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Health Care Reform Challenges & Facts For Employers - Whitepaper

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Health Care Reform is imposing new administrative, communications, reporting, compliance, tax, and plan design requirements that impact every employer-sponsored healthcare benefit plan. Healthcare …

Health Care Reform is imposing new administrative, communications, reporting, compliance, tax, and plan design requirements that impact every employer-sponsored healthcare benefit plan. Healthcare costs now account for over 18 percent of the entire U.S. economy and are expected to account for 20 percent by 2015. So when it comes to healthcare benefits, you’re paying more and getting less — in terms of employee appreciation and satisfaction. Why? Learn more at - http://www.adp.com/tools-and-resources/health-care-reform.aspx

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  • 1. Employer Challenges Go Beyond Health Care ReformHR. Payroll. Benefits.
  • 2. ContentsIntroduction 4Plan Design Flexibility Will Decrease 7Exchanges – Changing The Paradigm 11Shared Responsibility – Managing Compliance 17Conclusion 21About ADP® 22By John A. HaslingerADP Vice President, Benefits Outsourcing Consulting 3
  • 3. Introduction Employee benefits, as we know them today, The benefits plan designs which emerged in came into existence following the Great the 1950s and 1960s (and which we still have Depression. The Great Depression, by with us today in 2012) were (and are) concerned wiping out personal savings and throwing with two major issues: almost 13 million people out of work, vividly demonstrated the need for government and • ncome replacement in the event of I industry to provide protection against at least retirement, disability, or death some of the risks associated with illness •  edical coverage to keep the worker, M and loss of earnings. Labor unions gained and later the worker’s family, healthy momentum following the Great Depression, and productive as well, and bargained for better wages, In almost all cases, these plans were designed working conditions, and eventually, benefits. as Defined Benefit plans – with the employer By the end of World War II, labor unions were paying all of the costs initially. Over time, firmly established. And by 1949, they had the employee contributions became the norm – but ability to bargain for pension and insurance with the employer still liable for the vast majority benefits. While unions spearheaded the of any benefit costs – as well as the risk of costs initial expansion of employee benefits, exceeding projected levels in any given year. management also recognized the value Employee reaction to improved benefits of providing such benefits as part of a was favorable, the government provided comprehensive compensation package. In tax incentives (and increasingly regulatory addition, employers quickly realized that restrictions), and the post-war economy was providing such benefits could also result in booming. The predictable result was a rapid increased productivity and improvements in and continuous growth in the number and worker morale – what we today refer to as cost of employee benefits – especially health employee engagement. care benefits. The cost of health care has now risen to the point where it accounts for over 18% of the entire U.S. economy, and is expected to account for 20% by 2015.1 Source: 1 Centers For Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, U.S. Department of Commerce, Bureau of Economic Analysis4
  • 4. Nationally, health care has been a major decade and beyond. However, it is criticaltopic of discussion since at least the Clinton for benefits professionals to address theAdministration. In part this has been driven requirements of Health Care Reform inby the fact that health care spending has the strategic context of employee benefitsrisen far faster than the rate of inflation. The and the role that benefits play as part ofcost of health care has now risen to the point total compensation.where it accounts for over 18% of the entire Rapidly rising benefits costs – especiallyU.S. economy, and is expected to account for health care – are dramatically focusing the20% by 2015.1 attention of management at the same timeThe Patient Protection and Affordable Care that significant changes in the demographicsAct and the Health Care and Education of the workforce are resulting in a measurableReconciliation Act of 2010 (together known decline in the level of employee satisfaction.as “Health Care Reform”) have refocused Especially