Employer Challenges Go Beyond Health Care Reform

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    Employer Challenges Go

    Beyond Health Care Reform

    HR. Payroll. Benefts.

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    Contents

    Introduction 4

    Plan Design Flexibility Will Decrease 7

    Exchanges Changing The Paradigm 11

    Shared Responsibility Managing Compliance 17

    Conclusion 21

    About ADP 22

    By John A. Haslinger

    ADP Vice President, Benefts Outsourcing Consulting

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    IntroduCtIon

    Employee benefts, as we know them today,came into existence ollowing the GreatDepression. The Great Depression, bywiping out personal savings and throwingalmost 13 million people out o work, vividlydemonstrated the need or government andindustry to provide protection against at leastsome o the risks associated with illnessand loss o earnings. Labor unions gainedmomentum ollowing the Great Depression,as well, and bargained or better wages,working conditions, and eventually, benefts.

    By the end o World War II, labor unions werefrmly established. And by 1949, they had theability to bargain or pension and insurancebenefts. While unions spearheaded theinitial expansion o employee benefts,management also recognized the valueo providing such benefts as part o acomprehensive compensation package. Inaddition, employers quickly realized thatproviding such benefts could also result in

    increased productivity and improvements inworker morale what we today reer to asemployee engagement.

    Source: 1 Centers For Medicare and Medicaid Services, Ofce o the Actuary,National Health Statistics Group, U.S. Department o Commerce, Bureau o Economic Analysis

    The benefts plan designs which emerged inthe 1950s and 1960s (and which we still havewith us today in 2012) were (and are) concernedwith two major issues:

    Income replacement in the event oretirement, disability, or death

    Medical coverage to keep the worker,and later the workers amily, healthyand productive

    In almost all cases, these plans were designed

    as Defned Beneft plans with the employerpaying all o the costs initially. Over time,employee contributions became the norm butwith the employer still liable or the vast majorityo any beneft costs as well as the risk o costsexceeding projected levels in any given year.

    Employee reaction to improved beneftswas avorable, the government providedtax incentives (and increasingly regulatoryrestrictions), and the post-war economy wasbooming. The predictable result was a rapidand continuous growth in the number andcost o employee benefts especially healthcare benefts.

    The cost of health care hasnow risen to the point where it

    accounts for over 18% of the entireU.S. economy, and is expectedto account for 20% by 2015.1

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    Nationally, health care has been a majortopic o discussion since at least the ClintonAdministration. In part this has been drivenby the act that health care spending hasrisen ar aster than the rate o ination. The

    cost o health care has now risen to the pointwhere it accounts or over 18% o the entireU.S. economy, and is expected to account or20% by 2015.1

    The Patient Protection and Aordable CareAct and the Health Care and EducationReconciliation Act o 2010 (together knownas Health Care Reorm) have reocusedthe national dialogue about health care,and has also dominated the employer-sponsored beneft plan landscape since 2009

    and will continue to impact strategic andadministrative considerations or the next

    Fig 1. Average Cost of Employer-Provided Health Care

    Average annual cost o employer-provided health care rose an average o 8% annually between1999 and 2011

    - Employee only coverage exceeds $5,000 in 20112

    - Family coverage exceeds $15,000 in 20112

    $16,000

    $14,000

    $12,000

    $10,000

    $8,000

    $6,000

    $4,000

    $2,000

    $01999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

    $5,791

    $2,196

    $2,471 $2,689$3,083

    $3,383 $3,695$4,024 $4,242

    $4,479 $4,704$4,824

    $5,049$5,429

    $6,438$7,061

    $9,068

    $9,950

    $10,880

    $11,480

    $12,680

    $13,375

    $15,073

    $13,770

    $12,106

    $8,003

    FamilyIndividual

    Source: 2 Kaiser Family Foundation, 2011 Employer Health Benefts Survey

    decade and beyond. However, it is criticalor benefts proessionals to address therequirements o Health Care Reorm inthe strategic context o employee beneftsand the role that benefts play as part o

    total compensation.Rapidly rising benefts costs especiallyhealth care are dramatically ocusing theattention o management at the same timethat signifcant changes in the demographicso the workorce are resulting in a measurabledecline in the level o employee satisaction.Especially in the area o health care benefts,employers are paying more and gettingless less in employee appreciation, lessin employee satisaction, and less in a

    competitive edge.

