THE FINAL STEPS TO PAY OR PLAY WHAT EMPLOYERS NEED TO KNOW TO ENSURE 2014 COMPLIANCE Presented by Kathleen Wampold, Director of Compliance, Alliant March 12, 2013 AGENDA Introduction Pay or Play Updates Determining full-time status Regulatory forecast Key steps to 2014 compliance Questions 2 PAY OR PLAY - OVERVIEW Q. What is Pay or Play? A. Pay or play is a requirement for large employers. They must offer Minimum Essential Coverage which is Affordable and provides Minimum Value. The coverage must be provided to all full-time employees and their dependents by the 90 th day or risk penalties. Pay or Play is generally effective on January 1, 2014. 3 1
PAY OR PLAY - OVERVIEW Q. How are penalties triggered? A. Penalties are triggered if a full-time employee enrolls in a state exchange and qualifies for subsidized coverage. To be subsidy-eligible, the employee s household income must be between 100% and 400% of the Federal Poverty Level. 4 PAY OR PLAY LARGE EMPLOYERS Large employers have 50 or more full-time employees Calculate based on full-time employees (30+ hours) + full-time equivalents Controlled groups combined for purposes of determining large employer Government, tribal and church groups included Borderline employers use 6 month look-back in 2013 5 PAY OR PLAY AFFORDABLE Base plan must be affordable for employee - Safe Harbor Test: W-2 Method Annual cost less than 9.5% of year end W-2 (box1) earnings Additional Safe Harbors Rate of Pay Method Monthly cost less than 9.5% of hourly wage x 130 Federal Poverty Level Annual cost less than 9.5% of Federal Poverty Level for single household Employer uses same base contribution for all employees EASY 6 2
PAY OR PLAY AFFORDABLE Calculating the Federal Poverty Level contribution Employee contribution is less than 9.5% of Federal Poverty Level Continental US $11,170 x 9.5% = $1,061.15 Annual base employee contribution must be less than $1,061.15/year or $88.43/month Alaska $13,970 x 9.5% = $1,327.15 Annual base employee contribution must be less than $1,327.15/year or $110.60/month Hawaii $12,860 x 9.5% = $1,221.70 Annual base employee contribution must be less than $1,221.70/year or $101.81/month Calculations based on 2012 Federal Poverty Levels 7 PAY OR PLAY MINIMUM VALUE Plan provides a 60% actuarial benefit Safe Harbor: Plan design checklists pending Calculators pending ACTUARY NOT REQ D 8 PAY OR PLAY ALL ALL assumed to mean 100% of full-time employees ALL means at least 95%; not 100% (de minimus rule) Penalty is NOT triggered if coverage is offered to at least 95% of fulltime employees and dependents BIG DEAL 9 3
PAY OR PLAY FULL-TIME EMPLOYEES COMPLEX Full-time = employee working 30+ hours/week Complex Safe Harbor measurement method guidance released Employers using Safe Harbor begin Measurement s in 2013 Calendar year plans will need to begin by April-May 1st Standard Measurement can be shorter than Stability Hours worked outside US don t count toward 30 hour average Teacher breaks and other unpaid leaves (e.g., FMLA) don t count against 30 hour average Can t split employee s time with a contracting firm Employer must implement processes to monitor change in status Special rehire rules for determining hours of service 10 PAY OR PLAY DEPENDENTS Dependents include children under age 26 Child does not need to be a dependent of the employee Unclear if spouse coverage must be offered Spouse coverage is not required to be offered Assume domestic partner coverage also not required Child coverage does not need to be offered in 2014 as long as employer is taking steps to offer it in 2015 11 PAY OR PLAY PENALTIES $2,000 penalty per employee (less first 30) if: One full-time employee qualifies for subsidized coverage at a state exchange, and Employer does not offer Minimum Value Coverage Unclear if this penalty applies on a controlled group basis $3,000 penalty for each full-time employee that qualifies for subsidized d coverage at a state t exchange if coverage is not taff Affordable BIG DEAL Each entity is treated separately for penalty purposes If one entity fails to offer Minimum Value Coverage to its full-time employees, the $2,000 per employee (less first 30) penalty would apply to that entity only. The other entities do not pay a penalty if they comply with Pay or Play regulations. 12 4
