Healthcare Reform - Bracing for Impact

Smart Business Thought Leadership Webinar Series - March 26, 2013

Bracing for Impact:
What you need to know
about health care reform

By Joe Popp, JD, LLM


Pay or Play

Starting in 2014 “large employers” must:
 Offer minimum essential coverage that is both
affordable and provides minimum value to full-time
employees.
or
 Pay penalties.

Report various elements to
the IRS and employees.

© 2013. All rights reserved. Rea & Associates, Inc.


What Does This Mean for Employers

If you are a large employer:
 Which employees will you be penalized for if you
don’t cover them?
• How much? How often? How can you estimate this?

 Which employees can get vouchers on the new
exchanges?

These are different issues!
Example: You may NOT be penalized for a particular employee who can
go to the exchange to get a voucher due to employer safe harbors.



Who is a Large Employer

On average, 50 or more full-time employees
during the year (for the prior year).
 Common law employees, with some subtractions.

 All employees of a controlled or affiliated group are
considered together.
 Both full- and part-time employees count.

 Calculated monthly.

New employers must use reasonable estimates
to determine if they will have 50 FTEs.



Who’s a Full-Time Employee

Workers with 30+ “hours of service” a week.
 IRS guidance is 130 hours of service/month is full-
time.
 Hours of service is any time paid for:
• Holidays, military leave, jury duty, illness, etc.

 Based on actual hours of service:
• Penalty safe harbors and measurement/stability periods don’t
apply.



Calculating (FTE) Full-Time Equivalent

For part-timers working less
than 30+ hours a week:
 Add up all part-time employee
time for the month.

 Divide that total time by 120
hours.

 Example: 10 people x 20 hours
a week = 7 FTEs.

Add FTE to your full-time
worker number for complete
monthly worker count.


When Making Calculations…

Measure your prior year full-time count by
month.
 Average of all months = full-time count for the year.

Transitional relief is available for 2014.
 Can measure large employer status using any
consecutive six month time period in 2013.

Secure status for 2014 by making
needed changes prior to July 1.



Managing the 50 FTE Threshold

If you are…
 Under 50, investigate steps to ensure you stay
under 50.
 Expanding over 50, investigate what
your additional costs from health
care reform will be as part of your
expansion planning.
 Over 50, understand how to comply.



The Employer Mandate

Each month (starting January 2014), you will be:
 Playing, if you offer affordable essential
minimum coverage to your full-time
employees.
 Paying, if you fail to offer coverage to at
least 95% of your full-time employees.
(Penalty a)

 Paying, if you offer coverage to 95% of full-time
employees, but it is either not affordable or adequate
insurance. (Penalty b)



Penalty for Not Offering Coverage

If you don’t offer coverage to at least 95% of full-
time employees – pay 4980H(a) penalty
 $166 per full-time employee per month ($2,000
annually).
 First 30 employees are free of penalty
each month.
Requires testing plans against the
bronze metal tier standard.



The Two Questions You Need to Ask

1. Do we have a plan that
provides essential
minimum coverage?

2. If so, did we offer it to
95% or more of our full-
time employees?



What is Essential Minimum Coverage?

Includes a number of different kinds of plans:
 Government sponsored programs.
 Employer sponsored plans.
• Group health plans – self-insured and insured.

 Grandfathered health plans.
 Other plans: self-funded student plans, foreign plans, etc.
Must offer to full-time workers and their dependents
under 26.



What is Essential Minimum Coverage?
- continued

Some Obamacare changes
apply to the employer mandate
area and some do not.
 Requirement of plans containing
benefits in 10 essential categories
applies to exchange insurance, not
large employer plans.

 Non–discrimination does apply.
• Self-insured: Income to high comp.
• Insured: $100/person/day.



Full-Time Testing for Penalty Status

Identify your full-time workers:
 Anyone with 130+ hours in a month.
 Hourly employees: Must calculate actual hours.
 Non-hourly: IRS safe harbors are available.
• 8 hours/day, 40 hours/week, actual time.



