How HR plays a vital role in change management

Human resources is at the heart of the company, touching all employees and helping spread the message of the C-suite. However, many times these employees are the last to know about upcoming business changes, instead of the first.

Smart Business spoke with Danone Simpson, CEO of Montage Insurance Solutions about business change and HR’s role in shepherding it along successfully.

Why is HR the last to know about business change?

By working with many human resource leaders, I have often found their common statement is that they are ‘the last to know.’ They are the last to know when change is coming, whether that’s layoffs, mergers, acquisitions, financial difficulties and/or business decisions that can alter a company’s culture.

To begin with the end goal in mind is noble and important along with the understanding that ‘the most well-designed departmental communication program will not tear down silos unless the people who created those silos want them torn down,’ Patrick Lencioni says in his book, ‘The Advantage: Why Organizational Health Trumps Everything Else In Business.’

The well-developed HR professional understands this, because they are the change agent. Along with ensuring compliance measures are met, employee management and communication is critical.

What’s one of the biggest problems with change management?

Often the C-suite of small and midsize companies creates the plan, and then hands it off to HR to implement. Some even give it to supervisors who discuss it with staff members — a handoff that may have started above the C-suite level.

Lencioni, however, states that the success of top-down communication starts with building a cohesive leadership team and creating clarity. ‘Without these,’ he says, ‘no amount of communication is going to be effective.’

Every CEO could agree they have had plans thwarted due to breakdowns in the message — either it was not clear enough or the subculture of important departments did not accept the change because they were not a part of it.

How can the C-suite ensure the message is clear?

Lencioni shares his philosophy of the thematic goal. He recommends ‘every organization that wants to create a sense of alignment and focus must have a single top priority within a given period of time.’

This tight focus should be scheduled for three months to one year. Then, the leadership team has clarity around how to spend its time, energy and resources. ‘The thematic goal must become the responsibility of the leadership team,’ Lencioni says.

Where does HR fit into this focused way of doing business and making changes?

HR is the heartbeat of the company.

At a recent HR organization meeting with roundtable discussions, one person stated, ‘I need advice on how to help my CEO, and other executives, understand I can’t be the last to know about layoffs and other decisions that impact employees.’

Another HR executive/consultant shared how she found the same thing in her startup company, so she asked the leadership team to agree to read one article per week, or month, that she would send them. They agreed, and she sent an article about poor employment decisions similar to ones her leaders handed down to her. It was results based, stating facts of court cases and liability payouts for poor decisions. Another article was on employee engagement or team building exercises to help promote better communications down to the trenches. Her method worked, and now she is on the executive team.

Anita Gorino, owner of Creative Resources, says of HR executives, ‘First of all, don’t be the police. Ask good questions of your executives and then come up with a few key ideas that may lead to a deeper brainstorming session. Be a part of the strategy. Don’t find one million ways why new plans and ideas will not work.’

HR executives are needed to help create and implement employee management strategies, beginning with the ‘why.’ No longer can they be the last to know.

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The 2015 Affordable Care Act transitional guidance — in laymen’s terms

“As we head into 2015, I’m encountering several employer groups who are coming to me to make sure they know what needs to be done to stay compliant with the latest Affordable Care Act regulations,” says Tobias Kennedy, executive vice president at Montage Insurance Solutions.

Let’s assume you already know the broad strokes of the legislation. You understand the Employer Shared Responsibility (ESR) provision, which says if you add the total of your full-time employees plus your full-time equivalent employees and that equals 50 or more, you need to offer insurance — good insurance that doesn’t make your employees pay too much for coverage.

Your biggest questions now may concern clarifying some of the transitional pieces of the legislation.

Smart Business spoke with Kennedy to get a high-level look at the employer who is trying to pin down his or her needs for the rest of 2014 and the beginning of 2015.

What’s the first step to understanding transitional relief?

The transitional relief you get depends on your employee size, so it’s important to calculate that correctly. If you are unsure, there are good resources available, but you basically average the month-by-month totals for your full-time employees and add your full-time equivalents.

