PRIVATE HEALTH INSURANCE – SHOP EXCHANGE – Regulation Issued on Small Group Exchange Plans

Dominic

Individuals and small employers will be able to purchase
private health insurance through a new marketplace called
“The Exchange” beginning in 2014. Each state that chooses
to operate an Exchange must also establish a Small Business
Health Options Program (“SHOP”) that assists eligible small
businesses in providing health insurance options for their
employees. HHS has also provided for a federally facilitated
SHOP (“FF SHOP”) in states such as Texas and Louisiana
that will not establish a state-based Exchange. Participation in
the SHOP is strictly voluntary for small employers. However,
beginning in 2014, purchasing group health coverage through
a SHOP will be the only way for certain small employers to
obtain a small business health care tax credit.

Special Enrollment
The special enrollment period for the SHOP aligns with
the HIPAA Special Enrollment Rule, allowing individuals
30 days to request an election change for most applicable
triggering events (e.g., en employee or dependent losing
group coverage or an employee gaining a dependent
through marriage, birth or adoption). Where an employee
or dependent becomes eligible for Medicaid or SCHIP, the
employee or dependent would have 60 days to request an
election change.

 
Delay for Employee Choice Model
In a previous rule, both state-operated SHOPs and FF
SHOPs were required to allow employers the option to offer
employees all qualified health plans (“QHPs”) at a metal
level of coverage (bronze, silver, gold, or platinum), chosen
by the employer, and the SHOP could allow employers to
offer one or more QHPs to qualified employees by other
methods. However, there were some concerns as to whether
(i) issuers could meet deadlines for submission of small
group market QHPs given the new small group market rating
rules; (ii) issuers could complete enrollment and accounting
changes required to interact with the SHOP enrollment and
premium aggregation systems required by employee choice;
and (iii) there would be adequate time to educate employers,
employees and brokers about the employer and employee
choices available in the SHOP.
CMS now proposes that the employer choice requirements
for both state-based SHOPs and FF SHOPs will be effective
January 1, 2015. In 2014, state-based SHOPs (but not FF
SHOPs) could elect to offer employee choice for plan years
beginning before January 1, 2015. This transitional policy
is intended to provide additional time to prepare for an
employee choice model and to increase the stability of the
small group market while providing small groups with the                                              benefits of SHOP in 2014 (such as choice among competing                                                       QHPs and access for qualifying small employers to the small                                          business health insurance tax credit).

Employer Size
A small employer is an employer that employed an average of
at least one but not more than 100 employees on business days
during the preceding calendar year, and employs at least one
employee on the first day of the plan year. Before 2016, a state
will have the option to define “small employer” by substituting
50 for 100 in the standard definition. For purposes of counting
employees to determine whether an employer is a small
employer (and thus SHOP eligible), the final regulations adopt
the employer penalty counting method which includes counting
full-time employees (as well as part-time employees as a
fraction). These counting rules apply in 2014 for FF SHOPs,
but a transitional rule allows state-operated SHOPs to rely on
state counting methods – which in some states may not include
part-time employees – for determining group size and status as
a full-time employee until 2016.

Minimum Participation
Under the earlier final Exchange establishment regulations,
a state-operated SHOP may have minimum participation
requirements as long as they are based on the rate of employee
participation in the SHOP, not on the rate of employee
participation in any QHP of a particular issuer. The final
regulations adopt a default minimum participation rate for an FF
SHOP of 70%, also calculated at the level of the participation
of the employees of the employer in the FF SHOP and not
enrollment in a single QHP.

The final regulations provide that insurers cannot deny coverage
to small employers for failure to satisfy minimum participation or
contribution requirements (i.e., coverage is guaranteed available).
However, the final regulations continue to allow an insurer to
refuse to renew a group policy in the small group market if
the employer fails to satisfy an employer contribution or group
participation rule under applicable state law (i.e., coverage is not
guaranteed renewable). This inconsistent result, of guaranteed
availability but no renewability, is good news for employers in the
small group market that are large enough to be subject to the
employer penalty taxes. It means they will at least be able to offer
coverage to reduce or avoid penalties, but unfortunately, may be
forced to switch insurers every year.

This document is designed to highlight various employee benefit matters of general interest to our readers. It is not intended to interpret laws or regulations, or to address specific client situations. You should not act or rely on any information contained herein without seeking the advice of an attorney or tax professional.

For more information please contact:

Dominic A. Morelli

TEL: 201-661-2341

dmorelli@capcoverage.com

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