San Joaquin Delta College
Affordable Care Act Update
July 16, 2013
Presented By:
Bob Schoenherr, CLU, ChFC, RHU, ChHC
Senior Vice President
Keenan & Associates
1
Agenda
1) Background
2) Impact of the Affordable Care Act (ACA)
3) Next Steps to Ensure ACA Compliance
4) Value of ACA Compliance Analysis
2
Keenan and Community College
Focus
Northern California Community College Clients
• Health Care Consulting
Chabot-Las Positas, Marin, Napa, Ohlone, San Joaquin-Delta,
Siskiyou
• Ancillary Benefits
Majority of CC’s in Northern California
• GASB Consulting
Contra Costa, Ohlone, San Jose, San Mateo, Sierra
3
Background
Keenan has been working with SJDCCD and its
Health Care Advisory Committee since February
2012. The committee has been engaged in
continual Employee Benefits education and
program evaluation, with the goal of developing the
best and most cost-effective benefit program for
Delta employees.
4
Background
Committee recommendations and program changes made to date:









5
Section 125 Spending Accounts – Implemented Oct. 2012
Evaluation of Options for Retiree Medical – Completed Oct. 2012
Improved Life Insurance Plan – Implemented Jan. 2013
EPIC Hearing Discount Plan – Implemented Mar. 2013
Benefits Magnet for Employees – Completed Apr. 2013
RFP for Medical Plan Alternatives to CVT – Completed Jun. 2013
Conduct Employee Satisfaction Survey for CVT Medical Plans –
Completed Jun. 2013
Recommendation of the BenefitBridge System – Implementation in
Process
Affordable Care Act Education - Ongoing
Impact of the Affordable Care Act
General Health Care Reform responsibilities:
Four Principles of the Affordable Care Act (ACA)
6
Impact of the Affordable Care Act
Principle One
The Individual Mandate
“Every individual must have “Minimum Essential
Coverage” (MEC) starting in 2014 or pay a tax”
7
Impact of the Affordable Care Act
Principle Two
Employer Shared Responsibility
“An employer is responsible to provide “affordable”
Minimum Essential Coverage (MEC) with a
“minimum value” to its ACA Full-Time Employees
and children starting in 2015 (recently changed
from 2014) or risk paying a tax”
8
ACA Definitions
 Affordable: Lowest cost single-only coverage
offered by the employer must cost the
employee no more than 9.5% of his/her
Household Income
 Minimum Value: The employee cost of plan
benefits (all in) cannot be greater than 40%
(aka actuarial value)
 ACA Full-time Employee: 30 hours/week
- classify into “new” and “ongoing” employees
9
Impact of the Affordable Care Act
Principle Three
ACA Full-Time Employee
“An ACA Full-Time Employee is an employee who
works, on average, 30 hours per week or 130
hours in a month”
10
ACA FTE

Use actual hours worked for salaried employees or
daily/weekly equivalents (e.g. One Day = 8 Hours)
 Equivalents must generally reflect actual hours earned
 Employees whose hours are not tracked (e.g. adjunct
professors)
– Use a reasonable method for crediting hours of
service
– It would not be reasonable to only take into account
classroom time
 Include class preparation time
 Other time to perform duties
11
ACA FTE