The good news is that 2014 has some ‘one time only’ relief where you can pick any continuous six months for the determination. In other words, you can do the calculation based on data from January through June, and take the remaining few months of 2014 to plan for what you need to do next year.

Once you’ve calculated your size, what are the rules?

If you have less than 50 employees, don’t worry at all — the ESR provision doesn’t apply to you.

If you have 100 or more employees, the rules begin for you in 2015, so be sure you’re offering affordable coverage. If you are offering coverage to at least 70 percent of your eligible employees, you’ll be considered compliant for 2015.

What about employers with between 50 and 99 employees?

This is really the most complex piece of the transitional guidance. Basically, if you meet a few conditions, you don’t have to worry about the ESR provision until your first renewal in 2016. Those conditions are related to your workforce size and benefits.

If you can check off each of the bullet points below, and you’re in this size range, you can hold off on being ESR compliance until your 2016 plan renewal:

  • You did not reduce workforce just to qualify. You can reduce workforce for other reasons, but you need to be able to justify the reduction.
  • You keep your in-force coverage the same or similar to what you had on Feb. 9, 2014, the day before they released this news. By ‘the same or similar’ they mean that when you look at the employee only tier of your benefits on Feb. 9, 2014, you either cover the same percentage of the cost or cover 95 percent of the same dollar amount. You can change the benefits themselves, such as co-pays, deductibles, carrier, etc. The government just wants you to keep the premium split in line and be sure that if any changes are made, the new plans are still above a 60 percent actuarial value.

Assuming you can check these boxes, it’s business as usual until your 2016 plan renewal without fear of penalties levied from the ESR compliance.

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Spread the culture: What the C-suite needs from HR

CEOs, CFOs and COOs all require specific things from their HR department.

The CEO develops the mission, vision and direction of the company, fine-tuning the key words that express “why” you do what you do and for whom, and then where you are going as a company.

CFOs then have to budget and balance the dreams, and COOs create action plans with every department.

So while the C-suite is busy creating their 20 Mile Marches, per Jim Collins in his book “Great by Choice,” how does all of this truly get to the most important person in the company — the employee?

You don’t want CEOs just espousing this message from their office without ensuring the employees are a part of the planning, whether that’s in an intimate forum for a smaller office or throughout the world for large companies.

Beyond the C-suite, the answer is one of the most important departments — HR, the heart of the company.

Smart Business spoke with Danone Simpson, CEO of Montage Insurance Solutions, about getting your team involved in company planning and ensuring they understand and are committed to the plan, via HR.

Why is employee buy-in important?

Every employee has to understand the mission, purpose and values of the company. They have to want to be a part of the journey. Inc. CEO Tony Hsieh identifies employees who are not on the same track with his mission and literally pays them to quit. Now, others have joined in such as Jeff Bezos, CEO of Amazon, who offers $2,000 to any new employee that wants to leave, and up to $5,000 for more veteran employees who would prefer to seek employment elsewhere, according to a Huffington Post article.

Even here at Montage Insurance Solutions, employees know that we want to retain people who want to be a part of the team, and they should feel free to move on if that is where they feel they’d be more successful.

Companies today cannot afford to have employees who don’t care or show up just for the paycheck.

So, is creating the right culture the key?

Hsieh understood culture was where he had to start and created an internationally recognized three-day culture boot camp to train other CEOs how he did it. When Zappos was first started, it sounded strange to think of women buying shoes online. Yet today he not only proved the naysayers wrong, he built a profoundly successful business.

In 2011, Jamie Naughton, Zappos’ speaker of the house, spoke at the Pepperdine University Graziadio School of Business and Management, where she shared the Zappos value proposition that, “Zappos is committed to WOWing every customer.” At that time they had over 10 million customers to wow.

Naughton clearly understood what Hsieh needed, and she became the courier of that message. She spoke at universities and HR organizations worldwide, ultimately becoming the company’s chief culture ambassador. This is what CEOs, presidents and business owners want and need.

How do you recommend HR help spread the culture?

The HR team should begin with this end in mind and hold no hostages — either the employee joins in or doesn’t.

