HomeMy WebLinkAbout10-01-2013 c4 affordable care act employer shared res
FROM: Monica Irons, Director of Human Resources
Prepared By: Greg Zocher, Human Resources Manager
SUBJECT: AFFORDABLE CARE ACT EMPLOYER SHARED RESPONSIBILITY
PROVISION COMPLIANCE
RECOMMENDATION
Adopt a resolution (Attachment 1) establishing that the City of San Luis Obispo will comply with
the Affordable Care Act, Employer Shared Responsibility Provision and establishing policy
guidelines to provide consistent application of that provision.
DISCUSSION
Background
The federal Affordable Care Act (ACA) became law in March 2010. The intent of the ACA is to
increase the rate of health insurance coverage and reduce the overall cost of healthcare. The
premise behind the legislation is that the more people who have access to affordable health care, the
more proactively people will seek and receive care, thus reducing health care costs in the long term.
Implementation of this extraordinarily complex legislation is being phased-in from 2010 through
2018 requiring employers and insurance companies to make necessary changes to remain in
compliance. Staff has been monitoring the requirements of the ACA, making necessary changes to
remain in compliance, and ensuring the insurance coverage offered by the City is also in
compliance. Some features that have already been implemented include: no lifetime dollar limit on
essential health benefits, no retroactive cancellation of health insurance coverage, children up to age
26 are eligible as dependents on a parents’ plan, and for children under age 19 no pre-existing
conditions exclusions are allowed. For the most part, these changes have only resulted in
administrative modifications for the City with the brunt of compliance being born by insurance
companies.
Effective January 2014, pre-existing condition exclusions will not be allowed. In addition, another
significant aspect of the ACA that will go into effect on January 2015 is referred to as the Employer
Shared Responsibility Provision, or more commonly known as the “Play or Pay Mandate.”
Originally this provision was scheduled for January 2014; however the Obama Administration
announced a one-year delay (January 1, 2015) in complying with the new reporting requirements
applicable to employers. The delay also extended to the payment of penalties under the Play or Pay
Mandate to January 1, 2015. This provision of the ACA will assess penalties for all large
employers (defined under the ACA as employers having over 50 full-time equivalent employees)
who do not offer health insurance coverage that is “Affordable” and of “Minimum Value” to full-
time employees. Staff has reviewed the requirements of the ACA and determined the City qualifies
as a large employer and is subject to the Play or Pay Mandate. Further, staff reviewed the City’s
current contributions to health insurance for regular benefited classifications eligible to participate
Meeting Date
Item Number October 1, 2013
C4 - 1
Affordable Care Act Compliance Page 2
in the CalPERS health plans and determined the City meets the affordable and minimum value
criteria under the ACA. While the Play or Pay mandate has been postponed until January 1, 2015,
experts are advising that agencies take action to establish parameters for compliance including a
Standard Measurement Period and Safe Harbor provision as explained in more detail below.
Actions Taken To Date
To ensure compliance with all aspects of the ACA and to navigate through the complexities of the
upcoming Play or Pay Mandate, staff has worked closely with various experts in this area to
establish a correct understanding of the ACA requirements and ensure staff recommendations are
compliant with the ACA. These experts advise that because of the complexities of this law,
compliance will be an ongoing process that will require regular updates to an employer’s strategy
based on new regulations, interpretation of the regulations, and marketplace developments. In
addition to consulting with experts in the field, staff convened an ad hoc internal working group
which included representatives from Human Resources, Parks & Recreation, Public Works, and
Finance & Information Technology. This internal working group helped identify temporary
employee classifications that would meet the ACA’s definition of full-time employee.
Under the Play or Pay provision, the City must provide a health insurance plan that offers coverage
that is Affordable (costs employee no more than 9½% of household income) and provides
Minimum Value (the health insurance must pay 60% of the benefit costs). The City must offer
coverage to “substantially all” (at least 95%) full-time employees (defined as employees who work
on average over 130 hours per month) and their dependent children. Failure to meet these
requirements will result in penalties imposed by the Internal Revenue Service (IRS). Two penalties
may be imposed for failure to meet the requirements under the ACA:
1) The first is known as the “A” penalty. This penalty occurs if coverage is not offered to at
least 95% of all full-time employees or the employer fails to offer “Minimum Essential
Coverage” (any employer sponsored coverage). The annual penalty is $2,000 for each full-
time employee.
2) The second penalty, known as the “B” penalty, is $3,000 per employee per year, for any
employee that enrolls in subsidized exchange coverage if Affordable, Minimum Value
insurance coverage is not offered.
