Since many small businesses and startups are similarly perplexed by the fast-changing health insurance landscape, this post is for you.
If you're a startup entrepreneur in today's world, it's likely you've already been thinking about your employee benefits strategy, either because you knew you had to -- due to the ACA employer mandate -- or because it's important to you to provide a competitive benefits package for your team (I hope it's both).
For you startup founders and benefits administrators, here's the good news: you have options.
In this brave new world of defined contributions, private exchanges and the individual mandate, there are plenty of ways for you and your employees to get good coverage at an affordable price.
Here's what you should know, and some steps to take to make sure you're ready, whatever your size or budget.
Number 1: Determine your company's size in terms of full-time equivalent employees (FTE's)
Starting in 2015, if you have over 50 FTE's (full-time equivalent employees) and the health coverage you offer is deemed unaffordable, or you offer no coverage, you may have to make a Shared Responsibility Payment of $2000-3000 per employee after the first 30. In other words, you must "Play or Pay": provide health insurance to your employees, or pay very high fees.
What does "affordable" mean? That the employee premium contribution isn't more than 9.5 percent of the employee's annual income. (If you have less than 50 FTE's, you aren't required to provide health insurance to your employees.)How to calculate your number of FTE's (info from IRS.gov):
- An FTE is the equivalent of one person working full-time for one year
- Eight hours a day x five days a week x 52 weeks a year = 2080 hours a year
- An FTE could be made up by one employee working full time, or two employees working part-time (calculated as 4 hours per day, 5 days a week)
- You can also calculate it if you know the total hours of labor your company puts in per year, month or day. Year: divide by 2080. Month: divide by 173.33. Day: divide by 8.
So even if you employ only part-time workers, if they work enough hours to qualify as over 50 FTE's, you'll need to provide them with health coverage. Once you know your number of FTE's and whether or not you'll be required to start offering them insurance in 2015, you can set out your strategy for the shorter term.
Number 2: Understand your optionsCompanies with over 50 FTE's can:
- Offer an employer-sponsored group health insurance plan now. And note that you've got to include dependents up to the age of 26.
- Or offer an employer-sponsored group health insurance plan later -- an option, but not one we would recommend, in part because it's better to start getting your ducks in a row for 2015 by understanding what will be required and what will help you prepare for those requirements. Regardless, 90 percent of companies like yours are already providing coverage, so you probably fall into this camp, too.
- Offer employer-sponsored coverage. Don't forget about dependents! Also, if you have less than 25 FTE's, you should consider using the SHOP exchanges, which are designed specifically for businesses like yours. If you use SHOP to secure coverage for employees and cover at least 50 percent of their premiums, you may qualify for a tax break of up to 50 percent of that contribution. Those employees have to make an average of about $50,000 a year or less. You can find out if you qualify for the tax credit by going to the IRS website.
- Not offer employer-sponsored coverage. In this case, you and your employees will have to secure coverage another way. You can still help with this, by recommending that your employees use the public marketplaces, and by utilizing a defined contribution model if you want to help offset some of their premiums (although that would take the form of salary gross-ups and would be considered taxable income).
Three: Know what you need to do between now and 2015:All employers should be prepared to:
- Provide exchange notices -- all this does is notify your employees that they do have "affordable coverage" options.
- Handle requests from employees who aren't currently on employer-sponsored health plans due to the individual mandate.
- Give advance notice of plan changes (notice needs to be at least 60 days).
- Eliminate waiting periods over 90 days (so no "first of the month following 90 days," condition for waiting period)
Four: Keep fees in mind
Note that there are fees for employers due to the ACA, which you'll likely see reflected as premium rate hikes:Patient Centered Outcome Research Fee (PCORI)
- Why? To fund patient-centered research.
- Fee in 2014 is $2 per covered employee per year, built into your 2014 rates.
- Why? Helps cover insurance companies' added expenses due to high-risk individuals who are just entering the insurance marketplace (the ones who were previously declined coverage due to preexisting conditions).
- $63 per plan participant per year (includes dependents) which is built into 2014 rates.
- Why? Helps to fund the state and federal health insurance marketplaces.
- Estimated to be 2 to 2.5 percent of total premium in 2014 and 3 to 4 percent in 2015. This cost is also baked into the premiums passed down by carriers.
- Why? The thinking behind the tax is that the penalty will create an incentive to scale back excessive spending.
- Goes into effect in 2018. Fee is 40 percent of value of employer-sponsored coverage exceeding $10,200 per individual or $27,500 per family.
Five: Size-specific requirementsThere are some specific requirements or recommendations for companies with over 50 FTE's:
- You'll have to start tracking hours in 2014 to be able to establish mandate applicability.
- Be ready to identify those FTE's throughout 2014.
- Be prepared to include employee DOBs on your employee census if you'll be getting quotes for health insurance.
- You'll have to present evidence of mandate applicability by October 2014 (less than a year from today!).
- Start designating seasonal or variable employees as variable hour to be smart -- it will reduce risk of lawsuits in 2015.
- Keep in mind that employee premium for single coverage can't exceed 9.5 percent of employee income.
- Be ready to handle requests for coverage from employees who aren't currently on employer-sponsored health plans.
- Be prepared to include DOBs on census if you are a SMB and you're getting quotes for insurance.
Six: Get some help
Get help in person by finding local organizations who are certified navigators for the health care marketplaces.
Find a benefits advisor in your area who specializes in employee benefits. Make sure they're a licensed broker in your state by going to the state's division or department of insurance website (full list here).
There are also companies like ours, who work with brokers and small to medium companies like yours to provide technology and other services to simplify the processes around crafting the right benefits strategy and securing health coverage for your company.
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