by Tim McQuiston Vermont Business Magazine Vermont businesses who have offered health care, even for decades, are taking a hard look at whether they will do it any longer. The new health insurance marketplace (’Exchange’) ‘ Vermont Health Connect ‘ could lead businesses to conclude that it is better for them to drop health insurance and let their employees to go straight to the Exchange. There could be profound tax implications either way.
Though initially bogged down by heavy traffic Vermont Health Connect has the system up and running starting today. Mark Larson, commissioner of the Department of Vermont Health Access, said by 2 pm today some 5,550 unique visitors had gone into the system. He said the technical issues will be worked out quickly. As of 4 pm Wednesday, VHC reprted it had about 20,300 unique visits to the VHC website with just over 1,230 user accounts established.
For now, individuals can create account. He said they will not be "enrolled" until actual payment has been received, (SEE RELATED STORY WITH TABLES) though it is not fully operational to the point that individuals can start paying for their insurance.
Larson said the federal government shutdown will not affect the Exchange.
With the demise of the Vermont Health CO-OP, Blue Cross and Blue Shield of Vermont and MVP Health Care are the only insurers participating in the Exchange.
What businesses and individuals are asking themselves, perhaps more than anything, is ‘which of the new plans is most similar to what we’re offering now?’
‘Anything we have now doesn’t really exist on the Exchange,’ said Julie McDonough, program coordinator for Chamber Preferred at the Vermont Chamber of Commerce.
Regardless of whether a business chooses to offer health insurance starting January 1, 2014, or let its employees find insurance on the Exchange by themselves, the business is being de-coupled from health insurance.
‘What businesses are having a difficult time wrapping their heads around is that businesses don’t pick a plan. They’re only deciding on a dollar amount,’ McDonough said.
A company offering to cover health insurance could offer a dollar amount at different levels, say $250 a month for a single, $500 for a couple and $1,000 for a family, which would be before taxes, as it is now.
The employee then picks one of the myriad plans and could then ‘buy up’ to get more coverage out of their own pocket to get a more comprehensive plan. But if they ‘buy down,’ they don’t get to keep any money beyond the premium, which would be retained by the company (say if the family getting the $1,000 chooses a plan with a premium of $958.63 a month, it will only get $958.63 a month from its employer).
The choices are complex given that there are 18 different plans (not including the two catastrophic plans offered only to singles under 30) in the Exchange. The only plans that look very similar to what is offered now are the high-deductible HSA Silver and Bronze plans.
Governor Peter Shumlin does not want businesses to offer a plan. Instead, he wants businesses to drop insurance and let individuals pick plans on the Exchange. He has said that this will make for a smoother transition to a state sponsored single-payer system, which he hopes to guide the state towards in 2017.
And while there will be some tax credits and income-sensitive assistance to offset the extra cost of going onto the Exchange (insurance premiums will be after-tax if an individual or family goes on the Exchange outside of a business), it appears that for most people, the new system will be more expensive than what they have now.
ACA
Everyone knows by now that the Vermont health insurance exchange, called Vermont Health Connect, was created out of President Obama’s Affordable Care Act (ACA), popularly dubbed ‘Obamacare.’
The goal of Obamacare is to get everyone in the United States covered by health insurance. If everyone is covered, the logic suggests, then health care insurance costs will go down over time as 1) a greater percentage of people are sharing the burden of health care costs; 2) fewer people are using much more expensive primary care options, such as going to a hospital emergency room for routine health care; and 3) ultimately, people are healthier because they are getting treatment before a health situation becomes acute.
In Vermont, Vermont Health Connect, with the help of some federal money, requires all uninsured individuals and those working at businesses with 50 or fewer employees to be covered by health insurance. The state estimates that the Exchange will cover upwards of 100,000 Vermonters, or less than one-sixth of the population.
Those small businesses, however, are not required to offer health insurance. All they need to do is inform their employees by October 1, 2013, that individuals are required to participate in the Exchange, either directly through Vermont Health Connect or through their employer.
VHC is urging employers to inform their employees as soon as possible whether or not they are offering insurance and at what dollar level. Time is running out fast. The Exchange begins on January 1 and if an employee is not enrolled in time, they will be without insurance. This could be the case even if they signed up before January 1, but then missed the deadline as the insurance company processes the application.
If a company declines to offer health insurance, they will be penalized. That penalty will be small the first year and then grow in subsequent years. Likewise, individuals who decline to join the Exchange, either through their workplace or individually through the VHC Web site, will also be fined, also on a sliding scale. The fines are not onerous initially because the state wants to ease Vermonters into the system without it being too threatening initially. But eventually it will become onerous for individuals to go without insurance.
