Any law has the possibility (probability?) of creating situations that demonstrate the Law of Unintended Consequences.

Unfortunately, to no one's surprise, the Affordable Care Act is no different.
Sometimes the resulting gaps leave agents scratching our heads trying to come up with viable work-arounds.

Let’s look at a situation that cropped up recently for one prospective client and her husband that demonstrates this. It is a perfect example of the Catch-22 created by the collision of two laws created at different time for different purposes.

Mary and John. Mary contacted me. She is covered under her husband, John’s, health insurance at work.

As with most companies, John’s company’s benefits are under a Section 125 (named for the IRS code number) plan that allows any health insurance premiums to be paid pre-tax. This is a nice little extra benefit that saves John (and the employer) on taxes.

However, one stipulation of this Section 125 IRS code is that employees have an Annual Enrollment Period (just like individual health insurance under the ACA) each year when they choose the benefits they want for the upcoming year. Any of you who have ever received health insurance benefits from an employer are familiar with this AEP – although you may not have known why it existed.

Although many employers have their new plan year (i.e. the end of their AEP) coincide with the calendar year, many don't. The end of the year is already filled with lots of bookkeeping and "housekeeping" tasks for employers, so many choose to do have their AEP anywhere from Spring into the Fall.

A second requirement of a Section 125 plan is that once an employee chooses those benefits, s/he must keep those benefits in place until the next AEP or termination of employment, whichever comes first.

The Problem? John’s company’s plan year begins on Oct. 1st and he has just found out that coverage for Mary will be over $800 a month starting in October.

Ouch, you say, right? Well, time to shop for an individual health plan to begin on October 1st, you say? 

Not so fast! Unfortunately, under the Affordable Care Act, no one can buy individual health insurance outside of the other AEP – the one for individual health plans – unless they have a Qualifying Life Event (QLE).

And having the price of your group health insurance escalate is NOT considered a QLE.

The AEP for 2016’s individual health insurance plans begins November 1st, but these plans will not go into effect until January 1, 2016.

Okay, you suggest, Mary should just go on John’s plan through the end of the year, then drop that for a less expensive ACA plan. Nope. Remember, there’s that requirement of Section 125 plans above that says, “…once an employee chooses those benefits s/he must keep those benefits in place until the next AEP.”

Uh-oh. Enter the Law of Unintended Consequences, also known (in this case) as a Catch-22!

Mary’s has two options, neither of them perfect: 
  • She can opt not to enroll in John's plan in October and enroll in an ACA plan during the AEP. But that will leave her without health insurance for three months, until her ACA plan goes into effect on January 1, 2016. That's kind of a scary thing to have to do.
  • She can go with short-term medicals (STM) coverage during that 3-month period. Short-term coverage is a good option in her case, but it wouldn't work for everyone. STM coverage does require underwriting (i.e. there are health questions) so not everyone would be eligible for it. It also does not cover pre-existing conditions, so if Mary were taking expensive medications or in the middle of vital treatments, it wouldn't cover any of that even if she could get approved for coverage (which is unlikely).

The good news is that this is one weakness of the ACA that could be easily remedied: (Of course, it would take an Act of Congress - literally!) Simply add the Annual Enrollment Period for employer-sponsored health plans to the list of Qualifying Life Events. Then, employees and their families could choose the plan, individual or group, that makes the most sense for them.

After all,wasn't that one of the goals of health care reform?!