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If an employer secures coverage during the Special Enrollment Period, will they need to meet standard participation and contribution requirements on renewal or at some point in the future?

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It depends on the insurance carrier/exchange. The Special Enrollment Period (SEP) is a once per year opportunity for small employers to enroll in medical coverage even though they do not meet carriers’ standard participation or contribution requirements. The SEP is from November 15 – December 15 for coverage starting January 1.

Covered California for Small Business (CCSB) is the only carrier/exchange of those that Claremont represents that does not require employers to meet participation or contribution requirements on their first renewal or thereafter. From a practical standpoint, if the employer chooses another carrier/exchange and does not meet those requirements by the time of their first renewal, they will likely need to switch carriers (this would have to be done during the SEP). However, with CCSB, they would not need to meet those requirements, so CCSB is the best choice if stability is important to the employer.

Can an employer with more than 50, but less than 100 employees qualify for the Special Enrollment Period and does that exempt them from ACA penalties?

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Yes and No. First, we’ll consider the Special Enrollment Period, then ACA penalties.

Special Enrollment Period
Any employer that qualifies for small group coverage can qualify for the Special Enrollment Period (SEP). Since employers with 1-100 employees qualify for small group coverage in California, an employer with more than 50, but less than 100 employees qualifies for the SEP.

The SEP was created as part of the ACA to help small employers qualify for coverage when they otherwise would not. During the SEP, all participation and contribution minimums are waived. An extreme example: an employer with 60 employees can qualify for coverage with only one enrolling employee while paying nothing towards that employee’s plan. Whether the employer and employees benefit from such an offering is a separate discussion, but an employer does qualify to offer coverage during the SEP in that scenario.

Employers wanting to secure coverage during the SEP need to apply between November 15 and December 15 for coverage effective January 1.

ACA Penalties
Is an ALE exempt from penalties if it secures coverage during the SEP?

No. An employer with more than 50 full-time and full-time equivalent employees (referred to as an Applicable Large Employer or ALE) is required to:

  1. offer coverage to all full-time employees, and;
  2. offer coverage of minimum value that is affordable.

It does not matter if the ALE purchased coverage during the SEP, the obligations above remain.

The danger is that in their enthusiasm to take advantage of the waived contribution requirement permitted in the SEP, the ALE may lose sight of the fact that they still have an ACA obligation to offer affordable coverage.

For example, if an ALE offers coverage secured during the SEP to its full-time employees, the ALE will satisfy the:

But, if the employer takes advantage of the SEP’s contribution waiver and makes no contribution or sets contribution at a low level, the coverage may not meet the ACA’s affordability standard. If an employee then secures coverage with a subsidy from the exchange, then the employer is at risk of being assessed a fine related to that employee and any other employee that does the same.

Securing coverage through the special provisions of the SEP doesn’t absolve the ALE of their large employer obligations under the ACA.

What is the purpose of a K-1 and when do carriers need to be provided with a K-1 during the application for coverage process?

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The Schedule K-1 is an Internal Revenue Service (IRS) tax form issued annually for an investment in partnership interests or by shareholders in S corporations. The purpose of the Schedule K-1 is to report each partner’s or shareholder’s share of the entity’s earnings, losses, deductions, and credits (more detail).

Since partners in a partnership and shareholders in an S corporation are not included in the quarterly wage reports filed with the state, carriers require them to furnish a K-1 to verify that they are associated with the business so as to be eligible for benefits under a group plan.

What is the difference between a family plan with an embedded deductible and one with a non-embedded deductible?

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When covered by a family plan with an embedded deductible, the carrier starts paying coinsurance towards a family member’s claims once that family member has met the individual deductible. The family deductible need not be met for coinsurance to start for one family member.

When covered by a family plan with a non-embedded deductible, the carrier does not start paying coinsurance for any family member until the family deductible has been met, even if an individual in the family has met the individual deductible.

In both cases, carriers begin paying coinsurance once the family deductible has been met. This means that for the plan with an embedded deductible, coinsurance payments start once the family deductible has been met even if no family member has met the individual deductible.

If all other plan characteristics are equal, an embedded deductible is more desirable than a non-embedded deductible because it allows a family member to begin receiving the benefit of coinsurance by meeting the individual deductible and by not having to meet the family deductible.

Do UnitedHealthcare’s two HSA-compatible, high-deductible health plans sold in California have different types of deductibles?