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    In part, this situation can be traced to theact that most employers have not appliedthe same strategic planning process toemployer-sponsored benefts as they haveto other parts o their business. The basic

    problem stems rom the historical dichotomybetween the way benefts and compensationare viewed.

    On the one hand there has been traditionalcompensation (pay, bonuses, non-qualifeddeerred compensation, restricted stock,stock options, etc.), which providedmanagement with direct control o costsas well as the ability to integrate theseexpenses with specifc business objectives.On the other hand, there have been employeebenefts plans (especially health care).These benefts plans are generally notintegrated into the broader strategic directiono the employer, beyond the generic goalo attracting, retaining, and motivatingemployees and generally are not tied toany metrics showing that they succeed in thestandard generic goals. Equally important,benefts costs oten bear no relationship to

    any specifc business objectives in act, theyare driven to a signifcant degree by orcesoutside o the control o the employer: ination,utilization, and government mandates.

    Health Care Reorm is the most signifcantgovernment mandate impacting employer-sponsored benefts plans since the passage othe Employee Retirement Income Security Acto 1974, as amended (ERISA). It imposesnew administrative, communication, reporting,compliance, tax, and plan design requirementsimpacting every employer-sponsored healthcare plan.

    Viewed strategically, it also oers anopportunity or employers to re-think howhealth care benefts should be designedand delivered. In act, the participant andservice experience (i.e., Web, call center,mobile apps, decision support tools,carrier / vendor interaces, payroll / HRintegration, etc.) will become the keydierentiator among employer plans,rather than plan design as a result oHealth Care Reorm.

    Rather than present an overview o the various requirements under Health Care Reorm,the balance o this article will ocus on employer considerations in addressing three keyareas impacted by Health Care Reorm:

    Plan Designless exibility anddierentiationamong employers

    Exchangesboth public and private

    SharedResponsibilityRequirementsmanaging the part-timelabor orce

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    Health Care Reorm will require signifcant re-thinking around benefts design as a result o

    both coverage mandates and the nondeductible 40% excise tax (the tax on high-cost healthcoverage) that will go into eect in 2018. The result o these two provisions will be a narrowingo dierences among employer-sponsored health care plans in act, it is likely over the next5 to 10 years that employer sponsored plans will begin to look more and more alike.

    For more than 50 years, annual average per capita health care spending has increased at morethan twice the rate o ination, as measured by the Consumer Price Index (CPI). In act, therehas not been a single year during the last 50 years when the increase in per capita health carespending was equal to or less than the rate o increase in the CPI it has exceeded the rate ogrowth in the CPI every single year.

    Plan desIgn FlexIbIlIty WIll deCrease

    Fig 2. Percent Change in Health Care Costs Compared toCosts for All Items (percent increase rom prior year)

    Every Year Since 1965

    - Medical CPI has risen aster than general CPI- Percent change in per capita health care expenditures has been higher than change in

    medical CPI

    15%

    14%

    13%

    12%

    11%

    10%

    9%

    8%

    7%

    6%

    5%

    4%

    3%

    2%

    1%

    0%1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

    7.7%

    11.6%

    13.1%

    14.2%

    8.4%

    5.4%

    4.5%

    6.1% 6.2%5.7%

    4.2%

    1.6%

    3.4% 3.4%2.8%

    3.6%

    13.5%

    10.6%

    1.6%

    5.7%

    9.1%

    PROJECTE

    D

    Change In CPInot yet available

    or 2015

    Short-term impacto HMOs

    Per Capita NHE3 CPI All Items4

    Sources:3 Per Capita National Health Expenditures (NHE) - Centers For Medicare and Medicaid Services, National Health Statistics Group,

    U.S. Department o Commerce, Bureau o Economic Analysis4 Percent Change in CPI (All Items and Medical Care) - U.S. Dept o Labor, Bureau o Labor Statistics

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    Looking at it another way, the annual per capita U.S. Gross Domestic Product (GDP) grew onaverage 3.3% between 1999 and 2009. During the same period o time, annual per capita healthcare spending grew on average 5.8%.5 The result being that health care spending accounted oran ever-increasing share o the entire GDP.

