Health Insurance Reform

Play-or-Pay? The employer rule book to 2014 plan preparation May 2013

Plan preparation for 2014 is already under way and whether you are currently a small or large employer, it’s important to understand how large employer status is determined and whether or not the “play-orpay” mandate may affect you. At Sanford Health Plan, we understand this is a complex process and are here to provide you with the tools and resources needed to assist you with understanding the options you have.

Our employer rule book is designed to inform employers on what the “play-or-pay” mandate is; determining your small or large employer status by calculating both full-time and full-time equivalent employees, setting up measurement and stability periods for offering coverage, and understanding the penalties your company may be subject to if certain coverage requirements are not met.

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As part of the Patient Protection and Affordable Care Act (PPACA), beginning in 2014, employers who employ an average of at least 50 full-time employees, including full-time equivalents, will be required to offer affordable health coverage that provides a minimum level of coverage to full-time employees (and their dependents).

This includes for-profit, non-profit, educational organizations, government entity employers, collective bargaining units, and employers that are grandfathered, non-grandfathered, fully insured or self-funded.

What is considered affordable coverage?

Employer-sponsored health coverage is affordable if the employee’s cost for self-only coverage under the lowest cost option plan does not exceed 9.5% of the individual’s modified adjusted gross income, also known as MAGI. As an employer you can determine affordability based on 3 optional safe harbors(1):

1. Form W-2 – an employer may use the amount of an employee’s Form W-2 wages (Box 1) to determine the amount of income for the calendar year. If the employee only works part of the year, the wages are adjusted to reflect the period the individual worked.

2. Rate of Pay – an employer may use the employee’s rate of pay to determine if their income exceeds 9.5% of the cost of coverage. The rate of pay for hourly employees is calculated by taking the employee’s hourly rate of pay as of the first day of the coverage period (i.e., the first day of the plan year) and multiplying by 130 hours. The rate of pay for salaried employees is their monthly salary as determined by the employer using any reasonable method for converting payroll periods to monthly salary.

3. Federal Poverty Line – an employer’s coverage meets the affordability test if the required employee contribution for the calendar month does not exceed 9.5% of the monthly amount determined as the Federal poverty line for a single individual for the applicable calendar year divided by 12.

What is considered minimum value (MV)?

A group health plan provides minimum value if it is designed to pay at least 60% of the costs of coverage. Employers must use the minimum value calculator to determine this and Sanford Health Plan will also offer guidance.

The proposed rules provide these three optional safe harbors for employers to determine an employee’s MAGI in relation to cost of coverage. Further guidance is expected.

(1)

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How is large employer status determined?

The determination is made retrospectively; employees are counted in 2013 to determine applicable large employer status in 2014. A transition rule allows employers to choose a period consisting of six to twelve months in 2013 to determine their status for 2014. This calculation to determine employer status needs to be done annually.

Calculation of Employees:

1. Identify full-time employees working an average of 30 + hours per week, or a total of 130 hours of service per month.

FT Full-Time Employees

2. Identify part-time employees by adding all hours in each month of the lookback period, but no more than 120 per individual, then divide by 120.

Total Hours ____ Months in look-back period 120 ____ Full-Time Equivalents (FTEs)

3. Determine applicable large employer status by adding your full-time (FT) employees and full-time equivalents (FTEs) together.

____ (FT) ____ (FTEs) Total Full-Time Employees

Calculation of Employees Example: Company ABC has chosen a 6 month look-back period. They have 42 fulltime employees and need to determine their full-time equivalents and whether or not they will be considered an applicable large employer.

1. I dentify full-time employees working 30+ hours per week.

42 Full-Time Employees (FT) 2. I dentify full-time equivalent employees (FTEs) by adding all hours worked by part-time employees in each month of the look-back period, then divide by the number of months in the look-back period, and then divide that number by 120.

Month 1 800 hrs

Month 2 600 hrs

Month 3 720 hrs

Month 4 840 hrs

Month 5 800 hrs

Month 6 400 hrs

800 600 720 840 800 400 4160 total hours

4160 Total Hours 6 (number of months in look-back period)(2) 693.3 hours per month

693.3 hours per month 120 5.78 (always round down) 5 Full-Time Equivalents

3. D etermine applicable large employer status by adding your fulltime (FT) employees and full-time equivalents (FTEs) together.

42 (FT) 5 (FTEs) 47 Total Full-Time Employees

In this example, Company ABC is considered a small employer. If your company averages generally 50 or more total full-time employees then you are considered an applicable large employer.(3)

This number will always be whatever you as the employer chooses as your look-back period.

(2)

Through at least 2014, employers are permitted to use reasonable, good faith interpretation of “seasonal”.

