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Health Care Reform and How

Your Decision Will Affect Your

Company

brought to you by Fringe Benefit Group® © 2014

2 2www.conexpoconagg.com brought to you by Fringe Benefit Group® © 2014

The Contractors Plan

& Fringe Benefit Group

• National TPA administering full benefits array: major medical, limited medical, dental,

vision, life, disability, HRA, retirement, etc.

• Originated the offering of bona fide benefit plans to prevailing wage contractors,

serving thousands of construction contractors over the last 30+ years

• In-house compliance and prevailing wage consulting

• Key Association Relationships: ABC, ADA, PDCA, CICPAC, IWCP, AGC, etc.


• FULL SERVICE INSURANCE BROKERAGE FIRM

• PART OF MARSH & MCLENNAN AGENCY

• SERVE START-UPS TO GLOBAL

ORGANIZATIONS

• CONSTRUCTION / CONTRACTOR PRACTICE

GROUP

• AWARD WINNING ORGANIZATION

Barney & Barney


Topics Covered

• Davis Bacon Act & State Prevailing Wage

• Health Care Reform1 and its Impact

• Who is subject to the healthcare mandate?

• Impact of providing / not providing coverage

• Why building a long term benefits strategy is critical

• Business continuity and growth considerations

• Contractor Tools & Resources

1 Patient Protection & Affordable Care Act (PPACA) or Affordable Care Act (ACA)


Sample Wage Determination

BASE

WAGE

$30

FRINGE

BENEFIT

$10+

TOTAL HOURLY WAGE

$40


Two Strategies for Paying Fringes:

Pay Fringe in Paycheck

Base Wage $30.00

Fringe $10.00

Total Wage $40.00

Payroll Burden(25%) $10.00

Labor Per Hour Cost: $50.00

$2.50/hr. savings per

person before ACA

Tax Penalty

Pay Fringe to “Bona Fide” Plan

Base Wage $30.00

Total Wage $30.00

Payroll Burden(25%) $ 7.50

“Bona Fide” Plan $10.00

Labor Per Hour Cost: $47.50


Plumbing Contractor

• About 75% of this contractor’s work is government

– 2080 annual hours x 75% = 1560 hours

• There are 75 hourly employees

• The hourly savings by removing the fringe from payroll is

$2.50

• The annual savings is significant:

– 1560 hours x 75 EEs x $2.50 hour = $292,500

– Nondeductible ACA penalty for 75* employees = $90,000

– Net total annual savings = $382,500

In addition, many contractors unknowingly pay for health premium and / or retirement

contributions “on top” of paying the fringe as wages!

* For 2016, total number of EEs minus first 30 x penalty


Apprentice Rates

• Apprentice rates are a percentage of the base wage.

• Apprentice fringes remain the same as the job class*

– Base $30.00 Fringe $15.00

• 60% apprentice Base $18.00 Fringe $15.00

• 75% apprentice Base $22.50 Fringe $15.00

• Number of apprentices allowed is an acceptable ratio to

journeymen.

* Can vary by state and / or apprenticeship program.


Total Financial Impact – Add It All Up!

• Payroll burden savings

• Tax penalties for not providing coverage

• Retirement plan profit sharing contribution offset and / or

increased deferrals for HCE’s

• Effective use of apprentices

• Tax deduction for health plan contributions (on private work)

• For small businesses, potential for tax credits

• Grant money for wellness programs

• Some contractors pay fringe as wages and offer health

coverage

• Single source: product, administration & compliance support


The Patient Protection & Affordable Care Act

• Health Care Reform is the “new normal”

• Some elements are still awaiting final guidance

• Impacts all employers and individuals

• Creates additional and complex compliance requirements with

potentially higher costs

• Employers need to build a benefits strategy that considers the long

range impact on their businesses


ACA Regulation/ActionCheck out link below to PPACA implementation timeline:

http://healthreform.kff.org/timeline.aspx?source=QL

http://healthreform.kff.org/timeline.aspx?source=QL


Who is Subject to the Mandate?


