To help local agencies understand these new compliance requirements, the League, the California State Association of Counties (CSAC) and the California Public Employees’ Retirement System (CalPERS) sponsored a free, three-hour workshop on April 2 in Sacramento, “Examining the Affordable Care Act.”
The 700-page federal ACA affects all areas of medical insurance. Some of its provisions, such as extending dependent coverage to age 26 and providing preventive and wellness benefits without co-pays are already in effect. Now cities face its next major expansion —“employer shared responsibility” for ensuring coverage. This “pay or play” mandate with attendant fees, penalties, tracking and reporting requirements, is looming.
Under the Affordable Care Act, employers with 50 or more full-time employees must offer coverage to 95 percent of those full-time employees and their children under 26 or pay financial penalties. The coverage must meet standards for affordability and value, and must provide minimum essential coverage.
At the workshop, CalPERS CEO Anne Stausboll and Doug McKeever, chief of the Health Policy Research Division, welcomed nearly 200 attendees. CalPERS is the second largest purchaser of health care in the U.S, spending $7.5 billion per year for its 1.3 million members. It projects that three ACA-mandated fees may increase health care rates up to 3 percent. CalPERS has a keen interest in understanding the ACA and sharing knowledge with local agencies. To that end, CalPERS will issue a memo for employers in mid-April and will provide an update at its educational meeting in San Jose on Oct. 21–23.
While CalPERS plans to provide further information to employers CalPERS and workshop speakers emphasized that CalPERS’ role is limited. Local agencies must be actively engaged and taking actions now to ensure ACA compliance.
Fundamental ACA Questions
Attorney Bob Blum of Hanson Bridgett and Tom Sher of Alliant Insurance Services focused on explaining major compliance requirements. Copies of their presentations can be found at www.cacities.org/ACA
. The following questions address some of the fundamental requirements and definitions.
What is “Pay or Play”?
All large employers must offer minimum coverage to 95 percent of full-time employees and their children under age 26 or pay penalties. Minimum Essential Coverage (MEC) is required.
What is a “large” employer?
All employers with an average of 50 or more full-time employees in the prior year.
Who is a full-time employee?
Any employee working an average of 30 hours or more per week or 130 hours or more per month. Employers are responsible for choosing the period over which the hours are averaged and have the option to use a month-by-month approach or employers can use a longer “lookback” period of 3–12 months, allowed by the IRS.
How do I measure hours worked?
For hourly employees the employer should count the number of hours actually worked. Equivalencies should be used for non-hourly employees. For example, one day is equal to eight hours or one week is equal to 40 hours.
What is “minimum value coverage”?
A plan that covers 60 percent of health care costs. CalPERS health care plans exceed this minimum, ranging from 83–97 percent.
How is the affordability of coverage determined?
Affordable premium means employee-only coverage is not more than 9.5 percent of income.
What penalties may be assessed for non-compliance?
Two penalties are possible:
What must I report to the IRS?
$2,000 per year for every full-time employee (minus 30) whether or not you offer coverage to any employees.
$3,000 per year for every full-time employee not offered affordable, minimum value coverage if they receive a federal subsidy through a health exchange. In California the exchange is Covered California.
Employers will be required to repot annually to the IRS beginning in 2014 and must include substantial information for each full-time employee with or without coverage, including name, address, Social Security number, type of coverage, and months of coverage. Employers must also report to each full-time employee.
Two Important Messages for Employers
After reviewing the complexities of the law, Blum and Sher reminded the audience of two important messages.
What should cities be doing now?
Cities must get started now. An employer’s 2014 obligation is determined by employee status in 2013. Human Resource policies, payroll systems and other IT changes may be needed now to be ready to implement the employer provisions on Jan. 1, 2014.
Recordkeeping is critical. Recordkeeping will be important in planning, in reporting to the IRS, and in avoiding penalties. Assess what data you have and what you will need and what you must get started collecting.
Based on compliance requirements and best practices Blum and Sher specifically recommend that cities:
Create an interdepartmental task force to prepare for compliance. Include human resources, information technology, legal and finance.
Take stock of where you are: Who is covered? What coverage is offered? When do employees get and lose coverage? What do they pay? What children are offered coverage?
Assess data requirements: What data do you need? What do you have? What to you need to collect?
Analyze your workforce: Who is full-time? How have you documented hours worked?
Assess benefits: Who was offered coverage and when? What was the coverage? Assess affordability: What was the cost to the employee? Why was it affordable as provided by the ACA?
Determine risk, if any, for penalties.
Review documentation: How will you prove compliance to the IRS? Implement any changes needed in record keeping, payroll systems, and IT.
Review benefit and employment practices: Identify your risk of penalties. Do you need do modify eligibility or employment practices so that at least 95 percent of your full-time employees are covered?
Analyze your Memorandums of Understanding (MOUs): What do your MOUs provide for coverage, premiums, etc.? How do these provisions compare to the ACA’s requirements? There are no transition rules for MOUs in the ACA. For example, your MOU may have a six month probationary period for benefits but the ACA 90-day rule requires benefits to start by the 91st day of employment. What has to be bargained to avoid penalties?
Examine contractors to determine if they are considered employees under ACA rules.
Educate management, labor, and elected officials.
Prepare for the next open enrollment.
Plan to monitor status changes in 2014.
Cities should continue to remain engaged. Federal and state agencies are still issuing temporary and final regulations governing compliance with the ACA and changes will continue. The League will continue to keep cities informed through its hot issues portal for the Affordable Care Act. Please visit the League’s website at www.cacities.org/ACA
for further updates and more information.
The League thanks its sponsors, Alliant Insurance Services and Hanson Bridgett and its partners, CSAC and CalPERS for making this workshop possible.