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Yes. UnitedHealthcare’s bronze-level HSA-compatible plan has an embedded deductible while its silver-level HSA-compatible plan has a non-embedded deductible.

What is a Guaranteed Association and can any association offer health insurance coverage in California?

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A Guaranteed Association is a nonprofit organization comprised of a group of individuals or employers who associate based solely on participation in a specified profession or industry, accepting for membership any individual or employer meeting its membership criteria. There are numerous other requirements that must be met to be considered a Guaranteed Association (see Law Insider).

To be eligible to offer group health insurance in California, an association must be a Guaranteed Association. Currently, there are five such associations in California. They are known as MEWAs (Multiple Employer Welfare Arrangements). No other associations are permitted to offer health coverage.

What is a QSEHRA? Do carriers permit it to be offered alongside traditional fully-insured plans?

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A QSEHRA is a Qualified Small Employer Health Reimbursement Arrangement. It allows the employer to reimburse employees for individual coverage that the employees themselves secure. A traditional fully-insured group plan cannot be offered alongside a QSEHRA. The only group plans that can be offered are non-health plans such as life or LTD.

If you or your clients are interested in learning more about the QSEHRA, our HR compliance partners TASC and HR Service can assist brokers and employers in setting up and administering QSEHRA’s and maintaining compliance for reimbursement arrangements. Please visit the HR Compliance section on our partner page for company descriptions and contacts

If an employee is enrolled in medical and ancillary coverage under a family plan, do the employee’s dependents have to enroll in the same coverages?

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At Claremont Insurance Services the three carriers that we represent which offer both medical and ancillary plans differ as to what they will permit as follows:

It is our understanding that a carrier’s decision in this matter is driven more by system capabilities than legal or regulatory interpretation. In other words, the carriers don’t know of any legal or regulatory reason why a dependent would be barred from choosing to enroll or waive regardless of what the subscriber decides.

If a covered employee becomes eligible for Medicare, terminates employer-sponsored coverage and enrolls in Medicare, can that employee’s enrolled dependents stay enrolled in the employer plan?

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Yes, if they elect COBRA. The termination by a subscriber is a qualifying COBRA event for the dependents who would become eligible to continue the plan through COBRA. For more information, download the FAQs on COBRA Continuation Health Coverage from the US Department of Labor.

Can an employer who is subject to Oakland’s Measure Z pay employees more and drop their health coverage?

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Measure Z is an Oakland, California ballot measure which passed in November 2018 will take effect on July 1, 2019. It states that a hotel business with 50 or more rooms must pay employees $15 per hour and offer healthcare benefits or $20 per hour if it does not offer healthcare benefits. Healthcare benefits are not defined. For the purposes of this Q&A, we assume that healthcare benefits mean a standard group health plan.

An employer can always drop their health plan and pay employees more, however, there will be consequences depending on the employer’s status under the ACA. For example, Measure Z has no bearing on an employer’s obligations under the ACA. If an employer is required under the ACA to offer coverage, they must offer coverage. Paying employees more, unfortunately, is not an alternative under the ACA to offering coverage.

Here are the two most likely scenarios – both assume the employer is subject to Measure Z:

a) If the employer is a small employer under the ACA (fewer than 50 full-time, plus full-time equivalent employees), then the employer is under no obligation to offer health coverage under the ACA. For ACA small employers who are subject to Measure Z however, this could be a marketing opportunity for brokers. Small employers who are subject to Measure Z and don’t currently offer coverage will have to:

  1. Pay $15/hour and offer health coverage, or
  2. Pay $20/hour and not offer coverage
  3. Comparing 1 and 2:
    • For a 40-hour per week employee, the difference between $15/hour and $20/hour is $800/month.
    • Certainly, an employer could put in place a cost-effective health plan for less than $800/month/employee.

This represents a sales opportunity for brokers.

b) If the employer is an Applicable Large Employer (ALE) under the ACA (50 or more full-time, plus full-time equivalent employees), they must offer qualified coverage to all full-time employees or risk costly penalties. There is no exception allowing ALEs to “pay employees more” in place of offering qualified health plans to full-time employees.

Of course, an ALE always has a choice to offer or not offer, but not offering comes with the potential to incur harsh ACA penalties. And If an ALE that is also subject to Measure Z doesn’t offer coverage and also doesn’t pay $20 per hour or more, then it looks like they would be subject to penalties under both the ACA and Measure Z.

Bottom line answer to the original question: assuming the employer is an ALE, it would not be wise to drop coverage and pay employees more because of the ACA penalty risk.