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Dennis Maggart

Dennis Maggart is a partner at McInnes Group, Inc., a benefit brokerage and consulting firm in Fairway, Kansas. He has over 33 years experience in the employee benefit industry focusing on group benefits for large employers and alternative funding arrangements. He has been worked with HHS and state exchange planning groups and has conducted numerous seminars/webinars for employer trade groups and associations on the impact of PPACA.

PPACA Series: Strategy Two - Eliminate your Health Plan

The Affordable Care Act includes a plethora of new regulations, employer requirements, and potential penalties for employers that have group health plans.  Almost from the moment it passed, many pundits suggested that frustrated employers should simply eliminate their group health plan and pay the penalty which they predicted would be cheaper than the cost of their current health plan.  As we have discussed in the prior articles, no single strategy is the correct strategy for all employers and such blanket recommendations have proven to be flawed. In some cases the elimination of the group medical plan could in fact be the lowest cost option.  But before you run off and make a rash decision to eliminate your health plan, we must explore the real cost of this approach in a little more detail.

When an employer looks at the cost of his employee medical plan he must look at it objectively, without bias towards ACA if he is to make the best possible decision.  In this case we must understand the employer mandate requirements of ACA or the “Pay or Play” penalties.  If an employer over 50 full-time equivalent employees chooses to not offer a health plan after January 1, 2014 he will be subject to an annual tax penalty. This penalty is equal to the total number of full-time employees (not full time equivalents!) less the first 30 employees times $2,000.  For example, if a restaurant owner has 70 full-time employees and 100 part-time employees that work 15 hours a week on average then he has 120 full-time equivalents and is subject to the penalty.  When he calculates the “Pay or Play” penalty, however, he only has to use his full-time employees (70) less the first 30 resulting in an annual penalty of $80,000 (70 FT ee’s – 30 times $2,000).

Now that we know the potential penalty we need to see what the employer is currently spending for the group medical plan.  If he has 70 full-time employees that are eligible for the plan, usually only about 70% will participate in the plan meaning he is paying premium on only 49 participants.  He is also likely only paying 60% of the premium, so if his current premium is $300 then his cost is only $180 per participant per month.  His cost for the entire group for the year would be about $105,840 (49x180x12 months).  It looks at first glance like the owner could save money by eliminating the plan but the calculation is incomplete.

Before an analysis of the potential cost savings of eliminating your plan is complete an employer must consider two other key factors; payroll and taxes.  If a company currently has a group health benefit then it is logical that those employees that are currently participating will probably assume that when you take this benefit away that they should receive a raise to offset this reduction in compensation.  While they will now have access to the coverage on the Exchange the rates will probably not be less than what your current group rates are.  As a result, to keep your employees whole you’ll have to add approximately $74,088 to payroll or risk loosing your best employees.  In fact, once the employees understand that their current group health premiums were pre-tax and their new individual premium will be non-tax deductible they may expect you to increase their salary even more. Some of your employees (lower income) will be eligible for premium subsidies under the Exchange which could offset the need for the raises to offset the loss of the group plan but detailed analysis of your specific payroll will be necessary to estimate this benefit.  The other key factor to consider when analyzing the potential Pay or Play penalty is the tax deductibility of these two options.  The ACA Pay or Play penalty is not a deductible business expense while the health premium you may be paying for yuor employees is, thus the real net cost of the health plan must be reduced by the corporate tax rate (say 30% for example) resulting in a real net cost of only $74,088 in our example.  In addition, most employers utilize an IRS Section 125 cafeteria plan to fund the employee portion of premium resulting in a reduction in the employees gross pay which significantly reduces the payroll tax for the employer (and the employee).

As you can see, the potential cost saving of eliminating your group health plan involves some very detailed and clients specific calculations.  The provisions of ACA added to the complexity of our tax code make this option complicated to estimate.  In the next couple months the actual Exchange rates will be provided by the carriers and more accurate estimates of real costs can be prepared.  You should request this calculation be prepared by your current broker or consultant as part of your upcoming renewal.  If you would like assistance with a review of this option please feel free to contact us and we would be glad to work with you to explore this alternative.


