Employer Challenges GoBeyond Health Care ReformHR. Payroll. Benefits.
ContentsIntroduction 4Plan Design Flexibility Will Decrease 7Exchanges – Changing The Paradigm 11Shared Responsibility – Managing Compliance 17Conclusion 21About ADP 22By John A. HaslingerADP Vice President, Product Management - Benefits and Health Care3
4IntroductionEmployee benefits, as we know them today,came into existence following the GreatDepression. The Great Depression, bywiping out personal savings and throwingalmost 13 million people out of work, vividlydemonstrated the need for government andindustry to provide protection against at leastsome of the risks associated with illnessand loss of earnings. Labor unions gainedmomentum following the Great Depression,as well, and bargained for better wages,working conditions, and eventually, benefits.By the end of World War II, labor unions werefirmly established. And by 1949, they had theability to bargain for pension and insurancebenefits. While unions spearheaded theinitial expansion of employee benefits,management also recognized the valueof providing such benefits as part of acomprehensive compensation package. Inaddition, employers quickly realized thatproviding such benefits could also result inincreased productivity and improvements inworker morale – what we today refer to asemployee engagement.Source: 1Centers For Medicare and Medicaid Services, Office of the Actuary,National Health Statistics Group, U.S. Department of Commerce, Bureau of Economic AnalysisThe benefits plan designs which emerged inthe 1950s and 1960s (and which we still havewith us today in 2012) were (and are) concernedwith two major issues:• Income replacement in the event ofretirement, disability, or death• Medical coverage to keep the worker,and later the worker’s family, healthyand productiveIn almost all cases, these plans were designedas Defined Benefit plans – with the employerpaying all of the costs initially. Over time,employee contributions became the norm – butwith the employer still liable for the vast majorityof any benefit costs – as well as the risk of costsexceeding projected levels in any given year.Employee reaction to improved benefitswas favorable, the government providedtax incentives (and increasingly regulatoryrestrictions), and the post-war economy wasbooming. The predictable result was a rapidand continuous growth in the number andcost of employee benefits – especially healthcare benefits.The cost of health care hasnow risen to the point where itaccounts for over 18% of the entireU.S. economy, and is expectedto account for 20% by 2015.1
5Nationally, health care has been a majortopic of discussion since at least the ClintonAdministration. In part this has been drivenby the fact that health care spending hasrisen far faster than the rate of inflation. Thecost of health care has now risen to the pointwhere it accounts for over 18% of the entireU.S. economy, and is expected to account for20% by 2015.1The Patient Protection and Affordable CareAct and the Health Care and EducationReconciliation Act of 2010 (together knownas “Health Care Reform”) have refocusedthe national dialogue about health care,and has also dominated the employer-sponsored benefit plan landscape since 2009– and will continue to impact strategic andadministrative considerations for the nextFig 1. Average Cost of Employer-Provided Health Care• Average annual cost of employer-provided health care rose an average of 8% annually between1999 and 2011- Employee only coverage exceeds $5,000 in 20112- Family coverage exceeds $15,000 in 20112$16,000$14,000$12,000$10,000$8,000$6,000$4,000$2,000$01999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011$5,791$2,196$2,471 $2,689$3,083$3,383 $3,695$4,024 $4,242$4,479 $4,704 $4,824$5,049$5,429$6,438$7,061$9,068$9,950$10,880$11,480$12,680$13,375$15,073$13,770$12,106$8,003FamilyIndividualSource: 2Kaiser Family Foundation, 2011 Employer Health Benefits Surveydecade and beyond. However, it is criticalfor benefits professionals to address therequirements of Health Care Reform in thestrategic context of employee benefits andthe role that benefits play as part of totalcompensation.Rapidly rising benefits costs – especiallyhealth care – are dramatically focusing theattention of management at the same timethat significant changes in the demographicsof the workforce are resulting in ameasurable decline in the level of employeesatisfaction. Especially in the area of healthcare benefits, employers are paying more andgetting less – less in employee appreciation,less in employee satisfaction, and less in acompetitive edge.