HR executives who partner with their C-suite are the ones that work to ensure the company’s mission and vision are communicated consistently, from the first interview and continuing often thereafter.

It takes first wanting to be a part of that culture yourself, and then spreading it like wildfire. A company can be dry without a cohesive culture. It takes both ingredients, vision and culture, to create a company that can make a difference in this world — and is on the lips of its employees and customers.

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How your business is impacted by new ACA reporting requirements

There are a few new reporting requirements the Affordable Care Act (ACA) has created, but with the overwhelming amount of disparate information on the topic, many employers still have more questions than answers.

They want to know which are necessary for them, when the reporting is to be done and whether or not there are fees involved.

“Companies need to be sure their team understands what is required to satisfy these new ACA regulations,” says Tobias Kennedy, executive vice president, Montage Insurance Solutions.

Smart Business spoke with Kennedy about a few of the key points of the ACA from a reporting standpoint.

What do employers need to understand about the Patient Centered Outcomes Research Institute fees?

Patient Centered Outcomes Research Institute fees are also known as PCOR, PICORI, PCORI or CERF fees. This is a relatively small fee that fully insured companies can be assured their carrier handles automatically. However, companies who are self-funded and have a health reimbursement arrangement (HRA) are responsible for this fee.

If your company is self-funded and has an HRA, or if you are unsure if this applies to you, ask your broker or work with a CPA to ask about the second quarter Form 720, which is due by July 31. Depending on the plan anniversary, the fee is either $1 per year per covered life or $2 per year per covered life with most companies using a ‘snapshot average’ method of calculating the figure of lives covered in the fee — although there are a few different safe harbors.

How is the reinsurance fee being handled under the ACA?

A reinsurance fee is also calculated off of the number of covered lives, but it is a substantially higher amount. The fee for 2014 is $63 per year per covered life with 2015 and 2016 fees not announced yet, other than to say they ‘will decrease.’ The calculation for the number of covered lives is due by Nov. 15 and is submitted to the Department of Health and Human Services (HHS).

Similar to the PCOR fees, fully insured groups will have this done for them by their carriers, whereas self-funded companies will need to take action. Also, similar to the PCOR fees, there are a few different safe harbors and companies will want to work with their consultants to correctly apply whichever they deem most suitable.

Within 30 days of submitting the count to HHS, companies will be notified of the amount they owe, and that payment will be due back within 30 days of the company’s receipt of notice.

What about Forms 6055 and 6056?

Forms 6055 and 6056 are simply reporting measures and do not levy fees. The first time this comes into play is in 2016 for the 2015, so companies have a little more time on this than the PCOR/reinsurance fees.

The 6055 is where insurance carriers and self-funded companies report all of the people they cover, and it deals with the individual mandate. Basically, it is a resource for the government to double-check that people who claim to have an insurance policy — and thus to have satisfied the individual mandate — are indeed covered.

The 6056 is a report where companies list out all of the employees they offer coverage to, which helps the government with the subsidies. This is required by all applicable large employers — fully insured or self-funded. Because subsidies are only available to people not otherwise offered affordable coverage, this helps the exchange track people that might be applying for subsidies but who are actually ineligible because of their employer’s offering.

Remember if you need any additional help or have any questions about ACA reporting requirements, don’t hesitate to contact your health care reform experts.

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How employers should treat new hires under the PPACA’s employer shared responsibility rule

Tobias Kennedy, Vice President, Montage Insurance Solutions

Tobias Kennedy, Vice President, Montage Insurance Solutions

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 [email protected]

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How to use the PPACA’s safe harbor to determine which employees qualify for coverage

Tobias Kennedy, Vice President, Montage Insurance Solutions

Tobias Kennedy, Vice President, Montage Insurance Solutions

The Patient Protection and Accountable Care Act (PPACA) has a number of employer provisions generally called the “employer shared responsibility.” So, with this responsibility, who, exactly, do you have to offer coverage to as full-time employees?