(3)

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After determining your employer status, if you are considered a large employer, it’s time to setup measurement and stability periods for your ongoing variable hour and new hire employees to determine eligibility. Only variable hour employees who average at least 30 hours per week during your “standard” measurement period must be offered coverage during the “stability” period.

You will also need to setup an “initial” measurement and stability period for any new-variable hour or seasonal employee. That new variable hour or seasonal employee must be offered coverage during the “initial” stability period if they averaged at least 30 hours during the initial measurement period. That new-variable hour or seasonal employee will eventually transition into the ongoing “standard” measurement and stability periods.

Employers have the flexibility to choose a measurement period of three to twelve months, depending on what works best for your company.

For illustrative purposes below we chose a 12 month measurement period for ongoing employees.

Company ABC Variable Hour Ongoing Employee Measurement/Stability Period 12 Month “Measurement Period” (Calculate hours during this period to determine eligibility)

July 1, 2013–June 30, 2014

60 Day “Administrative Period” July 1, 2014–August 31, 2014

12 Month “Stability Period” (Coverage offered to eligible employees)

September 1, 2014–August 31, 2015

Coverage offered during the above stability period to all employees determined to average 30 hours/week during the above measurement period.

12 Month “Measurement Period” (Calculate hours during this period to determine eligibility)

July 1, 2014–June 30, 2015

60 Day “Administrative Period” July 1, 2015–August 31, 2015

12 Month “Stability Period” (Coverage offered to eligible employees)

September 1, 2015–August 31, 2016 Coverage offered during the above stability period to all employees determined to average 30 hours/week during the above measurement period.

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For illustrative purposes below we chose a 12 month measurement period for both variable hour ongoing employees and the new variable hour employee hired October 1, 2013.

Company ABC *NEW* Variable Hour Employee (Hired October 1, 2013) Measurement/Stability Period Ongoing Employee 12 Month “Measurement Period”

*New* Hire 12 Month “Initial Measurement Period”

(Calculate hours during this period to determine eligibility)

(Calculate hours during this period to determine eligibility)

July 1, 2013–June 30, 2014

October 1, 2013–September 30, 2014 (Always starts on date of hire)

60 Day “Administrative Period” July 1, 2014–August 31, 2014

60 Day “Administrative Period” October 1, 2014–November 30, 2014

12 Month “Stability Period” (Coverage offered to eligible employees)

September 1, 2014–August 31, 2015

12 Month “Initial Stability Period” (Coverage offered to new hire, if eligible)

December 1, 2014–November 30, 2015 Coverage offered to all employees determined to average 30 hours/week during the above measurement period.

Coverage offered to new hire if determined to average 30 hours/week during the above initial measurement period.

* New* hire is counted in both of these measurement periods.

Ongoing Employee 12 Month “Measurement Period” (Calculate hours during this period to determine eligibility)

July 1, 2014–June 30, 2015 Ongoing Employee

60 Day “Administrative Period” July 1, 2015–August 31, 2015

12 Month “Stability Period” (Coverage offered to eligible employees)

September 1, 2015–August 31, 2016

Coverage offered to all employees determined to average 30 hours/week during the above measurement period. The new hire is also counted here. If determined eligible, coverage would be extended from November 30, 2015 to August 31, 2016

12 Month “Measurement Period” (Calculate hours during this period to determine eligibility)

July 1, 2015–June 30, 2016

60 Day “Administrative Period” July 1, 2016–August 31, 2016

12 Month “Stability Period” (Coverage offered to eligible employees)

September 1, 2016–August 30, 2017

* New* hire is now synced into ongoing measurement and stability period.

Employees determined eligible at 30 hours/ week are offered coverage above.

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Large employers who fail to offer both affordable health coverage and a plan that meets minimum value to full-time employees (and their dependents) may be subject to a penalty.

What is the penalty? There are two penalties that a large employer needs to be aware of.

No-Offer (Sledge Hammer) Penalty: If an employer does not offer at least 95% of its full-time employees (and their dependents) the opportunity to enroll in an affordable and minimum value plan and at least one full-time employee enrolls in a qualified health plan through the Marketplace qualifying for a premium tax credit or cost sharing reduction, the employer must pay a penalty equal to the total number of full-time employees employed by the employer.

No-Offer Example 1

Company ABC has 250 full-time employees (0 full-time equivalents) and chooses to not offer coverage to at least 95% of its full-time employees (and their dependents).

Company ABC is now required to pay the No-Offer penalty.

Employee John Doe qualifies for a subsidy and purchases coverage through the Marketplace.

No-Offer Example 2

Company ABC has 250 full-time employees (20 are full-time equivalents) and chooses to not offer coverage to at least 95% of its full-time employees (and their dependents).