in the area of health care benefits,the national dialogue about health care, employers are paying more and gettingand has also dominated the employer- less – less in employee appreciation, lesssponsored benefit plan landscape since 2009 in employee satisfaction, and less in a– and will continue to impact strategic and competitive edge.administrative considerations for the next Fig 1. Average Cost of Employer-Provided Health Care•  verage annual cost of employer-provided health care rose an average of 8% annually between A 1999 and 2011 - Employee only coverage exceeds $5,000 in 20112 - Family coverage exceeds $15,000 in 20112$16,000 $15,073$14,000 $13,770 $13,375 $12,680$12,000 $12,106 $11,480 $10,880$10,000 $9,950 $9,068 $8,000 $8,003 $7,061 $6,438 $6,000 $5,791 $5,429 $5,049 $4,824 $4,479 $4,704 $4,000 $4,024 $4,242 $3,383 $3,695 $3,083 $2,471 $2,689 $2,000 $2,196 $0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 FamilySource: 2 Kaiser Family Foundation, 2011 Employer Health Benefits Survey Individual 5
  • 5. In part, this situation can be traced to the any specific business objectives – in fact, they fact that most employers have not applied are driven to a significant degree by forces the same strategic planning process to outside of the control of the employer: inflation, employer-sponsored benefits as they have utilization, and government mandates. to other parts of their business. The basic problem stems from the historical dichotomy Health Care Reform is the most significant between the way benefits and compensation government mandate impacting employer- are viewed. sponsored benefits plans since the passage of the Employee Retirement Income Security Act On the one hand there has been traditional of 1974, as amended (ERISA). It imposes compensation (pay, bonuses, non-qualified new administrative, communication, reporting, deferred compensation, restricted stock, compliance, tax, and plan design requirements stock options, etc.), which provided impacting every employer-sponsored health management with direct control of costs care plan. as well as the ability to integrate these expenses with specific business objectives. Viewed strategically, it also offers an On the other hand, there have been employee opportunity for employers to re-think how benefits plans (especially health care). health care benefits should be designed These benefits plans are generally not and delivered. In fact, the participant and integrated into the broader strategic direction service experience (i.e., Web, call center, of the employer, beyond the generic goal mobile apps, decision support tools, of “attracting, retaining, and motivating carrier / vendor interfaces, payroll / HR employees” – and generally are not tied to integration, etc.) will become the key any metrics showing that they succeed in the differentiator among employer plans, standard generic goals. Equally important, rather than plan design as a result of benefits costs often bear no relationship to Health Care Reform. Rather than present an overview of the various requirements under Health Care Reform, the balance of this article will focus on employer considerations in addressing three key areas impacted by Health Care Reform: Plan Design E  xchanges Shared less flexibility and both public and private Responsibility differentiation Requirements among employers managing the part-time labor force6
  • 6. Plan Design Flexibility Will DecreaseHealth Care Reform will require significant re-thinking around benefits design as a result ofboth coverage mandates and the nondeductible 40% excise tax (the tax on high-cost healthcoverage) that will go into effect in 2018. The result of these two provisions will be a narrowingof differences among employer-sponsored health care plans – in fact, it is likely over the next5 to 10 years that employer sponsored plans will begin to look more and more alike.For more than 50 years, annual average per capita health care spending has increased at morethan twice the rate of inflation, as measured by the Consumer Price Index (CPI). In fact, therehas not been a single year during the last 50 years when the increase in per capita health carespending was equal to or less than the rate of increase in the CPI – it has exceeded the rate ofgrowth in the CPI every single year. Fig 2. Percent  Change in Health Care Costs Compared to Costs for All Items (percent increase from prior year)•  very Year Since 1965 E - Medical CPI has risen faster than general CPI -  ercent change in per capita health care expenditures has been higher than change in P medical CPI Short-term impact 15% of HMOs 14.2% 14% 13.1% 13.5% 13% 11.6% 12% 10.6% 11% 10% 9.1% 9% 8.4% 7.7% 8% 7% 6.1% 5.7% 6.2% 5.7% 6% 5.4% 5% 4.5% 3.6% 4.2% PROJECTED 4% Change In CPI 3.4% 3.4% 2.8% not yet available 3% for 2015 1.6% 1.6% 2% 1% 0% 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Per Capita NHE3 CPI All Items4 Sources: 3 P  er Capita National Health Expenditures (NHE) - Centers For Medicare and Medicaid Services, National Health Statistics Group, U.S. Department of Commerce, Bureau of Economic Analysis 4 Percent Change in CPI (All Items and Medical Care) - U.S. Dept of Labor, Bureau of Labor Statistics 7
