How the latest health care reform changes will affect businesses

The Treasury Department made it a little easier for companies to comply with the Affordable Care Act (ACA) by delaying the employer mandate to provide health insurance for companies with 50 to 99 employees.

Those businesses will have until January 2016 before facing potential penalties, while companies with 100 or more full-time equivalent (FTE) employees still face a Jan. 1, 2015, compliance deadline.

“Some of it was about giving companies time to come into compliance, but they also don’t know yet how penalties will be enforced or collected. The law doesn’t allow the IRS to collect any penalties, so they have a real challenge trying to figure out how to collect the money,” says William F. Hutter, CEO of Sequent.

Smart Business spoke with Hutter about changes in the ACA and what they mean for employers.

What break have companies with 100 or more employees been given regarding the first year of the employer mandate?

For 2015 only, instead of being required to extend coverage to 95 percent of employees they have been granted a grace period and only need to offer coverage to 70 percent of employees.

But plans still have to meet minimum essential coverage standards and have to be affordable.

While companies are getting that break, one of the most difficult aspects of the ACA is the complexity of the reporting and tracking requirements for companies. Most companies with 100 or more employees are already meeting these criteria, but it’s really a challenge for companies with variable-hour workforces.

It can be pretty challenging for retail and hospitality businesses. When you have 70 full-time employees and 50 part-time employees, tracking those variable-hour employees to get your FTE count can be pretty challenging.

What do businesses need to be doing now?

A lot of the administrative details — creating your policy, and your measurement, administrative and stability periods — need to be done now. Make sure your HR and payroll systems can handle the necessary reporting because it’s going to be virtually impossible to track it with a pencil. You need a way to extract that data from your system in a way that matches the reporting criteria.

For larger companies — 100 employees or more — their look-back period to determine employee eligibility for coverage starts this year, correct?

Yes. A large retailer based in Columbus, Ohio, decided a few months ago that employees would either be full time and eligible or part time, never working more than 27 hours a week. More companies will adopt that tactic because it’s easier. They don’t want to worry about who might become eligible in such a volatile environment as retail.

Almost every company has part-time employees who could become eligible based on the measurement period. Let’s say they work 40 hours a week during peak season, are offered and take benefits, then drop back to 20 hours a week. Normally under IRS code, going from full-time to part-time status would create an open enrollment period. But the ACA says they’re still an eligible employee because they met the criteria during the measurement period, and the change to part-time status no longer produces an open enrollment opportunity because of the stability period.

We’re trying to figure out if there’s a nuance in the ACA that address this issue, but haven’t found it. The IRS says you entered into a contract for benefits until the next open enrollment period or change in family status. So the employer would still have to provide coverage and the employee would have to pay his or her share, even if it’s too expensive on a part-time salary.

That’s one of the challenges with the ACA — it’s constantly changing and evolving. Once you digest and understand the implications of it from a business operational standpoint, it changes again. Because of the latest delay, businesses with 50 to 99 FTE employees don’t need to worry about it for a while and can probably wait until things calm down.

William F. Hutter is the CEO of Sequent. Reach him at (888) 456-3627 or [email protected].

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How plan sponsors are expanding options and managing risk

Smart Business spoke with Phil Scott of Sequent Retirement and Benefits Group about trends for plan sponsors.

What are some areas of growing interest and focus for plan sponsors?

One area that continues to be explored is automatic contribution enrollment and automatic contribution increases as ways to boost participation.

By providing better education and communication platforms, plan sponsors are enabling employee participants to be more prepared for their retirement.

Finally, plan sponsors are continuing to keep a close watch on their administrative duties and regulatory requirements.

What are plan sponsors doing to help protect themselves and manage fiduciary risk?

They have leaned on third-party administrators, recordkeepers, investment advisors and legal counsel to identify their responsibilities to maintain plan compliance.

Companies that have embraced outsourcing elsewhere in their organizations have also outsourced segments of their retirement plans to 401(k) fiduciaries. That can be 3(38) investment advisors, who assume responsibility for monitoring, maintaining, selecting and removing investment plan options; or 3(16) advisors, who accept responsibility for plan administrative functions.

Some plan sponsors have adopted or explored the option of joining a 413(c) multiple employer plan. The multiple employer plan option provides an alternative for companies seeking relief from the burdens of independently operating and maintaining their own plan.

How do safe harbor plan designs create advantages?

One great advantage for participants is that all employer matching and non-elective contributions vest at 100 percent immediately. Also, all participants, whether they’re considered highly compensated or non-highly compensated, are allowed to maximize their elective deferral limits. Elective deferral limits, set by the IRS in 2014, are $17,500 for those age 49 or under and $23,000 for those age 50 or older.