    Health Care Reorm includes a range oinsurance market reorms aimed at loweringpremium growth, improving health benefts,and ensuring near-universal coverage inthe U.S. These include a set o aordableinsurance options available through newstate insurance exchanges, rules limitinginsurance administrative costs and profts as

    a share o premiums, and review o excessiveinsurance premium increases. In addition,the law contains payment and health caresystem reorms that seek to slow the growthin costs.

    However, at least in the short-run (the next3 to 5 years), Health Care Reorm appearsto do little to slow the anticipated rate o

    Fig 3. National Health Expenditures of GDP

    Health care represents a larger portion o the GDP almost every year since 1965 - accountingor over 18% o GDP in 2011

    25%

    20%

    15%

    10%

    5%

    0%1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

    Medicareenacted

    0.9% 0.8% 1.0%

    5.8%

    7.2%

    9.1%10.3% 10.5%

    12.5%13.9% 13.8%

    16.0%

    18.0%

    20.0%

    PROJECTED

    Source: Centers For Medicare and Medical Services, Ofce o the Actuary,National Health Statistics Group, U.S. Department o Commerce, Bureau o Economic Analysis

    increase in health care spending, especiallyor employer-sponsored plans. In act, someanalysts have argued that covering theuninsured (estimated at between 30 and 50million), expanding coverage to meet newmandates, and the potential or new beneftsto be added to the current mandates aspart o the ongoing political process, could

    actually accelerate the rate o cost increasesover the next decade.

    Not surprisingly, health care spending isprojected to annually increase 6.1% between2009 and 2016 according to the Centers orMedicare & Medicaid Services (CMS).6 Actualclaim increases reported by employers havegenerally been in excess o this estimate.

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    For example, Buck Consultants, LCCconducts a national survey o insurers todetermine the rate o increase in employer-sponsored plans and ound that costs roseaster than 10% in 2009, 2010, and 2011.7

    Other consulting frms ound similar resultswith Segal reporting cost increases above10% or 2010 and 2011, PwC reporting 9.9%or 2010 (ollowed by 9.5% in 2011), andTowers Watson reporting a range o 9.5%-10.9% or 2010 (8.5% in 2011).8 AonHewittreported cost increases o approximately 10%or both 2010 and 2011.9

    Keep in mind that in 2009 the CPI declinedby 0.4% and in 2010 it rose by 1.6%.10

    During this same time, CMS projectedmore than a 6% increase in health carespending and employers reported an increasein excess o 9%.

    At the same time, Health Care Reorm placesa cost cap on how high beneft spending cango beore it is subject to a nondeductible40% excise tax. Beginning in 2018, the costo health care benefts that exceeds $10,200or individual coverage or $27,500 or amily

    coverage will be taxed at a 40% rate. As aresult, most employers will not want plancosts to exceed these monetary levels.

    5 Centers or Medicare & Medicaid Services, Ofce o the Actuary, National Health Statistics Group; U.S. Department o Commerce, Bureau o Economic Analysis;and U.S. Bureau o the Census, https://www.cms.gov/NationalHealthExpendData/02_NationalHealthAccountsHistorical.asp#main_content

    6 Centers or Medicare & Medicaid Services, National Health Expenditures, NHE Fact Sheet,https://www.cms.gov/NationalHealthExpendData/25_NHE_Fact_sheet.asp

    7 Buck Consultants 22nd National Health Care Trend Survey,http://www.buckconsultants.com/buckconsultants/portals/0/documents/PUBLICATIONS/Press_Releases/2010/PR-HCcosts-Increases-Continue-2011-101210.pd

