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.
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.
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.
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