“It’s not always as easy as 100 percent of your staff sitting in a chair from 8 a.m. to noon, then again from 1 to 5 p.m.,” says Tobias Kennedy, vice president of Sales and Service at Montage Insurance Solutions. “The reality is employers will have project-based staff, variable-hour employees and other factors that make figuring out ‘full time’ slightly tricky.”

Smart Business spoke with Kennedy about the PPACA’s look back/stability safe harbor, in this second of a three-part series on the employer shared responsibility provision. The first article discussed how the penalties are triggered under employer shared responsibility.

How does the look back/stability safe harbor work?

This provision allows an employer to look at ongoing staff and make a technical calculation on whether or not a person is supposed to be offered benefits under the PPACA. The legislation applies month-to-month, but because the government realizes that a monthly application would be administratively crippling, an optional safe harbor exists where you can extend the length of time used to measure employee hours, and then that data determines which employees qualify.

For ongoing staff, you get three new time frames to calculate with: a measurement period, an administration period and a stability period.

What is a measurement period?

The measurement period is a time frame you get to select — it has to be continuous months and can last anywhere from three to 12 months. Obviously, the shorter the period, the more likely to have irregular spikes; the longer the period, the more it’s a true measure of an employee’s average.

Essentially, you simply define the period of time, and those are the months that an employer uses to calculate employee hours worked. For example, the employer might select a 12-month measurement period and choose to run it from Nov. 1 to Oct. 31 every year. In this case, the employer would look at the hours worked over this period of time to determine each employee’s average hours worked to see if it is more or less than the PPACA-mandated 30 hours — thus qualifying, or not qualifying, for benefits.

What’s involved during the administration period?

The administration period is where you, the employer, have time to evaluate the results of your measurement period, and take care of logistics. This period cannot be longer than 90 days. For practical purposes, this would be used to see who is benefit eligible, plan your open enrollment meetings, distribute benefit information and then collect/process all of the applications for the upcoming plan year.

Using the previous example’s time frame, an employer might have this period run from the end of the measurement period to the end of the year, e.g., Nov. 1 to Dec. 31.

Once an employer moves on to the stability period, what happens?

In the stability period, as long as an employee remains employed, employers must treat him or her according to whatever average the measurement period deemed them — either full time or part time — regardless of the hours worked. So, if an employee measured as full time during the measurement period, you have to continue to offer him or her benefits through the entire stability period even if hours dip lower, as long as the person is still employed.

The stability period has to be at least six months and also no shorter than the time chosen as the measurement period. So, in the example from before, because the measurement was 12 months, the stability period also needs to be 12 months. If employees were measured from Nov. 1, 2014, through to Oct. 31, 2015, the employer would enroll employees throughout the end of 2015 for their 2016 plan year.

Then, the measurement, administration and stability periods continue to go on, overlapping such that every plan year occurs back to back without a break, and each plan year’s eligibility is associated with the hourly performance of employees during the preceding associated measurement period.

In the final of this three-part series, we’ll discuss how to treat a new hire to eventually fold him or her into your employee hourly average calculations.

Tobias Kennedy is vice president of Sales and Service at Montage Insurance Solutions. Reach him at (818) 676-0044 or [email protected]

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How the PPACA’s employer shared responsibility penalties work

Tobias Kennedy, Vice President, Montage Insurance Solutions

Tobias Kennedy, Vice President, Montage Insurance Solutions

The Patient Protection and Accountable Care Act (PPACA) has a number of employer provisions that all seem to fall, generally speaking, under an umbrella called “employer shared responsibility.”

Briefly, the PPACA mandates that large employers, those more than 50 employees including full-time equivalents, offer affordable coverage, which is that the lowest cost option for an employee is less than 9.5 percent of income. The coverage also must carry a minimum robustness — an actuarial value of at least 60 percent — to all eligible employees. If the employer doesn’t follow this, it must pay some kind of penalty.

Smart Business spoke with Tobias Kennedy, vice president of Sales and Service at Montage Insurance Solutions, about how these penalties are triggered, in the first of a three-part series on the employer shared responsibility provision.

How can the employer shared responsibility penalties be triggered?

