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June 12, 2013 The Rules of Pay or Play
June 12, 2013
The Rules of Pay or Play
Presented By: Steven Friedman Shareholder Co-Chair, Employee Benefits Practice Group [email protected] Ilyse Schuman Shareholder Co-Chair, Workplace Policy Institute [email protected]
ACA timeline and employer next steps Play-or-pay: weighing your options How will the ACA impact employers?
– Gallup Organization Survey Are you prepared?
Agenda
Are you in compliance? Will you “play-or-pay?” Who will be eligible for health benefits? Will you change the composition of
your workforce? Do you have a “Cadillac” Plan? How will you control healthcare costs? What is the financial impact on your
company and your employees?
What Does the ACA Mean for You?
ACA COMPLIANCE TIMELINE
Affordable Care Act Implementation Timeline
2010 2011 2012 2013 2014 * * * 2018
Small Business Tax Credits
Funding for Small Business Wellness
Programs
Summaries of Benefits and Coverages
FSA Limits Play or Pay Cadillac Tax
Adult Dependent Coverage
Medical Loss Ratio Rebates
Medicare Tax Increase
Automatic Enrollment
No Lifetime Limits No Part D Deduction 90-Day Max Waiting
Period Restrictions on Annual Limits
PCORI Fee Individual Mandate
No Rescissions Except Fraud
Insurance Exchanges
No Pre-Existing Conditions for
Children Individual Subsidies
No OTC Reimbursement from
FSA, HSA Community Rating
External Review Procedures
Guaranteed Issue
Full Coverage of Preventive Benefits No Annual Limits
Enhanced Wellness incentive/Penalty
Nondiscrimination in Insured Plans
Out-of-Pocket Limits
Any other failure to comply with insurance market reforms can result in excise tax – $100/day “with respect to each individual to whom such failure
relates” – Maximum for unintentional failure is the lesser of:
• 10% of the total spend of the group health plan for preceding year; or
• $500,000 – No tax if failure due to “reasonable cause
and not willful neglect” and corrected within 30 days of discovery (or date it should have been discovered)
The ACA’s Other Penalties
Health insurance exchanges go live – “Virtual marketplaces” for eligible individuals and small employers to
purchase insurance (with some limited availability for small employers in 2014)
Individual mandate – Tax on most individuals for not obtaining health insurance – Individuals with household income up to 400%
of federal poverty level may be eligible for federal subsidy
Employer Mandate/Play-or-Pay
The ACA’s Requirements: 2014
Play or Pay mandate only applies to “large” employers – 50 or more full-time equivalent employees, counting actual full-
time employees and the “equivalent” hours of part-time employees
– Applied on a controlled-group basis – Have to include the employees of
all members of controlled-group
Are you Subject to Play-or-Pay?
Employer Mandate Requirements and Penalties
No Healthcare Coverage Offered Healthcare Coverage Offered
That is Not Affordable or Does Not Provide Minimum Value
PENALTY = $2,000 * (Total Number of Full-Time Employees – 30 Full Time Employees) *Penalty imposed if large employer does not offer at least 95% of full-time employees (and their children) an opportunity to enroll in minimum essential coverage and at least one of employer’s full-time employees received federal assistance to purchase insurance via an Exchange.
PENALTY = The lesser of: (a) $3,000 for each full-time employee receiving
federal assistance to purchase health insurance through an Exchange or
(b) $2,000 * (Total Number of Full-Time Employees – 30 Full-Time Employees)
*Penalty imposed if the coverage offered is either (i) unaffordable because the employee’s required contribution is more than 9.5% of their W-2 wages for self-only coverage (or other safe harbor); or (ii) the actuarial value of the employer’s plan is less than 60%, meaning that the plan pays for less than 60% of the covered healthcare expenses.
40% tax paid by employer Estimates are that substantial percentage of employers
will be over threshold – $10,200 for individual in non-multiemployer plan – $27,500 for individual in multi-employer and family in both
Employer response may change healthcare framework significantly
2018 - Cadillac Tax
PLAY-OR-PAY? WEIGHING YOUR OPTIONS
What is the financial impact on your company and your employees?
Pay-or-Play
PLAY – Who will be eligible for health benefits? – Will you change the composition of your workforce? – Will you use more “part-time” employees? – Will you change your benefit plan structure? – Will you self-fund? Private Exchange? – Will you shift cost to employees? – Will your plan be “affordable”
and provide “minimum value”?
Pay-or-Play: It’s Not a Simple Question
PAY If terminate your healthcare plan:
– Will you increase wages so employees can purchase health insurance on an Exchange?
– How much will an Exchange plan cost? – Will you provide a Defined Contribution instead?
