San Joaquin Delta College

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San Joaquin Delta College

Affordable Care Act Update

July 16, 2013

Presented By:Bob Schoenherr, CLU, ChFC, RHU, ChHC

Senior Vice President

Keenan & Associates

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Agenda

1) Background

2) Impact of the Affordable Care Act (ACA)

3) Next Steps to Ensure ACA Compliance

4) Value of ACA Compliance Analysis

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Keenan and Community College Focus

Northern California Community College Clients

• Health Care ConsultingChabot-Las Positas, Marin, Napa, Ohlone, San Joaquin-Delta, Siskiyou

• Ancillary BenefitsMajority of CC’s in Northern California

• GASB ConsultingContra Costa, Ohlone, San Jose, San Mateo, Sierra

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Background

Keenan has been working with SJDCCD and its Health Care Advisory Committee since February 2012. The committee has been engaged in continual Employee Benefits education and program evaluation, with the goal of developing the best and most cost-effective benefit program for Delta employees.

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BackgroundCommittee recommendations and program changes made to date:

Section 125 Spending Accounts – Implemented Oct. 2012 Evaluation of Options for Retiree Medical – Completed Oct. 2012 Improved Life Insurance Plan – Implemented Jan. 2013 EPIC Hearing Discount Plan – Implemented Mar. 2013 Benefits Magnet for Employees – Completed Apr. 2013 RFP for Medical Plan Alternatives to CVT – Completed Jun. 2013 Conduct Employee Satisfaction Survey for CVT Medical Plans – Completed Jun. 2013 Recommendation of the BenefitBridge System – Implementation in Process Affordable Care Act Education - Ongoing

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Impact of the Affordable Care Act

General Health Care Reform responsibilities:

Four Principles of the Affordable Care Act (ACA)

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Principle OneThe Individual Mandate

“Every individual must have “Minimum Essential Coverage” (MEC) starting in 2014 or pay a tax”

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Principle TwoEmployer Shared Responsibility

“An employer is responsible to provide “affordable” Minimum Essential Coverage (MEC) with a

“minimum value” to its ACA Full-Time Employees and children starting in 2015 (recently changed

from 2014) or risk paying a tax”

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ACA Definitions

Affordable: Lowest cost single-only coverage offered by the employer must cost the employee no more than 9.5% of his/her Household Income

Minimum Value: The employee cost of plan benefits (all in) cannot be greater than 40% (aka actuarial value)

ACA Full-time Employee: 30 hours/week

- classify into “new” and “ongoing” employees

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Principle ThreeACA Full-Time Employee

“An ACA Full-Time Employee is an employee who works, on average, 30 hours per week or 130

hours in a month”

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ACA FTE

Use actual hours worked for salaried employees or daily/weekly equivalents (e.g. One Day = 8 Hours)

Equivalents must generally reflect actual hours earned Employees whose hours are not tracked (e.g. adjunct

professors)– Use a reasonable method for crediting hours of service– It would not be reasonable to only take into account

classroom time Include class preparation time Other time to perform duties

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ACA FTE

Definition is important because:– It identifies who should be covered– It is used to calculate the tax

Requires monthly tracking unless the IRS Safe-Harbor is used: “Measurement Method Safe Harbor”– Look back 3, 6, 9 or 12 months

– Count actual hours earned during that measurement period

– Determine whether individual is FT or PT based on 30 hours of service earned per week (130 hours per month)

– Result: For the future “stability period,” usually the plan year, employee is deemed to be PT or FTE regardless of hours earned.

This is not about eligibility. It is about tax.

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Principle FourGovernment Subsidies to Purchase

Exchange Coverage

“An ACA FTE whose employer does not provide ‘affordable coverage’ or coverage with a ‘minimum value’ may purchase coverage on the Exchange

and receive a subsidy from the Federal Government which triggers the employer’s tax

obligation.”

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How the Tax is Triggered

1. MEC is not offered to an ACA FTE; or

2. MEC is offered but ACA FTE opts out because coverage is either unaffordable or not of minimum value; and

3. The ACA FTE purchases coverage from the California Exchange (Covered California); and

4. The ACA FTE receives a Federal Subsidy with respect to the Exchange Coverage; and

5. The employer receives a Section 1411 Certification

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Failure to Offer Coverage

1. To 95% of ACA FTE Workforce

- $2,000 x (ACA FTE Workforce – 30)

- Example: 1,000 ACA FTE Workforce with 900 eligible for coverage (90%)

- Penalty: $2,000 x 970 = $1,940,000 annually

2. To 5% or less of ACA FTE Workforce

- $3,000 x each ineligible FTE who purchases coverage on Exchange and receives a Federal Subsidy

