Employers still have new ACA obligations in 2013

The US Treasury Department announced a change to the Affordable Care Act timeline that all US employers should understand. The deadline for compliance with the employer mandate has been postponed for one year. The ACA provision for large employers (50 or more employees as defined by the ACA) to offer qualifying health coverage to employees, or pay a penalty, has been delayed for one year from January 1, 2014, until January 1, 2015.

In addition, the requirement for employers to report information to the IRS about the health coverage they offer was delayed until the 2015 tax year. Now, reporting health coverage information will be voluntary when businesses file their 2014 tax return.

Many provisions of the ACA will continue to be implemented this year including:

• The individual mandate, which is the requirement for an individual to obtain qualifying health coverage or pay a penalty.
• Exchange Notices are required to be provided to all employees by October 1, 2013 and to all new employees within 14 days of employment. This requirement is for ALL employers covered by the FLSA (which is almost all employers), even small ones. So even though a company may be under 50 employees, they still must notify employees about the ACA provisions. Employers must provide a notice to all full-time and part-time employees, regardless of whether the employee is enrolled in an employer-sponsored medical plan. Employers must provide this notice even if they do not offer any health coverage to employees
• The maximum waiting period for an employee to become effective in health coverage is 90 days. For example, a waiting period of “first of the month following 90 days of employment” is no longer permitted.
• The Health Insurance Marketplace (Federal/State Exchanges) becomes available with open enrollment beginning 10/01/2013 for an effective date of coverage in 2014.
• Insurance companies cannot implement coverage restrictions based on pre-existing conditions. Modified community rating standards go into effect for individual or family coverage based on geography, age and smoking status, insurers must offer coverage to anyone, limitation on out-of-pocket cost-sharing, and small group and individual market insurance plans must include government defined essential health benefits and multiple coverage levels.

How to notify your employees about the Health Insurance Exchange Options under the Affordable Care Act

Talk to Your PEO

The politics of the ACA are heated in the US Congress and the rules and the impacts of the ACA are being questioned daily. If you are a client of a Professional Employer Organization (PEO) you should have regular discussions regarding the impact of the ACA on your business and your employees.

image courtesy of politifake.org

Even though ACA fines for large employers are delayed, the impacts for their staff is not.

High wage earners who work for a company that does not offer health insurance are the biggest losers under the new ACA regulations. Those people making more than 4 times the poverty rate or roughly $85,000 per year that do not have employer sponsored health insurance will be the ones who pay the freight under ACA. Why? In a nutshell, they make too much money to be eligible for a health insurance subsidy on the individual health care exchanges and in addition they do not get the favorable tax treatment for their health insurance payments that they get with an employer sponsored health plan. Of course they can get tax deductibility for medical expenses but only once the out of pocket expenses for the year exceed 7.5% percent of their total income and then for only the expenses above that amount. Very few people are in that unfortunate situation. So the bottom line is: No subsidy from the government, no tax deductibility for insurance premiums and forced to purchase health insurance at the prices on the individual market exchange.

Individual market health insurance exchange – what does it cost?

Everyone in the country seems to be using the

Kaiser website to get an estimate of their heath insurance premium costs (and subsidy) under the new ACA guidelines. However, the fine print there states that these are just “estimates” and that the actual cost of the plan(s) is yet to be determined. So what will the rates look like in the ACA individual marketplace? Who knows, but the answer will depend on several factors:

ACA Health Insurance Rates By State Location

Government Price Setting States

Some states like California are getting involved with rate setting for the insurance carriers and are digging deep in the claims costs and expenses for the insurance companies. While NBC News calls this model a “passive” state, this is just newspeak for government price setting. Of course this could be why Aetna and United (the nation’s largest insurance carrier) have exited the California insurance markets for individual polices.

Open Market Pricing States

Other states will let the insurance carriers set the rates available for the plans they offer on the exchange. This means that each insurance company will look at their claims costs and their market competition and price their plans accordingly.

