Employee Benefits in the Obamacare World & How to Maximize Its Impact


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Are you struggling to understand Obamacare and how it impacts your company? Do you want to learn about how to use employee benefits as a recruitment and retention tool?

This presentation will provide valuable insight into employee benefits in the Obamacare world and how to maximize its impact. Under Obamacare, employers are offered the option to "pay or play." But, for most companies there is no choice—they must “play” in order to recruit and retain employees. This not only includes offering health insurance but also life, disability, and the whole spectrum of employee benefits.

Here you'll learn about the impact of Obamacare on the employee benefits mix and employer decision-making process, along with understanding the importance of insurance benefits as a mandatory piece of the total compensation puzzle.

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  • TRANSITION RELIEF FOR SMALLER EMPLOYERS: For employers with fewer than 100 full-time employees (including full-time equivalents) in 2014, that meet the conditions described below, no Employer Shared Responsibility payment under section 4980H(a) or (b) will apply for any calendar month during 2015. For employers with non-calendar year health plans, this applies to any calendar month during the 2015 plan year, including months during the 2015 plan year that fall in 2016.
  • • IRS can attempt to collect the penalty by reducing future tax refunds • Individuals who fail to pay the penalty will not be subject to any criminal prosecution or penalty • Government cannot file notice of lien or levy any property of a taxpayer who does not pay the penalty
  • In order to be eligible for the relief, an employer must certify that it meets the following conditions:(1) Limited Workforce Size. The employer must employ on average at least 50 full-time employees (including full-time equivalents) but fewer than 100 full-time employees (including fulltime equivalents) on business days during 2014. (Employers with fewer than 50 full-time employees (including full-time equivalents) on business days during the previous year are not subject to the Employer Shared Responsibility provisions.) The number of full-time employees (including full-time equivalents) is determined in accordance with the otherwise applicable rules in the final regulations for determining status as an applicable large employer.(2) Maintenance of Workforce and Aggregate Hours of Service. During the period beginning on Feb. 9, 2014 and ending on Dec. 31, 2014, the employer may not reduce the size of its workforce or the overall hours of service of its employees in order to qualify for the transition relief. However, an employer that reduces workforce size or overall hours of service for bona fide business reasons is still eligible for the relief.(3) Maintenance of Previously Offered Health Coverage. During the period beginning on Feb. 9, 2014 and ending on Dec. 31, 2015 (or, for employers with non-calendar-year plans, ending on the last day of the 2015 plan year) the employer does not eliminate or materially reduce the health coverage, if any, it offered as of Feb. 9, 2014. An employer will not be treated as eliminating or materially reducing health coverage if (i) it continues to offer each employee who is eligible for coverage an employer contribution toward the cost of employee-only coverage that either (A) is at least 95 percent of the dollar amount of the contribution toward such coverage that the employer was offering on Feb. 9, 2014, or (B) is at least the same percentage of the cost of coverage that the employer was offering to contribute toward coverage on Feb. 9, 2014; (ii) in the event of a change in benefits under the employee-only coverage offered, that coverageprovides minimum value after the change; and (iii) it does not alter the terms of its group health plans to narrow or reduce the class or classes of employees (or the employees’ dependents) to whom coverage under those plans was offered on Feb. 9, 2014.
  • NOTE 1: Rather than being required to use the full twelve months of 2014 to measure whether it has 50 full-time employees (or equivalents), an employer may measure during any consecutive six-month period (as chosen by the employer) during 2014. For example, an employer could use a period of atleast six months through August 2014 to determine its applicable large employer status and, if it is an applicable large employer, the period from September through December 2014 to make any needed adjustments to its plan (or to establish a plan).NOTE 2: The transition relief in the preamble to the final regulation generally extends the transition relief that had been provided for plan years that begin in 2014 (2014 plan years) to plan years that begin in 2015 (2015 plan years). Under this transition relief, an employer that takes steps during its 2014 plan year toward offering dependent coverage will not be subject to an Employer Shared Responsibility payment solely on account of a failure to offer coverage to dependents for that plan year. This extended transition relief applies to employers for the 2015 plan year for plans under which (1) dependent coverage is not offered, (2) dependent coverage that does not constitute minimum essential coverage is offered, or (3) dependent coverage is offered for some, but not all, dependents.
