As featured in – Los Angeles Business Journal
The Health Care Reform Bill—a quick overview for the busy executive curious about compliance
I meet with a lot of employers who ask me to “bottom line this thing” for them. Often, executives who don’t have time to get into the weeds of the legislation, will see me in their hallways, and take advantage of our time together to ask me some high level questions about their compliance. It’s a big piece of legislation—and certain rabbit holes can be especially ethereal. However, for the purposes of a general overview, I’ve compiled an “FAQs” of sorts. If anything here piques your interest, you may want to call your broker/advisors, or at the very least, shoot HR a quick “hey, are we doing this?” email.
First of all—offering insurance. Technical “employee count” can get a little wonky, but for the most part, you should know if you have 50 employees. If you are under 50 employees, you have no new requirements to offer insurance. In other words, the legislation does not impose that requirement upon you. As was the case in the “pre-ACA world” (aka 2010 and prior), employers will want to consider offering insurance mainly for the purposes of recruitment and retention. If you do have 50 or more employees at your company, you will probably want to offer insurance. Obviously “recruitment and retention” can depend somewhat on your industry, but for the most part, an employer choosing to pay the fine is a bad bet. Not only are you at risk of seeing the higher level talent pool go to competitors, but you will be paying a pretty hefty fine as well. The fine is not tax deductible, it is indexed every year, and this year’s penalty is $2,160 per year, per person. You can deduct 30 people from the amount you’re ultimately fined on, but even still, after paying a couple thousand dollars per person to the government in a non-deductible fashion, you’ll probably be feeling a little sting there—let alone any troubles you might see in attracting/keeping top candidates.
So, if you do offer insurance, what type should you offer? Well, for compliance purposes, you need to make sure the plan is at least robust enough (from a coverage standpoint) by ensuring its “Actuarial Value” is at least 60%. In addition to the type of plan, you need to be compliant with its “Affordability” –aka how much you deduct from employees’ paychecks to sign up for your plans. Long story short, you need to have at least one option in your portfolio that is within 9.5% of the employee’s income. In other words, it doesn’t matter what they ultimately sign up for, and any “higher cost” buy-ups are fine, so long as an option at least existed for the employee to get self-only coverage at a premium that does not exceed 9.5% of his/her income. Note I said “self-only” coverage—in other words, the legislation doesn’t care how expensive it is to add a spouse or children.
Once you know what type of coverage you’ll offer, and the price points for those plans, you need to know which of your employees you will offer the coverage to. Most employers have a mix of part time and full time employees, so your overall roster of people will have a division of some people that do get offered insurance, and some people who are told they’re not eligible. Determining eligibility for the plans is actually pretty complicated, so the only thing I’ll say about this is that you do not want to mess this up. The most expensive mistake an employer can make would be to pay for insurance, but not get the eligibility correct, because you’ll end up paying the costly pay or play penalty on top of all of your premiums. Make absolute sure that someone, somewhere at your organization is an expert in tracking employee eligibility.
Those are the main aspect of the employer’s responsibility. Apart from this, you will want to be sure your reporting is going well. Most companies are leaning on their payroll vendor, but between them, your benefits advisors, or your HR team, the last piece of compliance you’ll want to check on is making sure your reporting went smoothly.
This is just enough information to make you dangerous—as I mentioned at the top of the article, there is so much complexity that to dive deeper is really another conversation for another day, but hopefully this overview gets the right conversations started.