Pay-or-Play: It’s Not a Simple Question
Play: Maintain current plan if affordable and minimum value and offered to 95% of all FTs (and their children) NO PENALTY
Play: Offer to all FTs affordable (9.5%) coverage at maximum allowable cost to employee that provides minimum value plan, but shift cost to employees through higher deductibles/co-pays NO PENALTY
• May encourage some workers to go to Exchange
• Will cost sharing limits apply?
Play-or-Pay: Weighing Your Options
Pay AND Play: Offer coverage to only some FTs PAY $2,000 x all FTs minus 30
• Does plan discriminate in favor of highly-compensated employees?
Pay AND Play: Offer coverage to 95% of all FTs, but premiums unaffordable to some employees who are eligible for federal subsidy or does not provide minimum value PAY $3,000 x FTs who qualify for
federal subsidy
Play-or-Pay: Weighing Your Options
Pay: Terminate plan PAY $2,000 for all FTs minus 30
• Excise tax is not deductible • Impact on employee relations and ability to attract and retain
talent • Will absenteeism increase/productivity decrease if employee
does not purchase other coverage
Pay: Terminate plan and increase taxable wages PAY $2,000 x all FTs who qualify for federal
subsidy • May be more expensive than status quo
Play-or-Pay: Weighing Your Options
Pay: Terminate plan PAY $2,000 for all FTs minus 30
• Excise tax is not deductible • Impact on employee relations and ability to attract and retain
talent • Will absenteeism increase/productivity decrease if employee
does not purchase other coverage
Pay: Terminate plan and increase taxable wages PAY $2,000 x all FTs minus 30
• May be more expensive than status quo
Play-or-Pay: Weighing Your Options
December 28, 2012, IRS released proposed rule – Generally adopted previous guidance
“Large” employer – Add number of full-time employees (30 or more hours a week) and
number of full-time equivalent employees (FTEs) – Must include all full-time employees and FTEs in “controlled group”)
to determine if “large” employer (but penalty applies on member-by-member basis)
Common law employee standard
IRS Proposed Rule
Full-time = 30 hours/week average (130 hours/month)
Hours of service include any paid leave Lookback/Stability Period
– IRS acknowledges practical difficulties of determining full-time status on monthly basis and provides a more flexible approach
– Employer can “look back” over a period of three to 12 months to determine full-time status for subsequent stability period
Proposed Regulation: Definition of Full-Time Employee
If full-time during measurement period, treat employee as full-time during stability period (which must be at least the greater of 6 months or measurement period)
If not full-time during measurement period, treat as part-time during stability period (which can be no longer than measurement period)
Different categories of employees can have different periods (CBA/non-CBA; different CBAs; salaried/hourly; or in different States
Administrative period allowed (up to 90 days)
Proposed Rule: Ongoing Employees
Can use measurement/stability period for new “variable hour” and “seasonal” employees
Variable hour means it cannot be determined that the employee is reasonably expected to work on average at least 30 hours per week
Seasonal is determined (for now) on good faith basis
Ongoing and new employees must have same length stability periods (e.g., one year)
Proposed Rule: New Employees Not Expected to Work FT
No penalty for first three months of employment
Proposed Rule: New Employees Expected to Work FT
95% Rule: Must provide minimum essential coverage to at least 95% of full-time employees (or, if greater, 5 full-time employees) and their dependents
Dependent coverage: Must provide coverage to children of full-time employees under age 26 – No penalty in 2014 if employer takes steps towards compliance
Non-calendar year plans: Employers will not be subject to penalties until the first day of the 2014 plan year, if they qualify for transition relief
Proposed Rule: Calculating the Penalty
Safe Harbors to determine if plan is affordable to full-time employees – W-2 safe harbor (employee’s share of premium
for self-only coverage is less than 9.5% of W-2 wages)
– Rate of pay safe harbor; or – and the Federal Poverty Line safe harbor
Proposed Rule: Affordability Safe Harbor
HOW WILL THE ACA IMPACT EMPLOYERS?
OVERALL, DO YOU THINK THE AFFORDABLE CARE ACT OR OBAMA CARE, IS GOING TO BE GOOD FOR YOUR BUSINESS, BAD FOR YOUR BUSINESS, OR HAVE NO IMPACT ON YOUR BUSINESS?
Copyright © 2013 Gallup, Inc. All rights reserved.
4%
48%
39%
9%
0% 20% 40% 60% 80% 100%
Don't Know/Refused
Bad For Business
No Impact On Business
Good For Business
Overall Total
OVERALL, DO YOU THINK THE AFFORDABLE CARE ACT OR OBAMA CARE, WILL LOWER THE AMOUNT OF MONEY YOUR BUSINESS PAYS FOR HEALTH CARE, RAISE THE AMOUNT OF MONEY YOUR BUSINESS PAYS FOR HEALTH CARE, OR HAVE NO IMPACT ON THE AMOUNT OF MONEY YOUR BUSINESS PAYS FOR HEALTH CARE?
