Under the Patient Protection and Accountable Care Act (PPACA), large employers may know that to avoid penalties, they need to offer coverage that is affordable and qualified to full-time staff. But how do you treat a new hire to fold him or her into full-time staff so the employer shared responsibility rule can be applied?
Smart Business spoke with Tobias Kennedy, vice president of Sales and Service at Montage Insurance Solutions, about how to handle new hires, in the final of a three-part series on the employer shared responsibility provision.
When must health coverage be offered to new hires?
Per the PPACA, new hires must be offered coverage within 90 days if you reasonably expect the person to be full time. However, if, at the time of hire, you cannot reasonably predict whether the person will be full or part time, you can submit the employee to a similar set of measurement/stability periods as the full-time ongoing staff. (For more information on ongoing staff measurement/stability periods, see the second article in this series.) The term ‘standard measurement’ was created to distinguish ongoing staff from what you can use for new hires, which is called an initial measurement period.
How does the initial measurement period work?
Like the standard measurement, the initial measurement period must be continuous months of between three and 12 months. Also, you have an administration period and an associated stability period where, as long as the person remains employed, you treat him or her according to the results of the hourly average from the measurement period.
What administration period rules need to be satisfied for new hires?
First, the period is no longer than 90 days — same as for ongoing staff. However, there is a caveat that the 90 days actually starts counting upon date of hire, keeps counting until you start your initial measurement period, where it pauses, and begins counting again for the period from the close of the measurement period through to the start of coverage. This is pertinent if you don’t measure from date of hire, such as beginning to measure the first of the month following date of hire, so some days between hire date and measurement beginning are deducted from the total 90-day allotment.
Also, the administration period when added to the initial measurement period cannot exceed the first of the month following 30 days of an employee’s anniversary. The longest an employee can possibly go from date of hire to coverage effective is 13 months and some change.
How does the stability period operate for new hires?
Like the ongoing staff, if a 12-month measurement period is chosen, then a 12-month stability period must be chosen. So, if an employee were hired on May 15, 2014, the employer would use a 12-month initial measurement period beginning the first of the month following date of hire, June 1, 2014, to May 31, 2015. Because the employee’s anniversary is May 15, 2015, the first of the month following 30 days of that is July 1, and the employer’s only option for administration is the month of June. If the new hire was deemed full time, he or she is offered coverage for a 12-month stability period beginning July 1, 2015, through June 30, 2016.
So, in this example, what happens with the employee on June 30, 2016?
The employee’s timeline runs from May 15, 2014, to June 30, 2016, so there is enough time for him or her to have eclipsed whatever time frame the employer uses as the standard measurement period for ongoing staff. If this new hire worked for an employer who measures ongoing employees from Nov. 1 to Oct. 31 every year, what happens to benefits on June 30 would be contingent upon the average hours worked from Nov. 1, 2014, to Oct. 31, 2015.
If the employee were full time during this time frame, the benefits would continue to the end of the year, per a 2016 stability period associated with that standard measurement period. If the employee was not full time in the standard measurement period but was during his or her initial measurement, benefits will continue through to June 30, 2016. And if the employee was not full time in either measurement period, benefits don’t have to be offered through the end of 2016.
It’s important to note that if an employee was not full time during the initial measurement but was full time during the standard measurement, you will need to add him or her to the benefits. So, in the running example, if an employee didn’t qualify based on June 1, 2014, to May 31, 2015, hours worked, but you re-measure according to your ongoing rules and find the person was full time during the Nov. 1, 2014, to Oct. 31, 2015 period, then the 12-month new hire stability period of not having benefits is clipped short. It’s replaced by the guarantee of benefits for the full 2016 plan year with an effective date of coverage of Jan. 1, 2016.
This can be complicated, but you should be fine as long as you work with a good consultant and utilize the tools your payroll vendor provides.
Tobias Kennedy is vice president of Sales and Service at Montage Insurance Solutions. Reach him at (818) 676-0044 or firstname.lastname@example.org.
Insights Business Insurance is brought to you by Montage Insurance Solutions
Business insurance costs and coverage terms have become unstable, but there are steps that businesses can take to minimize risk and keep costs under control.
“Health insurance rates increase almost every year — there’s never good news. With respect to property and casualty insurance, premiums have been decreasing or flat for a number of years. Because rates have been stable, business owners are often unwilling to spend time and resources on loss control and risk management,” says Peter Bern, CEO of Leverity Insurance Group. “This reduction in pricing is deceptive, setting businesses up for a shock when the insurance market takes a turn, so it’s important to proactively address risks and losses now before insurance prices begin to climb. Those that simply ride the market without working to reduce risk will have a harder time placing coverage and won’t be offered rates that are as competitive and coverage that’s as comprehensive as they had seen in the past.”
Smart Business spoke with Bern about the causes of the hardening insurance market and what companies can do to address the situation.
What does a hardening market mean?
It’s not just an increase in premium rates; rather, insurance companies and their underwriters are also taking a closer look at the risks and determining whether they want to change the coverage terms by requiring higher deductibles or are unwilling to provide as much, or any, coverage for specific exposures. Basically, it’s a challenged marketplace and it’s more complicated to get competitive and comprehensive coverage from insurance companies.
Why is this happening?
Over the last several years, insurance companies have been hammered by unprecedented losses from natural disasters, corporate fraud and dealing with continued flat investment returns, which can be attributed to the weak economy. Worldwide, insured catastrophe losses have hit and exceeded historical records, and, as a result, insurance companies are paying out more in claims than they’re taking in through premiums. As 2013 begins, there is no doubt that Hurricane Sandy will have a large impact on the insurance marketplace. The scary part is that the losses are still being added up. Bottom line, for insurance companies to make money and stay financially viable, they need to increase pricing and exercise greater discipline in underwriting risks.
What potential rate increases do companies face if they don’t take action?
As a business owner, a 10 to 15 percent increase in cost will still be unpleasant, but a 40 percent or more increase in addition to a reduction in coverage could affect the viability of your company. Over the past year, premium rate increases of approximately 5 to 7 percent are being seen throughout the insurance marketplace. However, certain segments and businesses have experienced larger increases in premiums because of loss frequency and severity, as well as diminished capacity in the marketplace.
What can businesses do to take charge, control losses and mitigate the effects of the hardening market?
It starts with proper risk management practices to prepare in the event of a loss. By partnering with a trusted adviser, businesses can:
• Pinpoint exposures and cost drivers.
• Identify loss control solutions tailored to unique risks of the business.
• Create a contingency plan to account for disaster and unpredictable risks.
• Build a company focused on safety.
• Manage claims efficiently to control costs.
• Determine the most competitive and comprehensive way to transfer risk.
Even if the insurance marketplace doesn’t harden to a point that it affects your company’s well-being in the short or long term, a business with effective loss control and risk management initiatives will always pay less to secure and protect its assets and exposures in any market conditions.
Peter Bern is CEO at Leverity Insurance Group. Reach him at (216) 861-2727, ext. 512 or email@example.com.
Insights Business Insurance is brought to you by Leverity Insurance Group