Congress recently passed a new federal budget bill, now signed by the President, which eliminates vouchers from federal health reform. The budget law, known as the Department of Defense and Full-Year Continuing Appropriations Act, 2011, specifically eliminates vouchers, makes related changes to the law, and reduces federal funding for insurance co-op creation. Although the budget bill contains numerous provisions capturing media attention, from an employee benefit perspective, abolishing the voucher requirement represents important and extremely welcome news.
Background
Under health reform's voucher rule, starting with January 2014 plan years, any employer with more than 50 full-time employees would have provided a "voucher" for any qualifying employee who could not afford the employer's plan and who instead purchased coverage through the new insurance exchange.
Once a qualifying worker obtained exchange coverage, the "voucher" likely would have been billed or assessed by the federal agencies - and effectively operated as more of an employer penalty than a coupon, code, or gift card. As set forth under the health care law as originally enacted, "un-affordability" for voucher assessment purposes would have been triggered for an employee at a 400% of federal poverty level if the cost of coverage under the employer's plan were between 8% and 9.8% of household income. The law was not clear whether family coverage had to be affordable; that issue remains a concern regarding the $3,000 remaining affordability penalty - and that provision remains entirely unaffected by the voucher provision repeal enacted as part of the 2011 budget measure.
Determining the voucher amount owed by the employer was somewhat complicated: A voucher was supposed to equal the amount the employer would have contributed toward the plan to which it contributed the greatest proportion of the cost. In other words, a voucher would have been the amount the employer paid toward coverage under its most basic plan (the "bronze" plan for most employers). Although precise strategies would have largely depended on implementing regulations, some employers already were planning to offer a very low cost plan in 2014, in part to mitigate possible voucher payment exposure.
Impact of Voucher Repeal
Removal of vouchers from health reform rules affects employers in several ways, including the following key aspects:
- An employer will not need to contribute as much toward its employees' coverages. Instead, an employer has the advantage of simply being able to use a 9.5% of household income standard when determining the employer's and the employee's premium split to achieve affordability -- in line with the remaining $3,000 affordability penalty thresholds rather than using an 8% threshold under the vouchers.
- The positive financial impact of voucher elimination is especially significant for employers with over 200 employees as workers for that threshold-sized employer must be automatically enrolled under new health care reform rules (anticipated to begin when guidance is issued, but likely 2014).
- Employees will not consider vouchers "rewards" when deciding whether to decline or exit the employer's plan in favor of the exchange. An employee who left his employer's plan in 2014 to purchase exchange coverage might have had the option of selecting a less expensive policy on the exchange. In that case, the employee would have received the difference in cost between the exchange coverage premium and the employer voucher amount, as additional taxable income. (Employers invariably viewed this result as inappropriate and unfair, and not in keeping with the spirit of health care reform.)
- Employers feared that younger, healthier, more tech-savvy employees would have migrated to the exchange, possibly qualifying for low-cost catastrophic policies, leaving employees with higher claims in the plan. This issue was of particular concern to self-funded plan sponsors.
Conclusion
Voucher repeal offer employers important welcome relief from a difficult aspect of health care reform compliance. To some degree, employers will avoid increased employer premium expenses. Voucher amounts themselves will be avoided (as well as administrative time and expense necessary to respond to requests for voucher-related information from employees, the exchange, and federal agencies). Employees will be more likely to stay in the employer's plan. Self-funded plans will retain more of their best risks.
Vouchers were just one aspect of reform, and employers continue to face serious challenges with remaining provisions of the law. For example, health care reform's coverage mandate and the related health reform rules and penalties are scheduled to take effect in 2014.
Coverage must still be affordable, just not so affordable. Many employers will still pursue the strategy of offering a base/bronze plan along with a buy-up option. Reverse discrimination in employee costs is still encouraged under remaining affordability penalty rules. Lower-paid employees who receive tax credits in 2014 still may prefer the exchange, depending on the level of their tax credit, but the impact will be nowhere near as great as with vouchers.