Staff has reviewed our current program for health insurance, and has concluded that the City’s
current health plans offered through CalPERS, meet the Minimum Value and the Minimum
Essential Coverage requirements, as defined at this time.
The City currently offers health insurance and a contribution towards the cost of the insurance to all
employees working in regular, benefited positions. As allowed by CalPERS, these employees and
their eligible dependents are offered enrollment in a health plan effective the first of the month
following their hire date. Under the provisions of the Memorandums of Agreement and Resolutions
for all employee groups, the City’s current contribution towards the 2014 insurance premiums
meets all the requirements of Affordable under the ACA. However, the City does not currently
offer access to health insurance coverage for temporary employees.
C4 - 2
Affordable Care Act Compliance Page 3
Determining Applicability of the ACA to Temporary Employees
The ACA provides that a Standard Measurement Period (from 3 to 12 months) be established, to
average the number of hours worked per month over a specific time period. Staff is recommending
a 12-month Standard Measurement Period be used in measuring temporary employees’ hours, to
allow for averaging of peak hours worked by these employees during the year. For example, a Life
Guard position that is needed full-time in the summer months but only works a few hours per week
during the rest of the year, would not be eligible for coverage using a 12-month measurement
period. The longer Standard Measurement Period reduces the number of temporary employees that
meet the ACA’s full-time threshold resulting in a lower potential cost to the City. Using the 12-
month Standard Measurement Period will also allow staff to verify annually that no additional
employees exceed the ACA’s full-time definition. Utilizing a 12 month Standard Measurement
Period, staff reviewed 320 temporary employees and identified 20 temporary positions as meeting
the ACA’s full-time requirement from July 2012 through June 2013. The number of temporary
positions considered full-time may change in the coming year, but staff doesn’t expect a significant
shift in the numbers and has used this number to estimate potential costs in the fiscal impact section
of this report.
For employees who meet the full-time threshold during the Standard Measurement period, the City
is required beginning January 1, 2015 to offer health insurance that is Affordable to them through
the Stability Period (a period of time that equals the Measurement Period). In other words, the City
will be required to offer a contribution towards the employee-only cost of health insurance that
meets the definition of affordable for any temporary employee working full time during the
measurement period. If the employee refuses the insurance coverage there would be no cost to the
City. The ACA allows employers to use one of three methods to determine if the insurance is
affordable: W-2 Safe Harbor (using year-end W-2, Box 1 to determine income), Federal Poverty
Level Safe Harbor (using the Federal Poverty Level for single household), and Rate of Pay Safe
Harbor (calculating the hourly wage multiplied by 130 hours).
The Safe Harbor tests are all based on the cost of employee only coverage for the least costly plan
offered. Under the City’s contract with CalPERS, for 2014 this would be the NetValue HMO Plan.
Staff recommends the Rate of Pay Safe Harbor as this option would allow the City to base the
health insurance contribution offered on the employee’s hourly pay rate. This Safe Harbor option
would be the easiest to administer and would result in the lowest cost to the City. Consistent
administration and record keeping is critical as it is anticipated that the IRS will audit to ensure
employers are offering appropriate insurance under the ACA. Therefore, staff recommends Council
adopt the attached resolution that formally establishes the City’s commitment to comply with the
ACA, the measurement period, and the Safe Harbor.
Staff recommends establishing three temporary employee health insurance contribution amounts
based on temporary salary ranges with the City contribution decreasing as the salary range
increases. The following chart is to be used for illustrative purposes only and shows the
recommended three tier contribution structure that achieves the definition of affordability for the
lowest position in each tier in 2014, along with the potential monthly and annual City contribution
based on the 2014 health insurance rates assuming all full-time temporary employees offered health
insurance enroll in it. The contributions to health insurance for full-time temporary positions will
C4 - 3
Affordable Care Act Compliance Page 4
be reviewed and adjusted upward or downward annually, if needed, to remain in compliance with
the ACA definition of Affordable.
City Minimum Contribution for Full Time Temps Using Rate of Pay - 3 Tiers
Total # of
Positions
Monthly City
Contribution
Based on 2014
Rates
Annual City
Contribution
Based on 2014
Rates
City Worker 1 - 5 1 $ 350.00 $ 4,200.00
City Worker 6-10 17 $ 285.00 $ 58,140.00
City Worker 11+ 2 $ 175.00 $ 4,200.00
Total 20 $ 66,540.00
The ACA is a complex law and both federal and state agencies will continue to issue regulations
that could impact administration and compliance requirements. Staff will continue to monitor these
requirements in order to keep the City in compliance.