Without safe harbor protection, highly compensated participants would only be able to defer approximately 1.5 to 2 percent more than the average contribution of the non-highly compensated group.

From a plan sponsor perspective, safe harbor plan designs are great tools for recruitment and retention of top talent. In addition, the IRS permits a safe harbor plan to be top-heavy, meaning that 60 percent or more of plan assets are attributable to key employees: an officer of the organization, whose annual compensation exceeds $170,000; any employee, who owns more than 5 percent of the company, or owns more than 1 percent and has an annual compensation exceeding $150,000.

What are the implications if a plan is deemed top-heavy?

The plan must meet minimum contribution and vesting requirements for non-key employees for each year the plan is top-heavy. The minimum contribution to bring the plan back into compliance is the lesser of 3 percent of annual compensation for all non-key employees or a percentage equal to the highest percentage contribution of any key employee. Top-heavy penalties are painful infractions, which plan sponsors are able to avoid when utilizing safe harbor as a strategy within their compensation and benefits package.

Phil Scott has over two decades of experience in the financial services industry. He is a registered representative with LPL Financial and investment advisor representative with Advantage Investment Management.

This information is provided as a courtesy and should not be considered specific advice or recommendations for any individual. Please consult your tax professional before taking any specific action. LPL Financial nor Advantage Investment Management are engaged in the rendering of tax or legal advice.

Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Advantage Investment Management, a Registered Investment Advisor and separate entity from LPL Financial.

Phil Scott is with the Sequent Retirement and Benefits Group. Reach him at (888) 456-3627, (937) 521-1911 (direct), [email protected] or [email protected].

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How expanding the Medicaid program will help Ohio businesses

Expansion of the Medicaid program in Ohio was approved by the state Controlling Board because there wasn’t enough support to get it passed in the legislature. But there’s no economic reason for anyone in Ohio to oppose the expansion, says William F. Hutter, CEO of Sequent.

“The battle about Medicaid expansion was based on principle; it was about certain forces resisting an additional expansion of federal government in Ohio. And that somehow expanding Medicaid to the less affluent population in Ohio was an endorsement of health care reform,” Hutter says. “That is one view. I started taking a view that Medicaid expansion in Ohio is good for business and good for the population.”

Smart Business spoke with Hutter about how the Medicaid expansion helps businesses and what companies are doing in response to the program.

Why is Medicaid expansion good for businesses?

Under the Affordable Care Act (ACA), if an individual meets the criteria of having an income of less than 138 percent of the federal poverty level they can apply for Medicaid benefits.

Consider industries like hospitality and retail, which deal with a lower-cost, transient employee population. They’ve taken a position that they have employees they would like to move to full time, but have health care to deal with under ACA and the benefits cost too much. One of the advantages for that group of people, and those industries, in Ohio is that they might qualify under Medicaid.

If employees are covered under Medicaid, they are exempted from the full-time equivalent (FTE) count of businesses. That means they aren’t included in determining whether a business has 50 FTE employees and would be subject to penalties starting in 2015 if they do not provide health insurance coverage for employees. Normally, hours of all part-time employees are totaled to compute how many FTE employees are added to the number of full-time employees to see if a business hits 50.

Having more employees exempted from the FTE calculation could allow businesses to hire more people and get them qualified for Medicaid. Employees get medical coverage, the business gets exempted from the ACA and health care providers benefit.

How do health care providers benefit?

Providers complain that they don’t make money on Medicaid patients because reimbursement rates are lower. However, hospitals and urgent care centers do not turn people away; they provide medical care 90 percent of the time whether or not someone can pay. What’s better, to be paid zero for providing $500 worth of medical services, or to be paid $400? From a patient standpoint, while Medicaid might not cover all costs, it takes some pressure off because there is reimbursement from the federal government.

Have businesses developed strategies in response to the Medicaid expansion?

Absolutely. They are trying to get employees signed up for coverage. We’ve been working with clients on helping them with the Office of Healthcare Transformation, which built the Medicaid application portal in Ohio. Director Greg Moody has done a good job creating a portal that makes it easy for people to sign up.

There have been comments that only 30 percent of the people who register get qualified, but it’s a financial qualification — it’s not arbitrary. It’s a set amount based on income being up to 138 percent of the poverty level.

This is one of the more worthy social benefits that helps keep people healthy and is in-line with the intent of the ACA. It will be good for small and midsize businesses and keep more people employed. Yes, it’s not in high-wage positions, but it is an improvement and will move more money into Ohio and create economic flow.

