As the saying goes: “Elections have consequences.” That’s a lesson being driven home to employers as they consider their compliance requirements under the Affordable Care Act (ACA). The U.S. has had significant shifts in ACA approaches across presidential administrations.
The overall goal of the ACA—to extend access to affordable health insurance options—has not changed. But, different administrations have taken different approaches to executing the ACA’s requirements. Often politically motivated, these shifts have created a lot of confusion and work for insurers and employers. They need to stay on top of new changes while adjusting their offerings to ensure compliance.
Here we provide an overview of these plans: a look at their history, and subsequent modifications of the rules around these plans under the Trump and Biden administrations. We’ll also consider proposed Biden administration healthcare reforms, which would include important modifications to the use of so-called “junk” insurance plans.
Employer Mandate Requirements
ACA compliance for employers involves adhering to the Employer Mandate requirements. This requires covered employers to offer the ACA’s Minimum Essential Coverage to at least 95 percent of their full-time employees. In addition, they must ensure affordability based on approved IRS calculations.
This is the key compliance obligation for employers under the ACA. While it seems relatively straightforward at first glance, compliance requires understanding important nuances in the rules.
Short-Term “Junk” Insurance Plans
The employer mandate requirements in the affordable health insurance options of the ACA are important for employees. If employees lose or change jobs, it could impact their insurance coverage and the coverage of their dependents.
To help bridge these potential gaps, short-term insurance plans emerged. These plans were designed to bridge the gap between employer-sponsored plans and to temporarily provide coverage for those without employer-sponsored plans. Often referred to as short-term, limited-duration insurance (STLDI), the plans are not required under the ACA, but they aren’t prohibited, either.
Many have viewed these plans as a way to reduce healthcare cost savings.
The problem with these short-term plans is that they were given greater leeway than more traditional plans in terms of required coverage. Importantly, these short-term plans, often referred to as “junk” insurance plans, aren’t required to offer coverage for pre-existing conditions, a key element of ACA compliance for traditional plans.
The Obama Administration created rules aimed at discouraging the use of junk insurance plans, in large part to encourage the use of Obamacare plans. The key rule was limiting the use of junk insurance plans to no more than three months, in line with the idea that such plans should only be used for situations like bridging the gap between employer-sponsored plans due to the loss of a job.
President Trump came into office after campaigning aggressively to repeal the ACA. So it came as no surprise when he took prompt steps to hinder the ACA shortly after taking office. These steps included an executive order issued on his first day in office aimed at gutting enforcement of the ACA.
With respect to junk insurance plans, in late 2018 the Trump Administration changed the limit on the duration of such coverage from three months to three years. The result was that such plans became far more practical for millions of Americans. Because such plans don’t provide coverage for things like pre-existing conditions, they were often a more affordable option for many.
The problem for the ACA is that the functioning of the health insurance marketplace requires widespread adoption of insurance coverage to ensure a broad pool of premium payments to offset payments to those receiving care.
The Biden Administration is not a continuation of the Obama Administration. But, Biden was Obama’s vice president, and their views on the merits of the ACA are understandably largely aligned. It shouldn’t be surprising then that Biden’s Department of Health and Human Services recently issued a rule to revert the limit on STLDI from the Trump-era three-year cap to the Obama-era three-month cap.
Impacts on Employer Compliance
The key impact on employer compliance with the ACA’s employer mandate as a result of the Biden Administration rule on STLDIs is that it will remove one of the options previously available for offering coverage to employees. While STLDI “junk” plans may not have been the ideal option from the standpoint of the ACA, they were better than employers offering no coverage at all.
With this option now severely limited, employers will need to take a closer look at their overall coverage options to ensure they’re staying compliant with the ACA’s employer mandate.
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