The Potential ACA Ramifications of Changing Your Plan Start Date

Who doesn’t want to reduce their healthcare costs? With forecasted 2016 premium hikes across the country ranging from 7%-40%, employers are scrambling for opportunities to avoid, or at best delay, the tidal wave of rising healthcare costs.

Some HMOs and health insurance companies have recently been encouraging employers in the 51-100 employee range to renew their coverage early (i.e., in late 2015). That would allow these employers to forestall their ACA-required re-classification as a “small group” by up to 11 months, delaying their move to small group, community rated products — which are generally not as customizable as, and more expensive than, plans available to 100+ life groups.

Before opportunistic employers go changing their coverage’s plan year, there are a few legal concerns to consider.  

Related Blog: How Do Non-Calendar Health Plan Years Affect Obamacare Reporting

Generally, employers are prohibited from changing their plan years in order to avoid unwelcome ACA outcomes – such as being forced out of a large group, experience rated plan into a small group community rated product.

In addition, the IRS’s final regulations on the ACA’s “employer shared responsibility” (pay or play) mandate state that once a plan year has been established, it can only be changed for a valid business purpose.

Specifically:

• Employers with 50 – 99 employees (“mid-sized” Applicable Large Employers or ALEs) are generally granted transition relief in 2015 from exposure to the pay or play penalties. However, a mid-sized ALE that changes its’ plan year after February 9, 2014 is no longer eligible for this transition relief…and would be subject to the potential penalties during their 2015 plan year. Depending on where an employer stands vis a vis the pay or play coverage requirements, a few months of savings from an early renewal may pale in comparison to the penalties incurred under pay or play – up to $3,000 for each full-time employee.
• Employers with 100+ employees (“large” ALEs) that offer a fiscal year (non-calendar year) plan also have some transition relief available to them in 2015 as well. However, if a large ALE changes their plan year start/end dates after December 27, 2012, it will not be eligible for pay or play transition relief. Again, this is another situation where the pain (penalties in the months before the first day of the 2015 plan year) can far outweigh the gain (a few months of lower renewal rates.

Under current IRS guidance, a valid business reason for changing plan years could include switching insurance carriers, corporate mergers, or a business acquisition. At the same time, they also have repeatedly indicated that a plan year change made solely for the purpose of avoiding/delaying an ACA-mandated requirement would not be well-received.

Related Blog: What to Look for in an ACA Software Solution

What’s the bottom line? Employers in the 51-100 range have an opportunity to delay a potentially costly transition into the community rated market, but ought to weigh the implications of such a change against the potential ACA penalties – and potential IRS intervention – that could/would result.

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