“Want to learn more? PPACA is a complex law and will affect each employer differently. McInnes Group provides this blog series as a sample of various strategies that may work for some employers. We encourage you to contact Dennis at dennis@mcinnesgroup.com or at their website at www.mcinnesgroup.com to get specific advice to help you develop a customized strategy for compliance.”

Previous posts in the PPACA series:
Strategy One - Minimum Compliance
Non-Discrimination Rules under PPACA
The Three Strategies for Healthcare Reform
3 Steps to Managing your Workforce
Ten new words you’ll need to know to understand healthcare reform
Understanding the Patient Protection and Affordable Care Act

PPACA Series: Strategy One - Minimum Compliance

As we have already learned, large employers under PPACA may be subject to a new “Pay or Play” penalty. These potential penalties only apply to employers with 50 or more Full-Time Equivalent employees. While part-time employees will count against employers when determining whether they are subject to these penalties  part-time employees do not count when actually calculating these penalties. This is the most obvious example of how a large employer subject to the Pay or Play penalty will face a challenge in understanding and calculating the potential penalty costs. Choosing to keep your current group health plan and taking the unknown risk for these penalties is the “default” option under PPACA that we call the Minimum Compliance option.

Under this approach an employer keeps their current non-discriminatory health plan and contribution schedule and assumes potential risk for their employees choosing to purchase their insurance through the new Exchange. In order to minimize the potential penalty cost an employer should understand the penalty calculations under the law and how they can lower the risk of significant penalties. Proper management of the plan benefits, contributions will be required as well as a new approach to hiring and scheduling of employees if an employer is to be successful with this approach.

The first step for a successful Minimum Compliance strategy is understanding the Pay or Play penalty calcualtions. Under PPACA an employer who offers a health plan will be subject to a penalty of the lesser of the following two separate calcualtions:

  • $3,000 times the number of full-time (30 hours or more) employees that go to the Exchange, purchase coverage and receive a subsidy

Or

  •  $2,000 times the number of full-time employees (30 hours or more) less the first thirty employees

As you can see, these rules include a couple of key qualifications. The first key point is that the calculation is only applicable to full-time employees, which is defined under PPACA as any employee regularly working over thirty hours per week. One of the simplest and most direct way for employers to manage potential penalty costs is to schedule as many employees as possible for less than 30 hours per week. This may be difficult given the varying schedule of food service employees but will become the focus of most employers scheduling process. Hopefully your software vendor will be providing assistance in tracking these hours for each of your non-full time employees.

Another key point in the calculation is that employers are only penalized for employees that actually go to the Exchange, purchase coverage and receive a subsidy. Premium subsidies are available to all legal residents that make less than 400% of the federal poverty level and are not offered a credible and affordable plan at the workplace. Certain employees such as those that are over 65 and eligible for Medicare, or those that are under 26 year of age and eligible for their parents coverage will likely not purchase coverage through the Exchange. In addition, employees who work other full-time jobs or are covered by their spouses plan will less likely to trigger penalties by purchasing through the Exchange. While you may not be able to recruit employees base on this criteria  understanding your workforce will help you better estimate the potential cost of the Pay or Play penalty. Using this data in conjunction with your new scheduling goals will allow you to better estimate and manage your potential penalty costs.

If you need further assistance in understanding these rules and how you can manage your PPACA compliance feel free to contact us.


"Want to learn more?  PPACA is a complex law and will affect each employer differently.  McInnes Group provides this blog series as a sample of various strategies that may work for some employers.  We encourage you to contact Dennis at dennis@mcinnesgroup.com or at their website at www.mcinnesgroup.com to get specific advice to help you develop a customized strategy for compliance."

