Important Dates for Large Employers
- July 31, 2013: PCORI fees dues
- October 1, 2013: Employee Notification deadline for health coverage
- January 1, 2015: Employer Coverage Responsibilities - "Pay or Play" Mandate
- See Comprehensive ACA Timeline for additional items (Source: Kaiser Family Fund)
- January 15, 2015: First quarterly Transitional Reinsurance Fee due
- January 1, 2016: Reclassification of Small Employer
- January 31, 2016: IRS Reports on full-time employee information due
- Current or grandfathered plan
- Reduce employer contributions
- Switch to cheaper plan
- Offer no coverage, incur penalties
- Offer no coverage, incur penalties, increase salaries, add benefits
- SHOP Marketplace coverage
- Member-owned CO-OP
- Defined contribution plan
- Private exchange
- Self-funded plan
- Staff Changes
(Source: Arthur Tacchino, "A New Way of Thinking about Employer-Sponsored Health Care Coverage Strategies", Journal of Financial Planning)
With the passage of the Affordable Care Act, large employers will soon be required to participate in a “Shared Responsibility Payment” to help cover health insurance coverage for their employees and their dependents. Although the ACA does not explicitly mandate that large employers offer acceptable health insurance, it does however impose penalties if one or more full-time employees purchase individual insurance through the Marketplace exchange and receive a tax credit. As of July 2, 2013, this shared responsibility or “pay or play” provision deadline was delayed to become effective on January 1, 2015.
It is imperative that as a “Large Employer” you understand the rules and regulations that will affect your business. Many large employers are struggling with decisions and options that are both in the best interest of their employees as well as their business operations. Whether you choose to offer health insurance coverage or not affects your business model, allocation of part-time versus full-time employment, employee morale and culture, compensation/benefits plan, and employee attraction potential. You are highly encouraged to seek professional advice to help you create a health care insurance strategy that best fits your long-term business goals.
Note: Although this website focuses on for-profit businesses, the ACA penalties will apply to all employers that meet the 50 or more employee status. This includes federal, state, local or Indian Tribal governments, and non-profit organizations, even if they are exempt from federal incomes taxes. In 2016, there will be a reclassification of the "large" employer status to mean 100 or more employees.
Consult with an attorney, accountant, human resource (HR) consultant, insurance agent and/or other business advisors when making decisions regarding health insurance coverage.
►The Health Law Guide for Business offers an Employer's Responsibility to assist the business owner in making a decision to offer health coverage or not.
►The Affordable Care Act requires businesses to pay special attention to Employee Retirement Income Security Act (ERISA) regulations. Even though your business may not provide retirement plans, ERISA regulations also cover health care benefits. Check with an attorney to make sure your company guidelines, employee handbooks and other employer communication tools are in compliance. See also the section on Whistleblower protections.
- Affordable Care Act of 2010: Q&As Segment 6 (Source: Alabama Extension). Attorneys provide advice on changes you need to make to meet new ACA and ERISA regulations.
Large Employer Calculations
A large employer is defined as having, on average, more than 50 full-time or full-time equivalent employees. To ensure that you meet the 50 full-time employees or more threshold, use a full-time equivalent calculator such as the Health Law Guide for Business’ online FTE-calculator. If you are unsure or if your business is near 50 FTEs consult your tax advisor or accountant.
- Full-time employees (FT). FT employees work on average at least 30 hours per week or 130 hours per month. When determining the average, use a Measurement Period of not less than 3 months but no more than 12 consecutive months and divide the total hours by the measurement period. For example, an employee has 960 service hours over a six-month measurement period, averaging 160 hours per month. This employee would be classified as full-time since the monthly average is greater than the ACA criteria of 130 hours. FT seasonal employees are to be added to your FT count only if they had service hours more than 120 days during the measurement period.
- Section 4980H of the Internal Revenue Code defines the employ criteria as having service hours versus hours worked. Service hours include not only hours when work is performed but also hours for which the employee is paid and/or entitled to payment when no hours are worked (i.e. vacation, paid leave).
- Part-time employees (PT). Hours worked by PT employees are converted to full-time equivalent (FTE) employees by combining all of the hours worked by employees with less than 30 average hours per week and dividing the total by 120. For example, you have 20 part-time employees who worked 15 hours each week for a total of 300 weekly hours over the measurement period. To obtain the FTE, multiply the 300 weekly hours by 4 weeks for a total of 1,200 monthly hours. Divide the 1,200 monthly hours by 120 to get your 10 FTE employees. (20 employees * 15 hours = 300 weekly hours * 4 weeks = 1,200 monthly hours/120 = 10 FTE).
- Seasonal exception. Seasonal employees who work full-time for 120 days or less do not affect the full-time count. This ruling may change beyond 2014.
