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

ASAE Executive Issue Briefing2014 & 2015 Employer Mandates

July 9, 2013

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

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• 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?

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

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• 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?

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

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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

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Step 1: Calculate the cost of mitigating this risk:  Org A Org B Your Org1. 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  

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

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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.

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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

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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  

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

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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  

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, interns15

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

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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

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Employee TypeNumber of Employees

New ACA Category Policy Action Plan

Summer Interns 20 Seasonal Limit internship to 100 days or lessNon-seasonal

interns 15 Part-time Limit weekly hours to 25 hours or lessSeasonal staff 100 Seasonal Limit employment to 100 days or lessProfessional

temps 5 Full-timeDeclare 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 3Full-time / Part-time

Establish if part-time employee will work more or less than 30 hours and

offer coverage accordingly.

Step 3: Reclassification Example

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  

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

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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)

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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

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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:

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  

Step 4: Calculate the cost to mitigate this risk, using the first safe harbor:

  Org A Org B Your Org1. 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  

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.

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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)

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Step 5: Calculate the cost of mitigating this risk:  Org A Org B Your Org1. 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  

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

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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?

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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

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CBIZ Value Proposition

• Experts in all aspects of Health Care ReformActuarial Benefits CompensationPayroll Tax

• Customized solutions– Initial Risk Assessment– Recommended course correction– Complex challenges: Comprehensive actuarial analysis

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Contact information

Zack Pace, Senior Vice President(443) [email protected]

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