Presented on January 31, 2013 at the APMA ANNUAL FORUM, In Monterey, CA
by Ed McClements, CLU, ChFC
I am not an attorney I am not a CPA I am giving you my educated guess to future plan
costs, regulations and potential employer behaviors under the Affordable Care Act as I currently understand it
Please seek competent legal and tax accounting advice from your own trusted advisors!
Our Focus TODAY is on Strategy … The Employer Play or Pay Rules
that start 1/1/2014
And Most Importantly – How Can You Work with and Around them
Probably your very first glimpse of what this is TRULY going to cost your business
My goal is not just to inform you of the rules, but to increase your understanding of the implications
If you have less than 50 total employees, DON’T WORRY ABOUT IT ( but insurance will be more expensive esp. for young/healthy groups)
If you have over 50 total employees and have a health plan currently, it is probably NOT going to explode in cost
If you have over 50 employees, and NO current health plan, there is STILL NO NEED TO PANIC. We can show you how to avoid IRS audits and penalties AND have costs lower than you probably thought possible
Nationally, +16,000 new IRS agents
If allocated on a share of population
basis, we get almost 2,000 additional
agents looking over the shoulders of
California employers
W-2 Medical Cost reporting rules
▪ Go into effect for employers with 250+
employees in Jan. 2013 (for 2012 W-2s)
▪ Delayed until further notice for
employers with < 250 employees
Section 6056 of the Internal Revenue Code was
added by Sec. 1514(a) of the ACA.
It requires all employers to provide informational
returns to the IRS and covered employees
beginning in 2015 (for 2014)
Info Required: ▪ Employer EIN
▪ Information on Benefits (certification of meeting minimum value)
▪ Info on amount of premium paid by employer
▪ Every employee and their incomes and covered months
See IRS Notice 2012-33 for details
Source: CHCF 2011 Employer
Health Benefit Survey
9%
68%
Source: CHCF 2011 Employer
Health Benefit Survey
1% to 9% of employers not offering benefits
No, not intentionally
But large blocks of uninsured workers are the target of the ACA
Our industry provides coverage for roughly 1 out of 10 workers
Are you a LARGE Employer?
What is the POTENTIAL total size of your Play or Pay penalty?
Will ANY of your employees
actually use the EXCHANGE to
get Federal Assistance?
Euphemistically called “Employer Shared Responsibility” (IRC § 4980H)
Starting 1/1/2014, the ACA requires large employers (defined as having
50+ full-time equivalent workers in 2013) to either Play (offer affordable
health coverage to their workforce) or Pay a penalty to the federal gov’t
§ 4980H(a) If NO COVERAGE is offered (to 5% or more of your full time
workers) – the penalty is $166.67 per mo. ($2,000/year) for ALL full-time
workers (the employer is not charged a penalty for the first 30 workers)
§ 4980H(b) If coverage IS offered but is deemed unaffordable or falls
short of minimum essential benefits, then certain low income employees
can potentially expose the employer to penalties of up to $250 per
employee per mo. ($3,000 per year)
Groups of employers are treated as one employer
if applicable under IRC § 414 (b) (c) (m) or (o)
It’s a NON-Deductible Business Expense Federal Corporate Tax Rate is 35%
California Corporate Tax Rate is 8.84%
Combined Tax Rate is 43.84%
The implication is that for every $1.00 of non-deductible
expenses a business has, it must make $1.78 (and the
$.78 goes in corporate taxes and then the $1.00 can be
paid to the IRS as the penalty)
Therefore the REAL penalty for not providing coverage is:
$296.77 per employee per month,
$3,561.25 per employee per full year
Play or Pay Rules only impact employers with
50 or more full-time equivalent workers
Note: 50 or more FTEs (in avg. month)
in the 2013 CALENDAR YEAR determines status for 2014
Full-time employees are those working 30 or
more hours per week
Part Time employees (i.e., those working less
than 30 hours per week) are counted as fractions of
a full-time employee, on a monthly basis, by taking
their total number of monthly hours worked divided
by 120 hrs. (some sources say 130 hrs.)
You can EXCLUDE seasonal employees (if they
work for less than 120 days during the year and
excluding them leaves less than 50
remaining FTE workers)
A company has 35 full-time employees (30+ hours). In
addition, the company has 20 part-time employees who
all work 24 hours per week (96 hours per month).
These 20 part-time employees’ hours would be treated
as equivalent to 16 full-time employees, based on the
following calculation:
20 employees X 96 hours/120 = 1920/120 = 16
16 + 35 = 51 Full Time Equivalent Workers
Therefore this is a LARGE Employer under ACA rules
Part-time workers count as “fractional employees” in
determining Large Employer status, but DO NOT COUNT
in the calculation of the Employer’s penalty
Large Employer Play or Pay
penalties occur ONLY when a
Full-Time Worker gets covered via
an Exchange AND receives the
(federal subsidy) premium credit.
Employee
category
How is this category of employee
used to determine large employer?
Does this employee category give
rise to Play or Pay Penalties?
