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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