2014 Pay or Play: Safe Harbor Rule Full-Time Employee Determination Part 2

Friday, October 26, 2012

The Patient Protection and Affordable Care Act (PPACA) will require employers with more than 50 full time employees to offer those employees "affordable" and "minimum essential" benefits or face a penalty.

The PPACA defines a full time employee as an employee who “averages” 30 hours per week of employment. Internal Revenue Service Notice 2012-58 provides employers with a “voluntary” Safe Harbor rule for full-time employee determination by defining permissible “measurement”, “stability”, and “administrative” periods. Employers would be permitted to devise their own methodologies, provided those methodologies are compliant with the law and regulations. Organizations should consult with their legal counsel on all such matters.

Where this Safe Harbor rule (IRS Notice 2012-58) may prove to be helpful to employers is in addressing those employees who have an unpredictable work schedule which varies greatly from one time period to another. It may prove difficult for an employer to “reasonablely” expect the employee to average 30 hours when the demands of the job fluctuates week to week and/or day to day. Consider retail, food service, and other service sector jobs where customer demand differs by day of week or even hour of day.

Ongoing Employees: Safe Harbor

Employers would be allowed to use the Safe Harbor method associated with the “standard measurement” and “stability” periods chosen by the employer and described in IRS Notices 2011-36 and 2012-17. An “ongoing employee” is an employee who has been employed for at least one standard measurement period. Employers determine the ongoing employee’s full-time status by looking back at a standard measurement period between 3 and 12 months, as selected by the employer.

Once the employer has determines that an employee has averaged 30 hours per week during the standard measurement period, the employer treats the employee as a full-time employee during a subsequent “stability period”, regardless of the employee’s number of hours of service during the stability period, so long as they remain an employee. For an employee who has been determined to be full-time during the standard measurement period, the stability period would be a period between 6 months but not less than the standard measurement period.

Employers are allowed to use measurement and stability periods of differing lengths and/or starting/ending dates for the following categories of:

• collectively and non-collectively bargained employees;

• salaried and hourly employees;

• employees of different entities;

And

• employees located in different States.

Since employers may need time between the measurement and stability periods to determine eligibility and for communications and enrollment processes, employers may provide for an “administrative period”. However, this administrative period may not exceed 90 days. In order to prevent gaps in coverage the administrative period must overlap the prior stability period. This would allow ongoing employees who are eligible for coverage to maintain that coverage without a break.

While organizational requirements, demands, and philosophies differ from employer to employer, it will be essential that companies plan for measuring and tracking of ongoing employees whose work schedules may result in their hours fluctuating above and below 30 plus hours per week during their employment.

2014 Pay or Play: Safe Harbor Rule Full-Time Employee Determination Part 1

Friday, October 19, 2012

Under the Patient Protection and Affordable Care Act (PPACA), effective January 1, 2014 employers with more than 50 full time employees will be required to provide "affordable" health care with "minimum essential" benefits to all full time employees or pay a penalty. At issue will be defining who is and who is not a “full time” employee. As a benchmark, the PPACA defines a full time employee as an employee who “averages” 30 hours per week of employment.

Clearly there are ongoing employees who routinely work 30 plus hours every week and have been doing so for years. In addition, there are new employees who upon hire are “reasonable” expected to, work 30 plus hours per week. Even with “salaried” employees, there are generally “expectations” as to some minimum number of hours of work expected.

Where employers are likely to experience issues is tracking those employees whose hours vary widely due to production, staffing, and other factors, i.e., so called “variable hour” employees. For example, a number of organizations within health care often employ “per diem” workers who may accept or decline assignments at will. Attempting to pro-actively determine the likelihood that such workers will or will not average 30 hours may be extremely difficult.

In an attempt to minimize the administrative effort of organizations, the Treasury Department and Internal Revenue Service recently released Notice 2012-58 providing employers with a Safe Harbor rule for full-time employee determination. Notice 2012-58 clarifies and expands on earlier provisions of Notices 2011-36, 2011-73, and 2012-17. Basically, an employer would look back between 3 to 12 consecutive calendar months; this would be the organization’s “measurement period”. If the employee averaged 30 hours per week during the measurement period, they would be considered a full time employee during the forthcoming “stability period”. The stability period is a period of time not less than six months. During this stability period, the employee would be eligible to participate in the employer’s health care plan. In order to allow organizations additional time to identify and communicate with employees now eligible to enroll, the organization has a maximum 90 day “administrative period” to complete the enrollment process.

Employees who are considered full-time must be offered affordable and minimum essential health care via an employer’s plan, otherwise, the employer is subject to a financial penalty. However, there is no mandate that employees must enroll in their employer’s plan. They may choose to enroll in a spouse’s plan, a private individual plan or forego health care enroll entirely. Provided that an employer with more than 50 full time employees offers its full time employees "affordable" and "minimum essential" health care coverage, the employer is relieved of their obligation under PPACA for the current measurement, stability, and administrative periods only.

The guidance around determining an employee’s full time status relative to the “pay or play” rules is complex, therefore, it is highly recommended that employers begin the process of discussing these issues with their legal counsel to determine the most prudent actions needed to fully comply with their obligations under PPACA and any ensuing directives from the Treasury Department, Internal Revenue Service, and/or Health and Human Services.

