This post addresses how PPACA will effect fixed indemnity plans. Because so much of the law is still unclear, one specific caveat must be made: this article assumes that all the provisions of PPACA will go into effect as currently written. If future court rulings and legislative sessions change any PPACA provision, the discussion below may need reconsideration.
Question: How are fixed indemnity plans affected by PPACA? Should I still be offering them as solutions for my clients?
With more than 2,000 pages of regulations, deciphering the impact of health care reform on our industry could be a full-time job for benefit professionals and their clients. One area that remains particularly fuzzy for many brokers involves the fixed indemnity plan, or as it’s more commonly referred, limited medical. Once a popular choice for cost-conscious employers, many brokers are now wondering if the product is still a wise choice for employers and individuals as they face new provisions of the law slated to go into effect in 2014.
Generally, fixed indemnity plans are excluded from the regulation. As a result, PPACA’s effect on fixed indemnity plans will be indirect. These indirect effects will be the result of the requirements PPACA places on the employer and the individual. The PPACA provisions foreseen to have the greatest effects on the fixed indemnity market are the employer mandate and the individual mandate.
Employer mandate
PPACA requires large employers to offer a minimum level of health benefits to their full-time employees. The employer mandate will assess a fine to the employer in two situations: when a large employer (50+ employees) does not offer health insurance to their full-time employees, or if any of the full-time employees cannot afford the employer sponsored health insurance.
Employers with fewer than 50 full-time employees will not be required to offer health insurance to either their full-time or part-time employees. As an incentive to small employers, defined as those with fewer than 25 full-time employees, the federal government will offer a tax credit of up to 50 percent of the employer’s cost of offering those employees health insurance. However, because fixed indemnity plans do not qualify as minimum level health insurance, small businesses are unlikely to receive the tax credit for providing this type of benefit.
Because fixed indemnity plans do not meet the minimum standards to be PPACA qualified health plans, there is likely to be a decline in employer-sponsored fixed indemnity plans.
Individual mandate
Under PPACA, every individual must have health insurance that meets a minimum standard – one that is not yet defined by the Department of Health and Human Services. An individual who does not acquire health coverage will pay a tax penalty on yearly income tax filing.
Part-time employees and low wage full-time employees that cannot afford their employer sponsored health plan will be most affected by this mandate. Such individuals will be able to look to the state exchanges for affordable and qualifying health coverage. However, the price of health coverage, even at the minimum level, may still be cost prohibitive for those part-time or low wage employees. To address this issue, the federal government is offering tax credits and a federal subsidy to those individuals near the poverty line. It is unknown whether the employer and individual fines will be sufficient to cover the subsidies and tax credits.
The fine for an individual who does not acquire health insurance that meets minimum standards will be either a flat pre-determined fee or a percentage based on the individual’s income.
Therefore, a part-time or low wage employee may fail to report the violation on their federal income taxes. Or, despite having reported the violation, individuals may not be forced to pay the fine. Either way, fixed indemnity plans may still be attractive to these individuals to provide coverage when major medical coverage is cost prohibitive, even through the state exchanges.
Fixed indemnity plans will remain a valuable product, but brokers have to understand that they are now best suited for a different market segment than they were in the past. Fixed indemnity plans will likely fall out of the employer market space and into individual markets. Within individual markets, fixed indemnity plans are likely to serve two purposes: 1) as a gap filler for individuals whose employer provides the cheapest qualifying health plan, or 2) as primary coverage for part-time or low wage individuals for whom qualifying health coverage is cost-prohibitive. Brokers who understand nuances within the new law and how it affects their products and the marketplace will be best positioned to provide quality service and value to their clients.
If you’re a broker with tough questions, I’m here to provide unbiased answers and feedback to help you take the next step in adapting your business. Feel free to leave your question in the comments.
— Fleet is president of AmWINS Group Benefits, a wholesale broker of comprehensive group insurance programs and administrative services. He can be reached at asksam@amwins.com.