Adverse Selection, the Elephant in the Room

What is adverse selection? In insurance terms this is a situation where only the sick people sign up for the insurance. As any insurance expert will tell you, insurance relies on having many healthy people paying in the system to cover the high costs for a few. As in many things the 80/20 rule may hold true. 20% of the plan members generate 80% of the expenses. The bottom line is that if healthy people do not sign up for insurance, the revenues for the insurance company will not be able to cover the claims costs. The result? Insurance companies will keep raising the cost of insurance to cover their claims costs. This often results in a death spiral for the insurance plan. As premium costs keep rising, more people leave the plan (or never sign up) so that there is not enough money to pay the claims. Insurance companies have good accountants and they usually see this coming. When it does, they just stop offering health insurance in that area. The adverse selection death spiral does not happen overnight and will most often be preceded with a period of rising premium costs as the insurance company tries to generate enough revenue from premiums to cover the rising tide of expenses from sick people.

Avoiding Adverse Selection

The lobbyists in the insurance industry recognized the risks of adverse selection when they crafted and promoted the ACA bill through the US Congress. That is why they insisted that the government establish tax penalties for individuals who do not purchase insurance. Aside from the constitutional affront to the rights of American citizens, there are many problems with these penalties, primarily that it is much cheaper to pay the penalty (that the IRS cannot force to be paid) than it will be to sign up for insurance. Since no one can be denied coverage based on their health condition many people will just wait until they are sick and then pony up for the insurance. Once they are well again, their insurance payment will get forgotten. We predict that the net result will be that many people will simply not sign up for health insurance or will sign up and pay for the insurance only when they need it. If that happens, adverse selection is almost guaranteed

Employer Mandate Delay

On July 2, 2013 the US Treasury Department announced the one year delay of the employer mandate. This is the provision in ACA that establishes a set of fines for employers with over 50 employees (full time equivalent – FTE) that do not offer health insurance coverage or fail to provide adequate and affordable coverage. So now employers have less motivation to provide health insurance to their staff than before. For 2014, there are no fines to employers for failing to offer health insurance. The net result will be that those employees will be forced to either pay the fine or sign up for health insurance on the individual exchange.

Who gets really hammered on health insurance costs under ACA?

High wage earners with no company sponsored health insurance plan will be the ones taking the biggest hit for insurance costs.

• Forced in to an insurance pool that is highly likely to experience adverse selection and the associated increasing premium costs.
• Ineligibility for government rate subsidies
• Ineligibility for
  
  ADAP premium tax credits
• Lack of pretax treatment for insurance premium payments

Considerations for Job Seekers and Employers

For high wage job seekers (over $85,000 per year), the availability of a company sponsored health plan should be a big part of the decision to accept the position. Even if the company has an employee paid insurance premium with a minor company contribution, the overall costs on an after tax basis should be a big part of the decision.

Considerations for Employers

High wage employers need to understand that there is no health insurance plan subsidy in the individual exchange for their employees and that favorable tax treatment for both their employees and their company is lost if they elect to NOT sponsor a company health plan. While they may not be getting fined yet (in 2014) they will be forcing their staff members in to a more expensive set of insurance products than probably could have gotten by establishing a group plan for their company. Simply paying the staff a few more dollars may not fully compensate them for the higher costs of the exchange and the loss of the favorable tax treatment. The best places to work will continue to make health insurance part of their overall compensation package.

Understanding the ACA “Large Employer” Threshold. Who is subject to the penalty, er tax.

Update for July 2, 2013. An announcement by the US Treasury Department has stated that the implementation of the “Employer Mandate” will be delayed one year until 1/1/2015. Originally the mandate was to be in force on 1/1/2014.

The ACA mandate for employers to provide health insurance only affects employers with over 50 employees. Some businesses owners may think that they will be under that 50 employee threshold when in reality they may not. The considerations for part time employees and the business aggregation rules may surprise many business owners who thought they were not affected. Per the ACA employees who work over 30 hours per week (130 hours per month) are considered full time employees. To determine whether you will be considered a large employer you need to add together 2 groups:

• The number of current full time employees
• Plus: The number of FTE (full time equivalent) employees

Determining the FTE Full Time Equivalent Numbers

The rational for calculating an FTE is to ensure that part time employees are included in the determination of the status as a “large employer”. Part time employees are included in the calculation on the basis of how much time they actually worked (or were paid). This means that even companies with a small full time staff and a large part time staff may very well be considered a large employer under PPACA. Restaurants and other hospitality based business with a large part time staff can expect to be impacted.

