With two major decisions last week, the Supreme Court gave HR leaders nationwide a lot to ponder.
On the healthcare front, upholding core provisions of the Affordable Care Act means employers can now plan their healthcare benefit strategies with more clarity. And with same-sex marriage now recognized as legal in every state, employers need to tackle benefits changes in several areas.
Affordable Healthcare Act: Employers can focus
The National Business Group on Health (NBGH), a non-profit representing large employers’ perspectives on national health policy issues, says the ruling that upholds the legality of subsidies on the federal exchange is welcome news to large employers that have relied on exchanges for health insurance for early retirees, part-time employees and other employees.
“It also reassures employers in affected states who have relied on exchanges for early retirees, part-time employees and other employees that there will be no disruption in coverage," says Brian Marcotte, NBGH president and CEO.
According to J.D. Piro, senior vice president at Aon Hewitt and leader of Aon’s Health Law Group in New York City, many companies will now turn their focus to three key areas: reporting compliance, the excise tax and pre-65 retiree health care strategies.
“This case was the last major judicial hurdle that the Affordable Care Act had to clear before full implementation,” Piro says. Now, employers must switch focus.
As it stands, the ACA calls for a 40% excise tax on the health benefits companies provide employees above a specific threshold. In 2018, the so-called "Cadillac Tax" will hit insurance coverage valued at more than $10,200 for singles and $27,500 for families. For family benefits worth $30,000, the tax would apply to the $2,500 above the limit.
“Employers will need to find the right combination of strategies to ensure compliance and reduce their exposure,” Piro says.
Under the ACA reporting rules, companies must file annual returns beginning in 2016 reporting what health insurance they offered employees. If self-insured, they also need to report certain information for each employee they cover. According to Aon Hewitt research, 64% of companies said complying with these government regulations would be one of their most significant challenges in 2016.
Aon Hewitt research also shows two-thirds of companies are considering altering their pre-65 retiree health strategies over the next few years. Of those, 35% favor sourcing health coverage through the public exchanges under a defined contribution approach. Twenty-eight percent are considering eliminating pre-65 retiree coverage and subsidies altogether.
“Now, with the case decided, it’s likely we could see aggressive movement from companies in the 2016 to 2018 timeframe, enabling them to avoid the excise tax risk on this high cost retiree population,” says John Grosso, actuary and leader of the Aon Hewitt Retiree Task Force.
Same-sex marriage decision: Benefits challenges ahead
Laura Maechtlen, an attorney with Seyfarth Shaw in San Francisco, says the same-sex marriage decision will have far-reaching effects on employee benefits.
Until last week, employers faced a patchwork of state laws relating to relationship recognition for same-sex couples. The decision unifies the patchwork of laws and creates a more uniform landscape for employers concerning employee benefits, retirement plans, health and welfare plans, leave entitlement, and other issues.
“With this change in the law, employers should undertake a review of their offered employee benefit plans, including a review of the definition of ‘spouse’ in plan documents,” she says. She notes that employers should also reevaluate their own internal policies and training materials to ensure that they adequately address new employee leave rights and the application of existing laws that protect employees based on marital status.
Todd Solomon, a partner at McDermott, Will and Emery in New York City and an expert on domestic benefits for same-sex partners, says the impact of the decision on employers will depend largely on whether the employer's domestic partner benefits program covers same-sex partners only or both same-sex and opposite-sex partners.
State and local legal requirements on unmarried partner benefits will factor in. For example, California requires fully insured plans to cover unmarried, registered domestic partners.
Solomon explains that domestic partner benefits plans that have covered only same-sex unmarried couples are at risk of being phased out. With no legal barriers to same-sex marriage, it is likely that many employers will eliminate their benefits for unmarried partners, which are administratively complex (due to tax and other administrative reasons, such as the proof process).
“Many of these programs only exist because same-sex couples have traditionally been denied the right to marry, and even when they have had the right to marry, those marriages have not been recognized everywhere,” Solomon says.
He notes that in the event employers looking to eliminate such benefits, a key consideration is timing. For example, many employers will want to give a grace period (of several months or one year) during which an employee can get married before having their partner dropped from the employer's benefits.
No matter what, employers will want to consider this issue from all angles, Solomon says. Even though it may be "fair" to require same-sex couples to marry in order to retain benefits, the removal of domestic partner benefits is likely to be viewed as a takeaway, particularly among long-time partners who have no desire to marry after years of being denied access to the institution of marriage.
Retaining same-sex couple only plans after the Supreme Court decision raises an interesting “reverse” discrimination issue, he adds.
“There is a good chance that plaintiff’s lawyers may bring sex discrimination suits on behalf of unmarried opposite-sex couples who are denied benefits in the future,” he says.
For plans that cover both opposite-sex and same-sex couples, keeping the status quo makes sense, he adds. The employer may want to continue to provide coverage to all unmarried partners, regardless of the right to marry.
“Many employers do not feel comfortable ‘legislating’ marriage to their employees and prefer to provide coverage to the most broad definition of families, including single moms, gay and lesbian couples, adults with dependent parents, etc.,” he says.
Aon Hewitt anticipates the number of companies offering domestic partner health care coverage may decline as employers look to streamline benefits. According to the firm’s data, 77% of employers currently offer same-sex domestic partner health care coverage.
“With today’s ruling, employers will need to consider how best to design their employee benefits plans to attract and retain the best talent,” says Aon’s Piro, adding that allowing same-sex marriage across the country will likely ease the administrative burden on employers by providing consistency across states.
Employers also may need to make administrative changes to cover same-sex spouses in states where they were not previously covered. For example, they will need to modify enrollment processes and create or modify consent and eligibility forms.
“Most large employers provide health benefits to same-sex couples, so the Court’s ruling simplifies plan administration because benefits can be administered and provided more consistently,” says Steve Wojcik, NBGH vice president, public policy. “Health benefits must be the same for all legally married couples and state tax treatment differences go away.”