As 2014 rapidly approaches, employers are preparing for the next round of Affordable Care Act-mandated plan changes and some are beginning to think outside of the box.
Beginning next year, a group health plan will no longer be permitted to impose a pre-existing condition limitation, eligibility waiting periods will be restricted and all plans will be required to limit cost-sharing and out-of-pocket expenses. Wellness program incentives will be increased, with rewards allowed up to 30% of plan costs, and a plan can provide an incentive up to 50% of premium costs for programs designed to reduce or prevent tobacco use. All plans will be assessed a fee to fund a reinsurance program designed to stabilize the individual insurance market.
All employers should be investigating whether they will continue to offer traditional coverage or begin to explore cost-effective ways to exit the system. Employers looking to continue or begin offering self-insured group health coverage might want to establish a captive insurer to help offset any unforeseen additional costs presented by the ACA, such as the removal of lifetime limits or coverage cost increases.
A captive is an insurance company established to insure risks emanating from the entity that establishes it and/or its affiliates. Besides potentially offering certain tax benefits, captives are frequently used to help buffer excess losses and to provide more cost-effective access to the reinsurance marketplace.
Alternatively, those looking to offer something other than traditional group health coverage might find a viable alternative in private health insurance exchanges. While larger employers are already making this move, we believe the trend will eventually reach mid-size companies as well.
Generally, the use of a private exchange allows an employer to move away from a defined benefit concept to a more defined contribution concept, similar to that of many 401(k) plans. The employee would purchase insurance through the private exchange, and the employer would contribute a fixed dollar amount to help cover the cost.
Michael F. Tomasek is a partner and heads the Employee Benefits and Executive Compensation Practice and Mark R. Goodman is a partner in the Corporate Practice Group, both at Freeborn & Peters LLP in Chicago. Mr. Tomasek can be reached at firstname.lastname@example.org or (312) 360-6538. Mr. Goodman can be reached at email@example.com or (312) 360-6729.
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