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Small Employers and the Federal Affordable Care Act

The federal Patient Protection and Affordable Care Act (Pub. L. No. 111-148, as amended by Pub. L. No. 111-152), often referred to as the ACA, creates several changes for the Small Employer Health Benefits (SEH) Program.  These changes will have an impact on the coverage offered to small employers.


Plan Changes to Coverage and Eligibility made to Comply with the ACA, starting September 2010

To comply with ACA requirements, the small employer health benefits plans have been amended as follows:

1. The definition of “child” now includes an employee’s dependent up to age 26 years (more information)
2. Preexisting condition limitation periods have been eliminated
3. Coverage of preventive services has been clarified to include A and B recommendations by the United States Preventive Services Task Force, and to remove any dollar limitations when services are obtained in-network
4. Plan B’s $1,000,000 lifetime limit has been eliminated
5. The policy provisions regarding retroactive terminations have been clarified
6. Cost-sharing options have been modified to permit compliance with the federal maximum out-of-pocket costs, and allow carriers to meet actuarial value parameters (which are used to classify plans as platinum, gold, silver and bronze).
7. Plans may have embedded dental and vision benefits for children, or carriers will seek assurances that the employer will purchase a stand-alone dental plan with such benefits.
8. Basic & Essential plans are no longer available for sale (they do not comply with ACA standards)
9. The definition of small employer has been revised to remove the requirement that the majority of employees work in New Jersey
10. The definition of small employer, eligible employee, and employee have been revised (or removed) to better align with the ACA and other federal laws.  For example, partners and sole proprietors are not considered in determining whether an employer is a small employer or offering a group health plan. (Partners and sole proprietors may be covered under the group health plan offered to employees).
11. Plans cover habilitative services, including durable medical equipment that may be used for habilitation
12. Dollar limits for the coverage of hearing aids were removed.  (Note: coverage of hearing aids for children is required by New Jersey law; however, dollar limits are not permissible under the ACA.)
13. Waiting periods can be no longer than 90 days.
14. The extended care/rehabilitation coverage limit of 120 days has been eliminated.  (Note:  this is based on the benchmark plan selected, and is not a direct requirement of the ACA.)
15. Home health coverage has a 60-visit limit.  (Note:  this is based on the benchmark plan selected, and is not a direct requirement of the ACA.)
16. Preventive contraceptive services and supplies can be excluded from the plan in some circumstances
17. Special enrollment periods and the triggering events that create special enrollment periods have been added or clarified.  (Note: some “triggering events” are new, but some are similar to prior qualifying events that, by New Jersey and/or federal law, permitted employees or dependents to enroll in an employer’s group health plan after the established enrollment period without penality.)
18. Certain limitations regarding the treatment of autism and other developmental disabilities were removed.  (Note: based on New Jersey law and the Mental Health Parity and Addiction Equity Act of 2008 as amended by the ACA.)

There are other ACA-required reforms that New Jersey’s SEH Program already includes, so changes to the standard plans and changes to administration of the SEH Program are not always necessary.  


Medical Loss Ratios and Rebates

The ACA requires carriers to meet an 80% loss ratio in the small employer market – which means that carriers are required to pay $80 in health care services for every $100 in premiums collected each calendar year.  The ACA also requires carriers to use premium rebates as a mechanism to meet the 80% loss ratio, if necessary.  New Jersey already has both requirements for the SEH Program.  However, the ACA and New Jersey’s methods for calculating the loss ratio differ.  Because of the differences in the methodology, it is possible for an employer to be owed a rebate under the federal law and not the state law, and vice versa.

Whether a rebate is required by the ACA calculation method (“ACA rebate”) or the SEH calculation method (“SEH rebate”), rebates can be in the form of a refund or a credit.  However, there are other differences between the federal and state law with regard to the timing of when ACA rebates and SEH rebates must be distributed, who is entitled to a rebate, and who is entitled to notice about a rebate being owed. 

