ACA Compliance – Understanding Grandfathering and Self Funding

 

As the 2014 open enrollment season comes to a close (bringing an overwhelming sense of relief and joy to HR professionals and Benefits Brokers/Consultants throughout the land!), I thought I’d review the major Affordable Care Act (ACA) related compliance issues addressed in preparation for the new (benefits) year.
  1. Early plan renewal – 12/1/13: Since many of the ACA related changes affect plans “on their first plan anniversary date on or after January 1, 2014”, several health insurers offered (and many employers accepted) to change plan anniversary dates to 12/1/13.  Doing so delays many ACA provisions (e.g., community rating, essential health benefits, guaranteed issue, removal of pre-existing condition limits, out of pocket limits, health insurance tax, etc.) until 12/1/14.

http://www.familiesusa.org/assets/pdfs/health-reform/Grandfathered-Plans.pdf

This week’s post addresses another type of quasi-ACA compliance exemption, which has to do with how a group health plan is funded (i.e., fully insured or partially self funded).   Historically, employers looked to partially self funding their health plans (and sometimes dental, vision, and short term disability income), in order to benefit from cash flow advantages, better reporting, ERISA preemption, and more plan design flexibility, among other reasons.  Now, employers are starting to consider partial self funding for a whole different reason – ACA compliance strategy!
Last week’s post informed of the Society of Actuaries’ prediction that premiums could increase, on average, 31.5% in 2014, primarily due to several provisions of the ACA that do NOT apply to partially self funded plans.  Specifically, the new modified community rating and essential health benefit offering, among other provisions, do NOT apply to group health plans of any size, that utilize partial self funding.  Unfortunately many stakeholders are under the misconception that a plan has to have a large number of plan participants in order to partially self fund their plans.  THIS IS NOT THE CASE!  Recently, I changed the funding of a 17 employee life client from fully insured to partial self funding, with no additional risk, and a resultant plan cost DECREASE!  This group was comprised primarily of young males, and would have experienced a significant premium increase in ’14 resulting from the implementation of modified community rating alone.

I’ll close by including a brief table that displays a number of ACA provisions that have direct impact or not, depending on how a group health plan is funded…

No.
Provision
Fully Insured
Self Insured
1
Community Rating
Yes
No
2
Health Insurance Tax (HIT)
Yes
No
3
Maximum Deductible Cap ($2,000/$4,000)
Yes
No
4
Essential Health Benefits
Yes
No
5
Medical Loss Ratio (MLR)
Yes
No
6
Prohibition of discrimination based on salary
Yes
No
7
Guaranteed Issue and Renewability
Yes
No

 

Remember, employer groups with as few as 10 employee plan participants can utilize partial self funding!

 

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