    8 Beneft Inormatics, 2010 Employer Healthcare Cost Survey Data,http://besthealthplans.fles.wordpress.com/2009/11/tinormaticscompiled2010employerhealthcarecostsurveydata.pd

    9 AonHewitt 2011 Health Care Trend Survey, http://www.aon.com/attachments/thought-leadership/2011_Health_Care_Trends_Survey_Final_FINAL.pd10 U.S. Department o Labor, Bureau o Labor Statistics, All Urban Consumers, U.S. City Average, All Items, tp://tp.bls.gov/pub/special.requests/cpi/cpiai.txt

    However, as shown in chart (fg. 1), averageplan costs are approaching these levelsalready with individual coverage totalingalmost $5,500 and amily coverage exceeding$15,000 in 2011. And these are average

    national costs. Costs in high-cost marketssuch as Boston, New York, Chicago, and LosAngeles are already signifcantly above thesenational averages.

    I we rely on the projected level o costincreases o 6.1% put orth by CMS, theU.S. average cost o $15,073 in 2011 will be$22,814 in 2018 with plans in high-costareas (say amily costs o $18,500 in 2011)potentially exceeding $28,000 in 2018

    triggering the 40% excise tax on the amountover $27,500.

    I costs increase at the current actual rate o9% or more, the U.S. average amily healthcare premium will likely exceed $27,500in 2018 impacting virtually all employersacross the U.S. not just those in traditionallyhigh-cost areas.

    Rising health care costs, hitting a cap abovewhich will be a 40% excise tax, will make itdifcult or plan sponsors to use plan designto dierentiate their benefts oerings.

    If costs increase at the currentactual rate of 9% or more, the U.S.average family health care premiumwill likely exceed $27,500 in 2018...

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    Since plan design will likely become less o a dierentiator among employers and since more

    employers may likely move toward a Defned Contribution strategy the value proposition oremployer-sponsored health care plans will likely shit to such things as:

    Improving the ability to control costs or both the employer and the employee

    - Engaging the employee as a consumer at both the moment o plan selection andat the moment o service being provided

    - Implementing consumer driven health plans

    - Moving to a Defned Contribution model or employer-sponsored health care plans

    Ensuring an employer-branded, consistent, and high-quality participantbenefts experience

    Fig 4. Health Care Reform Impact on Employer-Sponsored Plans

    Government-mandated coverage coupled with ongoing health care ination will reduceemployers ability to design health care plans that act as a dierentiating component o totalcompensation and will increase likelihood o employers:

    - Potentially eliminating / reducing coverage

    - Focusing on consumer-based solutions HDHPs HRAs, HSAs Wellness

    - Potentially moving some employees to exchanges or coverage

    40% Excise Tax On Value O Benefts Above Limit

    Mandated Requirements

    $10,200 or Individual Cadillac Tax $27,500 or Family

    Medical

    Infation

    Provider

    Lobbying

    Strategic Benefts Plan Design

    Note: Medicalination continuesto rise at 2 to 3times the rate ooverall ination -and has done so ormore that 50 years

    The value ostrategic benefts

    design is likelyto shrink over timedue to Health Care

    Reorm

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    An exchange is a relatively simple concept

    an online shopping mall where buyers cancompare plans and select the one that bestmeets their individual needs in terms o costand other key preerences, such as out-o-network care, the need or a reerral to see aspecialist, etc.

    Today virtually all employers oer coveragethrough what is eectively an exchange although a limited exchange.

    For example, most employers hold an annualenrollment during which their employeescan pick a coverage option (e.g., PPO option,

    exChanges ChangIng the ParadIgm

    Fig 5. Public & Private Overview

    EmployersExisting

    Health Care

    Strategy(Limited Exchange) Group

    ExchangePrivate

    ExchangeCurrent model: Multiple choicesoered to employees in the caeteriamodel. Has many eatures incommon with an exchange.

    Evolution o current model. Becoming synonymouswith Defned Contribution Health Plan. Expect rapidgrowth in this area, whether PPACA survives or not.

    Likely to survive in some states even i PPACA isstruck down. Subject to variation jurisdiction by

    jurisdiction as a result state exchanges maynot meet the needs o multistate employers.Federal exchanges should provide consistencyacross states, but will only apply to states

    without their own exchanges.