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Section 1411 Certification

• Certification received from Exchange or HHS advising employer that: - An ACA FTE is certified as having enrolled for a calendar month in an Exchange plan; and

- ACA FTE is eligible for a premium tax credit or cost-sharing reduction or that it has been paid

• Triggers tax obligation for failure to offer:- MEC to 95% of ACA FTEs ($2,000 penalty x FTE): or

- MEC to 5% of ACA FTEs ($3,000 penalty/individual):

- Affordable MEC ($3,000 penalty); or

- MEC with a Minimum Value ($3,000 penalty)

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Section 1411 Certification

• Alerts employer to ACA FTEs who are receiving government subsidies but should exclude:- “New” employees during first three months of employment

- ACA FTEs for whom a Safe Harbor has been satisfied

- Part-time employees

• Anticipate an extensive employer appeals process with the Exchange

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Summary - ACA Major Provisions

Individual Mandate – Minimum Essential Coverage

Employer Shared Responsibility − Affordable (no more than 9.5% of household income)

− Minimum Value (pays at least 60% of health costs)

Exchange Coverage (Covered California)- If Employer does not provide “affordable” or “minimum value” coverage -

- Federal Subsidy

Employer’s Tax Obligation “Cadillac” Tax

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A 40% excise tax will be imposed on “rich” plans starting 2018. “Rich plans” are defined as exceeding $10,200 (single) or $27,500

(family) in 2010 dollars, with a limited inflation adjustment factor.

Cadillac Tax“An excise tax will be levied on ‘rich’ or ‘Cadillac’ employer

sponsored medical benefit programs.”

Family 3%/annum $27,500

Single 5%/annum $10,200

2013 2018

Your % Trend to reach Excise Tax

$23,750

$7,900

$

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ACA Timeline of Key Events

Notice of Exchange (Delayed to Summer 2013)

2014 Planning

Open Enrollment for California Exchange begins October 1

Mass marketingBegins for California Exchange (1/1/13)

Notice of Exchange (Delayed to October 2013)

2014 Planning

Open Enrollment for California Exchange begins October 1

Individual Mandate

Premium subsidies for

low paid employees

Employer Responsible to

provide affordable coverage of

minimum value (moved to 2015)

New definition of

FTE

Exchange Goes Live

Automatic Enrollment

Employer reporting to IRS about employee

coverage (copy to employees)

Tax penalties assessed on employers who do not

offer any medical coverage or affordable coverage of minimum

value in 2015

Discrimination rules issued on insured

executive medical plans

Excise tax on “rich” plans

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Next Steps to Ensure ACA Compliance

When is an employer at risk for HCR liabilities? Low participation (high opt-out percentage) Not currently covering all full-time employees Coverage is below “minimum value” Coverage is “unaffordable” Offer plan with high benefits/low contribution High potential for “Cadillac” excise taxes Inability to respond to “Section 1411” Certification

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Next Steps to Ensure ACA Compliance

Governance

Governing bodies (corporate boards, boards of trustees, city councils and county supervisors):

− Have an obligation to understand the impact of ACA on the organization

− Are better protected when they can demonstrate a reasonable good faith effort of inquiry

− Provides transparency for management and the governing body

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Compliance Analysis Should Include:

• Employer Cost Projections based on: – your organization’s health plan benefits, – contribution levels and – penalty and tax implications

• Projected costs your organization will incur associated with the provisions of the ACA.

• Exposure under ACA FTE Definition• Identify “Variable Hour” Employees• Analysis of “Safe Harbors” available under ACA

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Compliance Analysis Should Include (Continued):

• Assess Impact of Different “Look Back” Periods• Assess Impact of Optimum “Measurement” and

“Look Back” Periods• Assess Impact of Plan Design or Contribution

Changes• Documentation of employer’s Analysis and

Compliance Plan vs. Section 1411 Certification• Evaluate Strategic Opportunities

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Value of Compliance Analysis

Value to All Employers Future budgeting Benchmarking relative to Exchange Plans Communicate value of your plans to employees vs.

the Exchange Plans Due Diligence

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Thank You

Questions?

Presented by:Bob Schoenherr, CLU, ChFC, RHU, ChHC

Senior Vice President Keenan & Associates

1740 Technology Drive, #300 San Jose, CA 95110 (408)441-0876 x6171

Keenan & Associates is an insurance brokerage and consulting firm. It is not a law firm or an accounting firm. We do not give legal advice or tax advice. This presentation, the answers provided during the Question and Answer period, nor the documents accompanying this presentation constitutes or should be construed as legal or tax advice. You are advised to follow up with your own legal counsel and/or tax advisor to discuss how this information affects you.

Documents

San Joaquin Delta College