Montage Insurance: How employers should approach employer shared responsibility Featured

8:00am EDT August 31, 2013
Tobias Kennedy, Executive vice president, Montage Insurance Solutions Tobias Kennedy, Executive vice president, Montage Insurance Solutions

The biggest employer piece of the Affordable Care Act (ACA) has been delayed until 2015. Unfortunately, it looks like some of the transitional relief rules for the 2013 year went by the wayside with it, so it is incredibly important for employers to know that, as of now, the government is expecting you to use the 2014 gift year to get yourself into compliance — a year in which, technically, the ACA is still the law of the land, although there will be no penalties for the shared responsibility provision.

“Employers should really be aware of the fact that, beginning with the upcoming Jan. 1 renewals, your next renewal is your last renewal to implement the necessary changes before we enter 2015 and you begin to ‘go live’ in terms of facing noncompliance penalties,” says Tobias Kennedy, executive vice president, Montage Insurance Solutions.

Smart Business spoke with Kennedy about what exactly is the employer shared responsibility.

What does the employer responsibility really entail?

To break it down, you need to know the answer to three questions:

  • Are you large enough to trigger it?
  • If so, is your coverage considered affordable?
  • Are you covering all of the people you’re required to cover?

How can employer groups know if they are large enough?

Technically the provision only applies to companies with 50 full-time or full-time equivalent employees. If you have more than 50 full-timers, it’s easy to know that you must comply.

Groups that can be trickier are those with part-timers. Even though you are not required to cover them, you are required to count their hours worked for the purposes of determining large employer status. Basically, most every hour worked by a part-timer goes into the calculation and you assign one full-time equivalent for every 120 hours your part-time staff works. In other words, if you add up all the part-timers’ hours and it comes to 1,200 hours for the month, you would add 10 bodies to your head count because that’s the equivalent of 10 full-timers, per the law. If you average more than 50 for the year, you must offer the people who are truly full-timers affordable coverage or face a penalty.

When is coverage considered affordable?

This actually has two parts to it. The first is the actuarial value of the plan, which is a fancy way of ensuring the plan is not a mini-med plan. So, first and foremost, regardless of what you charge the employees in premium, the plan has to have a 60 percent actuarial value. A Kaiser Family Foundation study set 60 percent at, approximately, a $2,750 deductible, 30 percent coinsurance and an out-of-pocket max of $6,350 — so it’s a fairly lenient plan design to meet.

Apart from that, you have to make sure that the employee-only tier costs less than 9.5 percent of an employee’s salary. You don’t need to worry about dependent buy-ups. There are a few safe harbors for figuring employees’ salaries, including using what’s reported in Box 1 on Form W-2 or comparing the premium to the Federal Poverty Level. You are only responsible for ensuring one of your plan options meets this threshold. In other words, dependent buy-ups can still be done at the cost of the employee, as well as buy-ups to richer coverage/lower deductible plans.

How do you know if you’re offering the plan to the right people?

First, the legislation defines full time as 30 hours or more per week, which might be a change for some employers still using the traditional 40-hour threshold.

Apart from that, one of the more complicated parts of the ACA centers on how employers with variable-hour employees offer coverage. Basically, you have the option of averaging out hours worked over a pre-defined time frame, up to 12 months. You can use that longer time frame to level out spikes in work for employees who toggle between working more some weeks and less in others. You can review their annual average and offer them coverage based on hours worked in the year.

You need to cover at least 95 percent of those the law says you’re supposed to cover, so you’ll want to work with your consultant to be sure you cast an appropriate net over the people that you’re required to make eligible.

Tobias Kennedy is an executive vice president at Montage Insurance Solutions. Reach him at (818) 676-0044 or toby@montageinsurance.com.

Insights Business Insurance is brought to you by Montage Insurance Solutions.