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{ Holmes Murphy &

Associates }We’re for you.

Upper Midwest/Great Lakes/SouthwestKFC Franchisee AssociationAffordable Care Act Updates

Pete WalshHolmes Murphy & Associates

Public Still Divided On ACAAs you may know, a health reform bill was signed into law in 2010. Given what you know about the health reform law, do you have a generally favorable or generally unfavorable opinion of it?

Source: Kaiser Family Foundation Health Tracking Polls

Don’t know/Refused

Unfavorable

Favorable

40

44

41

35

45

40

44

40 41

5048

46

4144

4643 44 43

51

44 43 44 43

40

43 4441

4443%

14 1410

1412 11

1518 18

9 8

13

1814

1215

17 16 1519

1719

1519

1519 18 17

19%

46

41

4850

43

49

42

42 42

4143 42 41 42 42 42

3941

3437

4137

42

41

42

3741

3838%

0%

20%

40%

60%

80%

Apr May J un J ul Aug Sep Oct Nov Dec J an Feb Mar Apr May J un J ul Aug Sep Oct Nov Dec J an Feb Mar Apr May J un J ul Aug

2010 2011 2012

ACA signed into law on March 23, 2010

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Questions to Consider

• What should I be prepared for in 2013 and 2014?• What are the penalties?• Am I a large employer?• How do I know who should be on the plan?• Can I exit the health insurance market?• How important is the 2018 Cadillac tax?• What are some strategic opportunities?

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Copyright © 2012 by Holmes Murphy & Associates

Health Care Reform Timeline

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Guidance continues to be released revising interpretation of legislation. Future legislation may change/add/delete requirements listed above.

2010

•PPACA signed into law 3/23/10

•Initial mandates' effective date is beginning of plan year after 9/23/10

2011

•Dependent to age 26

•Remove lifetime maximum

•Remove pre-ex for children under age 19

•Revise 'essential benefits' limits

•Exclude OTC from FSA, HSA & HRA reimbursement

• If lose grandfather status - cover preventive care at 100%

2012

•Implement expanded appeals process•Comparative effectiveness fee begins at $1 per participant per year

•Uniform coverage documents required 3/23/2012?

•Report value of health coverage on 2012 W-2

2013

•Reduce Health FSA maximum to $2,500

•Medicare tax change for high income employees

•Uniform notice required

•Exchange notice required 3/1/2013

•Comparative effectiveness fee increasese to $2 per participant per year

2014

•Insurance Exchanges open

•Individual Mandate

•Employer $2,000 Penalty

•Default enrollment TBD

•Shorten waiting period to 90 days or less

•Wellness credit differential up to 30%

•Remove pre-ex for adults

•Remove ALL essential annual limits for healthcare services

2017

•Large employers may purchase coverage via Exchange

2018

•Cadillac tax

• Reinsurance fee begins


Snapshot of Law

• Penalties, Penalties, Penalties• W2 Reporting• Summary of Benefits• Comparative Effectiveness• Essential Benefits• Women’s Preventative Care• Exchanges• Auto-enroll• Wellness • Cadillac Tax• Industry taxes

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Definitions• An employer is defined as an employer under the Tax Code. Employers

meeting the common control test would be considered as single employers, even if they have different tax numbers. 22 Pages

• A full-time employee is defined as an employee with an average of at least 30 hours of service per week. 18 Pages

– 130 hours of service in a calendar month: Notice 2011-36– An employee out on paid leave would have no more than 160 hours

counted in any single continuous period.• A variable hour employee is defined as one for who it cannot be determined

that the employee is reasonably be expected to work on average at least 30 hours/week.

– (Example: retail worker hired at more than 30 hours/week for the holiday season and then retained following that season but not expected to work at least 30 hours/week for the portion of the initial measurement period remaining after the holiday season.)

• A seasonal employee is through at least 2014, Notice 2012-58 states employers are permitted to use a reasonable good faith interpretation of “seasonal”.

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Are you a large Employer?

• Applies to Large Employer– Employing at least 50 full-time employees

• Includes full-time equivalent employees• Counts up to 120 hours per employee per month

– Divide by 120 hours to get FTE

– On business days during the preceding calendar year• Fails to offer full-time employees

– AND their dependents– Minimum Essential Coverage (60% or Bronze Plan)– And a full-time employee gets an exchange subsidy

• Who do we pay a penalty on?– ALL full time employees – 30 or more hours per week– Use 130 hours per month to determine 30 hours per week– Determined monthly (penalty 1/12 of $2000 per month)

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Penalties for Not Offering Coverage Or Failing to Provide Affordable Coverage

• For employers found to have more than 50 full-time equivalents and not offering coverage (MEC)– The penalty is a monthly penalty of $2,000 divided by 12,

multiplied by the number of full-time employees (not FTEs) employed during that month, minus the first 30 employees.

– 4980H(a)• For employers found to be providing unaffordable

coverage (9.5% of W2 earnings)– The penalty is equal to $3,000 divided by 12, for each full-

time employee receiving subsidized coverage through an Exchange.

– The penalty will not be greater than the monthly penalty that would apply if the employer offered no coverage at all.

– Only full-time employees (not FTEs) are counted for the purposes of calculating a penalty. After 2014, the penalty may be indexed.

