What Our Clients Need to Know About the Affordable Care Act
What two years ago seemed like an event too far off to care about, the launch of the Affordable Care Act (ACA) this coming January 1st is now just around the corner. While there are still significant gaps in the clarity needed to fully comply with the 2700+ page law, we now know that most of the regulations that are going to be activated in January have been written. It’s now time for employers to make decisions about how they will comply with the key provisions of the Affordable Care Act.
Because we are still hearing our client’s asking questions about the basic components of the law, we wanted to share information provided to us by our national trade association, the ASA (American Staffing Association), which we think does a good job of outlining the key elements of the ACA and what it means to our clients. Since the staffing industry is significantly impacted by ACA mandates, our industry worked closely with the DHSS throughout the writing of the ACA regs.
Key ACA Definitions
1. (Eligible) Full Time Employee: Any employee who averages at least 30 hours per week (130 hours per month; 1560 hours per year).
2. Seasonal Employees: Employees working less than 120 days in a year. Generally excluded from ACA coverage because not considered full time.
3. Healthcare Plan—Minimum Essential Coverage (MEC): References the requirement that a compliant healthcare plan after January 1st must cover healthcare basics, “the diagnosis, cure, mitigation, treatment or prevention of disease.” Many of the so called “mini med”, wellness, and preventative plans will not meet the MEC requirement.
4. Healthcare Plan—Minimum Value: References the requirement that a compliant healthcare plan cover at least 60% of the overall costs associated with 1) physician and mid-level practitioner services, 2) hospital and emergency care, 3) pharmacy costs, and 4) laboratory/ imaging services. Many high deductible plans will not meet Minimum Value requirements.
- The IRS and DHSS are developing a Minimum Value Calculator and a safe harbor checklist that employers can use to see if their plan meets the Minimum Value test.
6. Affordability: Refers to the ACA requirement that the employee’s share of the costs associated with single-only plan can be no more than 9.5% of the employee’s income.
7. Play: Refers to the decision an employer might make to offer a healthcare plan that provides Minimum Essential Coverage to 95% of its full time employees and their dependent children under age 26 (NOTE: It is not mandated that spouses be offered the plan). Even employers who “play” may be subject to penalties if 1) their plan is not affordable, 2) they fail to offer the mandated coverage to at least 95% of their eligible employees, or 3) if they do not offer coverage that meets the Minimum Value test.
8. Pay: Refers to the decision an employer might make to not offer the Minimum Essential Coverage, making them subject to “failure to offer” penalties.
9. Administrative Period: Refers to the first 90 days of a new hire’s employment within which their employer is required to offer an eligible full time employee the mandated benefits.
10. Exchanges: The mechanism through which insurers will offer small employers (less than 100 employees) and individuals the ability to purchase health insurance. If a state doesn’t provide an exchange, the federal government is required to do so—Washington, Oregon and California have created exchanges.
11. Subsidies: The credits available to individuals who qualify for assistance in order to purchase coverage through an Exchange. The subsidy assists the individual but is provided directly to carriers
Key ACA Requirements
1. Employer Requirements: Employers with 50 or more full time employees (and full time equivalents) must offer a healthcare insurance plan that provides minimum essential coverage (MEC) to 95% of their full time employees and their dependent children (the play option) or be subject to penalties (the pay option).
2. Employer Penalties: Employers are subject to penalties whether they pay or play. The amount of the penalties varies:
3. Penalties for Employers who Play—“Inadequate Plan” Penalties: If the plan offered is “unaffordable” or does not provide “minimum value” the penalty is $250/month (up to $3K annually) per impacted employee who seeks and is granted a government subsidy.
4. Penalties for Employers who Pay—“Failure to Offer” Penalties: If the employer does not offer a MEC plan to 95% of their full time employees and their dependent children, the monthly tax is $167 (up to $2k annually) on ALL full time employees (minus their first 30). NOTE: Pay Penalties apply to all employees, not just the employees not covered and are not tax deductible.
5. Individual Requirements: Individuals must enroll in a healthcare plan that provides them and their dependents minimum essential coverage or pay penalties. If they do not obtain insurance through their employer or Medicaid, they are required to purchase an individual plan that will be offered to them through Exchanges.
6. Individual Penalties: The penalty for failing to have insurance is either a flat dollar amount per person or a percentage of household income.