- Ownership exemptions. When determining hours and wages, sole proprietors, partners in a partnership, shareholders owning more than 2 percent of an S-corporation and any owners of more than 5 percent of other businesses are disregarded, as are their family members (Source Health Law Guide for Business).
- Foreign-based employees. Generally, employees working overseas will not have hours of service performed in the United States and are not to be included in the full-time calculations.
Combining companies under common ownership. For employers that have multiple entities (such as an owner having several restaurants or multiple businesses) the IRS aggregation rules governing control groups apply to the ACA large employer determination. This ruling states that all employees of businesses which are under common control are treated as employed by a single employer. If this applies to your business, read more:
- Employer Mandate and the Controlled Group Rules (Source: Foster Swift Collins & Smith PC Attorneys)
- Controlled Group Rules - What you need to know (Source: Benefit Resources Inc.)
- PPACA Considerations for Controlled Groups and Affiliated Services Groups (Source: Connelly, Carlisle, Fields & Nichols)
- IRS Publication - Control and Affiliated Service Groups (Source: IRS)
Determination of large employer penalties is different from the employer size calculations and is based on three factors:
- Total penalty exposure is based on the number of full-time employees having 30 hours or more a week in service hours. Part-time and seasonal employees (working less than the pre-specified time period or fall under safe harbor options) are not considered in the penalty calculation. See IRS 2012-58.
- Whether you offer insurance coverage or not, your business could be potentially liable for a penalty if at least one full-time employee obtains coverage through the exchange and receives a premium tax credit. In order to receive a tax credit, the employee will likely have income between 100% and 400% of the federal poverty level.
- Your business may be assessed a penalty if you do not offer minimum value and affordable coverage required by ACA law which is at least 60% of actuarial value.
Penalty calculations are provided below under the different coverage options.
- Potential Employer Penalties under the Patient Protection and Affordable Care Act.
- Potential Employer Penalties Graphic Only (Source: Congressional Research Service, 7-5700)
- Employer Mandate Calculator (Source: U.S. Chamber of Commerce)
Determining Full-time Status
Final IRS Notice 2012-58 outlines safe harbor methods employers may use to determine full-time classification of employees. Employers can set a measurement or look-back period to measure how many hours an employee averaged per week during the defined measurement period of not less than 3 months or greater than 12 months. If the employee met the full-time classification, the employer has up to 3 months during the administrative period to enroll the employee in the company's health coverage plan. The employee then enters the stability period where the employee is classified as full-time for the remainder of the measurement period, regardless of number of hours worked. The stability period must be at least six months and no shorter than the measurement period. Your business can set the period lengths to best fit your business. However, you must be consistent in your application to all employees in the same category.
- The penalty for on-going employees is applicable only during the stability period, provided the employee met the full-time classification during the measurement period, entered the individual exchange and received a premium tax credit.
- No penalty for new full-time hires provided they are enrolled within the 90-days of their start date.
- New variable hour/seasonal hires can go through a 3-12 month measurement period to determine whether the employee meets the average 30 hours per week of service. If classified as full-time, the employer then has 90-days to enroll the employee, provide the administrative period does not extend past the one-year employment anniversary. During the measurement period employee may enroll in the exchanges and receive premiums without penalty to the employer.
Penalties will be assessed any month when the business does not offer insurance coverage OR offers coverage to less than 95% of its full-time employees and their dependents; OR does not provide coverage that meets the minimum 60% actuarial value threshold; OR the coverage is not affordable for the employee to purchase through the business. If an employee purchases insurance coverage through the individual exchange and receives a tax credit due to their household income falling between 100 - 400% of the federal poverty level (FPL), the business will be assessed a tax penalty.
- Affordability. To help determine the affordability of the coverage, the IRS has proposed three affordability safe harbors for an employer to use. Affordability safe harbor estimates for 2014 for employers under the ACA. (Source: Ernst & Young)
- Form W-2 safe harbor. Employee-only premium share does not exceed 9.5% of wages amount reported in Box 1 of their W-2.
- Rate of pay safe harbor. Employee-only premium does not exceed 9.5% of their hourly rate of pay times by 130 hours per month.
- FPL safe harbor. Employee-only premium does not exceed 9.5% of the FPL for one person, using most recently published federal poverty level guidelines.
►Penalty for not offering coverage. A penalty will be assessed for a company for not offering coverage or offering coverage to less than 95% of total number of full-time employees and their dependents. If a company does not provide health insurance coverage and at least one full-time employee obtains health insurance through the public exchange and receives a subsidy for coverage, then the employer will incur a penalty of $166.67/monthly or $2,000/yearly per employee minus 30 exempted employees.
$2,000 x (number of full-time employees - 30 exempted) / 12 months. For example an employer with 100 full-time employees would incur a penalty of (100-30) x $2,000 = $140,000 annually or $11,667 monthly.
