The PPACA: What Employers Don’t Understand About Emerging Exposures

The Patient Protection and Affordable Care Act (PPACA) and the emerging regulatory environment present difficult challenges to employers.

As employers, regulators, administrators and courts begin to struggle with understanding the scope and requirements of the PPACA, employers also may be faced with the added issue of new management liability exposures.

Travelers Bond & Financial Products recently released a Nielsen Research poll offering insight into potential liability risks employers could face based on their unfamiliarity with key provisions of the PPACA. The poll collected responses from more than 800 corporate decision-makers to better gauge their understanding of healthcare reform and assist them as they prepare for the new mandates.

According to the survey, 36 percent are not at all familiar with PPACA’s overall requirements, and another 31 percent are only somewhat familiar with the law’s requirements. About a quarter reported they have not yet begun preparing for PPACA compliance.

Employers, as well as agents who advise them, should be mindful of the exposures created by the nearly 10,000 pages of PPACA regulations. Not only are employers subject to penalties for failing to file the necessary reports, but they also could be sued by plan participants for failure to comply with the PPACA.

Interestingly, respondents in the Travelers Nielsen survey that report being extremely familiar with PPACA (35 percent) are three times more likely to be concerned about potential lawsuits, illustrating that the more familiar an organization is with the law’s requirements, the more it understands the liability-related exposures created by the healthcare mandates.

Agents who understand these exposures can properly guide clients on their risks and ensure that they have the right fiduciary liability coverage in place.

Fiduciary liability insurance protects benefit plans, the sponsor organization and individuals acting as fiduciaries or administrators of the plans from costly defense expenses, settlements or verdicts when there is a breach of fiduciary duty as it relates to the Employment Retirement Income Security Act (ERISA). Below is an outline of some of the costs and exposures employers face in light of the PPACA:

Key Employer Obligations

For 2015, the PPACA mandates that employers with 100 or more full-time equivalent (FTE) employees offer health insurance to at least 70 percent of employees working more than 30 hours a week. FTE employees are calculated by adding the number of employees who work more than 30 hours per week and the total number of hours worked by part-time employees in a month, divided by 120.

If those employers fail to provide health insurance and one of their employees obtains coverage and a tax subsidy on a state or federally run healthcare exchange, the employer may be subject to a penalty. For 2015, the penalty is equal to the number of full-time employees, less 80, multiplied by $2,000.

In addition, for 2015 only, employers with 50 or more but fewer than 100 employees do not need to provide health insurance if they meet all of the following conditions:

• The employer cannot reduce the size of its workforce or the overall hours of service of its employees to avoid providing healthcare benefits to its employees. Employers may still reduce their workforce or their workforce’s hours for a bona fide business reason.
• The employer cannot eliminate or materially reduce health coverage offered as of Feb. 9, 2014.
• The employer must certify statements regarding the above on a prescribed form that must be delivered to the IRS.

In 2016, the requirements change, and employers with 50 or more full-time equivalent employees must offer health insurance to 95 percent of their employees working more than 30 hours per week or potentially incur a penalty. The penalty calculation also changes. Rather than subtracting 80 from the number of full-time employees, the penalty will be calculated by subtracting 30 from the number of full-time employees, and multiplying that figure by $2,000.

Reducing Hours or Terminating Employees

In addition to risks associated with IRS certification statements, employers who terminate employees or who reduce their hours below 30 hours per week to avoid providing health insurance may be exposed to individual and class action claims for violating Section 510 of ERISA.

Section 510 prohibits employers from discharging or discriminating against plan participants for the purpose of interfering with the attainment of any right to which they are entitled under a benefit plan. Terminating employees or reducing their hours could result in allegations of Section 510 violations.

Organizations that violate Section 510 face exposure not only to defense expenses, but also claims for lost wages, the value of the benefits and plaintiff attorney fees. Where such claims allege an ERISA breach of fiduciary duty, which they generally do, they are likely to implicate fiduciary coverage. Employment practices liability policies will most likely not cover these claims, as they contain an ERISA exclusion.

Not Meeting PPACA Compliance

Plan participants may also sue if the health plan provided by their employer does not comply with the PPACA’s benefit mandates. For example, the PPACA mandates that health insurance plans cannot have an annual or lifetime limit on benefits provided.

According to the Travelers Nielsen survey, 39 percent of employers are not familiar with that requirement. If an employer sponsor provides a health plan with a coverage dollar limit, a participant may sue the plan, its employer sponsor, and plan fiduciaries to obtain coverage for the cost of the medical claim in excess of the amount permitted under the plan.

The PPACA also requires certain employers to provide coverage for essential health benefits. Essential health benefits include, among other things, mental health and substance use disorder services; preventive and wellness services; and pediatric services, including oral and vision care. If a plan does not provide coverage for essential health benefits, participants could sue to obtain coverage for those benefits. Under ERISA, such claims will likely be permitted and plaintiffs also would be entitled to their attorney fees if they prevail.

Education Is Key

With employers facing a number of PPACA-related challenges, agents and other insurance professionals must raise awareness, promote education and provide the right insurance solutions. Fiduciary coverage can help employers transfer certain PPACA-related liability risk, protecting them from costly defense expenses as well as settlements and verdicts. By shedding light on an area that’s often poorly understood, agents can solidify their role as trusted advisors and gain a competitive edge.

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