  • W–2 Safe HarborAffordable if required contribution for self-only coverage (excluding COBRA) does not exceed 9.5% of W–2 wages (Box 1)Determined after calendar year, on an employee-by-employee basisContribution must remain consistent (amount or %) during the year But employer may require a contribution that is based on a consistent percentage of W–2 wages and subject to a dollar limit specified by the employer (e.g., contribution may be set 9.5% of wages up to $100)Prorated for partial periods of coverageRate of Pay Safe Harbor: Affordable if required monthly contribution does not exceed 9.5% of an amount equal to 130 hours multiplied by the employee's hourly rate of payFor salaried employees, monthly salary is used instead of 130 multiplied by the hourly rate of pay Federal Poverty Line Safe Harbor:Affordable if required monthly contribution does not exceed 9.5% of a monthly amount determined as the Federal poverty line (FPL) for a single individual for the applicable calendar year, divided by 12 FPL is the FPL for the state in which employee is employed
  • -Must offer plans that meet the Essential Health Benefit coverage requirements-Insurers may offer separate health plan products outside of an Exchange, but they are prohibited from offering rates for those health plan products that are lower than those offered within the Exchange
  • Only available through the Individual Exchanges (not SHOP)Depending on the income, age and family size, the subsidy can be substantial
  • Example: a position paying even $12 per hour, when vacated, can cost the employer up to $50,000 to hire and get the new employee up to the required productivity level. Most likely cost around $37,500 (1.5 times annual pay).
  • *From Mercer’s National Survey of Employer Sponsored Health Plans (2013)
  • Regional differences apply – 2013 HRA-NCA Benefits Survey (Mid-Atlantic) had following results:Medical – 99%Dental – 99%Vision – 86%Basic Life – 99%STD – 91%LTD – 97%
  • Utilize brokerage resources to help determine an effective mix and monitor retention.
  • *From Mercer’s National Survey of Employer Sponsored Health Plans (2013)
  • Employees are allocated a certain amount of dollars and a variety of products from which to choose.
  • Explain what self-funding is – how it works…..
  • Employee Benefits in the Obamacare World & How to Maximize Its Impact

    1. 1. 2014 ISRI Convention Presented by: Joseph Appelbaum President Potomac Companies, Inc.
    2. 2. Purpose Employers are offered the option to "Pay or Play" under Obamacare, but for most companies there is no choice - they must play in order to recruit and retain employees. Not only must they play in the health insurance market, but also life, disability, and the whole spectrum of employee benefits from leave to pet insurance. In this session we will discuss the impact of Obamacare on the employee benefits mix and employer decision-making, along with the importance of insurance benefits as a mandatory piece of the total compensation puzzle.