See Example 1 (Source: U.S. Chamber of Commerce)
►Penalty for employee contribution. A penalty will be assessed for employer-sponsored coverage failing to meet the affordability requirement of providing at least 60% of actuarial value or the cost of employee-only coverage is more than 9.5% of the full-time employee's compensation. If the employee cannot afford the coverage and obtains health insurance through the public exchange and receives a subsidy for coverage because his/her household income falls below 400% of the federal poverty level (FPL), the employer will incur a penalty that is lesser of two equations:
$2,000 x (number of full-time employees - 30 exempted) / 12 months. For example, for an employer with 100 full-time employees, of which 15 employees receive health care tax credits, the employer would incur a penalty of $2,000 x (100-30) / 12 = $11,667 per month or $140,000 annually.
$3,000 x (number of full-time employees claiming tax credits) / 12 months. Using the example above, the penalty would be $3,000 x (15 employees receiving the subsidy) / 12 = $3,750 or $45,000 annually.
The company would be assessed the $3,750 a month penalty since it is the lesser of the two options.
The penalty tax will be assessed on a monthly cycle, but collected annually. The penalty tax may vary month to month, depending on full-time employment numbers.
Regulations Affecting the Large Employer
►Small Business Health Options Program (SHOP). Starting in 2014, only small employers with less than 50 FTE can purchase health care coverage for their employees through the SHOP Marketplace. However, companies with 100 or less employees will be able to purchase from SHOP starting in 2016, and all employers are eligible in 2017. This is subject to change. Check with your state insurance department as some states may qualify larger firms immediately.
►Business Requirement for Employee Notification. You are required to provide current employees notification of your intent to provide or not provide coverage by October 1, 2013. For more information read Small Business Requirement for Employee Notification.
►Tax Rate Changes. Due to ACA regulations, new employee withholding rates were implemented on January 1, 2013. If you are unsure about your current withholding rates, check with your accountant, IRS Notice 1036 or IRS Affordable Care Act Tax Provisions. A net investment income tax was also implemented in 2013.
►New Assessment on Net Investment Income. Beginning January 1, 2013, a 3.8% tax will be assessed on net investment income such as taxable capital gains, dividends, rents, royalties, and interest for taxpayers with Modified Adjusted Gross Income (MAGI) over $200,000 for single filers and $250,000 for married joint filers.
- Obamacare: Tax Ramifications in 2013 (Source: Cray, Kaiser Ltd.)
- Q&A on the Net Investment Income Tax (Source: IRS)
►ACA Whistleblower Provision. The ACA enhances whistleblower protections defined under ERISA, Section 510. The ACA states that employers cannot discharge or discriminate against "any employee with respect to his or her compensation, terms, conditions, or other privilege of employment" because of the employee reports a potential violation of consumer protections (denial of insurance due to pre-existing conditions) or affordability provision (receiving a tax health subsidy). Still in question, is whether this applies to an employer' that reduces staff or hours to avoid shared responsibility provisions. If this is a concern, seek professional advice from an employment attorney.
- The View from Prokauer: Health Care Reform Litigation Risks - The Intersection of ERISA Section 510 and the Affordable Care Act's Whistleblower Provisions (Source: JDSupra Law News)
- ACA Expands Employee Protection for Blowing the Whistle (Source: Benefits Magazine)
- Health Insurance Industry Whistleblowers Receive Interim Final Rules (Source: Katz, Marshall & Banks)
Changes in Health Insurance Regulations
Cost-Sharing Limitations. Any employer-sponsored group health plans, excluding grandfathered plans, must not exceed the limitations set by ACA section 1302(c)(1) for out-of-pocket costs and deductibles. See EBSA FAQ 12.
- Deductibles. Limitations on insurance deductibles are not to exceed $2,000 for individuals and $4,000 for a family (adjusted annually). The HHS final rule applies to small group plans only, is variable to business size, which is determined by state law.
- Employee Costs. The maximum out-of-pocket costs (copayments, coinsurance and deductibles, not premiums) are set for 2014 at $6,350 for individuals and $12,700 for families. This rate will be adjusted annually. The HHS final rule applies maximum out-of-pockets costs to all non-grandfathered health plans.
►Essential Health Benefits (EHB). Individual and small group plans must include services in ten Essential Health Benefits, unless you have a grandfathered health plan (source: United HealthCare Services).
►Flexible Spending Accounts (FSA). Maximum spending limits have changed for 2013 to a current cap of $2,500. This will be subject cost-of-living adjustments. See video on Flexible Spending Accounts for more information (source: Humana) and IRS determination.
►90-Day maximum waiting period. Beginning January 1, 2014, employees who are eligible for insurance coverage will not wait more than 90 days for coverage, or companies face fines. The IRS issued a Guidance Notice to hold the 90-day waiting period in effect until the end of 2014. Updates may be forthcoming.