Control Group Breakdown

Corporation A• Corporation A owns 100%

of Corporation B

• Employs 40 full-time employees in each calendar month of 2015

Conclusion:

Corporation A and corporation B are members of a controlled group that employs 50 or more full-

time employees and, therefore, are large employers subject to the employer mandate in 2016

Corporation B• Employs 35 full-time

employees in each calendar month of 2015


Large Employer Exceptions

• Seasonal Employees – If the company’s employment exceeds

50 full-time equivalents for 120 days or fewer (or 4 months) in

calendar year solely as a result of seasonal employees, not

considered a large employer. (100 for 2015 determination)

• 2014/15 Transition Rule – May use 6 consecutive months in

2014 for 2015 Large Employer status. (Rather than average

all 12 months.) This may apply in future years.

• New businesses must predict whether they will average at

least 50 full-time employees during the year. (100 for 2015

determination)


What is the Employer Mandate?

• Large employers (those who average 50 or more full-time

employees in the prior calendar year) must offer medical

coverage to full-time employees beginning in 2016. (100 for

2015)

• If employer does not offer medical coverage to full-time

employees, is subject to annual $2,000 fee/tax per all full-time

employees (1/12th for each month without coverage) if any one

employee receives government premium tax credit.

• If employer offers coverage, but it is unaffordable or doesn’t

meet minimum value rules, subject to annual $3,000 fee/tax

(1/12th/month) per employee that receives government

premium tax credit.


Who Requires Coverage?

• Full-time employees of Large Employers must be eligible for

coverage. Part-time employees do not require coverage. Small

employers are not required to provide coverage.

• Evaluated on a month by month basis. May use the Monthly

Measurement Method or a Look-back Measurement Method

approach to determine who is full-time based on historical

hours employed.

• New employees are treated differently than ongoing

employees under the look-back method.


Monthly Measurement Method

• New full-time employees must be covered the day after the

first three full calendar months they are full time employees,

beginning with the first full calendar month the employee

would otherwise be eligible under the terms of the plan.

• The same rule applies to all other new employees. For

example, if an employee worked part-time (averaged less than

30 hours per week) for 6 months, but then began working full-

time the first day of the 7th month, the employee would need to

be covered the first day of the 10th month.

• After this point, employees would continue coverage, but

would NOT need to be covered in months that they do not

work 30 hours per week on average during a month.


Look-Back Method to Determine Full-Time

• May use historical hours of service to determine full-time

status of an ongoing employee during the “standard

measurement period”.

• If an employee averaged 30 hours per week (or 130 hours per

month) during the measurement period they are considered

full-time during the following “stability period”.

• If an employee did not average 30 hours per week, they are

not considered full-time (and not subject to coverage) during

the following stability period (subject to time limits).


Full-Time Status for New Employees(Look-Back Method)

• New employees that are “reasonably” expected to have at

least 30 hours of service per week (and are not seasonal

employees) are treated as full-time employees subject to

coverage in 90 days to avoid tax.

• All other new employees may utilize a measurement and

stability period to determine whether they will be treated as

full-time employees subject to coverage. Referred to as “New

Variable Hour, Seasonal and Part-Time Employees.”


Look-Back Measurement Method –

Ongoing EEsStandard Measurement

Period (SMP)

• Determine which

employees paid for 30

hours/week or 130

hours/month

• 3-12 consecutive calendar

months chosen by the

employer for employees in

the same category

• Categories include unions,

salary/hourly, different

states or employers in

controlled group

Administrative Period

(AP)

• To finalize calculations of

SMP and enroll

employees

• Up to 90 days as chosen

by the employer

• Falls between the

Standard Measurement

Period and the related

Stability Period

• Overlaps with prior

Stability Periods

Stability Period (SP)

• Must be at least six

consecutive calendar

months up to 12

consecutive months

• Must be at least as long

as the SMP

• If considered Full-Time in

the SMP, then

considered FT in SP

• If not FT in SMP, then

not treated as FT in

stability period (SP for

these employees may

not exceed SMP)


Look-Back Measurement Method – New EEsOnly applies to variable hour, seasonal and part-time employees (those not reasonably

expected to work more than 30 hours per week).