- 2014: $95 per person (up to 3 or $285) or 1% of household taxable income
- 2015: $325 per person (up to 3 or $975) or 2% of household taxable income
- 2016: $695 per person (up to 3 $2085) or 2.5% of household taxable income
- 2017 and beyond – same as 2016 with Cost of Living increases
7. Individual’s Eligibility for Subsidies: Individuals with household incomes determined to be 100-400% of federal poverty levels may be eligible for government funded subsidies that they can use to buy insurance through public health exchanges. NOTE: Employees are not eligible for coverage if they are on Medicaid or have been offered a healthcare plan that is both affordable and meets Minimum Essential Coverage by their employer and refused it.
8. State and Federal Public Health Insurance Exchanges
- Provide a place for individuals or small employers to purchase of compliant healthcare insurance. Available plans will be categorized into one of four groupings: Bronze, Silver, Gold and Platinum, plus a catastrophic plan.
- Determine an employer’s or individual’s eligibility to purchase through the Exchange.
- Determine the affordability of a plan offered to an individual through their employer.
- Determine an individual’s eligibility for exemptions or subsidies.
9. New Discrimination Mandates
- The regulations relating to the new discrimination provisions embedded in the ACA are not yet written and likely won’t be before 2015.
- 2014 will allow differentiation in the plans offered to different employees and will allow different levels of employer contributions to those plans. Tiered/pay up plans are allowable in 2014.
- Discriminations in favor of lower paid employees will remain permissible after 2014. Any employer can pay more for their lower paid employees to ensure what they offer meets “affordability” standards.
The ACA and Staffing – Unique Applications
1. Variable Hour Employees: Refers to employees working in a job where the length of employment or the hours of work each week is uncertain. The Variable Hour employee definition is assumed to apply to the majority of temporary or contract workers represented by the staffing industry who work on 1) an undetermined number of “short term” assignments, 2) with a variety of clients, and 3) likely to be gaps between assignments.
- Estimates are that only 10% of the current temporary and contract workforce will be benefit eligible.
- The ASA is advising its members that assignments targeted to last less than six months will not be challenged if classified as “variable.” Assignments intended to last longer than six months are subject to “common sense” interpretations of the requirement of “uncertainty.”
2. Specific Rules for Variable Hour Employees:
- Measurement Periods and the Look Back Rule: A look back/measurement period is a time period (ranging from 3 to 12 months as selected by the employer) during which a variable hour employee is determined to meet the test of full time status. To become eligible for coverage, an employee must average at least 30 hours per week during the measurement period.
3. Stability Periods. Stability periods must include the same number of months as the elected measurement period but are counted on a go-forward point from date of benefit eligibility. Employees working full time during the look back period will be benefit eligible during the go-forward stability period as long as they stay employed. NOTE: Employee must be covered during their stability period even if their hours of work are reduced to part-time status.
4. Staffing Firm Costs to Play include:
- The cost of an affordable plan for 95% of eligible employees.
- Minus the costs that would otherwise be associated with employees who opt out because they have coverage elsewhere
- Plus the cost of penalties for any employees that receives subsidies because the plan offered is not affordable.
5. Staffing Firm Costs to Pay include:
- A nondeductible monthly tax assessment of $166.67/month on all eligible employees (over the first 30). Penalties would be applied to ALL employees, covered or not.
6. Impact of Increased Costs on Clients
- Expect 1-5% increase in bill rate
7. The Staffing Industry Challenge – “There are not a lot of Health Plans Designed for Temporary Workers“
- Mini med plans no longer allowed. Fixed dollar indemnity plans—do not qualify as providing “minimum value;” preventive and wellness plans—won’t provide “Minimal Essential Coverage.”
- New plans are expected to be developed between now and January 1st but with unknown costs and coverage.
The American Staffing Association and the ACA
The American Staffing Association played an active role in writing ACA regulations. The ASA supports compliance with the law and urges its members not to participate in practices that violate either the substantive components of the law or its intent.
The ASA strongly urges its members to avoid any arrangements with clients aimed at avoiding coverage or penalties. Activities the ASA believes will trigger an IRS audit include: 1) splitting hours of work between two entities when the employee is doing one job, 2) reducing employee headcounts below 50 for the purpose of avoiding ACA requirements, and 3) terminating, refusing to reassign, or limiting the hours of work for employees if the purpose is to deny coverage or penalties.
Staffing can continue to be used for valid business reasons; fluctuating workloads, staffing special projects, managing turnover, auditioning processes, and legitimate part time work.
For more information on the ACA and how it will impact your temporary workforce in 2014, contact us at firstname.lastname@example.org.