Wednesday, May 5, 2010

Automatic Enrollment for Employees of Large Employers

(Note : For the next few weeks, Health Reform Talk will focus on detailed explanations for specific provisions in the new health reform law. Click here for previous post.)

So what’s included in Sec. 1511 of the Affordable Care Act, concerning the automatic enrollment for employees of large employers?

Employers with more than 200 full-time employees who offer enrollment in one or more health benefits plans are required to automatically enroll new employees in one of the plans offered.

John Garner, a Principal with Garner Consulting of Pasadena, California and author of the Health Insurance Answer Book, notes that the automatic enrollment requirement for large employers (over 200 employees) will undoubtedly increase enrollment in employer-sponsored plans, much as automatic enrollment has done for 401(k) plans that have elected it. Even so, the Congressional Budget Office estimates that overall enrollment in employer-sponsored plans will decline by about 3 million people. This is because the impact of the individual mandate and the automatic enrollment provision will be more than offset by small employers dropping coverage and lower income employees opting for coverage in exchanges where they can receive tax credits.

The Affordable Care Act specifies that new full-time employees will automatically be enrolled in one of the plans (subject to any waiting period authorized by law) and current employees will continue to be enrolled. The automatic enrollment program must include adequate notice and the opportunity for an employee to opt out of any coverage the individual or employee was automatically enrolled in. This federal law does not supersede any state law which establishes, implements, or continues in effect any standard or requirement relating to employers in connection with payroll unless the state law would prevent an employer from instituting the automatic enrollment program.

Notice. Employers are required to provide an employee, at the time of hiring (or, with respect to current employees, not later than March 1, 2013), written notice—

(1) informing the employee of the existence of an Exchange, including a description of the services provided by such Exchange, and the manner in which the employee may contact the Exchange to request assistance;

(2) if the employer plan’s share of the total allowed costs of benefits provided under the plan is less than 60%, that the employee may be eligible for a premium tax credit and a cost sharing reduction under the Affordable Care Act, if the employee purchases a qualified health plan through the Exchange; and

(3) if the employee purchases a qualified health plan through the Exchange and the employer does not offer a free choice voucher, that the employee may lose the employer contribution (if any) to any health benefits plan offered by the employer and that all or a portion of such contribution may be excludable from income for federal income tax purposes.

Because of the new requirement that applies to employers that pay less than 60% of the premium to provide expanded notices to employees, 60% may become the new norm, notes Garner. If an employer has been paying 80% of the employee premium and 50% of the family premium, they may switch to 60% of both in order to avoid providing more than the minimum notice.

Regulations. The Secretary of Labor must issue regulations with respect to both the automatic enrollment provision and the notice provision.

Effective date. No effective date is provided for the automatic enrollment provision. The provision is, therefore, considered effective on the date of enactment (March 23, 2010). The notice provision will take effect with respect to employers in a State beginning on March 1, 2013.

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