►Summary of Benefits and Coverage Disclosure (SBC). Each employee must be provided a SBC about their plan. See example. The forms will be generated by your group health insurer. For more explanation about SBC, see video produced by Catalistconsulting: Summary of Benefits and Coverage.
►W-2 Reporting of Aggregate Health Care Costs. W-2 reporting of aggregate annual costs of employer-provided health coverage is required, unless you have less than 250 Form W-2s in the prior calendar year. Seek advice from your accountant on reporting requirements.
►Nondiscrimination Rules. Although the regulations have yet to be written, it is anticipated that the ACA will prohibit discrimination of providing health insurance that favors of highly compensated employees. The regulations most likely will cover highest paid company officers, shareholders who own more than 10% of stock and individuals within the top 25% paid employees. If found to be discriminatory, the fine may be as high as $100 per day per employee discriminated against, until the error is corrected. Stay tuned for more details.
►Transitional Reinsurance Program Fees. Starting in 2014, all employer-sponsored health care plans will be assessed fees for each individual covered under the plan (including spouses and dependents). Employers who are self-insured and insurers of group plans are required to pay these fees, assessed at $5.25 a month ($63 for the year). Rates for 2015 and 2016 are subject to change. Look for these fees to be added to your insurance costs. First quarterly payment due January 15, 2015.
►Patient-Centered outcomes Research Institute (PCORI) fees. PCORI is a nonprofit center established by the ACA to promote the use of evidence-based medicine and practices. To fund PCORI, the ACA imposes a fee on health insurers and employer self-funded plans. The fee will be $1 per average plan participants for the first year after September 30, 2012 and $2 per participant in succeeding years, due July 31st of each year, IRS Form 720. Look for these fees to be added to your insurance costs.
►Medical Loss Ratio Rebates. Starting in 2012, your insurance company must spend at least 80% of premium dollars on medical care rather than administrative costs. If your insurer does not meet this ratio, they are required to provide rebates to you the policyholder. How you treat this rebate depends on many factors and may affect taxable income for you and/or your employees. Consult your accountant if you receive a rebate. See IRS FAQs.
►Wellness Programs. Beginning January 1, 2014, the ACA expands the incentives to promote employer wellness programs and encourage healthier workplaces. The proposed rules increase the maximum permissible reward under a health-contingent wellness program from 20 percent to 30 percent of the cost of health coverage, and further increase the maximum reward to as much as 50 percent for programs designed to prevent or reduce tobacco use. See EBSA Fact Sheet, Final ACA Regulations on Workplace Wellness Programs Released (Source: The Bailey Group) and ACA Updates Nondiscrimination Rules for Wellness Programs (Source: ACA Watch).
►Reporting Requirements for Employers. Additional reporting will be required from employers that provide coverage for each individual covered under the plan. First of these reports are to be filed by January 31 of the year following the year health coverage was provided. The reports are in compliance with Section 6056 of the ACA, IRS Notice 2012-33.
HR compliance is a major concern of most small business owners according to ADP Research Institute.
►Cadillac Plans. In 2018, companies that provide high-cost group health coverage will be taxed 40 percent of the employee's excess benefits above the annual threshold imposed by the IRS. The thresholds are $10,200 for individual coverage and $27,500 for family coverage (subject to change). The tax is payable by the insurer of the plans, or by the employer if it is a self-funded plan. Adjustments may be made for high-risk professions and older employees.
If you currently offer health insurance coverage to your employees, you can choose to stay with your current plan and work with your insurance advisor or broker to meet new ACA guidelines. Plans that were placed into service prior to March 23, 2010 are considered grandfathered plans. These plans are not subject to many of the ACA law changes and you may still enroll new employees under this plan. However, if significant changes have been made to the policy that reduce benefits or increase employee costs, you will lose the grandfathered status and will need to meet the ACA essential health benefits (Source: United Health Care) and other employer-sponsored health care guidelines.
According to Aetna, if one of the following design changes occurs within your plan, as measured from March 23, 2010, you could lose your grandfather status:
- Elimination of all or substantially all benefits for a particular medical condition.
- Any increase in the employee’s coinsurance percentage.
- A deductible or out-of-pocket maximum increase that exceeds medical inflation plus 15%.
- A copayment increase that exceeds medical inflation plus 15% (or, if greater, $5 plus medical inflation).
- A decrease in the employer contribution towards the cost of coverage by more than 5%.
- Imposition of annual limits on the dollar value of all benefits below specified amounts.
- Reclassifying employees, without justifiable employment reasons, so they become eligible for a different plan.
- Failure to continuously maintain at least one individual in the plan.
In addition, failing to distribute the required grandfather notice to employees will cause a plan to lose it grandfather status.
Unlike other group plans, the grandfathered plans do not need to meet cost-share limits that all other plans must comply with under the ACA guidelines, starting in 2015 (EBSA FAQ 12).
