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April 2011 St@teside

ACA and Employer Coverage: Recent News

As provisions of the Patient Protection and Affordable Care Act (ACA) continue to take effect, stakeholders, Congress and federal agencies are taking a close look at their impact on employers and employer-sponsored coverage.

Small Business

While the Small Business Administration (SBA) highlights how the law’s tax credits are already providing relief to small businesses, the U.S. Chamber of Commerce has raised concerns. In a March 21 conference, Karen Mills, administrator for the SBA, noted that small businesses with fewer than 25 full-time employees could be eligible for a tax credit of up to 35 percent of the premium for tax year 2010 and up to 50 percent in 2014. The credit will phase out for firms with average employee wages over $25,000 and those with more than 10 full-time employees.1 The U.S. Chamber of Commerce asserts that penalties on small employers not offering minimum health benefits would discourage new hiring. In a separate conference, Randy Johnson, executive vice president for labor, immigration, and employee benefits at the U.S. Chamber of Commerce, said that the credits are too small and would go only to the smallest employers, while employers with at least 50 full-time employees would face penalties if they do not provide minimum levels of health coverage.

Grandfathered Plans

On April 1, the Departments of Health and Human Services (HHS), Labor, and the Treasury (the Departments) issued an FAQ on grandfathered plans. This FAQ provides further guidance to an interim final rule published in the Federal Register on June 17, 2010 and a subsequent amended rule released on November 15, 2010. According to the interim final rule, if there is no bona fide employment-based reason to transfer an employee from a grandfathered plan to another benefit plan, such transfer will lead to a loss of grandfathered status for the plan from which the employee is transferred. The new guidance provides a definition of what the Departments see as “bona fide employment-based reasons.” The FAQs also clarify that:

Plans will not lose grandfathered status if they:

  • Increase cost-sharing level because the generic equivalent of a brand name drug comes onto the market; or
  • Increase copayment for preventive services received in an in-network hospital setting, provided there is no change to the copayment in an in-network ambulatory surgery center.

Retiree health plans will lose grandfathered status:

  • If the employer contribution rate decreases by more than 5 percent below the contribution rate that was in effect on March 23, 2010.2

Large Employers

Concerned that states may establish health insurance exchanges in a manner that can lead large employers to drop coverage, human resources (HR) officers from large companies sent a letter on March 28, 2011, to governors, urging them to “be mindful of the importance of ERISA [Employee Retirement Income Security Act of 1974] pre-emption.” ERISA pre-empts states and local governments from imposing requirements on self-insured, employer-sponsored plans, which allows multi-state employers to operate the same health care program in multiple states. According to the HR officers, if the ERISA pre-emption is weakened, it would jeopardize the ability of large employers to continue providing coverage. Additionally, they recommended nationwide uniformity in benefit design and administration as that would reduce health care costs and make it easier for companies to provide benefits to their workers regardless of where they are located.

Early Retirement Reinsurance Program

A program that reimburses employers for providing health care benefits to retirees over age 55 who are not yet eligible for Medicare will no longer accept applications after May 5, 2011, according to a March 31 Centers for Medicare & Medicaid Services (CMS) press release. Given the significant decline in group health insurance coverage for early retirees over the past 20 years, an ACA provision created the Early Retirement Reinsurance Program (ERRP) intended to provide employers with an incentive to maintain benefits until the health insurance exchange is fully operational.3 However, due to the popularity of the program—5,850 applications have been approved as of March 17, 2011, and 1,300 employers across all 50 states have received reimbursements totaling $1.8 billion—the program’s funding will likely end before 2014.

A House Energy and Commerce Committee analysis states that “In the seven months that the ERRP was reimbursing claims in 2010, 5% of the program’s enrollees managed to spend 10% of the available funding. If the remaining 5,199 applicants require a similar level of reimbursement, the program will quickly spend all available funding as early as this year.”4

1Lindeman, R. (2011, March 28). Impact on Small Businesses Debated On First Anniversary of Health Reform Law. BNA’s Health Care Policy Report (Subscription only). Retrieved April 18, 2011, from
2BNA’s Health Care Policy Report. (Subscription only). (2011, April 11). Labor Department Issues Guidance On Grandfathered Plans Under PPACA. Retrieved April 18, 2011 from
3Centers for Medicare and Medicaid Services. (2011, March 31). Progress Report on the Early Retiree Reinsurance Program.  Retrieved April 19, 2011, from
4Hansard, S. (2011, March 28). Report Says Early Retiree Fund Could Run Out of Money This Year. BNA’s Health Care Policy Report (Subscription only). Retrieved April 21, 2011 from