Previous posts in the PPACA series:
Non-Discrimination Rules under PPACA
The Three Strategies for Healthcare Reform
3 Steps to Managing your Workforce
Ten new words you’ll need to know to understand healthcare reform
Understanding the Patient Protection and Affordable Care Act

PPACA Series: Non-Discrimination Rules under PPACA

Healthcare Reform includes several provisions that apply to all groups, regardless of their size. One of the most important provisions for the food service industry is the new non-discrimination rules. Included in the PPACA requirements was the expansion of existing non-discrimination rules to small, fully-insured groups. These rules will have limited impact in some industries, but will have a significant impact on any business that has a plan where certain highly compensated full-time employees are offered group health coverage when other employees are not offered access to the plan. It will be very important for small, insured group plans to understand these rules and adopt the necessary changes prior to 1/1/2014.

The history of these non-discrimination rules is unique under PPACA. Unlike most of PPACA, these non-discrimination rules are not new. Instead of writing completely new rules, the drafters of PPACA simply referenced the long-standing rules under IRS Section 105(h). This section of the Code has been in place for years and was applicable to large, self-funded plans. Expanding the scope of these existing regulations had the potential advantage of standardizing rules already in place and eliminating the application of two sets of rules for an employer that would change size or funding arrangement. Unfortunately even thought this section had been in force for years, the IRS had not fully drafted all the Section 105(h) regulations and they had been “lax” in its enforcement with self-funded groups. As a result, we are still without final regulations for small employers and are left to work with the limited direction we currently have from the IRS. Since these rules appear to be applicable to all groups for 1/1/2014 we are anticipating more direction very shortly.

Based on the existing code, however we can anticipate most of the key provisions of the regulations as they will apply to food service employers. The stated purpose of IRS Section 105(h) is to prevent discrimination in favor of the highly compensated employees under a group health plan offering. What this means in the real world is that a plan that is currently only offered to managers, shift managers, store managers, etc…. (i.e. a carve out plan) will likely be deemed as discriminatory. As you know, this approach is common in the food service industry and may require a change in your current eligibility rules. Further, the offering of separate waiting periods (such as 30 days for managers and 90 days for hourly staff) must be compliant. Offering richer plans for managers and or lower premium contributions would also be discriminatory. Other more subtle forms of discrimination such as a seniority based contribution may in fact be discriminatory if it results in eligibility where mostly/only managers effectively meet the requirement. We anticipate some flexibility for multi-location employers or those with significantly different workforces such as a restaurant owner that also may own a mirco-brewery or software firm, but these specific regulations are yet to be published.

While these requirements simple, they may present a challenge for some employers. The tradition in some industries is to limit eligibility to the management staff not to limit participation in the health plan but instead to reduce the HR staff overhead of dealing with the higher turn-over associated with the hourly employees. Another problem may be the existing “participation” requirment of some insurance carriers. Many plans have limited their eligibility to managers as a way of meeting the minimum participation percentage of some health carriers (usually 50-70% of all eligible employees). Some employers will have difficulty meeting this requirement if they are forced to offer plans to significant number of hourly employees. Since the participation requirement is established by your carrier, not PPACA, we hope that carriers will waive or lower this requirement during the phase in periods of the regulations.

As you can see the simple non-discrimination rules of IRS Section 105(h) are really more complex in application than may appear at first glance. The penalties for non-compliance are extremely severe, even more so than the Pay or Play penalties. Each employer should make sure that his plan is clearly compliant with these regulations. If you need assitance with a review of your plan please let us know, we will be glad to assist.


"Want to learn more?  PPACA is a complex law and will affect each employer differently.  McInnes Group provides this blog series as a sample of various strategies that may work for some employers.  We encourage you to contact Dennis at dennis@mcinnesgroup.com or at their website at www.mcinnesgroup.com to get specific advice to help you develop a customized strategy for compliance."

