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California health insurance  -  Health Exchange in California  -  Delay of Group Health Mandate

ACA Announcement on Delay of Group Mandate and Penalties

In a non-descript post to the U.S. Treasury website with little fanfare, the announcement was made that certain requirements for the Group health insurance would be delayed to Jan 1st, 2015 (instead of Jan 1st 2014).

There was quite a bit of response to the posting as it was very unexpected and definitely prone to partisan interpretation.

Let's skip the politics and dig a little deeper into the impact of this change for California companies, employers, and employees. First, what exactly was delayed?

Group Health Mandate and Penalty Explained

The ACA actually deals with two separate markets: the IFP (Individual and Family Plans) segment and the Group (Employer-sponsored health plans). The delay deals with the 2nd segment and really only part of it.

The Group insurance market is divided into Small Group and Large Group. Small Group is defined as having less than 50 full time equivalent employees. Equivalent means that you can get there with part-timers based on total hours.

For example, having 50 employees working 30 hours (the lower limit for large group) would be the same as having 100 employees working 15 hours. Small Group is not subject to the mandate and penalty which was just delayed either way. It's only large group that was subject to the requirement.

Essentially, a Large Group would need to provide affordable group health insurance to their employees or pay a fine per employee (after the first 30 employees). This was in effect, the group mandate. In order to comply, a company would also need to meet certain documentation and notification requirements to establishment affordability, participation, large group status, etc.

This record keeping was also delayed till Jan 1st, 2015 and played a pivotal part in delaying the requirement as it became increasingly clear that the complexity involved would be onerous to companies.

What Does Affordable Group Health Mean?

Affordability became a key component of the law.

Essentially, the law stated that the employee's contribution towards a health plan which covers the Essential health benefits listed in the law should not exceed 9.5% of the employee's income. The law did not take into account spousal's income or dependent health plan costs to the employee...strictly the employee income versus the employee's contribution towards his or her own group health coverage.

If the coverage was not affordable (exceeded the 9.5% of income requirement), the company may have to pay a penalty and the employee could then go to the individual/family Exchange and purchase coverage with a subsidy if eligible based on income. This poses a real problem with low wage employees.

For example, let's say you have an employee that makes $8/hourly. That's roughly $1300/monthly. That means the group health plan cost to the employee (not including employer's contribution) cannot exceed approximately $130/monthly.

Depending on the age and plan benefits, that $130 can be tough in today's market especially with the new requirements for plan benefits.

Fallout from Delay of Group Health Mandate

Most large companies already offer group health plans (although the affordability and Essential health benefit requirements probably don't meet the new law) so there might not be too much effect from this change.

The penalties were intended to help fund the subsidies of the IFP marketplace so another source of revenue has disappeared. It's more a hit to the perceived feasibility of the law itself. There are some legitimate concerns about the timing of the delay (mid-term elections coming in 2014).

Ultimately, the IFP mandate is the bigger piece of the puzzle and it's schedule to go into effective Jan 1st, 2014. For now, large companies can breath a little easier and wait to see how the first years goes.
 

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