    Employers provide a dollar

    amount and a gateway to a privateexchange. Members are independentpurchasers o health insurance onthe private exchange. Employerstays active and leverages employeesupport tools such as Web, mobile,call center and customer service.Contracting is done by an aggregatorwho oers administrative supportrequired to operate the exchangelike benefts administration,spending accounts, decision supporttools and ancillary services. Likely toutilize insured products.

    Similar to the individual exchangedescribed above except thatemployer may sel-insure someoerings, thereby preservingthe ERISA preemption anddirect control o plan provisions.Employer may also be responsibleor at least some o the vendoraggregation. May include insuredand sel-insured products.

    HMO option) under a health care plan rom

    among those that are oered and in mostcases, several vendors / carriers are involved.A typical plan sponsor may oer a choice oone or more coverage options through aninsurance company like United, Aetna, orBlue Cross- along with one or more HMOs.Employees can compare plan provisions,network coverage, and price and may evenbe provided with decision support tools (ata minimum, some sort o coverage optionscomparison capability) to assist them in

    picking the coverage options that is bestsuited to meet their needs.

    PublicExchange

    IndividualExchange

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    These plans are Defned Beneft in nature, with employees paying a relatively small share othe total estimated cost, and employers unding the balance, regardless o how expensive theactual cost turns out to be.

    With this in mind there are really three types o exchanges or employers to consider:

    Public and private exchanges oer many similar advantages or employers to consider andwhat may be right or any employer will depend on a number o dierent variables includingeach employers specifc employee demographics.

    The ollowing chart summarizes some o the key aspects o each type o exchange.

    Limited Exchange:Traditional employer-sponsored plans generally limited to 3 to 6health care plan choices, and still primarily Defned Beneft in design

    Private Exchange:A variety o plan choices aggregated by a provider or an outsourcerwith employer input as to which ones are oered, with the ability or

    employers to rapidly embrace a Defned Contribution strategy utilizinga qualifed unding vehicle (i.e., 501(c)(9) Trust / VEBA, HSA / HRA oror public-sector employers an Integral Part Trust, etc.)

    Public Exchange:The state exchanges required under Health Care Reorm (will varyby jurisdiction in terms o coverage, quality, and participant support /experience). Beginning in 2014, small employers will be able to participatein the public exchanges through the Small Business Health Options

    Program (SHOP). In 2017, larger employers may be permitted toparticipate in the public exchanges, however, this will vary by state.

    1.

    2.

    3.

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    BEGINNING IN 2014

    Limited Private Public

    Oered By Individual Employer Plan Aggregator State or FederalGovernment

    Rating Basis Individual EmployerExperience

    Individual EmployerExperience

    General PopulationExperience

    Plan Type Defned Beneft Defned Contribution Defned Contributionor Defned Beneft (atemployer discretion)

    EmployerContributions

    Pretax Pretax Pretax or Post-tax(at employer discretion)

    EmployeeContributions

    Pretax Pretax Pretax or Post-tax(at employer discretion)

    FundingApproaches

    Combination o directemployer contributions,contributions to HSAand / or FSA, plus pretaxemployee contributions

    Employer contributionsto an HSA / HRA, VEBA,or other qualifed vehicleplus pretax employeecontributions

    Combination o directemployer contributions,contributions toHSA / HRA and / or FSA,plus pretax employeecontributions

    Who SelectsVendors / CarriersTo Be included

    Individual Employer Plan Aggregator and / orIndividual Employer

    State or FederalGovernment

    Who Selects PlansTo Be Included

    Individual Employer Plan Aggregator and / orIndividual Employer

    State or FederalGovernment

    Number o PlansOered

    Generally limitedto 3 to 6

    Determined by Employerin conjunction with thePlan Aggregator. Numbero options will vary

    Determined by Stateor Federal Regulators.Number o plans willvary by exchange

    ParticipantExperience

    Consistent acrossthe country

    Employer-branded

    Portal / WebCall CenterOnline supportMobile Apps

    Consistent across thecountry (best practice)

    Employer-branded

    Portal / WebCall CenterOnline supportMobile Apps

    Private exchangescould vary state by statebased on regulations oremployer preerence

    Will vary widely interms o look and eel,content, and quality atboth state and ederal

    levels

    Not Employer-brandedPortal / WebCall CenterOnline supportMobile Apps

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    The Private Exchange combines many o the best aspects o the current Limited Employer-Sponsored approach and the new Public Exchanges that will become eective in 2014.

