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Examining health insurance mandate options

By Josh Shepherd

Amid the advance planning that Kentucky’s employers are doing to comply with health insurance mandates going into effect January 2014, there is one big question remaining. Will Kentucky adopt Medicaid expansion? As of the end of February, the Cabinet for Health and Family Services said Medicaid expansion is still on the table, but there has been no decision.

Many states, including Kentucky, are wrestling with the question of how they want to extend Medicaid benefits and whether, in the long run, the program can sustain the expected influx of eligible individuals and families whose incomes are at 133 percent of the federal poverty level.

The Medicaid decision is one of the few facets of the Patient Protection and Affordable Care Act’s (ACA) health insurance mandates for which there is no hard deadline. When experts comment on the various strategies open to employers to comply with health insurance mandates before the January 2014 deadline, there is a lot of speculation but little concrete vision about what is going to happen.

Despite the ACA’s intention to provide medical coverage for 100 percent of the populace, states have some leeway to address how they want to work with Medicaid, a program expected to fill the hole for the nation’s uninsured.

Many states, including Kentucky, are wrestling with the question of how they want to extend Medicaid benefits and whether, in the long run, the program can sustain the expected influx of eligible individuals and families whose incomes are at 133 percent of the federal poverty level.  Jose Fernandez, Ph.D., assistant professor of economics at the University of Louisville, is particularly interested in the answer to that question. According to projections from a number of sources, the extension could increase Kentucky’s Medicaid population by 30 percent, Fernandez said.

Betsy Johnson, a partner in the law firm of Stites and Harbison and the former commissioner of the Medicaid program in Kentucky, puts an actual number on it. Under expansion, Kentucky could see well over 420,000 new Medicaid recipients.

But such an expansion should not be all that alarming, Johnson said. For the first two years, the federal government will subsidize 100 percent of the cost. But the ACA also states that the subsidies will be reduced incrementally over the course of this decade. Though subsidies will disappear by 2018, “I think Kentucky is leaning toward Medicaid expansion,” Johnson said.

Janet Craig, also a partner with Stites and Harbison, noted that many “red” states that have opposed the ACA now are seriously considering adopting Medicaid expansion. “That includes Florida, where the expected Medicaid population increase would be larger than Kentucky,” Craig said.

Affordability required for ‘large-group’ plans

Being able to afford the increased Medicaid population is just one issue.

“If the objective is to provide everyone healthcare coverage, the expansion of Medicaid accomplishes that almost overnight. The feds cover that cost, but eventually those credits go away and the state will still have to find ways to fund it,” Fernandez said.

But aside from the funding issue, Medicaid expansion has another potentially interesting side effect, particularly with some of Kentucky’s large group employers. For purposes of implementing the state’s health exchange program, discussed later in this article, Kentucky’s defines “large employers” as those companies with 51 or more employees. When the insurance mandates go into effect, those large employers must have in place a qualified and affordable health insurance benefit for their employees or face some stiff penalties.

Health insurance packages offered must, at minimum, cover 10 essential health benefits required by the ACA, which also requires that an employee’s share of premiums not exceed 9.5 percent of their household income.

For many of Kentucky’s large employers, their current employees’ wages would qualify them for the Medicaid expansion.

healthcare benefits
Source: Affordable Care Act

“In Kentucky, if you are a company like, for example, Walmart, then the majority of your full-time employees (FTE) are minimum-wage earners. They can offer a qualified health insurance benefit, but that benefit requires the employee to pay a portion of the premium as well as co-pays and deductibles,” Fernandez said.

“In that situation, it makes more sense from the employee’s perspective to enroll in Medicaid. It requires no out-of-pocket expenses, no co-pays or deductibles. Why wouldn’t a savvy low-wage worker take advantage of that circumstance?” he said. “Plus, the employer is not concerned about a penalty because they are meeting their obligation under the ACA.

“The employee has to be the person to opt out of the plan. But I don’t know if there are any controls to prevent that or even if there should be.”

The penalty to large employers that offer no qualified health insurance by the deadline is $2,000 per full-time equivalent employee. The penalty is $3,000 for employers that offer a qualified plan but with premiums their employees cannot afford. There is no penalty for companies that provide a qualified plan with affordable premiums and matching funds for employees whose premiums top the 9.5 percent of household income limit.

