Group Plan Affordability Levels Set for 2021

The IRS has announced the new affordability requirement test percentage that group health plans must comply with to conform to the Affordable Care Act.

Starting in 2021, the cost of self-only group plans offered to workers by employers that are required to comply with the ACA, must not exceed 9.83% of each employee’s household income.

Under the ACA, “applicable large employers (ALEs)” — that is, those with 50 or more full-time workers — are required to provide health insurance that covers 10 essential benefits and that must be considered “affordable,” meaning that the employee’s share of premiums may not exceed a certain level (currently set at 9.78%). The affordability threshold must apply to the least expensive plan that an employer offers its workers.

The threshold was increased because premiums for health coverage increased at a greater rate than national income growth during 2020.

With this in mind, if you are an ALE you should consult with us to ensure that you offer at least one plan with premium contribution levels that will satisfy the new threshold.

Failing to offer a plan that meets the affordability requirement to 95% of your full-time employees can trigger penalties of $4,060 (for 2021) per full-time employee, minus the first 30. The penalty is triggered for each employee that declines non-compliant coverage and receives subsidized coverage on a public health insurance exchange.

Since most employers don’t know their employees’ household incomes, they can use three ways to satisfy the requirement by ensuring that the premium outlay for the cheapest plan won’t exceed 9.83% of:

  • The employee’s W-2 wages, as reported in Box 1 (at the start of 2021).
  • The employee’s rate of pay, which is the hourly wage rate multiplied by 130 hours per month (at the start of 2021).
  • The individual federal poverty level, which is published by the Department of Health and Human Services in January of every year. If using this method, an employee’s premium contribution cannot be more than $104.52 per month.

Out-of-pocket maximums

The IRS also sets out-of-pocket maximum cost-sharing levels for every year. This limit covers plan deductibles, copayments and percentage-of-cost co-sharing payments. It does not cover premiums.

The new out-of-pocket limits for 2021 are as follows:

  • Self-only plans — $8,550, up from $8,150 in 2020.
  • Family plans — $17,100, up from $16,300 in 2020.
  • Health savings account-qualified self-only plans — $7,000, up from $6,900 in 2020.
  • HSA-qualified family plans — $14,000, up from $13,800 in 2020.

Pandemic Clouds Health Insurance Cost Predictions

With large employers expecting health insurance rates to climb 5.3% in 2021, they are concerned about how the COVID-19 pandemic will affect overall health care costs in the coming years, a new survey has found.

Those expectations gleaned from the survey by the National Business Group on Health would mean average premiums and out-of-pocket spending could reach $15,500 per worker. The expected increase is on par with the average 5% annual increase that large employers have projected in the last five years.

Employers have been using different strategies to tame those costs, most notably pushing more telemedicine for their workers, a trend that has increased during the pandemic.

Additionally, employers have increased their investments in employee health and well-being programs, a trend that was largely spurred by the pandemic and employers’ understanding that their business performance is linked to the health of their workers.

The numbers going into 2021 are squishy because there has been a significant drop-off in the use of medical services in 2020 due to the pandemic. Many people have delayed non-urgent care to avoid the risk of being infected with COVID-19 if they go to the hospital.

Other people with serious conditions have also unwisely decided to forgo care out of fear of getting sick from the coronavirus.

Health care experts are not sure if that means there will be an uptick in utilization in 2021 and think the 5.3% estimate increase in costs will pan out if people continue to put off care, Conversely, if care resumes in 2021, the projected trend may prove to be too low.

Here’s what large employers are expecting:

  • Average total health care spending on premiums and out-of-pocket costs will reach $15,500 per worker in 2021, up from $14,769 this year.
  • Large employers will cover nearly 70% of costs (premiums), while employees bear the rest. That would mean the average outlay per employee would be $10,850 for the employer and $4,650 for the employee.

Trends

Employers are continuing to address health care costs by focusing on new areas that can improve health outcomes for their workers. The trends that large employers predict would continue in 2021 are:

Continued move towards telehealth services — The use of telemedicine has exploded during the COVID-19 pandemic. Among the survey respondents:

  • 76% have made changes to provide better access to telehealth services.
  • 71% have boosted the types of telehealth services they offer, such as adding health coaching and emotional well-being support.
  • 80% expect virtual health will play a significant role in how care is delivered in the future. That’s compared with just 64% last year and 52% in 2018.
  • 52% will offer more virtual care options next year.
  • Nearly all will offer telehealth services for minor, acute services.
  • 91% will offer online counseling or therapy.
  • 29% may start offering virtual care for musculoskeletal issues, like physical therapy for back and joint pain.

Boosting wellness and mental health services — As many as 88% of respondents said they would provide access to online mental health support resources, such as apps, videos and articles. The survey also found that:

  • 54% are lowering or waiving costs for virtual mental health services in 2021.
  • 27% will reduce the cost of counseling services at the worksite.

Focusing on primary care — More employers are looking at advanced primary care strategies to reduce costs, with 51% saying they will have one at least one such strategy in place for 2021.