Some of the mandates affecting grandfathered plans were implemented in 2010 and more become effective starting in 2014. Work with your insurance provider for clarifications on requirements and effective dates.
- Compliance Checklist for Determining Grandfathered Status (Source: DOL)
- Grandfathered Plan Checklist of Implications for Group Health Plans (Source: Aetna)
- Grandfathered Regulation Table (Source: U.S. Department of Labor)
- The Consequences of Losing "Grandfathered" Status (Source: Sibson Consulting)
Employers who maintain their current plan may experience rising premiums in the future to just maintain current coverage options. Review plan and estimate costs into the next 3-5 years.
As a result of the new ACA 30-hour full-time employee qualification, businesses may have more individuals who become eligible for employer-sponsored health coverage. The extra coverage could substantially increase your insurance costs. Steps can be taken early to help mitigate some of these costs:
►Decrease employer premium contributions. If you are paying "higher" than industry standards toward your employees' health insurance coverage, you may choose to decrease that amount, while still maintaining the minimum contributions to meet the affordability requirement of the "play or pay" tax. This would shift more of the burden onto the employee.
►Exclude spousal coverage. Under the ACA, employer-sponsored plans do not have to include spouses as part of the plan coverage. The ACA only requires employer-sponsored plans to offer coverage to their employees and dependents, up to age 26. One possibility for cost reduction is to reconfigure the spousal support.
Redistribution of Employer Premium Contributions (Source: National Insurance Services)
- Change plan to cover only employee and children, not spousal (family coverage)
- Institute a "means" test where you would only provide health coverage if the spouse does not have health coverage through their own employer
- Cover spouse, but add a surcharge
- Reduce or eliminate employer contributions toward spousal premiums
- Provide a set amount of premium contribution toward spouse health coverage. Employee pays extra for the spousal coverage.
►Exclude retiree coverage. Maintaining health coverage for retirees can add significant costs to your insurance premiums, even if the retiree pays 100% of the premium costs. By keeping older retirees in your employment pool, you increase your insurance costs overall. The ACA does not require employers to offer health coverage to retirees beyond COBRA requirements; nor does it require employers to make contributions toward retiree health plans. If you have contracts or promises with employees that require health coverage at retirement, you should look at all available options for reducing costs. For example, employers may be interested in providing a retiree-only Health Reimbursement Arrangement (HRA) to help pay premium costs and remove retirees from the company's health insurance plan. Carefully review your Summary Plan Description to detail what you will and will not do toward retirement benefits. Read the Department of Labor article below for information about SPD language.
- Restructing Retiree Benefits (Source: ACAWatch)
- How to Avoid PPACA Penalties on Retiree Health Insurance (Source: ACAWatch)
- Can the Retiree Health Benefits PRovided by your Employer be Cut? (Source: DOL)
These changes will decrease employer costs. However, you will want to weigh the changes against your long-term goals for employee retention and recruitment, compare industry and community standards, and ensure that the changes fit with other human resource goals. In addition, retiree commitments will affect your insurance costs, carefully weigh options and consult an attorney for clarification of earlier promises for coverage.
If your current employer-sponsored health plan provides high actuarial value coverage plan you could choose to switch to a lower actuarial value coverage plan to save on premium costs. With the new standardizing of health insurance plans into four "metal" levels you can more easily compare your plan against other plan options. Each plan option must meet the minimum essential health benefits, but the cost-sharing required can be different. A bronze plan will have the least amount of employer costs and employee benefits and the platinum plans will be the most expensive while offering the highest level of employee benefits. For example a bronze plan will, on average, cover 60 percent of a person's health care costs and the platinum coverage will cover 90 percent for a person's costs.
What Do PPACA Standards Mean for Employer's Health Plans? (Source: Towers Watson)
The premiums attached to each of these metal levels will vary depending on the insurer, use of services, price of negotiated services and plan usage controls.
Bare-Bones Option: Another recent strategy that businesses are considering is a "bare-bones" or "skinny plan." This is a plan that covers only the mandatory essential preventative and wellness services through a self-insured plan with cost-sharing between employer and employees. This option is only available for large employers. To provide additional coverage, a mini-medical or gap plan is added to provide some level of non-preventive care such as hospitalization, outpatient care, therapy, etc. Essentially, these plans meet the employer mandate ($2,000 penalty) criteria but fail to meet the affordability penalty ($3,000 per person penalty). Caution: watch for new regulations or laws to eliminate this option in the future.
- Why Health Law's "Essential" Coverage Might Mean "Bare-Bones" (Source: Kaiser Family Foundation)
- Bare Bones Health Plans Expected to Survive Health Law (Source: Philly.com)
Moving to a lower metal or bare bones coverage will decrease employer premium costs. However, you will want to weigh the changes against your long-term goals for employee retention and recruitment, compare industry and community standards, and ensure that the changes fit with other human resource goals. Be prepared for negative repercussions from employees who view the switch to a lower benefit plan as a reduction in pay, benefits and employer support. (Source: New Way of Thinking about Employer-Sponsored...)
