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Mitigating Risk and Controlling Healthcare
Costs: A Post Election Look at the
Affordable Care Act
November 28, 2012




                         Presented in partnership with:




                                   hashtag #adpwebinar
Today’s Speakers




                                           John A Haslinger
                                                 A.                                                 Peter J. Marathas Jr.
                                                                                                          J            Jr
                                             Vice President                                                Partner
                                    Benefits Outsourcing Consulting                       Employee Benefits, Executive Compensation
                                               ADP, Inc.                                        and ERISA Litigation, Benefits
                                                                                                    Proskauer Rose LLP




                                                                Join the conversation on Twitter by tweeting along or
                                                                following the hashtag #adpwebinar.
2© ADP, Inc. 2012. All Rights Reserved.
Disclaimer

 This presentation is not:
                     Legal Advice
                     Th fi l word on H lth C
                      The final  d    Health Care R f
                                                  Reform
                     A political opinion




               *Note: Data gathering is voluntary and only gathered after receiving client approval


3 © ADP, Inc. 2012. All Rights Reserved.
Initial Observations




4 © ADP, Inc. 2012. All Rights Reserved.
Initial Observations

 Key Components:
               Individual Mandate (2014)
               –      Subsidies &
               –      Penalties
               Insurance Mandates
               State Mandates
               Employer Mandates




5 © ADP, Inc. 2012. All Rights Reserved.
Initial Observances ctd.

 Affordable Care Act (ACA) is not Health Care Reform
               Cost of providing care is not addressed seriously in ACA

 Costs Will Increase
               Direct Cost$               ►   Premium Increases
                                           ►   Taxes
                                           ►   Penalties
               Indirect Cost$             ►   Administrative Costs
               Unknown Cost$              ►   Agency Action




6 © ADP, Inc. 2012. All Rights Reserved.
Healthcare Exchanges

       All states to establish an Exchange by January 1, 2014

      – The American Health Benefit Exchange
                                          g

      – Small Business Health Options Program (SHOP) Exchange for individuals and small businesses


       States must demonstrate to federal government that efforts are underway by January 1,
        2013

       Types of Exchanges:

      – State Exchange

      – Partnership Exchange

      – Federally Facilitated Exchange


       Blue Prints

      – States pursuing a State-based Exchange must advise HHS by November 16, 2012 and submit
        Blueprint by December 14
7 © ADP, Inc. 2012. All Rights Reserved.
Healthcare Exchanges ctd.

 Will the States Be Ready?




8 © ADP, Inc. 2012. All Rights Reserved.
Polling Question #1


               1. Do you plan some time in the future to obtain
                 insurance for your employees through a public
                                  Exchange? ?

                                           Yes

                                           No




9 © ADP, Inc. 2012. All Rights Reserved.
Healthcare Exchanges ctd.

  The Metals—Exchanges to Offer Four Levels of Coverage:

   Bronze (60%)

   Silver (70%)

   Gold (80%)

   Platinum (90%)

  And: a catastrophic plan f individuals under 30
                           for

  Insurers may offer separate health plan products outside of an Exchange, but they
     are prohibited from offering rates for those health plan products that are lower
     than those offered within the Exchange




10 © ADP, Inc. 2012. All Rights Reserved.
Pay or Play Mandates: 90 Day Requirements

        Effective first day of plan year on or after January 1, 2014

        Guidance Released August 31 2012 is effective through 2014
                                  31,

        90 days means 90 days within the first day they are eligible

        If employees can elect within 90 days but fail to elect within 90 days it is not a
         violation

        Employer may use a reasonable period to determine eligibility if (a) period is
         not designed to avoid the 90 day period, (b) individual becomes eligible within
         90 days of being assessed eligible or, if earlier, within 13 months of start date
         (p
         (plus the days to the first day of the next calendar month if the employee’s start
                     y                 y                                     p y
         date is the middle of the month)




11 © ADP, Inc. 2012. All Rights Reserved.
Polling Questions #2 and #3


         2. Are you considering opting out of providing group
                     health insurance in the future?

                                            Yes

                                            No

       3. Are you considering making significant coverage or
          premium contribution changes to your group health
                         plans in the future?

                                            Yes

                                            No

12 © ADP, Inc. 2012. All Rights Reserved.
Employer “Pay or Play” Mandate

        In 2014, the pay-or-play mandate requires employers of 50 FTE or more to
         offer quality, affordable health insurance coverage to full time employees
         (those working on average at least 30 hours per week) and their families

        Failure to offer such coverage potentially subjects the employer to taxes for a
         given month—if:

        (i) a full time employee (ii) receives a subsidy in (iii) a state exchange




13 © ADP, Inc. 2012. All Rights Reserved.
What Are The Pay or Play Penalties?

        Employers who “opt out” of providing benefits

        Employers who do not provide health coverage to all full time employees (and
         their dependents) are penalized

       – If at least one full time employee (30+hrs/wk or 130+ hrs/mo) is eligible for, or
         receives, a subsidy in a state exchange: the employer is subject to an annual
         penalty of $2,000 × all full time employees (except for the first 30) applies

       – Penalty is assessed monthly (i e $167 67 per full time employee per month)
                                     (i.e., $167.67




14 © ADP, Inc. 2012. All Rights Reserved.
What Are The Pay or Play Penalties ctd.

        Employers who provide “unaffordable” coverage

        Coverage is affordable only if the premium for single coverage under the
         employer’s lowest cost plan with at least a 60% “actuarial value” does not
         exceed 9.5% of household income (or W-2 wages)

        Annual penalty is the lesser of $3,000 for each full time employee who receives
         a subsidy through a state exchange, or $2,000 multiplied by all full time
         employees (subtracting first 30)

       – Penalty is assessed monthly (i.e., $250 per subsidy-receiving full time employee per
         month)




15 © ADP, Inc. 2012. All Rights Reserved.
Variable Employees & Full Time Employee Status

        A Variable Employee: On start date, it cannot be determined whether
         employee is expected to work on average at least 30 hours per week

        Initial Measurement Period of Between 3 and 12 months
       – Assess average during Initial Measurement Period
       – Assessment is then used for stability period that is the same as for ongoing employees

        Use of Administrative Period: can use an “administrative period” but total can
         not exceed 13 months (plus the remainder of the month if anniversary falls in
         middle of month)




16 © ADP, Inc. 2012. All Rights Reserved.
Medicaid Expansion & Employers

        Medicaid Expansion Requirements:

       – New Medicaid class of beneficiaries

       – ACA required states to cover all individuals under age 65 with income below 133% of
         the poverty line

       – "Essential benefits" must be provided to all Medicaid recipients

        Failure to comply = loss of all federal funds

        Court struck down as Unconstitutional (7-2): putting a gun to the head of the
         states

        This may have an impact on employers




17 © ADP, Inc. 2012. All Rights Reserved.
Medicaid Expansion & Employers




18 © ADP, Inc. 2012. All Rights Reserved.
The ACA Litigation Minefield

   DOL, IRS and HHS audits will increase

       – Already seeing audits of grandfathered status by
         DOL under the Act

   DOL efforts focus on increasing employer
    compliance rather than assessing penalties in
    early years

   Participant lawsuits may follow as participants
    seek to enforce benefit mandates




19 © ADP, Inc. 2012. All Rights Reserved.
The ACA Litigation Minefield ctd.

  Employee Claims Under the Act

   Workforce Realignment

   Retiree Medical Exit Strategy

   Claims to Mandated Benefits

   Whistleblower Actions




20 © ADP, Inc. 2012. All Rights Reserved.
Summary of Benefits and Coverage

        The Basics

        Final Rule effective September 23, 2012
                                        23

        SBC cannot exceed four double-sided pages in length and must be "culturally
         and linguistically appropriate"
                g         y pp p

        SBC must be accompanied by the "uniform glossary", available at
         www.healthcare.gov and www.dol.gov/ebsa/healthreform/

        HHS forms available http://cciio.cms.gov/resources/other/index.html#sbcug

        Upon renewal an SBC need only be provided for the benefit option in which a
                renewal,
         participant is enrolled, unless SBCs for other options are requested

        SBC is in addition to Summary Plan Description requirement



21 © ADP, Inc. 2012. All Rights Reserved.
W-2 Reporting of Healthcare Costs

        Beginning with 2012 Forms (i.e., Forms issued in January 2013), employers
         must report aggregate cost of health coverage

        Small Employer Exception: those issuing less than 250 W-2's in prior year
         exempt until further guidance issued

        Reportable cost includes the entire cost of the coverage (without any reduction
         for employee contributions)

        Cost of coverage is determined under rules similar to those for determining
         COBRA premiums (excluding 2% administrative charge)




22 © ADP, Inc. 2012. All Rights Reserved.
$2500 Health FSA Limit

  Effective for plan years beginning in 2013:
   Limits annual employee contributions to $2,500
   Indexed to the CPI starting in 2014
   Does not limit employer contributions