6In part, this situation can be traced to thefact that most employers have not appliedthe same strategic planning process toemployer-sponsored benefits as they haveto other parts of their business. The basicproblem stems from the historical dichotomybetween the way benefits and compensationare viewed.On the one hand there has been traditionalcompensation (pay, bonuses, non-qualifieddeferred compensation, restricted stock,stock options, etc.), which providedmanagement with direct control of costsas well as the ability to integrate theseexpenses with specific business objectives.On the other hand, there have been employeebenefits plans (especially health care).These benefits plans are generally notintegrated into the broader strategic directionof the employer, beyond the generic goalof “attracting, retaining, and motivatingemployees” – and generally are not tied toany metrics showing that they succeed in thestandard generic goals. Equally important,benefits costs often bear no relationship toany specific business objectives – in fact, theyare driven to a significant degree by forcesoutside of the control of the employer: inflation,utilization, and government mandates.Health Care Reform is the most significantgovernment mandate impacting employer-sponsored benefits plans since the passage ofthe Employee Retirement Income Security Actof 1974, as amended (ERISA). It imposesnew administrative, communication, reporting,compliance, tax, and plan design requirementsimpacting every employer-sponsored healthcare plan.Viewed strategically, it also offers anopportunity for employers to re-think howhealth care benefits should be designedand delivered. In fact, the participant andservice experience (i.e., Web, call center,mobile apps, decision support tools,carrier / vendor interfaces, payroll / HRintegration, etc.) will become the keydifferentiator among employer plans,rather than plan design as a result ofHealth 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 keyareas impacted by Health Care Reform:Plan Designless flexibility anddifferentiationamong employersExchangesboth public and privateSharedResponsibilityRequirementsmanaging the part-timelabor force
7Health 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 next 5to 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.Plan Design Flexibility Will DecreaseFig 2. Percent Change in Health Care Costs Compared toCosts for All Items (percent increase from prior year)• Every Year Since 1965- Medical CPI has risen faster than general CPI- Percent change in per capita health care expenditures has been higher than change inmedical CPI15%14%13%12%11%10%9%8%7%6%5%4%3%2%1%0%1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 20157.7%11.6%13.1%14.2%8.4%5.4%4.5%6.1% 6.2%5.7%4.2%1.6%3.4% 3.4%2.8%3.6%13.5%10.6%1.6%5.7%9.1%PROJECTEDChange In CPInot yet availablefor 2015Short-term impactof HMOsPer Capita NHE3CPI All Items4Sources:3Per Capita National Health Expenditures (NHE) - Centers For Medicare and Medicaid Services, National Health Statistics Group,U.S. Department of Commerce, Bureau of Economic Analysis4Percent Change in CPI (All Items and Medical Care) - U.S. Dept of Labor, Bureau of Labor Statistics
8Looking at it another way, the annual per capita U.S. Gross Domestic Product (GDP) grew onaverage 3.3% between 1999 and 2009. During the same period of time, annual per capita healthcare spending grew on average 5.8%.5The result being that health care spending accounted foran ever-increasing share of the entire GDP.Health Care Reform includes a range ofinsurance market reforms aimed at loweringpremium growth, improving health benefits,and ensuring near-universal coverage inthe U.S. These include a set of affordableinsurance options available through newstate insurance exchanges, rules limitinginsurance administrative costs and profits asa share of premiums, and review of excessiveinsurance premium increases. In addition,the law contains payment and health caresystem reforms that seek to slow the growthin costs.However, at least in the short-run (the next3 to 5 years), Health Care Reform appearsto do little to slow the anticipated rate ofFig 3. National Health Expenditures of GDP• Health care represents a larger portion of the GDP almost every year since 1965 - accountingfor over 18% of GDP in 201125%20%15%10%5%0%1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015Medicareenacted0.9% 0.8% 1.0%5.8%7.2%9.1%10.3% 10.5%12.5%13.9% 13.8%16.0%18.0%20.0%PROJECTEDSource: Centers For Medicare and Medical Services, Office of the Actuary,National Health Statistics Group, U.S. Department of Commerce, Bureau of Economic Analysisincrease in health care spending, especiallyfor employer-sponsored plans. In fact, someanalysts have argued that covering theuninsured (estimated at between 30 and 50million), expanding coverage to meet newmandates, and the potential for new benefitsto be added to the current mandates aspart of the ongoing political process, couldactually accelerate the rate of cost increasesover the next decade.Not surprisingly, health care spending isprojected to annually increase 6.1% between2009 and 2016 according to the Centers forMedicare Medicaid Services (CMS).6Actualclaim increases reported by employers havegenerally been in excess of this estimate.