Full-time
(30+ hrs/wk)
Each counted as one employee,
based on a 30-hour or
more work week
Yes, if no (or insufficient) coverage is
provided and person qualifies for
exchange premium credit
Part-time
(<30 hrs/wk)
Pro-rated (calculated by taking the hours
worked by part-time employees in a
month divided by 120)
Not counted
Seasonal
(<120 days/yr.)
Not counted, if the group is under
50 FTE otherwise
Yes, in months of F/T & no coverage
(or insufficient) coverage is provided
and person qualifies for exchange
premium credit
Temporary Agency
Generally, counted as working
for the temporary agency (except
for those workers who are
independent contractors)
Not counted
Waiting Periods cannot exceed 90 days Regulations indicate a strict adherence to
that limit
Since hire dates are not always on the first
of the month and since many months have
over 30 days, experts are recommending
first of the month following 60 days
Safe Harbor Rules for determining VARIABLE HOUR and SEASONAL EMPLOYEE eligibility
Employer can define details and can create different rules for different
classes of employees
Measurement Period (Look-Back) can be set at 3 to 12 mo.
Stability Period (Look-Forward) cannot be shorter than the
Measurement Period
Administrative Period up to 90 days between Measurement / Stability
Total Measurement + Admin. cannot exceed 13 months
New Hire vs. On Going rules (similar but not identical)
In general, employer gets to use the Measurement period to
determine employee status (does this worker avg. 30hrs/wk?) then
that status is locked in during Stability Period
Count on PAYROLL SOFTWARE to be developed
IRS Notice 2012-58 describes this but more
guidance is needed!
Automatic Enrollment is required if the employer has over 200 Full Time employees (employees can then opt-out)
Thankfully, DOL announced early last year this portion of the ACA needs more coordinated work between government agencies so it will not be ready (or enforced) in 2014
Health Insurance Premium Subsidies given by the Federal Government to individuals with incomes over 133% and up to 400% of the federal poverty level
Estimated to help 25 million low income folks pay for health care
2012 Federal Poverty Levels Size of family 100% of FPL 133% 400%
1 $11,170 $14,856 $44,680
2 $15,130 $20,123 $60,520
3 $19,090 $25,390 $76,360
4 $23,050 $30,657 $92,200
5 $27,010 $35,923 $108,040
6 $30,970 $41,190 $123,880
7 $34,930 $46,457 $139,720
8 $38,890 $51,724 $155,560
Single Coverage Family of 4 Coverage
FPL % Income % of
Income Pay Per Yr. Pay Per Mo. Income
% of Income
Pay Per Yr. Pay Per Mo.
134% $14,968 3.00% $449 $37.42 $30,887 3.00% $927 $77.22
150% $16,755 4.00% $670 $55.85 $34,575 4.00% $1,383 $115.25
200% $22,340 6.30% $1,407 $117.29 $46,100 6.30% $2,904 $242.03
250% $27,925 8.05% $2,248 $187.33 $57,625 8.05% $4,639 $386.57
300% $33,510 9.50% $3,183 $265.29 $69,150 9.50% $6,569 $547.44
350% $39,095 9.50% $3,714 $309.50 $80,675 9.50% $7,664 $638.68
400% $44,680 9.50% $4,245 $353.72 $92,200 9.50% $8,759 $729.92
24
Even WITH the subsidy, Employees PAY THIS
Health Care Reform has NO penalties for large employers
when all employees have income levels greater than
400% of the Fed Poverty Level
Exchanges are government run internet-based health insurance “shopping malls” meant to assist individuals and small businesses in finding the best possible coverage
Open for business by October 2013 (for coverage starting on January 1, 2014
26
Only U.S. Citizens and Legal Immigrants can access the Exchanges and therefore
qualify for Federal Subsidies
$674 Million
State Run State + Fed Run Fed Forced Undecided
The “Lawful Presence” requirements will keep many low-income uninsured
workers away from the exchanges, and therefore those workers (who avoid the
exchange) would seem to pose no Play or Pay penalty back to the employer.
But COULD it lead to a “breadcrumb trail” to your doorstep for ICE to follow?
In the Individual and Small Group Markets: Bronze, Silver, Gold & Platinum Benefits (details are yet to be determined, but virtually nothing will be excluded from even the Bronze Level)
Concept is that each level will be ACTUARIALLY VALUED to cover 60% / 70% / 80% / 90% of expected expenses for the entire population
CMS has released the Actuarial Value Calculator (Ind. + Small Group)*
CMS has NOT released the Minimum Value Calculator (Large Group)*
Expectation is that annual out-of-pocket costs (including deductibles and co-pays) cannot exceed: $6,500 for single coverage $13,000 for family coverage
NO Annual Benefit Caps allowed UABT is working on getting Waiver Extensions
* See IRS Notice 2021-31 and HHS Actuarial Value Bulletin for details
29
The SURPRISE is that the AV Calculator REQUIRES BRONZE plans to have
HIGH DEDUCTIBLES
Applies to Small Group and Individual Markets
Unlimited Benefits for: Ambulatory patient services Emergency services Hospitalization Maternity and newborn care Mental health and substance abuse Prescription drugs Rehabilitative care and Habilitative care (such as learning disabilities) Laboratory services Preventive and wellness services Pediatric services, including oral and vision care
30
In California: Based on Kaiser $30 HMO but the
deductibles, copays & out of pocket
maximums could be MUCH HIGHER!
