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