For those businesses now offering health insurance, they would lose any tax benefits they might get now if they were to drop coverage, as health care premiums are a deductible expense. Now and going forward in the Exchange, health insurance premiums are taken out of an employee’s wages as pre-tax income. So if the employee is buying insurance on the Exchange themselves, they are using wages that have already been taxed.
To offset this outcome, the federal government is allowing for tax credits and the state is offering subsidies. If your employer offers health coverage, you will not be eligible for that assistance. A calculator can be found on VHC’s Web site at
http://healthconnect.vermont.gov/tax_credit_calculator
If the company decides it will not offer coverage, but raise its employees wages, say, similar to what it is offering them now to cover premiums, there is going to be a tax disadvantage. Not only are the increased wages taxable, thus reducing the effective offset, but the company will have to pay higher unemployment insurance and, perhaps more profoundly, the individual might be kicked up to a higher bracket and lose some of that federal and state assistance.
Navigators, those trained in helping businesses and individuals through this process, are recommending that businesses simply not raise wages, because of the tax implications.
The many businesses offering Health Savings Accounts now, will still be able to fund one of the two HSAs on the Exchange with pre-tax dollars ($3,300 for a family and $6,500, which can be used for any out-of-pocket expenses, such as co-pays and deductibles, but not for premiums.)
Businesses can hire a broker, go to their accountant or tax attorney or visit the VHC Web site and look at the calculator for further help. Hiring a broker is generally a new expense for employers, as brokers previously were paid a commission through the premium by the insurance carrier. A registered broker can charge $20 per employee per month, but the state is offering a subsidy of $7 per employee.
The business tax credit for those employers that will still offer health insurance coverage adds another complication, which might require professional advice. Businesses with fewer than 25 employees with average wages under $50,000 who cover at least 60 percent of premiums could earn a tax credit of up to 35 percent.
This could be a windfall for some companies, but the calculation is complicated by the tax structure of owners who are also employees.
While there are only two health insurers participating in the small and individual market, there are a dizzying number of options with the 18 plans being offered by Blue Cross Blue Shield of Vermont and MVP Healthcare.
There are only two because the Vermont Health CO-OP has ceased operations after it failed to get a license to operate. Other companies, notably Cigna, do not offer health insurance in the small business and individual marketplace.
Cigna will still operate in Vermont and continue covering its mostly institutional clients, such as colleges. Larger businesses will continue to offer coverage as they have been doing, which might include being self-insured. They will not be affected until 2017, if indeed Vermont is able to transition to a single-payer system, which would eliminate private health insurance altogether. But for now that seems a ways off and small businesses and individuals need to figure out how to navigate the Exchange over the next few months. In 2016, the definition of a small business will increase to 100 employees or fewer.
Businesses whose current plans do not expire until after January 1, 2014, will not have to join the Exchange, or drop coverage, until the current plan expires, and could even stay with their current plan (though premiums could increase) until January 1, 2015.
Employees over 65 can still get health insurance even if they’re on Medicare. Some Medicare recipients use company-sponsored insurance to cover the Medicare Part D ‘donut hole’ gap in prescription drug costs.
If this all sounds complicated, it is, and because this is the first year, there is no history to guide individuals or businesses on what will work best.
Hospitals, who want businesses to continue to offer health insurance, are concerned that small businesses will drop coverage and wait and see how it all works out, just as people might avoid buying a new model car and wait a year for the manufacturer to get the bugs out. Without help from their employer, individuals might drop health insurance altogether.
Led by Fletcher Allen Health Care, the Act 48 Progress Assessment Working Group said in a statement last spring that: ‘Dropped employees could choose to forego health coverage for economic reasons creating a new class of uninsured, although previously insured, middle-income Vermonters.’ Individuals could simply pay the relatively small penalty, especially the first year, and not be covered.
FAHC typically gives a 30 percent discount to uninsured people paying themselves, but cannot refuse to offer care whether the individual has the ability to pay or not. If there are lost costs, the hospital will ‘cost shift’ the expense to other revenue streams, such as increasing rates for those covered by health insurance.
Generally speaking, the plans as laid out now will be more expensive than what people have been paying, whether they had health insurance through their employer or were buying it through the state’s Catamount plan.
While the premiums could be lower for a similar plan to what is being offered now, there are going to be more charges, which people on HMO or HSA plans now have not had to deal with in several years. These charges include old fashioned co-pays on doctor visits and prescription drugs. Those charges are also less easy to calculate as different types of health care treatment and different types of drugs ‘ typically generic versus brand name ‘ could have different co-pays associated with them.