To determine the number of FTEs, add together the total number of hours in the month worked by all the non full time employees (up to a maximum of 120 hours per part time employee). Next divide this number by 120 (monthly rate of 30 hours times four weeks). Do this calculation for each month of the prior year and then compute the annual average by adding the numbers for all the prior 12 months and then divide by 12. The resulting number is the value for the full time equivalent employee count.

It is important to note that leased employees are included in the FTE calculation. If your company is currently using a PEO, your company still must include those leased employees in the FTE calculation. In addition, seasonal employees working less than 120 days during the prior year are excluded from the FTE calculation.

Changes in Calculating Full Time Equivalent Employee Count

In 2010 the IRS released guidelines that indicated the FTE calculation was done on the entire group (not just the part time staff) when determining the FTE count. This was documented here:
for use in calculating the FTE for the Small Business Health Care Tax Credit. It now appears the full time staff is not included in the FTE calculation but is added to the FTE count to determine the company’s total employee count. Per the IRS guidelines
here,
the statement is made that “an employer not in existence during an entire preceding calendar year will be an applicable large employer for the current calendar year if it is reasonably expected to employ an average of at least 50 full-time employees (taking into account FTEs) on business days during the current calendar year.” Per the IRS guidance, the number of 1) full time and 2) FTE employees should be calculated each month and then averaged for the 12 months of the year. The “large employer” calculation and determination will be made once for each calendar or tax year.

Over 50 Employees? Now what?

For those employers who exceed the 50 employee count and are deemed to be a “large employer”, the rules for determining who is full time and who is part time (and thus entitled to health insurance coverage or the business must pay the penalty) are wholly different. Determining if your company is subject to the employer mandate of ACA is the first step. If it is, then new rules apply. For those businesses deemed a “large employer”, the IRS has rules used to make a full-time or part time status determination for each employee. The IRS regs now call for each part time employee to be tested to determine if they are actually a full time employee. Now the IRS is calling it being a “variable hour employee”. According to the IRS regs for Determining Full-Time Employees for Purposes of Shared Responsibility for Employers Regarding Health Coverage ( 4980H), “to determine whether new variable hour employees or seasonal employees are full-time employees, without being subject to a payment under  4980H for this period with respect to those employees. An employee is a variable hour employee if, based on the facts and circumstances at the date the employee begins providing services to the employer (the start date), it cannot be determined that the employee is reasonably expected to work on average at least 30 hours per week.” Under these rules, for an employer to simply declare that an employee is “part time” will not cut it. Now the employer must prove the employee is in fact a part time employee by meeting the requirements set for in the
IRS regulation for determining employee status. Once you have read the entire document you can either shoot yourself or call a PEO to help you ensure regulatory compliance.

Skirting ACA by establishing multiple smaller companies

Some business owners have opined that they would simply establish multiple smaller companies, each with less than 50 employees, and viola! No large employer status! This sounds great and some business owners may think they can pull this one off and stay under the 50 employee threshold. Despite what some people may think, the IRS is not stupid. They anticipated that one from a long way away. For many years the IRS has established the rules surrounding “control groups” and “affiliated service groups”. Essentially these are businesses under common ownership. There are complicated arrangements in partnerships and fractional ownership arrangements where the IRS has some detailed rules. Here are the basic types of control groups subject to the employer mandate under ACA.

• A. Parent-Subsidiary Group: When one or more businesses are connected through stock ownership with a common parent corporation (such as a chain); and 80% of the stock of each corporation (except the common parent) is owned by one or more corporations in the group, and Parent Corporation must own 80% of at least one other corporation.
• B. Brother-Sister Group: A group of two or more corporations, where five or fewer common owners own directly or indirectly a “controlling interest” of each group and have “effective control”. A common owner must be an individual, a trust, or an estate. Controlling interest: Generally means 80% or more of the stock of each corporation (but only if such common owner own stock in each corporation); and Effective control: Generally more than 50% of the stock of each corporation, but only to the extent such stock ownership is identical with respect to such corporation.
• C. Combined Group: A group consisting of three or more organizations that are organized as follows: Each organization is a member of either a parent-subsidiary or brother-sister group, and at least one corporation is the common parent of a parent-subsidiary, and is also a member of a brother-sister group.