Employers are starting to figure this out. They want to do what’s best for employees, the company and shareholders. For the current circumstances and environment, Medicaid expansion is good for Ohio.

William F. Hutter is the CEO of Sequent. Reach him at (888) 456-3627 or [email protected].

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Sequent: Why business owners need engaged employees to maximize potential

Many companies talk about the need for employee engagement, but few are taking the necessary steps to engage their workforce.

“While it’s a commonly used term, it’s not common practice. For example, 75 percent of leaders have no engagement strategy, yet 90 percent consider engagement to be a critical component of a company’s success,” says Beth Thomas, executive vice president and managing director of Consulting Services at Sequent.

“Right now, 70 percent of employees are disengaged at work, and it’s costing companies over $300 billion in lost productivity, turnover and diminished business success. Based on statistics, you would think that companies would view this as a critical initiative,” says Thomas.

Smart Business spoke with Thomas, author of “Powered by Happy: How to Get and Stay Happy at Work,” about how to boost employee engagement.

Why have companies been slow to address engagement?

There are several reasons. Some companies believe customer satisfaction is engagement — it’s not. You can have happy, disengaged employees who are genetically happy or pleased with the company, but are not engaged in their work or in the right role.

Surveys will address items like wages, benefits and the company café, but that doesn’t get into the emotional connection to work and employees’ desire to use discretionary effort to be the best performers they can be.

Sometimes companies conduct surveys and do nothing with the results, which creates even more disengagement.

What is the process of engaging employees?

We utilize a nine-step process:

  • Create a vision. What do you want to achieve? What’s the value proposition?
  • Determine the metrics of success. Use benchmarks and create performance goals needed to improve engagement, which will also build customer loyalty and your bottom line.
  • Align expectations. Once you have a vision and decided how to measure success, develop an employee engagement survey designed to get the information needed to improve engagement.
  • Execute the survey. We conduct an educational webinar first, so employees know why the survey is being done and their role in making it a success.
  • Create an action plan based on the survey results. The plan should prioritize tasks and assign ownership and timing to each milestone. Communicate the survey results and how they are being used.
  • Establish a team of influencers. This group will organize activities — based on survey results — to help achieve and sustain a higher level of engagement.
  • Develop leaders and frontline managers. They need to understand how to impact the company culture and employees every day. Many managers think they are prepared to coach and lead engagement, but they really aren’t.
  • Evaluate if course correction is needed. Training or action plan activities may need to be modified to ensure you’re set up for a successful journey toward engagement, rather than a pit stop.
  • Ensure sustainability. Creating that initial engagement is easier than sustaining or improving engagement. We have an engagement application that provides managers with a support network of tips, tricks and hints on how to continually drive engagement. You have to create engagement as a habit; it occurs naturally because of the way you manage people.

What mistakes do companies make when implementing engagement strategies?

One is rewarding performance without behaviors. Someone might be a great producer, but have a bad attitude. Knowing that they have a bad attitude and rewarding them based on sheer numbers or performance is a mistake.

The management and leadership team also has to believe and drive the engagement process; it’s not enough just to say it’s an important initiative.

The benefits of engagement are so great that more companies should make it an emphasis. Engaged employees generate 40 percent more revenue than disengaged ones and are 87 percent less likely to leave. So being able to recruit, retain and benefit from engaged employees will impact your bottom line and the success of your company.

Beth Thomas is executive vice president and managing director of Consulting Services at Sequent. Reach her at (614) 839-4088 or [email protected].

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Sequent: How uncertainty continues to make health insurance decisions difficult

First, the Small Business Health Options Program (SHOP) health insurance exchange was delayed. That was followed by a delay in the release of community ratings for small group programs. On top of that, there’s confusion about whether businesses with less than 50 employees, which are not governed by the Affordable Care Act (ACA) mandate to provide health insurance, can utilize health reimbursement accounts (HRAs) to buy individual coverage.

“The ACA places significant limitations on HRAs, and they are the only vehicle these companies have to distribute dollars employees can use to pay for premiums. The question is whether businesses that are exempt from the mandate are impacted by other aspects of the ACA. There will need to be some guidance as to whether it applies,” says William F. Hutter, CEO of Sequent.

The delays and uncertainty have left small businesses with few options for health insurance at a time when they need to finalize plans for 2014.

“That inherently creates a violation of rules because there’s a 60-day notice requirement to inform employees of any plan changes,” Hutter says. “We think the notice will be interpreted so that companies might be able to make a plan change, but not a cost change — the employer would have to pick up any difference. But that factor also has to be determined.”