Measurement and Stability Periods

A period of time to test if someone is full-time.
 Initial measurement period – intended for new hires
and based on hire date.
 Standard measurement period – for existing
employees.
 You can select different periods for different classes of
employees.
Administrative period – 90 days

There is a period of time after the measurement period
where you can rely on the results – a stability period.


Did You Offer Minimum Essential
Coverage for the Month?

Waivers

Initial measurement period

Failed stability period

If one of the above doesn’t apply, they are full-time
and not offered coverage.


Penalty for Providing Unaffordable/Not
Minimum Value Coverage

If you offer coverage to 95% or more of your
full- time employees, but it’s not affordable or
adequate – pay a 4980H(b) penalty.
 $250 per full-time employee failure per month ($3,000
annually).
 First 30 are NOT free.
 Never more than 4980H(a) penalty – max is
$166/month per (full-time employees - 30).
Must test each full-time employee for
affordability.


Testing Adequate Coverage

Employee fails the test if premiums are more
expensive than the limit (a percentage of
worker income).
Test applies to those
making 400% of poverty
level or less.
Current limit is 9.5% of
household income
(indexed for inflation).



The Premium Test

Several IRS safe harbors:
 Premium cost of single insurance does not exceed
9.5% of box 1, form w-2 income.
 Premium cost of single insurance does not exceed
9.5% of monthly income (salary or 130 hours times
hourly rate).
 Premium cost of single insurance is less than 9.5% of
federal poverty level for a single person.
• Approximately $1,100 annual premium.

If you don’t meet one of these safe harbors,
you have a harder road ahead.


Does Plan Provide Essential Minimum
Value?
New metal tiers benchmark whether plans
provide a certain level of coverage.
An apples-to-apples comparison – at least
within basic and premium coverage.

To provide essential minimum value,
employer-provided insurance must at least
meet the bronze medal test.



What is a Bronze-Level Plan?

Provides no less than 60% of
medical costs – employees pay
up to 40%.
 Based on actuarial cost of insurance for a certain
class of insured, not your particular workforce.
 IRS and HSA calculator for taxpayers to use.

 Checklist of benchmarks to come.

 Can have actuary certify.



Using the Calculator

Input details from your plan:
 All cost sharing provisions,
including co-pays, deductibles,
caps, etc.
 Benefits in the four core categories
of benefits:
• physician and mid-level practitioner care
• hospital and emergency room services
• pharmacy benefits
• laboratory and imaging services.
 Employer HSA contributions.


Should You Be Worried?

Majority of employer-offered plans provide
bronze metal tier coverage or better.
Your plan may fail if you only offer:
 High-deductible plans.

 Plans with really high copays.

 Plans that skimp on the core service benefits.

If you don’t meet the bronze level, you won’t
pass the offer of coverage test!



Who Do You Have to Cover and When?

Employees who are not full-time
(30+ hours a week).
 Generally have a 90 day window
after start date to offer coverage
to a full-time employee.
Complex penalty rules for not providing
coverage and when to offer it (measurement /
stability periods).
These requirements go live for
large employers January 1, 2014.


Key Takeaways
If you have 50+ FTEs, you are a large employer
and must provide minimum essential coverage.
If you do not do this, you will be fined. Each
month you will either pay:
 4980H(a) penalty – you did not offer essential
minimum coverage to 95%+ of full-time employees.
• $166 per full-time employee per month ($2,000 annually).

 4980H(b) penalty – while you offered essential
minimum coverage, it was not affordable to some
employees.
• $250 per full-time employee failure per month ($3,000 annually).



Develop an Action Plan
Get help NOW for 2014.
Understand other impacts of
Obamacare – nondiscrimination.
Seek different planning options
in actual dollar terms.
Get help with the tracking.
Determine what help you’ll need
with the new IRC section 6056
reporting.



Questions?
Joe Popp, JD, LLM

614.889.8725
Joseph.Popp@ReaCPA.com

Healthcare Reform - Bracing for Impact

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