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Early Renewals and Transition Relief May Not Mix
Thursday, July 2, 2015 6:20 AM

The Affordable Care Act is set to launch another shock wave to employers in 2016. The next significant provision applies to groups with 51 to 100 employees. Previously considered large groups, these employer groups will now be re-classified as small groups and forced to buy small group health plans in or out of the exchange marketplaces.

The changes made to health plans and premium rates that affected small groups in 2014, 1–50 employees, will now apply to groups 51–100. These changes will include community rating, which equalizes premium costs for individuals of the same age in the same plan in the same geographic region. The plans available and their costs may vary significantly from what groups have come to enjoy.

As with all other health plan mandates under ACA, many are given the option to renew their health plans early, thereby holding off these changes until plan years in 2017. This is an extension of the promise, “If you like your plan, you can keep it.” While this may sound enticing, employers need to watch for a specific consequence lurking in the transition relief rules.

Simultaneous with the ACA rules governing health plans, there is a separate set of rules dictating compliance with employer rules. These two sets of rules don’t always work together. 

Under the employer sharing rules, “employer mandate,” applicable large employers must offer minimum value, affordable coverage to fulltime employees and their dependents.   Groups with 100 or more fulltime and fulltime-equivalent employees are required to comply in 2015. Transition relief was offered to groups sized 50–99 allowing them an extension in 2016.

Sounds great, but here is the catch. The extension is only allowed if the employer doesn’t: 

  • Impermissibly reduce the workforce so as to make the group less than 100,
  • Does not significantly change the plan or contributions,
  • Completes the employer reporting for 2015 (due in 2016), and
  • Does not change the start date of their plan any time after February 9, 2014.

So, if an employer elects the early renewal to postpone compliance with the new market plans, they will lose transition relief. This means they have to comply with the employer mandate as of January 1, 2015 (i.e., offer the minimum value, affordable coverage to all fulltime employees or face penalties), not 2016.

Employers need to look before they leap. They definitely don’t want to get an eye opener of penalties or other consequences because they choose to keep their current plan. We encourage employers to work with their consultants to fully understand the trade-offs associated with an early renewal.

This article was written by Annette Bechtold, SVP regulatory affairs and reform initiatives at Digital Benefits Advisors. Digital Benefit Advisors delivers a powerful new approach to employee benefits by combining the commitment of experienced, local market advisors with the sophisticated technology and resources of a respected national firm. For more information, visit