Political, Pragmatic or Panic: Delay of major healthcare provision creates controversy and opportunity

In a July 2,2013 Treasury Department blog post, Assistant Secretary for Tax Policy, Mark J. Mazur stated” The Administration is announcing that it will provide an additional year before the ACA mandatory employer and insurer reporting requirements begin.” In other words the “pay or play” tax has been delayed for one year. Those commenting on sites from the Wall Street Journal to the Washington Post echoed similar sentiments of skepticism about the entire Affordable Care Act. Many people still don’t like the law or don’t think it will work. But there is more to this newest move than the general public can see.

The Austin Statesman brought up an important point, “Democrats are defending 21 Senate seats to the Republicans’ 14, and the GOP had already started to excoriate Senate Democrats who had voted for the health law in 2009.” Couple that with this statement from NBC News, “98 percent of firms with 200 or more employees (already) offered health insurance”. Delaying the “pay or play” tax will appease many business owners. The delay will give politicians up for election the appearance of being empathic to the needs of the public. And the delay will give Health and Human Services, the IRS and the Department of Labor time to focus on implementing the health insurance exchanges. It would be safe to say that this was a pragmatic move on the Administration’s behalf.

But what does this mean for large businesses (those with 50 or more employees). In his blog post, Assistant Treasury Secretary Mazur stated that more details would be coming soon. However he did state that reporting of insurance cost will be strongly encouraged. So employers are still being asked to report the amount of money that is being paid for employees’ health insurance. This will be reported on the employees’ W-2 in box 12.

Ask yourself why in the world the IRS wants to know how much you are paying for health insurance? Here is my opinion. If the IRS knows how much individuals are paying for insurance, that information can be used by the Health and Human Service Department and the IRS to set the “pay or play” tax at a rate that will more strongly encourage employers to offer a level of healthcare that the government sees as necessary. In other words, HHS and the IRS could set the $2,000 annual penalty at a higher rate to more strongly encourage employers to NOT drop healthcare coverage. Some employers see the $2,000 penalty as a cheaper option than paying for healthcare for employees. What if the penalty was $6,000 per employee, would that change the decision of employers to offer healthcare? If the IRS is asking for the cost information now, the government intends on using it for something.

The key opportunity for employers is not to delay decisions for another year. Look for ways to cut and control cost within the limits of the Affordable Care Act now. Use the delay in the “pay or play tax” to your advantage. For more information on cost cutting strategies that work within the limits of the Affordable Care Act now you can contact me through LinkedIn at http://www.linkedin.com/in/vanrichards/

Affordable Care Act Avoidance Strategy that Doesn’t Work

It was a little surprising this week (6/17/13) to read the insight of the Wall Street Journal’s Affordable Care Act panel of experts.  The WSJ posed this question “We’ve reported that some retailers and restaurant operators are hiring more part-time workers, or limiting part-timers to 29 hours per week, to avoid the insurance mandate.  How prevalent will these sorts of changes be?” None of the three panelist indicated that they understood the actual methodology that the IRS will use to define part-time employees.  The law does define a full time employee as one that averages 30 hours, but there is more to the definition.  David Marini, the managing director of strategic advisory services at ADP stated “there are organizations that are looking to limit the number of hours to below 30”.  Christine Eibner, an economist at RAND Corporation acknowledged “firms do make these types of structural changes to avoid requirements such as mandates”.  Kevin Kuhlman, a manager of legislative affairs at the National Federation of Independent Business said “we hear from members taking steps to reduce employee hours” and his solution was to increase the threshold above 30 hours per week.

Here is the point that they all missed. Part of the avoidance strategy is to avoid having 50 or more employees.  Remember that 50 or more employees is defined as a “large employer” and must comply with the mandate to offer healthcare to employees.   Just limiting employees to 29 hours will not work.  The 30 hour per employee limit is just part of the law.  In order to determine how many full time employees an employer has and what their average annual wages are, all employees are aggregated, full-time, part-time and leased employees, as defined in Code § 414(n).  Seasonal workers who work for the employer for more than 120 days of the year are also included as defined in Code § 45R(d)(5)

The calculation is done at year end but averages monthly.  Here is simplified example of how the calculation will work:

Example:

• 40 full time employees
• 50 part time employees working 29 hours a week. (50 x 29 x 4 = 5,800)
• Total of 5,800 hours for the month/120 (this number is statutorily given)
• 48.33 equivalent employees + 40 full timers
• 88 full time equivalent employees for the month (regulations tell us to round down)

There are other strategies to limit an employer’s healthcare expenses that work and limit penalties.  For personalized answers to your company’s healthcare questions you can contact me at www.linkedin.com/in/vanrichards/

Proper timing can keep the “C” Suite out of trouble with new healthcare mandates.

