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Linda Klute
How companies should respond to the Affordable Care Act

Here’s a look at all the questions your team needs to answer to prepare for the employer mandate.

November 18, 2013
By Linda Klute

Thanks to a delay in enforcement until Jan. 1, 2015, employers now have more time to prepare for the implementation of the Affordable Care Act’s employer mandate. However, despite the delay, the mandate is coming and affected employers should be getting ready.

The employer mandate, or shared-responsibility, provision of Sec. 4980H requires “applicable large employers” to offer their full-time employees (and their dependents) the opportunity to enroll in an employer-sponsored health insurance plan that provides employees with “minimum essential coverage” with “minimum value” at an affordable cost. Employers that fail to provide the required coverage face the prospect of having to pay a potentially significant penalty.

One of the best ways to approach the ACA is to form a task force with representatives from across the business to tackle planning for this seminal change. Creating such a group will both improve communications and ensure that all stakeholders can provide input into your strategy. 

A task force should ideally include the following:

  • Benefits advisers, including actuarial support;
  • Attorneys (ACA-focused as well as human resources and benefits experts);
  • Human resources staff, including recruiters;
  • Representatives from the sales team (so they understand potential changes to their approach to customers);
  • The CFO and others in the financial planning and analysis functions;
  • Project managers; and
  • The CIO and others involved in supporting HR, payroll, and regulatory reporting.

What to focus on

The task force should first focus on education, making sure everyone has the same baseline understanding of the ACA and how it affects the company. In considering plan options, the task force broadly needs to determine if the company will:

  • “Pay” (a penalty, to be used to finance subsidies);
  • “Pay and play” (provide coverage but not enough to avoid all penalties); or
  • “Fully play” (provide adequate coverage to avoid all penalties).

Assuming the company is not opting out entirely, the group then should compare and contrast compliant benefit plan options, including:

  • Minimum essential value plan (a “bronze” plan paying for 60% of covered health care expenses);
  • High-deductible health plan (HDHP) or health savings account (HSA); or
  • Indemnity or another excepted benefit plan (an excepted benefit is one that is not considered health coverage by the government).

Comparisons of the options should include potential or existing impacts to recruiting/retention, costs, passthrough billing costs, IT system requirements, and communications. Task force leaders need to know how administratively burdensome each alternative is and what systems and procedures will be needed to capture this information. The impacts to different divisions, units, or subsidiaries of the company also should be considered.

At the same time, the task force needs to consider the employee population in terms of:

  • Demographics;
  • Financial situations;
  • Risk tolerance; and
  • Insurance company/product/provider.

Questions to ask

How will the company handle dependents? Ask these questions:

  • Do we make dependent coverage affordable?
  • Do child dependents receive a premium tax credit? If so, are they subjecting the company to a penalty?
  • What is the cost for providing affordable dependent coverage?
  • If the company offers affordable coverage to the employee and offers coverage (not necessarily affordable) to the dependent, just the offer of coverage excludes the dependent from receiving subsidies through the exchange. A potential reduction in benefits may not be received well by employees, and may increase the risk that they leave the company. 

Terms will need to be defined. What constitutes full-time employment? Part-time? How long will people need to work to be considered full time? Does the company have “variable hour” employees versus part-time/temporary employees? Proposed regulations issued in January address these questions (REG-138006-12).

In addition, time periods will need to be considered. How will the company define spans of time related to measurement, stability, break in service, and administration?

Choosing the best plan

From here, the group should be in a position to make decisions on the best plan and to set the future direction for benefit design offerings for the company. In making these choices, executives need to determine how much change they want to introduce in 2014. Task force leaders may want to have a strategy just for 2014—as well as a different long-term strategy.

Your team can simulate the needs of your employees by running models that assume likely choices (given the options provided), eligibilities, cost to the participants and the likelihoods of different scenarios. A cost comparison chart may look something like this:

Scenario

Employer Subsidy

ACA Penalties

Total Employer Cost

Employee Contributions

Employee Out-of-Pocket

Federal Subsidized

Total Employee Cost

Total Employer and Employee Cost

2013 Budget

 

 

 

 

 

 

 

 

2014 Status Quo Without Health Care Reform

 

 

 

 

 

 

 

 

2014 Status Quo With Health Care Reform

 

 

 

 

 

 

 

 

2014 Exit Completely

 

 

 

 

 

 

 

 

2014 Offer Minimum Value Coverage and Make It Affordable to Employees

 

 

 

 

 

 

 

 

To complete the chart, fill in the appropriate information:

  • 2013 budget – projected 2013 health care costs (baseline);
  • 2014 status quo without health care reform (HCR) – 2013 health care projections, trended at xx% for 2014 health care inflation before HCR (assumes no change in enrollment, plan design, or cost share strategy);
  • 2014 status quo with HCR – includes $xxx potential penalty resulting from employees utilizing an exchange if no plan design or cost share changes are made to comply with ACA;
  • 2014 exit completely – assumes the company would no longer offer any health care; penalties would be assessed as a result of employees’ going to an exchange; and
  • 2014 make affordable – cost to offer essential and affordable health care to all FTEs.

The cost comparison, along with a thorough understanding of all of the assumptions, data, and related considerations outlined above, will drive the company’s plan design decision.

Communication with the rest of the organization is key. Some best practices include:

  • Educate now. Oct. 1 has already passed as the deadline for employers to communicate the existence of health care exchanges. Have you established a plan?  
  • Employ effective new technologies and channels to connect with employees. Explore new technology partnerships and channels that will open up communications and ease access.
  • Tailor ACA notices and instructions as needed. Adapt your messages to the needs of your different audience segments.   
  • Consider broadening your ACA communications to include total rewards. Show the total reward across benefits, retirement, compensation, and other incentives.
  • Save time. Use time-saving ACA-compliant resources to help create communications. The U.S. Department of Labor provides some forms and letters to assist you in communicating with employees, as well as other tools such as workshops and seminars. These can be found here.  

There are many proactive measures that executives can take to make implementation and compliance an easier road for everyone. What do you need to do?

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Linda Klute is the national managing partner for health care at Tatum, which is a Randstad company.