In general, when an ACA rebate is owed, the employer will receive the notice and the rebate around August 1.  If employees/dependents contributed to premium, carriers must also provide employees/dependents covered under the small employer plan with a notice about the ACA rebate, also around August 1.  When an SEH rebate is owed, the employer will most likely receive a refund or notice of a credit in October or November, but notice to employees is not required, regardless of whether they contributed to premium. 

When an ACA rebate is owed, and employees have contributed to premium, rebates should be shared between the employer and employee.  The ACA allows the carrier to issue ACA rebates to the employees directly, or, if the carrier and employer agree, the carrier may issue the entire rebate to the employer and the employer will allocate the rebate between itself and the covered employees.  New Jersey law has no explicit requirement regarding allocation of SEH rebates between employers and employees when employees contributed to premium.   
Importantly, the federal regulation, recognizing that the ACA rebate may be too small to practically distribute, permits carriers to apply de minimis rebates to reduce the future premiums of all covered groups to which a rebate is owed.  (De minimis is $5 or less owed to the policyholder and each person covered under the small group plan.)  New Jersey has no de minimis threshold with respect to SEH rebates.

Similar to the de minimis exception, if a carrier issues an ACA rebate to the employer, but the employer believes it is not cost effective to distribute the rebate among the covered employees, federal regulation permits the employer to apply the rebate to some type of employee benefit on a group basis (for example, to reduce future contribution requirements).  There are no such rules under New Jersey laws regarding SEH rebates.  However, to the extent that an employer is subject to the Employee Retirement Income Security Act (ERISA), it may be helpful for employers to consult the U.S. Department of Labor’s Technical Release No. 2011-04 when receiving either an ACA rebate or an SEH rebate.

For more information about rate review and loss ratios, go to Health Insurance Education: Rate Review Process and Consumer Resources. See also: Medical Loss Ratio Fact Sheets

Tax Credits for Providing Health Insurance

Certain small employers, including those that are tax-exempt, are eligible to obtain a federal tax credit of up to 50% for providing health insurance to employees (or up to 35% if the small employer is a tax-exempt organization).  In order to be eligible:

  • the employer must have fewer than 25 full-time equivalent (FTE) employees,
  • the employees’ average annual wages must be less than $50,000 per FTE (adjusted annually for inflation, starting in 2014 – for tax year 2016, the inflation-adjusted amount is $52,000),
  • the employer must offer qualified health coverage, and
  • the employer must pay an average of 50% of the premium.

The amount of the credit decreases as the number of FTEs and/or the average wages increase, and some other restrictions may apply. But the credit can be carried backwards or forwards, and is refundable.  Also, premium paid by the employer that exceeds the credit can still be claimed as a business expense deduction. 

The IRS has more information, including links to forms and instructions, at

Distribution of Summaries of Benefits and Coverage

Beginning with the first plan year after September 23, 2012, every person covered under an employer’s group health coverage is entitled to receive a completed Summary of Benefits and Coverage (SBC), free of charge.  For small employer health benefits plans, it is the carrier’s responsibility to complete the SBC.  The ACA makes both the carrier and the employer responsible for distributing SBCs to covered employees and dependents (if any). 

What Is An SBC?

An SBC is a document intended to help a consumer more easily understand what services are paid for by a plan, and what cost-sharing is required of the covered person when using covered services.  An SBC is also intended to help consumers more easily compare plans.  The document:

  • explains the deductible amount, if any, that an individual or family must pay
  • explains the total out-of-pocket cost-sharing an individual or family must pay after the deductible is satisfied (that is, coinsurance and/or copayments)
  • groups together in a table the services that are (or are not) covered by the plan, along with any per visit costs or limitations that may apply
  • requires carriers to use the same format, lists of services, and terminology (the SBC should include or be accompanied by the Uniform Glossary of Terms)
  • requires carriers provide examples of likely annual costs for the same sets of health care services (related to having a baby and diabetes care)

Both the SBC and Uniform Glossary of Terms was designed by a committee of interested parties (consumer groups, insurers, employers) in consultation with the National Association of Insurance Commissioners, and endorsed by the federal government.

