The Affordable Care Act (ACA) has required large employers to play a role in the health insurance business. Whereas previously, health insurance was an added benefit offered to employers in an attempt to attract and retain valuable employees.

Now, employers are not only required to offer coverage or pay a penalty – known as the “play or pay” rule – but are subject to penalties if the coverage is not both, affordable and has the minimum essential coverage. With group health rates skyrocketing, it seems the only realistic option has become a self-insured model, known as a captive self-funded health plan.  Groups with over 100 employees have already begun adopting comprehensive self-funded strategies to reduce costs.

Let’s review the ACA penalties by looking at the map below, created by The Henry J. Kaiser Family Foundation.

employer__penalty_flowchart_1-1

The flexibility to adopt some of the following strategies will only be available to employers who choose to use a health captive strategy.  One way employers are attempting to reduce the number of affordability penalties is by offering a “skinny plan” as an option to those who are not normally covered under the traditional group plan.  A skinny plan is a non-minimum-value plan, meaning that it does provide some medical coverage, but not the minimum requirement established by the ACA.  Referring to the above flow chart, health coverage must pay for at least 60 percent of healthcare expenses.

By offering a skinny plan, employers hope to capture those lower-wage-earning employees before going on the exchange to purchase a plan with the minimum essential coverage.  In this example, if the employee does go on-exchange and receives a tax-credit on their health insurance premium, the employer would be subject to a $3,000 penalty (which is $3,000 annually per full-time employee that receives a tax-credit).

For most large employers, this option would incur fewer penalties than the alternative option, which would be to pay a $2,000 per employee penalty under the “play or pay” rules.  The other benefit in the skinny plan scenario is that employees who elect this coverage would not be subject to pay tax penalties under the individual mandate.  The individual mandate is satisfied through the acceptance of any employer-sponsored health plan.

The option still exists to offer a plan with the minimum essential requirements, but at an unaffordable level, with premiums above the 9.5 percent of income. Employers will only avoid the $2,000 annual per full-time employee penalty related to offering coverage.

Eliminate All Penalties

By adding an additional element to the skinny plan strategy, employers can also avoid the “play or pay” penalties.  Employers may offer two plans, one being the skinny plan and the other a more expensive plan with the minimum essential coverage.  The plan that offers the minimum essential coverage can be offered to employees with coverage of at least 60 percent of healthcare expenses covered.  However, premiums must also comply with the 9.5 percent of income maximum or employers would still be subject to the $3,000 affordability penalty.

The goal in this strategy is to eliminate the risk of penalties, while offering a more affordable skinny plan to employees in hopes they will elect that instead of the more expensive, ACA-compliant plan.

Summary

These strategies may change, as laws in healthcare reform change, but as of now they are realistic options for employers to implement.  The key component in this entire equation is the flexibility to fight costs, which can only realistically be done by employers who enter a self-insured model.  The real costs do not come from premiums, co-pays, or even low deductibles, but are incurred from major procedures and hospital stays