2014 & 2015 ACA Employer Mandates: How to Assess & Mitigate Your Risks

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2014 & 2015 ACA Employer Mandates: How to Assess & Mitigate Your Risks

  1. 1. ASAE Executive Issue Briefing 2014 & 2015 Employer Mandates July 9, 2013
  2. 2. Today’s Goal – Assessing and Mitigating your 2014 & 2015 Health Care Reform Employer Penalty Risks • What Just Happened? • Key Penalty Risks • Five Step Process to Determine Your Risk – Eligibility Waiting Period: 2014! – Employer Size – 30 Hour Rule: Any temps, interns, hourly, or seasonal employees? – Premium Affordability – Plan Design Affordability 2
  3. 3. • New transition relief for individuals whose employers maintain non-calendar year plans – Allows the eligible but uninsured employee to delay joining the employer plan until the 2014 plan year begins • The Blog heard around the world: Shared Responsibility requirements are delayed until 2015 – An official release from Treasury is due this week – For our conversation, let’s assume that all Shared Responsibility rules are simply pushed forward 12 months – The bear trap: The 90 day waiting period requirement still goes into effect in 2014! What Just Happened?
  4. 4. What are the Key 2014 & 2015 Penalty Risks? • In 2014, Offering an eligibility waiting period of more than 90 days to any eligible employee: $100 per day penalty per affected participant • 2015 Shared Responsibility for Large Employers – If Coverage is not offered to 95% of full-time employees: $2,000 per employee penalty (less first 30) – If Coverage is unaffordable: $3,000 per affected employee, not to exceed the $2,000 penalty – These two penalties are triggered by employees going to the state, federal, or partnership exchanges and receiving a subsidy – The penalties are not deductible 4
  5. 5. • Low risk areas – 90 day eligibility waiting period – Payroll deduction and plan design affordability – Offering coverage to regular staff working 30 hours per week • Main risk area: – Reclassifying certain employees as ACA full-time and benefits eligible • “Temporary” employees • Non-seasonal interns – We’ll focus on this topic during “Step 3” Zack, what are you seeing among associations?
  6. 6. Step 1: Eligibility Waiting Period • Do you allow your benefit eligible employees to join your plan within 90 days? • YES: Great - - double-check your handbook, policies, and health plan documents, including insurance contracts • NO: – Amend your plan before your 2014 plan year begins. Consider first of the month following 60 days. – Calculate your projected cost increase to make this change 6
  7. 7. Step 1: Nonprofit employer bear trap example • Employer’s eligibility waiting period for hourly employees is 1,000 hours • Before 2015 Shared Responsibility extension, their plan was to track these employees for 12 months under “Variable Hour Employee” rules • Because they have to modify the eligibility waiting period for 2014, they may still have to use the “Variable Hour Employee” tracking rules for 2014 7
  8. 8. Step 1: Calculate the cost of mitigating this risk: Org A Org B Your Org 1. Determine your average annual health plan cost per employee, net payroll deductions. $5,800 $9,950 2. Determine how many additional employees will become eligible because of this change. 0 5 3. Project how many of these employees will join your plan. 0 3 4. Multiply these new enrollees by your above annual net health plan cost per employee. This total is your annual cost increase to make this change. $0 $29,850
  9. 9. Step 2: Employer Size • For 2014, will you likely average 50 or more full-time employees and full-time equivalents per month? • YES: Go to step 3 • NO: You are not at risk of paying the $2,000 or $3,000 per employee penalties. • However, if you are near 50 employees or expecting growth, please go to step 3 9
  10. 10. Step 2: Employer Size, Fine Print • Full-time is 30 hours • Each bucket of 120 part-time hours per month equals one full-time equivalent. – For example, 10 employees working 15 hours a week will equal about 5 full-time employees. 10
  11. 11. Step 2: Employer Size, More Fine Print • 2015 relief?: In 2014, choose any 6 consecutive months for this calculation • Seasonality exception: > 50 full-time employees for 120 days or less during the calendar year and the employees in excess are seasonal • Control Group Rules Apply 11
  12. 12. Step 2: Calculate your number of employees Org A Org B Your Org 1. Project how many full-time employees (30 hours per week or more) you'll average per month in 2014 75 90 2. Project the aggregate hours your part-time employees will average per month in 2014 0 1,250 3. Divide these part-time hours by 120. These are your projected full-time equivalents. 0 10 4. Add your full-time employees to your full-time equivalents. 75 100