If you want to try it, see this link. Once you read it this option should be banished from your mind. For most businesses the complication and expense of establishing separate ownership arrangements to avoid the 50 employee rule will not be worth the trouble.

The regulatory cost the new PPACA (affectionately known as Obamacare) are now staring to be tallied, and the results are sobering.

For the last several years, many business owners have been ignoring the impacts of the PPACA on their businesses. It will never survive the Supreme Court challenge… oops. It will be overturned by Romney after he wins the election… oops again. Now the political drama appears to be over for the moment and business owners and managers are starting to assess what is really required to meet the terms of the new laws. While every business has unique individual circumstances, the overall impact on businesses in the USA are now starting to be tallied. Congressmen John Kline, chairman of the Education and Workforce Committee today unveiled the ObamaCare burden tracker.

The tool attempts to estimate JUST the administrative time spent for business to adhere to the terms of the law.
ObamaCare, PPACA Burden Tracker Report

The Republicans Weigh In

“With many rules and regulations yet to come, these 127 million burden hours – many of them due to complying with new taxes – are just the tip of the iceberg,” noted Rep. Dave Camp, Ways and Means Chairman. “The regulatory tsunami generated by Obamacare is forcing employers to spend time and money complying with the dictates of a government takeover of health care instead of creating jobs and investing in our economy,” added Education and the Workforce Committee Chairman Rep. John Kline. “This is valuable time that could be used to run businesses, create jobs, and grow the economy,” noted Energy and Commerce Chairman Rep. Fred Upton. Estimates in the report conclude that the total manhours just to meet the law under the PPACA will be over 127 million man hours.

Of course these costs are just a small portion of the total burdens on employers for tax collection, immigration enforcement and a plethora of social engineering subjects. Employers are expected to meet copious rules and regulations and failure to do so subjects the employer to fines, penalties and lawsuits. The cost for business owners to meet the letter of the law and defend these financial claims grows larger with each new rule and regulation.

Just to comply with Obamacare, the Republican-run committees noted that the costs will be significant to small businesses that don’t hire lawyers and HR compliance officers like major industries. “Since many small businesses do not employ in-house lawyers and accountants, compliance costs are especially expensive and burdensome. Given the new demands of complying with the law, it is not surprising that over 70 percent of small businesses cite the health care law as a major obstacle to job creation,” said the report.

Remember folks, this is just for compliance with PPACA! Nobody was even discussing the other current mountain of burdens on employers for everything from COBRA to hiring discrimination risks. See some new ones here:

Coming Burdens on Businesses

PEOs see an Expanding Opportunity

For many years the Professional Employer Organization (PEO) industry has been assisting business owners understand and address the need to meet their regulatory obligations. Many risks for businesses can be mitigated with proper planning and implementation of HR compliance processes. In addition, in many cases the PEO is actually the party legally responsible for the compliance. NAPEO and other leasing PEOs have been hard at work developing an understanding of the compliance rules and creating models for advising businesses on their best options for meeting the letter of the law and engineering programs that provide affordable employee benefits plans at the same time. Contact StaffMarket for more information about engaging a PEO to meet your upcoming PPACA requirements.

ACA – Obamacare – It’s Really Happening

While business across the USA struggle to access the impact of the ACA laws on their company health plans and their employees, the traditional pool of people to help them figure it all out is going away. Many employers are now becoming aware of the reality that the November 2012 defeat of Mitt Romney all but guaranteed that the ACA is here to stay. Business owners who had deferred planning on their health insurance options are now under the gun to understand their options for themselves and their employees. The implementation schedule for the ACA is already underway and for business owners and managers, important compliance issues and decisions must be made.

