Health Care Reform: Strategic Planning for Employers

This presentation by Alison Fay discusses play or pay mandates, state-based exchanges and eligibility for subsidized coverage. It also describes rules for determining hours, special rules for educational organizations, controlled group rules, penalty formulas, and more.


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This presentation is for informational purposes only and does not constitute legal or tax advice. Transmission of the information in this presentation is not intended to create, and receipt does not constitute, an attorney-client relationship. Anyone viewing this presentation should not act upon this information without seeking professional counsel. The information contained herein is valid as of the date of the presentation, and should not be relied upon after that date.


Patient Protection & Affordable Care Act (PPACA)

Exchanges in 2014

Exchange Subsidies

Pay Or Play

Employer Strategies



EXCHANGES IN 2014

Marketplace for Low-Moderate Incomes

  • Covered California is California’s exchange

  • The Exchange offers premium subsidies and tax credits to assist eligible low- to moderate-income individuals purchase coverage

  • The Exchange is only place to use these premium subsidies and tax credits for obtaining health insurance

  • The upper income limit for this assistance is four times the federal poverty level, or $44,680 for singles and $92,200 for family of four

Note: Employer Pay or Play penalty is triggered if a full-time employee enrolls in subsidized Exchange coverage


Medi-Cal Expansion


No Subsidies if...

An individual is ineligible for subsidies / credits if he is:

  • Offered coverage under an eligible employer-sponsored plan that is affordable and has minimum value

  • Actually enrolled in an eligible employer plan regardless of whether it is affordable or provides minimum value

  • Eligible for Medicare Part A, Medi-Cal, CHIP, TRICARE, etc.



PAY OR PLAY

Individual and Employer Penalties


Individual Pay or Play


Employer Pay or Play


  • All employers are potentially subject to the play or pay penalties including governmental and nonprofit entities

  • “Applicable Large Employer” has an average of 50 or more full-time employees (including full-time equivalents (FTEs)) on business days in the prior calendar year

  • Full-time (30+ hours per week), part-time and seasonal employees count toward the total

  • To calculate full-time equivalents (“FTE”s) -- total all part-time employee hours in a month and divide by 120 hours

  • Total all full-time employees plus full-time equivalents (FTEs) for each month of the prior calendar year and divide by 12

  • If result is less than 50, then employer is not an applicable large employer for the calendar year


Applicable Large Employers


How to Calculate FT + FTEs

Look-Back Period Transition Rule for 2014

  • To determine if an employer is subject to penalties for 2014, employers may use a period of not less than 6 consecutive calendar months (and no more than 12) as a look-back period

  • Example: April 1, 2013 – September 30, 2013 as look back period

  • For 2015 and beyond, employers must use the prior calendar year as the look-back period


Transition Rule for 2014


- If the number of full-time employees + FTEs (part-timers adjusted to full-time equivalents) is equal to or greater than 50,

  • but the total exceeds 50 for less than 120 days (or 4 months) in the year

  • AND employees in excess of 50 were seasonal employees

Then, no penalty


Example: 20 Full-time + 10 FTEs = 30 for first 10 months+170 Seasonal Employees for last 2 months = No penalty


Special Rule for Seasonals


Example for Seasonals


Q: What if I break up my company into several entities each with less than 50 employees?

A: Controlled group rules apply –Example: If an individual owns 100% of two companies, the employees of both companies are aggregated for purposes of the 50 full-time employee threshold.


Controlled Group Rules Apply



Penalty Formulas for “Applicable Large Employers”


$2,000/FT Employee Penalty

Applies if applicable large employer

  • Fails to offer substantially all FT employees (and dependents) coverage under a health plan with minimum essential coverage for any month

  • “Substantially all” means all but 5%

  • For employers with fewer than 100 FT employees, up to 5 FT employees may be excluded

  • Just one FT employee is certified as having obtained subsidized exchange coverage for that month

  • Applies on a month-by-month basis

  • Not applicable if substantially all FT employees are offered minimum essential coverage (an “eligible plan”) for the month

