Reform School
2 Reform School Consolidated Sales
Remedial Math (or How to Count to 50): Size priorityhealth.com 3
Remedial Math (or How to Count to 50): Size 4 Reform School Consolidated Sales
Remedial Math (or How to Count to 50): Size priorityhealth.com 5
Remedial Math (or How to Count to 50): Size Counting Employees (Employer Size) Worksheet Starting in 2014, employers with 50 or more full-time or full-time-equivalent (FTE) employees must offer employees (and their dependents) an opportunity to enroll in minimum essential coverage, which meets certain comprehensive and affordability standards under an employer-sponsored plan. If such a plan is not offered, employers will be assessed a penalty (known as the pay-or-play provision). There are two conditions in which an employer must count employees: 1. To determine if they qualify as a large employer and have 50 or more full-time (or equivalent) employees 2. To determine if these employees qualify for coverage as full time (the law doesn t require coverage for part-time employees) Determining company size If an employer has 50 or more full-time (or equivalent) employees, the company is considered large and must offer benefits to full-time employees. (There s an exception for seasonal employees that says employers are not large if they exceed the 50 employee count for 120 days or fewer.) Full time means any employee who works 30 or more hours on average per week. How to calculate full-time equivalents Add the number of hours worked by all employees who are not full time and divide by 120. This must be done for every month in the prior calendar year, and also needs to be performed annually to see if your responsibility has changed. (Note: Transitional relief allows employers to use a consecutive six-month period for the first year.) If workforce exceeds 50 employees for 120 days or less, the employer can claim a seasonal employee exception. 6 Reform School Consolidated Sales
Remedial Math (or How to Count to 50): Size Counting Employees (Employer Size) Equations JAN FEB MAR APRIL MAY JUNE JULY AUG SEPT OCT NOV DEC Step 1: Determine full-time equivalents (FTEs) Total hours worked by non-full-time employees** Divide by 120 120 120 120 120 120 120 120 120 120 120 120 120 Total FTEs Step 2: Enter monthly amount of full time employees (30+ hours) Total Employees (add FTE and FT) ** Do not count more than 120 hours of service per month for any one employee Total employees for the year Divide by 12 Are you a large employer Y / N priorityhealth.com 7
Remedial Math (or How to Count to 50): Size Counting Employees (Employer Size) Case Study: Real Estate Management Co. This employer has multiple businesses under the same ownership including a golf course. The company has 20 full-time employees. Part-time employees hours worked are noted below for the previous year. Golf course JAN FEB MAR APRIL MAY JUNE JULY AUG SEPT OCT NOV DEC Total hours worked by non-full-time employees 500 500 1500 4000 4000 3600 1000 500 Divide by 120 120 120 120 120 120 120 120 120 120 120 120 120 Total FTEs Ski Hill JAN FEB MAR APRIL MAY JUNE JULY AUG SEPT OCT NOV DEC Total hours worked by non-full-time employees 1500 1500 1500 500 1000 1500 Divide by 120 120 120 120 120 120 120 120 120 120 120 120 120 Total FTEs Lodging JAN FEB MAR APRIL MAY JUNE JULY AUG SEPT OCT NOV DEC Total hours worked by non-full-time employees 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 Divide by 120 120 120 120 120 120 120 120 120 120 120 120 120 Total FTEs Questions: Is the employer a large employer? What is the average employee count for the last calendar year? 8 Reform School Consolidated Sales
Remedial Math (or How to Count to 50): Size Counting Employees (Employer Size) Case Study: A Cleaning Company This employer has 200 employees. Only 30 employees work 40 hours or more and are currently benefits eligible. Part-time employees hours worked are noted below. JAN FEB MAR APRIL MAY JUNE JULY AUG SEPT OCT NOV DEC Total hours worked by non-full-time employees 10,800 10,800 10,800 10,800 10,800 8400 8400 8400 10,800 10,800 10,800 10,800 Divide by 120 120 120 120 120 120 120 120 120 120 120 120 120 Total FTEs Questions: Is the employer a large employer? What is the average employee count for the last calendar year? priorityhealth.com 9
Remedial Math 102 (or Full-time = 30+ hours): Eligibility 10 Reform School Consolidated Sales
Remedial Math 102 (or Full-time = 30+ hours): Eligibility priorityhealth.com 11
Remedial Math 102 (or Full-time = 30+ hours): Eligibility 12 Reform School Consolidated Sales