Previous posts in the PPACA series:
The Three Strategies for Healthcare Reform
3 Steps to Managing your Workforce
Ten new words you’ll need to know to understand healthcare reform
Understanding the Patient Protection and Affordable Care Act

PPACA Series: The Three Strategies for Healthcare Reform

PPACA has been a very perplexing challenge for employers and their consultants since its passage in 2008. Simply by its size it created confusion and frustration for those who tried to grasp its many complex provisions and requirements. Since it dealt with nearly all aspects of our healthcare system, the interaction of each section and ultimately how employers, employees, carriers and healthcare providers reacted would have as much to do with the true impact of PPACA than the actual law itself. When you add to this frustration the fuel provided by the political debate in this country you end up with a toxic mix of fact and fiction. While some folks are still busy arguing about the merits of healthcare reform, our goal is to help you prepare for the key decisions employers will have to make to comply and minimize the impact on your bottom line.

The traditional approach major employee benefit regulations at most of the large benefit consulting firms has been to round up their best lawyers, actuaries, HR managers and consultants and develop a common strategy or list of recommendations for all of their clients. PPACA’s complexity defies this simple “canned” solution and frustrates all efforts to create a common approach all employers. Instead, PPACA requires a more unique approach, customized for each employer. Employers will have to take some time to understand the basics of the regulations so that they can select one of three available strategies. Once this strategy is selected, managing the specific requirements of the regulations becomes much easier and manageable.

Minimum Compliance

Currently each employer is on the default path of Minimum Compliance. This means that regardless of their size or if they currently offer coverage to their employees they will be required to provide new data to the government regarding their benefits and employees. If you have a group medical plan, your carrier and/or broker are probably providing updates on the new requirements for coverage and notifications. This approach may result in penalties to the employer under the Pay or Play provision and/or penalties to the employees under the Individual Responsibility Mandate. It will require annual penalty calculations by the employer (if you are over 50 full-time equivilants) and encourages an employer to manage this penalty within the scope allowed by their retention and recruitment goals.

Elimination of the Group Health Plan

This option has been the most controversial but is a viable option for some employers. It does create a penalty liability (for employers with over 50 full-time equivilants) but this may be offset by savings from current plan costs. Since the penalty is only $2,000 per employee per year, this penalty is cost tax deductible as are group health premiums (for both the employer and employee). In addition, most employers believe they will have to “gross up” some/all of their current employees to offset the cost of taking away current benefits. When payroll taxes on these new wages are factored in along with the penalty cost, this option becomes far less advantageous  Additional problems with key employee recruitment and retention must also be considered.

Safe Harbor

Less well known than the other two options, the Safe Harbor option of compliance provides a simplified approach to compliance that may work for some employers. It establishes a three step test to determine if your group health plan meets the minimum requirements of PPACA. If your plan is non-discriminatory (which is required by all plans for all size groups), is Credible and Affordable, then the employer’s plan is in the Safe Harbor resulting in no employer Pay or Play penalty. Meeting the requirements of a Credible and Affordable plan requires some calculations but many employers will find their plans are already in or near the required levels for compliance. The advantages to this approach, beyond the elimination of penalties, are the reduction in annual testing and the predictability of costs. While this approach will probably be the standard in some industries, in other lower wage industries this approach may also provide an advantage in recruitment and retention.

In the upcoming weeks we will cover each of these strategies in more detail. While more detail will be provided, these calculations may be complex given the specifics of your group. We encourage you to continue to educate yourself on each option but to also seek the professional assistance of a firm such as McInnes Group to help with a personalized calculation.


"Want to learn more?  PPACA is a complex law and will affect each employer differently.  McInnes Group provides this blog series as a sample of various strategies that may work for some employers.  We encourage you to contact Dennis at dennis@mcinnesgroup.com or at their website at www.mcinnesgroup.com to get specific advice to help you develop a customized strategy for compliance."