Initial Measurement

Period (IMP)

• Determine which new

variable hour, seasonal

or part-time employees

paid for 30 hours/week

or 130 hours/month

• 3-12 consecutive

calendar months, as

chosen by the employer,

for all employees in the

same category (see

Ongoing EE rule for

categories)


(AP)

• Up to 90 days as chosen

by the employer

• However, IMP and the

AP combined cannot

extend beyond the last

day of the first calendar

month beginning on or

after the employee’s 1

year anniversary date

• Falls between the IMP

and the SP

Stability Period (SP)

• 6-12 consecutive months

and no shorter than IMP

• Must be same length as

the stability period for

ongoing employees

• But EEs with less than

30 hours/week in IMP,

SP may not be more

than one month longer

than the IMP, or past the

remainder of SMP (and

AP)


Look-Back Method – New Variable Hour EE

• Once a new variable hour, seasonal, or part-time employee is

employed for a full SMP, they are tested the same as any

other “ongoing” employee

• If determined to be full-time during IMP, but not during the

overlapping SMP, must continue full-time status at least

through the end of the initial stability period

• If determined to not be full-time during IMP, but is during the

overlapping SMP, treated as full-time as soon as the standard

stability period begins (even if ISP is longer)


Look-Back Method – Change Employment

• If a new variable hour, seasonal, or part-time employee duties

materially change (if were a new employee would be expected

to work 30/hours per week) they become eligible for coverage

no later than the 1st day of the 4th month after the change (or if

earlier, the beginning of the ISP, if averaged 30/week during

IMP)

• If an ongoing employee changes actual employment duties to

or from full-time status during a standard stability period, they

remain the original status for coverage until the end of the

stability period, regardless of the change


Rehired Employees

• Employees that terminate employment for at least 13 weeks

and are rehired may be treated as a new employee under the

ACA rules, rather than a continuing employee.

• Employers may elect to use a period of as low as 4 weeks

terminated (rather than 13) to treat an employee as a new hire,

if the period of time the employee worked prior to the

termination was less than the time they were gone. This is

called the rule of parity in the regulations.


Measurement Period Example

New Part Time

EE

Ongoing

Employee

2014 2015 2016

Initial Measurement Period

May 10, 2014 – May 9, 2015


May 10, 2015 – June 30, 2015

Stability Period

July 1, 2015 – June 30, 2016

Standard Measurement Period

Oct 15, 2014 – Oct 14, 2015


Oct 15, 2015 – Dec 31, 2015

Stability Period

Jan 1, 2016 – Dec 31, 2016


What if you don’t cover 100% of full-time

• Generally, 5% of full-time employees (or 5 employees if

greater) could be excluded from the plan but still avoid the

$2,000 annual tax penalty per full-time employee not covered.

• During 2015, the IRS has changed this rule allowing up to

30% of full-time employees to be excluded from an offer of

coverage yet still avoid the $2,000 annual tax penalty.

• Regardless, the employer will still be liable for the $3,000

annual tax penalty for those full-time employees who were not

covered, and who received a premium tax credit from the

government for the year.


What is Hour Banking?


Hour Banking

• Simplify and streamline accounting and reporting

• Eliminate complexity around taking proper fringe credit

• Alleviate volatility in workforce coming on and off of benefit;

improving employee relations

• Accommodate the challenges of seasonality

• Reduce COBRA exposure for employees and the employer


Hour Bank Example for John Doe

Month

Worked

Month

Benefit

Provided

Hours

Worked

Hourly

Rate

Contribution

Required

Hours of

Credit

Required

Depleted

From

Hour

Bank

Hour

Bank

account

June Aug 160 $1.00 $160 -130 0 30

July Sept 180 $1.00 $180 -130 0 80

Aug Oct 100 $1.00 $100 -130 30 50


Bank Accounting Helps

• Employees may accumulate hours of work credit for excess hours worked

• Avoids possible ineligibility under traditional programs

• Protects employees from layoffs, inclement weather, etc.

• Allows employees to bank months of health care

• Allows employer to pay for actual hours worked

• HRA can be used for residual balances

• Retirement plan can be used for overflow when banks are at their max


What is Acceptable Coverage?