Remedial Math (or How to Count to 50): Eligibility Counting Employees (Eligibility) Worksheet Full time under the ACA is defined as any employee who works 30 or more hours on average per week. Variable pay employees: These employees experience fluctuation in the hours worked and the employer cannot easily assess if the employee typically works 30 hours. There are special rules in the draft guidance on how the federal government is proposing to handle employees with variable pay. In this case, the employer can use a look-back measurement period of 3-12 months (at the employer s choosing) to assess which employees are full time on average and which are not. So the employer looks-back over the last 3-12 months to see if the employee, on average, worked 30 hours per week. Month 1 2 3 4 5 6 7 8 9 10 11 12 Hours worked If the variable hour employee is determined to be full time through the look-back period, the employee must be offered coverage for the SAME period of time as the look-back. For example, if an employer looks back for 12 months and assesses who is full time, the employer must then offer coverage to the full time employees for 12 months before assessing again. Employers must consistently use the same stability period, but can use different look-back measurement periods for: Collectively bargained agreement employees versus non-cbas Hourly versus salary Employees of different entities and Employees in different states Tips and Terms: Measurement period A period of 3-12 months (of the employer s choosing) used to determine which employees are full time Stability period Period of time that employees must be offered coverage regardless of hours worked during this period Administrative period Period between measurement period and stability period for employers to notify and enroll full-time employees Employers do not have a requirement to offer coverage to employees who work fewer than 30 hours per week. They may choose to do so but will not face a penalty for not extending coverage to part-time staff. priorityhealth.com 13
Remedial Math (or How to Count to 50): Size Counting Employees (Eligibility) Case Study: A Produce Distributor - Family business for three generations - Located in three states: Michigan, Arizona and Texas - 30 employees eligible for benefits today, office staff - 500 employees that work in the fields during busy season, variable hours Typical field employee in Michigan: - Legal worker, Michigan resident - Works 80+ hours per week during months of April-September - Average wages can be $40,000 for the season - Coverage is not offered - Employees return every year Arizona and Texas field employees: - Same as Michigan except work 80+ hours per week during months of November May Questions: What does the future look like for this employer? To whom does the employer have to offer coverage? 14 Reform School Consolidated Sales
Remedial Math (or How to Count to 50): Size Counting Employees (Eligibility) Case Study: A Bakery This employer has 200 employees. Only 30 employees work 40 hours or more and are currently benefits eligible. Part-time employees hours worked are noted below. The bakery expanded operations and opened up a couple of new facilities in the middle of last year. Month 1 2 3 4 5 6 7 8 9 10 11 12 Hours worked 75 employees worked on average 25 employees worked on average 70 employees worked on average 32 32 32 32 32 32 32 25 25 25 25 25 38 38 40 42 38 38 39 30 28 28 28 28 0 0 0 0 0 0 0 32 32 32 32 32 Pick a measurement period Questions: Which employees are considered full time? For what amount of time does the employer have to offer these employees coverage? How did you pick your period? priorityhealth.com 15
Economics 101: Affordability & Minimum Value 16 Reform School Consolidated Sales
Economics 101: Affordability & Minimum Value priorityhealth.com 17
Economics 101: Affordability & Minimum Value Affordability Worksheet The affordability test is done for each employee (not an aggregate population). The test assesses the cost of SINGLE cover per employee for the LOWEST COST PLAN. (Family coverage does not need to meet this criteria.) Tips and Terms: Use the lowest income employees as the first test. If they pass affordability, the others should as well. The law states that the employee s cost for benefits cannot exceed 9.5% of HOUSEHOLD income. Because employers do not have access to employees household incomes, the IRS has stipulated a safe harbor allowing employers to use employees W-2 earnings for this equation. Equations: Employee s annual premium contribution Employee s annual salary Employee s annual wages X 9.5% = Maximum annual employee contribution The first equation provides the assessment of how much the employee is currently contributing toward health care benefits. The second equation identifies the maximum contribution that is allowable by law. If the employee s contribution exceeds 9.5% then the employer has failed the affordability test and does not offer minimum essential benefits. Employees may then be eligible for subsidies via the exchange resulting in employer penalties. 18 Reform School Consolidated Sales