  To Do:
       – Communication to begin in 2012 (2nd half)
       – Plan amendments recommended by start of 2013 plan year
               However, despite the cafeteria plan rule that amendments must apply prospectively, an amendment adopted by
                December 31, 2014 may apply retroactively if the plan complied with the $2,500 limit starting with plan years
                beginning in 2013




23 © ADP, Inc. 2012. All Rights Reserved.
Select Taxes: Comparative Effectiveness Fee

        Effective for plan years ending after September 30, 2012 and before October 1,
         2019

        $2 fee per member per year

       – Paid by insurers if insured plan

       – Paid by plan sponsor if self-funded plan

        Fee reduced to $1 for plan years ending before October 1 2013
                                                                1,

        For plan years beginning after September 30, 2014, fee increases based on
         national health expenditures
                           p

        Fee supposed to sunset after 2019




24 © ADP, Inc. 2012. All Rights Reserved.
Select Taxes: Transitional Reinsurance Program

        Assessment on carriers and TPAs (on behalf of self-funded plans)

       – Generally applies to all group health plans – no exceptions for non-ERISA
         plans (e.g., governmental or church plans)

       – Applies on a per-member basis

       – Does not apply to HIPAA-excepted benefits

        Applies to 2014-2016 plan years

        Intended to stabilize premiums in the individual markets

        Additional employer recordkeeping and cost requirements




25 © ADP, Inc. 2012. All Rights Reserved.
Non-Discrimination Rules

        Delayed Until Guidance Released
       –      Now That The Election Is Over, Guidance Will Follow

        Will apply to non-grandfathered, fully-insured plans after release (already apply
         to self-insured)

        Prohibits discrimination in favor of “highly compensated employees” with
         respect to eligibility & benefits

       –      Note: Testing Performed on a Controlled Group Basis

        Penalty: up to $500,000 Under ACA




26 © ADP, Inc. 2012. All Rights Reserved.
Compliance

  SBC Requirements

  Excise Tax

  Exchanges

  Shared Responsibility




27 © ADP, Inc. 2012. All Rights Reserved.
Compliance Is Not Limited To Health Care Reform
     A complex lengthy and ever changing list of requirements
       complex, lengthy,
      Health Care Reform (PPACA)
      Internal Revenue Code (not limited to the following)
           Sec. 79                                     Sec. 127
           Sec. 105                                    Sec. 129
           Sec. 125
                                                        Sec. 132         The requirements
      Imputed Income                                                     under Health Care
           IRC Sec. 152                                Ad lt
                                                         Adult            Reform are i addition
                                                                          R f           in dditi
           Same Gender Marriage                         children         to all of the other
                                                         up to age        regulatory
      CA SB 1386 (information privacy)                  26               requirements that
                                                                          benefit plan sponsors
      ERISA                                                              already have to comply
                                                                          with
      HIPAA
           834 Enrollment                               Privacy Rule
           820 Premium Payment
                           y                             Security Rule

      Sarbanes-Oxley Act of 2002
           SAS70 Type II audit reports

      FMLA                                    Mental Health Parity
      ADAAA                                   GINA

      ADEA                                    COBRA
28 © ADP, Inc. 2012. All Rights Reserved.
A Simple Summary Of Complex Rules




                             NOT MUCH HAS CHANGED



29   Source: House Joint Economic Committee, August 2, 2010   11
     © ADP, Inc. 2012. All Rights Reserved.
Managing Change: A Multifaceted Approach

            Workforce Strategy                                                       Data Analytics
    (Total Rewards / Employer of Choice)                                               Benchmark Data
                       Recruitment                                                     Trend Analysis
               Scope and scheduling                                                        Audits
                    Salary planning                                               Decision Support Tools
      Reliance on sources, may not be
               readily available
                                                       Benefits
                                                       B     fit
                                                     Administration
       Design and Compliance                                                       Communications
                       Plan options                                                       St t
                                                                                            Strategy

         Planning for 2014 and beyond                                                     Design

                  Federal and State                                            Medium (Print, On-line, Mobile,
                                                                                        Social Media)
                           PPACA
                                                                                          Education
                 Testing, Reporting &
                     Reconciliation

                               Consumerism and Wellness – The Foundation
                                             Incorporate with Plan Design      Outcomes
                                                     Incentives              Managing risk
30 © ADP, Inc. 2012. All Rights Reserved.
Compliance Analysis Is Lacking To Date




                                            Source: ADP Research Institute Survey of Employers, May 2012
31 © ADP, Inc. 2012. All Rights Reserved.
Plan Design Strategies: Multiple Levers

    Wellness is emerging as a key component of employer’s health care strategy
            – The larger the employer, the more likely they have implemented Wellness
    Reductions in the scope and number of plans offered is also increasing
            – Increases in deductibles and co-insurance have become more common compared
              to 2011 (will run into limitations under ACA)
                                            Steps Taken/Currently Doing/Definitely Will Do

                      Small                                     Midsized                                          Large 
                    (1‐49 EEs)                                (50‐999 EEs)                                    (1,000+ EEs)
                                                                                            Offer wellness programs 
                                                                                                                                        76%


                                                                                                         Offer HSAs                   62%

                                                                                                   Increase EE
                                                                                                                                 55%
                                                                                             deductibles/contribution

                                                                                                Offer a HDHP option              54%

                                                                                                 Increase employee 
                                                                                                                                48%
                                                                                                       co‐pays 

                                                                                                         Offer HRAs            46%


                                                                       Source: ADP Research Institute Survey of Employers, May 2012
32 © ADP, Inc. 2012. All Rights Reserved.
Major Forthcoming Employer Requirements
  Under Health Care Reform
   Communication Requirements                              Taxes and Fees
             Summary of Benefits and Coverage                  Include value of Health benefits on W-2:
              (SBC): 9-23-12                                     1-1-12

             Claims and Appeals Notices: 1-1-12                Clinical Effectiveness Research Fee:
                                                                 10-1-12
             Exchange Notification: 3-1-13                     Medicare payroll tax increases: 1-1-13
   Plan Changes                                            Requiring employers to “pay or
                                                                q    g   p y         p y
                                                             play”
             FSA Annual Plan Limit of $2,500: 1-1-13
                                                                Shared responsibility requirements:
             Eliminate: 1-1-14                                  1-1-14
                –    Pre-existing condition exclusions           –   Look-back approach may require changes
                                                                                pp        y q           g
                                                                     in 2013
                –    Annual and Lifetime coverage limits
                –    Coverage rescissions                   Reporting
             Guaranteed issue: 1-1-14                          Employer Health Insurance Coverage
                                                                 Reporting: 1-1-14
                                                                            1 1 14
             Waiting periods limited to 90 days:
              1-1-14                                        40% Excise Tax on high cost plans:
                                                             1-1-18
             Cost sharing limits on cost sharing with
              Employees: 1-1-14
                p y                                             Excise tax limits indexed to CPI

             Wellness Incentives expanded: 1-1-14
             Auto-Enrollment: TBD – Likely 2015
33 © ADP, Inc. 2012. All Rights Reserved.
Employer Requirements: Details Not Yet Clear

   Non-Discrimination Testing                         Look-Back Rules
             Implementation delayed                      Unclear as to how people who are
                                                           unemployed during a look-back
             Anticipate effective date of 1 1 15
                                           1-1-15          period are to be treated for
             Significant implications                     purposes of calculating average
                                                           hours per week per calendar
                – Ability to use aggressive pricing        month
                – Carving out populations                     – Example: Teachers working 10
                                                                months per year but collecting
   Auto Enrollment                                              unemployment for 2 months

             Implementation delayed                             Guidance requested
             Anticipate effective date of 1-1-15      Multi-Employer Benefit Trusts
             Significant implications                    Unclear how various rules related
                – Cost                                     to Excise Tax, Shared
                                                                         ,
                                                           Responsibility, etc. will apply in
                – IRC Sec. 125                             instances when benefits are
                                                           provided through trust rather than
                                                           directly by employer



34 © ADP, Inc. 2012. All Rights Reserved.
ACA Impact On Employer Sponsored Plans

            Shared responsibility coverage requirements coupled with ongoing health care inflation will reduce
             employers’ ability to design health care plans that act as a differentiating component of total
             compensation and will increase likelihood of employers:
                  – Eliminating / reducing coverage
                  – Focusing on consumer based solutions
                              HDHPs, HRAs, HSAs, Wellness
                        – Potentially moving some employees to exchanges for coverage


                                                           40% E i T O Cost of C
                                                               Excise Tax On C t f Coverage Ab
                                                                                            Above Li it
                                                                                                  Limit
                       $10,200 for Individual                                            “Cadillac Tax”                                            $27,500 for family
                                                                                   Strategic Benefit Plan Design

                                                                                      Includes
                                                                                      I l d ER and EE d                                                                                 The value of
                                                                                      Contributions for:                                                                                strategic




                                                                                                                               Lobbying Pressure
                                                                 New Cos Drivers




   Note: Medical                                                                                                                                                                        benefit
                                       Medical Inflation




                                                                                       Medical
   inflation continues to                                                                                                                                                               design will
                                                                                       Rx




