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Employers turn attention to implementing ACA

Now that the U.S. Supreme Court has upheld most of President Barack Obama's landmark health care reform bill, employers are faced with the task of implementing the law's myriad provisions.

Despite the justices' ruling, a lot of uncertainty about the Affordable Care Act (ACA) still exists, as states and regulators must now define the scope of certain reforms.

"What is the definition of full time? That is something everyone is keeping an eye on," said Jeremy Roth, managing shareholder of the San Diego office of Littler Mendelson, a management-side labor and employment law firm.

The answer will be important because, in one of the most significant provisions set to go into effect in 2014, companies that employ 50 or more full-time employees are required to provide health care coverage for their workers or pay an annual penalty of $2,000 per employee.

Whatever regulators decide constitutes a full-time employee – one who works 32 hours, 37 hours or somewhere in between – could cause small to medium-sized companies to reevaluate their work force by cutting worker hours or eliminating positions.

Larger companies, meanwhile, likely will perform a cost-benefit analysis before deciding whether to provide coverage.

"A lot of strategic decision-making needs to be done," Roth said. "Is it better to ditch the plan and go with the penalty or keep the plan and make sure you're compliant in terms of affordability?"

Sheldon Blumling, a partner in the Irvine office of Fisher & Phillips, said the penalty isn't necessarily steep when compared to the cost of most private health care plans.

"A lot of employers pay more than that to subsidize health care coverage," he said. "Some will look at getting out of the business of health care coverage and pay the penalty.

"The biggest impact (will be) in industries where it's common to have large segments of the work force who don’t get benefits," he added. "Or it's an employee-pay-all situation, like in the hospitality, restaurant or even some retail industries. Those industries will be impacted in 2014 when they have to supply subsidized health care."

Several provisions of the ACA already went into effect prior to last month's Supreme Court ruling and employers won't have to worry about unwinding them.

A couple of the popular ones include the requirement that health plans must provide dependent coverage for children up to age 26, and they cannot impose any pre-existing exclusions for participants under the age of 19. That provision will extend to all participants in 2014.

Also effective now, health plans must provide for preventive care without cost-sharing. Additionally, plans must not place lifetime limits on essential health benefits.

Another ACA provision already in place prohibits employers from discriminating in favor of highly paid employees, like specialized plans for executives. Although the law is in place, enforcement has been delayed until specific regulations are issued.

Employers also are waiting for regulations to be issued for the automatic enrollment provision, which applies to companies with more than 200 full-time employees. Currently, employees have to proactively opt into a health plan.

"What we've seen is automatic enrollment increases participation," Blumling said. "We've seen that in 401(k) plans. So a lot of employers will see increased participation in their plan. That will increase cost to employers."

A key provision going into effect in 2013 that employers need to be aware of is the requirement to provide a mini summary of benefits to employees. At first it was limited to four pages, before being expanded to four double-sided pages.

Also set to go into effect in 2013 is the reduction of flexible spending account contributions by employees from $10,000 per year to $2,500. Littler Mendelson's Roth expects there to be "major Congressional pushback" on that provision.

Riverside attorney John Wahlin, a partner with Best Best & Krieger, said one part of the ACA not getting discussed much is the Medical Loss Ratio Rebate. It states that health insurance companies that do not use 85 percent or more of the premiums they collect on medical costs must refund any unused amount to the employer.

The rebates are required to be made by Aug. 1 of this year.

"It encourages insurance companies to operate more efficiently," Wahlin said. "So if they want to keep charging the same premium, their premiums should reflect the fact that most of it is going to pay claims. Insurance carriers shouldn't get the benefit of having more administrative costs."

He said employers will need to address what to do with the refunded money.

Littler Mendelson's Roth said that while the Supreme Court's decision on health care reform was eagerly anticipated, it was only the beginning of the process.

"If anything, there's going to be a lot more activity (now)," he said.

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