Economics 101: Affordability & Minimum Value Affordability Case Study: A Cleaning Company This employer has 200 employees. Only 30 employees currently elect benefits. Full-time employee s minimum annual earnings $16,640 Full-time employee s maximum annual earnings $41,600 PPO plan Single coverage $8,200 Family coverage $12,350 Employee contribution 50% of premium HSA plan Single coverage $11,000 Family coverage $14,000 Employee contribution 50% of premium Question: Is this plan affordable? Case Study: Law Office This employer has 100 employees. More than 50 employees work full time. Full-time employee s minimum annual earnings $25,000 Full-time employee s maximum annual earnings $250,000 Single coverage $8,200 Family coverage $12,350 Employee contribution 30% of premium Question: Is this plan affordable? priorityhealth.com 19
Studies in Penal Code Rules: Pay or play 20 Reform School Consolidated Sales
Studies in Penal Code Rules: Pay or play priorityhealth.com 21
Studies in Penal Code Rules: Pay or play Penalties Large employers face two types of penalties in considering/developing employee benefits: 1. The 95% Rule penalty 2. The Unaffordable penalty 95% Rule penalty If an employer does not offer employer-sponsored coverage to at least 95% of full-time employees, then large employers will be penalized $2,000 per full-time employee above 30 employees. The penalty applies only if ONE of the employees goes to the individual exchange and receives a federal subsidy. For example, Employer ABC employs 100 full time employees and decides to drop coverage. Several employees shop for coverage through the individual exchange and enroll in a plan where they receive a federal subsidy. Employer ABC will be penalized $2000 for 70 employees (100 minus 30) which is $140,000. Equation: $2,000 X (number of employees 30) = 95% Rule penalty Unaffordable penalty The stay penalty applies if an employer continues to offer coverage but it is unaffordable to some. The employer is penalized $3,000 in this case for each employee that receives a subsidy through the individual exchange. This penalty should be easy to avoid by simple modifications to the premium contribution strategies if the plan is indeed unaffordable to lower income employees. Note: There is no penalty to employers if their employees become eligible for Medicaid. Equation: $3,000 X (number of employees receiving federal subsidy) = Unaffordable penalty Penalties and the tax factor Don t forget that penalties must be paid with after tax dollars; whereas, benefits are paid with pre-tax dollars. Therefore, employers should add on the applicable corporate tax rate to the penalty for the real cost of the assessment. 22 Reform School Consolidated Sales
Studies in Penal Code Rules: Pay or play Penalties Case Study: A Hair Salon This employer currently has 250 employees at multiple locations. 175 of the employees work 30 hours or more each week. The employer does not offer benefits to employees today. Questions: Does a penalty apply? If not, why is there no penalty? If so, what is the penalty? If a penalty applies, how could the employer avoid the penalty? Case Study: A Cleaning Company This employer has 200 employees. 100 of these employees work 30 or more hours per week. Only 30 employees are currently offered benefits. 30 of the full-time employees are eligible for Medicaid. 40 employees are eligible for federal subsidies. Questions: Does a penalty apply? If not, why is there no penalty? If so, what is the penalty? If a penalty applies, how could the employer avoid the penalty? priorityhealth.com 23
Questions about reform? Learn more about health reform at our website: UnderstandingHealthReform.com. Send an email to AskPriorityHealth@priorityhealth.com. Legal Disclaimer This workbook provides a general overview of certain aspects of health care reform based on information currently available. It does not cover all of the requirements, and new information is released frequently. Information provided by Priority Health about health care reform should not be considered legal advice. This is an educational tool only and the effect of reform may differ depending on your circumstances. 2013 Priority Health priorityhealth.com 7245A1 01/13