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Breaking Down the Affordable Care Act

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Ron Haugen has talked to everyone he can—accountants, insurance agents, brokers, financial advisors—and it’s been difficult getting straight answers.

“The problem seems to be two-fold: There is definitely a lack of information flowing out to shop owners, and businesses in general, and there doesn’t seem to be a simple way to break it all down,” says Haugen, owner of Westside Auto Pros in Des Moines, Iowa.

Of course, Haugen isn’t the only shop owner with that feeling. To many business owners, the Affordable Care Act (ACA) is anything but simple. Employee benefits attorney Brian Pinheiro of Ballard Spahr LLP says the law is best summarized in “about 1,000 pages or so of regulations.”

Needless to say, there’s a lot that goes into it.

For his part, Haugen says he’s done whatever he can to get the most information possible on what his business needs to do to adapt.

“But, in a nutshell, we’re being forced to make decisions on something when there’s good, but not great, information out there about it,” he says.

Haugen runs a relatively large independent facility with 18 full-time employees. Since opening his shop in 1997, he’s provided 100 percent health care coverage to his staff (additional dependents require an added payroll deduction). And he doesn’t plan on changing that.

But, figuring out what’s best for your shop will depend on a number of key factors, Pinheiro says. From number of full-time employees to the set up of your new employee eligibility standards, Pinheiro helps break it down.

For Everybody, Regardless of Size

Pinheiro says there are a number of things shops of all sizes will be required to comply with or run the risk of receiving fines and penalties. Some, he says, are items shops should already be familiar with (and practicing).

Notices. There are two main notices that employers should have already issued to their staff.

The first is the notice of summary of benefits and coverage, which was supposed to have been given out last year. This is a four to eight page document that summarizes the terms of the employer health care plan and provides general information about its coverage and financial terms. This is an annual requirement for all businesses.

Also, the Oct. 1 deadline just passed for shops to inform employees of their options through the ACA insurance exchanges. While there is no penalty for not complying with this, Pinheiro strongly suggests all shops follow through to ensure there will be no legal action taken against them down the road. This is a simple step to take, Pinheiro says, and the U.S. Department of Labor has even supplied sample forms for shops to use online.

Substantive Changes. Regardless of the size of your shop and the type of insurance coverage you select, there are a number of changes that will be made to every plan, Pinheiro says.

Here are the most critical changes to note:

Already in Place

• All plans must allow for children of the insured employee up to age 26 years of age to be covered under the plan.

• All plans must provide preventative coverage without any cost sharing.

• All flex spending savings accounts must limit employee contributions to $2,500.

Starting Jan. 1, 2014

• No employer plan can have an eligibility waiting period for new hires that exceeds 90 days.

• Any business wishing to allow employees to seek coverage under the new health care exchanges when they open on Jan. 1 that does not have its enrollment period open by that date must have an amendment put into its plan to allow employees to break away from the current coverage provided by employers. Otherwise, employees will have to wait for the next enrollment period to leave their employer’s coverage.

Fees. There are two separate fees that need to be paid by all employers providing health care coverage to employees.

The first is the Patient-Centered Outcomes Research Institute (PCORI) fee, which helps fund the government supported institute. The fee, which is $1 per dependent on your company’s coverage, must be reported annually by July 31.

The other is the Transitional Reinsurance fee, which is designed to stabilize premiums and support high-cost dependents in the individual market between 2014 and 2016. The fee ($63 per dependent on your company’s coverage) is due by the end of 2014.

Pinheiro says that shops with insured coverage will often have it taken care of by their insurers.

The ‘Play or Pay’ Rule

For larger shops, Jan. 1, 2015, is the single most important date to remember, Pinheiro says. This is when the ACA’s “Play or Pay” rule officially goes into effect.

By this date, all employers with 50 or more full-time employees will be subject to penalties unless they provide affordable and adequate health care coverage to at least 95 percent of their full-time staff. The penalties, Pinheiro says, can be severe, and will be determined on a business-by-business basis.

Determining Full-Time Employees. According to the ACA regulations, a full-time employee is anyone who regularly works more than 30 hours per week.  This includes part-time equivalents, meaning employers must add up the amount of hours worked by part-time employees and combine them for this calculation, Pinheiro says.

To avoid this, shops must alter their workforce prior to Jan. 1, 2014, Pinheiro says. You shop’s workforce for the 2014 calendar year will determine your number of full-time employee equivalents for the ACA.

If you do not have 50 or more full-time employees for 2014, you are exempt from the “Play or Pay” rule.

For Multiple-Shop Organizations (MSOs). Any group of shops operating under common control is considered one business under the ACA’s “aggregation rule,” Pinheiro says. This includes separate shops, companies or brands that are owned by one larger parent company. Common control, Pinheiro says, is defined as “at least 80 percent of each business being owned by the same parent company.”

For Franchises. Independently owned franchises are treated as single, independent businesses. However, there is also an aggregation rule that applies for individuals or companies that own multiple franchise locations: If the same five or fewer individuals or companies own more than 80 percent of multiple franchises, those franchises are considered to be one business under the ACA.

Defining Adequate Care

All businesses that fall under this 50 or more full-time employee designation must provide adequate insurance coverage or face penalties. Pinheiro says it’s just a simple, actuarial calculation that looks at whether 60 percent of expected health care costs are covered under the plan.

“The vast, vast majority of businesses with existing coverage will already comply with this part,” he says.

Defining Affordable Care

For a health care plan to be “affordable” under the ACA, Pinheiro says the cost for employees must be below 9.5 percent of that employee’s listed W-2 wage for 2014. This is true regardless of whether or not the employee is on the plan as an individual or has dependents. 

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