9For example, Buck Consultants, LCCconducts a national survey of insurers todetermine the rate of increase in employer-sponsored plans and found that costs rosefaster than 10% in 2009, 2010, and 2011.7Other consulting firms found similar resultswith Segal reporting cost increases above10% for 2010 and 2011, PwC reporting 9.9%for 2010 (followed by 9.5% in 2011), andTowers Watson reporting a range of 9.5%-10.9% for 2010 (8.5% in 2011).8AonHewittreported cost increases of approximately 10%for both 2010 and 2011.9Keep in mind that in 2009 the CPI declinedby 0.4% and in 2010 it rose by 1.6%.10During this same time, CMS projectedmore than a 6% increase in health carespending and employers reported an increasein excess of 9%.At the same time, Health Care Reform placesa cost cap on how high benefit spending cango before it is subject to a nondeductible40% excise tax. Beginning in 2018, the costof health care benefits that exceeds $10,200for individual coverage or $27,500 for familycoverage will be taxed at a 40% rate. As aresult, most employers will not want plancosts to exceed these monetary levels.5 Centers for Medicare Medicaid Services, Office of the Actuary, National Health Statistics Group; U.S. Department of Commerce, Bureau of Economic Analysis;and U.S. Bureau of the Census, https://www.cms.gov/NationalHealthExpendData/02_NationalHealthAccountsHistorical.asp#main_content6 Centers for Medicare Medicaid Services, National Health Expenditures, NHE Fact Sheet,https://www.cms.gov/NationalHealthExpendData/25_NHE_Fact_sheet.asp7 Buck Consultants 22nd National Health Care Trend Survey,http://www.buckconsultants.com/buckconsultants/portals/0/documents/PUBLICATIONS/Press_Releases/2010/PR-HCcosts-Increases-Continue-2011-101210.pdf8 Benefit Informatics, 2010 Employer Healthcare Cost Survey Data,http://besthealthplans.files.wordpress.com/2009/11/tinformaticscompiled2010employerhealthcarecostsurveydata.pdf9 AonHewitt 2011 Health Care Trend Survey, http://www.aon.com/attachments/thought-leadership/2011_Health_Care_Trends_Survey_Final_FINAL.pdf10 U.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.txtHowever, as shown in chart (fig. 1), averageplan costs are approaching these levelsalready – with individual coverage totalingalmost $5,500 and family coverage exceeding$15,000 in 2011. And these are averagenational costs. Costs in high-cost marketssuch as Boston, New York, Chicago, and LosAngeles are already significantly above thesenational averages.If we rely on the projected level of costincreases of 6.1% put forth by CMS, theU.S. average cost of $15,073 in 2011 will be$22,814 in 2018 – with plans in high-costareas (say family costs of $18,500 in 2011)potentially exceeding $28,000 in 2018 –triggering the 40% excise tax on the amountover $27,500.If costs increase at the current actual rate of9% or more, the U.S. average family healthcare premium will likely exceed $27,500in 2018 – impacting virtually all employersacross the U.S. not just those in traditionallyhigh-cost areas.Rising health care costs, hitting a cap abovewhich will be a 40% excise tax, will make itdifficult for plan sponsors to use plan designto differentiate their benefits offerings.If costs increase at the currentactual rate of 9% or more, the U.S.average family health care premiumwill likely exceed $27,500 in 2018...