  • 7. Looking at it another way, the annual per capita U.S. Gross Domestic Product (GDP) grew on average 3.3% between 1999 and 2009. During the same period of time, annual per capita health care spending grew on average 5.8%.5 The result being that health care spending accounted for an ever-increasing share of the entire GDP. Fig 3. National Health Expenditures of GDP •  ealth care represents a larger portion of the GDP almost every year since 1965 - accounting H for over 18% of GDP in 2011 25% 20.0% 20% 18.0% 16.0% 15% 13.9% 13.8% 12.5% PROJECTED 10.3% 10.5% Medicare 9.1% 10% enacted 7.2% 5.8% 5% 0.9% 0.8% 1.0% 0% 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: Centers For Medicare and Medical Services, Office of the Actuary, National Health Statistics Group, U.S. Department of Commerce, Bureau of Economic Analysis Health Care Reform includes a range of increase in health care spending, especially insurance market reforms aimed at lowering for employer-sponsored plans. In fact, some premium growth, improving health benefits, analysts have argued that covering the and ensuring near-universal coverage in uninsured (estimated at between 30 and 50 the U.S. These include a set of affordable million), expanding coverage to meet new insurance options available through new mandates, and the potential for new benefits state insurance exchanges, rules limiting to be added to the current mandates as insurance administrative costs and profits as part of the ongoing political process, could a share of premiums, and review of excessive actually accelerate the rate of cost increases insurance premium increases. In addition, over the next decade. the law contains payment and health care system reforms that seek to slow the growth Not surprisingly, health care spending is in costs. projected to annually increase 6.1% between 2009 and 2016 according to the Centers for However, at least in the short-run (the next Medicare & Medicaid Services (CMS).6 Actual 3 to 5 years), Health Care Reform appears claim increases reported by employers have to do little to slow the anticipated rate of generally been in excess of this estimate.8
  • 8. For example, Buck Consultants, LCC However, as shown in chart (fig. 1), averageconducts a national survey of insurers to plan costs are approaching these levelsdetermine the rate of increase in employer- already – with individual coverage totalingsponsored plans and found that costs rose almost $5,500 and family coverage exceedingfaster than 10% in 2009, 2010, and 2011.7 $15,000 in 2011. And these are averageOther consulting firms found similar results national costs. Costs in high-cost marketswith Segal reporting cost increases above such as Boston, New York, Chicago, and Los10% for 2010 and 2011, PwC reporting 9.9% Angeles are already significantly above thesefor 2010 (followed by 9.5% in 2011), and national averages.Towers Watson reporting a range of 9.5%-10.9% for 2010 (8.5% in 2011).8 AonHewitt If we rely on the projected level of costreported cost increases of approximately 10% increases of 6.1% put forth by CMS, thefor both 2010 and 2011.9 U.S. average cost of $15,073 in 2011 will be $22,814 in 2018 – with plans in high-costKeep in mind that in 2009 the CPI declined areas (say family costs of $18,500 in 2011)by 0.4% and in 2010 it rose by 1.6%.10 potentially exceeding $28,000 in 2018 –During this same time, CMS projected triggering the 40% excise tax on the amountmore than a 6% increase in health care over $27,500.spending and employers reported an increasein excess of 9%. If costs increase at the current actual rate of 9% or more, the U.S. average family healthAt the same time, Health Care Reform places care premium will likely exceed $27,500a cost cap on how high benefit spending can in 2018 – impacting virtually all employersgo before it is subject to a nondeductible across the U.S. not just those in traditionally40% excise tax. Beginning in 2018, the cost high-cost areas.of health care benefits that exceeds $10,200for