2012 Health Increase Rates Increase by 4 Percent

Friday, October 12, 2012

The Kaiser Family Foundation and Health Research; Educational Trust 2012 Kaiser/HRET Employer Health Benefits Survey indicates a 4% increase in the cost of family health insurance. The survey of some 2,121 firms, representing various organizations by employee size, regional location, and business sector, found that average annual premiums in 2012 for single and family coverage are $5,615 (3%) and $15,745 (4%), respectively. The study reports that since 1999, premiums have increased from $2,196 to $5,616 for single and from $5,791 to $15,745 for family coverage; in a period of 14 years. Increasing by a multiple of 2.56 and 2.72 times for single and family coverage respectively since 1999.

An interesting finding is the percentage of employees who when offered health care actually enroll has declined slightly from 66% to 64% since 1999. In the face of increased emphases on health care benefits during the last decade, this seems to be a contradiction in terms. The employee’s portion of the premium cost may be one possible factor.

While employee cost may contribute to an employee’s enrollment decision, the Kaiser report indicates that most employees are paying between 17% and 20% of single premiums, regardless or company size or union affiliation. Strangely, small firms, those under 200 employees, have a lower employee premium cost percentage than their larger counterparts. This may be in part due to the fact that smaller firms are often at a competitive disadvantage in the range and scope of benefits offered to workers.

Where smaller firms are significantly different in the area of cost is with family coverage. On the average, employees of smaller firms surveyed are paying 35% vs. 25% for larger firms. A strong indication that smaller firms are willing to address cost issues with singe coverage but may not be willing to extend the same treatment for family coverage.

As most casual observers can attest to, deductibles have been on the increase. According to the Kaiser report, the percentage of firms with a $1,000 deductible has risen from 16% to 49% for small firms and from 6% to 26% for large firms, since 2006. Obviously, a higher deductible translates into lower costs for the plan and more for the employee. Not so obvious is the impact on consumption, while some would argue that deductibles restrict access to care, others point out that deductibles help to educate the employee to the real cost of care. Without a deductible, an office visit covered only by a $20-$35 co-pay screens the employee from the true cost of $150-$250.

Since 1988, the mix of health care plans offered has undergone dramatic shifts. Once accounting for over 70% of the market space, Conventional plans have eroded to less that 1%. HMO’s have waxed and waned from 16% in 1998 back to 16% in 2012. Similarly, POS plans saw modest growth from 1988 until 2001 and have been on the decline ever since. High deductible health plans hit the radar in 2006 at 4% and have grown to 19% in 2012. PPO plans have replaced Conventional plans as the mainstay of the market at 56%, reaching a current peak of 61% in 2006.

Clearly, the message from the Kaiser Family Foundation and Health Research Educational Trust 2012 Kaiser/HRET Employer Health Benefits Survey is, health cost continues to increase and that many of the efforts of everyone have done little to mitigate that fact.

Annual Open Enrollment Communications

Friday, October 05, 2012

A recent report by The Guardian Life Insurance Company of America (Guardian), found that employers believe their benefits communications are ineffective and most employees agree.

Guardian’s study illustrated five key points:

1. Employers must balance benefits cost management with meeting employee needs.

2. Multiple-channel communications are preferred by employees.

3. Self-service tools for enrollment are gaining in importance.

4. Communications in preferred channels tend to increase confidence and satisfaction benefit decisions.

5. Greater confidence & satisfaction are linked to greater appreciation and loyalty.

There is nothing unique about Guardian Life’s finding. Any good communications program of yesteryear or today is founded on delivering the right message to the right audience, at the right time, using the right media, and at the right cost. Today’s self service, technology-based benefits enrollments often take advantage of every communications channel available. And this technology is not cheap. Hiring professional grade writers, designers, printers, (yes, we still print) as well as providing the technology platform capable of supporting various web-enabled devices requires significant technology and organizational resources. A common complaint from senior management is that thousands of dollars are spent on open enrollment communications materials but only a small minority of employees actually change their benefit elections. Or, an equally common remark is that no one ever reads the materials anyway, i.e., anecdotally.

One thing to remember, open enrollment is about more than merely enrolling in benefits for the upcoming year. It is an opportunity to send as well as reinforce the organization’s messages around its culture, values, and engagement. And guess what, those warm and fussy issues help organizations attract and retain talent. And depending on what culture, values, and engagement messages are sent determines what kind of talent the organization will attract and retain. Believe it or not, even today, most employees, just like customers, have a choice of where they work. It may not be an easy choice, or a readily available choice, nevertheless they have a choice. And by the way, do you want an employee who has no choice and is working for you because you were their last choice, their last resort?

Open enrollment is often about a new round of benefit cost increases, especially health care. Unfortunately that is generally the case. And the organization’s message has to address such issues and how the organization frames unpleasant information will influence how the workforce perceives the organization and its management. Honestly is still the best policy. By that I mean be upfront, open, and transparent. Whether the preferred communications channel is high or low tech, most audiences know when they are being respected and when they are being mislead. If it is an issue with sales, cost, materials, competition or customer service, your workers know what is happening within your organization. The relationship you have with your employees is the same kind of relationship you have with others. If that relationship is not built on trust, the best benefits and the best communications plan will not get you very far.