PAY OR PLAY EFFECTIVE DATE Unclear if Pay or Play effective for all large employers on January 1, 2014 Non-calendar year plans effective date may be delayed d to BIG 1 st day of 2014 plan year if: DEAL They offer Affordable, Minimum Value Coverage to full-time employees by the 1 st day of the 2014 plan year, and Plan was in place on December 27, 2012, and Coverage offered to 1/3 of employees during 2012 open enrollment, or 25% of employees enrolled at 2012 open enrollment or on any date between October 31, 2012 December 27, 2012 Employee not defined. Assume includes all employees including parttime, seasonal, on unpaid leave (e.g., FMLA), etc. 13 PAY OR PLAY EFFECTIVE DATE Example 1 ABCco has a plan year that starts on June 1 st. ABCco does not does not offer coverage to employees that work less than 35 hours per week. At the end of their most recent open enrollment period (June 1, 2012) they offered coverage to 30 of their 100 employees. Of the 30 employees offered coverage, 26 chose to enroll during the 2012 open enrollment. Effective Date Evaluation Percent Eligible Calculation: 30/100 = 30% Fail (less than 33.33%) Percent Coverage Calculation: 26/100 = 26% Pass (at least 25%) Overall Results: Pass Delayed effective date is available Because ABCco passed one of the tests, they will avoid all penalties as long as they offer Affordable, Minimum Value Coverage to full-time employees by June 1, 2014. 14 PAY OR PLAY EFFECTIVE DATE Example 2 XYZco has a plan year that starts on December 1 st. XYZco offers coverage to salaried full-time employees, but not hourly full-time employees. At the end of their most recent open enrollment period (November 15, 2012), XYZco had offered coverage to 64 of its 200 employees. Of the 64 employees offered coverage, 48 were enrolled on December 1, 2012. Effective Date Evaluation Percent Eligible Calculation: 64/200 = 32% Fail (less than 33.33%) Percent Coverage Calculation: 48/200 = 24% Fail (less than 25%) Overall Results: Fail Delayed effective date is not available. Because XYZco did not pass one of the tests, they may have to pay penalties if they don t offer Minimum Essential Coverage which is Affordable and provides Minimum Value to all full-time employees by January 1, 2014. 15 5
PAY OR PLAY EFFECTIVE DATE Identifying your plan year Ideally plan year is identified in plan document (e.g., SPD) May not be the same as the policy (renewal) year In the absence of plan documents, defer to: 1) The deductible or limit year used under the plan 2) If the plan does not impose deductibles or limits on a yearly basis, then the plan year is the policy year 3) If the plan does not impose deductibles or limits on a yearly basis, and either the plan is not insured or the insurance policy is not renewed on an annual basis, then the plan year is the employer's taxable year, or 4) In any other case, the plan year is the calendar year Note: The rules listed above are not based on IRS guidance. They are based on guidance from a different federal agency. This is the best information available at this time. 16 Will you use the Safe Harbor or another method to determine full-time status (eligibility for benefits)? Full-time Part-time Seasonal Variable hour Temporary Part-time 1099 Independent contractor Full-time Part-time Monitor status on a monthly basis Not counted (generally) Use Safe Harbor + monitor status on a monthly basis 17 Employee Category Full-time Definition In 2014 Averages (scheduled) 30+ hours per week Offer benefits by 90 th day Part-time* Averages (scheduled) less than 30 hours per week Not required to offer benefits Seasonal* Temporary* Hired for a limited duration to cover a business cycle (e.g. ski season, holiday) Hired for a limited duration to cover a special project, LOA, etc. Not required to offer benefits, initiate Initial Measurement Not required to offer benefits, initiate Initial Measurement *IRS does not define part-time, seasonal, or temporary. 18 6