                                                                                                                                                        Ins Co Fees
   rise at 2 to 3 times                                                                                                                                                                 shrink over
   the rate of overall                                                                 ASO Fees
                                                                       st




                                                                                                                                                                                        time due t
                                                                                                                                                                                        ti   d to




                                                                                                                                                               F
                                               I




   inflation – and has                                                                 FSA
   done so for more                                                                    HRA                                                                                             Health Care
   than 50 years*                                                                      HSA                                                                                             Reform


                                                                          Coverage R
                                                                          C        Requirements
                                                                                       i
     The Excise Tax Applies To Both Grandfathered Plans and Non-Grandfathered Plans
35 © ADP, Inc. 2012. All Rights Reserved.                                                                *Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, U.S.
                                                                                                                                Department of Commerce, Bureau of Economic Analysis Sources
Example: Estimating Excise Tax in 2018
 Individual Coverage
  Assumptions
            –     Healthcare plan costs in 2011: Individual - $5,429*; (includes ASO fees)
            –     Average annual FSA contribution of $750* (held constant - not increased for any inflation
                  assumption)
                        p   )

                                               Individual Coverage ($5,429 in 2011)
                    $25,000
                                                                                                                                           10.5% Trend
                    $23,000

                    $21,000

                    $19,000
                                                                                                                                  8.5% Trend

                    $17,000
                    $17 000

                    $15,000
                                                                                                                                       6.2%% Trend

                    $13,000
                                                                                                                                            3.5% CPI

                    $11,000

                      $9,000

                      $7,000

                      $5,000

                                        18       19       20        21       22                     23                   24                   25
36
                                     20       20       20        20       20                     20                   20                   20
     © ADP, Inc. 2012. All Rights Reserved.                                *Source:   Kaiser Family Foundation, 2011 Employer Health Benefits Survey
Example: Estimating Excise Tax in 2018
  Family Coverage
   Assumptions
                Healthcare plan costs in 2011: Family - $15,073*; (includes ASO fees)
                Average annual FSA contribution of $1,250* (held constant - not increased for any inflation
                 assumption)
                       p   )

                                                    Family Coverage ($15,073 in 2011)
           $65,000                                                                                                      10.5% Trend


           $60,000

           $55,000

           $50,000                                                                                                      8.5% Trend


           $45,000
           $45 000

           $40,000
                                                                                                                        6.2%% Trend

           $35,000
                                                                                                                                   3.5% CPI
           $30,000

           $25,000

           $20,000

           $15,000
                              18               19       20       21       22                 23                   24                  25
                           20               20       20       20       20                 20                   20                  20
37 © ADP, Inc. 2012. All Rights Reserved.                                Source: Kaiser Family Foundation, 2011 Employer Health Benefits Survey
Example: Estimating Excise Tax in 2018
  Estimated Tax Liability
   Number of Employees:                                 2,500
   Individual Coverage                                   20%    Family Coverage                        80%    Total                                100%
   Year              6.20%                8.50%       10.50%            6.20%        8.50%          10.50%            6.20%         8.50%        10.50%
   2018                  $0              $32,020    $294,167                $0    $345,083       $3,256,360               $0     $377,104     $3,550,527
   2019                  $0             $123,992    $452,104                $0   $1,389,415      $5,033,278               $0    $1,513,408    $5,485,382
   2020                  $0             $227,352    $631,623                $0   $2,561,016      $7,050,672               $0    $2,788,367    $7,682,295
   2021                  $0             $343,191    $835,165                $0   $3,872,049      $9,335,679               $0    $4,215,241   $10,170,844
   2022                  $0             $472,702   $1,065,432               $0   $5,335,763     $11,918,351               $0    $5,808,465   $12,983,783
   2023                  $0             $617,179   $1,325,418               $0   $6,966,579     $14,831,963               $0    $7,583,757   $16,157,382
   2024             $15,706             $778,033   $1,618,439         $314,137   $8,780,193     $18,113,356        $329,843     $9,558,226   $19,731,795
   2025             $75,087             $956,800   $1,948,163      $1,001,791   $10,793,690     $21,803,312       $1,076,878   $11,750,490   $23,751,475

   Number of Employees:                                 5,000
   Individual Coverage                                   20%    Family Coverage                        80%    Total                                100%
   Year              6.20%                8.50%       10.50%            6.20%          8.50%        10.50%            6.20%         8.50%        10.50%
   2018                  $0              $64,041     $588,333               $0       $690,167    $6,512,720               $0      $754,207    $7,101,054
   2019                  $0             $247,984     $904,208               $0     $2,778,831   $10,066,556               $0    $3,026,815   $10,970,764
   2020                  $0             $454,703   $1,263,246               $0     $5,122,031   $14,101,344               $0    $5,576,734   $15,364,591
   2021                  $0
                         $              $686,383
                                        $          $1,670,329
                                                   $                        $0
                                                                            $      $7,744,099
                                                                                   $            $18,671,358
                                                                                                $                         $0
                                                                                                                          $     $8,430,482
                                                                                                                                $            $20,341,687
                                                                                                                                             $
   2022                  $0             $945,404   $2,130,863               $0    $10,671,527   $23,836,702               $0   $11,616,930   $25,967,566
   2023                  $0           $1,234,358   $2,650,837               $0    $13,933,157   $29,663,927               $0   $15,167,515   $32,314,763
   2024             $31,412           $1,556,066   $3,236,878         $628,274    $17,560,385   $36,226,713         $659,686   $19,116,451   $39,463,591
   2025            $150,175           $1,913,600   $3,896,325      $2,003,582     $21,587,380   $43,606,624       $2,153,757   $23,500,980   $47,502,949

   Number f Employees:
   N b of E l                                          10,000
                                                       10 000
   Individual Coverage                                   20%    Family Coverage                        80%    Total                                100%
   Year              6.20%                8.50%       10.50%            6.20%          8.50%        10.50%            6.20%         8.50%        10.50%
   2018                  $0             $128,082   $1,176,667               $0     $1,380,333   $13,025,441               $0    $1,508,415   $14,202,107
   2019                  $0             $495,969   $1,808,417               $0     $5,557,661   $20,133,112               $0    $6,053,630   $21,941,529
   2020                  $0             $909,406   $2,526,493               $0    $10,244,063   $28,202,689               $0   $11,153,469   $30,729,181
   2021                  $0           $1,372,765
                                      $1 372 765   $3,340,658
                                                   $3 340 658               $0    $15,488,198
                                                                                  $15 488 198   $37,342,717
                                                                                                $37 342 717               $0   $16,860,963
                                                                                                                               $16 860 963   $40,683,375
                                                                                                                                             $40 683 375
   2022                  $0           $1,890,807   $4,261,727               $0    $21,343,053   $47,673,404               $0   $23,233,861   $51,935,131
   2023                  $0           $2,468,715   $5,301,673               $0    $27,866,314   $59,327,853               $0   $30,335,030   $64,629,527
   2024             $62,824           $3,112,132   $6,473,755      $1,256,548     $35,120,771   $72,453,426       $1,319,373   $38,232,903   $78,927,181
   2025            $300,349           $3,827,200   $7,792,650      $4,007,165     $43,174,760   $87,213,248       $4,307,514   $47,001,959   $95,005,899
38 © ADP, Inc. 2012. All Rights Reserved.
Polling Questions #4 and #5


       4. Have you estimated your potential liability under the
                       2018 Excise Tax limits?

                                            Yes

                                            No

      5. Will you be making plan changes as a result of these
                             estimates?

                                            Yes

                                            No



39 © ADP, Inc. 2012. All Rights Reserved.
Decision Support Tools Will Become
  More Important Under ACA

                                                                Types of Decision Support Tools Offered
    Most employers do NOT offer Decision
     Support Tools
             – Only 25% of small employers
             – Only 44% of large employers


    Th
     Those employers who d offer these
                l      h do ff h
     tools, make them available to the majority
     of employees

    In most cases (53%) the tools are available
     throughout the entire year - not only at
     annual enrollment



                                                                             SIGNIFICANT GAP:
                                                                           PREFERENCE MODELING



        Source: ADP Pulse Survey of Employers, September 2011
40 © ADP, Inc. 2012. All Rights Reserved.
Decision Support: Cost And Preference Calculator




                                                  Enables
                                               participants
                                               to compare
                                                preference
                                               and price at
                                                 the same
                                                   time
                                                   ti




41 © ADP, Inc. 2012. All Rights Reserved.
Benefit of the Analytical Tools:
  Market Research

     Associate preferences,                 Decision
         cost estimates                      Tool
       g
       generated during g                   Results
       Annual Enrollment
                                                         Aggregate                        Analytical
                                                       Data in Central                      Tools
                                                       Data Storage

            Data feed                  Demographic
                                       & Enrollment                                      Use analytical tools to
          from Annual                  Choice Data                                        analyze associate
           Enrollment
                                                                                          selection behavior



        Use market research techniques to learn about population’s
         “purchasing” behavior

        Examine overall population trends and behaviors

        Id if and characterize population segments
         Identify d h       i       l i
       *Note: Data gathering is voluntary and only gathered after receiving client approval
42 © ADP, Inc. 2012. All Rights Reserved.
Employer Shared Responsibility Provisions

   Key Elements
        New definition of “full-time” employee
            – Applies only to healthcare benefits
            – Average hours per week per calendar month tracking of FT status
        Is employer sponsored coverage offered?
        Is it sufficient?
            – Coverage standards and minimum actuarial value
        Is it affordable?
            – Premiums not more than 9.5% of W-2 Box 1
        Key considerations
            – Does employee enroll in coverage through a state exchange (impact may vary if
              enrolled in a federal exchange)
            – Is the employee receiving subsidized Exchange coverage?