The penalties are only triggered by an employee of yours receiving a subsidy to purchase an individual policy through the coming exchanges. And, employees are only eligible for a subsidy if they earn less than 400 percent of the federal poverty level and are not eligible for another qualifying coverage like Medicare, Medicaid (Medi-Cal) or a qualified employer plan.

How does the penalty for not offering enough coverage impact employers?

The way this fine is triggered is you, the employer, do not offer insurance coverage to at least 95 percent of your staff. The key words are ‘offer’ and ‘95 percent.’ If they decline, you are not at fault, and at 95 percent there is some minimal leeway. So if you fail to offer coverage to at least 95 percent of your people, and one of them goes to the exchange and gets a subsidy, you are fined. It’s important to note this penalty, like all PPACA penalties, is a non-deductible tax penalty — so finance teams really need to factor that in when evaluating costs.

This penalty’s costs are — pro-rated monthly for each violating month — $2,000 per year multiplied by every single full-time employee you have, which obviously can add up. The bill has a provision where you can, for the purposes of calculating the penalty dollar amount, deduct 30 employees from your full-time equivalent count. In other words, if you have 530 full-time employees, you’re fined on only 500 at $2,000 per person, per year for an annual fine of $1 million.

How does the affordability penalty work?

The second penalty, also non-deductible, centers on affordability. In this case, while you are still fined an annual amount that is pro-rated monthly, the fine is actually $3,000 annually but only assessed on people affected. It also is only up to a maximum of what you would have paid for not offering coverage at all.

It’s important to note that the employer is only going to be penalized on the people for which coverage is unaffordable. In other words, there are going to be times where you want to be strategic about this. You may have a situation where your employee/employer premium split is in compliance for most of your staff — where the dollar amount you ask the employees to pay for premium is less than 9.5 percent of most employees’ incomes. But, a couple of employees actually earn a smaller salary, so they are outside of the 9.5 percent. In this case, the employer needs to know it has a choice: Either raise your employer contribution or pay a fine on those couple of employees. Again, the penalty is only $3,000 per person affected, so it may be less expensive to pay those couple of fines than to completely restructure the way you split premiums.

Next, we’ll address how you know which employees qualify for coverage. A lot of employers have part timers, variable-hour people and project-based staff. So with all of these fines, it’s important to know exactly how you find the safe harbor of which employees qualify and don’t qualify for benefits.

Tobias Kennedy is vice president of Sales and Service at Montage Insurance Solutions. Reach him at (818) 676-0044 or [email protected]

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How to understand health care reform’s Employer Shared Responsibility

Tobias Kennedy, Vice President, Montage Insurance Solutions

Tobias Kennedy, Vice President, Montage Insurance Solutions

The Patient Protection and Affordable Care Act (PPACA) is full of employer mandates, but the most prominent and pressing for employers is the Shared Responsibility provision where large employers need to offer affordable coverage.

“The Employer Shared Responsibility part of PPACA is one of the most onerous and complex parts of the legislation, with employers needing as much guidance as possible,” says Tobias Kennedy, vice president of Sales and Service at Montage Insurance Solutions.

Smart Business spoke with Kennedy for an overview of the provision, as there are several intricacies that can confuse one from gaining a broad, basic knowledge on the topic.

How do you know if you’re a large employer?

Generally speaking, a large employer has 50 full-time equivalent employees. It’s important to note the word equivalent, because when the legislation defines 50 employees it is actually counting full-time workers plus full-time equivalent employees. As an example, if you have 45 full timers, and you also have a few people doing part-time work, the reform bill would have you add up all of those hours worked by the part-time people and figure out how many full-time equivalents that equates to.

The penalty for not offering coverage at all is basically $2,000 per year, per person, minus the first 30, applying only to full timers.

What does affordable coverage mean?

Talking high-level affordable coverage would ask an employer to evaluate two things. For any person where you are in violation of either of these two things, the employer is fined $3,000 annually.

  • Does the plan have an actuarial value of at least 60 percent? To figure this you have several options, but the easiest is to use the calculator provided by the Department of Health and Human Services.
  • Are the employee’s premiums affordable? This is asking for the employee-only portion of your cheapest — above 60 percent, of course — plan not to exceed 9.5 percent of an employee’s income. Income can be calculated a few ways, but the easiest is probably using the wages inserted in the most recent W-2.