Company Sponsored Health Plans Decisions – More Complex and More Significant
For small and mid-sized businesses the complexity of making decisions about how to handle their health insurance plans or whether to offer one at all, just got much more complicated. For every business there is a unique set of factors that will influence their health insurance plan decision.

• Meet the legal requirements or pay the fine – What is the best option?
• What tax credits are available if we continue are plan? (35% in 2013 and 50% in 2014)
• What plan design and combination of co-pay and deductible is legal, affordable and fits our employees?
• Should we kill our plan, pay the fine and let our staff go to the individual exchanges being promised? What happens to the employee pretax treatment for premiums if we do that?
• What about part time employees, should we reduce full time staff to avoid the fines?
• Should we offer different benefits for different employee groups like managers?
• How much should we pay towards the premium? For employee only? Family plans?
• What networks will be available for the carriers that fit our needs?

This is just a start on the complicated analysis required for business owners who want to maintain legal compliance with ACA and still provide and affordable plan for their staff. Get more detail on navigating the ACA.

Calling Your Agent for Guidance – A thing of the Past?

A part of the PPACA (Patient Protection Affordable Care Act) implementation was the requirement that insurance companies spend at least 85% of the total premium revenue back out as payments to medical service providers. This regulation demanded that commissions paid to health insurance agents be included as a part of the maximum 15% remainder for administrative expenses and company profit. It is ironic that most of the health insurance agents in the USA are actually independent agents and or not employees of the health insurance companies, yet their commissions are included in the max 15% requirement. These regulations have the affect of making the insurance company largely an actuarial entity without any financial room left for sales and marketing costs. The exchanges are meant to provide the method for individuals and businesses to shop for their health plans. The end result is that the commission compensation for agents is disappearing at the same time the complexity of business health insurance planning is greatly increasing. Many predict the net result will be that as many as 100,000 life and health agents will leave the industry. Some agencies may move to a fee for service model where business pay for flat fee in exchange for unbiased guidance. Insurance agents have long provided valuable services such as explaining the basics of health insurance, explaining and exploring options that best meet their needs, shopping various companies to find the best deal, handling the enrollment procedures, negotiating the best outcome.

Who Will Help Businesses Now?
The complexity of buying health insurance and placing benefit programs for employers, the administration of those plans, compliance with state and federal laws etc. is far more complicated than clicking a few buttons on an exchange website. For individuals new to insurance the individual exchanges may be adequate, but for companies, they will be challenged to get adequate advice, especially if the best option for an employer is to give employees a raise, pay the penalty and let the employees go to the individual marketplace. In fact for many employers, the decisions may be very complex depending on type of coverage, cost, wages, location and affordability for the entire group; and all groups are unique.

PEOs Add More Value for Their Clients

Somebody will still have to perform these activities for the business health insurance decision makers. Since agents may be fading away, the pay for service model (i.e. a consulting engagement to perform analysis and recommendation) by health advisor may be the marketplace solution. One challenge it presents is that many of the employer health decisions are not static. It is one thing to assess the options and implement the plan, however it is another thing to maintain it. Many activities for maintaining a group health plan require ongoing HR and payroll service actions. Since many pretax treatment options remain for employee premiums, the natural fit for payroll services and insurance premiums will remain and other items like life events and adds and drops will not go away. The service model currently offered by PEOs will become even more attractive as the complexity of regulatory compliance increases and the costs to sustain that compliance increase rises as well.

Getting Guidance and Ongoing Support – PEOs are Ready

Many are predicting that the availability of individual insurance though the government established exchanges will result in many employers simply paying the fines and letting their employees find their own insurance. This may or may not be a wise business and financial decision. Time will tell. For those companies who believe that a robust benefit plan is critical to their ability to attract and keep the best talent, PEOs will continue to offer an efficient delivery platform for small and midsized businesses.

The PEO value proposition for American businesses continues to grow. As compliance and regulations expand, PEOs nationwide stand as their partner to meet those challenges efficiently and professionally. The implementation of ACA provides yet another reason for small and midsized business to engage a Professional Employer Organization. PEOs are dedicated to the success of American businesses.