New Obamacare Wrinkle: Some Employees Get Automatically Enrolled

Newly hired employees who don’t sign up for health insurance on the job could have it done for them under an Affordable Care Act provision that may take effect as early as next year.

But the controversial provision is raising questions:

Does automatic enrollment help employees help themselves, or does it force them into coverage they don’t want and may not need? A group of employers, many of them retail and hospitality businesses, want the provisions repealed, but some experts say the practice has advantages and is consistent with the aims of the health law.

“Changing the default option”

By enrolling people unless they opt out, “you’re changing the default option,” says Caroline Pearson, vice president at Avalere Health, a research and consulting firm. The health law does the same thing by requiring people to have insurance or face penalties, she says.

“You’re not eliminating people’s choice or forcing people into things they don’t want,” Pearson adds.

Under the health law, companies with more than 200 full-time workers have to enroll new, full-time employees in one of the company health plans unless the employee chooses not to join.

The U.S. Department of Labor said that employers aren’t required to comply until the agency issues regulations spelling out how to do so. The department delayed its initial plan to issue regulations by 2014, and at this time there’s no additional information available about when regulations will be issued, according to a DOL spokesperson. Industry experts are split on when to expect those regulations, with some believing regulations could take effect in 2015, while others say that is unlikely.

Nonetheless, a group of trade associations and large employers, including 7-Eleven, Lowe’s and Home Depot, earlier this month sent a letter to Sen. Johnny Isakson, R-Ga., supporting his bill to repeal the overhaul’s automatic enrollment requirement.

Similar to automatic 401(k) enrollment?

The requirement could confuse employees who find themselves in a plan they may not want or lose access to providers they count on, says Christine Pollack, vice president for government affairs at the Retail Industry Leaders Association, a co-signer of the letter. For retailers who often have seasonal workers or workers with variable hours, automatic enrollment creates administrative headaches in determining which employees are considered full-time and eligible for coverage.

When the health law was being debated, there was a lot of concern about maintaining the employer-sponsored insurance market, and tightening up employer market coverage through automatic enrollment was thought to be one way to prevent erosion into the health insurance exchanges, says Pearson.

In addition, the success of 401(k) plans that used automatic enrollment to boost participation may have played a role, says Paul Fronstin, director of the health research and education program at the Employee Benefit Research Institute.

For example, in companies that automatically enrolled workers in their 401 (k) plans, 82 percent of employees continued to participate in the program compared with 65 percent for those with voluntary enrollment, according to 2013 data from Vanguard, an investment manager and mutual fund company.

However, automatically enrolling new employees in a company 401(k) is much simpler than doing the same with a health plan, say benefits experts. For one thing, if a new hire doesn’t like the default choices in his 401(k), he can generally change them at will.

Potential complications

But with health insurance, if someone’s paying for coverage on a pre-tax basis and the employer is deducting the premium from his paycheck, “the IRS rules say you can’t change that or decide you don’t want to participate in this plan anymore unless you have a qualifying event,” such as a birth or marriage, says Terry Dailey, a benefits attorney at human resources consultant Mercer.

There are also other potential complications, such as if someone’s spouse gets automatically enrolled in a plan but has coverage elsewhere, says Steve Wojcik, vice president of public policy at the National Business Group on Health.

Another difficulty deals with the premium subsidies that may be available to some workers who buy coverage on the state marketplaces if their employer’s plan has very limited benefits – sometimes called a “skinny plan.” If that employer automatically enrolls his workers, they would be ineligible for subsidized coverage. But if that plan was offered and a worker didn’t enroll in it, he would still be eligible for subsidies on the exchange.

The regulations could address many of these issues. They might say, for example, that new hires can only be automatically enrolled in a plan that meets minimum health law coverage standards, says Timothy Jost, a law professor at Washington and Lee University and an expert on the health law.

Even though the health law makes administering this provision complex, it’s still doable, experts say. In fact, many large companies have been automatically enrolling their new hires in health insurance for years.

How it works at Pitney Bowes

Pitney Bowes is one. For the past eight years, newly hired employees are automatically enrolled in a high-deductible plan linked to either a health savings account or a health reimbursement account. They have 30 days to opt out or choose one of the company plans; if they don’t they’re generally enrolled for the year.

“It probably has added some people who may not have otherwise [signed up], maybe because of cost concerns, and then they say, ‘Oh, I can live with that’ ” when they see the cost, says Andrew Gold, vice president of total rewards at the company.

When someone gets automatically enrolled that doesn’t need or want it, making the change isn’t a problem as long as they notify the company right away, says Gold.

“I think that in the rush of hiring, people like to know they have a good health plan,” says Gold. More people appreciate knowing they’re covered than wish they hadn’t been enrolled in the first place, he says.

This article was reprinted from kaiserhealthnews.org with permission from the Henry J. Kaiser Family Foundation. Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization unaffiliated with Kaiser Permanente. It was produced with support from The SCAN Foundation.