The sign “The Buck Stops Here” was on President Harry Truman’s desk in the Oval Office.  Truman exemplified the responsibility that is on the shoulders of every corporate executive today. Know what is going on in every department of your company and take responsibility for it.  The Affordable Care Act has increased the responsibility of corporate executives dramatically.  Health Insurance used to be a responsibility delegated down to middle management.  But health insurance is a significant part of an employee’s compensation and workforce compensation represents approximately 43% of the average corporate budget. So selection, implementation, communication and maintenance of employee benefits require proper timing and attention from the highest corporate levels.

Selection

You may be familiar with the new health insurance exchanges.  Currently those exchanges are just for small companies and individuals.  If your company is a large employer (100 or more employees) you may think that the Affordable Care Act does not affect your company very much.  Not true.  All companies must meet many new requirements. The Affordable Care Act requires that employees receive up to fourteen new notices. The first is the new Exchange Notice that employers must distribute to EVERY employee by October 1, 2013.

Healthcare expenditure in the United States represents about 20% of the economy.    With the government trying to control such a large part of the economy, every healthcare plan with every company will be affected.  Savvy executives understand that where there is change, there is opportunity. Private enterprise has developed strategies to compete very well with the new health insurance exchanges and take advantage of the many new regulations that are part of the Affordable Care Act.  Stanford University Professor of Law and Business, Daniel Kessler stated in the June 13, 2013 Wall Street Journal Op-ed “apples-to-apples assessment shows how much higher exchange-plan premiums will be”.  Current trends indicate that the cost of most healthcare plans will go up in price.  Self-insured healthcare plans that allow the employer to share in some of the risk and reward of insuring their group do offer a significant alternative.

Why should you be concerned?

Why should you be concerned about health insurance exchanges if your company is considered a large employer? If you are a large employer and offer a plan that is considered “unaffordable” for your employees AND they apply for insurance through the individual health insurance exchange, your company will pay a $250 per month penalty, per employee accepted to the exchange.  If you consider one of Professor Kessler’s most significant findings you can see one way that private enterprise will compete well with exchanges.  Professor Kessler noted that the first healthcare exchanges to show their plans achieved their lower cost by “designing the plans around much more limited provider networks”.  Self-insured plans allow companies to control the network of providers to better suit their overall employee desires.  Exchanges open on October 1, 2013 and many employees will be looking at how the exchange plans compare to what they have with their employer.  My own families plan is through the Texas Retirement System Active-Care.  This is a plan that covers 477,000 employees and dependents.  Our plan is going up by almost 30% in September!  We’ll be looking at the Federal Exchange.  With such a large expense all options are open for consideration.  If you would like to look at the alternatives available for your large group you can contact me directly through LinkedIn at: www.linkedin.com/in/vanrichards/

The media eye’s new healthcare strategy, and sometimes they miss the point.

http://www.vansblog.net The new healthcare law has left all employers looking for ways to comply. Offering a self-insured plan does offer employers a broader array of solutions. The example given in the May 20, 2013 Wall Street Journal article, Employers Eye Bare-Bones Health Plans Under New Law uses extreme examples of the strategy. But there are some industries that have to take that route to remain profitable. Employers that have low income employees are still doing a service to their employees by offering some sort of plan. Something is better than nothing. But it puts the healthcare system back in the same predicament as they are in now; low income workers go to public hospitals for free care. However, there are two points where the article communicates the wrong conclusion. First if an employee has credible healthcare available from their employer they will not qualify for insurance through the Exchange. If their employer offers coverage, there are only two ways for the employee to qualify for coverage from the Exchange. First, is if premium of the employer’s plan is 9.5% or greater than the employee’s income. The language in the law could be a loophole for the Exchanges if the government chooses to exploit it. The regulation reads as 9.5% of household income. If the government wants to prevent the exchanges from imploding by only covering sick people, they could enforce this language. The other way to be denied Exchange coverage is if the employer’s share of the coverage is greater than 60%. If coverage is less than 60% then the employee would qualify for the Exchange.

