Many media outlets have presented histrionic reports about the “burdens” the Patient Protection and Affordable Care Act (ACA) will place on employers. But, Joe Ellis, senior vice president at CBIZ Benefits and Insurance in Plymouth Meeting, Pennsylvania, does not think the taxes or administrative expenses and obligations will be that bad. “There’s a large cohort of plan sponsors that offer health insurance and offer it to full-time employees, and the vast majority of plans are affordable to employees,” Ellis told PLANSPONSOR.
Ellis explained that the definition of full-time employee—which plan sponsors traditionally considered as one who works 40 hours per week—is changing under the ACA to one who works 30 hours per week, so employers may have higher health care costs because of the increase in number of eligible employees. The law also requires that the cost of coverage for the employee is affordable. Ellis explained that affordability is based on whether the cost of coverage for the employee exceeds 9.5% of the employee’s income. “Based on our clients, most employers offer plans that are less costly than 9.5% of the lowest-paid employee’s income,” Ellis said.
He noted that it’s a simple calculation for employers to look at the lowest-paid employee’s income and determine affordability. For example, if the lowest-paid employee earned $20,000, 9.5% is $1,900 per year. If the plan exceeded $73 every two weeks for single coverage, that would violate the affordability rule. Ellis added that there is no definition in the law that would get an employer in trouble for the cost of family coverage, but he thinks it is very likely it will expand to family coverage.So, if employers have more than 50 employees, they need to make sure of two things: Are they offering coverage to everyone who works 30 hours or more, and is it affordable? If both tests are met, there are no adverse tax consequences to those employers.
Where this may get difficult is with employers whose workers do not maintain consistent hours. However, Ellis notes that the rules allow employers to use 2013 as a look-back period for determining whether an employee is part-time or full-time (see “SECOND OPINIONS: Full-Time Employee and Waiting Period Guidance – Part II”). So, if an employer determines an employee who worked 25 hours per week in 2013 is a part-time employee, in 2014, the employer gets a safe harbor in treatment of that employee, even if he works more than 30 hours per week.
Ellis pointed out that some employers are reacting to the ACA by deciding to give employees extra money, send them to a state-run or federal exchange and pay the tax penalty of $2,000 per employee per year, excluding the first 30 employees. In the first year that may be cheaper, but Ellis noted that the penalty is supposed to increase with the rate of inflation each year, so, looking out a couple of years, it may not be cheaper to pay the penalty.
In addition, he points out that when employers send employees to an exchange, they have no control over what wellness and employee health risk-management the exchange provides. Employers may want the opportunity to affect employee health for other reasons, such as improved productivity.Employers want to know what they need to think about now. Ellis said they should ask: “Does my plan meet the eligibility, affordability and nondiscrimination requirements? If not, what are the penalties associated with noncompliance and the cost to bring the plan into compliance?”
He suggests employers consider a “Health Care Reform Preparedness” study that considers:
- Any risk areas from a review of the employee census and handbook, and the health plan benefits summary to identify any risk areas;
- The plan’s eligibility hours requirement;
- The plan’s eligibility waiting period requirement (Ellis said, generally, the waiting period can be no more than 90 days);
- Whether the plan meets the premium affordability requirement;
- Whether the plan meets the minimum value requirement (a plan fails to provide minimum value if the plan covers less than 60% of the total allowed costs of benefits provided under the plan) and whether it covers essential health benefits (see “SECOND OPINIONS: Which Health Plan Benefits Are Essential Under PPACA?”); and
- Whether the plan meets the benefit nondiscrimination requirement (Ellis explained that under the law, executives and senior management cannot get better benefits than others; however, he noted that no guidance has been issued yet about this provision).
Ellis said employers should be aware and be in contact with their brokers or consultants to make sure any additional regulations do not change these premises.
“Even if you think you are in really great shape, just have someone do an analysis to confirm that,” Ellis advised. “Look at the plan document and summary of benefits and coverage to make sure it’s adequate.”Ellis added: “We are not only a consulting firm, but also an accounting and payroll company. The new law is a benefits, payroll and tax issue, so we feel can bring an array of help to plan sponsors.”