Smart Benefits: Taxpayers Could Get Stung By Local Healthcare Cost

Monday, June 24, 2013

Amy Gallagher, GoLocalProv Business/Health Expert

 

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Major healthcare reform costs are looming for municipalities--is your local city or town ready?

Most municipalities have just passed their budgets for fiscal years starting July 2013. But have they identified and planned for looming costs associated with healthcare reform?

Healthcare reform affects all employers, private and public. That means state and town governments, including school districts, must comply with the new laws, even if there are collective bargaining agreements in place. All will have to decide whether to continue to offer coverage to employees, or not offer coverage. They’ll also have to calculate full-time status differently than in the past and, as a result, part-time public workers, including substitute teachers, may be newly eligible for benefits.

What does this mean for municipalities? They’ll need to start counting employees and planning, or risk heavy fines. If they don’t, it’s taxpayers who will pay the price in 2014.

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Employer Mandate Applies to Municipalities

Effective in 2014, large employers will be required to offer “minimum essential coverage” to full-time employees and their dependents or pay a penalty. An employer is “large” if it employs an average of at least 50 full-time employees or full-time equivalents. The law defines “full-time” employment as an average 30 hours per week, and provides a specific method for tracking and calculating these hours.

A “large” employer needs to then decide if it will continue to offer coverage, or stop offering coverage and allow employers to purchase through the state exchange starting January 1, 2014. This is known as the “Pay or Play” provision of the PPACA law. If the employer stops offering coverage, the monthly penalty is 1/12th of $2,000 for each full-time employee employed by the employer, reduced by 30 full-time employees.

While it’s unlikely that a municipality would want to stop offering coverage, or even could stop offering coverage because of collective bargaining agreements, taxpayer scrutiny may require municipalities to compare the costs of continuing coverage versus paying the penalties and letting all the employees go to the exchange. Since municipal coverage typically offers much richer benefits than private coverage, at a minimum, municipalities may have to seriously consider benefit changes to justify continuing to offer coverage for employees.

If an employer decides to continue coverage, it must test for affordability and minimum plan value in 2013 and prove both. If it can’t, the employer must pay $3,000 for every employee who elects, and receives subsidy for, the exchange plan coverage.

2013 Counts

Starting in 2014, 30 hours per week is the new threshold for full-time. Employers with seasonal and variable hour employees, or large part-time populations, may have a difficult time determining whether an employee meets the full-time threshold of 30 hours per week during the current benefit year.

Safe harbor provisions, which apply separately for ongoing versus new hires, allow employers to establish a measurement period of up to 12 months and a subsequent stability period of equal length to assess whether an employee meets full-time status. If the employee averages at least 30 hours per week during the measurement period, then he or she is considered to be a full-time employee for the following stability period.

The measurement period used to determine whether an employee will be “full-time” in 2014 will start in 2013. For this reason, municipalities, like other employers, need to begin the process of reviewing their work force and employment eligibility rules immediately to determine if they need to make adjustments in 2013 to avoid penalties in 2014.

Fees Start in 2013

PPACA establishes new fees, some of which must be paid in 2013.

  • The Patient Centered Outcomes Research Fee (PCORI). PCORI imposes a fee on health insurers and self-funded plans, and those plan sponsors who offer Health Reimbursement Arrangements (HRAs). Since many large municipalities are self-insured, they will need to pay fees ranging from $1-$2 per covered life, depending on the start of the plan year. They must file by 7/31/13 for the previous plan year.
  • Transitional Reinsurance Fee (TRF). The fee of $63 per covered person must be reported by large employers by 11/15/13, and, starting January, 2014, all self-insured plan sponsors must pay the TRF.

 

In Rhode Island, insurers estimate that the cost of healthcare reform fees will add another 4.5-5% to health insurance premium rates in 2014.

Cadillac Tax May Be Near for Municipalities

It may seem far off, but employers need to track their plan costs now to avoid the Cadillac tax that hits in 2018. That year, a 40% excess tax will be imposed on the value of coverage exceeding $10,200 for individual coverage and $27,500 for family coverage. Municipalities need to know that the threshold is $11,800 for retirees, and $30,950 for employees in high risk jobs (e.g. firefighting).

Since municipal benefits are often richer, and consequently more expensive, than plans offered through private employers, it’s likely that municipalities will need to address issue sooner rather than later, and make plan changes quickly to avoid the heavy taxes.

Reporting Follows in 2015

Employers need to count, track and measure employees’ hours starting in 2013, and keep explainable documentation of their methods. While there’s no clear federal guidance yet, it’s anticipated that employers will need to start reporting to several federal governmental agencies starting in 2015, and each year thereafter. Employers should expect added scrutiny and fees for not following suit. 

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Amy Gallagher has over 19 years of healthcare industry experience. As Vice President at Cornerstone Group, she advises large employers on long-term cost-containment strategies, consumer-driven solutions and results-driven wellness programs. Amy speaks regularly on a variety of healthcare-related topics, is a member of local organizations like the Rhode Island Business Group on Health, HRM-RI, SHRM, WELCOA, and the Rhode Island Business Healthcare Advisory Council, and participates in the Lieutenant Governor’s Health Benefits Exchange work group of the Health Care Reform Commission.

 

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