By Steve Gedestad, Executive Vice President, Municipalities Employee Benefits Practice
The one-year extension of the deadline for reporting health coverage information under the Affordable Care Act (ACA) was welcome relief for most employers, including California cities. Without the coverage reporting, employer tax penalties cannot be calculated, and therefore, one of the major financial impacts of the ACA for cities was also deferred to 2015.
What does this compliance deferral mean for employer Health Care Reform action plans? No other provisions of ACA were delayed. Rather than taking a wait-and-see approach, the best strategy for public agencies is to use the compliance delay to gather necessary data and put systems and procedures into operation. It is to your advantage to use this time to get ahead of the requirements without fear of incurring the taxes. The extension of the compliance deadline provides cities extra time to improve processes, develop strategy and implement cost saving programs.
Workforce Analysis
Addressing compliance with the employer shared responsibility requirements under the ACA should be a systematic process based on the facts and circumstances about your workforce. The chart below illustrates the overall process for understanding workforce analysis to respond to the ACA requirements:
In the process of gathering the data to do compliance testing, some cities are running into deficiencies in reporting systems and confusion in job classifications. While employers use many ways of classifying benefit-eligible employees, ACA recognizes only two classifications for ongoing employees: full-time employee (works at least 30 hours per work or 130 hours per month) and not full-time employee (works less than 30 per week or 130 hours per month.)
For new employees, two additional categories are “variable hour” employees, who may work more or less than 30 hours a week; and “seasonal employees” who are expected to work for a limited period during the year. This means that tracking actual hours worked is more relevant to ACA requirements than job classifications, and most payroll and benefits eligibility systems are not set up this way.
This is also the time to make decisions about the method you use to determine the full-time/not full-time status of your workforce. While tracking hours and determining status on a monthly basis is one method, it is administratively complex. Most employers will want to use the look-back method in which employee hours are evaluated over a 3 to 12 month timeframe (“measurement period”) and then benefit eligibility is applied going forward for a specified period (“stability period”).
The one-year delay is an opportunity to proactively approach compliance testing and tracking work hours by reviewing job classifications, eligibility criteria and benefit philosophy based on the result of a preliminary analysis of your workforce. But because the reporting and penalties will begin in 2015, now is the time to make decisions on your measurement period and policies relating to employee work hours.
Strategic Planning
The release of ACA regulations did not give employers much time to plan strategically for the changes in health care. The one-year reprieve from the reporting and penalty provisions is a new opportunity to develop and implement strategy based on the results of your workforce analysis. There is a wide range of approaches for optimizing costs, simplifying benefit program administration and maximizing employee health management you may want to consider. Naturally, some strategies will need to be implemented in coordination with your represented groups.
Plan design and contribution strategy are somewhat dictated by the ACA’s Minimum Essential Coverage (MEC) and affordability requirements. But you may still want to look at the value of your plan offerings, especially as the so-called “Cadillac Tax” comes into play by 2018. While that seems like a long way off, the planning and negotiating needed to avoid the non-deductible 40% excise tax is significant. Some public sector employers are already closing in on the threshold cost of coverage to trigger the Cadillac Tax.
Programs designed to mitigate the rising costs are often long-term strategies. For instance, employee wellness programs have the potential to reduce the rise of health care costs, but the effects are realized over a period of years. Employers need to implement wellness and condition management programs now if they are to see lower utilization and impact chronic conditions that account for a large portion of their medical claims in the future. The ACA has added somewhat more flexibility in the types of wellness programs that can be offered, but the regulations are more complicated. The challenge is in designing health management programs to properly incentivize employees to improve their health and keep them engaged over time.
Budget considerations cannot be ignored either. Cities are often limited in what they can invest into wellness and disease management programs. However, many cities have creatively leveraged their community resources to put effective employee health programs into action throughout California. One cooperative program implemented during 2013 is the Cities for Workforce Health, a joint alliance of the League of California Cities, the HEAL Cities Campaign, Kaiser Permanente and Keenan & Associates. Cities for Workforce Health is designed to provide California cities an affordable approach to putting wellness programs into action. Participating municipalities that go through all stages of the annual program are eligible to apply for a $5,000 grant to further develop their employee wellness program.
For more information
The regulatory requirements and the strategic opportunities of the Affordable Care Act can be complex and you probably have a lot of questions about them. Keenan & Associates is prepared to answer your concerns about Health Care Reform and assist you in finding ways to achieve your objectives. Our specialized approach for California municipalities is sensitive to your budgetary and employee relations considerations. If you would like more information about our Health Care Reform Solutions, contact me at sgedestad@keenan.com.