  • Dependents must be offered coverage also

  • For this purpose, a dependent is a child of the employee, but not a spouse

  • Employers may rely on employees’ representations as to dependents

$3,000/Subsidized Employee Penalty

Applies if “applicable large employer”

  • Offers substantially all FT employees (and dependents) coverage under an eligible plan

  • Just one FT employee is certified as having obtained subsidized exchange coverage for the month

  • Monthly penalty is equal to the lesser of:$3,000 x # of FT EEs with subsidy ÷12 OR$2,000 x (# of FT EEs - 30) ÷12

  • To avoid the penalty, employer must provide coverage that is affordable and offers minimum value

  • Most plans will offer minimum value

  • If the eligible plan has minimum value and is affordable for all FT employees, then none can qualify for the subsidy

  • Plan is not affordable if employee cost for self-only coverage is > 9.5% of household income

Because an employer will not know an employee’s household income, the employer may use one of three “Safe Harbors” to determine affordability. Here is an affordability calculation using the rate of pay safe harbor:

  • Plan is considered affordable if:

  • Cost for employee only coverage is less than 9.5% of employee earnings (hourly rate x 130 hours/month)

  • Example: Hourly Employee at CA minimum wage

  • Employee works 30 hours per week $8 an hour, earning $1,040 per month

  • Maximum contribution is 9.5% or $98.80 per month

  • Example: Salaried Employee

  • Employee earns monthly salary of $2,500

  • Maximum contribution is 9.5% or $237.50

Affordability Safe Harbor



EMPLOYER STRATEGIES 2013

To Prepare for 2014 and Beyond

  • No penalties for failure to offer coverage

  • Competing with employers who offer coverage

  • Determine if lower-paid employees are better off in the Exchange

  • See how the SHOP exchange plans compare to private plans

  • If offering coverage, be in compliance

  • Beware of confusion in the marketplace

  • Consult with industry experts with current knowledge

  • Continue to monitor rules and employee counts

Strategies for < 50

  • Employers should be planning now for 2014

  • Is your plan designed to cover 95% of all FT employees to avoid the $2,000/FT employee penalty?

  • If you already cover all FT employees, is the coverage affordable?

  • If not, is it likely your employees will be eligible for subsidized coverage?

  • How many full-time employees vs. FTEs do you have?

  • Part-timers do not trigger penalties

  • Is some of your workforce suitable for:

  • More part-timers and fewer full-timers?

  • Outsourcing to another firm?

  • Using a temporary service?

  • Beware of confusion in marketplace

  • Consult with industry experts with current knowledge

Strategies for 50+

  • If an employer is just over the 50 FT / FTEs threshold:

  • Try a different look-back period – For 2014, employers may use a shortened period of not less than six consecutive months up to 12 months during the prior calendar year (2013)

  • If an employer is just under the 50 FT / FTEs threshold:

  • Make sure that your employee counts and calculations of FTEs are accurate -- Employers may be asked to substantiate their FT / FTE counts

  • Continue to keep track of employees’ hours for subsequent years

Strategies for Employers Close to the Threshold

  • Clean up compliance in key areas:

  • ERISA Plan Documents

  • SPDs, SMMs, SBCs

  • Other aspects of PPACA

  • Consult with attorney, accountant or benefits broker

DOL is auditing PPACA compliance

 

About the Presenter


Alison Smith Fay

Partner


Alison Smith Fay is a Partner in the law firm of Boutwell Fay LLP located in Irvine, California. Ms. Fay represents employers in all aspects of employee benefit matters. She has extensive experience with fiduciary responsibility issues under ERISA and with tax-qualified retirement plans including 401(k) plans. Ms. Fay also provides counsel with respect to non-qualified deferred compensation plans, 409A issues, health and welfare plans including Affordable Care Act compliance, and cafeteria plans, COBRA and HIPAA.Ms. Fay is a graduate of UC Hastings College of the Law and a graduate of Stanford University. She is a member of the California, Orange County, and American Bar Associations. She is also a member of the Employee Benefits Committee of the Tax Section of the ABA.