Previous posts in the PPACA series:
3 Steps to Managing your Workforce
Ten new words you’ll need to know to understand healthcare reform
Understanding the Patient Protection and Affordable Care Act

PPACA Series: 3 Steps to Managing your Workforce

In the previous articles we explained that the size of your workforce will be a key determinant in how troublesome your compliance will be under PPACA. If you have over 50 full-time equivalent employees you will be subject to potential Pay or Play penalties which could cost you tens of thousands of dollars. While this sounds scary, one of the unique aspects of PPACA provides an opportunity for employers to manage this risk by managing your workforce. While the eligibility threshold for the Pay or Play penalties counts Full-Time Equivalent (FTE) employees, the actual penalty calculation phase only counts actual full-time employees. Understanding this key feature of PPACA will help employers (especially those who utilize significant numbers of part-time employees) manage their workforce to minimize or possibly eliminate potential PPACA penalties.

An employer that exceeds the 50 FTE threshold for the exposure to PPACA Pay or Play penalties should consider some simple steps to reduce the number of full-time employees used to calculate the actual penalty. Following are some simple, commons sense approaches you may want to consider:

  • Consider Reducing Hours for some Full-Time Employees: Since the Pay or Play penalty is assessed only for full-time employees, the fewer full-time employees the lower the potential penalty. Since the new criteria to be qualified as a full-time employee is 30 hours or more per week, consider scheduling as many of your employees as possible to 30 hours or less.
  • Learn to Use Variable Hour Employees: Our old vocabulary was that an employee was either full-time or part-time. The new regulations create a new category, variable hour employee. This is an employee that the employer cannot reasonably estimate the number of hours they may work. If a new employee is hired as a variable hour employee, the employer can wait as much as 12 months (the Measurement Period) to determine how many hours the employee actually averages before they need to offer them benefits.
  • Employees with Other Coverage: While an employer cannot ask certain questions of new employees during the hiring process, certain types of employees are more attractive under PPACA than others. Employees who have other coverage through Medicaid, Medicare, Tri-Care (veteran’s benefits), parent’s coverage, or spousal coverage may limit your exposure to penalties. You will not be able to use these criteria for employment but knowing these facts will allow you to better estimate your potential penalty and provide some peace of mind to you prior to your calculation.

These are just the 3 most basic steps can consider when hiring and scheduling your new workforce under PPACA. If you would like to hear about some others please look for our next blog or just give me a call at (913)831-0999 and we’ll be glad to discuss all your options.

Previous posts in the PPACA series:
Ten new words you’ll need to know to understand healthcare reform
Understanding the Patient Protection and Affordable Care Act


"Want to learn more?  PPACA is a complex law and will affect each employer differently.  McInnes Group provides this blog series as a sample of various strategies that may work for some employers.  We encourage you to contact Dennis at dennis@mcinnesgroup.com or at their website at www.mcinnesgroup.com to get specific advice to help you develop a customized strategy for compliance."

PPACA Series: Ten new words you’ll need to know to understand healthcare reform

Now that the chaos of court challenges and the election have subsided it’s time to get down to the task of living with PPACA. Some industries will have little problem with complying with the new healthcare reform rules, while other businesses (like restaurants) will see a quantum shift in how they run their operation. Those that adapt the quickest will be the winners.

I remember the first task my high school science teacher gave us was to learn Latin, why Latin because it was the language of science. Well PPACA has created a new vocabulary for all of us so let’s start the learning.

