Automatic Enrollment for Large Employers to Kick In


By Stephen Miller April 1, 2010

U.S. employers with more than 200 full-time employees will be required to enroll new full-time employees automatically in their health care option with the lowest employee premium, unless the employee makes an affirmative election to opt out or elects a different option, under the Patient Protection and Affordable Care Act. Automatic enrollment may be subject to a waiting period, to the extent permitted by law.

Determining "Full-Time Employee" Status

Under the health care reform law, the definition of a "full-time employee" for determining the application of the employer mandate (but not the penalty tax) is:

  • Employees scheduled to work at least 30 hours per week in a typical month, plus
  • For all those under 30 hours per week, the aggregate of all hours worked in a typical month divided by 120 (excluding seasonal employees who worked for less than 120 days during the prior year)

Note, however, that some legal observers want to see forthcoming guidance that directly addresses the definition

"While the law is silent regarding an effective date for this provision, the intent appears to be that this provision will become effective in 2014," according to consultancy Hewitt Associates. Other analysts advise that the requirement could be effective once implementing regulations are issued, and it's unclear when that will be.

In addition to amending their plan materials, employers will need to prepare enrollment communications once implementing regulations are issued, notifying new employees of their automatic enrollment in the plan and their ability to opt out.

Automatic enrollment has been a boon to participation in defined contribution retirement plans. The Pension Protection Act, enacted in 2006, helped spur adoption of automatic enrollment in 401(k)-type retirement plans by providing plan sponsors with a safe harbor from litigation when they defer a percentage of their employees' salaries into specified plan investments. In 2009, the U.S. Government Accountability Office reportedthat automatic enrollment policies result in considerably increased 401(k) participation rates for plans adopting them.

However, as regards health insurance, auto enrollment may be a solution in search of a problem. It's not clear that employees in large numbers have gone without employer-provided insurance due to a failure to select an available policy when hired or subsequently during open enrollment. Those who forgo their employer's policy generally have chosen to seek coverage through a spouse's or partner's health plan.

As for those who may have decided to remain uninsured rather than have premiums deducted from their paychecks, that won't be an option after the individual health insurance mandate becomes effective, also in 2014. Employer-provided coverage, if offered, may then be their lowest-cost option.

A Help for HR

"Not every employee in every organization chooses to accept the employer-sponsored plan," says Ed Pudlowski, a principal with Ernst & Young's HR advisory practice, based in Dallas. "There are a number of people who have chosen not to have health insurance. Congress wanted to make sure to get as many of these people covered as possible by requiring them to make an extra effort to unenroll."

Edward Catenacci, who has served as an HR executive at several large U.S. firms, expects auto enrollment to be of assistance. "In certain industries, a large percentage of lower paid workers do not enroll due to monthly premiums," he comments. "If they make $7.25 an hour and the family premium is $180 to $200 per month, some will choose to go without."

Pudlowski says many of his clients also think automatic enrollment will make their lives easier. "There are always employees who elected an option one year but never made an election the next year. HR has had to follow up to see whether this meant they wanted to opt-out or whether they just didn't bother, or forgot, to make the election. Automatic enrollment should help in this regard."

More Employees Enroll Actively

An analysis by Hewitt Associates shows nearly half (45 percent) of all U.S. employees actively chose their health benefits for 2010 instead of passively defaulting into the same coverage or no coverage through their own employer, up from 39 percent in 2009. But despite being more engaged in the enrollment process, even among those who actively enrolled most chose the same or similar health plans as they had in the past.

"Employee inertia continues to play a large role in enrollment decisions—it’s encouraging to see that people are more engaged in assessing their benefits, but that doesn’t mean they are necessarily making different choices," says Sara Taylor, health and welfare strategy leader at Hewitt. "If employers want workers to make different elections, they might need to adopt a more aggressive approach—whether it's changing or reducing plan options or offering plans with widely differing price points."

Employer Actions

  • Update administrative systems and procedures.
  • Revamp new hire enrollment materials; provide adequate notice about opt out.
  • Update materials including summary plan descriptions (SPDs) and plan documents.

Source: Hewitt Associates

Stephen Miller is an online editor/manager for SHRM.


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