Smart Business spoke with Hutter about problems with the rollout of the ACA exchanges and how reform continues to affect businesses of all sizes.

Should the 19 million people who were told their coverage was terminated have been surprised?

That was known back in 2010; it was written about. Plans were cancelled because the ACA changed requirements for insurers and the plans they provide. Plans are not only registered on a federal level but also on a state-by-state basis. Each state has a department of insurance to oversee plans and rate structures. A carrier needs to meet new requirements under ACA and state mandates, but when a plan design is changed, it is no longer grandfathered. It has to be terminated or withdrawn, and a new plan is submitted and approved. Whether this will be true going forward is uncertain.

If you are self-insured, the opportunity to keep the same plan is greater. Companies that self-insure can continue their plans as long as they don’t make significant changes.

Are self-insurance plans exempt from many ACA requirements?

Yes, that’s why companies have been exploring the option of self-funding arrangements. It’s a strange set of rules, but you can choose to cover or not cover certain things as long as they aren’t considered minimum essential coverage requirements. However, you can’t do it in a limited way; you can’t decide to cover autism, but only up to $10,000 a year. You have to choose to not cover it or cover it completely.

What self-funding does is create more predictability for companies because they purchase a stop-loss policy to limit their liability. Health insurance costs will continue to rise because of an aging demographic. The plan design can help keep increases to 4 to 6 percent annually instead of 30 or 40 percent.

Is that option also available to small businesses with fewer than 50 employees?

It can be, although you can’t do it like a big company would because a small employer doesn’t have the numbers to mitigate the risk of large claims.

Self-insurance is a design plan issue. Being self-insured with a specific stop-loss point might work. If you have 30 employees, you can have a stop-loss of $10,000 each. Then you need to figure out your actuarial funding for it and reserve that amount to pay for claims and expected losses. If you have a healthy group, it makes sense.

Small businesses also can join a pool for health insurance. That’s a service HR consultants or chambers of commerce provide, through an aggregation model, for clients or members to get health care. They don’t provide health care but establish a contractual arrangement with a company that does.

But the problem with the ACA is that new information is coming so quickly, and it takes months to rethink your health insurance strategy. This will continue to be difficult for companies to work through.

Willliam F. Hutter is CEO of Sequent. Reach him at (888) 456-3627 or [email protected].

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Sequent: How dropping health insurance benefits may not save you money

At first glance, dropping health insurance for employees and sending them to the exchanges sounds like a win for everyone. Companies can give raises to make up the difference for employees, who then buy insurance for less, and everyone saves money.

But that’s not the result when you factor in all of the numbers, says William F. Hutter, CEO of Sequent.

“Drop your health insurance and give employees the same money is the mantra we keep hearing. It is not a simple decision and should not be treated as such for middle-market companies,” Hutter says.

Smart Business spoke with Hutter about the costs associated with this decision, and its potential impact on your business.

Would companies rather not worry about health insurance because of its volatility?

Companies are tired of thinking about health insurance; it’s becoming another distraction away from their business. Of course, that’s just considering cost and not taking into account the cultural issues involved with the perception of whether you’re taking care of your employees.

For example, a client was advised that it could save money by sending everyone to the exchange and just giving employees raises. That has proven to be a fallacy. When you review all of the numbers, the savings are not there.

The company has 109 employees, and 79 are covered by the health plan. It has a high deductible, so the company contributes to a health reimbursement account (HRA) for employees.

Basic costs of the plan are:

  • Total insurance premiums — $653,000.
  • Company share — $522,400.
  • Employees’ share — $130,600.
  • Company HRA cost — $200,000.
  • Total cost to company — $722,400.

Dropping insurance and giving those employees $7,500 in raises each  — a total of $592,500 — would appear to save the company $129,900. But you have to consider the total cost impact, including deductible burden, taxes and penalties.

What are the tax implications under this scenario?

Because of the loss of the pre-tax deduction, employees and the company both pay more in taxes on the $592,500 in raises — $199,937 by employees and $73,395 by the company.

There’s also an Affordable Care Act (ACA) penalty of $114,000 the company would be required to pay because it would no longer be a health plan sponsor. And now the employees also are paying all of the plan deductible, so that’s another $158,000, assuming a $2,000 deductible.

When you consider all of those factors, the total cost is $779,894, or about $57,000 more to not offer health insurance. When shown the entire picture, the client was blown away.

Are there other variables to consider, even if dropping health insurance for employees made financial sense?

