By Ralph Weber, Route Three Insurance and Financial Services

In today’s complex healthcare environment, understanding the intricacies of healthcare plans is not just beneficial—it’s essential. The Affordable Care Act (ACA), since its inception, has fundamentally altered the landscape of employer-provided healthcare in the United States. For Applicable Large Employers (ALEs)—defined as businesses with more than 50 Full Time Equivalent Employees (FTEs)—navigating these waters requires not just a map, but a seasoned navigator. As a seasoned healthcare consultant and insurance expert with Route Three Insurance and Financial Services, my aim is to demystify the ACA’s impact on employers and delve into the obligations of these employers under the ACA, the fines for non-compliance, and strategic approaches to healthcare plans that balance cost with coverage for both the employer and the employees.

Navigating Healthcare Plans: A Guide for Employers

Under the ACA, organizations with 50 or more full-time employees (including full-time equivalent employees) are classified as Applicable Large Employers (ALEs). This designation comes with specific responsibilities, chiefly the employer mandate. This mandate requires ALEs to offer affordable health insurance that provides a minimum level of coverage to at least 95% of their full-time workers (and their children up to age 26) or face penalties.

Understanding Fines and Compliance

ALEs must offer health insurance that provides “minimum essential coverage” (MEC) to avoid the sledgehammer penalty. In order to avoid the tack hammer penalty as well, employers must also offer coverage which meets the “minimum value” (MV) standard and is considered “affordable” for their employees. The coverage is considered affordable if the employee’s share of the premium for the lowest-cost self-only health plan does not exceed 8.39% of their household income for the tax year.  The offer must be made to at least 95% of your employees working 30 hours a week or more. Failing to comply with these requirements can result in two types of fines often referred to as the “A” and “B” penalties:

• The “A” Penalty (s.4980H(a)) or “Sledgehammer penalty”: This applies when an ALE fails to offer minimum essential coverage to at least 95% of its full-time employees (and their children). The penalty is calculated monthly but is expressed annually, and for 2024, it is $2,970 per full-time employee, excluding the first 30 employees.
• The “B” Penalty (s.4980H(b)) or “tack hammer penalty”: This penalty applies when an ALE offers coverage to the required percentage of employees, but the coverage is either unaffordable or does not provide minimum value. If an employee then purchases insurance through the marketplace and receives a tax credit, the employer faces this penalty. It is assessed on a monthly basis, at $372 monthly or $4,460 annually for 2024, but only for each employee receiving a credit not the entire workforce.

In many cases eliminating exposure to the Sledgehammer penalty, and mitigating risk of the Tack Hammer penalty is a sound strategy.

Strategic Considerations for ALEs: Understanding the Options

For ALEs, particularly those with a low-margin or blue-collar workforces, choosing the right type of health plan or combination of health plans is crucial.

The ideal strategy for ALEs wishing to reduce costs, while still offering quality coverage is to offer a tiered healthcare plan that may include one or more of the following:

1. Minimum Essential Coverage (MEC) Plans: These plans are a cost-effective strategy that satisfies the ACA’s requirement to provide health insurance. While these plans cover only the minimum essential benefits required by the ACA, they can be designed to add value for employees. For example, MEC plans can be compatible with Health Savings Accounts (HSAs), providing employees with pre-tax savings for medical expenses. Additionally, they can offer limited coverage for catastrophic events, offering a safety net for significant, unforeseen medical expenses.
2. Minimum Value Affordable (MVA) Plans: MVA plans go a step further by offering coverage that meets the ACA’s minimum value standard, meaning the plan covers at least 60% of the total allowed cost of benefits. When offered on a tiered basis plans are available which do not have minimum participation requirements for this tier. This plan is ideal for employees needing more comprehensive health benefits.
3. Reference-Based Pricing (RBP): Incorporating Reference Based Pricing (RBP) can help keep these plans more affordable for businesses wishing to reduce costs. RBP sets a maximum amount that the plan will pay for certain services, which can significantly reduce costs. This approach can lead to substantial savings, making healthcare benefits more sustainable for employers with tight budgets.
4. Direct Contracts with Healthcare Providers: Hospitals and other healthcare providers often prefer dealing directly with an employer (or their plan administrator), as they usually get paid quicker than they do by insurance companies, and with less administrative burden. Some hospitals offer very competitive bundled pricing based on steerage to their facilities, and favorable payment terms.
5. Direct Primary Care (DPC): This is a membership-based model of primary care with unlimited visits with no co-pay. You pick your own doctor who takes care of all of your primary care needs, either in person or via a video call. These practices usually operate 24/7 and often include behavioral health. Most plans see a decrease in the need for urgent care and ER visits.
6. Health Reimbursement Arrangement (HRA): HRAs can enhance a plan, offer cash pay options or pay Cash Rewards. A new kind of HRA can reimburse your employees for individual plans which they have purchased. This way they can pick a plan tailored to their own needs. 

This tiered strategy enables employers to provide a range of options catering to different employee needs and financial situations, ensuring compliance with the ACA while managing costs effectively.

Conclusion

No two employees have the same healthcare needs. Millennials generally have different needs than older workers, and blue-collar workers may have different needs than their white-collar colleagues. Navigating the ACA requirements presents a significant challenge for ALEs, particularly those in low-margin industries. However, by leveraging strategic plan designs such as MEC and MVA plans and considering innovative pricing strategies like RBP, Direct Contracting or HSA/HRAs, Route Three has been able to help employers offer valuable health benefits to their employees in a financially sustainable way. The key is to balance compliance, cost, and coverage, ensuring that both employer and employee needs are met in this complex healthcare landscape.

Always investigate various health insurance providers and plans. Sometimes, more affordable plans that still meet ACA requirements are available, but they may not be well advertised. Lastly consider Self-Insurance: Self-insuring can offer more control over costs. However, it requires careful planning and risk assessment. Smaller ALEs might join together in self-insured pools to spread the risk.