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Employers need to be aware that decisions they are making now about the size and make-up of their workforce will affect whether they exceed the 50 employee threshold that triggers the "pay or play" penalty in the Affordable Care Act. This presentation will focus on strategies for avoiding or minimizing exposure to the penalties under the Act.

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  1. 1. Employers on the Edge:Strategies for Dealing withthe Affordable Care ActJ. Kevin WestApril 9, 2013Salt Lake City25th ANNUAL EMPLOYMENT LAW SEMINARparsonsbehle.com
  2. 2.  Patient Protection and Affordable HealthCare Act of 2010 Also known as:– PPACA– ACA– ObamacareACA BASICS2
  3. 3.  Timeline for rollout of ACA provisions:ACA BASICSDate Action09/23/10 IRS non-discrimination rules extended to fully insured plans12/31/11 Medical loss ratio refunds take effect08/01/12 Preventative services for women required09/23/12 Summary of benefits must be issued to plan participants01/01/13 Employers must report cost of health plan coverage on form W-2.Flex plan contributions limited to $2,50003/01/13 Employees must be notified of state insurance exchanges2014 Plans must eliminate adult pre-existing condition exclusionsPenalty of $2,000 per f/t employee not covered by the employer’s health planEmployers must provide “affordable coverage” or pay a fine of $3,00 per employeeIncreased Medicare tax on high wage earnersLimitation upon waiting periods of longer than 90 daysMandatory coverage for clinical trials for life-threatening illnessesExpansion of wellness incentives for health plansCaps on out-of-pocket maximums for health benefits for essential benefits3
  4. 4.  The “individual” mandate The employer mandate– Aka “shared responsibility” rules– “Play or pay” rulesMandates (and Womandates)4
  5. 5.  “Larger employers” who fail to provideaffordable health insurance coverage totheir employees will be penalizedPlay or Pay: Basic Concept5
  6. 6. A. When are the rules effective?January 1, 2014(but stay tuned, because what you do in 2013 mayaffect whether P or P hits your company)Play or Pay: ABC’s of ACA6
  7. 7. B. Does “Pay or Play” apply to my company(i.e., am I a “large employer”)? An average of 50 or more f/t employeesduring the preceding calendar yearPlay or Pay: ABC’s of ACA7
  8. 8. 5 Step Analysis:Am I A “Large Employer”?Step 1:Step 2: Include all “controlled” entities for headcount purposes– 80% of entities owned by a common owner Count all “employees”– leased employees not counted– independent contractors not counted8
  9. 9.  Mischaracterization of independentcontractors can result in a double whammy:– Employer withholding penalties– ACA penaltiese.g., employer with 49 f/t employees and 3misclassified “independent contractors” = seriousfinancial consequenceCAUTION !9
  10. 10. 10Step 3: Calculate the hours of service Hourly employees: actual hours Non-hourly employees: 3 options1) actual hours of service2) 8 hours for each day required to work3) 40 hours for each week required to work
  11. 11. 11Step 4: Calculate f/t employees and FTE’s ineach month Identify “full time” employees: average of 30or more hours/week Count FTE’s: for all otheremployees, count hours of service in themonth and divide by 120
  12. 12. 12Example: hours worked in March 2013:Bob 90 hoursJohn 30 hoursMary 60 hoursJane 60 hoursTotal 240 hours÷ 120= 2 FTE’s
  13. 13. 13Step 5: Add full time and FTE’s for each month in thepreceding calendar year, then divide by 12Example:Jan 40 Jul 55Feb 46 Aug 55Mar 52 Sept 56 = 634 ÷12 = 52.8Apr 52 Oct 54May 50 Nov 60 Congrats – you areJune 58 Dec 56 a “large” employer!