individual coverage or $27,500 for family Rising health care costs, hitting a cap abovecoverage will be taxed at a 40% rate. As a which will be a 40% excise tax, will make itresult, most employers will not want plan difficult for plan sponsors to use plan designcosts to exceed these monetary levels. to differentiate their benefits offerings. If costs increase at the current actual rate of 9% or more, the U.S. average family health care premium will likely exceed $27,500 in 2018...5  enters for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group; U.S. Department of Commerce, Bureau of Economic Analysis; C and U.S. Bureau of the Census, https://www.cms.gov/NationalHealthExpendData/02_NationalHealthAccountsHistorical.asp#main_content6  enters for Medicare & Medicaid Services, National Health Expenditures, NHE Fact Sheet, C https://www.cms.gov/NationalHealthExpendData/25_NHE_Fact_sheet.asp7  uck Consultants 22nd National Health Care Trend Survey, B http://www.buckconsultants.com/buckconsultants/portals/0/documents/PUBLICATIONS/Press_Releases/2010/PR-HCcosts-Increases-Continue-2011-101210.pdf8  enefit Informatics, 2010 Employer Healthcare Cost Survey Data, B http://besthealthplans.files.wordpress.com/2009/11/tinformaticscompiled2010employerhealthcarecostsurveydata.pdf9  onHewitt 2011 Health Care Trend Survey, http://www.aon.com/attachments/thought-leadership/2011_Health_Care_Trends_Survey_Final_FINAL.pdf A10  .S. Department of Labor, Bureau of Labor Statistics, All Urban Consumers, U.S. City Average, All Items, ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt U 9
  • 9. Fig 4. Health Care Reform Impact on Employer-Sponsored Plans •  overnment-mandated coverage coupled with ongoing health care inflation will reduce G employers’ ability to design health care plans that act as a differentiating component of total compensation and will increase likelihood of employers: - Potentially eliminating / reducing coverage -  ocusing on consumer-based solutions F • HDHPs • HRAs, HSAs • Wellness -  otentially moving some employees to exchanges for coverage P 40% Excise Tax On Value Of Benefits Above Limit $10,200 for Individual “Cadillac Tax” $27,500 for Family Strategic Benefits Plan Design Note: Medical inflation continues The value of to rise at 2 to 3 strategic benefits Lobbying Inflation Provider design is likely Medical times the rate of to shrink over time overall inflation - due to Health Care and has done so for Reform more that 50 years Mandated Requirements Since plan design will likely become less of a differentiator among employers – and since more employers may likely move toward a Defined Contribution strategy – the value proposition for employer-sponsored health care plans will likely shift to such things as: • Improving the ability to control costs for both the employer and the employee -  ngaging the employee as a consumer at both the moment of plan selection and E at the moment of service being provided - Implementing consumer driven health plans - Moving to a Defined Contribution model for employer-sponsored health care plans •  nsuring an employer-branded, consistent, and high-quality participant E benefits experience10
  • 10. Exchanges – Changing The Paradigm An exchange is a relatively simple concept – HMO option) under a health care plan – from an online shopping mall where buyers can among those that are offered – and in most compare plans and select the one that best cases, several vendors / carriers are involved. meets their individual needs in terms of cost A typical plan sponsor may offer a choice of and other key preferences, such as out-of- one or more coverage options through an network care, the need for a referral to see a insurance company like United, Aetna, or specialist, etc. Blue Cross- along with one or more HMOs. Employees can compare plan provisions, Today virtually all employers offer coverage network coverage, and price – and may even through what is effectively an exchange – be provided with decision support tools (at although a limited exchange. a minimum, some sort of coverage options comparison capability) to assist them in For example, most employers hold an annual picking the coverage options that is best enrollment during which their employees suited to meet their needs. can pick a coverage option (e.g., PPO option, Fig 5. Public & Private Overview Likely to survive in some states even if ppaca is struck down. Subject to variation jurisdiction by jurisdiction – as a result state exchanges may not meet the needs of multistate employers. Federal exchanges should provide consistency Employers provide