LEGAL AND COMPLIANCE By JoHn HICkman » Partner » alston & BIrD, llp, HealtH BenefIts praCtICe
A Look Ahead to Defined Contributions in Private Exchanges Employers considering defined contributions for individual health insurance policies in private exchanges should examine several important legal and compliance factors in order to prepare for 2014.
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eginning in 2014, individuals will be able to select from a variety of health insurance coverage options available through the State-based exchanges required under the Affordable Care Act (ACA).1 Individuals will also be able to do the same from exchanges the federal government operates for states when states opt for this structure. In addition, many employers are considering a variety of ways to make multiple coverage options available to employees, in some cases utilizing the state exchanges, and in other cases making coverage available through so-called private exchanges. This article discusses issues that may arise when employers choose to use a defined contribution approach, with or without a health reimbursement arrangement (HRA), to make coverage available for employees through a public or private exchange arrangement.
to smaller employers now, enabling them to make various coverage options available to employees as well (and perhaps with different carriers).
What is a Health Coverage Exchange?
Private Exchange Considerations
Simply stated, a health coverage exchange is a marketplace that provides a selection of health insurance coverage options to consumers. The public exchange generally refers to the exchange for individual coverage plans that will be available to individuals through the American Health Benefit Exchange or the group coverage available to employers through the Small Business Health Options Program (SHOP) as part of ACA.2 A private “exchange,” however, has no set definition, and is generically used to refer to arrangements under which employers make a variety of coverage options available to employees through a pre-selected menu. In some cases, an employer may offer multiple insured or self-funded benefit options (e.g., high deductible, HMO, PPO, etc.) to employees and assign different subsidy levels toward the cost of coverage. Historically, this type of private exchange arrangement has been common among larger employers. What is new post-ACA, however, is the downstreaming of multiple benefit option arrangements available
Many employers have considered making a defined contribution approach available that offers employees a choice of health coverage options (and possibly other types of coverage) through individual insurance policies. However, great uncertainty exists because such defined contribution arrangements raise a number of compliance concerns under the Health Insurance Portability and Accountability Act’s (HIPAA) nondiscrimination rules, as well as practical coverage availability issues due to the impact of individual policy underwriting practices on employees with health concerns. Beginning in 2014 (unless implementation is delayed), ACA requires that individual health coverage in the private market (both in and out of the public exchange) must be made available without regard to pre-existing conditions or health status. Some employers may see this as an opportunity to consider a defined contribution model under which employer subsidies may be made available strictly for individual health coverage options offered through a public or private exchange as opposed to offering group insurance.
Annual Outlook 2013 I HealthCare Consumerism Solutions™ I www.TheIHCC.com
A Defined Contribution Approach Can Minimize Financial Exposure A defined contribution approach generally enables employers to fix the amount of their financial contribution obligation, while it enables employees to use the fixed contribution to select from a variety of benefit options. The defined contribution element enables employers to provide funding for employees to purchase coverage through the exchange “marketplace.” Employees can use these allotted funds to select more or less comprehensive coverage to suit their individual preferences, and pay any additional amount through their payroll deduction.