    A Private Exchange enables an employer to continue to leverage the value o anemployer- sponsored health plan with a signifcant reduction in the current eort (in somecases the total elimination o some employer requirements). In addition, the value to the

    employer and the employee is not based on individual plan design, but rather on lower costsand high-quality service.

    Lower costs are achieved by:

    Reducing or even eliminating theeort and cost spent on designing andupdating health care plans annually

    - The employer could eliminate the needto design the plans oered throughthe exchange

    Moving to a Defned Contributionapproach

    - Possibly utilizing an HSA / HRA or aVEBA (Integral Part Trust or public-sector employers) as the employerunding vehicle along with pretaxcontributions made by employees

    - Employer costs could be designed totrack the Consumer Price Index (CPI) orsome other benchmark

    Reducing or even eliminating mosto the government reporting andcommunication requirements

    - The only plan maintained by theemployer could be an HSA used asa unding vehicle rom which theemployee could pay premiums, alongwith a Section 125 Premium Only Plan(and possibly a limited purpose FSA)

    Employers dont design the mutualunds oered in a 401(k) plan under arobust private health care exchange, theywould no longer design the health plansoered, but would retain control overvendors and specifc plans to be oered

    - This would reduce the eort associatedwith such things as Form 5500 flings,Summary Plan Descriptions (SPDs),Summary o Material Modifcations(SMMs), and other mandated reportingand communication requirements

    Basing rates on specifc employerexperience rather than that o thegeneral population, as would likely be thecase in a public exchange (assuming thatregulations do not prohibit this).

    Involving participants, as inormedconsumers, at both the point o purchaseo the plan and at the point o purchase ohealth care services

    Providing employees with a ar widerarray o choices than a single plansponsor could oer thereby permittingemployees to pick a plan that best meetstheir needs, in terms o plan provisionsand plan cost

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    Fig 6. Private Exchange Overview

    Private exchanges have become synonymous with Defned Contribution insurance plans

    Private denotes employer-sponsored vs. the public exchanges managed by governments

    Gets the employer out o selecting benefts or employees; limits role to fnancing& acilitating

    EligibilitySystem

    Status Position Dependents

    Employer

    Funding Vehicle Funding Level Benefts Options

    Employee

    Funding Vehicle Funding Level Insurer

    Insurer

    Employers role is limited todeciding how much unding toprovide and which beneftsoptions / carriers are available

    Web portal has educationaltools, as well as aquestionnaire, that helpemployees understandoptions and make selections

    Employee selects among awide range o health insuranceand other benefts; couldhave $ remaining or requirepayroll deductions

    Exchange could sourceone or multiple carriers

    Coverage can begroup or individual(community-ratedstarting 2014 in publicexchange)

    Employee has aunded vehiclerom which to

    purchase benefts

    DecisioningTools

    Education Health issues Priorities Risk appetite

    ProductMarketplace

    Health insurance Dental, lie,

    disability insurance Other ancillaries

    Benefts Administration (Employer-Branded)

    Eligibility & enrollment / Participant support Account plan recordkeeping & payroll deduction Premium aggregation & money movement

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    High-quality service and ongoing employee engagement is achieved by:

    - Common decision support toolsand applications

    - Advocacy (and other specialized service)

    support that is consistent across allvendors and the entire country

    Compliant administration basedon Federal and applicable staterequirements

    - Automated processes to ensureconsistent administration

    Carrier / vendor Interaces similarto what is done under traditionalemployer- sponsored plans

    Money movement

    Payroll / HR Integration

    Flexible reporting and managementdashboards

    Employer branding o all tools andcommunications (Web, print, callsupport, etc.)