10Since plan design will likely become less of a differentiator among employers – and since moreemployers may likely move toward a Defined Contribution strategy – the value proposition foremployer-sponsored health care plans will likely shift to such things as:• Improving the ability to control costs for both the employer and the employee- Engaging the employee as a consumer at both the moment of plan selection andat the moment of service being provided- Implementing consumer driven health plans- Moving to a Defined Contribution model for employer-sponsored health care plans• Ensuring an employer-branded, consistent, and high-quality participantbenefits experienceFig 4. Health Care Reform Impact on Employer-Sponsored Plans• Government-mandated coverage coupled with ongoing health care inflation will reduceemployers’ ability to design health care plans that act as a differentiating component of totalcompensation and will increase likelihood of employers:- Potentially eliminating / reducing coverage- Focusing on consumer-based solutions• HDHPs • HRAs, HSAs • Wellness- Potentially moving some employees to exchanges for coverage40% Excise Tax On Value Of Benefits Above LimitMandated Requirements$10,200 for Individual “Cadillac Tax” $27,500 for FamilyMedicalInflationProviderLobbyingStrategic Benefits Plan DesignNote: Medicalinflation continuesto rise at 2 to 3times the rate ofoverall inflation -and has done so formore that 50 yearsThe value ofstrategic benefitsdesign is likelyto shrink over timedue to Health CareReform
11An exchange is a relatively simple concept –an online shopping mall where buyers cancompare plans and select the one that bestmeets their individual needs in terms of costand other key preferences, such as out-of-network care, the need for a referral to see aspecialist, etc.Today virtually all employers offer coveragethrough what is effectively an exchange –although a limited exchange.For example, most employers hold an annualenrollment during which their employeescan pick a coverage option (e.g., PPO option,Exchanges – Changing The ParadigmFig 5. Public Private OverviewEmployer’sExistingHealth CareStrategy(Limited Exchange)IndividualExchangeGroupExchangePrivateExchangeCurrent model: Multiple choicesoffered to employees in the cafeteriamodel. Has many features incommon with an exchange.Evolution of current model. Becoming synonymouswith “Defined Contribution Health Plan.” Expect rapidgrowth in this area, whether PPACA survives or not.Likely to survive in some states even if ppaca isstruck down. Subject to variation jurisdiction byjurisdiction – as a result state exchanges maynot meet the needs of multistate employers.Federal exchanges should provide consistencyacross states, but will only apply to stateswithout their own exchanges.Employers provide a dollaramount and a gateway to a privateexchange. Members are independentpurchasers of health insurance onthe private exchange. Employerstays active and leverages employeesupport tools such as Web, mobile,call center and customer service.Contracting is done by an aggregatorwho offers administrative supportrequired to operate the exchange–like benefits administration,spending accounts, decision supporttools and ancillary services. Likely toutilize insured products.Similar to the individual exchangedescribed above – except thatemployer may self-insure someofferings, thereby preservingthe ERISA preemption anddirect control of plan provisions.Employer may also be responsiblefor at least some of the vendoraggregation. May include insuredand self-insured products.HMO option) under a health care plan – fromamong those that are offered – and in mostcases, several vendors / carriers are involved.A typical plan sponsor may offer a choice ofone or more coverage options through aninsurance company like United, Aetna, orBlue Cross- along with one or more HMOs.Employees can compare plan provisions,network coverage, and price – and may evenbe provided with decision support tools (ata minimum, some sort of coverage optionscomparison capability) to assist them inpicking the coverage options that is bestsuited to meet their needs.PublicExchange
12These plans are Defined Benefit in nature, with employees paying a relatively small share ofthe total estimated cost, and employers funding the balance, regardless of how expensive theactual cost turns out to be.With this in mind there are really three types of exchanges for employers to consider:Public and private exchanges offer many similar advantages for employers to consider — andwhat may be right for any employer will depend on a number of different variables includingeach employer’s specific employee demographics.The following chart summarizes some of the key aspects of each type of exchange.Limited Exchange:Traditional employer-sponsored plans – generally limited to 3 to 6health care plan choices, and still primarily Defined Benefit in designPrivate Exchange:A variety of plan choices aggregated by a provider or an outsourcerwith employer input as to which ones are offered, with the ability foremployers to rapidly embrace a Defined Contribution strategy utilizinga qualified funding vehicle (i.e., 501(c)(9) Trust / VEBA, HSA / HRA – orfor public-sector employers an Integral Part Trust, etc.)Public Exchange:The state exchanges required under Health Care Reform (will varyby jurisdiction in terms of coverage, quality, and participant support /experience). Beginning in 2014, small employers will be able to participatein the public exchanges through the Small Business Health OptionsProgram (SHOP). In 2017, larger employers may be permitted toparticipate in the public exchanges, however, this will vary by state.1.2.3.
