When it comes to HR and regulatory compliance, what you don’t know really can hurt you.
This is especially true when it comes to health care reform. With so many moving parts and delays, it’s been understandingly difficult for employers to figure out exactly what their responsibilities are when it comes to the Affordable Care Act (ACA). If you aren’t 100% confident that your business is compliant with the many rules and regulations, you may be leaving yourself open to thousands of dollars in potential noncompliance penalties.
Last week, two of G&A Partners health care reform experts took employers on a deep dive into the employer provisions and mandate of the Affordable Care Act, and discussed a number of possible strategies employers can take advantage of now to mitigate the impact health care reform has on their business in 2016 and beyond. [To watch the presentation in its entirety and download the presentation slides, click here.]
Let’s start with some of the basics, including an overview of the big-ticket items that are changing next year:
- Definition of an “Applicable Large Employer”
By law, the employer provisions and mandate of the Affordable Care Act only apply to what are defined as “applicable large employers” (ALEs). While employers with fewer than 100 full-time equivalent (FTE) employees were granted transition relief in 2015, beginning in 2016 all ALEs with 50 or more full-time equivalent employees will be required to comply with the ACA’s employer provisions and mandate.
- Minimum Essential Coverage (MEC) requirement
Under the Tier 1 penalty of the ACA, employers are required to offer minimum essential coverage to at least 95 percent of their full-time employees (and their dependents defined by the ACA as children to age 26). As part of the transition relief provided to employers in 2015, 70 percent was substituted for 95 percent. That number will increase back to 95 percent beginning in 2016.
- Affordability requirement
The IRS is in charge of adjusting the threshold percentage for determining whether health coverage offered by an employer to an employee is considered “affordable.” Beginning in 2016, the threshold percentage will increase one-tenth of a percentage point (from 9.56 to 9.66). This means that, beginning in 2016, health care plans will not be considered affordable if an employee’s contribution to the plan for employee-only coverage exceeds 9.66 percent of the employee’s household income.
Determining your risk factor
Now that we have a big-picture view of the changes going into effect, let’s look at how employers can determine their level of risk and pain when it comes to health care reform. The chart below offers a visual checklist for employers to use to figure out where they fall on the cost spectrum – employers who fall more into the green area are at less risk of incurring significant costs or penalties; employers that fall more into the red area are at a higher risk of incurring significant costs.
There are a number of strategies employers can use to navigate the costs and complexities of health care reform and mitigate the effect the ACA has on their business, including:
- Reducing the number of full-time employees on staff to fall below the 50-employee threshold.
This is seemingly the least complex of all the available strategies. If an employer doesn’t have more than 50 full-time or full-time equivalent employees, then they are not considered an ALE. Employers that are on the cusp of reaching ALE status and choose to go this route should be careful, however, and should still come up with some sort of tracking/monitoring mechanism in order to ensure they stay within their intended goal.
- Employing the “measurement period” concept to seasonal and variable-hour employees.
As illustrated by the chart above, employers with very stable workforces whose employees’ hours don’t widely fluctuate have less difficulty determining whether their employees meet the 30 hours per week requirement for an offer of coverage. Employers with a high number of variable-hour employees may find this process more difficult, which is why the ACA established measurement and stability periods. Employers who choose to use measurement periods can set these periods for as short as three months, or as long as 12 months. A longer measurement period is often attractive because it may reduce the number of plan-eligible FTEs based on the hours worked over this extended period of time. Employers should keep in mind, however, that longer measurement periods must, by law, be accompanied by longer stability periods, which could mean an employer may be required to continue covering someone long after they’ve changed to part-time status.
- Engaging and educating (NOT influencing) Medicaid- and Medicare-eligible employees as to what their options are.
It is perfectly ok (and even encouraged) for employers to let employees who are eligible for Medicaid or Medicare know about their options. Choosing Medicare or Medicaid over an employer-sponsored plan can prove to be a much better choice for an individual, and it has the added benefit of lowering an employer’s overall plan costs. Employers need to be very careful, however, to not go beyond educating employees about their options.
- Offering only one minimum qualifying and affordable plan.
Under the ACA, only one of an employer’s plans needs to meet minimum qualifying and affordability requirements. As long as just one plan meeting these requirements is offered to employees, an employer is safe from penalties.
- Offering a minimum value plan (MVP) alongside a minimum essential coverage (MEC) plan.
Minimum value plans are designed to meet the minimum requirements of the employer mandate. Minimum essential coverage plans are designed to provide the minimal coverage an employee needs to meet the requirements of the individual mandate. While these two types of plans are certainly the lowest cost options, only offering an MEC plan is not necessarily an advisable course of action. MEC plans are relatively “skimpy” plans that could saddle an employee with significant out of pocket expenses if they encounter a serious and expensive medical condition, and could even lead to bankruptcy. Instead, employers who want to offer MEC plans should also offer other plan options. If an employee still chooses an MEC plan, then the responsibility remains with the employee.
- Offering qualifying coverage that isn’t necessarily affordable.
Alternatively, you could quit worrying about making your coverage affordable and just focus on making sure it fits the requirements of qualifying coverage. While this strategy might leave an employer open to the “softer” Tier 2 penalty, it will protect employers from the more significant, “harder” Tier 1 penalty.
- Not offering (or surcharging) for spousal coverage.
While limiting/excluding spousal coverage would have been unheard of just ten years ago, today it’s becoming more and more accepted and common. Per the ACA, an employer is only required to provide coverage for its employees and their eligible dependents (defined as children to age 26). If completely excluding spousal coverage is not feasible, an employer could also consider surcharging for spousal rates if the covered spouse is eligible for coverage through his or her own employer.
Employers can pick and choose among any of the strategies above, or use any combination of the above, in order to reduce their costs. Each strategy comes with its own sets of pitfalls and caveats, however, and employers should thoroughly consider all of the ramifications of any strategy they choose to employ.
For a more in-depth review of each of these strategies and more, watch the recording of our “Preparing For The Affordable Care Act in 2016” webinar below:
The Affordable Care Act: Preparing For 2016 & Beyond from G&A Partners on Vimeo.
G&A Partners, a leader in the HR outsourcing and Professional Employer Organization (PEO) industries, has been keeping our clients compliant with federal, state and local regulations for more than 20 years. Our team of ACA and HR compliance experts can help you identify potential concerns and create a plan to help your business comply with all applicable ACA regulations, and ensure you stay compliant with any future changes.
Schedule your free business consultation today to learn how G&A Partners can help your business navigate health care reform by calling 866-634-6713 or visiting https://www.gnapartners.com/contact-us/.
This article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.