Company ABC is now required to pay the No-Offer penalty.

Employee John Doe qualifies for a subsidy and purchases coverage through the Marketplace.

How is the No-Offer penalty calculated?

• $2,000 annually or $166.67 monthly per full-time employee(4) • The first 30 employees are “free” and full-time equivalents (FTEs) are not included in the overall calculation.(5)

For example 1, Company ABC will have: • A n annual penalty of $440,000.00

250 full-time employees 30 “free” 220 $2,000 or • A monthly penalty of $36,667.40

250 full-time employees 30 “free” 220 $166.67

For example 2, Company ABC will have: • A n annual penalty of $400,000.00

250 full-time employees 30 “free” 20 full-time equivalents 200 $2,000 or • A monthly penalty of $33,334.00

250 full-time employees 30 “free” 20 full-time equivalents 200 $166.67

Full-time (FT) employees are those working 30 or more hours per week.

(4) (5)

Full-time equivalents (FTE) are determined by totaling the hours for all non-full-time employees for the month and dividing by 120.

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Under-Offer (Tack Hammer) Penalty: If the employer does offer its full-time employees (and their dependents) the opportunity to enroll in a plan, but one of the below occurs, the employer must pay a penalty equal to the total number of full-time employees actually receiving a premium tax credit or cost sharing reduction.

Example 1: Unaffordable Coverage is unaffordable. The cost of the single only coverage on their employer’s plan is more than 9.5% of the employee’s(6) income. If that employee enrolls in a qualified health plan through the Marketplace and qualifies for a premium tax credit or cost sharing reduction, a penalty will be triggered to the employer for that full-time employee.

Company ABC has 250 full-time employees and offers coverage to all full-time employees (and their dependents).

Employee John Doe and 19 other fulltime employees (20 total) qualify for a subsidy and purchase coverage through the Marketplace because their employer coverage was unaffordable.

Company ABC is now required to pay the Under-Offer penalty.

Example 2: Minimum Value Not Provided Coverage does not meet the minimum value (MV). The group health plan does not pay at least 60% of the costs incurred. If that employee enrolls in a qualified health plan through the Marketplace and qualifies for a premium tax credit or cost sharing reduction, a penalty will be triggered to the employer for that full-time employee.

Company ABC has 250 full-time employees and offers coverage to all full-time employees (and their dependents).

Employee Dohn Doe and 19 other fulltime employees (20 total) qualify for a subsidy and purchase coverage through the Marketplace because their employer coverage did not meet the minimum value.

Company ABC is now required to pay the Under-Offer penalty.

Example 3: Those 5% not offered affordable or minimum value coverage 5% of those who were not offered coverage may now come into play. Remember, to avoid the No-Offer penalty, an employer would need to provide coverage to at least 95% of its full-time employees and their dependents. However, here you are subject to the Under-Offer penalty if you only provide coverage to 95% of your full-time employees and their dependents. If one of those 5% of employees not offered coverage enrolls in a qualified health plan through the Marketplace and qualifies for a premium tax credit or cost sharing reduction, a penalty will be triggered to the employer for that full-time employee.

Company ABC has 250 full-time employees and offers coverage to 95% of its full-time employees (and their dependents).

Employee John Doe and 4 other full-time employees (5 total) qualify for a subsidy and purchase coverage through the Marketplace because they were in the 5% of employees that were not offered coverage.

Company ABC is now required to pay the Under-Offer penalty.

How is the Under-Offer penalty calculated?

• $3,000 annually or $250 monthly per full-time employee receiving a premium tax credit or cost sharing reduction.

• Full-time equivalents (FTEs) are not included in the overall calculation.

For example 1 and 2, Company ABC will have: • A n annual penalty of $60,000.00

20 full-time employees $3,000 or • A monthly penalty of $5,000.00

20 full-time employees $250

(6)

Recognizing the inability of employers to determine their employees’ total household incomes, the proposed regulation adopted this safe harbor to solely use the employee’s individual income.

For example 3, Company ABC will have: • A n annual penalty of $15,000.00

5 full-time employees $3,000 or • A monthly penalty of $1,250.00

5 full-time employees $250 15

The information provided in this document is for educational purposes only and not a substitute for professional advice. While Sanford tries to keep the information as accurate as possible, health care information changes rapidly and thus this information should not be relied upon as comprehensive or error free. In no event will Sanford be liable to you or anyone else for any decision made or action taken by you or anyone else in reliance upon the information contained in this document.

Sanford Health Plan is committed to providing informational pieces to help you understand the many layers of Health Care Reform and how it may impact your business. If you have any questions regarding the “play-or-pay� mandate, please contact our team at (605) 328-7000 or visit the Health Care Reform section of sanfordhealthplan.com.

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