Employee Category Variable hour Ongoing employee Definition In 2014 Hours are variable and unable to determine if employee will work 30+ hours Not required to offer benefits, initiate Initial Measurement An employee that has completed at Continue ongoing cycle least one Standard Measurement of Standard. Once an employee is Measurement, ongoing, he/she is perpetually in a istrative, and Standard Measurement or Stability s. 19 Measurement framework Measurement istrative Time used to measure Time to calculate Employees averaging g average hours worked average employee 30+ hours offered 2 types hours, benefits can t be communicate with Standard: ongoing dropped if hours drop employees and employees 6-12 months allowed administer Initial: new enrollment Most employers will use employees* process 12 months and align 3-12 months allowed with plan year Up to 90 days Most employers will use allowed Limited longer durations *Employees with hours that vary, or that are seasonal or temporary. 20 Standard Measurement January 1 plan year 2013 2014 2015 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 1 st Standard Measurement 2 nd Standard Measurement 3 rd Standard Measurement 1 st Stability 2 nd Stability Transitional 1 st Standard Measurement (6 months), start measuring May 1, 2013. Future Standard Measurement s will be 12 months. istrative 2 months. Stability 12 months. Assume we start measuring all current employees. Guidance pending. 21 7
Standard Measurement October 1 plan year 2013 2014 2015 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 1 st Standard Measurement 2 nd Standard Measurement 1 st Stability No transitional relief. 1 st Standard Measurement, start measuring August 1, 2013. istrative 2 months (August 1, 2014 September 30, 2014). 12 months (October 1, 2014 September 30, 2015). 22 Initial Measurement May 5, 2013 hire 2013 2014 2015 May-13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 Jan 14 Feb 14 Mar 14 Apr 14 May 14 Jun 14 Jul 14 Aug 14 Sep 14 Oct 14 Nov 14 Dec 14 Jan 15 Feb 15 Mar 15 Apr 15 May 15 Jun 15 Initial Measurement Seasonal employee hired on May 5. Split istrative. 1 st part May 5, 2013 May 30, 2013. 2 nd part, June 1, 2014 June 30, 2014. Initial Measurement 12 months. Benefits begin July 1, 2014 if full-time (ave. 30+ hours) during Initial Measurement. 23 Initial Measurement May 5, 2013 hire 2013 2014 2015 May-13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 Jan 14 Feb 14 Mar 14 Apr 14 May 14 Jun 14 Jul 14 Aug 14 Sep 14 Oct 14 Nov 14 Dec 14 Jan 15 Feb 15 Mar 15 Apr 15 May 15 Jun 15 Initial Measurement Seasonal employee hired on May 5, 2013. Initial Measurement 12 months from date of hire. istrative May 5, 2014 June 30, 2014. 12 months. Benefits begin July 1, 2014 if full-time (ave. 30+ hours) during Initial Measurement. 24 8
Initial Measurement + Standard Measurement 2013 2014 2015 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Standard Measurement Standard Measurement Standard Measurement Initial Measurement Limited Stability Judy is a variable hour employee (<30 hours) hired on May 5, 2013. Employer has calendar year plan and started their standard measurement period on May 1, 2013. Initial Measurement is 12 months, beginning on date of hire. Judy is not full-time after Initial Measurement. 25 Initial Measurement + Standard Measurement 2013 2014 2015 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Standard Measurement Standard Measurement Standard Measurement? Initial Measurement Sandy is a variable hour employee (<30 hours) hired on May 5, 2013. Employer has calendar year plan and started their standard measurement period on May 1, 2013. Initial Measurement is 12 months, beginning on date of hire. Sandy is full-time after Initial Measurement. 26 Status change: Measurement not completed Part-time et al. full-time Offer benefits by 1 st day of 4 th month (e.g., change occurs 4/15/14, offer benefits by 8/1/14) Full-time part-time et al. Guidance pending. May be able to drop benefits and offer COBRA (re-evaluate evaluate during istrative?) Status change: Measurement completed Ongoing part-time full-time No change required. Employer could be more generous and offer benefits. Ongoing full-time part-time Benefits continue (re-evaluate during istrative ) 27 9
