Business Whitepaper 2: Mitigating the 2014 Health Care Reform Employer Penalties

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Mitigating the 2014 Health Care Reform Employer Penalties

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Business Whitepaper 2: Mitigating the 2014 Health Care Reform Employer Penalties

  1. 1. Part Two – Health Care ReformJanuary 2013 Roundtable University of Maryland Heritage Hall January 29, 2013
  2. 2. Roundtable Part 2 – Assessing and Mitigating the2014 Health Care Reform Employer Penalties• Key Penalty Risks • Variable Hour Employees• Five Steps to Determining • Seasonal Employees Your Risk • The Exchanges – Eligibility Waiting Period • Summary, Next Steps – Employer Size – 30 Hour Rule – Premium Affordability – Plan Design Affordability 2
  3. 3. What are the Key 2014 Penalty Risks? • Offering a waiting period of more than 90 days: $100 per day penalty per affected participant • Shared Responsibility for Large Employers – If Coverage is not offered to 95% of full-time: $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 3
  4. 4. Step 1: Eligibility Waiting Period • Do you allow your employees to join your plan within 90 days? • YES: Great - - double-check your insurance certificate • 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 4
  5. 5. Step 2: Employer Size • For 2013, 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. 5
  6. 6. 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. 6
  7. 7. Step 2: Employer Size, More Fine Print • 2014 relief: In 2013, 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 7
  8. 8. 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 the hours requirement in your insurance certificate – NO: You are at risk for paying the $2,000 per employee penalty 8
  9. 9. Step 3: 30 hour Rule • If NO, risk and mitigation scenario: – You are at risk for paying the $2,000 per employee penalty – Amend your plan before your 2014 plan year begins – For example: • 100 employees working 40 hours or more are eligible and current net employer cost is $400,000 • 50 employees working 30 – 39 hours are not eligible • 150 – 30 = 120 x $2,000 = $240,000 + the cost to insure the 100! 9
  10. 10. Step 3: 30 hour Rule • If NO, risk and mitigation scenario (continued): – Calculate the cost to mitigate the risk – Consider introducing an “affordable” High Deductible Health Plan to lower costs – If you have Variable Hour or Seasonal Employees, stay tuned 10
  11. 11. 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) 11
  12. 12. 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 12
  13. 13. 2013 2014 2015 2016 Annual payroll deduction $1,650 $1,782 $1,925 $2,079Calculate [$68.75 at 24 pays]when you willbreach 9.5% Lowest full-timeand plan salary $20,000 $20,400 $20,808 $21,224accordingly: Payroll deduction percentage 8.3% 8.7% 9.2% 9.8% Assumptions: Annual premium increase 8% Annual wage increase of lowest 2% paid
  14. 14. 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. 14
  15. 15. Step 5: Plan Design Affordability • Does your plan have in-network deductibles and coinsurance? – NO: Great! – YES: Run the test - • Forthcoming calculator • Forthcoming Safe Harbor • Actuarial certification • For all size employers, out of pocket maximums can’t exceed those of High Deductible Health Plans (2013: $6,250) • For small employers, deductibles cannot exceed $2,000 • Concept: Through deductible and copays, employees will pay no more than 40% of the plan’s discounted claims 15
  16. 16. Step 5: Plan Design Affordability, if adjustments areneeded • Price out an affordable plan • Cost reduction strategies, if needed: – Introduce incentives to encourage spousal migration – Consider alternative funding techniques – Pursue any low hanging fruit in other benefit areas 16
  17. 17. Variable Hour Employees • If you do not know if an hourly employee will work 30 hours or more per month, 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 17
  18. 18. Variable Hour Employee Example • 5/10/14: Amanda Jones is hired • 5/9/15: 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 18
  19. 19. Seasonal Employees • IRS Notice 2012-58: “Through at least 2014, employers are permitted to use a reasonable, good faith interpretation of the term “seasonal employee” for purposes of this notice.” • Same measurement and stability period methodology for variable hour employees can be used. 19
  20. 20. 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 HHS – Virginia & Pennsylvania have abdicated to the Federal Government – West Virginia and Delaware are pursuing a partnership exchange 20
  21. 21. 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 variable hour or seasonal employees? 21
  22. 22. Next Steps • Calculate your cost to mitigate your risks • Review alternative strategies and their cost impact • Seek professional guidance • Complete your action plan by the end of this quarter • Be prepared to pivot as the landscape changes 22
  23. 23. 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 23
  24. 24. Questions? 24
  25. 25. Questions later – contact us. Bill Smith, Managing Director Zack Pace, Senior Vice President (301) 951-3636 ext. 6725 (443) 259-3240 billsmith@cbiz.com zpace@cbiz.com Stu Anolik, Managing Director Larry Kline, Line Managing Director (301) 951-3636 ext. 6712 (301) 951-3636 ext. 6704 sanolik@cbiz.com lkline@cbiz.comOngoing discussion – be part of it. Find our discussion page on LinkedIn – simply search “CBIZ January Roundtable” and join the group. 25
  26. 26. Thanks for joining us today.

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