  14. 14. For 2014 only, employers may do theircalculation using a period of at least 6consecutive calendar months in 2013WARNING: July 1, 2013 is the deadline to “fix” yourworkforce size for ACA play or pay purposesSpecial Transition Rule:14
  15. 15.  “Seasonal” = worker who works on a seasonal basis(hospitality workers, tourism, agriculture, etc.) If employer exceeds 50 full-time and FTE for 120days/4 months during preceding calendar year, andin excess of 50 employees during that period were“seasonal”, the employer is not a “large” employerSeasonal Employee Exception15
  16. 16. 16NOTE: An employer’s status is fixed as of January 1steach year (based on prior year’s numbers) Dropping below 50 employees during the yeardoes not change status for that year
  17. 17. 17C. Is my company’s health coverage“affordable”? A large employer who offers health coveragemay still be penalized if coverage –1) Does not provide “minimal essential coverage”and2) Is not “affordable”
  18. 18.  The plan’s share of the total allowed cost ofbenefits is at least 60% IRS will be issuing guidance in the future“Minimal Essential Coverage”18
  19. 19. 19“Affordable” = employee’s contribution towardcost of coverage does not exceed 9.5% of theemployee’s household income for the year
  20. 20. 1) W-2 method – use W-2 wages for precedingcalendar year (retrospective)2) Rate of pay method – use “computed” wage asdetermined at beginning of year [if pay goesup, lower amount controls] (prospective)3) Federal Poverty Line method – if employee’scontribution does not exceed 9.5% of FederalPoverty line = affordable coverage3 “Safe Harbor” Calculation Methods20
  21. 21. 21D. For large employers, who must be offeredhealth coverage? Coverage must be offered to “full-time”employees “Full-time” = averages 30 or more hours perweek in a calendar month Another 5 step analysis (sorry!)
  22. 22. 22Step 1: Decide if employee status will bedetermined on a monthly basis orusing a “look-back” period If you choose monthly, the analysis endshere; if not go on
  23. 23. 23Step 2: Determine the look back period Must be at least 3 but not more than 12calendar months (as chosen by employer) Different rules for ongoing vs. newemployees
  24. 24. 24Step 3: Classify employees as “ongoing”or “new” Different look-back rules apply to eachcategoryStep 4: Apply the look-back rules to ongoingemployees
  25. 25. 25Step 5: Apply the look-back rules to – new employees variable hour employees seasonal employeesNOTE: Employers may gain more advantageoustreatment by implementing changes no later thanJuly 1, 2013
  26. 26. 26E. Penalties for failure to comply – the pay in“Play or Pay” Per Justice Roberts, it is an “excise tax” nota penalty (yeah…right) Two types of excise taxes (aka penalties)
  27. 27. 271st type: $2,000 per full-time employee for failureto offer coverage to at least 95% of full-time employees (and their dependents) Penalty applies to the total non-covered full-timeemployees minus 30– FTE’s not used in calculation of the headcount forpenalty purposes At least one full-time employee must have soughtcoverage from a health care exchange and receiveda premium tax credit
  28. 28. 282nd type: Applies if employer offers coverage toat least 95% of full-time employeesbut coverage –1) Does not provide “minimal value”or2) Is not “affordable”
  29. 29. 29 $3,000 penalty per full-time employee whoreceived the premium tax credit– OR – The amount of the penalty determined in the1st type (above)whichever is less
  30. 30.  “49’ers” – companies that try to stay below the50 employee threshold “29’ers” – companies that try to keep employeesbelow the 29 hour threshold49’er and 29’ers:Strategies for Employers on the Edge30
  31. 31. Reduction in force:reduce workforce headcount to below 50Strategy 1: Reduce/Keep yourworkforce below 50 full-time and FTE31
  32. 32. Example: Company X employees 54 full time workers It avoids ACA penalties by converting 10workers to part-time (44 f/t + 5 FTE = 49) This must be done before July 1, 2013Strategy 2: Convert full-time workersto part-time to get below the 50 FT/FTE32
  33. 33. WARNING:misclassification carries a heavy penaltyStrategy 3: Use independentcontractors, leased employees andconsultants33
  34. 34.  Employees form individual corporations; theemployer then contracts with the corporation Gimmicky and impractical, but theoreticallypossibleStrategy 4: The “Protean” Approach34
  35. 35. Decide to pay instead of playStrategy 5: Calculate the cost of“paying” instead of “playing”35
  36. 36.  Small employer tax credit “Cadillac tax” penaltyMiscellaneous Issues36
  37. 37.  J. Kevin Westdirect: (208) 562.4908email: kwest@parsonsbehle.comThank You37