    - As a result, the employer:

    Retains the beneft o oeringcoverage and

    Has control over which vendors andplans will be oered rom among agroup that has been previously vettedand priced by an aggregator

    Service-level agreements that ensure

    - Portal experience that is consistent

    across the country- Call center quality that is consistent

    across the country

    - 24/7 Web availability and online support

    - Common mobile applications

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    shared resPonsIbIlIty managIng

    ComPlIanCe

    Health Care Reorm does not require employers to provide health coverage to their ull-timeemployees. However, it does impose a potential penalty on those employers (with at least 50employees) who ail to do so.

    Beginning in 2014, employers must meet the requirements described below, or be subject toa potential penalty:

    Oer ull-time employees the opportunity to enroll in minimum essential coverage underan employer plan (Code Sec. 4980H(a));

    This minimum essential coverage, among other things, must be aordable (i.e., no morethan 9.5% o the employees W-2 earnings with the employer).

    I the employer ails to do the above, ANDthe employee purchases coverage through aPublic Exchange, ANDthe employee is eligible or and receives a Federal Tax Credit in orderto subsidize the cost o their coverage, THENthe employer will be subject to a penalty.

    It is important to keep in mind that employees with household income up to 400% o theFederal Poverty Level (FPL) will be eligible to receive the Federal Tax Credit. For 2011, the FPLwas $22,350 or a amily o our meaning that an employee with a amily o our earning lessthan $88,200 would be eligible or a Federal Tax Credit i they enrolled in a Public Exchange.(Note: the FPL is indexed or ination and will likely be higher in 2014).

    This could be a signifcant issue or employers with hourly employees regularly scheduledto work less than 30 hours per week many o whom are likely to have both W-2 wages andhousehold income that will be less than 400% o the FPL.

    An employee with a familyof four earning less than$88,200 would be eligible fora Federal Tax Credit if theyenrolled in a Public Exchange.

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    O particular importance or many employers is how Health Care Reorm defnes part-timeand ull-time employees or purposes o determining this potential penalty. In simplestterms, a ull-time employee is any employee who works, on average, 30 hours or more perweek in any month. Employers can use 130 hours o service per calendar month in makingthis determination (see IRS Notice 2011-36 or specifc details). Generally speaking, seasonalemployees who work less than 120 days per year are not counted.

    The proposed guidance provides another administrative wrinkle a look-back period and

    a coverage / stability period.Using the look-back period approach, an employer would determine i an employee isull-time by looking at a period o 3 to 12 months (the measurement period is at the discretiono the employer and will generally be 3, 6, 9, or 12 months) to determine whether theemployee averaged at least 30 hours o work per week or at least 130 hours o service percalendar month during that period.

    Fig 7. Employees May Qualify for Federal Subsidiesat Fairly High Income Levels

    2011 Income Levels For 400% of FPL (Indexed For Ination)

    No. PersonsIn Family

    Federal PovertyLevel: 2011

    48 Contiguous States

    48 ContiguousStates / DC

    Alaska Hawaii

    1 $10,890 $43,320 $54,120 $49,840

    2 $14,710 $58,280 $72,840 $67,040

    3 $18,530 $73,240 $91,560 $84,240

    4 $22,350 $88,200 $110,280 $101,440

    5 $26,170 $103,160 $129,000 $118,640

    6 $29,990 $118,120 $147,720 $135,840

    7 $33,810 $133,080 $166,440 $153,040

    8 $37,630 $148,040 $185,160 $170,240

    Source: Federal Register 4200, January 23, 2009, http://aspe.hhs.gov/poverty/09edreg.pd.

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    I an employee averaged at least 130 hoursper month during the look-back periodhe / she will be considered to be a ull-timeemployee. In such a case, the employee mustbe made eligible or coverage going orward,

    with the period o coverage being equal to thelook-back period used to determine eligibility.Thus i an employer relied on a three monthlook-back period, any employee who wasound to work an average o 130 hours ormore per month during that period wouldhave to be made eligible or coverage or athree-month period going orward, regardlesso how many hours per week that employeemight work during the going-orwardcoverage period.

