Health Care Reform
Doing the Math
Your Speaker Today:
Constance Starkey
What’s New?
The Buzz
• State of the ACA
• Supreme Court & King v Burwell
• The MLR
• California
New Tools
On the Informer
• Compliance Kit
Compliance Kit
Scenarios
Scenario #1
Corporation X:
• Is a large employer who sponsors a health plan that covers all full-time
employees as defined under the ACA.
• Has a maximum orientation period prior to a 90-day waiting period for
coverage.
• Has hired Abby whose start date in a full-time position is October 1.
What date is the latest that Abby’s coverage should
start?
Scenarios
Scenario #1: Orientation
If Abby’s start date as a full-time employee is
October 1, the last permitted day of the
orientation period is October 31.
From Abby’s start date:
One calendar month = November 1
Minus one calendar day = October 31
Scenarios
Scenario #1: Waiting Period
90 days
The waiting period must start November 1, and the 90th day
would be January 29 which would indicate coverage must
start no later than January 30.
Scenarios
Scenario #1 Answer: January 1
4th Calendar Month
However, this does not meet the
employer shared responsibility
requirements that coverage can begin no
later than the first day of the fourth
calendar month of employment.
In order to be in compliance with
ACA regulations, Abby’s coverage
must begin no later than January 1
Scenarios
Scenario #2
• Corporations A, B and C are members of a Controlled Group for the
2015 calendar year.
– Corporation A has 50 FT employees,
– Corporation B has 40 FT employees and
– Corporation C has 20 FT employees
How many employees could Corporation C subtract from their total
when calculating a possible penalty?
Scenarios
Scenario #2: Calculations
Corporation A has 50 FT employees
Corporation B has 40 FT employees
Corporation C has 20 FT employees
Total Number 110
of Employees
For 2015 ONLY, for the sake of
calculating possible penalties,
the employer may subtract 80
employees. However, each
entity is able to subtract only
their % of employees.
Scenarios
Scenario #2 Answer: Corporation C may subtract 14
Corporation A
Corporation B
Corporation C
FT employees
FT employees
FT employees
50
110
= 46%
46% of 80 = 37
40
110
= 36%
36% of 80 = 29
The employees are divided among the entities
whether they are in compliance or not.
20
110
= 18%
18% of 80 = 14
Scenarios
Scenario #3
Corporations D, E, and F are members of a Controlled Group, Company Y, for the 2015
calendar year. Company Y has a combined total of 110 FT employees.
– Corporation D has 50 FT employees, all of whom receive affordable, MV, employer-sponsored
coverage
– Corporation E has 40 FT employees, 10 of whom receive affordable, MV, employer sponsored
coverage, the remaining 30 receive coverage that does not meet MV or the affordability
requirements.
– Corporation F has 20 FT employees. They are not currently offered employer-sponsored
coverage.
If this employer changes nothing, what is the potential penalty?
Scenarios
Reminder:
 Each company within a control group is
considered a separate entity
 Penalties are confined to the entity or entities that
are out of compliance
 The entities that are in compliance are not
penalized based on the other entities.
Scenarios
Scenario #3 Corporation D: 50 FT Employees
Coverage for all 50 FT employees:
Affordable
Meets MV
Employer-sponsored
Corporation D is in compliance
with the law.
Penalty for Corporation D = $0
Scenarios
Scenario #3 Corporation E: 40 FT Employees
Coverage for 10 employees:
Coverage for 30 employees:
Affordable
Meets MV
Does Not Meet Affordability
Requirements
Employer-sponsored
Does Not Meet MV
Corporation E is NOT in compliance with the law.
Scenarios
Scenario #3 Corporation E: Penalty Calculations
40
= 36%
110
Percentage of Employees
in Corporation E
36% of 80 = 29
40-29 = 11
Allowable
subtraction
Number of Penalties
11 X $2,000 = $22,000
Corp E
Penalty
OR
30 Employees Receive Subsidy in the
Exchange:
30 X $3,000 = $90,000
The ACA allows employers to pay the lesser
of either penalty, therefore, Corporation E
would pay $22,000
Scenarios
Scenario #3 Corporation F: 20 FT Employees
 No Employer- Sponsored Coverage
 Corporation F is NOT in compliance with the law.
Scenarios
Scenario #3 Corporation F: 20 FT Employees
20
= 18%
110
Percentage of Employees
in Corporation F
Allowable
subtraction
18% of 80 = 14
20-14 = 6
Number of Penalties
6 X $2,000 = $12,000
Corp F
Penalty
OR
20 Employees Receive Subsidy in the
Exchange:
20 X $3,000 = $60,000
The ACA allows employers to pay the lesser
of either penalty, therefore, Corporation F
would pay $12,000
Scenarios
Scenario #3 Company Y Penalties:
• Corporation D = $0
• Corporation E = $22,000
• Corporation F = $12,000
$34,000
Company Y would owe
$34,000 in tax penalties
Scenarios
Scenario #4
•
•
•
•
•
Corporation Z has 110 FTEs.
Employee salary range is $30,000 to $70,000
75 employees have monthly wages of $3,200 or more
35 employees each have monthly wages of $2,500
Corporation Z offers all employees Minimum Value, Minimum
Essential Coverage
• Employer-paid premium is $62,000 annually
• Current employee monthly contribution for employee-only
coverage is $300
Scenarios
Scenario #4
• Does Corporation Z owe a penalty and
• if so, what would the potential cost of the penalty be?
• Would it be advantageous for this employer to drop coverage and
pay a penalty?
