Tuesday, August 26, 2014

2015 Health Insurance Rates Released

A recent headline reads, “Average health insurance rates lower in 2015." In aggregate this is great news for all Oregonians that utilize the health insurance exchange, CoverOregon.  One year is not a trend but after years of double digit increases Oregon businesses would welcome rates stabilizing like workers’ compensation did in the 1990s. Oregon is still benefiting from those changes.

A closer examination of the approved rates shows some insurers with increases but others with double digit decreases.  This is counter to what I had expected.  The coverage from the health insurance exchange began in 2014.  The following logic was put forth that insurers would have to submit rate changes in the first half of 2014, thus they would not have actuary data to base rate changes.  Unless insurers were able to approximate changes based on the available data another explanation may be a push to gain market share or decrease exposure (decrease market share).  Moda is an interesting example.  They had some of the lowest prices in 2014 but in 2015 there will be significant increases in premium.  Another large carrier, Providence, had similar large decreases.  Overall pricing seems to be converging into a narrower band.

ACA Strategies

If you have 100 Full Time employees and Full Time Equivalents in 2015 or 50 Full Time employees and Full Time Equivalents in 2016 you will be subject to the $2000 tax/penalty under the Affordable Care Act (ACA) if you do not provide health insurance.  Often the option to pay a tax or provide health insurance is framed as two options-pay or play.  Either you pay the $2000 tax or provide health insurance to your employees.  And many large employers are doing just that, crunching numbers and watching competitors to decide which of the two options they should take.

An employer that has 150 employees resulting in a yearly $200,000 tax there is considerable incentive to minimize their tax. We will look at some of the other options that have been proposed as alternatives to pay or play to reduce or eliminate taxes under the ACA.  At this point I should note that I am not intending to provide legal or tax advice.  These strategies have not been tested and you should really obtain advice from someone that is ‘certified smart’ like a CPA or an attorney.  Nor am I responsible for any bad PR should you implement any of these strategies unsuccessfully.

Independent Contractors – Turning your employees into independent contractors. This option comes up every time there is a new cost of having an employee.  An independent contractor does not just avoid the ACA tax but also other costs like workers’ compensation or unemployment taxes.    The problem with this option is that the test of the status of an independent contractor is not clear cut and even varies within different government agencies.  Having dealt with some litigation on this matter I would highly recommend getting legal advice before making any of your employees independent contractors.  I would also note that once an “independent contractor’s” services are no longer needed they often file for unemployment.  The process of obtaining unemployment benefits often begins to unravel the independent contractor status of that firm’s outsourced help.

Outsourcing – Speaking of redeploying your workforce and processes, this is one area that may gain some traction.  Employers that want to stay below an arbitrary number, say 50 employees, can outsource some functions.  Examples include payroll, HR or recruitment.  This can provide flexibility for employers that offer increased pay in lieu of health insurance so employees can obtain subsidies for themselves and family on the exchange (link to article).

Employee Only Health Insurance – Anecdotally this option is very popular.  Just like the example in the previous paragraph, the availability of health insurance from the employer restricts the ability for the dependents to obtain a subsidy in the health insurance exchange.  And employers generally do not pay for a spouse or children. If the employer restricts the plan to only employees then the rest of the family can apply for a subsidy on the exchange.  

Splitting up the Business – When the ACA was first passed I heard talk about splitting up businesses into units smaller than 50 employees.  There are rules on what is called combinability in the ACA and reportedly this is very difficult to do.  When I was asked about this option I referred the employer to an attorney and have yet to see anyone to do this.
 
30 Hour Work Weeks – You may have heard of this possibility in the news.  An employer makes nearly all of their employees part time and thus avoids the $2000 tax. If you offer shifts of less than six hours it has the added benefit of not requiring a lunch break.  On the other hand it is an administrative nightmare by nearly doubling of the number of employees when restricting employees to five 5-hour shifts.  Management would have to monitor employee’s hours to ensure employees do not become full time employees and thus have to offer benefits or pay a penalty. Plus recruitment and retention is negatively affected.  The question employers should ask themselves is if this option is really worth saving about $1.50 per hour on labor?  I have not seen it widely adopted and I suspect that the more likely scenario is that full time employee’s hours will be maximized while part time employees are not allowed to pick up additional shifts.  

Minimal Essential Coverage Insurance Plan – To avoid the $2000 tax a large employer has to offer a health insurance plan that provides minimal essential coverage.  That does not mean that the coverage meets the definition of health insurance that is offered on the health insurance exchange.  In fact these plans generally cover considerably less and thus cost considerably less.   The employer pays a significant portion of that plan (which is still much cheaper than providing exchange level health insurance) to ensure that there is at least an initial 70% participation rate.  In order to meet the eventual requirement of a 95% participation rate the employer may have to pay for the entire cost of the premium.  Employees that sign up will not be subject to the individual mandate penalty.   Additionally the employer offers a separate plan that meets the definition of minimal value (coverage levels equivalent to the health insurance exchange) and costs less than 9.5% of employee income.  The employer is counting on fewer employees signing up for the more expensive plan.  The downside to this plan is that employees will not be able to obtain a subsidy in the health insurance exchange as they are being offered an employer plan.  This could create some ill will towards the employer.  On the other hand there are reports of employees specifically requesting this minimal coverage and employers doing so to retain staff.

Arin J. Carmack
Risk Management
Cardinal Services

Medium Sized Employers and the ACA

As we get closer to 2015 employers that are close to 100 employees (or those in 2016 that are close to 50 employees) should to decide if they want to be a large or small employer under the Affordable Care Act.

If you already offer health insurance many parts of this article will not apply to you.  You should however check to be sure that your plan meets the definition of health insurance (ask your agent).

Monday, August 4, 2014

Paying Salary; Does it Add Up?

Paying an employee salary instead of hourly is just easier, right?! No more dealing with figuring and paying overtime and turning in time cards.

Actually, legally some employees that you may want to pay salary may still be entitled to overtime pay and unpaid meal breaks.

Interested in paying your employee salary
In order to stay compliant by classifying employees correctly, first you'll need to determine if the employee is exempt or non-exempt. Exempt simply means that they are exempt from certain wage laws such as paying overtime.