43 © ADP, Inc. 2012. All Rights Reserved.
Employer Mandates - Pay or Play?

IRS Shared Responsibility Assessment
       A monthly “penalty” for large employers who:
             − Either don’t offer coverage
                      don t
             − Whose employees would have to pay over 9.5% of their W-2 income for coverage
             − If any “full time” employees instead receive subsidized Exchange coverage

                             Does Not Offer Coverage                                  Offers Health Coverage
  No FT employees receive                   One or more FT employees     No FT employees receive   One or more FT employees
  credits for Exchange                      receive credits for          credits for Exchange      receive credits for
  coverage
         g                                  Exchange coverage
                                                   g          g          coverage
                                                                                g                  Exchange coverage
                                                                                                          g          g
  No penalty                                • # of FT employees (minus   No penalty                Lesser of :
                                            30) x $2,000 annually
                                            ($166.67/month)                                        • # of FT employees (minus
                                                                                                   30) x $2,000 annually, or

                                                                                                   •# of FT employees who
                                                                                                   received Exchange
                                                                                                   subsidies x $3,000
                                                                                                   annually.

                                                                                                   • ($250/month/EE)


44 © ADP, Inc. 2012. All Rights Reserved.
Polling Questions #6 and #7

   6. Are you considering moving more employees to part-time status (below 30
                                                         hours per week)?

                                                               Yes

                                                               No

  7. Do you plan on offering coverage ONLY through a state or federal exchange
                            once that option is available?

                                                               Yes

                                                                No

                                            Will depend on the quality of the Exchanges

                                                             Not sure


45 © ADP, Inc. 2012. All Rights Reserved.
Employees May Qualify For Federal Subsidies At
   Fairly High Income Levels
 Part-Time Eligibility
    Employees Who Work 30 Hrs or More Per Wk - 130 hrs of work in a calendar month
            • Employers Must Make Coverage Available
            • Failure will result in a penalty for each employee if any ONE employee receives subsidized coverage
              through an exchange
            • Seasonal employees can possibly be excluded by using the look-back/stability period safe harbor
                                             Income Levels For 400% Of FPL (Indexed For Inflation)

                                                           Federal Poverty Level: 2012
                             No. Persons In Family            48 Contiguous States             48 Contiguous States/DC
                                              1                       $11,170                            $44,680
                                              2                       $15,130
                                                                      $15 130                            $60,520
                                                                                                         $60 520
                                              3                       $19,090                            $76,360
                                              4                       $23,050                            $92,200
                                              5                       $27,010                            $108,040
                                              6                       $ ,
                                                                      $30,970                            $
                                                                                                         $123,880
                                                                                                             ,
                                              7                       $34,930                            $139,720
                                              8                       $38,890                            $155,560
                       Source: Federal Register 4200,January 23, 2009, http://aspe.hhs.gov/poverty/12poverty.shtml

    Employers will need an integrated solution addressing Benefits-TLM-Payroll
       p y                      g                        g                y
                 Median Household Income In The U.S. was $49,445 In 2010
                U.S. Census Bureau – http://www.census.gov/prod/2011pubs/p60-239.pdf
                U.S. Census Bureau – http://www.census.gov/newsroom/releases/archives/income_wealth/cb11-157.html
 46 © ADP, Inc. 2012. All Rights Reserved.
Maximum Premium Payment Under ACA
  (For The 48 Contiguous States and D.C.)

                                              Maximum Premium
                    Percent of Federal         As % Of Income         Maximum Amount Of Annual Premium By Family Size
                      Poverty Level                (2014)                 1          2             3            4
         FPL in 2012                                                   $11,170    $15,130       $19,090     $23,050
                                   100%                     2.00%            $223       $303         $382          $461
                                   133%                     2.00%
                                                            2 00%            $297       $402         $508          $613
                                133.01%                     3.00%            $446       $604         $762          $920
                                   150%                     4.00%            $670       $908        $1,145       $1,383
                                   200%                     6.30%          $1,407     $1,906        $2,405       $2,904
                                   250%                     8.05%          $2,248     $3,045        $3,842       $4,639
                                   300%                     9.50%          $3,183     $4,312        $5,441       $6,569
                                   350%                     9.50%          $3,714     $5,031        $6,347       $7,664
                                   400%                     9.50%          $4,245     $5,749        $7,254       $8,759

                                              Maximum Premium
                    Percent of Federal         As % Of Income         Maximum Amount Of Monthly Premium By Family Size
                      Poverty Level                (2014)                 1           2            3            4
         FPL in 2012                                                   $11,170    $15,130       $19,090      $23,050
                                   100%                     2.00%             $19        $25          $32           $38
                                   133%                     2.00%             $25        $34          $42           $51
                                133.01%                     3.00%             $37        $50          $63           $77
                                   150%                     4.00%             $56        $76          $95          $115
                                   200%                     6.30%            $117       $159         $200          $242
                                   250%                     8.05%            $187       $254         $320          $387
                                   300%                     9.50%            $265       $359         $453          $547
                                   350%                     9.50%            $310       $419         $529          $639
                                   400%                     9.50%            $354       $479         $605          $730
                      Source: CRS computation based on “Annual Update of the HHS Poverty Guidelines,” 74 Federal Register 4200,
                      January 23, 2009, http://aspe.hhs.gov/poverty/09fedreg.pdf, and PPACA, for the second-least-expensive silver plan
                      available to eligible individuals. If individuals choose more expensive plans, they would be responsible for
                      additional premiums.
47 © ADP, Inc. 2012. All Rights Reserved.                                                  Note: Premium payment cannot exceed the actual cost of a plan
Determining Full-Time Status


 Two Basic Choices
         Real-time calculation

         Look-back approach


 Real-time can result in employees moving into and out of benefit eligibility on a
  monthly basis
         Will result in significant COBRA activity


 Look-back minimizes this issue
         Requires time tracking by calendar month beginning in 2013




 © ADP, Inc. 2012. All Rights Reserved.
Real-Time Example



                                   J    F    M    A    M    J    J    A    S    O    N    D
     Average Hours
     Worked                        31   29   29   32   28   27   30   30   28   30   28   28
     Attains F-T
     Status                        Y              Y              Y              Y
     Enrollment
     Period

     Coverage Period
     COBRA Notices
     Sent




49     © Copyright 2012 ADP, Inc
Measurement Periods with Administrative Periods

                                   Look-Back
                                Measurement Period                                      Stability Coverage Period
                     2012          2013                                                 2014
                      O    N   D    J       F   M   A   M   J   J   A   S   O   N   D   J   F   M   A   M   J   J   A   S   O   N   D

 3 Months                                                                                                                                6 Months

                     2012          2013                                                 2014
                      O    N   D    J       F   M   A   M   J   J   A   S   O   N   D   J   F   M   A   M   J   J   A   S   O   N   D

 6 Months                                                                                                                                6 Months

                     2012          2013                                                 2014
                      O    N   D    J       F   M   A   M   J   J   A   S   O   N   D   J   F   M   A   M   J   J   A   S   O   N   D


 9 Months                                                                                                                                9 Months
                     2012          2013                                                 2014
                      O    N   D    J       F   M   A   M   J   J   A   S   O   N   D   J   F   M   A   M   J   J   A   S   O   N   D


12 Months                                                                                                                               12 Months
50 © ADP, Inc. 2012. All Rights Reserved.
ADP’s Dynamic Workforce Model
    HCM Integration Is Critical


   Service                                  Systems




Compliance                                  Practices


51 © ADP, Inc. 2012. All Rights Reserved.
Shared Responsibility Requirements
    Driving Demand For HCM Integration

 On average, survey respondents indicated that
 part-time employees comprise
          –18% of labor force for midsized employers
                                              p y
          – 20% of labor force for large employers
                                                                                                                                           Payroll
                                                                                                         Hours                            Admin &
                                                                                                                    Gross                Call Center
                                                                                                         Worked
                                                                                                                    To Net
                                                                              Applicant
                                                                                Mgt                                                 W-2
                                                                                                                                  Earnings
                                                                                                                   Tax
                                                                                                 HR/PR
                                                                                                                  Filings
                                                                              Portal