  13. 13. Step 3: 30 hour Rule • Do you allow 95% of employees working 30 hours or more per week to join your plan? – YES: Double-check your handbook, policies, and health plan documents, including insurance contracts. – YES: Make sure all of your employees fit into one of the Four ACA Categories – NO: You are at risk for paying the $2,000 per employee penalty 13
  14. 14. Step 3: Calculate your annual penalty risk: Org A Org B Your Org 1. Project how many full-time employees (30 hours per week or more) you'll average per month in 2013 (do not count step #2's Full Time Equivalents) 75 90 2. Reduce this figure by 30 45 60 3. Multiply this figure by $2,000. This total is your annual "no coverage" penalty risk. $90,000 $120,000 4. Multiply this figure by 107%. Your penalty may increase in 2015 to this figure. $96,300 $128,400 5. Multiply this figure by 107%. Your penalty may increase in 2016 to this figure, and so on. $103,041 $137,388
  15. 15. Step 3: The Four ACA Categories • Full-time: 30 hours per week or 130 hours in any given month • Part-time: always working less than 130 hours per month • Variable hour: hourly employees who may work more or less than 30 hours per week • Seasonal: working less than 121 days in a position with clear seasonality (working definition) • All other categories are not recognized, including: temporary employees, interns 15
  16. 16. Variable Hour Employees • If you do not know if an hourly employee will work 30 hours or more per week, they are a Variable Hour Employee • Measure new employees up to 12 months and then lock in coverage for a set time • Measure ongoing employees once or more per year and lock in coverage for a set time 16
  17. 17. Variable Hour Employee Example • 5/10/14: Amanda Jones is hired • 6/1/14 – 5/31/15: During these 12 months, she averages 30 hours • 7/1/15: Amanda begins 12 months of stable coverage • 10/15/15: She averages 30 hours during the preceding 12 month regular measurement period and her coverage extends through 2016 17
  18. 18. Employee Type Number of Employees New ACA Category Policy Action Plan Summer Interns 20 Seasonal Limit internship to 100 days or less Non-seasonal interns 15 Part-time Limit weekly hours to 25 hours or less Seasonal staff 100 Seasonal Limit employment to 100 days or less Professional temps 5 Full-time Declare full-time or hire through a temp agency Seasonal managers 7 Full-time They are seasonal but work more than 120 days so cannot meet the ACA's definition of seasonal Regular part-time 3 Full-time / Part-time Establish if part-time employee will work more or less than 30 hours and offer coverage accordingly. Step 3: Reclassification Example
  19. 19. Step 3: Calculate the cost of mitigating this risk: Org A Org B Your Org 1. Calculate how many employees that are working 30 hours per week are not currently benefits eligible: Regular part-time employees 0 3 W-2 temporary employees 0 5 Non-seasonal interns 5 0 Any other employees 0 7 Total 5 15 2. Determine your average annual health plan cost per employee, net payroll deductions (same as in step #1) $5,800 $9,950 3. Multiply these employees by your annual net health plan costs per employee. If these employees join your plan, the total is your annual cost increase to make this change. $29,000 $149,250
  20. 20. Step 3: Cost reduction strategies • Consider introducing an “affordable” High Deductible Health Plan to lower costs • Introduce incentives to encourage spousal migration • Consider alternative funding techniques • Pursue any low hanging fruit in other benefit areas 20
  21. 21. Step 4: Premium Affordability Test • Does your payroll deduction for single coverage for your lowest paid employee working 30 hours or more meet one of the safe harbors? – 9.5% or less of Box 1, W-2 income (e.g. $20,000 / 12 months x 9.5% = $158.33 monthly deduction) – 9.5% or less of initial rate of pay x 130 hours (e.g. $10 hourly rate x 130 hours x 9.5% = $123.50 monthly deduction) – 9.5% or less of individual federal poverty rate (e.g. for 2013, $11,170 / 12 months x 9.5% = $88.42 monthly deduction) 21
  22. 22. Step 4: Premium Affordability Test • YES, and the percentage is less than 6%: perfect • YES, and the percentage is greater than 6%: calculate when you will likely breach 9.5% and plan accordingly • NO: Project how many employees will be at 9.5% or higher for 2014 • Long term risk: Healthcare premiums will outpace wages, causing a march towards 9.5% and above • Ballpark calculation: Use 8% for premium and 2% for wages 22