Copyright © 2013 Gallup, Inc. All rights reserved.
3%
55%
37%
5%
0% 20% 40% 60% 80% 100%
Don't Know/Refused
Raise The Amount Of Money
No Impact On The Amount Of Money
Lower The Amount Of Money
Overall Total
HAVE YOU HELD OFF ON PLANS TO HIRE NEW EMPLOYEES AS A SPECIFIC RESULT OF THE AFFORDABLE CARE ACT OR OBAMA CARE OR NOT?
Copyright © 2013 Gallup, Inc. All rights reserved.
5%
54%
41%
0% 20% 40% 60% 80% 100%
Does Not Apply/Do Not Have Or Plan ToHave Employees (Vol)
No
Yes
Overall Total
HAVE YOU REDUCED THE NUMBER OF EMPLOYEES YOU HAVE IN YOUR BUSINESS AS A SPECIFIC RESULT OF THE AFFORDABLE CARE ACT OR OBAMA CARE OR NOT?
Copyright © 2013 Gallup, Inc. All rights reserved.
7%
74%
19%
0% 20% 40% 60% 80% 100%
Does Not Apply/Do Not Have Or Plan ToHave Employees (Vol)
No
Yes
Overall Total
HAVE YOU PULLED BACK ON PLANS TO GROW YOUR BUSINESS AS A SPECIFIC RESULT OF THE AFFORDABLE CARE ACT OR OBAMA CARE OR NOT?
Copyright © 2013 Gallup, Inc. All rights reserved.
2%
60%
38%
0% 20% 40% 60% 80% 100%
Does Not Apply/Do Not Have Or Plan ToHave Employees (Vol)
No
Yes
Overall Total
HAVE YOU CONSIDERED DROPPING HEALTH INSURANCE COVERAGE FOR YOUR EMPLOYEES AS A SPECIFIC RESULT OF THE AFFORDABLE CARE ACT OR OBAMA CARE OR NOT?
Copyright © 2013 Gallup, Inc. All rights reserved.
1%
22%
53%
24%
0% 20% 40% 60% 80% 100%
Don't Know/Refused
Does Not Apply/Do Not Have Or Plan ToHave Employees (vol)
No
Yes
Overall Total
HAVE YOU REDUCED THE HOURS OF EMPLOYEES TO PART-TIME AS A SPECIFIC RESULT OF THE AFFORDABLE CARE ACT OR OBAMA CARE OR NOT?
Copyright © 2013 Gallup, Inc. All rights reserved.
9%
73%
18%
0% 20% 40% 60% 80% 100%
Does Not Apply/Do Not Have Or Plan ToHave Employees (Vol)
No
Yes
Overall Total
29-Hour Work Week Workforce Rotation/Tenure Limits Job- or Employee-sharing Hiring Insured People Disaggregation of Corporate Group Plans
- Separate entities Bare Bones Plans
“Silver Bullets” – Will They Work?
“Independent Contractors” – “Microsoft” amendment – Misclassification
Outsourcing to Staffing Firms – To stay below large employer status (>49 full-timers) – To shed uninsured positions under discrimination rules – To use small placement firms’ under-50 exemptions – Job-sharing arranged by Vendor Management Systems – Incubators (to use two years of penalty exemption) – Same risks as “independent contractors”
Franchising/Subcontracting
More “Silver Bullets” – Will They Work?
We don’t know yet for sure. It will depend, in part, on what the final regulations say. It will also depend heavily on the facts, circumstances,
and diligence of employers who use them. The cost avoidance opportunities that do exist may be
closed by future laws or regulations. Employers should carefully consider the risks of any
strategy. They also may want to avoid being the test case for any technique, since it is expensive even to win.
What Strategies, If Any, Will Work?
1. Determine if you are in compliance with current ACA requirements
2. Determine if you are a “large” employer subject to the play-or-pay mandate
3. Identify full-time employees and how you will track hours of service
4. Will you provide health coverage to full-time employees and children?
Healthcare Reform Next Steps
5. Is your coverage affordable? 6. Does it provide minimum value? 7. Weigh “cost” of paying v. playing 8. Implement play or pay strategy 9. Communicate to employees
Healthcare Reform Next Steps
Healthcare reform strategy is an individual assessment
Review options and determine strategy that is right for your organization
Consider all employment, labor and benefits law implications of strategy
Healthcare Reform Strategies: Littler Healthcare Reform Consulting Group
Healthcare Reform Strategies: Littler GPS
Questions and Answers
Steven Friedman Shareholder Co-Chair, Employee Benefits Practice Group [email protected] Ilyse Schuman Shareholder Co-Chair, Workplace Policy Institute [email protected]