But co-pays are not the headline grabber. It’s the deductibles. While deductibles have been steep in recent years as a way to offset the rising costs of premiums, once those premiums were reached, an individual on a typical health plan would then be covered for all other health care costs including pharmaceuticals (Rx in health-speak) for the rest of the year.
That will not be the case going forward, even under the Platinum plans offered by Blue Cross and MVP. Even where monthly premiums are over $1,600, there will still be some deductibles and some co-pays.
Most plans have what can only be described as a ‘double deductible.’ The first level requires the individual to pay out-of-pocket for all costs until that level is reached. The second deductible then kicks in and lowers the cost of Rx of medical care, but you would still have to pay the co-pay until a total ‘out-of-pocket’ maximum has been reached. In some plans the maximum is the sum of both Rx and medical and in some they are separate.
A family that consumes a lot of health care could pay maximum out-of-pocket costs of $5,000 a year on top of that monthly premium, Platinum plan. Going completely on your own, total costs would be over $24,600, not including any assistance or tax breaks. The cheapest standard Bronze plan would still be just over $24,000 out-of-pocket for a family plan reaching all the deductibles and including the premium.
Reaching those maximums assumes, of course, that there is a lot of health care need, especially on the Rx side, but certainly not uncommon, where a single specialized medication could run over a $1,000 month and even common surgery could run into the tens of thousands (in the US, a knee replacement typically costs over $24,000 and a coronary bypass is over $50,000).
There is a preventive care mandate in all these plans, such as going to the doctor for a checkup will not cost anything, as it’s covered in the premium. And the non-standard plans have more ‘wellness’ options. There are also ‘high deductible’ plans, which are more similar to what companies might be offering now in an HMO or HSA, but which will now also have co-pays as part of the mix.
Q&A from Vermont Health Connect
healthconnect.vermont.gov
Small Business Hotline 1-855-499-9800
How can I determine if my business qualifies to use Vermont Health Connect?
For the purposes of qualifying to use Vermont Health Connect in 2014, a business is a small business if it employs 50 or fewer full-time employees. An employee is a full-time employee if she works 30 or more hours per week. Anyone who works less than 30 hours per week is not counted.
Who counts as a seasonal employee?
Seasonal employees are defined as employees who work fewer than 120 days during the year.
My business qualifies as a small business. Should I offer coverage to my employees or not?
For the 47% of Vermont small businesses that offer insurance, the keep-drop question is a critical one. Unfortunately, there is not a one-size-fits-all answer. The State cannot determine what is best for your business and your employees. What we can, and will, do is develop tools to help you decide whether to renew group coverage. If you decide to renew, these tools ‘ along with certified Navigators and registered brokers ‘ can help you determine which plans to renew and how to do it.
If you are among the 53% of Vermont small businesses that don’t offer insurance, you will be able to use these same tools to decide whether to start offering employer sponsored insurance through the Exchange.
What other questions should I ask as I decide whether to keep or drop coverage?
A few key questions (and when to ask them) include:
What types of businesses do you expect to keep offering coverage? What types will drop?
A village market staffed by lower and middle-income employees (up to 400% of federal poverty level, or household income of $94,200 for a family of four) might consider dropping coverage in order to allow the employees to take advantage of federal tax credits. A law firm with high-income partners, on the other hand, might decide to continue their employer-sponsored insurance. Businesses with a mix of employee incomes will have a tougher decision. These businesses will likely want to consult Vermont Health Connect’s decision tools, along with certified Navigators and registered brokers, to walk through the process of deciding what is best for each of their particular situations.
How will the health coverage work if I decide to keep coverage?
Small business employers who participate in the Exchange will have the option of choosing between different models. In one model, the employer selects a single insurer and decides how much to contribute, then each employee can select any tier of qualified health plan from that provider. In the other model, the ‘full choice’ model, employees can select any plan from any provider.
Regardless of which model you choose, you will only have to pay one bill each month. Vermont Health Connect will aggregate all of your employees’ premiums, calculate your contribution, then divide and disburse your contribution to each of the providers.
What happens to my employees if I decide not to offer health coverage?
If you decide not to offer health coverage, your employees and their families will be able to purchase coverage through Vermont Health Connect. If they need help doing so, they can use the Vermont-based call center or certified Navigators. Employees in most Vermont households (those with incomes up to 400 percent of the federal poverty level or $94,200 for a family of four) will be eligible for premium tax credits and/or cost-sharing subsidies to help pay for out-of-pocket costs. These two forms of financial assistance are not available to Vermonters in employer-sponsored plans.
What happens to me if my business decides not to offer health coverage to my employees?