Who are employers supposed to cover?

Any employee who works an average of 30 hours or more per week is considered full time, and therefore needs to be offered affordable coverage to avoid fines. If you do not know whether certain employees average more than 30 hours because of varying hours, busy seasons, etc., employers can use a measurement safe harbor.

It can be complicated, but generally speaking, if an employer choses to, the legislation allows for a measurement period. During the measurement period, you look at the employee’s hours and average it out over time. How long the measurement period lasts is up to the employer, but needs to be between three to 12 months.

Once the measurement period ends, an employer must enter a stability period. During the stability period, an employer treats all ongoing employees according to the results of the measurement period. In other words, regardless of hours worked during the stability period, if an employee was full time during the measurement period, you have to offer coverage for the stability period. And, regardless of hours worked during the stability period if an employee averaged below 30 hours per week during the measurement period, the employer does not have to offer insurance.

The measurement/stability period is quite complicated with very particular time frames; the option to implement an administration period; different treatment for new hires versus ongoing employees; rules to transition employees from new hires to ongoing; and a host of other technicalities that truly require the assistance of a trained PPACA professional.

As with all parts of the health care reform bill, consult your professionals for help in the details of this and other provisions.

Tobias Kennedy is vice president of Sales and Service at Montage Insurance Solutions. Reach him at (818) 676-0044 or [email protected]

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How employers with non-Jan. 1 effective date health plans can get transitional relief

Tobias Kennedy, Vice President, Montage Insurance Solutions

Tobias Kennedy, Vice President, Montage Insurance Solutions

As the 2014 date looms, a lot of news is spreading about having to offer affordable coverage to all employees by Jan. 1, 2014, or pay big fines.

“Employers, you may be asking yourself, ‘Hey, our plan year starts on July 1 every year. Does the employer mandate apply to us on Jan. 1, 2014, or does it start on July 1, 2014?’” says Tobias Kennedy, vice president at Montage Insurance Solutions.

Smart Business spoke with Kennedy about possible transitional relief for some employers.

How does the employer mandate work for plans that don’t start with the calendar year?

The good news is there has been special transitional relief for employers to avoid the unaffordable coverage fines and the ‘pay or play’ mandate until later in the year. Generally speaking, the employer shared responsibility mandate is effective on Jan. 1, 2014, but there are special transitional rules that might apply and, if they do, they delay the assessment of penalties until the first day of your first plan year that starts after Jan. 1, 2014.

In other words, if you are that employer with a July 1 plan date and you qualify for the special transitional relief, you don’t face penalties until July 1, 2014, and will not be fined for the January through June months — even if you are out of compliance.

So, how can you qualify for this special transitional relief?

Basically, the transition rules say that if you maintained a non-calendar plan as of Dec. 27, 2012, you might be eligible. There are two parts to eligibility. The first one is whether or not you had a plan in place on Dec. 27, 2012, which is easy enough to figure out.

The second part is based on whom your plan was offered to. If your plan was either offered to at least a third of your employees or covered at least a quarter of your employees, then you quality. For the purposes of figuring out if you offered it to one-third of your employees, you’d look at the number of people offered coverage at your most recent open enrollment season, and for the purposes of figuring out if it covered one-fourth of your people, you can pick any day between Oct. 31, 2012, and Dec. 27, 2012, and check on what percentage of your employees were enrolled.

You still have to correct any violations — unaffordable or under-accessible plans — by your anniversary date or you will be fined. But if you qualify, you have the full year to assess the situation and to make plans to come into compliance by your 2014 plan anniversary.

Which companies can’t get the transitional relief?

The federal government has specifically stated that companies who already have a calendar year plan can certainly change now to a different anniversary date, but they will not be eligible for this relief and those companies — ones who had a Jan. 1 anniversary as of this year or prior — will still be assessed the ‘shared responsibility’ fines as of Jan. 1, 2014.