13Beginning in 2014Limited Private PublicOffered By Individual Employer Plan Aggregator State or FederalGovernmentRating Basis Individual EmployerExperienceIndividual EmployerExperienceGeneral PopulationExperiencePlan Type Defined Benefit Defined Contribution Defined Contributionor Defined Benefit (atemployer discretion)EmployerContributionsPretax Pretax Pretax or Post-tax(at employer discretion)EmployeeContributionsPretax Pretax Pretax or Post-tax(at employer discretion)FundingApproachesCombination of directemployer contributions,contributions to HSAand / or FSA, plus pretaxemployee contributionsEmployer contributionsto an HSA / HRA, VEBA,or other qualified vehicleplus pretax employeecontributionsCombination of directemployer contributions,contributions toHSA / HRA and / or FSA,plus pretax employeecontributionsWho SelectsVendors / CarriersTo Be includedIndividual Employer Plan Aggregator and / orIndividual EmployerState or FederalGovernmentWho Selects PlansTo Be IncludedIndividual Employer Plan Aggregator and / orIndividual EmployerState or FederalGovernmentNumber of PlansOfferedGenerally limitedto 3 to 6Determined by Employerin conjunction with thePlan Aggregator. Numberof options will varyDetermined by Stateor Federal Regulators.Number of plans willvary by exchangeParticipantExperienceConsistent acrossthe countryEmployer-brandedPortal / WebCall CenterOnline supportMobile AppsConsistent across thecountry (best practice)Employer-brandedPortal / WebCall CenterOnline supportMobile AppsPrivate exchangescould vary state by statebased on regulations oremployer preferenceWill vary widely interms of look and feel,content, and quality atboth state and federallevelsNot Employer-brandedPortal / WebCall CenterOnline supportMobile Apps
14The 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 anemployer- sponsored health plan with a significant reduction in the current effort (in somecases the total elimination of some employer requirements). In addition, the value to theemployer and the employee is not based on individual plan design, but rather on lower costsand high-quality service.Lower costs are achieved by:• Reducing or even eliminating theeffort and cost spent on designing andupdating health care plans annually- The employer could eliminate the needto design the plans offered throughthe exchange• Moving to a Defined Contributionapproach- Possibly utilizing an HSA / HRA or aVEBA (Integral Part Trust for public-sector employers) as the employerfunding vehicle along with pretaxcontributions made by employees- Employer costs could be designed totrack the Consumer Price Index (CPI) orsome other benchmark• Reducing or even eliminating mostof the government reporting andcommunication requirements- The only plan maintained by theemployer could be an HSA used asa funding vehicle from which theemployee could pay premiums, alongwith a Section 125 Premium Only Plan(and possibly a limited purpose FSA)• Employers don’t design the mutualfunds offered in a 401(k) plan – under arobust private health care exchange, theywould no longer design the health plansoffered, but would retain control overvendors and specific plans to be offered- This would reduce the effort associatedwith such things as Form 5500 filings,Summary Plan Descriptions (SPDs),Summary of Material Modifications(SMMs), and other mandated reportingand communication requirements• Basing rates on specific employerexperience rather than that of thegeneral population, as would likely be thecase in a public exchange (assuming thatregulations do not prohibit this).• Involving participants, as informedconsumers, at both the point of purchaseof the plan and at the point of purchase ofhealth care services• Providing employees with a far widerarray of choices than a single plansponsor could offer – thereby permittingemployees to pick a plan that best meetstheir needs, in terms of plan provisionsand plan cost
