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Part Two – Health Care Reform
January 2013 Roundtable University of Maryland Heritage Hall
January 29, 2013
Roundtable Part 2 – Assessing and Mitigating the
2014 Health Care Reform Employer Penalties
• Key Penalty Risks
• Five Steps to Determining
Your Risk
– Eligibility Waiting Period
– Employer Size
– 30 Hour Rule
– Premium Affordability
– Plan Design Affordability
• Variable Hour Employees
• Seasonal Employees
• The Exchanges
• Summary, Next Steps
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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
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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
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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.
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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
• 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
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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
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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!
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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
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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: 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
• 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 can’t 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 plan’s discounted claims
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Step 5: Plan Design Affordability, if adjustments are
needed
• 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
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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
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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
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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.
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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
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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 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 by the end of this quarter
• Be prepared to pivot as the landscape changes
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CBIZ Value Proposition
• Experts in all aspects of Health Care Reform
Actuarial Benefits Compensation
Payroll Tax
• Customized solutions
– Initial Risk Assessment
– Recommended course correction
– Complex challenges: Comprehensive actuarial analysis
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Questions?
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Questions later – contact us.
Ongoing discussion – be part of it.
Bill Smith, Managing Director
(301) 951-3636 ext. 6725
Larry Kline, Line Managing Director
(301) 951-3636 ext. 6704
Stu Anolik, Managing Director
(301) 951-3636 ext. 6712
Zack Pace, Senior Vice President
(443) 259-3240
Find our discussion page on LinkedIn – simply search
“CBIZ January Roundtable” and join the group.
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Thanks for joining us today.
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