    Employees who exceed the average o130 hours per calendar month must beconsidered as ull-time and, i not eligibleor benefts, will trigger a penalty or theemployer should they obtain coverage AND

    receive a Federal subsidy through a PublicExchange. On the other hand, providingcoverage or such newly defned ull-timeemployees will signifcantly increase theaverage hourly cost o labor. So what is anemployer to do?

    The solution is to actively manage thesepotential issues by integrating automatedtime and labor management tools, payrollservices, and beneft administration.

    In simplest terms, a full-timeemployee is any employee whoworks, on average, 30 hours ormore per week in any month.

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    Fig 8. Basic Steps In Integrated Shared Responsibility Solution

    1. Workforce Management

    Notices sent to managers as employees approach 30 hours in any week

    Ability o managers to see report / dashboard o scheduled and actual hours orall employees in order to manage hours assigned in conjunction with liability orhealth care costs

    Active management o hours assigned can reduce exposure to additional healthcare costs and / or ederal penalties

    2. Database of Record Payroll tracks actual hours worked (which may dier rom scheduled hours)

    Payroll sends an automated trigger to benefts administration system when anemployee exceeds 130 hours per month

    3. Benets Administration Employee eligibility calculation is triggered

    Appropriate look-back and coverage period rules are applied

    Employee is notifed o beneft eligibility avoiding penalty or ailure to oer coverage

    Calculation o premium as percent o W-2 earnings is done

    - Report generated showing employees or whom contributions are greater than9.5% o W-2 earnings

    - Enables management to estimate potential liability

    - Reconcile with government data i penalties are assessed

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    This integrated solution:

    Empowers local managers to make the most cost-eective decisions in real-time

    - Providing the tools or the manager to dierentiate among employees who have alreadytriggered a ull-time designation (with the related health care liability), those who are araway rom such a designation based on scheduled hours, and those who are very close tocrossing rom part-time to ull-time

    Ensures that employees who should be eligible or coverage are actually made eligible ina timely and compliant ashion

    Provides management the data necessary to track and reconcile with the governmentor those employees who ultimately do chose to utilize a Public Exchange rather than anemployers plan

    - Track and report on all part-time employees who became ull-time and or what periodo time this coverage applied

    - Track and report on all newly designated ull-time employees who are eligible,

    whose contributions exceed 9.5% o their W-2 wages, and or what period o time theywould be eligible

    Equally important, these processes occur seamlessly and consistently without the need orlocal managers or HR proessionals to take any special action.

    Health Care Reorm presents both challenges and opportunities or employers many o whichwill remain even i the law is repealed or modifed.

    Controlling costs, engaging employees, and ensuring compliance with applicable ederal andstate regulations are critical issues or benefts proessionals as they and their employersnavigate an increasingly competitive global business economy.

    In this new environment, the traditional distinction between HR strategy and operations maynot serve as a meaningul model. Instead, this author suggests that the two need to be broughttogether by operationalizing strategy using technology and process to enable strategic goals

    in measurable ways.

    ConClusIon

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    about adP

    Automatic Data Processing, Inc. (NASDAQ: ADP), with about $10 billion in revenuesand approximately 570,000 clients, is one o the worlds largest providers o business

    outsourcing solutions. Leveraging over 60 years o experience, ADP oers a wide range ohuman resources, payroll, tax and benefts administration solutions rom a single source.ADPs easy-to-use solutions or employers provide superior value to companies o alltypes and sizes. ADP is also a leading provider o integrated computing solutions to auto,truck, motorcycle, marine, recreational vehicle, and heavy equipment dealers throughoutthe world. Reach us at 1-800-225-5237 or visit the companys website at www.ADP.com.

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    The ADP logo and A DP are registered trademarks o ADP, Inc. In the Business o Your Success is a serv ice mark o ADP, Inc.All other trademarks and service marks are the property o their respective owners. 04-3661-022 Printed in the USA 2012 ADP, Inc.