Additionally, if your company does not qualify for this transitional relief because you either didn’t offer insurance or didn’t cover enough people, beginning Jan. 1, 2014, you will need to offer affordable coverage to at least 95 percent of your employees or be fined. In other words, even if you did have a plan in place but it covered so few people it doesn’t fit the transitional relief provision, you’ll need to either change the plan year date to Jan. 1., 2014, or consider offering coverage to your employees at the 2013 renewal to avoid any fines.

Is there anything else employers should know?

If your employees do not have a medical plan effective Jan. 1, 2014, they will be fined personally. At this plan year, it’s recommended that you sit down and audit your employee benefits program to make sure your employees are offered the coverage and the coverage is affordable, per the 9.5 percent rule that begins in 2014.

Next month we will further review these potential fines for ‘unaffordability’ and the details of that 9.5 percent rule so you know how to comply.

Tobias Kennedy is a vice president at Montage Insurance Solutions. Reach him at (818) 676-0044 or [email protected]

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Batten Down the Hatches as the P&C Market Hardens … or Not?

Danone Simpson, GDBS, president and CEO, Montage Insurance Solutions

On the heels of the Affordable Care Act and health care reform, business owners are going to deal with the shakeout of more costs or potential fines, exchanges and other uncertainties. All the while, the sleeping giant of the commercial Property & Casualty (P&C) industry is awakening with wide speculation of a potential hardening market in workers’ compensation and property casualty. Frankly, it seems to have arrived here in California and other states, as workers’ compensation renewals are causing sheer exasperation.

Gloria Lam of Risk Placement Services lets us know that the market is gyrating; low-price carriers have started high and the clients are demanding quote revisions up to three times for price reductions. It is our job as brokers to persist on behalf of clients by presenting high-deductible plans and other options. Professional Employer Organizations (PEOs) and captives may not be the best shelter, and the repercussions can be costly and can be felt for years to come. It feels as though CEOs are in the eye of the storm that is circling around them, taking bits and pieces, as CFOs are boarding up the windows trying to hold on to what they have.

Ken A. Crerar, president and CEO of the Council of Insurance Agents and Brokers (CIAB), said the P&C market has officially achieved hard-market status. With price increases in the last two quarters and tightening in underwriting, the market has made a hard turn. He goes on to say, “It is hard to predict the length and severity, but the market has turned.”

Mark Lyons, CEO of Arch World Wide Insurance Group said, “Overcapitalization is hiding losses on business. We have had $12 billion in reserves released in the 2011 calendar year alone. … It has been three loss-ratio points of reserve releases over the past three to four years on average. … This sheltering losses on current-year business and masking how unprofitable current business is because of releases in this year for accidents which occurred prior.”  The soft-market pricing is catching up and the longer-tails in commercial lines are causing depleting cushions in reserves.  Acts of God and other disasters have an aftermath effect and there has been frequency internationally.

Market Scout says workers’ compensation and commercial property rates both rose 4 percent in April, which was the highest of the product lines. Richard Kerr, CEO of Market Scout, notices admitted and nonadmitted insurers are showing similar pricing models. This is against historical approaches to underwriting which, in the past, showed considerable differences. These similar pricing strategies could lead to more business for the nonadmitted insurers. The admitted insurers may begin to restrict their risk appetite and begin to decline tougher risks.

The last 10 quarters have generated negative cash reserves, which are beginning to impact companies. Business leaders are looking for leadership that will re-energize local economies and lower the cost of doing business. Brian Allen in National Underwriter goes on to state how these business leaders are demanding improvements in state’s business climates. “These changes include reforms to workers’ comp laws that deal with how medical treatment and benefits are delivered to injured workers and the costs that are ultimately passed on to local businesses.”

California is beginning to see double-digit increases in workers’ compensation and some businesses are responding by closing their doors in the state. U.S. Legislators, State Department of Industrial Relations and Governors are demanding more than piecemeal reform and taking a hard look at the delivery of care, prescriptions and costs. The broker’s role is to go to the insured and make sure they know what is happening. The only safety net is to be prepared for the storm as it continues to pass through.

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