15Fig 6. Private Exchange OverviewPrivate exchanges have become synonymous with “Defined Contribution” insurance plans• “Private” denotes employer-sponsored vs. the public exchanges managed by governments• Gets the employer out of selecting benefits for employees; limits role to financing facilitatingEligibilitySystem• Status• Position• DependentsEmployer• Funding Vehicle• Funding Level• Benefits OptionsEmployee• Funding Vehicle• Funding Level InsurerInsurerEmployer’s role is limited todeciding how much funding toprovide and which benefitsoptions / carriers are availableWeb portal has educationaltools, as well as aquestionnaire, that helpemployees understandoptions and make selectionsEmployee selects among awide range of health insuranceand other benefits; couldhave $ remaining or requirepayroll deductionsExchange could sourceone or multiple carriersCoverage can begroup or individual(community-ratedstarting 2014 in publicexchange)Employee has afunded vehiclefrom which topurchase benefitsDecisioningTools• Education• Health issues• Priorities• Risk appetiteProductMarketplace• Health insurance• Dental, life,disability insurance• Other ancillariesBenefits Administration (Employer-Branded)• Eligibility enrollment / Participant support• Account plan recordkeeping payroll deduction• Premium aggregation money movement
16High-quality service and ongoing employee engagement is achieved by:- Common decision support toolsand applications- Advocacy (and other specialized service)support that is consistent across allvendors and the entire country• Compliant administration basedon Federal and applicable staterequirements- Automated processes to ensureconsistent administration• Carrier / vendor Interfaces similarto what is done under traditionalemployer- sponsored plans• Money movement• Payroll / HR Integration• Flexible reporting and managementdashboards• Employer branding of all tools andcommunications (Web, print, callsupport, etc.)- As a result, the employer:• Retains the benefit of offeringcoverage and• Has control over which vendors andplans will be offered from among agroup that has been previously vettedand priced by an aggregator• Service-level agreements that ensure- Portal experience that is consistentacross the country- Call center quality that is consistentacross the country- 24/7 Web availability and online support- Common mobile applications
17SharedResponsibility–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:• Offer full-time employees the opportunity to enroll in minimum essential coverage underan employer plan (Code Sec. 4980H(a));• This minimum essential coverage, among other things, must be affordable (i.e., no morethan 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 familyof four earning less than$88,200 would be eligible fora Federal Tax Credit if theyenrolled in a Public Exchange.
18Of 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 simplestterms, a full-time employee is any employee who works, on average, 30 hours or more perweek in any month. Employers can use 130 hours of service per calendar month in makingthis determination (see IRS Notice 2011-36 for specific details). Generally speaking, seasonalemployees who work less than 120 days per year are not counted.The proposed guidance provides another administrative wrinkle – a look-back period anda coverage / stability period.Using the look-back period approach, an employer would determine if an employee isfull-time by looking at a period of 3 to 12 months (the measurement period is at the discretionof the employer and will generally be 3, 6, 9, or 12 months) to determine whether theemployee averaged at least 30 hours of work per week or at least 130 hours of service percalendar month during that period.Fig 7. Employees May Qualify for Federal Subsidiesat Fairly High Income Levels2011 Income Levels For 400% of FPL (Indexed For Inflation)No. PersonsIn FamilyFederal PovertyLevel: 201148 Contiguous States48 ContiguousStates / DCAlaska Hawaii1 $10,890 $43,320 $54,120 $49,8402 $14,710 $58,280 $72,840 $67,0403 $18,530 $73,240 $91,560 $84,2404 $22,350 $88,200 $110,280 $101,4405 $26,170 $103,160 $129,000 $118,6406 $29,990 $118,120 $147,720 $135,8407 $33,810 $133,080 $166,440 $153,0408 $37,630 $148,040 $185,160 $170,240Source: Federal Register 4200, January 23, 2009, http://aspe.hhs.gov/poverty/09fedreg.pdf.