a dollar across states, but will only apply to states amount and a gateway to a private without their own exchanges. exchange. Members are independent purchasers of health insurance on the private exchange. Employer stays active and leverages employee support tools such as Web, mobile, Public call center and customer service. Contracting is done by an aggregator Exchange who offers administrative support Individual required to operate the exchange Employer’s Exchange –like benefits administration, spending accounts, decision support Existing tools and ancillary services. Likely to utilize insured products. Health Care Strategy Similar to the individual exchange described above – except that (Limited Exchange) Group employer may self-insure some Exchange Private offerings, thereby preserving the ERISA preemption andCurrent model: Multiple choices Exchange direct control of plan provisions. Employer may also be responsibleoffered to employees in the cafeteria for at least some of the vendormodel. Has many features in aggregation. May include insuredcommon with an exchange. and self-insured products. Evolution of current model. Becoming synonymous with “Defined Contribution Health Plan.” Expect rapid growth in this area, whether PPACA survives or not. 11
  • 11. These plans are Defined Benefit in nature, with employees paying a relatively small share of the total estimated cost, and employers funding the balance, regardless of how expensive the actual cost turns out to be. With this in mind there are really three types of exchanges for employers to consider: Limited Exchange: 1. Traditional employer-sponsored plans – generally limited to 3 to 6 health care plan choices, and still primarily Defined Benefit in design P  rivate Exchange: A variety of plan choices aggregated by a provider or an outsourcer 2. with employer input as to which ones are offered, with the ability for employers to rapidly embrace a Defined Contribution strategy utilizing a qualified funding vehicle (i.e., 501(c)(9) Trust / VEBA, HSA / HRA – or for public-sector employers an Integral Part Trust, etc.) Public Exchange: The state exchanges required under Health Care Reform (will vary 3. by jurisdiction in terms of coverage, quality, and participant support / experience). Beginning in 2014, small employers will be able to participate in the public exchanges through the Small Business Health Options Program (SHOP). In 2017, larger employers may be permitted to participate in the public exchanges, however, this will vary by state. Public and private exchanges offer many similar advantages for employers to consider — and what may be right for any employer will depend on a number of different variables including each employer’s specific employee demographics. The following chart summarizes some of the key aspects of each type of exchange.12
  • 12. Beginning in 2014 Limited Private PublicOffered By Individual Employer Plan Aggregator State or Federal GovernmentRating Basis Individual Employer Individual Employer General Population Experience Experience ExperiencePlan Type Defined Benefit Defined Contribution Defined Contribution or Defined Benefit (at employer discretion)Employer Pretax Pretax Pretax or Post-taxContributions (at employer discretion)Employee Pretax Pretax Pretax or Post-taxContributions (at employer discretion)Funding Combination of direct Employer contributions Combination of directApproaches employer contributions, to an HSA / HRA, VEBA, employer contributions, contributions to HSA or other qualified vehicle contributions to and / or FSA, plus pretax plus pretax employee HSA / HRA and / or FSA, employee contributions contributions plus pretax employee contributionsWho Selects Individual Employer Plan Aggregator and / or State or FederalVendors / Carriers Individual Employer GovernmentTo Be includedWho Selects Plans Individual Employer Plan Aggregator and / or State or FederalTo Be Included Individual Employer GovernmentNumber of Plans Generally limited Determined by Employer Determined by StateOffered to 3 to 6 in conjunction with the or Federal Regulators. Plan Aggregator. Number Number of plans will of options will vary vary by exchangeParticipant Consistent across Consistent across the Will vary widely inExperience the country country (best practice) terms of look and feel, content, and quality at Employer-branded Employer-branded both state and federal Portal / Web Portal / Web levels Call Center Call Center Online support Online support Not Employer-branded Mobile Apps Mobile Apps Portal / Web Call Center Private exchanges Online support could vary state by state Mobile Apps based on regulations or employer preference 13