                    Enrollment              Decision
                      ate a s
                     Materials              Support               Benefits                                          Time
                                             Tools
                                             T l                                          Time                    Collection
                                                                                                                                        Mobile
                                                                                                  Scheduling                            Tech

             Benefits                 Eligibility        Open & Auto                                                 Time Audit
             Admin &                Determination         Enrollment                                                   Tools
            Call Center
                                                                                                              Licenses
                                                                COBRA                                        Certificates
                          Carrier                      Direct
                           Files                                               ACA
                                                        Bill
                                                                              Penalty
                                       Disperse-                             Estimation
                                        ments



          What if a part-time employee works
                                                                                                  It is no longer just a Benefits event.
          more 130 hours in a month?
52 © ADP, Inc. 2012. All Rights Reserved.
ADP Integrated Solution:
  Shared Responsibility Requirement Under ACA

     Automate beyond core payroll and benefits to
      achieve results in order to provide a seamlessly
      integrated solution
          Workforce management
                       – Notices sent to managers as employees
                         approach 30 hours in any week
                       – Ability of managers to see scheduled hours
                         for all employees in order to manage hours
                                    p y                       g
                         assigned in conjunction with liability for
                         health care costs
                                                    Managing Shared Responsibility Requirements
              Database of record
                       – Payroll tracks actual hours worked
                                                                                                     Employer
                       –PPayroll send automated t i
                              ll     d t       t d trigger t b
                                                           to benefit
                                                                  fit
                                                                                                     Mandates
                         administration system when employee                                       Supported By
                         exceeds 130 hours per month                                              Integrated HCM
              Benefits administration
                       – Employee e g b ty ca cu at o is t gge ed
                             p oyee eligibility calculation s triggered
                       – Appropriate look-back and coverage period
                         rules are applied
                       – Employee is notified of eligibility – avoiding
                         penalty
             R
              Reporting and reconciliation
                   ti     d       ili ti
                       – Federal and state reporting
                       – Reconciliation with penalty assessments
53 © ADP, Inc. 2012. All Rights Reserved.
Managing Shared Responsibility Requirements




54 © ADP, Inc. 2012. All Rights Reserved.
Thank You


 Please submit all questions through the post-event survey you will see
on your screen shortly from HR.com. We will address them directly.

 This session has been certified for 1 HRCI and 1 CLE credit


           Subscribe now:
  Stay up-to-date with ADP’s Eye on
    Washington regulatory alerts.
      www.adp.com/healthcare
              p


         Please visit: http://www.proskauer.com/practices/health-reform-task-force/
        to learn more about Proskauer’s Health Care Reform Task Force and opt-in
                              Proskauer s
                                         publications



The use of the HRCI seal is not an endorsement by the HR Certification Institute of the quality of the program. It means that this program has met the HR Certification Institute's criteria to be pre-approved for
recertification credit. The ADP logo and ADP are registered trademarks of ADP, Inc. In the Business of Your Success is a service mark of ADP, Inc. The Proskauer logo is a registered trademark of Proskauer Rose
LLC. This material is subject to change and is provided for informational purposes only and nothing contained herein should be taken as legal opinion, legal advice, or a comprehensive compliance review. Copyright
© 2012 ADP, Inc.

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Adp Affordable Care Act 112812 Final[1]

