In a technical release issued Sept. 13, the Employee Benefits Security Administration said that employers with 50 or more workers cannot meet their obligation to provide health coverage under the Patient Protection and Affordable Care Act by simply reimbursing their employees for the cost of purchasing their own insurance on the marketplaces, also known as exchanges.
Providing workers cash through a health reimbursement account plan or other mechanism to purchase individual coverage would violate the health law's ban on annual benefits limits, and would not comply with the Affordable Care Act's minimum coverage rules, agency officials said in the ruling.
The Internal Revenue Service and U.S. Department of Health and Human Services are expected to issue coordinating rulings.
Sean Yolish, vice president of information technology and insurance operations for Merit Resources Inc., said he anticipated this interpretation because the Obama administration "will be working to close the doors on employers terminating their group health plans."
Allowing employers to use their health reimbursement accounts to send workers to the marketplace would "have the potential of a mass exodus" from the current model of employer-sponsored benefits, Yolish said.
"Furthermore, from a public marketplace perspective, the early adopters of this strategy would likely be those employers with poor claims experience and subsequent high premiums, resulting in the public marketplace being adversely selected against," he said.
Wayne Reames, an attorney with Belin McCormick P.C. in Des Moines, agreed that the ruling is not surprising, given the Affordable Care Act's intent to cover the currently uninsured and preserve employer-provided health insurance.
Reames said he believes the ruling will decrease market participation in the insurance exchanges because it will make coverage provided under the exchanges less attractive than traditional employer-sponsored coverage.
"The competitiveness of the exchanges has been in question ever since the (Affordable Care Act) was proposed, and it is likely they will need to run for a few years before a final verdict on these costs can be rendered," he said.
From an employer's perspective, Yolish said, "this would have presented a nice opportunity for employers to continue to make a contribution to their employees, one they could write off as an employee benefit."
In a statewide employer survey released last week by David P. Lind Benchmark, 3.1 percent of companies with between 50 and 250 employees that responded indicated that they would discontinue offering health coverage and would be willing to incur the $2,000 per-employee penalty, which in June was postponed until 2015.