  • 13. The Private Exchange combines many of the best aspects of the current Limited Employer- Sponsored approach and the new Public Exchanges that will become effective in 2014. A Private Exchange enables an employer to continue to leverage the value of an employer- sponsored health plan with a significant reduction in the current effort (in some cases the total elimination of some employer requirements). In addition, the value to the employer and the employee is not based on individual plan design, but rather on lower costs and high-quality service. Lower costs are achieved by: •  educing or even eliminating the R •  mployers don’t design the mutual E effort and cost spent on designing and funds offered in a 401(k) plan – under a updating health care plans annually robust private health care exchange, they would no longer design the health plans -  he employer could eliminate the need T offered, but would retain control over to design the plans offered through vendors and specific plans to be offered the exchange -  his would reduce the effort associated T •  oving to a Defined Contribution M with such things as Form 5500 filings, approach Summary Plan Descriptions (SPDs), -  ossibly utilizing an HSA / HRA or a P Summary of Material Modifications VEBA (Integral Part Trust for public- (SMMs), and other mandated reporting sector employers) as the employer and communication requirements funding vehicle along with pretax •  asing rates on specific employer B contributions made by employees experience rather than that of the -  mployer costs could be designed to E general population, as would likely be the track the Consumer Price Index (CPI) or case in a public exchange (assuming that some other benchmark regulations do not prohibit this). •  educing or even eliminating most R • nvolving participants, as informed I of the government reporting and consumers, at both the point of purchase communication requirements of the plan and at the point of purchase of -  he only plan maintained by the T health care services employer could be an HSA used as •  roviding employees with a far wider P a funding vehicle from which the array of choices than a single plan employee could pay premiums, along sponsor could offer – thereby permitting with a Section 125 Premium Only Plan employees to pick a plan that best meets (and possibly a limited purpose FSA) their needs, in terms of plan provisions and plan cost14
  • 14. Fig 6. Private Exchange Overview Private exchanges have become synonymous with “Defined Contribution” insurance plans • “Private” denotes employer-sponsored vs. the public exchanges managed by governments •  ets the employer out of selecting benefits for employees; limits role to financing G & facilitatingEmployer Employer’s role is limited to deciding how much funding to• Funding Vehicle provide and which benefits• Funding Level options / carriers are available• Benefits Options Web portal has educational Employee selects among a tools, as well as a wide range of health insurance questionnaire, that help and other benefits; could employees understand have $ remaining or require options and make selections payroll deductionsEmployee• Funding Vehicle• Funding Level Eligibility Decisioning Product Insurer System Tools Marketplace • Status • Education • Health insurance • Position • Health issues •  ental, life, D Insurer • Dependents • Priorities disability insuranceEmployee has a • Risk appetite • Other ancillariesfunded vehiclefrom which topurchase benefits Exchange could source Benefits Administration (Employer-Branded) one or multiple carriers • Eligibility & enrollment / Participant support Coverage can be group or individual •  ccount plan recordkeeping & payroll deduction A (community-rated • Premium aggregation & money movement starting 2014 in public exchange) 15
  • 15. High-quality service and ongoing employee engagement is achieved by: •  mployer branding of all tools and E -  ommon decision support tools C communications (Web, print, call and applications support, etc.) -  dvocacy (and other specialized service) A - As a result, the employer: support that is consistent across all vendors and the entire country •  etains the benefit of offering R coverage and •  ompliant administration based C on Federal and applicable state •  as control over which vendors and H requirements plans will be offered from among a group that has been previously vetted -  utomated processes to ensure A and priced by an aggregator consistent administration • Service-level agreements that ensure •  arrier / vendor Interfaces similar C to what is done under traditional -  ortal experience that is consistent P employer- sponsored plans across the country • Money movement -  all center quality that is consistent C across the country • Payroll / HR Integration - 24/7 Web availability and online support •  lexible reporting and management F - Common mobile applications dashboards16
