The government announced new requirements for large-employer insurance plans on November 4, 2014, which could put some employers in a tough place, according to NPR. Plans must now offer hospitalization coverage or they won’t be acceptable under the Affordable Care Act. It’s thus important for employers to understand exactly what changed so that they can adjust if necessary and avoid any tax penalties.
Applicable Large Employers and Essential Benefits
One of the main goals of the ACA was to set standards for health insurance plans so that they offered at least a minimum amount of coverage. The ACA did this by requiring that plans offer a number of essential health benefits such as hospitalization coverage, emergency care, rehabilitative services and prescription drugs, as detailed by HealthCare.gov.
Applicable large employers (ALEs) were not required to offer the essential benefits, however, according to the Health Affairs Blog. Instead, company plans needed to be measured by a minimum-value calculator to show that they covered at least 60 percent of expected medical costs for employees. Many companies added the essential benefits anyway because it helped meet the minimum-value calculation and created a better plan for employees, but it wasn’t a requirement.
New Hospitalization Coverage Requirements
According to NPR, as employers started putting together their new plans to get ready for 2015, the government saw that some companies, including some retailers and temporary-staffing companies, were not offering any coverage for hospital care. The Obama administration announced in November that these plans were not acceptable under the Affordable Care Act. Employers with plans that don’t offer hospital benefits will fail to meet the ACA requirements, and the employers will owe the tax penalty for not complying.
The reason that this problem developed is that the minimum-value calculator didn’t deliver the expected results. Analysts previously believed that, for any group plan to pass the minimum-value calculation, it would have to offer some hospital coverage. When companies were able to develop plans that passed the test without hospitalization coverage, the government decided that it needed to change its requirements.
How Employers Can Prepare
Any company looking to set up a plan that meets ACA provisions needs to offer hospitalization coverage. Companies of 100-plus employees already need to have that coverage in place for 2015, while 50–99-employee companies have until 2016 to meet the requirements.
The government realized that this new announcement put some companies in a tough place because they have already committed to a health insurance plan. If a company committed to a plan with no hospital coverage before the November 4, 2014, announcement, it was allowed to keep the plan for 2015 and avoid the tax penalty. Also, its employees were allowed to opt out of the group plan and will still qualify for subsidies to buy a plan on the individual market (normally, employees with a group plan do not qualify for subsidies). This gives these employers time to set up a qualifying plan for 2016.
The ACA continues to evolve as new problems and solutions come up. Employers need to always keep track of the latest news so that changes such as the hospitalization requirement don’t catch them off guard.
David Rodeck is a professional freelance writer based out of Delaware. Before writing full-time, he worked as a health- and life-insurance agent. He specializes in making insurance, investing and financial planning understandable.