Employer Shared Responisibility - 2016 Sample

Health Care Reform's Shared Responsibility Provision

2016 guidance on “Pay or Play”CONVERTING PENALTIES INTO PREMIUMS

Legal disclaimer: This presentation is for informational purposes only. Readers should consult a CPA, Tax Advisor or other advisors for counseling specific to their situation

Prepared by:Manny Manso, RHU, ChHC, CDHC

PAY OR PLAY

Prepared by: Manny Manso, RHU, ChHC, CDHC

The decision to pay the penalty and drop benefitsmay or may not be the right choice

There are several consequences that many haveoverlooked where the temptation to take the easyway out and pay the penalty may have much deeperfinancial consequences to an employer

PAY OR PLAY

Yes or No?


And if an employer decides to continue to providebenefits, there could still be penalties that can beavoided with strategic solutions

Yes or No?

Do you fully understand the consequences and ways to craft the right model and avoid

paying any type of penalty?

PAY OR PLAY


Must offer actuarial or minimum value to at least 95% offull‐time employees

Employer Shared Responsibility Violations Subject to Penalties

Must offer affordable coverage as measured by theemployees’ share of the premium contribution to no more9.5% “hard‐wired” of the employees’ wages (9.56%)

The affordability test applies to the lowest‐cost optionavailable to the employee

PAY OR PLAY


No‐Offer Pay or Play Penalty

$2,000 times the number of full time employees(minus 30 FTEs) *

FTE defined as working 30 or more hours per week

No part‐time employee coverage requirement

* Only one subsidy will trigger penalty for all FTEs minus allowable reductions for that year

NO OFFER PENALTY


UNAFFODABLE PENALTY

Unaffordable Pay or Play Penalty

$3,000 for each full‐time employee who enrolls inexchange and receives subsidy if employee’scontribution for single coverage under employer planexceeds 9.5% of his or her W‐2 income and/or ifminimum actuarial value of benefit program is below60%


Manufacturing firm with 185 full‐time enrolled employees

Marginal corporate tax rate of 35%

Payroll tax rate (FICA, FUTA, SUTA, other) of 13%

XYZ COMPANY DEMOGRAHPICS

Wage of lowest paid employee is $17,000 a year

THESE WILL BE IMPORTANT FACTORS AS WE MOVE ALONG

EXAMPLE

25 employees in waiting period, waiving, declining benefits or not participating

160 employees enrolled in health plan


ONE BENEFIT OFFERING

EMPLOYER CONTRIBUTES 50% OF EMPLOYEE ONLY

XYZ COMPANY

$150 monthly contribution supports anyone making $18,947.37 or more$18,947.37 / 12 = $1,578.95 X 9.5% = $150.00 monthly premium

Consequently, premium is unaffordable for 14 employees making between $17,000, the wage of lowest paid employee and $18,947.37

HOW MANY EMPLOYEES ARE EARNING LESS THAN $18.947.37? (LET’S ASSUME 14)


XYZ COMPANY

THE BIG QUESTION

SHOULD XYS CONTINUE TO OFFER BENEFITS

OR

SHOULD XYZ PAY THE NO‐OFFER PENALTY


XYZ COMPANY

WHAT IS THE NET RESULT IF XYZ PAYS THE PENALTY AND STOPS OFFERING BENEFITS?XYZ Company with 160 FT employees enrolled and 25 FT

employees in the waiting period, waiving or declining benefits *Total number of employees enrolled, in the

waiting period, waiving or declining benefits:

Number of allowable exceptions:

Number of employees subject to penalty:

Annual penalty per full‐time employee:

185

30

155

$2,000Total annual penalty for dropping coverage: $310,000 **

* Part‐timers used for FTE count, but coverage not mandate if less than a 30 hour workweek** Full amount payable if one employee applies and qualifies for exchange subsidies


XYZ COMPANY

WHAT IS THE SAVINGS IF XYZ PAYS THE PENALTY AND STOPS OFFERING BENEFITS?Current employee only monthly premium:

Employer contribution:

Employer monthly contribution:

Number of employees currently enrolled:

$300.00

50%$150.00

160

Current employer annual contributions: $288,000

Total annual penalty for dropping coverage:

Initial result of dropping coverage:

$310,000

$22,000 savings

SIMPLE CALCULATION, BUT LET’S LOOK CLOSER


XYZ COMPANY

WHAT IS THE INCREASE IN CORPORATE TAXES IF XYS STOPS OFFERING BENEFITS?