In addition to how it would be perceived by employees, there’s a concern about making a decision based on the short term. Organizations need to think more strategically, rather than looking just at how to fix a current problem.

No one knows how the exchanges are going to shake out. They are getting a tax subsidy for the first two years in the form of a $62 annual tax on every employee covered by an insurance carrier outside of the exchanges. In theory, that provides a pool of money carriers can draw on until the exchanges find their own balance regarding enrollees, costs and risks. That could result in a significant increase in premiums in two years when the subsidy goes away.

Also, you want to be cautious about dropping insurance and giving up the tax advantage of sponsoring a plan because it’s difficult to go back. That’s really the objective of the ACA — it’s a revenue enhancement bill rather than a health care bill. That goes back to the 2005 study by Sens. Max Baucus and Chuck Grassley, which flowed right into health care reform.

This analysis and case study is a dramatic illustration of how the changes written into health care reform are really about closing tax loopholes. Companies may be better off keeping the tax advantage of health care for themselves and their employees by providing access to predictable health care coverage.

William F. Hutter is CEO of Sequent. Reach him at (888) 456-3627 or [email protected].

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How delays and deadlines are affecting PPACA implementation

Enforcement of the employer mandate has been delayed until 2015, along with the annual limit on out-of-pocket costs a patient pays above what insurance covers, but the rest of the Patient Protection and Affordable Care Act (PPACA) is still scheduled to proceed as planned — although it’s uncertain whether that schedule will be kept.

“Right now there’s been two official delays announced. In theory, all other elements of the PPACA are coming into play. But this is so fluid and volatile that we could see the Department of Health and Human Services (HHS) announce that the federal exchange is not ready,” says William F. Hutter, CEO of Sequent.

Open enrollment for the health insurance exchanges, aka marketplace, is set to start on Oct. 1 and continue through March.

“They’re trying to build awareness through a marketing campaign but aren’t sure what to do because they haven’t seen how it is going to work,” Hutter says.

Smart Business spoke to Hutter about the upcoming timetable for PPACA implementation and what to expect regarding scheduled deadlines.

What do these delays mean to the implementation of the PPACA?

Pieces of the PPACA are already in place. The Medicare tax is increasing, the decline in flexible spending dollars have come into play, and the underwriting criteria for carriers is going to change how they underwrite and create similarities in pricing models because plans have to be pretty consistent. The age compression standard — rates can only be three times as much because of age — has been set.

Additional taxes also have kicked in, including the Patient Centered Outcome Institute fee. Employer requirements to notify employees have increased, as well.

Major changes are occurring; no one knows how they are going to pull it off. There are so many variables at this time that no one can predict what’s going to happen.

There’s also the question of whether the exchanges will be ready to go on Oct. 1. As of now, only one is ready — California. There’s also Massachusetts, if you consider that an exchange. The HHS has been quiet following a flurry of releases months ago. Something was leaked that the federal exchange might not be ready and since then there’s been no information, which means they might push it close to the deadline.

Meanwhile, companies are left to fend the best they can in anticipation of open enrollment starting.

Are repeal or defunding possibilities?

The repeal votes are all pomp and circumstance. Defunding is possible, but unlikely. The real problem is that no one can figure out how to make the PPACA work. That includes insurance agents and carriers, enforcement entities and employers.

What difference does delaying the employer mandate a year make?

All it means is that employers don’t have to worry about fines or penalties for a year. We’re recommending that companies proceed based on what they think is the best course of action. Companies need to design solutions to fix some of the exposures of the PPACA; it doesn’t matter what type of business you have, what makes a difference is your financial wherewithal. It’s a matter of coming up with a basic solution to address PPACA requirements and deciding how much you want to spend — like getting a combo meal and choosing between small, medium and large. That decision will be based on factors such as company culture and environment.

One emerging tactic is to seek early renewal of plans because of the uncertainty surrounding the PPACA. If you can get your carrier to renew starting Dec. 1, 2013, then you don’t have to worry about the PPACA and its impact until December 2014.

Right now, there’s no breathing room for companies. What happens if you anticipate that the federal exchange will be ready and the HHS announces on Sept. 10 that it will be delayed? Then there are all of the challenges associated with technology, billing and verification of wages. There’s going to be a whole new system that will handle protected health information, is it going to be secure? 

There are so many things to be considered; it makes sense to try to schedule your plan year to avoid the inevitability of the PPACA until there is more certainty.

William F. Hutter is CEO at Sequent. Reach him at (888) 456-3627 or [email protected].

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