Depending on your situation, it may be less costly to provide no coverage to your employees, pay the "play or pay" penalty and have your employees purchase health insurance through the individual exchange.
For example, you have 55 full-time equivalent employees to qualify you as a large employer. However, only 40 of these employees are full-time and are required to have health insurance coverage under the shared responsibility provision. The penalty for no coverage would be $166.67 x (40 - 30) = $1,666.67/month or $20,000/yr. Conversely, your cost to provide health coverage is $377,160 annually, based on the 2012 average private small-employer cost for a family coverage of $9,429 x 40 employees). (Source: Kaiser Family Foundation)
Increase Salaries. This option helps to off-set lost benefits when coverage is dropped. It will be important to analyze your budget and the effect the increase salaries has on the bottom line. Remember to include the other employee costs such as FICA and unemployment taxes.
Voluntary Benefits. In addition to an increase in salaries, you could choose to pay for other benefits provided outside of the health insurance coverage. Benefits could include life insurance, disability, dental, vision, etc. and premium costs could be solely coverage by you or shared with your employees.
According to Arthur Tacchino, J.D., employers should use caution when considering this option as the cost for "employee turnover, productivity, morale and turnover may be extremely high when taking away coverage from a population of employees familiar with these benefits." However a win-win may be possible if the employees are low-wage earners that will qualify for subsidies should they purchase their insurance coverage through the exchange. Working with employees to fully understand their options will be critical to prevent morale issues. Additionally, increasing salaries and offering voluntary benefits can substantially raise, and potentially negate any savings to the no coverage option. Use a cost/benefit model to seek the best option. (Source: New Way of Thinking about Employer-Sponsored...)
For 2014, Nebraska businesses with 50 or less employees can enroll in the SHOP Marketplace. In some states, businesses of 100 or less full-time employees may qualify for SHOP enrollment in 2014. Check with your state's department of insurance for enrollment qualifications. By 2016, all businesses with 100 or less employees will be able purchase through SHOP. The qualifications further expand in 2017 to any size of business.
To quality for SHOP, you must have an office within the service area of the SHOP and offer the SHOP coverage to all your full-time employees. Although the SHOP Marketplace will not fully operational until 2015, you will be able to choose one plan that will provide coverage to all affected employees.
For more information about SHOP Coverage, see Less than 50 category
Starting in 2014, SHOP will offer employers an option of one health insurance plan to cover all employees. Once fully functional SHOP will provide employers multiple insurance plan options, including different levels of coverage, in which employees can choose the option that best fits their needs. At this time, SHOP plans and providers are unknown which does not allow for preplanning.
Non-profit health insurance cooperatives, called Consumer Operated and Oriented Plans (CO-OPS) are authorized under Section 1322 of the ACA law. They are an alterative to the individual and small business exchanges operated by state and federal governments. The CO-OPs are formed as nonprofits and controlled by and operated on behalf of their members. There are 24 CO-OPs authorized across the United States. CoOportunity Health, based out of Des Moines, Iowa is authorized for Nebraska and Iowa and will open for business on October 1, 2013. CoOportunity Health provides services for:
- Individuals & Families
- Small Groups - PPO & HSA-qualified plans
- Mid-Sized or Large - PPO, Defined-contribution plans
The objective of the CO-OPs is to create a new competitor to help drive down local consumer costs. Profits made by the CO-OP must be used to lower premiums, improve benefits or sustain programs that with enhance the quality of health care to its members. CO-OPs operate under the same regulatory requirements as private insurers.
- Cooperative is entering Nebraska, Iowa health care markets (Source: Omaha World Herald)
- The Consumer Operated and Oriented Plan (CO-OP) Program (Source: HealthReformGPS)
- The CO-OP Health Insurance Program (Source: HealthAffairs)
There are concerns about the long-term viability of the CO-OPs since they are designed to operate in the riskier individual and small business insurance markets. Key will be to find a rapidly growing CO-OP that has a sufficient health provider network to meet your employees' needs.
In a defined contribution health plan the employer provides tax-free contributions to employees to be used toward their health care. The employer can choose to set up one of three contribution plans:
►Health Reimbursement Arrangement (HRA). An HRA is funded solely by the employer and reimburses an employee for medical care expenses incurred by the employee, and dependents, up to a maximum dollar amount for a coverage period. A tax-exempt trust or custodial account is set up with a qualified HRA trustee to pay for qualified medical expenses. HRAs must be integrated with an eligible employer-sponsored group health plan; HRAs for employees purchasing individual market coverage will not qualify. (See IRS Notice 2013-54) . HRAs can be designed to best meet the needs of the employees and employers.