MNOco Case Study MNOco has a calendar year plan. Like most employers, they are choosing to align their with their plan year. We will look at how they measure four different employees during their 1 st Standard Measurement. Here are the key dates: Standard Measurement 2013 Standard Measurement : April 16, 2013 October 15, 2013 (6 months) istrative : October 16, 2013 December 31, 2013 : January 1, 2014 December 31, 2014 Initial Measurement Initial Measurement : 11 months from date of hire istrative : Any portion of month remaining after Initial Measurement ends + 2 months :12 months 28 How is Amy measured? Amy has been with MNOco for 5 years and is regularly scheduled to work 40 hours/week. Amy s Standard Measurement begins on 4/16/2013. 1/1/2014 12/31/2014 Amy is locked in as a full-time employee and offered benefits. If she enrolls, she cannot be dropped even if her status changes. Standard Measurement 4/16/2013 10/15/2013 istrative 10/16/2013 12/31/2013 Did Amy average 30 hours/week? 1/1/2014 12/31/2014 Amy is a part-time employee and benefits are not required. 29 29 How is Barry measured? Barry has been seasonal with MNOco for 5 years. He works between 30-50 hours/week during the holiday rush, which usually lasts from August January. Barry s Standard Measurement begins on 4/16/2013. 1/1/2014 12/31/2014 Barry is locked in as a fulltime employee and offered benefits. If he enrolls, he cannot be dropped even if his status changes. Standard Measurement 4/16/2013 10/15/2013 istrative 10/16/2013 12/31/2013 Did Barry average 30 hours/week? 1/1/2014 12/31/2014 Barry is a part-time employee and benefits are not required.. 30 30 10
How is Chris measured? Chris is a new variable employee hired as of as of 4/10/2013. He is scheduled to work 32 hours per week. Chris Standard Measurement begins on 4/16/2013. 1/1/2014 12/31/2014 Chris is locked in as full-time employee and offered benefits. If he enrolls, he cannot be dropped even if his status changes. Standard Measurement 4/16/2013 10/15/2013 istrative 10/16/2013 12/31/2013 Did Chris average 30 hours/week? This is less clear. We assume that Chris goes through same measurement period as Amy and Barry. 1/1/2014 12/31/2014 Chris is a part-time employee and benefits are not required. 31 How is Debra measured? Debra is a new, variable hour employee who is hired on June 15, 2013, after the Standard Measurement begins. Debra s Initial Measurement begins on 6/15/2013. 8/1/2014 7/31/15 Debra is locked in as full-time employee and offered benefits. If she enrolls, she cannot be dropped even if her status changes. Initial Measurement 6/15/2013 5/14/2014 istrative 5/15/14 7/31/14 Did Debra average 30 hours/week? 8/1/2014 7/31/15 Debra is a part-time employee and benefits are not required. 32 REGULATORY FORECAST Expect a tsunami of guidance in 2013 Minimum value calculator Extension of Exchange notice from 3/1 to around 9/1 How employers interact with Exchanges (1411 certification) More updates to Pay or Play Rules Plans subject to out-of-pocket limits SBC changes Mental Health Parity Act regulations HIPAA HITECH regulations (released mid-january) Whether HRAs can exist on a stand-alone basis Health FSA use or lose rule Proposed regulation on 90-day waiting period rule Non-discrimination testing Contraceptive coverage for religious employers 33 11
REGULATORY FORECAST Other changes New PCORI and reinsurance fee regulations New wellness program regulations Generally increase discount to 30% (50% if nicotine) Effective plan years starting ti on/after January 1, 2014 Seems to require reasonable alternative to qualify for reward for those that don t meet standard based on a test, measurement, or screening Seems to require external review to determine whether individual qualifies for reasonable alternative standard 34 KEY STEPS TO 2014 COMPLIANCE Pay or Play Step 1: Confirm large group status Step 2: Confirm controlled group status (if applicable) Step 3: Identify Safe Harbor method for affordable coverage (or choose to risk penalties) Step 4: If needed, understand how you will modify eligibility or workforce to cover at least 95% of full-time employees (or choose to risk penalties) Step 5: Ensure your plan covers children under age 26 by 2015 Step 6: Identify effective date of Pay or Play for your plan (1/1/2014 will be most common) 35 KEY STEPS TO 2014 COMPLIANCE Tracking Full-Time Employee Status Step 1: Evaluate your workforce Step 2: Identify method you will use to determine full-time status Full-time and/or part-time only Monitor employee status monthly Full-time and/or part-time + variable hour or seasonal or temporary Safe Harbor Step 3: Identify when you need to begin measuring employees If using Safe Harbor identify start date* *2013 For monthly method, start by your plan s 2014 Pay or START Play effective date Step 4: Begin tracking hours at 1 st Standard Measuring * along with Initial Measurement s as new employees are hired Step 5: Plan to monitor status changes in 2014 36 12
QUESTIONS Thank you for attending 37 13