.... 1) is this correct: if anyone is eligible for group coverage they must take it? 2) if #1 is yes then I am stuck on my wifes plan regardless of what they want to charge for me and the kids?
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Peeler, don't worry, with your low production, your family will qualify for medicaid

yea, I know... but mamma works on wall st at well over 400%and that is starting to concern me that she should just go contractor

 

[sman]

Defining affordable is right up there with defining fair share. It's like the mythical unicorn and bigfoot. Very elusive.

 

[Yagents]

Keeping your grandfathered plan is looking more important every day. Don't let your higher income clients give it up just yet.

 

[somarco]

Grandfathered plans, group and individual, will go poof by 2015. Carriers won't be able to keep them on the books once they go into a death spiral. Some have already headed in that direction, especially IFP.

 

[Ann H]

Okay, I've been thinking about this, and I've come back to this thread.

A - Let's say an employee has an employer provided plan, where the employee's portion is 9.25% of the premium, within the 9.5% for that employee's income range. If the client voluntarily goes to the exchange, he will get no subsidy, because he is eligible for an employer plan that's affordable. The employer has no penalty. If there had NOT been a group plan, but the client went to the exchange, the client could get a subsidy.

B - Same employee has a wife who is self-employed, and the deductions before AGI are enough to get the family income down, so the group premium for the employee is 11% of family AGI. The employee could get a subsidy in the exchange in spite of the fact that he's eligible for group coverage, because the group coverage is not "affordable". The employer of 50+ employees could incur penalties if he doesn't fit in the safe harbor rules.

C - Same employee situation as in the first scenario (A), but the employee pays $800 a month for his dependents' coverage. Even though the employee-only premium is within 9.5% of family AGI, there is no subsidy because he has group insurance that is "affordable" on an employee-only level. If the employer terminates the group plan or hires the employee part-time making him ineligible for the group plan, the client can go to the exchange and get a pretty sizable subsidy because the exchange considers 9.5% of the whole family premium not just the employee-only premium.


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Bill, Somarco is right about the employee-benefits level of discrimination laws. We used to be able to use classes of employees and have the employer contribute a different amount for different classes, but we can't even do that anymore. Paying more premium for EE #1 who makes $40K than EE #2 who makes $50K is asking for a lawsuit.


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I'm still pondering all of this, and ready to write some more. I think a whole lot of thinking will be going on... Employers will probably analyze this several ways, then basically come to one of 2 decisions. First, pay a heck of a lot of premium for all employees, with EHB rich benefits. Second, set dynamite to the group plan. Somarco, maybe that will be the cigar I light!!

 

[leevena]

Good thread, I have enjoyed reading it.

Just a point of clarification. Fully insured plans are not, and have never been, subject to the IRS Section 105 Discrimination testing. Only self-funded plans are subject to it. Section 105 prohibits discrimination two separate ways; benefits and eligibility.

In the past carriers have usually inforced this type of testing on their own, via their underwriting rules. PPACA included a provision extending Section 105 to the fully-insured market, but it has since been delayed due to the issues surrounding it's implementation.

 

[somarco]

Lee, I very much respect your opinion, but I differ on your view that fully insured plans are not subject to discrimination rules. In the "old days" we would write carve out (MERP's) on a somewhat routine basis. We were told we could discriminate by class, but not within a class.

I am not as active in the group market as I once was, but I do believe a Treasury ruling in the last few years made carve out groups illegal on fully insured plans.

I think a whole lot of thinking will be going on... Employers will probably analyze this several ways, then basically come to one of 2 decisions. First, pay a heck of a lot of premium for all employees, with EHB rich benefits. Second, set dynamite to the group plan. Somarco, maybe that will be the cigar I light!!

The more I think about what will happen in the group market, especially 50+, I believe we will see employers drop traditional group plans and replace them with a defined contribution HRA.

Here is your money. Buy what you want.

Back in the mid 70's (when most of you were in diapers or not around) DC decided to "fix" retirement plans and make them non-discriminatory and better for employees. That gave birth to ERISA which systematically resulted in the dismantling of traditional (final benefit) pension plans for virtually every private sector employee.

If Alibamacare survives, I believe it will do the same to the traditional group plans except in a much more rapid fashion than the demise of final benefit pensions.

I may go roll a fatty myself now . . .

 

[leevena]

Lee, I very much respect your opinion, but I differ on your view that fully insured plans are not subject to discrimination rules. In the "old days" we would write carve out (MERP's) on a somewhat routine basis. We were told we could discriminate by class, but not within a class.

I am not as active in the group market as I once was, but I do believe a Treasury ruling in the last few years made carve out groups illegal on fully insured plans.



The more I think about what will happen in the group market, especially 50+, I believe we will see employers drop traditional group plans and replace them with a defined contribution HRA.

Here is your money. Buy what you want.

Back in the mid 70's (when most of you were in diapers or not around) DC decided to "fix" retirement plans and make them non-discriminatory and better for employees. That gave birth to ERISA which systematically resulted in the dismantling of traditional (final benefit) pension plans for virtually every private sector employee.

If Alibamacare survives, I believe it will do the same to the traditional group plans except in a much more rapid fashion than the demise of final benefit pensions.

I may go roll a fatty myself now . . .

Key here is who is "regulating" (poor word, but I am rushing through this) this. Section 105 never applied to fully-insured, only self-funded. What you are referring to is when a "carrier" regulates via their underwriting rules and regulations as to whether you can have a carve-out. The MERP is a great example, because this was one of the products that Smitty loved at MONY. Many of these MERPS were self-funded, thus falling into the Section 105 rules.

The treasury ruling you may be thinking about was about group life carve outs, sometime around 2000 or so.

I am sending you (your email) a document I received that outlines very nicely how PPACA threatens fully-insured carve outs. I will also send you Notice 2010-63 which discusses 105 in more detail.

Hope you had a great New Years and all is well with you and your family.

 

[gshearer24]

I have been following this great thread, but my understanding is a little different.

To qualify for a subsidy through the exchange your income would have to be below 400% of the poverty level. Which right now is about $43K. So if you have access to an employer plan, but that employee only premium runs more that $4085 (9.5%) per year for the employees contribution. Only then would the plan be deemed unaffordable. And the employer would pay the penalty for this employee going to the exchange.

The employer would not have to pay more premium cost towards a higher paid employee. The 9.5% calculation sets the maximum. Therefore, a higher paid employee could actually afford to contribute more towards the cost.

Employers are going to have to look at their lowest paid employees and determine the 9.5% cap and then base the ER contribution from this number only to avoid them leaving for the exchange.

Also, I do interpret to be on the employee only portion. However, I do not think this would stop a spouse or child from going to the exchange if the employer family premium is too high. Think the government was just trying to get 2 parent working families to take advantage of their own employer sponsored ins plans.