Definition is important because:
–
–

It identifies who should be covered
It is used to calculate the tax
Requires monthly tracking unless the IRS Safe-Harbor is
used: “Measurement Method Safe Harbor”
–
–
–
–
Look back 3, 6, 9 or 12 months
Count actual hours earned during that measurement period
Determine whether individual is FT or PT based on 30 hours of
service earned per week (130 hours per month)
Result: For the future “stability period,” usually the plan year,
employee is deemed to be PT or FTE regardless of hours earned.
 This is not about eligibility. It is about tax.
12
Impact of the Affordable Care Act
Principle Four
Government Subsidies to Purchase
Exchange Coverage
“An ACA FTE whose employer does not provide
‘affordable coverage’ or coverage with a ‘minimum
value’ may purchase coverage on the Exchange
and receive a subsidy from the Federal
Government which triggers the employer’s tax
obligation.”
13
How the Tax is Triggered
1. MEC is not offered to an ACA FTE; or
2. MEC is offered but ACA FTE opts out because
coverage is either unaffordable or not of
minimum value; and
3. The ACA FTE purchases coverage from the
California Exchange (Covered California); and
4. The ACA FTE receives a Federal Subsidy with
respect to the Exchange Coverage; and
5. The employer receives a Section 1411
Certification
14
Failure to Offer Coverage
1. To 95% of ACA FTE Workforce
- $2,000 x (ACA FTE Workforce – 30)
- Example: 1,000 ACA FTE Workforce with 900 eligible
for coverage (90%)
- Penalty: $2,000 x 970 = $1,940,000 annually
2. To 5% or less of ACA FTE Workforce
- $3,000 x each ineligible FTE who purchases
coverage on Exchange and receives a Federal Subsidy
15
Section 1411 Certification
• Certification received from Exchange or HHS
advising employer that:
- An ACA FTE is certified as having enrolled for a calendar month
in an Exchange plan; and
- ACA FTE is eligible for a premium tax credit or cost-sharing
reduction or that it has been paid
• Triggers tax obligation for failure to offer:
- MEC to 95% of ACA FTEs ($2,000 penalty x FTE): or
- MEC to 5% of ACA FTEs ($3,000 penalty/individual):
- Affordable MEC ($3,000 penalty); or
- MEC with a Minimum Value ($3,000 penalty)
16
Section 1411 Certification
• Alerts employer to ACA FTEs who are receiving
government subsidies but should exclude:
- “New” employees during first three months of
employment
- ACA FTEs for whom a Safe Harbor has been satisfied
- Part-time employees
• Anticipate an extensive employer appeals
process with the Exchange
17
Summary - ACA Major Provisions
 Individual Mandate – Minimum Essential
Coverage
 Employer Shared Responsibility
− Affordable (no more than 9.5% of household income)
− Minimum Value (pays at least 60% of health costs)
 Exchange Coverage (Covered California)
- If Employer does not provide “affordable” or “minimum value” coverage
- Federal Subsidy
 Employer’s Tax Obligation
 “Cadillac” Tax
18
-
Cadillac Tax
“An excise tax will be levied on ‘rich’ or ‘Cadillac’ employer
sponsored medical benefit programs.”
 A 40% excise tax will be imposed on “rich” plans starting 2018.
 “Rich plans” are defined as exceeding $10,200 (single) or $27,500
(family) in 2010 dollars, with a limited inflation adjustment factor.
Your % Trend to reach Excise Tax
$
$23,750
$7,900
2013
19
2018
2018
2015
2014
2013
ACA Timeline of Key Events
20
Mass marketing
Begins for California
Exchange (1/1/13)
Notice of Exchange
(Delayed to
Summer2013)
October
2013)
Premium
subsidies for
low paid
employees
Individual
Mandate
Automatic
Enrollment
Employer
reporting to IRS
about employee
coverage (copy to
employees)
Excise tax on “rich” plans
2014
Planning
Employer
Responsible to
provide affordable
coverage of
minimum value
(moved to 2015)
Open Enrollment
for California
Exchange begins
October 1
New
Exchange
Open Enrollment
for
definition of
Goes Live
California Exchange
FTE
begins October 1
Tax penalties assessed
on employers who do not
offer any medical
coverage or affordable
coverage of minimum
value in 2015
Discrimination rules
issued on insured
executive medical plans
Next Steps to Ensure ACA
Compliance
When is an employer at risk for HCR liabilities?







21
Low participation (high opt-out percentage)
Not currently covering all full-time employees
Coverage is below “minimum value”
Coverage is “unaffordable”
Offer plan with high benefits/low contribution
High potential for “Cadillac” excise taxes
Inability to respond to “Section 1411” Certification
Next Steps to Ensure ACA
Compliance
Governance
Governing bodies (corporate boards, boards of
trustees, city councils and county supervisors):
− Have an obligation to understand the impact of ACA on the organization
− Are better protected when they can demonstrate a reasonable good faith
effort of inquiry
− Provides transparency for management and the governing body
22
Compliance Analysis Should Include:
• Employer Cost Projections based on:
– your organization’s health plan benefits,
– contribution levels and
– penalty and tax implications
• Projected costs your organization will incur
associated with the provisions of the ACA.
• Exposure under ACA FTE Definition
• Identify “Variable Hour” Employees
• Analysis of “Safe Harbors” available under ACA
23
Compliance Analysis Should Include
(Continued):
• Assess Impact of Different “Look Back” Periods
• Assess Impact of Optimum “Measurement” and
“Look Back” Periods
• Assess Impact of Plan Design or Contribution
Changes
• Documentation of employer’s Analysis and
Compliance Plan vs. Section 1411 Certification
• Evaluate Strategic Opportunities
24
Value of Compliance Analysis
Value to All Employers
 Future budgeting
 Benchmarking relative to Exchange Plans
 Communicate value of your plans to employees vs.
the Exchange Plans
 Due Diligence
25
Thank You
Questions?
Presented by:
Bob Schoenherr, CLU, ChFC, RHU, ChHC
Senior Vice President
Keenan & Associates
1740 Technology Drive, #300
San Jose, CA 95110
(408)441-0876 x6171
Keenan & Associates is an insurance brokerage and consulting firm. It is not a law firm or an accounting
firm. We do not give legal advice or tax advice. This presentation, the answers provided during the Question and
Answer period, nor the documents accompanying this presentation constitutes or should be construed as legal or
tax advice. You are advised to follow up with your own legal counsel and/or tax advisor to discuss how this
information affects you.
26