FISCAL IMPACT
Staff anticipates the number of full-time temporary employees who choose to enroll in the City’s
health insurance plan will be relatively few. Even though the City would meet the ACA
requirement of Affordable, staff anticipates the cost to obtain the health insurance would still be
prohibitive for many. The demographics of the full time temporary employees identified tend to be
younger in age and many will likely remain as dependents on their parents’ health insurance, or
obtain lower cost insurance elsewhere. In the unlikely event all identified full-time temporary
employees obtained health insurance through the City under the structure identified above, the fiscal
impact would be approximately $66,540 annually.
Health insurance increases were budgeted in the 2013-15 Financial Plan; however, CalPERS
recently approved rates for 2014 which resulted in an average decrease for insurance premiums. In
addition, compliance with this provision was delayed until January 1, 2015. Therefore, it is
anticipated that sufficient funds to cover the potential expense of offering affordable health
insurance to the City’s full-time temporary employees will be available in the budget for use after
January 1, 2015.
ALTERNATIVES
1. Do not comply with ACA and be assessed the tax penalties by the IRS. This alternative is
not recommended, given the cost of the penalty could exceed $650,000 annually is much
greater than the amount needed to offer the insurance and could convey the message the City
is not interested in providing health insurance coverage to its full-time temporary staff.
2. Council could direct staff to reduce the hours of the full-time temporary employees, thus
avoiding the IRS penalties and the requirement to offer access to health insurance coverage
that is affordable. This alternative is not recommended as reducing the number of hours
C4 - 4
Affordable Care Act Compliance Page 5
would impair the City’s ability to effectively deliver programs to the community. In
addition, while this alternative would meet the letter of the law, it would miss the spirit of
the law which is intended to allow more people to have access to health insurance.
ATTACHMENTS
1. Resolution
C4 - 5
ATTACHMENT 2
Page 1 of 2
RESOLUTION NO. (2013 Series)
A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO
ESTABLISHING THE CITY’S INTENT TO COMPLY WITH THE AFFORDABLE
CARE ACT EMPLOYER SHARED RESPONSIBILITY (ACA)
WHEREAS, the Affordable Care Act (ACA) became law in March 2010. Implementation
is phased in over eight years with significant changes, which include the Employer Shared
Responsibility provisions, becoming effective January 1, 2015; and
WHEREAS, the City of San Luis Obispo wishes to establish policy guidelines for a fiscally
responsible method of compliance under the ACA, on the basis of minimizing the City’s exposure
to the ACA tax penalties; and
WHEREAS, the City of San Luis Obispo is committed to offer health insurance that
provides Minimum Essential Coverage, Minimum Value and meets the ACA definition of
Affordable; and
NOW, THEREFORE, BE IT RESOLVED, that the Council of the City of San Luis
Obispo hereby approves and adopts policy guidelines in compliance with the ACA as follows:
Section 1. Measurement Period. The Standard Measurement Period for the City of San Luis
Obispo shall be twelve months.
Section 2. Safe Harbor Provision. The City of San Luis Obispo hereby adopts the “Rate of Pay
Safe Harbor” as the method to ensure health insurance is Affordable.
Section 3. Temporary employees of the City of San Luis Obispo who qualify as full-time under the
definition of the ACA shall be offered health insurance that is affordable, as defined by the ACA.
Section 4. City of San Luis Obispo will comply with all benefit administration, record keeping and
reporting requirements of the ACA.
Section 5. After review and consultation with the Human Resources Director and the City
Manager to determine appropriate levels of City contributions to ensure continued compliance, the
Director of Finance and Information Technology is hereby directed to calculate the amount of any
appropriations necessary to finance the costs associated with the requirements of maintaining
compliance with the ACA and shall include such appropriations in future Financial Plan forecasts
and budgets, beginning with the 2014-15 Fiscal Year.
Upon motion of ______________________________________________, seconded by
_____________________________________, and on the following vote:
C4 - 6
ATTACHMENT 2
Page 2 of 2
AYES:
NOES:
ABSENT:
The foregoing resolution was adopted this 1st day of October, 2013.
___________________________________
Mayor Jan Marx
ATTEST:
__________________________________
Sheryll Schroeder
Interim City Clerk
APPROVED AS TO FORM:
__________________
J. Christine Dietrick
City Attorney
C4 - 7
Page intentionally left
blank.
C4 - 8