Policy Feature Issue: Automatic Enrollment in Obamacare

Policy Feature Issue: Automatic Enrollment in Obamacare

As the full implementation date of the Patient Protection and Affordable Care Act (PPACA), also known as Obamacare, draws near, problems continue to be identified – particularly those requirements that hurt employment and stall job and wage growth.  One requirement that has gone unnoticed is the employer automatic enrollment requirement.

What is Automatic Enrollment?

Section 1511 of the Patient Protection and Affordable Care Act amends the Fair Labor Standards Act (FLSA) of 1938 to require companies with more than 200 full-time employees (and that offer a company health benefits plan) to automatically enroll new full-time employees in their company health plan.[1]  Employers must also provide “adequate notice” for an employee to opt-out of any coverage for which they were automatically enrolled.[2]  According to a recent IRS Report, the Department of Labor (DOL) has determined that implementation of automatic enrollment will not be ready to take effect by January 2014.[3]  DOL Technical Release No. 2012-01 estimated that automatic enrollment will not be enforced until at least 2015.[4]  The DOL is not requiring employers to comply with the FLSA requirements until guidance is issued.  Reps. Richard Hudson (R-NC) and Robert Pittenger (R-NC) introduced legislation this year to repeal auto-enrollment in Obamacare.

Why is Repealing Automatic Enrollment Important?

  • Auto-enrollment has the potential to lead to lower-quality healthcare for employees working for businesses that are required to fulfill this requirement.  According to a survey from the Society for Human Resource Management (SHRM), 65 percent of respondents (business owners that would be required to auto-enroll their employees) said that they would use their lowest-cost plan as the default plan.[5]  More troubling, however, is that 10 percent of respondents said they will add a new lower-cost plan to use as a default plan, and 3 percent said they will change to a new lower-cost plan to use for all employees.[6]
  • 21 percent of respondents said that auto-enrollment is a “very significant” or “significant” concern.  Businesses understand that the automatic enrollment requirement is yet another expensive and unnecessary burden on businesses that does not substantially improve employee healthcare access.  This burden has the potential to slow the hiring of businesses that will incur additional compliance costs.
  • Despite the opt-out provision, this provision will unnecessarily confuse employees, who may already have coverage from a spouse, parent, or separate government plan.  This especially has the potential to harm young employees, who face significant premium increases.
  • Ultimately, this provision will lead to an erosion of employer-sponsored insurance plans and will push employees into state or federal health exchanges, further shifting healthcare costs to taxpayers and hurting consumer choice.