As the Affordable Care Act (ACA) continues to roll out, there are requirements that will take effect in 2016 and 2018 that companies must contend with. There are measurement periods that will define who among a company’s employees are eligible for benefits and a coming Cadillac tax that will be an expense to contend with, among other changes.
Smart Business spoke with William F. Hutter, CEO of Sequent, to understand how the new regulations will affect companies.
What upcoming ACA requirements should companies understand?
Companies, if they haven’t already, should be working on establishing their measurement period, which is used to determine how many employees are eligible for health care benefits based on the hours worked. Failing to establish a measurement period means defaulting to a 30-day period. That is extraordinarily complex, because it means every 30 days an employer must look back to see who within the variable workforce has become eligible for benefits.
Contending with the tracking and look-back dates through the measurement period can be challenging. Once a company establishes that certain full-time equivalent employees, through the measurement period, have met eligibility requirements, there is an administrative time frame to get employees covered — an enrollment period. Those employees will maintain eligibility for health care benefits regardless of the number of hours they work. The employer must keep coverage in place at least until the next look back.
If a company defaults to a 30-day look-back period, employees in this scenario who lose benefits, because they fall below the minimum hours needed to receive benefits, become COBRA eligible. If the employer doesn’t extend benefits to those employees, it can be fined monthly.
There is a chance to define the look-back period before January 2016. Consider a 12-month period that coincides with open enrolment and plan years.
Another change is that large employers must extend coverage to 95 percent of their benefit-eligible employees. Prior to the ACA, companies could choose to make a class of employees ineligible for benefits — all of one department or location, or all hourly people, for instance.
Companies can’t class-out employees anymore unless the class is less than 5 percent of the company’s employee base. It can be any 5 percent, but it can’t include someone who is eligible for benefits. And it has to be a cluster of employees who are similarly situated.
What is the Cadillac tax?
The Cadillac tax, effective in 2018, is a 40 percent nondeductible excise tax on high-cost employer-sponsored health plans imposed on the total cost of coverage that exceeds certain thresholds. The purpose is to reduce the tax-preferred treatment of employer-provided health care benefits. It will also help finance the expansion of coverage under the ACA.
The tax is on coverage that exceeds $10,200 for individuals and $27,000 for a family. Those figures represent the total annual premiums paid by the company and the employee. It will impact flex spending accounts, which are typically funded by employees but are considered a company plan. Any amount of money employees defer into the account is tallied into the total cost. If a company funds a Health Savings Account (HSA), the company contributions into the HSA are also counted, as are the costs of wellness programs.
The Congressional Budget Office estimates that this new ACA tax will amount to more than $80 billion over the next 10 years. This is an annual, employer-paid, non-deductible tax.
Companies must begin to develop a strategy to mitigate the effect of this additional tax on health care benefits. The first thing to do is to meet with a good adviser and determine the total cost of the company health care plan so it’s clear where the company stands against the threshold amounts. Then do some forward-looking projections on the impact of that expense.
The best thing you can do is anticipate. Understand what the rules are. Become very informed and get really good guidance from specialists. Interview three or four advisers, then make your decision to work with someone. If you don’t do the proper reporting, there can be significant fines for administrative errors.
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