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

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Mitigating the 2014 Health Care Reform Employer Penalties

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

  • Part Two Health Care ReformJanuary 2013 Roundtable University of Maryland Heritage Hall January 29, 2013
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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
  • Step 4: Premium Affordability Test, Strategies Introduce a reverse discrimination salary based payroll deduction methodology. For example brackets of: $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
  • 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 cant 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 plans discounted claims 15
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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 cover