Who Has To Complete And Distribute The SBC?

For small employer health benefits plans, it is the carrier’s responsibility to prepare the SBC and give it to the employer, but both the carrier and employer are responsible under the ACA to distribute the information to employees/dependents.  To simplify things, under the federal regulation:

  • The employer and carrier may agree that only the employer OR only the carrier will distribute the SBC à they don’t both have to do it
  • Although both covered employees and covered dependents are entitled to receive the SBC, only one SBC must be sent to a household IF the information available shows the employee and dependents are all at the same address
  • It is acceptable to send the SBC to the last known address on record
  • It is acceptable to make SBCs available electronically, so long as:
    • the format is readily accessible to employees/dependents;
    • if posted as an Internet page, the employees/dependents receive timely written notice about the Internet page and its URL; and
    • employees/dependents are given a paper version of the SBC upon request, free of charge.

Because employers usually have the most up-to-date information about their employees and an employee’s dependents, carriers offering small employer health benefits plans may contract with the employer to distribute the SBCs.  The carrier may include language in a rider to the small employer policy that says the employer will send the SBC to the employees and dependents (if any), or the language might be in a separate document.  The rider or separate document does not make the employer’s obligation any greater, or reduce the carrier’s obligation – instead, it sets forth a process to assure that the SBCs are distributed to employees.

When Must An SBC Be Distributed?

An SBC must be distributed by a carrier to a small employer:

  • as soon as practical – and no later than 7 business days – following an application for coverage
  • upon the first day of coverage IF there was a change in the coverage between the time the earlier SBC was sent and the effective date of coverage (and the change involves an issue normally addressed in the SBC)
  • each year after initial enrollment, about 30-days prior to renewal of a small employer health benefits plan (in other words, 30-days prior to the start of the small employer’s new plan year)
  • within 7 business days following a request for an SBC

An SBC must be distributed to employees and dependents (if any):

  • when an employee and/or dependent becomes eligible for coverage  
  • upon the first day of coverage IF there was a change in the coverage between the time the earlier SBC was made available and the effective date of the employee’s/dependent’s coverage (and the change involves an issue normally addressed by the SBC)
  • within no more than 90 days following enrollment of a special enrollee
  • within 7 business days following a request for an SBC
  • as part of the advance notice of any material modification of a small employer health benefits plan mid-year (that is, at a time other than renewal) IF the change involves an issue normally addressed by the SBC

Are There Penalties?

There are penalties for not complying with the SBC distribution requirement.  The penalty can be as much as $1000/person not receiving the SBC, if noncompliance is willful.  Both the employer and the carrier are potentially subject to the penalty.

How Is An SBC Different From A Summary Plan Description, A Certificate, Or An Evidence Of Coverage?

The SBC is a brief summary of covered services and cost-sharing, and lacks many other important details a certificate/evidence of coverage/Summary Plan Description (SPD) includes about covered health care services and health care providers, and other topics, such as utilization review requirements, continuation rights, dependent eligibility, and coordination of benefits. 

It is important to remember than an SBC does not replace the certificate or evidence of coverage that should be issued to the employee, nor any SPD requirements of ERISA.  The requirement to provide an SBC is in addition to, not in lieu of, any other notice or documentation requirement.

For more information about SBCs, see the U.S. DOL’s Employee Benefits Security Administration’s ACA Implementation Frequently Asked Questions Parts VII, VIII, IX and X. 

Changes to the W-2s: Value of Health Coverage

Employers that are issuing at least 250 W-2s for the federal tax year may be required to include on the form the total value of group health coverage for employees in that tax year.  For insured plans, the information should include the premiums paid by both the employer and the employee.  Employers issuing fewer than 250 W-2s are exempt from this requirement until further notice from the IRS. 

More information, including links to detailed guidance, is at   

OPRA is a state law that was enacted to give the public greater access to government records maintained by public agencies in New Jersey.
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