  • 1. Mitigating Risk and Controlling Healthcare Costs: A Post Election Look at the Affordable Care Act November 28, 2012 Presented in partnership with: hashtag #adpwebinar
  • 2. Today’s Speakers John A Haslinger A. Peter J. Marathas Jr. J Jr Vice President Partner Benefits Outsourcing Consulting Employee Benefits, Executive Compensation ADP, Inc. and ERISA Litigation, Benefits Proskauer Rose LLP Join the conversation on Twitter by tweeting along or following the hashtag #adpwebinar. 2© ADP, Inc. 2012. All Rights Reserved.
  • 3. Disclaimer This presentation is not:  Legal Advice  Th fi l word on H lth C The final d Health Care R f Reform  A political opinion *Note: Data gathering is voluntary and only gathered after receiving client approval 3 © ADP, Inc. 2012. All Rights Reserved.
  • 4. Initial Observations 4 © ADP, Inc. 2012. All Rights Reserved.
  • 5. Initial Observations Key Components:  Individual Mandate (2014) – Subsidies & – Penalties  Insurance Mandates  State Mandates  Employer Mandates 5 © ADP, Inc. 2012. All Rights Reserved.
  • 6. Initial Observances ctd. Affordable Care Act (ACA) is not Health Care Reform  Cost of providing care is not addressed seriously in ACA Costs Will Increase  Direct Cost$ ► Premium Increases ► Taxes ► Penalties  Indirect Cost$ ► Administrative Costs  Unknown Cost$ ► Agency Action 6 © ADP, Inc. 2012. All Rights Reserved.
  • 7. Healthcare Exchanges  All states to establish an Exchange by January 1, 2014 – The American Health Benefit Exchange g – Small Business Health Options Program (SHOP) Exchange for individuals and small businesses  States must demonstrate to federal government that efforts are underway by January 1, 2013  Types of Exchanges: – State Exchange – Partnership Exchange – Federally Facilitated Exchange  Blue Prints – States pursuing a State-based Exchange must advise HHS by November 16, 2012 and submit Blueprint by December 14 7 © ADP, Inc. 2012. All Rights Reserved.
  • 8. Healthcare Exchanges ctd. Will the States Be Ready? 8 © ADP, Inc. 2012. All Rights Reserved.
  • 9. Polling Question #1 1. Do you plan some time in the future to obtain insurance for your employees through a public Exchange? ? Yes No 9 © ADP, Inc. 2012. All Rights Reserved.
  • 10. Healthcare Exchanges ctd. The Metals—Exchanges to Offer Four Levels of Coverage:  Bronze (60%)  Silver (70%)  Gold (80%)  Platinum (90%) And: a catastrophic plan f individuals under 30 for Insurers may offer separate health plan products outside of an Exchange, but they are prohibited from offering rates for those health plan products that are lower than those offered within the Exchange 10 © ADP, Inc. 2012. All Rights Reserved.
  • 11. Pay or Play Mandates: 90 Day Requirements  Effective first day of plan year on or after January 1, 2014  Guidance Released August 31 2012 is effective through 2014 31,  90 days means 90 days within the first day they are eligible  If employees can elect within 90 days but fail to elect within 90 days it is not a violation  Employer may use a reasonable period to determine eligibility if (a) period is not designed to avoid the 90 day period, (b) individual becomes eligible within 90 days of being assessed eligible or, if earlier, within 13 months of start date (p (plus the days to the first day of the next calendar month if the employee’s start y y p y date is the middle of the month) 11 © ADP, Inc. 2012. All Rights Reserved.
  • 12. Polling Questions #2 and #3 2. Are you considering opting out of providing group health insurance in the future? Yes No 3. Are you considering making significant coverage or premium contribution changes to your group health plans in the future? Yes No 12 © ADP, Inc. 2012. All Rights Reserved.
  • 13. Employer “Pay or Play” Mandate  In 2014, the pay-or-play mandate requires employers of 50 FTE or more to offer quality, affordable health insurance coverage to full time employees (those working on average at least 30 hours per week) and their families  Failure to offer such coverage potentially subjects the employer to taxes for a given month—if:  (i) a full time employee (ii) receives a subsidy in (iii) a state exchange 13 © ADP, Inc. 2012. All Rights Reserved.
  • 14. What Are The Pay or Play Penalties?  Employers who “opt out” of providing benefits  Employers who do not provide health coverage to all full time employees (and their dependents) are penalized – If at least one full time employee (30+hrs/wk or 130+ hrs/mo) is eligible for, or receives, a subsidy in a state exchange: the employer is subject to an annual penalty of $2,000 × all full time employees (except for the first 30) applies – Penalty is assessed monthly (i e $167 67 per full time employee per month) (i.e., $167.67 14 © ADP, Inc. 2012. All Rights Reserved.
  • 15. What Are The Pay or Play Penalties ctd.  Employers who provide “unaffordable” coverage  Coverage is affordable only if the premium for single coverage under the employer’s lowest cost plan with at least a 60% “actuarial value” does not exceed 9.5% of household income (or W-2 wages)  Annual penalty is the lesser of $3,000 for each full time employee who receives a subsidy through a state exchange, or $2,000 multiplied by all full time employees (subtracting first 30) – Penalty is assessed monthly (i.e., $250 per subsidy-receiving full time employee per month) 15 © ADP, Inc. 2012. All Rights Reserved.
  • 16. Variable Employees & Full Time Employee Status  A Variable Employee: On start date, it cannot be determined whether employee is expected to work on average at least 30 hours per week  Initial Measurement Period of Between 3 and 12 months – Assess average during Initial Measurement Period – Assessment is then used for stability period that is the same as for ongoing employees  Use of Administrative Period: can use an “administrative period” but total can not exceed 13 months (plus the remainder of the month if anniversary falls in middle of month) 16 © ADP, Inc. 2012. All Rights Reserved.
  • 17. Medicaid Expansion & Employers  Medicaid Expansion Requirements: – New Medicaid class of beneficiaries – ACA required states to cover all individuals under age 65 with income below 133% of the poverty line – "Essential benefits" must be provided to all Medicaid recipients  Failure to comply = loss of all federal funds  Court struck down as Unconstitutional (7-2): putting a gun to the head of the states  This may have an impact on employers 17 © ADP, Inc. 2012. All Rights Reserved.
  • 18. Medicaid Expansion & Employers 18 © ADP, Inc. 2012. All Rights Reserved.
  • 19. The ACA Litigation Minefield  DOL, IRS and HHS audits will increase – Already seeing audits of grandfathered status by DOL under the Act  DOL efforts focus on increasing employer compliance rather than assessing penalties in early years  Participant lawsuits may follow as participants seek to enforce benefit mandates 19 © ADP, Inc. 2012. All Rights Reserved.
  • 20. The ACA Litigation Minefield ctd. Employee Claims Under the Act  Workforce Realignment  Retiree Medical Exit Strategy  Claims to Mandated Benefits  Whistleblower Actions 20 © ADP, Inc. 2012. All Rights Reserved.
  • 21. Summary of Benefits and Coverage  The Basics  Final Rule effective September 23, 2012 23  SBC cannot exceed four double-sided pages in length and must be "culturally and linguistically appropriate" g y pp p  SBC must be accompanied by the "uniform glossary", available at www.healthcare.gov and www.dol.gov/ebsa/healthreform/  HHS forms available http://cciio.cms.gov/resources/other/index.html#sbcug  Upon renewal an SBC need only be provided for the benefit option in which a renewal, participant is enrolled, unless SBCs for other options are requested  SBC is in addition to Summary Plan Description requirement 21 © ADP, Inc. 2012. All Rights Reserved.
  • 22. W-2 Reporting of Healthcare Costs  Beginning with 2012 Forms (i.e., Forms issued in January 2013), employers must report aggregate cost of health coverage  Small Employer Exception: those issuing less than 250 W-2's in prior year exempt until further guidance issued  Reportable cost includes the entire cost of the coverage (without any reduction for employee contributions)  Cost of coverage is determined under rules similar to those for determining COBRA premiums (excluding 2% administrative charge) 22 © ADP, Inc. 2012. All Rights Reserved.
  • 23. $2500 Health FSA Limit Effective for plan years beginning in 2013:  Limits annual employee contributions to $2,500  Indexed to the CPI starting in 2014  Does not limit employer contributions To Do: – Communication to begin in 2012 (2nd half) – Plan amendments recommended by start of 2013 plan year  However, despite the cafeteria plan rule that amendments must apply prospectively, an amendment adopted by December 31, 2014 may apply retroactively if the plan complied with the $2,500 limit starting with plan years beginning in 2013 23 © ADP, Inc. 2012. All Rights Reserved.
  • 24. Select Taxes: Comparative Effectiveness Fee  Effective for plan years ending after September 30, 2012 and before October 1, 2019  $2 fee per member per year – Paid by insurers if insured plan – Paid by plan sponsor if self-funded plan  Fee reduced to $1 for plan years ending before October 1 2013 1,  For plan years beginning after September 30, 2014, fee increases based on national health expenditures p  Fee supposed to sunset after 2019 24 © ADP, Inc. 2012. All Rights Reserved.
  • 25. Select Taxes: Transitional Reinsurance Program  Assessment on carriers and TPAs (on behalf of self-funded plans) – Generally applies to all group health plans – no exceptions for non-ERISA plans (e.g., governmental or church plans) – Applies on a per-member basis – Does not apply to HIPAA-excepted benefits  Applies to 2014-2016 plan years  Intended to stabilize premiums in the individual markets  Additional employer recordkeeping and cost requirements 25 © ADP, Inc. 2012. All Rights Reserved.
  • 26. Non-Discrimination Rules  Delayed Until Guidance Released – Now That The Election Is Over, Guidance Will Follow  Will apply to non-grandfathered, fully-insured plans after release (already apply to self-insured)  Prohibits discrimination in favor of “highly compensated employees” with respect to eligibility & benefits – Note: Testing Performed on a Controlled Group Basis  Penalty: up to $500,000 Under ACA 26 © ADP, Inc. 2012. All Rights Reserved.
