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Smart Business May Insight 2013

1 May 2013 Posted by Danone Simpson Press No Comments

How employers should treat new hires under the PPACA’s employer shared responsibility rule

By Tobias Kennedy

Under the Patient Protection and Accountable Care Act (PPACA), large employers may know that to avoid penalties, they need to offer coverage that is affordable and qualified to full-time staff. But how do you treat a new hire to fold him or her into full-time staff so the employer shared responsibility rule can be applied?

Smart Business spoke with Tobias Kennedy, vice president of Sales and Service at Montage Insurance Solutions, about how to handle new hires, in the final of a three-part series on the employer shared responsibility provision.

When must health coverage be offered to new hires?

Per the PPACA, new hires must be offered coverage within 90 days if you reasonably expect the person to be full time. However, if, at the time of hire, you cannot reasonably predict whether the person will be full or part time, you can submit the employee to a similar set of measurement/stability periods as the full-time ongoing staff. (For more information on ongoing staff measurement/stability periods, see the second article in this series.) The term ‘standard measurement’ was created to distinguish ongoing staff from what you can use for new hires, which is called an initial measurement period.

How does the initial measurement period work?

Like the standard measurement, the initial measurement period must be continuous months of between three and 12 months. Also, you have an administration period and an associated stability period where, as long as the person remains employed, you treat him or her according to the results of the hourly average from the measurement period.

What administration period rules need to be satisfied for new hires?

First, the period is no longer than 90 days — same as for ongoing staff. However, there is a caveat that the 90 days actually starts counting upon date of hire, keeps counting until you start your initial measurement period, where it pauses, and begins counting again for the period from the close of the measurement period through to the start of coverage. This is pertinent if you don’t measure from date of hire, such as beginning to measure the first of the month following date of hire, so some days between hire date and measurement beginning are deducted from the total 90-day allotment.

Also, the administration period when added to the initial measurement period cannot exceed the first of the month following 30 days of an employee’s anniversary. The longest an employee can possibly go from date of hire to coverage effective is 13 months and some change.

How does the stability period operate for new hires?

Like the ongoing staff, if a 12-month measurement period is chosen, then a 12-month stability period must be chosen. So, if an employee were hired on May 15, 2014, the employer would use a 12-month initial measurement period beginning the first of the month following date of hire, June 1, 2014, to May 31, 2015. Because the employee’s anniversary is May 15, 2015, the first of the month following 30 days of that is July 1, and the employer’s only option for administration is the month of June. If the new hire was deemed full time, he or she is offered coverage for a 12-month stability period beginning July 1, 2015, through June 30, 2016.

So, in this example, what happens with the employee on June 30, 2016?

The employee’s timeline runs from May 15, 2014, to June 30, 2016, so there is enough time for him or her to have eclipsed whatever time frame the employer uses as the standard measurement period for ongoing staff. If this new hire worked for an employer who measures ongoing employees from Nov. 1 to Oct. 31 every year, what happens to benefits on June 30 would be contingent upon the average hours worked from Nov. 1, 2014, to Oct. 31, 2015.

If the employee were full time during this time frame, the benefits would continue to the end of the year, per a 2016 stability period associated with that standard measurement period. If the employee was not full time in the standard measurement period but was during his or her initial measurement, benefits will continue through to June 30, 2016. And if the employee was not full time in either measurement period, benefits don’t have to be offered through the end of 2016.

It’s important to note that if an employee was not full time during the initial measurement but was full time during the standard measurement, you will need to add him or her to the benefits. So, in the running example, if an employee didn’t qualify based on June 1, 2014, to May 31, 2015, hours worked, but you re-measure according to your ongoing rules and find the person was full time during the Nov. 1, 2014, to Oct. 31, 2015 period, then the 12-month new hire stability period of not having benefits is clipped short. It’s replaced by the guarantee of benefits for the full 2016 plan year with an effective date of coverage of Jan. 1, 2016.

This can be complicated, but you should be fine as long as you work with a good consultant and utilize the tools your payroll vendor provides.

Tobias Kennedy is vice president of Sales and Service at Montage Insurance Solutions. Reach him at 1 (888) 839-2147 or [email protected].

Smart Business April Insight 2013

1 April 2013 Posted by Danone Simpson Press No Comments

How to use the PPACA’s safe harbor to determine which employees qualify for coverage

By Tobias Kennedy

The Patient Protection and Accountable Care Act (PPACA) has a number of employer provisions generally called the “employer shared responsibility.” So, with this responsibility, who, exactly, do you have to offer coverage to as full-time employees?

“It’s not always as easy as 100 percent of your staff sitting in a chair from 8 a.m. to noon, then again from 1 to 5 p.m.,” says Tobias Kennedy, vice president of Sales and Service at Montage Insurance Solutions. “The reality is employers will have project-based staff, variable-hour employees and other factors that make figuring out ‘full time’ slightly tricky.”

Smart Business spoke with Kennedy about the PPACA’s look back/stability safe harbor, in this second of a three-part series on the employer shared responsibility provision. The first article discussed how the penalties are triggered under employer shared responsibility.

How does the look back/stability safe harbor work?

This provision allows an employer to look at ongoing staff and make a technical calculation on whether or not a person is supposed to be offered benefits under the PPACA. The legislation applies month-to-month, but because the government realizes that a monthly application would be administratively crippling, an optional safe harbor exists where you can extend the length of time used to measure employee hours, and then that data determines which employees qualify.

For ongoing staff, you get three new time frames to calculate with: a measurement period, an administration period and a stability period.

What is a measurement period?