    3. 3. THE BASICS Patient Protection & Affordable Care Act (PPACA or Obamacare)
    4. 4. PPACA (Obamacare)  Key Components Individual Mandate (2014) • Subsidies • Penalties Insurance Mandates State Mandates (Exchanges)
    5. 5. Individual Mandate  Beginning in 2014, ACA requires individuals to maintain health insurance for themselves and their dependents  Most individuals will be required to maintain "minimum essential coverage", which includes  employer coverage  individual coverage  federal programs such as Medicare and Medicaid  Those who do not maintain minimum essential coverage, and who are not exempt from the mandate, will be required to pay a tax penalty for noncompliance
    6. 6. Individual Mandate  Individual annual Penalties:  2014: $95 per adult and $47.50 per child, up to a family maximum of $285 or 1 percent of family income, whichever is greater  2015: $325 per adult and $162.50 per child, up to a family maximum of $975 or 2 percent of family income, whichever is greater  2016: $695 per adult and $347.50 per child, up to a family maximum of $2,085 or 2.5 percent of family income, whichever is greater
    7. 7. Employer Mandate Employer Play or Pay  Applies to Applicable Large Employers  Employers with 50 or more Full-Time Equivalent Employees (FTEs)  ER penalty applies if coverage is not offered or coverage is offered but "Unaffordable" and a Full-Time Employee (30+ hrs/week) receives A Subsidy in an Exchange Penalty ALE & Insurance Not Offered OR Is Unafford- able Full-Time Employee Obtains Insurance in an Exchange Employee receives Federal subsidy $ $ $ $
    8. 8. Employer Mandate Employers who do not provide coverage  Employers who do not provide health coverage to at least 95% of all full-time employees (and their children under age 26) are subject to a penalty • If at least one full-time employee (30+hrs/wk or 130+ hrs/mo) receives a subsidy to purchase Exchange coverage for himself or herself, the employer is subject to an annual penalty of $2,000 × all full-time employees (reduced by 30) • Penalty is assessed monthly ($167.67 per full-time employee per month)
    9. 9. Employer Mandate Employers who provide "unaffordable" coverage  Coverage is "affordable" if: 1. The employee's cost for single coverage does not exceed 9.5% of household income (or Box 1 W-2 wages or another safe harbor), and 2. The plan provides "minimum value" (it has at least a 60% actuarial value)  Annual penalty is $3,000 for each full-time employee who receives a subsidy for Exchange coverage (not to exceed the "no coverage" penalty) • Penalty is assessed monthly ($250 per subsidy-receiving full- time employee per month)
    10. 10. Transition Relief  For , the rules will apply to employers with 100 or more full-time equivalent employees (employers in the 50- 99 range will need to certify eligibility for this transition relief)  For , the rules will apply to employers with 50 or more full-time equivalent employees
    11. 11. Transition Relief  To avoid a penalty in 2015, employers subject to the mandate (100+ FTEs) must offer coverage to at least 70% of their full-time employees (instead of 95%)  To avoid a penalty in 2016, employers subject to the mandate must offer coverage to 95% of their full-time employees  Employers with non-calendar year plans are subject to the mandate based on the start of their 2015 plan year rather than on January 1, 2015 (may be extended to 50-99 FTE employers for their 2016 plans)
    12. 12. Transition Relief  Other transition relief contained in the proposed regulations were extended:  The ability to use a short timeframe (at least 6 months) to determine whether an employer is large enough to be subject to the mandate  A delay in the requirement to provide coverage to dependent children to 2016 (as long as the employer is taking steps to arrange for such coverage to begin in 2016)  For 2015 ONLY, penalty calculated by reducing number of employees by 80 instead of 30
    13. 13. Additional Items of Note  90-Day Enrollment Requirement (EFFECTIVE 2014)  If EE clearly eligible, must be enrolled on or before 90th day  This means coverage begins by 91st day  Acceptable waiting period: coverage effective 1st of month following 60 days  Affordability Safe Harbors  W-2 safe harbor  Rate of pay safe harbor  Federal poverty line safe harbor
    14. 14. Exchanges  Types of Exchanges:  State Exchange  Partnership Exchange  Federally-Facilitated Exchange (in states that did not choose to develop their own exchange)
    15. 15. Exchanges  The Metals—Exchanges to Offer Four Levels of Coverage: Bronze (60%) Silver (70%) Gold (80%) Platinum (90%)  And a catastrophic plan for individuals under 30
    16. 16. Premium Tax Credits  Premium tax credits are federal subsidies—direct payments to insurance companies to subsidize coverage for lower- income individuals in the state-based Exchanges  The subsidy helps lower-income people between 100% and 400% of Federal Poverty Level (FPL) purchase a silver level plan (70% plan)
    17. 17. RECRUITMENT & RETENTION Why Choose to “Play”?