  • Exchange- This is the on-line marketplace where individuals can shop for medical coverage from a wide range of carriers. Think of it as Expedia for medical coverage. The Exchange is only for individuals.
  • SHOP- This is just like the Exchange only it is for small employers. We are being told rates will be essentially the same as the average rate currently supplied by the carriers (sorry).
  • Premium Subsidy- In order to help the working poor that make too much to qualify for Medicaid, PPACA has established a subsidy program to help legal residents who make less than 400% of the Federal Poverty Level. The subsidy is graded and covers most of the premium at the lower end and very little of the premium as you approach the 400% income level. Employees that have non-discriminatory, credible and affordable coverage offered by their employer are not eligible for a subsidy.
  • Full-Time Employee- Trick question, we used to think that meant 40 hours a week, not anymore, anyone working 30 or more hours a week is considered full-time.
  • Employer Mandate – Penalties may apply to employers who have over 50 full-time equivalent employees (remember to calculate FTE take the total hours worked by non-full-time employees and divide by 30). Penalties depend on whether or not you offer a plan but in general they are calculated as $2,000 times all employees or $3,000 times the ones that go to the Exchange and get a subsidy.
  • Employee Mandate – Legal residents that do not have coverage through Medicaid, Medicare or an individual or group health plan will be subject to a tax penalty. The penalty is small in 2014 but increases each year till 2016 when it reaches approximately the value of a single plan.
  • Medal Level- All medical plans offered through the Exchange will rates based on a value system based on the percentage of typical medical claim it pays: 60% equals Bronze; 70% equals Silver; 80% equals Gold, and 90% equals Platinum.
  • Variable Hour Employee – Since an employer may hire a new employee and not be reasonably certain of the number of hours they may work, PPACA has created a new category for these employees, now called variable hour employees. This will become an important new term for all employers who have used “part-time” employees.
  • Measurement Period – Employee’s who are hired as Variable Hour Employees are not required to be added to a plan until they have averaged 30 hours per week of work. Employers can choose a Measurement Period for all their employees of between 3-12 months. Using the 12 month period allows an employer to average out seasonal employees and have a de-facto 12 month probation period for these employees before benefits start.
  • Stability Period – The only drawback to a long Measurement Period is that once an employee completes the Measurement Period and is deemed eligible for benefits then if they enroll then they must be allowed to stay on the plan for a Stability Period of at least 6 months or the Measurement Period whichever is greater.

"Want to learn more?  PPACA is a complex law and will affect each employer differently.  McInnes Group provides this blog series as a sample of various strategies that may work for some employers.  We encourage you to contact Dennis at dennis@mcinnesgroup.com or at their website at www.mcinnesgroup.com to get specific advice to help you develop a customized strategy for compliance."

Understanding the Patient Protection and Affordable Care Act (PPACA)

I have been asked by ShiftNote to write a periodic blog series regarding healthcare reform. At first I was skeptical, while I had been working on healthcare reform issues and their impact on my clients I didn't know if this format would work for such a complex subject matter. I have been a health benefit consultant for over 30 years and have been focused on the Patient Protection and Affordable Care Act (PPACA) ever since it was in draft form. If you have read a newspaper or seen a political add you know that this law is incredibly lengthy and complex. It is also unique in the sense that it’s impact on specific employers will vary drastically based on the particular structure of the current benefit plan. While it would be nice to craft a simple road map for compliance, it simply is not possible to craft a “one solution fits all” set of recommendations.

After thinking more about this challenge it became clear that a more conversational approach to educating employers and employees may actually be the most effective. The challenges of PPACA will be unique to each client, but certain industries will see very dramatic changes. For example, many public entities such as school districts, city and county governments, and their employees will see very little impact from PPACA. On the other hand, the restaurant, nursing home, retail and hospitality industries will face major challenges on compliance. Finding a way to communicate with these industries will not only be a complex task but also present opportunities for companies who are ready to serve these clients to develop new relationships.

Over the next several months I will attempt to summarize the major provisions of PPACA in a simple to understand format. It will not be a line by line reprise of the healthcare reform law or a politically tilted editorial piece, instead it will outline the major questions you will face as a business owner/manager and practical tips on how to best manage these changes. You will soon see that there will not be any “canned” solutions for your company; instead you will have to develop a basic understanding of the law and a customized strategy for compliance. While this may sound ominous, I assure you that in most cases PPACA’s bark will be worse than it’s bite! Stay tuned for the next edition………………………………


"Want to learn more?  PPACA is a complex law and will affect each employer differently.  McInnes Group provides this blog series as a sample of various strategies that may work for some employers.  We encourage you to contact Dennis at dennis@mcinnesgroup.com or at their website at www.mcinnesgroup.com to get specific advice to help you develop a customized strategy for compliance."