Health Care Questions and Answers
Do I Play or Pay?
More commonly known as The Affordable Care Act (ACA), the original intentions of the law — as referenced in its introductory pages — are to lower cost, ensure quality, and provide affordable care to the nation. Under ACA, Medicare and Medicaid will be expanded and all citizens will be required to have health care insurance. This insurance can be provided via the employer or through the new exchanges being established. Disagreements between the State and Federal governments have spawned rumors about exemptions. According to the law, however, every state will have an exchange; the only question is whether the State or Federal government will run it. Options include State only, Federal only, or a hybrid marketplace known as a partnership exchange. The exchanges are scheduled to be open for enrollment by Oct. 1 of this year. Circumstances and regulation delays, however, have created an uncertainty as to how many exchanges will be ready for purchase by the deadline.
The exchange component of the new system leaves business owners with a key decision as to whether or not to provide health care for employees or pay the penalty for not providing health care and have their employees purchase their own coverage.
Lacey Robinson, vice president of Gregory & Appel, an Indianapolis-based insurance agency and consultant, provided details about this choice during her presentation at the HARDI Human Resources and Organizational Management conference in Tampa, Fla.
“Effective Jan. 1, 2014, the ACA will impose a penalty on large employers that do not offer minimum essential coverage to ‘substantially all’ full-time employees and dependents,” she explained. “Large employers that do offer coverage may still be liable for a penalty if the coverage is unaffordable or does not provide minimum value. Under ACA, the employer penalty is referred to as the ‘Employer Shared Responsibility Payment.’ ”
As defined by the law, employer mandated minimum value requires that coverage requirements are affordable and covers 60 percent of plan costs, including deductible, co-pay, and/or co-insurance.
“Employers with 50 plus full-time employees must offer employees and their dependents minimum value coverage that is affordable or pay a penalty,” said Robinson. “Affordable is defined as less than 9.5 percent of W-2 wages.”
Packages on the exchanges will likely be classed as platinum, gold, silver, and bronze. Overall coverage responsibility by the employer, however, will be governed by the minimum value guidelines and not by package names or levels.
Robinson offered a rule of thumb to help guide distributors as they choose coverage options.
“You can always err on the side of the employee, but you cannot err on the side of the employer.”
Am I a Large or Small Employer?
In determining whether or not it is prudent to pay or play, distributors must first decide what employer category they fall under — large or small. To do this, distributors must calculate how many full-time employees are working for the company. A full-time employee is defined as one who works 30+ hours a week.
Robinson warned that determining the amount of full-time employees requires employers to account for all of the hours that its employees across all branches and locations are working.
“The hours worked by part-time employees — those working less than 30 hours per week — are included in the calculation by taking their total number of monthly hours worked and dividing them by 120,” she said. “For example, a company that has 20 part-time employees who all work 24 hours per week (96 hours per month) would be the equivalent of 16 full-time employees. Add that to the 35 full-time employees the company has and it would be considered a large employer based on a total full-time equivalent count of 51.”
Other employees to consider in this calculation are contract employees, especially if a distributor is their sole contract. Seasonal employees are being questioned in the calculation as well, although that has not yet been clearly defined by the regulations that continue to be updated and created.
In an effort to provide further guidance, the Internal Revenue Service (IRS) released a notice giving employers the option to use a look back period. IRS Notice 2012-58 gives a period of up to 12 months to determine whether variable hour or seasonal employees are full-time employees.
“Distributors can take a time period of three, six, or 12 months and measure the number of employees and their hours worked to calculate employment size,” explained Robinson. “If it were determined during the measurement period that the employee averaged at least 30 hours of service per week (130 hours per month), then they would be treated as a full-time employee during the subsequent stability period, regardless of the number of service hours during the stability period.”
How Much Is This Going to Cost Me?
The cost of health care is not going away. It is just going to change. How much it will cost each individual company will depend on what choices are made, how large a company they are, and how the qualification calculations come out. Two financial items that distributors need to watch for are the new fees and penalties.
To help ensure compliance, the Department of Labor is planning more audits in the coming months. Those found out of compliance will be charged penalties for noncompliance. Coupled with that are separate fees that will be charged in the coming months and next year. The first is the Patient-Centered Outcomes Research Trust Fund Fee (PCORI). It is a research fund and the annual fee is $1 for each covered life for plans ending before Oct. 1, 2013, and $2 annually for each covered life on plans through October 2019.
“Plan sponsors are required to submit IRS form 720 with the appropriate payment by July 31, 2013,” said Robinson.
There will also be an ACA transitional re-insurance fee that will be used to help stabilize premiums for coverage in the individual market and lower the effects of adverse selection in the exchanges.
“Both fully insured and self-funded plans will be required to pay $63 per covered life annual fee on all those enrolled in the health plan,” explained Robinson. “Per covered life counts are due to the Department of Human Health and Services by Nov. 15, 2014. This fee will be reduced in 2015 and 2016, though the amounts have yet to be released.”
Throughout her presentation, Robinson stressed the importance of grabbing the bull by the horns and engaging health care changes. She acknowledged that cost increase will be inevitable, but advised that distributors figure out a plan on their own or get help from a consultant. Noncompliance and its fees were not an option.
Visit www.gregoryappel.com for more information.