19If an employee averaged at least 130 hoursper month during the look-back periodhe / she will be considered to be a full-timeemployee. In such a case, the employee mustbe made eligible for coverage going forward,with the period of coverage being equal to thelook-back period used to determine eligibility.Thus if an employer relied on a three monthlook-back period, any employee who wasfound to work an average of 130 hours ormore per month during that period wouldhave to be made eligible for coverage for athree-month period going forward, regardlessof how many hours per week that employeemight work during the going-forwardcoverage period.Employees who exceed the average of130 hours per calendar month must beconsidered as full-time and, if not eligiblefor benefits, will trigger a penalty for theemployer should they obtain coverage ANDreceive a Federal subsidy through a PublicExchange. On the other hand, providingcoverage for such newly defined “full-time”employees will significantly increase theaverage hourly cost of labor. So what is anemployer to do?The solution is to actively manage thesepotential issues by integrating automatedtime and labor management tools, payrollservices, and benefit administration.In simplest terms, a full-timeemployee is any employee whoworks, on average, 30 hours ormore per week in any month.
20Fig 8. Basic Steps In Integrated Shared Responsibility Solution1. Workforce Management• Notices sent to managers as employees approach 30 hours in any week• Ability of managers to see report / dashboard of scheduled and actual hours forall employees in order to manage hours assigned in conjunction with liability forhealth care costs• Active management of hours assigned can reduce exposure to additional healthcare costs and / or federal penalties2. Database of Record• Payroll tracks actual hours worked (which may differ from scheduled hours)• Payroll sends an automated trigger to benefits administration system when anemployee exceeds 130 hours per month3. Benefits Administration• Employee eligibility calculation is triggered• Appropriate look-back and coverage period rules are applied• Employee is notified of benefit eligibility – avoiding penalty for failure to offer coverage• Calculation of premium as percent of W-2 earnings is done- Report generated showing employees for whom contributions are greater than9.5% of W-2 earnings- Enables management to estimate potential liability- Reconcile with government data if penalties are assessed
21This integrated solution:• Empowers local managers to make the most cost-effective decisions in real-time- Providing the tools for the manager to differentiate among employees who have alreadytriggered a “full-time” designation (with the related health care liability), those who are faraway from such a designation based on scheduled hours, and those who are very close tocrossing from part-time to full-time• Ensures that employees who should be eligible for coverage are actually made eligible ina timely and compliant fashion• Provides management the data necessary to track and reconcile with the governmentfor those employees who ultimately do chose to utilize a Public Exchange rather than anemployer’s plan- Track and report on all part-time employees who became “full-time” and for what periodof time this coverage applied- Track and report on all newly designated “full-time” employees who are eligible,whose contributions exceed 9.5% of their W-2 wages, and for what period of time theywould be eligibleEqually important, these processes occur seamlessly and consistently without the need forlocal managers or HR professionals to take any special action.Health 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.Conclusion
22AboutADPAutomatic Data Processing, Inc. (NASDAQ: ADP), with about $10 billion in revenuesand approximately 570,000 clients, is one of the world’s largest providers of businessoutsourcing solutions. Leveraging over 60 years of experience, ADP offers a wide range ofhuman 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 alltypes and sizes. ADP is also a leading provider of integrated computing solutions to auto,truck, motorcycle, marine, recreational vehicle, and heavy equipment dealers throughoutthe world. Reach us at 1-800-225-5237 or visit the company’s website at www.ADP.com.