The second point that the article does not communicate correctly is in the Kaiser example. It states that the $9 an hour worker would have to pay as much as $90 per month for a midlevel plan. If the employee picked the low level exchange plan, that might meet the affordability requirement. The Affordable Care Act states that the employer can avoid penalties by offering employee only coverage that meets the two criteria, employee only coverage is less than 9.5% of household income and the employers share of the coverage is greater than 60%. If the employee chooses not to take the coverage then the employer does not pay the penalty.

Is your company keeping up with changes to the Affordable Care Act?

Is your company keeping up with changes to the Affordable Care Act, i.e. Obamacare?  If not here are a few provisions that perhaps you missed.  The Affordable Care Act was offering your company money.  The Affordable Care Act did provide $5 billion in financial assistance to employers to help them maintain coverage for early retirees age 55 and older who are not yet eligible for Medicare.

Did you apply for your assistance?  Regretfully that $5 billion dollars is completely obligated so the Early Retiree Reinsurance Program ERRP is no longer accepting applications.   If you missed that part of the new healthcare law you are not alone.

The Affordable Care Act not only created massive law changes that are extremely difficult to keep up with, but it also creates new professions to help consumers manage the maze of new health plans.  With the implementation of the Affordable Care Act is born the profession of the “navigator”.  The navigator will be employed by the government health insurance exchange and offer unbiased consumer assistance in selecting a health insurance plan.  The health insurance exchanges are primarily for individuals and employers with less than 100 employees.

To help larger companies manage the maze of new regulations, private industry is developing the profession of benefit compliance consultant.  Obamacare has given the ax to insurance brokers making their profession as obsolete as a switchboard operator.  With new regulations insurance companies are prohibited from considering insurance commissions as an expense. So if there is no commission, there is no broker.  For now, health insurance exchanges are for smaller companies.  Larger companies are forced to manage the multitude of regulations on their own or hire someone who is knowledgeable about the Affordable Care Act to help them navigate the maze.  To advise larger employers the financial industry has developed the profession of benefit compliance consultants.

Here are a few other developments that are important to know.

• The Small Business Health Options Program or SHOP Exchanges are the marketplace that small businesses will go to for health coverage in 2014.  At the beginning of April, the media reported that the SHOP exchanges will be delayed.  THAT IS WRONG.  This is the way it was supposed to work.  There will be bronze, silver, gold and platinum tier coverage.  Bronze is the lower level of coverage progressing up to platinum, the highest level of coverage.  Each tier was supposed to have multiple options.  The multiple options under each tier will not be available until 2015.  That is the only change.
• The four page summary of benefits of coverage’s or the (SBC) is now in effect.  Every plan renewing is supposed to have a four page summary of benefits distributed to employees.  That is supposed to be a simplified explanation of the benefits a plan has to offer.  My professional opinion is that this provision will have little effect on clearing up the confusion of the plans.  The plans are still too complicated and clearly explaining everything on four pages is doubtful.
• Non-Discrimination testing for insured plans has been pushed back.  The IRS is not clear on when that will be implemented.
• Plans with 200 or more employees were to have automatic enrollment under the Fair Labor and Standards Act (FSLA).  The Department of Labor was not clear on when this would be implemented.  It may push this back to 2015.
• Last but far from least is the “pay or play” penalty.  Large company plans, those with more than 100 employees will be forced to purchase health insurance on employees or pay a $2,000 per employee penalty beginning in 2014.  The Supreme Court ruling on this states clearly that the penalty will not be treated like a tax.  The government cannot file criminal charges for non-payment.  The government cannot file a lean on property for non-payment of the individual mandate.  How the IRS is supposed to collect the penalty is based on taxpayer refunds.  In paying the estimated tax, if the taxpayer has overpaid the refund will be reduced by the amount of the penalty.  The individual mandate will be taken from the refund.  How companies choose to comply with the individual mandate is yet to be seen.

For more updates please come back to this blog weekly.

Here’s to better profit$,

Van Richards