  • 27. Compliance SBC Requirements Excise Tax Exchanges Shared Responsibility 27 © ADP, Inc. 2012. All Rights Reserved.
  • 28. Compliance Is Not Limited To Health Care Reform A complex lengthy and ever changing list of requirements complex, lengthy,  Health Care Reform (PPACA)  Internal Revenue Code (not limited to the following)  Sec. 79  Sec. 127  Sec. 105  Sec. 129  Sec. 125  Sec. 132 The requirements  Imputed Income under Health Care  IRC Sec. 152  Ad lt Adult Reform are i addition R f in dditi  Same Gender Marriage children to all of the other up to age regulatory  CA SB 1386 (information privacy) 26 requirements that benefit plan sponsors  ERISA already have to comply with  HIPAA  834 Enrollment  Privacy Rule  820 Premium Payment y  Security Rule  Sarbanes-Oxley Act of 2002  SAS70 Type II audit reports  FMLA  Mental Health Parity  ADAAA  GINA  ADEA  COBRA 28 © ADP, Inc. 2012. All Rights Reserved.
  • 29. A Simple Summary Of Complex Rules NOT MUCH HAS CHANGED 29 Source: House Joint Economic Committee, August 2, 2010 11 © ADP, Inc. 2012. All Rights Reserved.
  • 30. Managing Change: A Multifaceted Approach Workforce Strategy Data Analytics (Total Rewards / Employer of Choice)  Benchmark Data  Recruitment  Trend Analysis  Scope and scheduling  Audits  Salary planning  Decision Support Tools  Reliance on sources, may not be readily available Benefits B fit Administration Design and Compliance Communications  Plan options  St t Strategy  Planning for 2014 and beyond  Design  Federal and State  Medium (Print, On-line, Mobile, Social Media)  PPACA  Education  Testing, Reporting & Reconciliation Consumerism and Wellness – The Foundation  Incorporate with Plan Design  Outcomes  Incentives  Managing risk 30 © ADP, Inc. 2012. All Rights Reserved.
  • 31. Compliance Analysis Is Lacking To Date Source: ADP Research Institute Survey of Employers, May 2012 31 © ADP, Inc. 2012. All Rights Reserved.
  • 32. Plan Design Strategies: Multiple Levers  Wellness is emerging as a key component of employer’s health care strategy – The larger the employer, the more likely they have implemented Wellness  Reductions in the scope and number of plans offered is also increasing – Increases in deductibles and co-insurance have become more common compared to 2011 (will run into limitations under ACA) Steps Taken/Currently Doing/Definitely Will Do Small  Midsized  Large  (1‐49 EEs) (50‐999 EEs) (1,000+ EEs) Offer wellness programs  76% Offer HSAs 62% Increase EE 55% deductibles/contribution Offer a HDHP option  54% Increase employee  48% co‐pays  Offer HRAs 46% Source: ADP Research Institute Survey of Employers, May 2012 32 © ADP, Inc. 2012. All Rights Reserved.
  • 33. Major Forthcoming Employer Requirements Under Health Care Reform  Communication Requirements  Taxes and Fees  Summary of Benefits and Coverage  Include value of Health benefits on W-2: (SBC): 9-23-12 1-1-12  Claims and Appeals Notices: 1-1-12  Clinical Effectiveness Research Fee: 10-1-12  Exchange Notification: 3-1-13  Medicare payroll tax increases: 1-1-13  Plan Changes  Requiring employers to “pay or q g p y p y play”  FSA Annual Plan Limit of $2,500: 1-1-13  Shared responsibility requirements:  Eliminate: 1-1-14 1-1-14 – Pre-existing condition exclusions – Look-back approach may require changes pp y q g in 2013 – Annual and Lifetime coverage limits – Coverage rescissions  Reporting  Guaranteed issue: 1-1-14  Employer Health Insurance Coverage Reporting: 1-1-14 1 1 14  Waiting periods limited to 90 days: 1-1-14  40% Excise Tax on high cost plans: 1-1-18  Cost sharing limits on cost sharing with Employees: 1-1-14 p y  Excise tax limits indexed to CPI  Wellness Incentives expanded: 1-1-14  Auto-Enrollment: TBD – Likely 2015 33 © ADP, Inc. 2012. All Rights Reserved.
  • 34. Employer Requirements: Details Not Yet Clear  Non-Discrimination Testing  Look-Back Rules  Implementation delayed  Unclear as to how people who are unemployed during a look-back  Anticipate effective date of 1 1 15 1-1-15 period are to be treated for  Significant implications purposes of calculating average hours per week per calendar – Ability to use aggressive pricing month – Carving out populations – Example: Teachers working 10 months per year but collecting  Auto Enrollment unemployment for 2 months  Implementation delayed  Guidance requested  Anticipate effective date of 1-1-15  Multi-Employer Benefit Trusts  Significant implications  Unclear how various rules related – Cost to Excise Tax, Shared , Responsibility, etc. will apply in – IRC Sec. 125 instances when benefits are provided through trust rather than directly by employer 34 © ADP, Inc. 2012. All Rights Reserved.
  • 35. ACA Impact On Employer Sponsored Plans  Shared responsibility coverage requirements coupled with ongoing health care inflation will reduce employers’ ability to design health care plans that act as a differentiating component of total compensation and will increase likelihood of employers: – Eliminating / reducing coverage – Focusing on consumer based solutions  HDHPs, HRAs, HSAs, Wellness – Potentially moving some employees to exchanges for coverage 40% E i T O Cost of C Excise Tax On C t f Coverage Ab Above Li it Limit $10,200 for Individual “Cadillac Tax” $27,500 for family Strategic Benefit Plan Design Includes I l d ER and EE d The value of Contributions for: strategic Lobbying Pressure New Cos Drivers Note: Medical benefit Medical Inflation  Medical inflation continues to design will  Rx Ins Co Fees rise at 2 to 3 times shrink over the rate of overall  ASO Fees st time due t ti d to F I inflation – and has  FSA done so for more  HRA Health Care than 50 years*  HSA Reform Coverage R C Requirements i The Excise Tax Applies To Both Grandfathered Plans and Non-Grandfathered Plans 35 © ADP, Inc. 2012. All Rights Reserved. *Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, U.S. Department of Commerce, Bureau of Economic Analysis Sources
  • 36. Example: Estimating Excise Tax in 2018 Individual Coverage  Assumptions – Healthcare plan costs in 2011: Individual - $5,429*; (includes ASO fees) – Average annual FSA contribution of $750* (held constant - not increased for any inflation assumption) p ) Individual Coverage ($5,429 in 2011) $25,000 10.5% Trend $23,000 $21,000 $19,000 8.5% Trend $17,000 $17 000 $15,000 6.2%% Trend $13,000 3.5% CPI $11,000 $9,000 $7,000 $5,000 18 19 20 21 22 23 24 25 36 20 20 20 20 20 20 20 20 © ADP, Inc. 2012. All Rights Reserved. *Source: Kaiser Family Foundation, 2011 Employer Health Benefits Survey
  • 37. Example: Estimating Excise Tax in 2018 Family Coverage  Assumptions  Healthcare plan costs in 2011: Family - $15,073*; (includes ASO fees)  Average annual FSA contribution of $1,250* (held constant - not increased for any inflation assumption) p ) Family Coverage ($15,073 in 2011) $65,000 10.5% Trend $60,000 $55,000 $50,000 8.5% Trend $45,000 $45 000 $40,000 6.2%% Trend $35,000 3.5% CPI $30,000 $25,000 $20,000 $15,000 18 19 20 21 22 23 24 25 20 20 20 20 20 20 20 20 37 © ADP, Inc. 2012. All Rights Reserved. Source: Kaiser Family Foundation, 2011 Employer Health Benefits Survey
  • 38. Example: Estimating Excise Tax in 2018 Estimated Tax Liability Number of Employees: 2,500 Individual Coverage 20% Family Coverage 80% Total 100% Year 6.20% 8.50% 10.50% 6.20% 8.50% 10.50% 6.20% 8.50% 10.50% 2018 $0 $32,020 $294,167 $0 $345,083 $3,256,360 $0 $377,104 $3,550,527 2019 $0 $123,992 $452,104 $0 $1,389,415 $5,033,278 $0 $1,513,408 $5,485,382 2020 $0 $227,352 $631,623 $0 $2,561,016 $7,050,672 $0 $2,788,367 $7,682,295 2021 $0 $343,191 $835,165 $0 $3,872,049 $9,335,679 $0 $4,215,241 $10,170,844 2022 $0 $472,702 $1,065,432 $0 $5,335,763 $11,918,351 $0 $5,808,465 $12,983,783 2023 $0 $617,179 $1,325,418 $0 $6,966,579 $14,831,963 $0 $7,583,757 $16,157,382 2024 $15,706 $778,033 $1,618,439 $314,137 $8,780,193 $18,113,356 $329,843 $9,558,226 $19,731,795 2025 $75,087 $956,800 $1,948,163 $1,001,791 $10,793,690 $21,803,312 $1,076,878 $11,750,490 $23,751,475 Number of Employees: 5,000 Individual Coverage 20% Family Coverage 80% Total 100% Year 6.20% 8.50% 10.50% 6.20% 8.50% 10.50% 6.20% 8.50% 10.50% 2018 $0 $64,041 $588,333 $0 $690,167 $6,512,720 $0 $754,207 $7,101,054 2019 $0 $247,984 $904,208 $0 $2,778,831 $10,066,556 $0 $3,026,815 $10,970,764 2020 $0 $454,703 $1,263,246 $0 $5,122,031 $14,101,344 $0 $5,576,734 $15,364,591 2021 $0 $ $686,383 $ $1,670,329 $ $0 $ $7,744,099 $ $18,671,358 $ $0 $ $8,430,482 $ $20,341,687 $ 2022 $0 $945,404 $2,130,863 $0 $10,671,527 $23,836,702 $0 $11,616,930 $25,967,566 2023 $0 $1,234,358 $2,650,837 $0 $13,933,157 $29,663,927 $0 $15,167,515 $32,314,763 2024 $31,412 $1,556,066 $3,236,878 $628,274 $17,560,385 $36,226,713 $659,686 $19,116,451 $39,463,591 2025 $150,175 $1,913,600 $3,896,325 $2,003,582 $21,587,380 $43,606,624 $2,153,757 $23,500,980 $47,502,949 Number f Employees: N b of E l 10,000 10 000 Individual Coverage 20% Family Coverage 80% Total 100% Year 6.20% 8.50% 10.50% 6.20% 8.50% 10.50% 6.20% 8.50% 10.50% 2018 $0 $128,082 $1,176,667 $0 $1,380,333 $13,025,441 $0 $1,508,415 $14,202,107 2019 $0 $495,969 $1,808,417 $0 $5,557,661 $20,133,112 $0 $6,053,630 $21,941,529 2020 $0 $909,406 $2,526,493 $0 $10,244,063 $28,202,689 $0 $11,153,469 $30,729,181 2021 $0 $1,372,765 $1 372 765 $3,340,658 $3 340 658 $0 $15,488,198 $15 488 198 $37,342,717 $37 342 717 $0 $16,860,963 $16 860 963 $40,683,375 $40 683 375 2022 $0 $1,890,807 $4,261,727 $0 $21,343,053 $47,673,404 $0 $23,233,861 $51,935,131 2023 $0 $2,468,715 $5,301,673 $0 $27,866,314 $59,327,853 $0 $30,335,030 $64,629,527 2024 $62,824 $3,112,132 $6,473,755 $1,256,548 $35,120,771 $72,453,426 $1,319,373 $38,232,903 $78,927,181 2025 $300,349 $3,827,200 $7,792,650 $4,007,165 $43,174,760 $87,213,248 $4,307,514 $47,001,959 $95,005,899 38 © ADP, Inc. 2012. All Rights Reserved.
  • 39. Polling Questions #4 and #5 4. Have you estimated your potential liability under the 2018 Excise Tax limits? Yes No 5. Will you be making plan changes as a result of these estimates? Yes No 39 © ADP, Inc. 2012. All Rights Reserved.