The measurement period is a time frame you get to select — it has to be continuous months and can last anywhere from three to 12 months. Obviously, the shorter the period, the more likely to have irregular spikes; the longer the period, the more it’s a true measure of an employee’s average.

Essentially, you simply define the period of time, and those are the months that an employer uses to calculate employee hours worked. For example, the employer might select a 12-month measurement period and choose to run it from Nov. 1 to Oct. 31 every year. In this case, the employer would look at the hours worked over this period of time to determine each employee’s average hours worked to see if it is more or less than the PPACA-mandated 30 hours — thus qualifying, or not qualifying, for benefits.

What’s involved during the administration period?

The administration period is where you, the employer, have time to evaluate the results of your measurement period, and take care of logistics. This period cannot be longer than 90 days. For practical purposes, this would be used to see who is benefit eligible, plan your open enrollment meetings, distribute benefit information and then collect/process all of the applications for the upcoming plan year.

Using the previous example’s time frame, an employer might have this period run from the end of the measurement period to the end of the year, e.g., Nov. 1 to Dec. 31.

Once an employer moves on to the stability period, what happens?

In the stability period, as long as an employee remains employed, employers must treat him or her according to whatever average the measurement period deemed them — either full time or part time — regardless of the hours worked. So, if an employee measured as full time during the measurement period, you have to continue to offer him or her benefits through the entire stability period even if hours dip lower, as long as the person is still employed.

The stability period has to be at least six months and also no shorter than the time chosen as the measurement period. So, in the example from before, because the measurement was 12 months, the stability period also needs to be 12 months. If employees were measured from Nov. 1, 2014, through to Oct. 31, 2015, the employer would enroll employees throughout the end of 2015 for their 2016 plan year.

Then, the measurement, administration and stability periods continue to go on, overlapping such that every plan year occurs back to back without a break, and each plan year’s eligibility is associated with the hourly performance of employees during the preceding associated measurement period.

In the final of this three-part series, we’ll discuss how to treat a new hire to eventually fold him or her into your employee hourly average calculations.

Tobias Kennedy is vice president of Sales and Service at Montage Insurance Solutions. Reach him at 1 (888) 839-2147 or [email protected].

Smart Business March Insight 2013

1 March 2013 Posted by Danone Simpson Press No Comments

How the PPACA’s employer shared responsibility penalties work

By Tobias Kennedy

The Patient Protection and Accountable Care Act (PPACA) has a number of employer provisions that all seem to fall, generally speaking, under an umbrella called “employer shared responsibility.”

Briefly, the PPACA mandates that large employers, those more than 50 employees including full-time equivalents, offer affordable coverage, which is that the lowest cost option for an employee is less than 9.5 percent of income. The coverage also must carry a minimum robustness — an actuarial value of at least 60 percent — to all eligible employees. If the employer doesn’t follow this, it must pay some kind of penalty.

Smart Business spoke with Tobias Kennedy, vice president of Sales and Service at Montage Insurance Solutions, about how these penalties are triggered, in the first of a three-part series on the employer shared responsibility provision.

How can the employer shared responsibility penalties be triggered?

The penalties are only triggered by an employee of yours receiving a subsidy to purchase an individual policy through the coming exchanges. And, employees are only eligible for a subsidy if they earn less than 400 percent of the federal poverty level and are not eligible for another qualifying coverage like Medicare, Medicaid (Medi-Cal) or a qualified employer plan.

How does the penalty for not offering enough coverage impact employers?

The way this fine is triggered is you, the employer, do not offer insurance coverage to at least 95 percent of your staff. The key words are ‘offer’ and ‘95 percent.’ If they decline, you are not at fault, and at 95 percent there is some minimal leeway. So if you fail to offer coverage to at least 95 percent of your people, and one of them goes to the exchange and gets a subsidy, you are fined. It’s important to note this penalty, like all PPACA penalties, is a non-deductible tax penalty — so finance teams really need to factor that in when evaluating costs.

This penalty’s costs are — pro-rated monthly for each violating month — $2,000 per year multiplied by every single full-time employee you have, which obviously can add up. The bill has a provision where you can, for the purposes of calculating the penalty dollar amount, deduct 30 employees from your full-time equivalent count. In other words, if you have 530 full-time employees, you’re fined on only 500 at $2,000 per person, per year for an annual fine of $1 million.

How does the affordability penalty work?

The second penalty, also non-deductible, centers on affordability. In this case, while you are still fined an annual amount that is pro-rated monthly, the fine is actually $3,000 annually but only assessed on people affected. It also is only up to a maximum of what you would have paid for not offering coverage at all.

It’s important to note that the employer is only going to be penalized on the people for which coverage is unaffordable. In other words, there are going to be times where you want to be strategic about this. You may have a situation where your employee/employer premium split is in compliance for most of your staff — where the dollar amount you ask the employees to pay for premium is less than 9.5 percent of most employees’ incomes. But, a couple of employees actually earn a smaller salary, so they are outside of the 9.5 percent. In this case, the employer needs to know it has a choice: Either raise your employer contribution or pay a fine on those couple of employees. Again, the penalty is only $3,000 per person affected, so it may be less expensive to pay those couple of fines than to completely restructure the way you split premiums.

Next, we’ll address how you know which employees qualify for coverage. A lot of employers have part timers, variable-hour people and project-based staff. So with all of these fines, it’s important to know exactly how you find the safe harbor of which employees qualify and don’t qualify for benefits.

Tobias Kennedy is vice president of Sales and Service at Montage Insurance Solutions. Reach him at 1 (888) 839-2147 or [email protected].