Large Employers (50+) are required to have a plan that meets
at least a MINIMUM VALUE of 60% based on coverage of 4
core benefit areas (NOT ALL ESSENTIAL BENEFITS ABOVE)
When this plan design is plugged
into the CMS Actuarial
Value Calculator, the result is a value of
98%
Rates are for 2013, Ventura County
Rates are for 2013, Ventura County
This plan is the closest thing I can find to a BRONZE plan in the current
marketplace. According to the Actuarial Value Calculator, this would score
a value of 60.5%, almost a perfect BRONZE value score.
Unless you have an high avg. age
workforce, the Bronze Level
coverage will be LESS EXPENSIVE
than paying employer
“Play or Pay” penalties
According to recent guidance, the employer must allow the
employee to add dependent child coverage, but can require
the employee to pay for those children. Curiously – there is no
requirement employers allow employees to cover spouses.
As long as an employer offers
at least Bronze Level coverage,
the employer can require
full-time employees to contribute
up to 9.5% of their income to
participate in the plan But beware – Employee contributions
could drive up waivers and
therefore your risk of audit
Starting in 2014 there’s a penalty for not having health insurance
The penalty is non-deductible excise tax that is the HIGHER of…
Flat $ penalties are capped at three persons per family
(300% of above figures)
Percentage caps at average cost of the Bronze Level
benefit program
39
2014 $95/person or 1% of income 2015 $325/person or 2% of income 2016 $695/person or 2.5% of income
40
Until individual penalties are
DRAMATICALLY increased,
many healthy Americans will
wait until they get sick before
buying coverage But there is already discussion
about instituting a Medicare – type
“open enrollment window”
Limit the size of your workforce to less than
50 Full-Time Equivalent Workers
Move everyone (or close to it) to Part Time (<30 hrs)
Pay all employees at least 400% of Fed Poverty Level
Offer a Bronze (or better) Health Plan and base
employee contributions on SALARY, < 9.5%
But if W-2, Box 12 is EMPTY, isn’t an IRS
AUDIT likely?
Create a Partially SELF FUNDED Bronze Level type
plan if employees are in good health
Implement low-cost “wellness plans” NOW to access
general info on employee health
Make sure all your full time employees participate in
a plan by not requiring employee contributions (for
self coverage)
If you want to offer good
benefits at a reasonable cost
– GET A FEASIBILITY
STUDY FOR A PARTIALLY
SELF FUNDED PLAN
as soon as possible
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
$100,000 SAVINGS
CLAIMS
PREMIUM
Partially Self Funded Plans can cost no more than
traditional plans, but if your claims are low with a
PSF plan, you get to KEEP THE SAVINGS
Potential Savings for most groups is
>40% Traditional Plan PSF Plan
If you are concerned about the
added risk of a Partially Self
Funded Plan – GET YOUR
EMPLOYEES TESTED NOW
(invest in Wellness Programs &
Health Risk Assessments)
Normal 58%
Elevated 36%
Moderate Hypertension
3%
Severe Hypertension
3%
Blood Pressure - Management Group
0
50
100
150
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31
Blood Glucose Level - Management Group
SCORE
Participants
Consumer Operated and Oriented Plans CO-OPs are like credit unions in the world of health
insurance The Affordable Care Act authorized $3.4 Billion for the
Dept. of HHS to use to help identify, facilitate and approve CO-OPs throughout the nation
24 CO-OPs already under constructions in other states Barkley spearheaded an effort to create HACIA SALUD - a
Calif. CO-OP that focuses on the needs of the low-income Latino workforce (www.haciasalud.org)
We submitted our first application on March 30th and a much improved second version on Dec. 30th
BUT the Fiscal Cliff deal cancelled the funding that was still available
March - Determine if your current broker has the expertise needed
April – Evaluate payroll records to determine likely enrollment counts for 2014
June - Discuss strategy with top management August – Perform Health Risk Assessment of
employees September - Get proposals for a customized plan
design (partially self funded if healthy) October – Enroll those employees expected to be
employed on Jan 1 2014
November & December will be crazy
SEEK IMMEDIATE PROFESSIONAL GUIDANCE! Strategic decisions need to be
made about your hiring practices and your health plan’s eligibility and contribution rules AND great recordkeeping will be
essential in case of IRS Audit
Stay INFORMED – Because the details
in the pending regulations could
have a huge impact on employer
strategy
Ed McClements [email protected]
Barkley Insurance & Risk Management
721 South A Street Oxnard, CA 93030
(805) 483 – 1995 Dept. of Ins. # 0B75139
www.barkleyins.com