- Health Reimbursement Arrangements (HRAs) - HSA's 1st Cousin (Source: Scott M. Stevens)
- How Health Reimbursement Arrangements Will Work Under the Affordable Care Act in 2014 and Beyond (Source: Segal)
- Health Reimbursement Arrangement Employer Guide (Source: CoreHRA.com)
- How HRAs will Work Under the ACA in 2014 and Beyond (Source: Sibson Consulting)
►Health Savings Accounts (HSA). HSAs are savings accounts established by individuals and their employers. HSAs are used to pay for qualified health care costs. The account is owned by the employee. The employee is responsible for maintaining a balance and determining how to spend the monies. HSAs can only be used with a qualified High Deductible Health Plan (HDHP) that have at least a $1,200 deductible for an individual plan or $2,400 deductible for a family plan. The HDHP must meet the ACA affordability and provide the essential health benefits mandated by the ACA. To offset out-of-pockets costs, the employer can contribute up to $3,300 for individual and $6,550 for family coverage (2014 limits). These funds do not expire and account balances can build.
- Health Savings Accounts (HSAs) ~ Summary/Overview (Source: Scott M. Stevens)
- The Impact of Health Reform on HSAs (Source: Benefits Quarterly)
- HSAs: A Powerful Tool for Covering Clients' Higher Health Care Costs Under ACA (Source ThinkAdvisor)
- Demystifying Health Savings Accounts (Source: Fidelity)
►Flexible Spending Account (FSA). FSAs are employer sponsored accounts that can be used to reimburse participants for qualified medical expenses. Both the employer and employee may make contributions to this account through payment deductions. FSA contributions are pre-tax monies. FSAs have a use or lose it rule. Under the ACA, tax-free contributions will be limited to $2,500 per employee, per year. UPDATE 10/31 - The IRS issued Notice 2013-71 that effective immediately allows individuals to carryover up to $500 each year in their FSA. This change is not mandatory for employers. Employers may choose whether they implement the change and when to implement it. Because of the change, employees may now be more interested in using FSAs to reduce out-of-pocket costs.
- HRA, HSA, and FSA - Changes Under Health Reform (Source: ZaneBenfits)
- Should Your Company Choose a Defined Contribution Health Plan? (Source: The Bailey Group)
Employers who make contributions to a HRA, HSA or FSA will not satisfy the minimum essential health benefits requirement as defined under the share responsibility provision. Employers will need to evaluate the different costs and configurations of combining high deductible plans, metal levels plans, no coverage and/or a contribution plan. How the plans fit with human resource goals should also be considered.
Private health insurance exchanges are a rapidly growing alternative to the federal or state run exchanges. A private exchange is an online marketplace that lets employees shop for a variety of insurance products and plans, including health, dental, vision, life, auto and home. Through the private exchange, the employer provides a defined contribution that is set aside for the employee's health care coverage. The employee then adds their salary-deferred contributions and selects the coverage options that best fits their needs. The exchange serves as the HR administrators for the employer by managing the accounts and enrollment process.The employer is still eligible for tax deductions and the employee contributions are pre-tax monies.
The private exchange option provides the employer greater control over health care costs. The employer can budget for contribution increases rather the market determining what the increase will be each year. It also provides for greater transparency of the employer contributions. In-house HR costs will be reduce and employee options will be increased.
- Are you Ready? Private Health Insurance Exchanges are Looming (Source: Accenture)
- On Private Health Exchanges, Choice Drives Satisfaction (Source: SHRM)
- Private Health Insurance Exchanges: Alternative Strategies for Employers (Source: Venable LLP)
Employees who are categorized as higher risk may see higher insurance costs since they would be purchasing insurance as an individual, rather within a specified group risk pool. The employer must make sure the coverage provided does meet the affordability requirement for health coverage. Communicating and educating employees about the changes and individual choices will be critical. Work with the exchange to provide education that increases employee health literacy.
To avoid many of the sweeping ACA requirements, employers could choose to provide health benefits through a self-insured plan where the employer assumes the risk for employee health care costs beyond the employee's plan contributions. Traditionally large employers with at least 1,000 employees used this option to reduce costs. However, the ACA does exempt self-funded plans from many of the mandates, such as providing the essential health benefits package and paying state health insurance taxes. These exemptions are making self-funded plans more attractive to smaller employers. With a self-funded plan, the employer carries the risk of health care claims directly and manages claim payments as cash flow. To help reduce risk, employers may purchase stop loss insurance to protect from unexpected high claims for individual employees and for the employer.
Self-funded plans are touted to be more flexible for designing a plan that best suits the workforce. They provide employers with past data on employee benefit usage and greater employer control over wellness programs. Self-funded plans also expose employers to increased risks. For example, if company sets their stop loss levels too high, the business may not be able to meet obligations to pay employee claims. Furthermore, the company automatically becomes part of litigation over claims, rather than passing that role onto an insurance provider. Additional staff may be necessary to manage the claims or the employer may need to contract with an independent third party administrator (TPA) to manage the fund and meet ERISA regulations.