  • 40. Decision Support Tools Will Become More Important Under ACA Types of Decision Support Tools Offered  Most employers do NOT offer Decision Support Tools – Only 25% of small employers – Only 44% of large employers  Th Those employers who d offer these l h do ff h tools, make them available to the majority of employees  In most cases (53%) the tools are available throughout the entire year - not only at annual enrollment SIGNIFICANT GAP: PREFERENCE MODELING Source: ADP Pulse Survey of Employers, September 2011 40 © ADP, Inc. 2012. All Rights Reserved.
  • 41. Decision Support: Cost And Preference Calculator Enables participants to compare preference and price at the same time ti 41 © ADP, Inc. 2012. All Rights Reserved.
  • 42. Benefit of the Analytical Tools: Market Research Associate preferences, Decision cost estimates Tool g generated during g Results Annual Enrollment Aggregate Analytical Data in Central Tools Data Storage Data feed Demographic & Enrollment Use analytical tools to from Annual Choice Data analyze associate Enrollment selection behavior  Use market research techniques to learn about population’s “purchasing” behavior  Examine overall population trends and behaviors  Id if and characterize population segments Identify d h i l i *Note: Data gathering is voluntary and only gathered after receiving client approval 42 © ADP, Inc. 2012. All Rights Reserved.
  • 43. Employer Shared Responsibility Provisions  Key Elements  New definition of “full-time” employee – Applies only to healthcare benefits – Average hours per week per calendar month tracking of FT status  Is employer sponsored coverage offered?  Is it sufficient? – Coverage standards and minimum actuarial value  Is it affordable? – Premiums not more than 9.5% of W-2 Box 1  Key considerations – Does employee enroll in coverage through a state exchange (impact may vary if enrolled in a federal exchange) – Is the employee receiving subsidized Exchange coverage? 43 © ADP, Inc. 2012. All Rights Reserved.
  • 44. Employer Mandates - Pay or Play? IRS Shared Responsibility Assessment  A monthly “penalty” for large employers who: − Either don’t offer coverage don t − Whose employees would have to pay over 9.5% of their W-2 income for coverage − If any “full time” employees instead receive subsidized Exchange coverage Does Not Offer Coverage Offers Health Coverage No FT employees receive One or more FT employees No FT employees receive One or more FT employees credits for Exchange receive credits for credits for Exchange receive credits for coverage g Exchange coverage g g coverage g Exchange coverage g g No penalty • # of FT employees (minus No penalty Lesser of : 30) x $2,000 annually ($166.67/month) • # of FT employees (minus 30) x $2,000 annually, or •# of FT employees who received Exchange subsidies x $3,000 annually. • ($250/month/EE) 44 © ADP, Inc. 2012. All Rights Reserved.
  • 45. Polling Questions #6 and #7 6. Are you considering moving more employees to part-time status (below 30 hours per week)? Yes No 7. Do you plan on offering coverage ONLY through a state or federal exchange once that option is available? Yes No Will depend on the quality of the Exchanges Not sure 45 © ADP, Inc. 2012. All Rights Reserved.
  • 46. Employees May Qualify For Federal Subsidies At Fairly High Income Levels  Part-Time Eligibility  Employees Who Work 30 Hrs or More Per Wk - 130 hrs of work in a calendar month • Employers Must Make Coverage Available • Failure will result in a penalty for each employee if any ONE employee receives subsidized coverage through an exchange • Seasonal employees can possibly be excluded by using the look-back/stability period safe harbor Income Levels For 400% Of FPL (Indexed For Inflation) Federal Poverty Level: 2012 No. Persons In Family 48 Contiguous States 48 Contiguous States/DC 1 $11,170 $44,680 2 $15,130 $15 130 $60,520 $60 520 3 $19,090 $76,360 4 $23,050 $92,200 5 $27,010 $108,040 6 $ , $30,970 $ $123,880 , 7 $34,930 $139,720 8 $38,890 $155,560 Source: Federal Register 4200,January 23, 2009, http://aspe.hhs.gov/poverty/12poverty.shtml  Employers will need an integrated solution addressing Benefits-TLM-Payroll p y g g y Median Household Income In The U.S. was $49,445 In 2010 U.S. Census Bureau – http://www.census.gov/prod/2011pubs/p60-239.pdf U.S. Census Bureau – http://www.census.gov/newsroom/releases/archives/income_wealth/cb11-157.html 46 © ADP, Inc. 2012. All Rights Reserved.
  • 47. Maximum Premium Payment Under ACA (For The 48 Contiguous States and D.C.) Maximum Premium Percent of Federal As % Of Income Maximum Amount Of Annual Premium By Family Size Poverty Level (2014) 1 2 3 4 FPL in 2012 $11,170 $15,130 $19,090 $23,050 100% 2.00% $223 $303 $382 $461 133% 2.00% 2 00% $297 $402 $508 $613 133.01% 3.00% $446 $604 $762 $920 150% 4.00% $670 $908 $1,145 $1,383 200% 6.30% $1,407 $1,906 $2,405 $2,904 250% 8.05% $2,248 $3,045 $3,842 $4,639 300% 9.50% $3,183 $4,312 $5,441 $6,569 350% 9.50% $3,714 $5,031 $6,347 $7,664 400% 9.50% $4,245 $5,749 $7,254 $8,759 Maximum Premium Percent of Federal As % Of Income Maximum Amount Of Monthly Premium By Family Size Poverty Level (2014) 1 2 3 4 FPL in 2012 $11,170 $15,130 $19,090 $23,050 100% 2.00% $19 $25 $32 $38 133% 2.00% $25 $34 $42 $51 133.01% 3.00% $37 $50 $63 $77 150% 4.00% $56 $76 $95 $115 200% 6.30% $117 $159 $200 $242 250% 8.05% $187 $254 $320 $387 300% 9.50% $265 $359 $453 $547 350% 9.50% $310 $419 $529 $639 400% 9.50% $354 $479 $605 $730 Source: CRS computation based on “Annual Update of the HHS Poverty Guidelines,” 74 Federal Register 4200, January 23, 2009, http://aspe.hhs.gov/poverty/09fedreg.pdf, and PPACA, for the second-least-expensive silver plan available to eligible individuals. If individuals choose more expensive plans, they would be responsible for additional premiums. 47 © ADP, Inc. 2012. All Rights Reserved. Note: Premium payment cannot exceed the actual cost of a plan
  • 48. Determining Full-Time Status  Two Basic Choices  Real-time calculation  Look-back approach  Real-time can result in employees moving into and out of benefit eligibility on a monthly basis  Will result in significant COBRA activity  Look-back minimizes this issue  Requires time tracking by calendar month beginning in 2013 © ADP, Inc. 2012. All Rights Reserved.
  • 49. Real-Time Example J F M A M J J A S O N D Average Hours Worked 31 29 29 32 28 27 30 30 28 30 28 28 Attains F-T Status Y Y Y Y Enrollment Period Coverage Period COBRA Notices Sent 49 © Copyright 2012 ADP, Inc
  • 50. Measurement Periods with Administrative Periods Look-Back Measurement Period Stability Coverage Period 2012 2013 2014 O N D J F M A M J J A S O N D J F M A M J J A S O N D 3 Months 6 Months 2012 2013 2014 O N D J F M A M J J A S O N D J F M A M J J A S O N D 6 Months 6 Months 2012 2013 2014 O N D J F M A M J J A S O N D J F M A M J J A S O N D 9 Months 9 Months 2012 2013 2014 O N D J F M A M J J A S O N D J F M A M J J A S O N D 12 Months 12 Months 50 © ADP, Inc. 2012. All Rights Reserved.
  • 51. ADP’s Dynamic Workforce Model HCM Integration Is Critical Service Systems Compliance Practices 51 © ADP, Inc. 2012. All Rights Reserved.
  • 52. Shared Responsibility Requirements Driving Demand For HCM Integration  On average, survey respondents indicated that part-time employees comprise –18% of labor force for midsized employers p y – 20% of labor force for large employers Payroll Hours Admin & Gross Call Center Worked To Net Applicant Mgt W-2 Earnings Tax HR/PR Filings Portal Enrollment Decision ate a s Materials Support Benefits Time Tools T l Time Collection Mobile Scheduling Tech Benefits Eligibility Open & Auto Time Audit Admin & Determination Enrollment Tools Call Center Licenses COBRA Certificates Carrier Direct Files ACA Bill Penalty Disperse- Estimation ments What if a part-time employee works It is no longer just a Benefits event. more 130 hours in a month? 52 © ADP, Inc. 2012. All Rights Reserved.
  • 53. ADP Integrated Solution: Shared Responsibility Requirement Under ACA  Automate beyond core payroll and benefits to achieve results in order to provide a seamlessly integrated solution  Workforce management – Notices sent to managers as employees approach 30 hours in any week – Ability of managers to see scheduled hours for all employees in order to manage hours p y g assigned in conjunction with liability for health care costs Managing Shared Responsibility Requirements  Database of record – Payroll tracks actual hours worked Employer –PPayroll send automated t i ll d t t d trigger t b to benefit fit Mandates administration system when employee Supported By exceeds 130 hours per month Integrated HCM  Benefits administration – Employee e g b ty ca cu at o is t gge ed p oyee eligibility calculation s triggered – Appropriate look-back and coverage period rules are applied – Employee is notified of eligibility – avoiding penalty R Reporting and reconciliation ti d ili ti – Federal and state reporting – Reconciliation with penalty assessments 53 © ADP, Inc. 2012. All Rights Reserved.
  • 54. Managing Shared Responsibility Requirements 54 © ADP, Inc. 2012. All Rights Reserved.
  • 55. Thank You  Please submit all questions through the post-event survey you will see on your screen shortly from HR.com. We will address them directly.  This session has been certified for 1 HRCI and 1 CLE credit Subscribe now: Stay up-to-date with ADP’s Eye on Washington regulatory alerts. www.adp.com/healthcare p Please visit: http://www.proskauer.com/practices/health-reform-task-force/ to learn more about Proskauer’s Health Care Reform Task Force and opt-in Proskauer s publications The use of the HRCI seal is not an endorsement by the HR Certification Institute of the quality of the program. It means that this program has met the HR Certification Institute's criteria to be pre-approved for recertification credit. The ADP logo and ADP are registered trademarks of ADP, Inc. In the Business of Your Success is a service mark of ADP, Inc. The Proskauer logo is a registered trademark of Proskauer Rose LLC. This material is subject to change and is provided for informational purposes only and nothing contained herein should be taken as legal opinion, legal advice, or a comprehensive compliance review. Copyright © 2012 ADP, Inc.