In December, We Remember
As the end of the year quickly approaches, it is often a time to reflect on what has occurred. This past year has been a very exciting one at HR Strategies. We rebranded, brought on several new staff members, held some very important Management Training seminars, and even hosted an open house! Through it all we have tried to keep you, our reader, up to date and informed of important HR topics. This month we will be featuring a look back at some of the top blog posts of 2012! Of course what better way to start than with a look back at the regulations and timeline of the Patient Protection and Affordable Care Act, as it affects all Americans and companies; and quickly became one of the hottest topics in business and HR this year.
HR Strategies is continuing to take a hard look at the health reform in order to provide some clarity and guidance regarding PPACA’s impact on our clients and businesses everywhere. This post will offer analysis and interpretation on the important factors/elements of PPACA, including a timeline of applicable changes.
Eligibility factor: Some of the provisions of the health reform are based on the number of employees. Companies with fewer than 50 employees will not be subject to the “Play or Pay” Mandate. The IRS has issued proposed regulations that provide for calculating the numbers of employees as follows:
Employees who work 30 hours per week are considered full-time employees. Part-time employees are “converted” to full time equivalent, based on a 30 hrs work-week. For example, a company that has 35 full-time employees and 50 part-time employees who work 15 hrs per week, would produce the following equation: total full-time employees (35 regular FT) + 25 full time equivalents (50 part-time@15 hrs. week) = total of 60 employees. Therefore, the “Play or Pay” mandate would apply to the company.
Bear in mind, there are lookback and stability periods, which means that the determination is based on a lookback period of time (typically the prior 12 months before plan year effective date) and a stability period, which is based on volume or spikes in hiring within a set time. Temporary and seasonal employees will typically count against the total number of full-time equivalents, especially if those positions are on-going. There are exceptions to this rule: if the spike in hires is truly due to seasonal increases in volume, i.e., agriculture (harvest season), tourism (high-season), and after season is over the number again falls below the 50 employee threshold, then the “Play or Pay” mandate may not apply. All of these variables are still under consideration and await clarification from the appropriate agencies. Also, the IRS may revise its guidance in final regulations.
Considering the Impact of Play or Pay
Considering the impact of “Play or Pay”: By the time certain provisions of PPACA goes into effect, on 1/1/2014, the state sponsored exchanges (health insurance plans offered by the states and funded by Medicaid and employee taxes) may be a strong source of medical plan options for all employees. In theory, the exchanges would provide the employees alternatives in selecting health care plans. However, it is important that the employer calculates the cost to offer group health care or not. If the company is clearly under the 50 employees threshold, as explained in the preceding scenario, the employer is not “obligated” to provide insurance within the “adequate and affordable” requirements of the “Play or Pay” mandate. However, employers who are at or above the threshold must consider the following:
- Adequate: In general, the actuarial value of coverage provided in the group health plan must pay for a minimum of 60% of the benefit cost. Bear in mind that preventative services must now be covered at a 100% basis; there will be no pre-existing condition limitations and no annual or lifetime maximum benefits on essential benefits. Plans will also have to maintain coverage available to dependents up to age 26, regardless of dependent status. A company may choose to offer higher coverage and charge more for it, yet in order to do so, the minimum coverage option must be provided.
- Affordable: PPACA requires that the employee contributions towards coverage cost of employer sponsored health insurance cannot exceed 9.5% of the household income. However, the concept of “household income” has yet to be clarified by the IRS and other departments. For example: an employee makes $10.00/hr. for annual gross earnings of $20,800.00/yr. If we take the gross earnings (some experts are inclined to use net earnings, not gross) as listed on box 1 from the W-2, 9.5% of the household income would be $1,976.00. If the cost of employee only coverage is $400.00 per month and the employer pays 80% of the premium, or $320.00, the employee pays the remaining $80.00 per month premium, or 20%; then using the employee contribution/cost per month and gross wages annual calculation, the employee contribution would fall below the 9.5% of household income calculation ($960.00/yr.), satisfying the “affordable” requirement. Again, if we were to assume a net income of approximately 30% less than gross earnings, or $14,560, then the 9.5% of the w2 wages would equal $1,383.20. If the company contributed 50% of the premium, rather than 80%, the employee portion of the premiums would far exceed the 9.5% household income threshold. That means, the plan would not satisfy the “affordability” requirement.
- “Pay” factor: If we use the latter example, then the group health coverage does not satisfy the “play” requirement, and thus the employer will have to “pay”. Employers will need to evaluate the impact of these penalties, and whether it makes more financial business sense to try to meet the “adequate and affordable” requirements, or simply pay the penalties. An employer will pay an excise tax in each one of the following scenarios:
- An employer chooses not to offer a group health plan, and at least one full-time employee enrolls in an exchange and receives the premium tax subsidy: The excise tax is applied by full-time employee, not by full-time equivalent. Therefore, the employer will be required to pay $2,000 per full-time employee, excluding the first 30 employees. In the example used to explain eligibility, we identified 35 eligible full time employees. Thus, the employer would have to pay $10,000 in excise tax for the 5 employees after the first 30 are excluded. Keep in mind; however, that the proposed regulations on how to count employees may change.
- An employer’s plan is deemed “not affordable” (as shown in (2) above) and one or more employees qualify for Federal subsidy to purchase exchanges: The employer will be required to pay $3,000 per employee who qualifies for a Federal tax subsidy. An employee qualifies for this subsidy if the employee’s annual household income is at or below 400% of the Federal poverty level. To put it in perspective, a family of four whose household income is at or below $88,000/yr. would qualify for Federal subsidy.
Other PPACA Changes & Timeline
Please note that many of the processes discussed in the above paragraphs, along with those mentioned below, will require further clarification and interpretation from agencies, such as the Department of Labor, The IRS, and Health and Human Services. Rest assured, HR Strategies will keep you both updated and in compliance every step of the way.
|Change||Effective Date||Employer Size||Comments|
|New Flexible Spending Account Limit||1/1/2013 for calendar year plans||All Employers sponsoring FSAs||Employees may contribute up to $2,500.00 to their health FSAs. In the case of both spouses working, the limit is applied by employee, not to exceed $5,000 if filing jointly.|
|Reporting Cost of benefits on W-2s||Due 1/31/2013 for Tax Year 2012||Employers issuing 250 or more W-2s||Since HR Strategies clients receive their W-2 from us, cost of benefits will be included in the 2012 W-2s. The reported cost will include group health plan premiums (employer and employee contributions) that are COBRA eligible.|
|Uniform Summary of Benefits and Coverage||Open Enrollment and plan year effective date on or after 9/23/2012||All Employers with group health plans||HR Strategies is working with our carriers to develop these SBC. If an employer is not part of the HR Strategies Master Plan, it is imperative that the client coordinates with their carrier and broker to ensure the SBC is prepared timely.|
|Auto-Enrollment||1/1/2014 or later (pending guidance)||200+ employees||Employers will be required to automatically enroll their employees into the group health plan within 90 days of employment. Further guidance is expected.|
|Non-Discrimination Testing||TBA||TBA||This requirement will probably meet the same guidelines of retirement plan reporting via 5500 (100+ employees)|