- Some Small Businesses Choose to Self-insure (Source: USA Today)
- Healthcare Reform: Self-funding Pros and Cons (Source: Entrepreneur)
Arguments for and against the applicability of self-funded plans for small businesses vary considerably. On the positive, employers have reportedly reduced their health care costs by 20-30 percent and have greater flexibility to design a plan that fits their needs. Negative concerns center on the increased risk exposure of the small employers for greater cash outlay due to higher than planned claims, too high of stop loss and legal fees. Self-funded employers will also see increased administrative costs and fiduciary requirements that must protect individual rights. Finally, self-funded plans are best suited for a young, healthy workforce that has low usage rates, as compared to families and older employees. Regardless of how healthy employees may be, owners do need to consider employee lifestyle and behaviors outside of the work place. In a self-funded plan, the employer assumes greater risk. If there are significant financial claims, these could lead to the failure of the business. It is recommended that all companies conduct an independent third-party health-risk assessment to assess potential health risks and employer claims risk. Some states are considering legislation that deters small employers from seeking self-funded options.
Employers who pre-empted the "pay or play" ruling by reducing staff made a lot of headlines earlier in 2013. Their actions were attempts to reduce a portion of their full-time staff to part-time and decrease or eliminate the health coverage requirement. For employers who are interested in maintaining staff and growing their company, some creative options may include:
- Sharing employees within industries that have flexible hours and close proximity (i.e., restaurants, bars, retail).
- Temporary staffing agencies can be an alternative to permanent hires, depending on costs for the service.
- Independent contractors, use only if they meet the IRS Independent Contractor classification.
- Managed use of the part-time, seasonal employee "safe harbor" rules that provide a look-back period of up to one year before mandatory health coverage is needed. This can be extremely useful for businesses with high turnover.
- Separate entities and employees to reduce penalties. Although subsidiaries can function independently with the larger group provided coverage and the smaller staffed subsidiary not covered; penalties would be assessed for the smaller group only. However, aggregation rules may apply and could cause penalties to be incurred for the number of full-time employees in both entities.
The Unversity of Alabama Extension provides a video on things to consider if you choose to go small: Affordable Care Act of 2010: Q&As Segment 1.
Keeping track of part-time staff hours will be critical, especially if a business is near the 50 FTE threshold for activation of the pay or play provision. Potential risks include:
- If a part-time employee's hours are not monitored and they "accidentally" move into the 30 or more average hours, they then qualify for health-care. If this employee is receiving a health care subsidy through the individual exchange, you will be charge a penalty for that month, or until the situation is corrected - (Number of employees - 30) x 166.67 per month.
- If you have independent contractors who are determined to actually meet the full-time employee classification, a penalty of (number of full-time employees x $166.67 x number of months affected).
- Leased employees should not be under the obligation of the employer. If the leasing company qualifies as a large employer and they fail to provide their employees insurance, the employer may be obligated.
Information provided here is from a variety of resources managed by government agencies, professionals, organizations, and non-profits. The information is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal or state tax penalties.
There is no implied or intended endorsement by UNL Extension of any website, information, or videos provided within this website. Nor is there any implied endorsement by the creators of the information and videos used within this website to UNL Extension. Use of the information is for educational purposes only and is designed to serve as a starting point for you to further discuss your business options with an attorney, accountant, human resource (HR) consultant, or other advisor who is well-versed in the new health care regulations.
UNL Extension ACA Team
For questions or additional information, email: ACAbizNE@unl.edu
Phone: Marilyn Schlake (402.472.4138); Carroll Welte (402.374.2929); Jim Crandall (308.995.3889); Charlotte Narjes (402.472.1724)
Podcast: How the Affordable Care Act will Impact your Business
Scott Stevens, Employee Benefits Broker/Consultant at NPDodgeInsurance talks about the "Pay or Play" provisions of the ACA.
Audio recording - length 12:25
(Source: NPDodge Insurance & Vistage.com)
See also Scott's 9-25-13 blog on 10 Health Care Cost Reducing Strategies for Employers
Pay or Play Strategies Affect Employees
(Source: McGohan Brabender)
Examples on how health coverage strategies can affect employees differently.
Implementation & Strategy
(Source: Plante Moran)
To enlarge, click on the open square in the lower right corner of the video.
Future of Grandfathered Plans
In 2012, 58 percent of surveyed firms had at least one grandfathered plan, compared to 72 percent in 2011. Plan enrollment also reflected the decrease in grandfathered plans; 48 percent of covered workers were enrolled in grandfathered plans in 2012 compared to 56 percent in 2011. The most cited reason for the declining number of grandfathered plan:
See Exhibit 13.4 for additional reasons for the decline in grandfathered plans. (Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2012)