Orientation Period for New Hires
Adding a one-month orientation period may help an employer avoid complying with the new health benefits. Federal agencies are offering employers a benefits-free 30 day orientation period option in final regulations. There is also clarification on how employers must treat certain categories of new hires, as either FT , PT or Seasonal employees
The Final Regulations
These final regulations provide that the one month period would be determined by adding one calendar month and subtracting one calendar day, measured from an employee’s start date in a position that is otherwise eligible for coverage. For example, if an employee’s start date in an otherwise eligible position is May 3, the last permitted day of the orientation period is June 2. Similarly, if an employee’s start date in an otherwise eligible position is October 1, the last permitted day of the orientation period is October 31.
The new regulations implement part of the “employer shared responsibility mandate” provisions created by the Patient Protection and Affordable Care Act (PPACA). In all categories of new hire the e final regulations provide that one month is the maximum allowed length of an employment-based orientation period. For any period longer than one month that precedes a waiting period, the 90-day period begins after an individual is otherwise eligible to enroll under the terms of a group health plan.
When must an employer offer coverage:
The final regulations continue to provide that if a group health plan conditions eligibility on an employee’s having completed a reasonable and bona fide employment-based orientation period, the eligibility condition is not considered to be designed to avoid compliance with the 90-day waiting period limitation if the orientation period does not exceed one month and the maximum 90-day waiting period begins on the first day after the orientation period.
These final regulations apply to group health plans and health insurance issuers for plan years beginning on or after January 1, 2015.
When the Employer Might be Subject to a Penalty:
If at least one full-time employee of the employer buys health insurance in a public Exchange (Marketplace) and qualifies for a subsidy (either a premium tax credit or a cost-sharing reduction), the employer must pay a penalty.
There are two different types of penalties.
- )The IRC section 4980H(a) penalty applies if a large employer offers coverage to less than 70% of its full-time employees in 2015 (or to less than 95% after the 2015 plan year). This penalty is $2000 annually or $166.67/month times the total number of “full-time” employees minus the first 80 (minus the first 30 after 2015). The penalty calculation does not include variable hour or seasonal employees who are in their measurement or administrative periods, even if they in fact worked on average at least 30 hours/week or 130/month during those periods. Nor does it include those who are in their stability periods but who did not qualify for coverage based on their hours worked during the associated measurement period.
- IRC section 4980H(b) penalty. It applies if a large employer offers coverage to at least 70% of its full-time employees (95% after 2015), but for some full-time employees the coverage is either not “affordable” or does not provide minimum value. This penalty is $3,000 annually or $250/month for each full-time employee who buys health insurance in a public Exchange (Marketplace) and qualifies for a subsidy and for whom the employee cost for self-only coverage under the lowest-cost option available from the employer is more than 9.5% of the employee’s household income (or one of three safe harbors), or for whom the employer coverage offered does not provide at least minimum value. Again, the penalty calculation does not apply if the employee who qualified for a subsidy was a variable hour or seasonal employee who was in his/her measurement or administrative periods, nor does it include those employees who are in their stability periods but who did not qualify for coverage based on their hours worked during the associated measurement period. Additionally, the (b) penalty cannot be more than the (a) penalty would have been had it applied.
Summary and Employer Action Items
The bottom line is this:
- If you hire a non-seasonal employee whom you reasonably expect (at date of hire) to work at least 30 hours/week or 130 hours/month, you must track hours each calendar month and offer benefits by the first day of the fourth month if the employee averages at least 130 hours/month for the first three months. This applies even if you hire this employee for a short-term position or a summer internship (unless you take the position, upon advice from your legal counsel, that a summer intern is a “seasonal” employee).
- If you hire a non-seasonal employee and you cannot reasonably determine at date of hire if they will work on average at least 30 hours/week (130 hours/month), you can track their hours over their “initial measurement period” and not offer benefits until the associated “stability period,” if the employee averaged at least 130 hours/ month during the measurement period. The stability period might not begin until 13-14 months after the date of hire.
- If you hire an employee who meets the new definition of a “seasonal employee,” you can track their hours over their “initial measurement period” and not offer benefits until the associated “stability period” if they averaged at least 130 hours/month during the initial measurement period. You do not have to offer benefits by the first day of the fourth month.
A copy of the final regulations can be obtained by clicking on the link below:
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UnitedHealthcare Buying Medical Groups?
Optum Health owned by UnitedHealth Group
Today’s WSJ reports UnitedHealth Buys California Group of 2,300 Doctors may be a signal of future trends in healthcare where there is blurring of the lines between insurers and providers. The article goes on to to mention that United Healthcare has stated that providers acquired by Optum will not work exclusively with United’s health plan, and will continue to contract with an array of insurers.
The article goes on to state that “the potential complications that might ensue, Monarch is currently in an arrangement with United competitor WellPoint Inc. to create a cooperative “accountable-care organization” aimed at bringing down health-care costs and improving quality.”
