Back to the Future: The ACA in 2015

The Affordable Care Act (ACA) was passed in 2010 with the purpose of ensuring that all Americans have access to affordable health care. The original deadline for individuals to sign up for health insurance under the ACA was December 15, 2013, with coverage effective January 1, 2014. Recently, due to challenges with the ACA Web site’s functionality, the deadline for individual enrollment has been extended to March 15, 2014, with coverage effective April 1, 2014, after which individuals are subject to a monthly penalty.

In addition, the ACA’s penalty requirements for employers have been extended to January 1, 2015. As a result, many employers are holding off on making decisions with regard to insurance coverage in order to thoroughly evaluate their company’s situation in relation to the new health care law. Many organizations do not realize that although the employer coverage requirements do not begin until 2015, actual payroll practices from 2013 and 2014 can affect the employees who will receive insurance coverage.

It’s important for employers to consider the impact the ACA may have on their businesses and what their plan of action will be. To help employers do so, this editorial takes a hypothetical look ahead at the year 2015 and the impact the ACA would have on Jolie Dog Biscuit Company (JDBC), a fictional company that falls into the large employer category under the ACA. The memo that follows was distributed by the company’s human resources manager to the company’s owners, providing an update on what has been done to ensure the company’s health insurance plan is in compliance by January 1, 2015.

Memorandum 

From: Anne Smith, Human Resources Manager

To: Owners, Jolie Dog Biscuit Company

Date: February 14, 2015

Subject: Affordable Care Act Implementation Update

As previously discussed, JDBC did not pass the ACA test of having less than 50 full-time equivalent employees. The test determined that we fall into the large employer category, and as a result, we decided our goals would be to avoid nondeductible penalties, offer health insurance coverage to help us retain employees and control JDBC’s cost increases.

The following is an update on the implementation of two key elements of the ACA within JDBC: employee coverage analysis and company health insurance cost issues.

Employee Coverage Analysis

In order to determine which employees should be offered insurance coverage effective January 1, 2015, we had to choose a historical period to analyze. The 12-month period chosen was October 16, 2013 to October 15, 2014. Evaluation of data for this period provided the following information, which determined the number of employees on our group insurance policy as of January 1, 2015:

The number of employees paid wages by JDBC during the historical period: 141

Minus the seasonal employees hired every summer: (22)

Minus the part-time employees who averaged less than 30 hours a week: (12)

Equals the number of people to whom JDBC must offer coverage: 107

Minus the employees who opted out of coverage: (24)

Equals the number of employees on JDBC’s insurance policy as of January 1, 2015: 83

Some employees opted out of insurance coverage for various reasons, including having coverage under a spouse’s policy; being 26 years of age or younger and remaining on a parent’s policy or receiving cheaper coverage through the West Virginia Health Insurance Marketplace. Each employee who opted out of coverage signed the annual opt-out form to ensure JDBC maintains proof that coverage was offered to them. The opt-out form also states that employees and their dependents may be subject to penalties and that JDBC is not responsible for calculating or paying those penalties.

Since West Virginia’s expansion of Medicaid coverage in 2014, a few of our employees have qualified for Medicaid and opted out of JDBC coverage. We will not receive any penalties for these employees.

We furnished the required communication to our employees by October 1, 2014 concerning the company’s insurance plan, which provided coverage details, costs to employees and information about how they can acquire insurance through the marketplace. This will also be provided to new hires.

Since we have less than 200 full-time equivalent employees, we are not subject to the automatic insurance enrollment rules for employees who qualify for coverage.

The ACA law states that we must offer insurance coverage to 95 percent of the required number of employees. Our required number is 107, so we have a leeway of five people. According to our advisors, a prudent way to use this 5 percent is to leave it there as a cushion in case there is a slip-up rather than designing a plan to use the 5 percent leeway up front.

The employees on our insurance plan for 2015 can keep their insurance through December 31, 2015, even if the company reduces their 2015 hours to less than 30 a week, since eligibility for employees for 2015 was determined by the historical analysis shown above.

We saw a decrease in the number of employees opting out of the JDBC health insurance plan for 2015. There are probably two main reasons for this decrease: the company dropped the employees’ individual cost of coverage for 2015 and the individual penalty for not having insurance coverage doubled in 2015 from 2014.

Company Health Insurance Cost Issues 

The following changes to JDBC’s employee health insurance coverage cost will go into effect January 1, 2015:

Each covered employee’s monthly insurance cost for coverage on the employee has been reduced to $100 per month. This $100 per month will be paid by the employee and is only for coverage on the employee.

If an employee wants insurance coverage on his or her dependents, the employee will pay the entire monthly cost for this coverage.

According to the ACA, effective in 2015, large employers are allowed to charge an employee up to 9.5 percent of the employee’s gross pay for single coverage without incurring a penalty. We have calculated the affordable cost required by the ACA as it applies to the company, which is $100 per month. Multiplied by 12 for the 12 months in a year, the employee’s total insurance coverage cost for one year is $1,200. If an employee makes $13,000 in annual wages from JDBC, then 9.5 percent times $13,000 equals $1,235. We do not have any employees required to be covered by our health insurance plan that make below $13,000 annually, which means we will pass this test and not receive any penalties.

The ACA also states that, effective in 2015, large employers are not required to pay any of the cost for dependent coverage, but the company is required to offer it. JDBC will charge the entire monthly cost for any dependent coverage to the employee and not receive any penalties.

Through 2014, our employees paid $300 a month for their single insurance coverage cost, and employees paid only part of their dependent coverage cost. Beginning in 2015, they will pay less for single coverage and more for family coverage, but the company has added an option that will result in tax savings to the employee and offset employee cost increases for insurance coverage.

We are also setting up a premium only plan, which is a tax-qualified “cafeteria plan” that allows employees to pay their monthly cost share of insurance for single and dependent coverage cost with pretax dollars. All employees with JDBC health insurance are enrolled in this plan effective for 2015.

We estimate that all of the changes made to JDBC’s health insurance plan will cost the company 9 percent more in 2015 for its share of the health insurance costs compared to the cost in 2014.

Future changes are expected in many health care cost and reporting areas. We will work to meet one of the primary goals in our business plan, which is to avoid financial and operating surprises to the company.

Editor’s Note: Do not make decisions based solely on the information provided in this article without further investigation. Frequent changes to the ACA are occurring and will continue to occur in this area.