  23. 23. 2013 2014 2015 2016 Annual payroll deduction $1,650 [$68.75 at 24 pays] $1,782 $1,925 $2,079 Lowest full-time salary $20,000 $20,400 $20,808 $21,224 Payroll deduction percentage 8.3% 8.7% 9.2% 9.8% Assumptions: Annual premium increase 8% Annual wage increase of lowest paid 2% Calculate when you will breach 9.5% and plan accordingly:
  24. 24. Step 4: Calculate your penalty risk: Org A Org B Your Org 1. Project how many full-time employees (30 hours per week or more) you'll average per month in 2013 that will not meet your affordability safe harbor 0 0 3. Multiply this figure by $3,000. $0 $0 4. List the "no coverage" penalty risk from step #3 $90,000 $120,000 5. The lesser of these two figures (3 & 4) is your annual "affordability" penalty risk $0 $0 6. Multiply the penalty by 107%. Your penalty may increase in 2015 to this figure, and so on. $0 $0
  25. 25. Step 4: Calculate the cost to mitigate this risk, using the first safe harbor: Org A Org B Your Org 1. Create a 0.5% cushion. To do so, multiply the salary of your lowest paid eligible employee by 9.0%. $2,250 $2,880 2. Divide this figure by 12 to establish your new monthly payroll deduction for single coverage. $188 $240 3. Subtract your current monthly deduction rate by this new monthly deduction rate Current deduction is $37, so no penalty risk Current deduction is $5, so no penalty risk 4. Multiply the result of #3 by the number of employees currently enrolled in single coverage in your lowest cost plan and then multiply by 12 months. The total is your annual cost increase. Not applicable Not applicable
  26. 26. Step 4: Premium Affordability Test, Strategies • Introduce a reverse discrimination salary based payroll deduction methodology. – For example brackets of: <$35k, $35k - $60k, >$60k • Risk paying $3,000 on a few low paid employees versus lowering deductions for all employees. – The Penalty is only triggered on those that go to the exchange and receive a subsidy. 26
  27. 27. Step 5: Plan Design Affordability • Impute your lowest cost plan’s design into the HHS Minimum Value Calculator. Does it have a rating of at least 60%? – YES: Great! – NO: • Modify the provisions of your plan, until you achieve a rating of at 60% • For plans that are not grandfathered, ensure that your in- network out of pocket maximums don’t exceed those of High Deductible Health Plans (2013: $6,250) 27
  28. 28. Step 5: Calculate the cost of mitigating this risk: Org A Org B Your Org 1. Run your plan through the Minimum Value calculator and determine the rating 90% 78% 2. Model plan designs for your lowest cost plan that will comfortably meet the affordability requirement, and calculate the net annual health plan costs per employee of this newly recommended plan. N/A N/A 3. Determine your current annual health plan cost per employee, net payroll deductions, (same as in step #1) N/A N/A 4. Subtract the new annual per employee cost from the current amount and multiply by the total enrollment in your lowest cost plan. This total is your annual cost increase to make this change. N/A N/A 5. Consider if this plan design change might cause migration from any other plans offered, and, if so, add any projected migration costs into this equation. N/A N/A
  29. 29. All Roads Lead though the Exchanges • $2,000 and $3,000 penalties are triggered by employees receiving a subsidy through the exchange • Mid-Atlantic picture – Maryland and DC exchange plans were tentatively approved by Health & Human Services – Virginia & Pennsylvania have abdicated to the Federal Government – West Virginia and Delaware are pursuing a partnership exchange 29
  30. 30. Summary of Key Questions • Can employees join your plan within 90 days? • Do you have 50 or more full-time employees or equivalents? • Of your employees working 30 hours or more, are 95% or more offered coverage? • Is your single payroll deduction and plan design “affordable”? • Do you have temps, interns, variable hour or seasonal employees? 30
  31. 31. Next Steps • Calculate your cost to mitigate your risks • Review alternative strategies and their cost impact • Seek professional guidance • Complete your action plan • Be prepared to pivot as the landscape changes 31
  32. 32. CBIZ Value Proposition • Experts in all aspects of Health Care Reform Actuarial Benefits Compensation Payroll Tax • Customized solutions – Initial Risk Assessment – Recommended course correction – Complex challenges: Comprehensive actuarial analysis 32
  33. 33. Contact information Zack Pace, Senior Vice President (443) 259-3240 zpace@cbiz.com 33

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