In the aftermath of Health Care Reform, insurers profits will be curtailed. New price limitations imposed by MLR (Maximum Loss ratios) where 85% of large group premiums collected must be spent on healthcare services(claims) and health quality improvement . New state tax surcharges such as New York’s 82% of above MLR applies to small groups. In fact in NY the cost of doing business is a staggering 16%+ added to the usual corporate tax. See The NYS Surcharge.
Additionally, the industry as a whole will be paying an annual tax to help pay for PPACA(Patient Protection Affordability Care Act). This tax rises from $8 billion in 2014 to $14.3 billion in 2018 and in later years, even higher according to a complex index. See Kaiser Bill Summary .
While its unglamorous to defend insurers they are clearly paying their share and like it or not they are good at health care management. Unlike foreign HQ tax loop holes taken advantage by companies such as G.E. , an insurer cannot place patent rights in Zug, Switzerland and take advantage. Each of these taxes is increased regularly by the State and contributes significantly to annual increases in rates. The competition in the health insurance industry is already at a dangerous low levels. Negotiating with insurers has become an overwhelming challenge in the large group market. Hospital groups have merged to mirror this Oligopoly trend and contractual issues are the new normal. See Empire & Stelllaris Reach pact.
So what to do other than to find profits elsewhere? Many issues and questions will abound as to the antitrust nature of this action. A similar issue appeared in the 90s Merck-Medco merger between a pharmaceutical and mail order PBM. The conflict of interest claims will abound, how do you negotiate one provider group owned by United-Healthcare as opposed to one owned by HealthNet? Will insurer share competitive insights with other practices? Are small independent Dr. Groups completely left out of the loop and feel pressured to be bought out? Will the insurers medical group have unfair advantage in buying out the smaller physician practice? Perhaps in the same vein of the Merck-Medco analogy the health insurer shareholders will do well for a decade and then simply split up?
Its all too early to tell but this much is clear, there aint no money in running a health insurance management company today.
To determine the FTE (Full Time Equivalent) you must count FT and PT employees. Full Time Employees are those working 30 hours+/week.* The number of full-time employees excludes those full-time seasonal employees who work for less than 120 days during the year.4 The hours worked by part-time employees (i.e., those working less than 30 hours per week) are included in the calculation of a large employer, on a monthly basis, by taking their total number of monthly hours worked divided by 120.
For example, a firm has 35 full-time employees (30+ hours). In addition, the firm has 20 part time employees who all work 24 hours per week (96 hours per month). These part-time employees’ hours would be treated as equivalent to 16 full-time employees, based on the following calculation:
20 employees x 96 hours / 120 = 1920 / 120 = 16
Thus, in this example, the firm would be considered a “large employer,” based on a total full-time equivalent count of 51—that is, 35 full-time employees plus 16 full-time equivalents based on part-time hours.
This blog is not intended to represent legal advise and one should consult with a tax and/or legal expert.
* IRC 4980H(c)(4)
Disclaimer: This blog is not intended to represent legal advise and one should consult with a tax and/or legal expert.
Aside from the many health care related questions that are popping up with the new Health Care Reform Act otherwise known as Patient Protection and Affordable Care Act there are also new Labor Law changes that affects businesses of all sizes. For the latest info please visit Healthcare.gov.
A downloadable form and respective gov hyperlinks are available here with a summary of the key labor laws (updated for 2011).
Stay tuned, with changing political make up of the House these laws may undergo changes and tweaks.
More small businesses are providing health insurance to their employees in 2011 as a result of the tax credit of up to 35% and 25% for non-profits offered through PPACA starting in 2010. Several insurers have reported significant increases in small group enrollments. Coventry Health Care added 115,000 small group enrollments, representing an 8% increase; and Blue Cross Blue Shield of Kansas City saw a 58% jump, 38% of which had never offered health benefits to employees before. Click video [vimeo http://vimeo.com/19716548].
Further information can be found at http://www.irs.gov/newsroom/article/0,,id=223666,00.html. In addition, we have a simple work sheet that can determine exactly how much the credit is worth to you. Importantly, the Tax Credit will increase to 50% for small businesses by 2014!
Please contact our office for further guidance on your group’s plan.
The IRS issued On December 22, 2010 a Notice http://www.irs.gov/pub/irs-drop/n-11-01.pdf which states compliance with the non-discrimination provisions of the Protection and Affordable Care Act (PPACA) are suspended for insured group health benefit plans….for now.
Under the original health care reform law, non-grandfathered, fully insured health plans would have required companies to meet the non-discrimination rules of IRC 105(h). This provision of the law is effective for plan years beginning on or after September 23, 2010. Therefore, if your company’s health plan renews on January 1, 2011 and it is non-grandfathered, your plan is subject to these rules on January 1, 2011.
The anti-discriminatory provisions were enacted primarily to prohibit highly-compensated employees (such as company owners and senior management) from receiving health benefits that are materially better than the “rank and file” employees. As contemplated in the health care reform measure, failure to comply with the anti-discriminatory rules could result in the payment of penalties to the IRS.
Affected plans must satisfy two tests; eligibility test, and benefits test. The tests determine whether or not the plan disproportionately benefits highly compensated individuals (HCI). Please contact us for further information on these tests.