• Why or why not?
Scenarios
Scenario #4 Answer: Does employer owe a penalty?
 Employee contribution is $300 per month
 Annual employee contribution is $3600
$300
X 12 months
$3,600 annual
Scenarios
Scenario #4 Answer: Does employer owe a penalty?
 Employee contribution is $300 per month
 Annual employee contribution is $3600
$3600 / 9.5%
3600
= $37,894
.095
 $3,600 is 9.5% of $37,894 per year
Scenarios
Scenario #4 Answer: Does employer owe a penalty?
 Employee contribution is $300 per month
 Annual employee contribution is $3600
 $3,600 is 9.5% of $37,894 per year
 Annual salary must be at least $37,894 to meet affordability
requirement
 75 employees earn $38,400 or more
 35 employees earn $30,000 annually
 Employer contribution meets affordability
requirement for 75 employees
 Employer contribution does not meet
affordability requirement for 35 employees
Scenarios
Scenario #4 Answer: Does the Employer Owe a Penalty?
75
110
 75 employees meet affordability requirements
= 68%
 35 employees do not meet affordability requirements
 75 = 68% of total employees (110)
68% < 70%
 ACA requirement = affordable coverage to 70% of employees
(note: this goes up to 95% for 2016)
This employer does not meet the affordability
requirements, and is subject to penalty
Scenarios
Scenario #4 Answer: What would the penalty be? $60,000
Penalty 1
110 employees - 80
30 X $2,000
$60,000
For 2015 ONLY employer
may subtract 80
employees. From 2016
on, employers may
subtract 30 employees.
Penalty 2
OR
All 35 Eligible Employees Receive Subsidy in the Exchange:
35 employees
X $3,000
$105,000
Employer would pay lesser of the penalties,
so, maximum penalty would be $60,000
Scenarios
Scenario #4 What would be your recommendation?
A. Do nothing
B. Increase Employer Contribution
C. Increase salaries for those 35 employees
D. Drop coverage and pay the penalty
Scenarios
Scenario #4 : What if they do nothing?
62,000
+ 60,000
$122,000
 Employer currently pays $62,000 annual premium
 Penalty would be $60,000
If the employer does nothing, the cost to the
employer would be $122,000
Scenarios
Scenario #4: What if they increase employer contribution?
 Lowest wage is $30,000/year
$30,000 X 9.5%
$30,000
X .095
$2,850
 Maximum employee contribution for affordable
coverage is 9.5%, or $2,850
Scenarios
Scenario #4: What if they increase employer contribution?
Current employee
contribution
 Lowest wage is $30,000/year
$3,600
Maximum employee
-$2,850
contribution
Additional employer
contribution required
$ 750
 Maximum employee contribution for affordable
coverage is 9.5%, or $2,850
 Currently, employees are paying $3,600 per year
 Employer must increase contribution by $750 per employee
Scenarios
Scenario #4: What if they increase employer contribution?
 Lowest wage is $30,000/year
$ 750
X 110 employees
$82,500
 Maximum employee contribution for affordable
coverage is 9.5%, or $2,850
 Currently, employees are paying $3,600 per year
 Employer must increase contribution by $750 per employee
 Cost of increase for 110 employees is $82,500
Scenarios
Scenario #4: What if they increase employer contribution?
 Lowest wage is $30,000/year
Current employerpaid premium
$62,000
Additional employer
contribution
+ $82,500
Total cost with
increased employer
contribution
$144,500
 Maximum employee contribution for affordable
coverage is 9.5%, or $2,850
 Currently, employees are paying $3,600 per year
 Employer must increase contribution by $750 per employee
 Cost of increase for 110 employees is $82,500
Total cost with increased employer
contribution: $144,500
Scenarios
Scenario #4: What if they increase wages?
$37,894
- $30,000
Wage adjustment
required to meet
affordability
$7,894
What we know:
 With current employee contribution of $300/month
 Wages must be $37,894/year to meet affordability requirement
of 9.5%
 35 employees earn $30,000 per year
 Employer must increase 35 employee wages by $7,894
Scenarios
Scenario #4: What if they increase wages?
$7,894
X 35
$276,290
What we know:
 With current employee contribution of $300/month
 Wages must be $37,894/year to meet affordability requirement
of 9.5%
 35 employees earn $30,000 per year
 Employer must increase 35 employee wages by $7,894
Increasing the wages of the 35 employees from $30,000 to
$37,894 would cost the company $276,290 + $62,000 in annual
premium would equal $338,290
Scenarios
Scenario #4: What if the employer drops coverage?
110 - 80 employees
30 X $2,000
$60,000 penalty
 Employer would pay $2,000 penalty per employee for all
employees (minus 80)
Total employer cost by dropping coverage
would be $60,000
For 2015 ONLY employer
may subtract 80
employees. From 2016
on, employers may
subtract 30 employees.
Scenarios
Scenario #4 Answer:
Do Nothing
2015 Employer Cost
$122,000
Increase Employer
Contribution
2015 Employer Cost
$144,500
Increase 35
Employee Wages
2015 Employer Cost
$338,290
Drop All Coverage
2015 Employer Cost
$60,000
2016 Employer Cost
$222,000
2016 Employer Cost
$144,500
2016 Employer Cost
$338,290
2016 Employer Cost
$160,000
Recommendation: Increase Employer Contribution
Questions
Constance Starkey
Public Affairs & Policy Analyst
1-818-518-2087
cstarkey@lisibroker.com
THANK YOU