Current employer annual contributions:

Marginal tax rate:

Forfeited annual premium business deduction:

$288,000

35%

$100,800


XYZ COMPANY

WHAT IS THE INCREASE IN PAYROLL TAXES IF XYS STOPS OFFERING BENEFITS?

Current employee annual pre‐tax contributions:

Payroll tax rate (FICA, FUTA, SUTA, other):

Forfeited annual employee pre‐tax payroll savings:

$486,000 *

13%

$63,180


* Employee pre‐tax contributions include employee only plus other tiers

XYZ COMPANY

WHAT IS THE POST‐TAX COST OF THE PENALTY IF XYS STOPS OFFERING BENEFITS?

$310,000

35%

$108,500


Total annual penalty for dropping coverage:

Marginal tax rate:

After tax cost of penalty:

After‐tax and actual cost of penalty: $418,500

XYZ COMPANY

WHAT IS THE NET RESULT IF XYS PAYS THE PENALTY AND STOPS OFFERING BENEFITS?

COST TO XYZ:

$418,500

$288,000

$294,480 *

Total financial impact of not offering benefits: $582,480

Expected savings from stopping current employer annual contributions:

Forfeited employer annual premium business deduction: $100,800

Forfeited annual employee pre‐tax payroll savings: $63,180

Annual potential net cost of penalty:


* TURNOVER: SHRM statistics show average turnover cost of $7,123 per employee (higher in technical fields)

XYZ COMPANY

THE NEXT ISSUE TO REVIEW IS AFFORDABILITY

10.59%

$150.00Employee monthly contribution to single plan:

Employee contribution as a percentage of wages:

Monthly wage of lowest paid employee: $1,416.66 ($17,000/12)

Offer affordable coverage as measuredby the employee’s share of the premiumcontribution can be no more 9.5% of theemployees’ wages


XYZ COMPANY

#1 SOLUTION TO AFFORDABILITYINCREASE EMPLOYER CONTRIBUTIONS

Maximum contribution threshold:

Monthly wage of lowest paid employee:

Maximum employee can contribute:

$1,416.66

9.5%

$134.58

Employee monthly contribution to single plan: $150.00

Employer monthly contribution to single plan: $150.00

Excess employee monthly contribution: $15.42

New employer monthly contribution adding $15.42 to reduce employee contribution to $134.58:

$165.42


XYZ COMPANY

WHAT IS THE FINANCIAL LIABILITY?

#1 SOLUTION TO AFFORDABILITYINCREASE EMPLOYER CONTRIBUTIONS


$165.42

XYZ COMPANY


#2 SOLUTION TO AFFORDABILITYINCREASE EMPLOYEE(S) ANNUAL WAGES


** Increased wages may be less for those earning above the wage of lowest paid full‐time employee and wage required to meet 9.5% thresholds

XYZ COMPANY

#3 RESOLUTION TO AFFORDABILITYPAY THE UNAFFORDABLE PENALTIES


PREMIUMS:$79,225 ? WAGES: $27,272 ?PENALTY:$56.700 ?


XYZ COMPANY ‐ OFFERING

CONVERTING PENALTY INTO PREMIUMS

THIS IS A MONTHLY AMOUNT AN EMPLOYER CAN ALLOCATE TOWARDS A BENEFIT PROGRAM INSTEAD OF PAYING THE $3,000 UNAFFORDABLE PENALTY WITH AFFORDABLE EMPLOYEE CONTRIBUTIONS BASED ON

CURRENT LOWEST PAID EMPLOYEE

Employer Contribution Projection Instead of Paying Unaffordable Penalty




THIS IS A MONTHLY AMOUNT AN EMPLOYER CAN ALLOCATE TOWARDS A BENEFIT PROGRAM INSTEAD OF PAYING THE $2,000 PENALTY BY NOT OFFERING ANY BENEFITS

Employer Contribution Projection Instead of Paying No‐offer Penalty




ADDITIONAL SAVINGS FROM EVERY EMPLOYEE

PARTICIPATING WITH PRE‐TAX CONTRIBUTIONS FOR DEPENDENT COVERAGE

Projecting Total Premium Cost Based on Participation to No‐offer Total Penalty


STRATEGIES TO STAY OUT OF THE “PENALTY BOX”


Manny Manso, RHU, ChHC, CDHC813‐786‐9843

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Employer Shared Responisibility - 2016 Sample