    18. 18. Getting & Keeping Employees  The cost of employee turnover can be extensive – 1/2 to 2 times annual pay per lost employee  Cost of losing trained EE  Cost of temp or OT while position empty  Recruitment costs  Training costs  Lost productivity costs
    19. 19. Getting & Keeping Employees  Average national turnover rate has been running at 25% for manufacturing, construction, scrap recycling & related industries  Example: 25% turnover; 200 employees; average pay rate $12.00 per hour; turnover cost at 1/2 X pay Turnover costs to company equals $624K on an annual basis based on this example
    20. 20. Getting & Keeping Employees  Employers are using benefits as leverage to recruit & retain employees: Total Rewards  Health care & retirement savings are the most leveraged benefits for recruitment & retention*  Employees must have health insurance now – easiest place to get it is through their employer  Premiums tax deductible to the employer & employee
    21. 21. Getting & Keeping Employees  If turnover can be reduced through the increase of the Total Reward package (i.e., added benefits), why not use the savings to fund the added benefits?? Improve Total Rewards Reduce Employee Turnover Reduce Costs to Fund Total Rewards package
    22. 22. Retention & Profitability  Using the example of the 200 person company:  If the 25% turnover cost your organization $624k/year, what would you do with that money if it didn’t walk out the door?  How do you minimize that loss and add it back into your bottom line profitability?
    23. 23. Retention & Profitability  Will 50 cents an hour change that?  200 people times an average of 2,080 hours times 50 cents = $208k  What would you do with $416k? What about increasing benefits?  Why are you losing employees?  Are they transient?  Will they move for an extra 50 cents an hour?  Are you not offering benefits (ACA requirement)?  Not contributing enough?  Improper hiring practices? Or improper training?  Settling for a belly button?
    24. 24. WHAT TO DO Considering the Investment
    25. 25. Benefits in the Mix  Health Insurance – 97% of ALL employers offer health coverage for at least the employee  Dental – 96%  Vision 79%  Life Insurance – 84% of employers offer life insurance  Disability – 68% offer STD and 80% offer LTD (primarily paid 100% by ER) *Results from 2012 SHRM National Benefits Survey
    26. 26. Benefits in the Mix  The Total Rewards package can be any mix, though, that helps to recruit & retain employees in your industry  Compensation  Health & welfare benefit plans  Supplemental benefit plans  Misc. Benefits – legal services, bonus programs, incentive compensation, flexible work environments, even pet insurance & the list goes on
    27. 27. Employee Healthcare  Despite the cost pressures of health care benefits, majority of employers will continue to offer coverage*, but…  They are resetting benefit value  They are actively engaging employees in improving their own health  They are focusing on choice  They are exploring new options like Private Exchanges & Self-Funding
    28. 28. Private Exchanges  A private exchange is an on-line portal used to sell insurance products directly to employees  Employees are allowed to become consumers and shop from among a wide variety of major medical health plans and supplemental insurance products  A private exchange reduces the role the employer plays in the selection of insurance coverage for its employees
    29. 29. Private Exchanges  Why are employer’s looking at Private HC Exchanges  One-stop shopping across core medical, life, disability, & voluntary benefits  Technology & choice eases employee decision-making  Collective buying power & influence help control total benefit costs
    30. 30. Partially Self-Funding  Partially self-funding insurance benefits for groups with 50 or more employees is an option for controlling costs  Not for everyone – works well for groups with relatively low claims costs (low plan utilizers)
    31. 31. Wrap-Up  Your employees are a corporate asset – retain them  Your employees are what drives your business  Taking care of them is a required business practice in today’s economy - it translates into healthier, more productive & longer term employees
    32. 32. Wrap-Up  Obamacare may seem complicated, but it does not alter the fundamental need for companies to offer a Total Rewards package that effectively attracts and retains employees  Find the right guidance in a broker or consultant to help you navigate the Total Rewards options
    33. 33. Thank you! Joseph Appelbaum President Potomac Companies, Inc. www.potomacco.com