  • 16. Shared Responsibility– ManagingComplianceHealth Care Reform does not require employers to provide health coverage to their full-timeemployees. However, it does impose a potential penalty on those employers (with at least 50employees) who fail to do so.Beginning in 2014, employers must meet the requirements described below, or be subject toa potential penalty: •  ffer full-time employees the opportunity to enroll in minimum essential coverage under O an employer plan (Code Sec. 4980H(a)); •  his minimum essential coverage, among other things, must be affordable (i.e., no more T than 9.5% of the employee’s W-2 earnings with the employer).If the employer fails to do the above, AND the employee purchases coverage through aPublic Exchange, AND the employee is eligible for and receives a Federal Tax Credit in orderto subsidize the cost of their coverage, THEN the employer will be subject to a penalty.It is important to keep in mind that employees with household income up to 400% of theFederal Poverty Level (FPL) will be eligible to receive the Federal Tax Credit. For 2011, the FPLwas $22,350 for a family of four – meaning that an employee with a family of four earning lessthan $88,200 would be eligible for a Federal Tax Credit if they enrolled in a Public Exchange.(Note: the FPL is indexed for inflation – and will likely be higher in 2014).This could be a significant issue for employers with hourly employees regularly scheduledto work less than 30 hours per week – many of whom are likely to have both W-2 wages andhousehold income that will be less than 400% of the FPL. An employee with a family of four earning less than $88,200 would be eligible for a Federal Tax Credit if they enrolled in a Public Exchange. 17
  • 17. Fig 7. Employees  May Qualify for Federal Subsidies at Fairly High Income Levels 2011 Income Levels For 400% of FPL (Indexed For Inflation) Federal Poverty No. Persons 48 Contiguous Level: 2011 Alaska Hawaii In Family States / DC 48 Contiguous States 1 $10,890 $43,320 $54,120 $49,840 2 $14,710 $58,280 $72,840 $67,040 3 $18,530 $73,240 $91,560 $84,240 4 $22,350 $88,200 $110,280 $101,440 5 $26,170 $103,160 $129,000 $118,640 6 $29,990 $118,120 $147,720 $135,840 7 $33,810 $133,080 $166,440 $153,040 8 $37,630 $148,040 $185,160 $170,240 Source: Federal Register 4200, January 23, 2009, http://aspe.hhs.gov/poverty/09fedreg.pdf. Of particular importance for many employers is how Health Care Reform defines “part-time” and “full-time” employees for purposes of determining this potential penalty. In simplest terms, a full-time employee is any employee who works, on average, 30 hours or more per week in any month. Employers can use 130 hours of service per calendar month in making this determination (see IRS Notice 2011-36 for specific details). Generally speaking, seasonal employees who work less than 120 days per year are not counted. The proposed guidance provides another administrative wrinkle – a look-back period and a coverage / stability period. Using the look-back period approach, an employer would determine if an employee is full-time by looking at a period of 3 to 12 months (the measurement period is at the discretion of the employer and will generally be 3, 6, 9, or 12 months) to determine whether the employee averaged at least 30 hours of work per week or at least 130 hours of service per calendar month during that period.18
  • 18. If an employee averaged at least 130 hours Employees who exceed the average ofper month during the look-back period 130 hours per calendar month must behe / she will be considered to be a full-time considered as full-time and, if not eligibleemployee. In such a case, the employee must for benefits, will trigger a penalty for thebe made eligible for coverage going forward, employer should they obtain coverage ANDwith the period of coverage being equal to the receive a Federal subsidy through a Publiclook-back period used to determine eligibility. Exchange. On the other hand, providingThus if an employer relied on a three month coverage for such newly defined “full-time”look-back period, any employee who was employees will significantly increase thefound to work an average of 130 hours or average hourly cost of labor. So what is anmore per month during that period would employer to do?have to be made eligible for coverage for a The solution is to actively manage thesethree-month period going forward, regardless potential issues by integrating automatedof how many hours per week that employee time and labor management tools, payrollmight work during the going-forward services, and benefit administration.coverage period. In simplest terms, a full-time employee is any employee who works, on average, 30 hours or more per week in any month. 19