Depending on the size of your business, you might be subject to a state assessment, a federal assessment or both. If your business has fewer than 50 full-time equivalent employees (’FTEs’), then you will not be obligated to pay a federal assessment if you choose not to offer health coverage. Like larger businesses, however, you will still be required to pay a Vermont assessment of approximately $40 per month for each uncovered FTE ‘ although there is no penalty for the first four uncovered FTEs.
Because many small businesses are accustomed to contributing hundreds of dollars per employee per month toward the cost of health care, the decision to drop coverage might leave you with considerably more money on your balance sheet. That, in turn, will lead to more choices. Do you increase employee compensation? If so, do you do so in the form of bonuses or other perks? These decisions will vary from employer to employer based on their particular circumstances.
Businesses with 50 or more FTEs will be subject to a federal assessment for not offering adequate coverage. It is important to note that whether an employer is subject to this assessment depends on the number of its FTEs, as defined by the IRS. This is not the same as determining if your business qualifies as a small business in Vermont. In other words, a business that employs 40 full-time workers and 40 half-time workers would be considered a small business for the purpose of qualifying to use Vermont Health Connect, but might not be considered a small business for the purposes of avoiding the federal assessment for not offering coverage. If you are unsure how to count your employees, consult the IRS or an attorney.
What happens if I start offering coverage with 49 full-time employees and later hire more?
If a small employer (50 or fewer employees) offers coverage to employees through Vermont Health Connect and then hires over 50 full-time employees, the business will still be treated as a small employer, and therefore continue to offer coverage through Vermont Health Connect, until it no longer offers coverage to employees through Vermont Health Connect.
Is an employee who uses his spouse’s coverage counted in a businesses’ Full Time Equivalent (FTE) calculation?
Yes, for purposes of determining if an employer is eligible for small group coverage.
How are employers with a unionized workforce going to provide coverage in 2014?
Use this chart to find your answer. If you have additional questions, please email us at [email protected].
Are owners included in the employee calculation?
No. Self-employed persons and partners are not employees. They are not included in the employee calculation.
Can I offer employer-sponsored insurance to my managers and let the rest of my staff shop on the Exchange?
No, if you offer employer-sponsored insurance to any full-time employees, then you must offer it to all of your full-time employees (those working 30 or more hours per week).
I own a business in Vermont but employ workers who live in New Hampshire. What does this mean for me?
Vermont employers will be able to offer their out-of-state employees plans through Vermont Health Connect. It’s up to employers to make sure the plan options they pick for their employees, or that the employee chooses, has health care providers their employees will need in the state they live or work in. Employers can also offer plans on out-of-state Exchanges (where the employee’s primary worksite is located).
It is anticipated that insurance companies will offer the same, or similar, networks in 2014 as they currently offer. Before open-enrollment (beginning October 2013), you will have time to review these plans.
What is the role of brokers and Navigators?
The State is committed to providing small businesses with the support needed to enroll their employees in Vermont Health Connect. Just as today, all businesses will be able to use a broker to enroll in a company health plan, whether it’s through Vermont Health Connect or not. Businesses that use Vermont Health Connect to enroll in company health plans will have the additional option of using in-person assisters called Navigators to walk them through the process. Both registered brokers and certified Navigators will be fully trained on Vermont Health Connect.
The State has received federal grant funding to subsidize traditional broker fee payments to support small businesses that want to continue their relationship with their broker. The funding may be utilized to subsidize broker assistance for small group employers with a January 1, 2014, renewal date. In January 2013, the State also received a federal grant to fund the Navigator program.
Will the employer assessment change in 2014?
The Administration is not proposing a change in the employer assessment for 2014. The federal Affordable Care Act is changing some of the ways we access ‘ and pay for - health care in Vermont, but the philosophy that health care is a shared responsibility is not changing. Businesses, individuals and families all contribute to the cost of health care in the current system and will all continue to do so in 2014 and beyond.
This is not to say that all contribute equally. In fact, businesses that provide health care spend an average of more than $550 per enrolled employee each month. Businesses that contribute via the employer assessment, on the other hand, pay less than $40 per month ($476 per year).
Nonetheless, the current law is a step toward a level playing field between employers who offer health coverage and those who don’t. It also serves to support affordable access to health coverage for low- and middle income Vermonters. Current law applies to employers who 1) do not offer insurance at all, 2) do not offer insurance to all employees, or 3) offer insurance, but the employee(s) doesn’t enroll and is uninsured.
PHOTO: Navigator Peter Sterling, Commissioner Mark Larson and Commerce Secretary Lawrence Miller answer questions on the opening day of the Exchange, October 1, 2013.