This would include contracting directly with primary care providers who can improve the delivery of preventive services, chronic-disease management, mental health and whole-person care.

Addressing high-cost drug therapies — Two-thirds of respondents said they were very concerned with the cost of new million-dollar treatments, just one of which can blow up their health cost budget.

A Primer on Changes to 2021 Group Health Plans

While most business owners and executives have been fretting about the COVID-19 pandemic and the effects on the economy and the survival of their business, now is a good time to conduct a review of group health plans in light of changes and new rules for 2021.

Here are some of the main changes that you should consider ahead of the new year:

Out-of-pocket limits – The out-of-pocket limit amounts for 2021 are:

  • $8,550 for self-only coverage.
  • $17,100 for family coverage.

For HSA-compatible high-deductible health plans, the out-of-pocket limits for HDHPs with attached health savings accounts for 2021 are:

  • $$7,000 for self-only coverage
  • $14,000 for family coverage.

New preventative care recommendations

ACA-compliant health plans are required to cover preventative care services with no out-of-pocket costs, and new ones that become effective in 2020 and 2021 include:

  • Perinatal depression prevention.
  • HIV prevention pill for healthy people at risk.
  • Updated recommendation for prevention of BRCA 1 and 2-related cancer.
  • Updated recommendation for breast cancer: medication use to reduce risk.
  • Updated recommendation for hepatitis screening.
  • Updated recommendation for screening for unhealthy drug use in adults.

Flexible spending accounts

This year, the IRS issued a notice that increased the maximum allowable amount of unused funds at year end in FSAs that can be carried over to the next year.

The notice increases the maximum $500 carryover amount for 2020 or later years to an amount equal to 20% of the maximum health FSA salary reduction contribution for that plan year. That means the health FSA maximum carryover from a plan year starting in calendar year 2020 to a new plan year starting in calendar year 2021 is $550.

Additionally, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) allows employers to remove restrictions that funds in FSAs, health reimbursement accounts and HSAs cannot be used for over-the-counter medications.  This is not a requirement that employers relax this rule for their FSA plans, but it allows them to choose to do so.

Summary of benefits and coverage

There are new Summary of Benefits and Coverage (SBC) materials and supporting documents that must be used for all plans that incept on or after Jan. 1, 2021.

Please remember that any changes to benefits in your group plan must be reflected in the SBC plan document and summary plan description.

The takeaway

2021 is fast approaching and with all the chaos of 2020, it would be wise to get a head start on understanding changes in store for the plans you offer. This would benefit both you and your employees.

Some Insurers Step Up Group Health Plan Assistance

Some health insurers are helping business workers in group plans maintain employee benefits during the COVID-19 pandemic, a new survey has found. 

Social distancing and stay-at-home orders have put the hurt on hundreds of thousands of businesses across the country, which has forced them to reduce employees’ hours, furlough them or lay them off.

Besides all those employees seeing their pay drastically curtailed or disappear altogether, it also affects their employee benefits, with health coverage topping the list.

With so many people concerned they may lose coverage and business owners equally worried about their employees, some insurers are stepping up by extending coverage for affected group plan participants. 

The survey by insurance research organization LIMRA found that 42% of group health plans are automatically continuing coverage for all employees for a specified period of time, and another 22% are extending eligibility on a case-by-case basis to employees whose status has changed.

About 35% of insurance companies have adjusted reinstatement rules to make it easier for those affected by COVID-19 to regain coverage, and a similar number are extending the timeframe in which employees may elect to pay or continue coverage if separated from their employer.

Nearly all carriers in the survey said they are offering premium grace periods of 60 days on average to workers unable to pay their premiums due to COVID-19, while others plan to reassess or extend those timelines if needed.

These moves are important, considering that about 70% of all workers in the U.S. receive health coverage from their jobs, according to LIMRA.

The typical scenario

When an employee is laid off or furloughed, their hours are essentially reduced to zero, which can result in a loss of eligibility to participate in their employer’s group health plan.

Group health insurers will have written documents that outline the rules for particular plans. These rules include a definition of eligible employees, including how long an employee can be absent from work before the employee will lose eligibility for insurance coverage.

Health plan documents do not usually differentiate between an employee who is terminated and one who is laid off and one who is furloughed.

To be eligible under the typical plan’s rules, an employee must work a minimum number of hours per week (usually at least 30). If an employee is under protected leave – such as Family Medical Leave Act protection – benefits continue during leave.

In other words, an employee who is not meeting the hours requirement or is not actively at work (work from home is considered actively at work) based on being terminated, furloughed  or laid off – even temporarily – will generally have their benefits terminated. They should then receive an offer of COBRA or state continuation, unless state law does not require it due to an employer’s size.

However, if an employee continues to remain eligible for the business’s group health plan during an unpaid absence, the employer will need to determine how to handle their insurance premium payments.

The takeaway

If you are concerned about benefits continuation for laid-off, furloughed or terminated employees, you can call us to see if your health plan has made any special arrangements during the COVID-19 outbreak.

We can check to see if there is any way to continue coverage for any affected employees, and for how long and at what cost to you.