According to the notice, the decision to delay the effective date was because:
Regulatory guidance is essential to the operation of the statutory provisions, the Treasury Department and the IRS, as well as the Departments of Labor and Health and Human Services (collectively, the Departments), have determined that compliance with § 2716 should not be required (and thus, any sanctions for failure to comply do not apply) until after regulations or other administrative guidance of general applicability has been issued under § 2716.
There has been no indication of the length of the delayed implementation, other than the provision would become effective after further rules were promulgated.
The employer is responsible for monitoring non-discrimination compliance. If the plan is deemed discriminatory, fines could be assessed at $100 per day per individual discriminated against. If reasonable cause exists (the employer can show good faith belief that the plan was not discriminatory), the penalty can be capped at the lesser of 10% of group health plan costs or $500,000.
Importantly, this doesn’t apply to “grandfathered plans“. Employers of non-grandfathered, fully insured plans should review their contribution structures and benefit designs to ensure that plans are not favoring highly compensated employees.
Further information can be found at http://www.irs.gov/irb/2010-41_IRB/ar07.html . Please contact our office for further guidance on your group’s plan.
In the last posting I very briefly mentioned how industry consolidations are shaping the future landscape of private health insurance. I want to briefly discuss some of regulatory costs results of the Massachusetts Health Care Model.
With the new Health Care Reform – PPACA (Patient Protection Affordability Care Act) there is a greater need to cut costs on administration in order to compete. New guidelines are becoming more and more onerous on insurers.
For example, a member who opts out of purchasing insurance coverage and only intends to buy a plan when sick with minimal penalty and no waiting period is a potential time bomb for insurers! When member drops out of plans when healthy again insurers have no “good years” to count on to save for the “bad years” when one is sick.
The NYS direct non-commercial market is 2 to 3 times as expensive for this very reason. A member can opt in and out any time. We are seeing the same results with the Massachusetts model of which the Reform Act mirrors. In an article by Washington DC’s media centrist , Dailey Caller, “Since the bill became law, the state’s total direct health-care spending has increased by a remarkable 52 percent. Medicaid spending has gone from less than $6 billion a year to more the $9 billion. Many consumers have seen double-digit percentage increases in their premiums.” The article goes on to quote a Boston Globe Report that found that in the first two years of the program, the state’s ER costs actually rose by 17 percent. “They said that ER visits would drop by 75 percent, and it hasn’t been even close to that,” said State Treasurer Tim Cahill, who is currently running for governor as an Independent. “It hasn’t changed people’s habits. It hasn’t been successful at getting people to use less expensive alternatives.”
In Massachusetts, people who get subsidized insurance from an exchange are in health plans that pay providers Medicaid rates plus 10 percent. That’s less than what Medicare pays, and a lot less than the rates paid by private plans. Since the state did nothing to expand the number of doctors as it cut its uninsured rate in half, people in plans with low reimbursement rates are being pushed to the rear of the waiting lines.
- The Congressional Budget Office (CBO) estimates there will be 32 million newly insured under ObamaCare.
- Studies by think tanks like Rand and the Urban Institute show that insured people consume twice as much health care as the uninsured.
- So all other things being equal, 32 million people will suddenly be doubling their use of health care resources.
- In a state such as Texas, where one out of every four working age adults is currently uninsured, the rationing problem will be monumental.
We already see a small number of Physicians leaving private and public networks. Several more are contemplating reduced hours and early retirement. Not sure how this will affect Medical Students but the prospects of reduced reimbursement, higher workload, mounting malpractice insurance costs and a hefty tuition bill cannot be positive. Will further empowering Physician Assistants and Nurse Practitioners to fill in the gaps be the solution for this shortage?
Small businesses in that state have sought State relief form double digit rate increases. State programs that businesses previously didn’t qualify for have been tested and accepted. For example, the Commonwealth Care stipulated that only groups who’s members were uninsured for more than 6 months and employers contributions were less than 33% could qualify. But groups who voluntarily terminated their plans were also now being accepted.
Sounds great, public programs are cheaper and easy to qualify? The Catch 22 for the State is that the more the employer insurance system degrades, the higher the cost is going to be for the state in providing subsidies to low income workers. The affordability of health insurance coverage to small businesses is a critically important component of health reform. With lower profit margins, small businesses have a much more difficult time affording insurance coverage than their larger competitors. As a result, only 59% of businesses with between 2 and 199 employees offered coverage to their employees. Among the smallest employers, those with between 3 and 9 employees, only 45% offered coverage according to Kaiser Family Foundation.
Insurance is simply a tool to finance the underlying cost of health care, so unless spending is brought under control, all state and federal reforms will shift the financial burden from one group to another, but not solve the underlying problem. The challenge moving forward will be to overhaul the delivery system to promote prevention, quality, and results-based care, to encourage healthy lifestyles, and to eliminate waste and fraud in the system.
A healthy stable small business insurance market is a canary in the mines. From what we’re seeing in Massachusetts the canary is not doing too well.
Read more: http://dailycaller.com/2010/03/23/skyrocketing-massachusetts-health-costs-could-foreshadow-high-price-of-obamacare/#ixzz0yCe9vijY