“Come 2014,” according to Fernandez, “the world will not change much for big firms that are already offering good health insurance packages. For others, the impact is going to depend a lot on what they have been doing in the past.”

Craig said, though, that the greatest anxiety over the ACA is among large firms. She has made numerous presentations to business groups and associations so they can better prepare to meet requirements and deadlines.

“There are still a lot of concerns about additional costs for insurance plans in healthcare reform, and they’re worried about the penalties,” Craig said.

Penalties for encouraging overuse of care

Many firms she has addressed have enough employees to be large employers, but currently lower health insurance costs by purchasing coverage jointly with other businesses or through professional associations. Federal law, however, does not view an association as a large employer, and that option is likely to go away in 2014, Craig said.

Meanwhile, the ACA will penalize so-called “Cadillac plans” that provide employees with generous benefits and have high premiums, which usually are paid by the company.

“The ACA has a provision to levy a 40 percent excise tax on companies who provide healthcare plans whose premiums exceed $10,200 for individuals or $27,500 for families. These ‘Cadillac Plans’ that provide higher coverage have been widely criticized because, it’s argued, these plans encourage overuse of medical care,” Craig said.

There are some potential end-runs for large employers.

For very large employers, there is speculation that penalty costs would be less than the expense of providing health insurance, Craig said. There are questions about how FTEs will be calculated to determine whether a company qualifies as a large employer.

“Hiring only part-time people is not an escape from the mandates,” Craig said. “There is a formula that companies can apply if they have questions about that.”

There are still some gray areas, such as requirements for companies that rely on temporary or seasonal employees. That’s an area where individuals could slip through the system’s cracks, according to Fernandez. But this is less of an issue for small group employers and their access to Kentucky’s health exchange program.

Benefits Exchange an incentivized marketplace

Kentucky is one of 16 states in the process of implementing its own health benefit exchange program. Exchanges are intended primarily to help individuals meet the mandate to have health insurance, but Kentucky is taking the extra step of making its exchange available to small group employers. That exchange option is designed to give small businesses the same buying power as larger employers.

The development and implementation process for the Kentucky Health Benefit Exchange is well on its way, said Carrie Banahan, its executive director. Progress will be reviewed by the federal Department of Health and Human Services.

“We are on target to begin providing services by the October 2013 deadline. That is when we are scheduled to begin operations,” Banahan said.

In 2014, businesses with two to 50 employees can elect to provide health insurance coverage to their employees through the exchange. By 2016, employers of 51-100 employees will have an option to use the exchange.

By 2017, Kentucky could exercise an option to invite large group employers to purchase health plans through the exchange also. That decision has not been made.

Banahan explained that the exchange is a marketplace for basic health insurance plans, providing the public with vetted, consistent information to aid purchasing decisions. The benchmark plan upon which insurance companies must base their offerings is the Anthem PPO. Already, Banahan said, several Kentucky-based insurers have expressed interest in submitting qualified health plans, including Humana, United Healthcare and Anthem.

Plans will be available at different “metal” levels: Bronze (which provides 60 percent coverage of costs), Silver (70 percent cost coverage), Gold (80 percent coverage) or Platinum (90 percent.) Small-group employers who participate in the exchange may review these plans and select one to make available to their employees, or they can even provide a mix of levels from which their employees can select.

The exchange will also provide an online portal for purchasers to compare plans’ prices, services and ratings on an easy to understand “apples-to-apples” basis. The major incentive to small businesses to purchase their health insurance through the exchange is a 50 percent federal tax credit. That credit is only available through the exchange.

“This is probably one of the best things to come out of the ACA’s insurance mandates,” Craig said. “Small group employers are currently exempt from the penalties, but they still have to make their employees aware of plans available through the exchange.”

While the incentives to small businesses make participation in the exchange particularly attractive, there are critics who say the ACA’s insurance mandates on business could result in job losses. That possibility exists, Fernandez acknowledged. Rather than add employees vertically, businesses might contract out with smaller companies for supplies and services to keep their employee base small.

Conversely, efforts to make healthcare affordable for small employers and independent individuals could help entrepreneurs.

“There is nothing in the legislation that I can see having a detrimental effect on business entrepreneurship, whether in Kentucky or anywhere else,” Fernandez said. “In fact, it may be to a company’s advantage to stay small and take advantage of what the exchange can provide.”

Josh Shepherd is a correspondent for The Lane Report. He can be reached at [email protected].