  • 19. Fig 8. Basic Steps In Integrated Shared Responsibility Solution 1. Workforce Management •  otices sent to managers as employees approach 30 hours in any week N •  bility of managers to see report / dashboard of scheduled and actual hours for A all employees in order to manage hours assigned in conjunction with liability for health care costs •  ctive management of hours assigned can reduce exposure to additional health A care costs and / or federal penalties 2. Database of Record •  ayroll tracks actual hours worked (which may differ from scheduled hours) P •  ayroll sends an automated trigger to benefits administration system when an P employee exceeds 130 hours per month 3. Benefits Administration •  mployee eligibility calculation is triggered E •  ppropriate look-back and coverage period rules are applied A •  mployee is notified of benefit eligibility – avoiding penalty for failure to offer coverage E •  alculation of premium as percent of W-2 earnings is done C -  eport generated showing employees for whom contributions are greater than R 9.5% of W-2 earnings -  nables management to estimate potential liability E -  econcile with government data if penalties are assessed R20
  • 20. This integrated solution: • Empowers local managers to make the most cost-effective decisions in real-time -  roviding the tools for the manager to differentiate among employees who have already P triggered a “full-time” designation (with the related health care liability), those who are far away from such a designation based on scheduled hours, and those who are very close to crossing from part-time to full-time •  nsures that employees who should be eligible for coverage are actually made eligible in E a timely and compliant fashion •  rovides management the data necessary to track and reconcile with the government P for those employees who ultimately do chose to utilize a Public Exchange rather than an employer’s plan -  rack and report on all part-time employees who became “full-time” and for what period T of time this coverage applied -  rack and report on all newly designated “full-time” employees who are eligible, T whose contributions exceed 9.5% of their W-2 wages, and for what period of time they would be eligibleEqually important, these processes occur seamlessly and consistently without the need forlocal managers or HR professionals to take any special action.ConclusionHealth Care Reform presents both challenges and opportunities for employers – many of whichwill remain even if the law is repealed or modified.Controlling costs, engaging employees, and ensuring compliance with applicable federal andstate regulations are critical issues for benefits professionals as they and their employersnavigate an increasingly competitive global business economy.In this new environment, the traditional distinction between HR strategy and operations maynot serve as a meaningful model. Instead, this author suggests that the two need to be broughttogether by “operationalizing strategy” – using technology and process to enable strategic goalsin measurable ways. 21
  • 21. About ADP® Automatic Data Processing, Inc. (NASDAQ: ADP), with about $10 billion in revenues and approximately 570,000 clients, is one of the world’s largest providers of business outsourcing solutions. Leveraging over 60 years of experience, ADP offers a wide range of human resources, payroll, tax and benefits administration solutions from a single source. ADP’s easy-to-use solutions for employers provide superior value to companies of all types and sizes. ADP is also a leading provider of integrated computing solutions to auto, truck, motorcycle, marine, recreational vehicle, and heavy equipment dealers throughout the world. Reach us at 1-800-225-5237 or visit the company’s website at www.ADP.com.22
  • 22. The ADP logo and ADP are registered trademarks of ADP, Inc. In the Business of Your Success is a service mark of ADP, Inc. All other trademarks and service marks are the property of their respective owners. 04-3661-022 Printed in the USA © 2012 ADP, Inc.HR. Payroll. Benefits.