– 4980H(b)

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EmployerEmployerPenaltyPenalty

SummarySummary(EEs – 30) x

$2000(EEs – 30) x

$2000Free Choice

VoucherFree Choice

Voucher

$3,000$3,000


Fast Forward to Today

• We are concerning ourselves with employees who work 30+ hours along with Variable Hours employees who, at present, are not covered under your plan.

• Are you an employer attempting to minimize participation in your health plan?

• Setting your measurement, administrative, and stability periods

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Are You a Large Employer?

• If your number of full time employees plus an average of all variable hour employees (Avg. of 120 hours per month) exceeds 50, you are a large employer.

• How do I determine large employer status? Example: you have 100 total employees. 30 of them are full

time. The other 70 are variable hourly employees who work an average of 29 hours per week.

To determine if you have over 50 employees: 29 hours X 52 weeks = 1,508 hours 1,508 hours/12 months = 125.6 hours per month

You are a large employer and subject to the ACA!

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Kicking Off Your Strategy

• New employee vs. Ongoing employee• Measurement Period

– For Current EE’s = Standard Measurement Period– New employees after commencement of

Measurement Period = Initial Measurement Period• Four Permissible Classifications allowed for

measurement periods to vary in length and start– Collectively bargained and non-collectively

bargained– Salaried and Hourly– Different business entities– Different States

• Comment Period through September 30,2012

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Who Should be Measured For Coverage

1. Full time employees working 30+ hours

2. For employees deemed “variable hourly employees”: Individually, they must average 130 hours per month You must define:

o Initial Measurement Period o Initial Stability (insuring) Period

Example: o 30 hours per week x 52 = 1,560 hourso 1,560 hours / 12 = 130 hours per weeko This individual would be eligible for coverage

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Full Time Employees30 hour (Play or Pay)

• Measurement Period– Used to determine 30 hour per week average– Minimum Period three months– Maximum Period 12 months

• Stability Period (insuring period)– Eligibility can’t change during stability period– Eligibility determined during measurement period– Must last at least 6 months if employee is eligible

• Longer only if the length of measurement period– Same length as measurement period if ineligible– Must be same for new and ongoing employees

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Copyright © 2012 by Holmes Murphy & Associates

30 hours - How to Measure

16Source: ADP


Setting Your Measuring PeriodsCurrent Full time and Variable Hourly Employees – 12 months

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New EmployeesVariable Hour and Seasonal Employees

• Variable Hour– Based on facts and circumstances– Can’t determine if employee will work >30 hours

• Seasonal Employee– Use reasonable, good faith determination

• Use “Initial Measurement Period”– Between 3 and 12 months

• Stability period for employees working 30 or more hours– Must be same length as for ongoing employees – During stability period hours worked don’t matter– Begins after Initial Measurement Period and any

Administrative Period

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Tracking Variable Hour Employees(After Initial Measurement/Stability Period)

• Example: Beginning 1/1/2014, you have elected to use a 12

month measurement and stability period strategy (meaning you’ve actually been measuring since October 2012)

You hire John (a variable hour employee) on 6/10/2014.o John’s measurement period begins on 7/1/2014 and ends

6/30/2015o Administrative Period (up to 90 days): 6/10/2014-6/30/2014 and

7/1/2015-7/31/2015 – 50 dayso If between 7/1/2014 and 6/30/2015 John averages 130 hours per

month, he would be eligible for coverage 8/1/2015o Once determined to be full time, he would be included in the

employer’s standard measuring and stability periods.

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What to do next?

• Determine Large employer status?• Begin Workforce Planning

– Evaluate the full time and part time status of your workforce

– Identify areas of concern– Work with operations to develop staffing strategy

• Evaluate tracking systems– Payroll– Time keeping– Eligibility

• Develop an 2014 Health Insurance Strategy• Stay tuned for additional updates and clarifications

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Strategic Opportunities

• Wellness Creating a Wellness Fund Up to 30% premium differential for employee participation Last wall of defense for 2018 Cadillac Tax – a 40% excise tax for

health benefit costs that exceed $10,200 per individual or $27,500 for family

• A complete review of contribution strategies

• Qualified High Deductible Plans (i.e. Health Savings Accounts)

• Voluntary Benefits – enhancing traditional, employer paid coverage

• Internet, call centers, mobile apps, decision support trees

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Workforce Management

• Notices sent to managers as employees approach 30+ Hours

• Ability for managers to readily see reports on hours worked

• Active management of hours assigned can reduce exposure to additional healthcare costs/Federal penalties

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Database of Records

• Payroll system tracks actual hours worked

• Payroll system sends an automated trigger to benefits administration system when an employee exceeds 130 hours per month

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Benefits Administration

• Employee eligibility calculation is triggered

• Consistent and appropriate look-back and coverage rules are properly applied

• Employee is notified of benefit eligibility

• Calculation of premium as a percent of W-2 Report showing employee for whom contributions are greater

than 9.5% of W-2 Enables management to estimate potential liability More easily reconcilable with government data if penalties are

assessed

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Documents

seasonal employee

employee benefits

pages130 hours of service

variable hour employee

fulltime equivalents

health reform law

holmes murphy compliance

single employers