Limited medical or “mini-med” coverage is not ACA compliant


Who is Subject to the Penalty?


Union Employees & Multiemployer Plans

• Union employees are treated no differently than non-union

employees in determining the number of full-time employees

of an employer, and whether ACA applies to the business.

• Employers who contribute to union multiemployer plans which

provide minimum value and are affordable will not be subject

to the tax for failure to offer coverage to those union

employees.

• The determination of whether the employee portion is

affordable (does not exceed 9.5% of pay) is based upon the

actual pay reported by the employer or hourly rate of pay

under the collective bargaining agreement.

• Further IRS guidance is expected in the future.


Transition Rules

• The first year a business is subject to the ACA rules as a

“Large Employer”, the employer will not be subject to tax for

the first 3 months (until April 1st) for lack of coverage (with

some exceptions).

• Employers may use 6 consecutive months (rather than a full

year) to determine whether they meet the “Large Employer”

definition (over 99 full-time employees) for the 2014/15

determination period.

• If an employer currently offers health insurance for workers,

and has a fiscal year plan that was in place in 2012, then in

general the rules for ACA do not apply until the first day of the

2015 fiscal plan year (rather than January 1st).


Employee Retention Studies

• Employers consistently underestimate employee perceptions

of value:

•

• Employees who are very satisfied with benefits are nearly 3x

as likely to say they are satisfied with their jobs and less likely

to plan to leave.Source: 10th Annual MetLife Study of Employee Benefit Trends

https://www.metlife.com/assets/institutional/services/insights-and-tools/ebts/ml-10-Annual-EBTS.pdf


Offering Coverage Not Offering Coverage

• Field workers often represent better risk & a healthy

workforce is more productive• Bids may then be less competitive and / or profits impacted

• Dollars are invested in employees as opposed to paid as

taxes to the government

• Miss out on tax deduction for employer / fringe

contributions

• Employers can point to ACA as clear reasoning for taking

fringe out of wages and open the door for full benefits

offering

• Penalties are not tax deductible and fringe dollars cannot

pay for them

• Payroll burden is greatly reduced, bids can be more

competitive and the company is likely more profitable

• Limited medical or “mini-med” coverage is not ACA

compliant

• More government agencies and ordinances are looking to

require it• Weakens private sector healthcare system

• “Credible” risk status enables more options for the future • Business growth, continuity and reputation at risks

• Tax credits are available to certain small businesses so have

the fringe purchase coverage, file for and use them• Compromises recruiting & retaining top talent

• Employees will have to fend for themselves in the

exchanges or find employers that offer it

Offering Coverage VS Not Offering Coverage

Paying fringe as wages is already expensive and ACA adds another $2000-$3000 per employee not covered


Not Going to Offer Coverage?Your Employees Will Pay for it.

• HRA, Section 125 and FSA need an employer to sponsor!

• Penalties start for individuals in 2014 and increase through

2016

• Individual coverage can be more expensive particularly

without a subsidy and paid after-tax

• Employee could have fringe paying for coverage with FICA

and income tax free dollars

• Marriage “penalty” for subsidy

• Many will not qualify for a subsidy


Not Going to Offer Coverage?Your Employees Still Need It.

• Will “figure out” the exchanges for themselves

• Employer pre-tax programs will not be available

• Exchange products have very narrow networks

• Exchange products generally have very high deductibles and

out of pocket maximums

• Rating process for large groups vs. community rating and

impact on premium / rates

• Limited medical or “mini-med” coverage is not compliant

• Employees will feel compelled to find union or employer

provided benefits


Which Employees Will Qualify for a

Subsidy?

• Individuals that have minimum essential coverage (MEC) via

their employer are not eligible

• Qualify when income level is between 100% and 400% of the

Federal Poverty Level (“FPL”)

• Anyone making over 400% of the FPL bears the full cost of

coverage via the exchange i.e. no subsidy is available

• “Marriage penalty” e.g. two singles can qualify at $33,510

each, but not as a married couple

Check out the link below for a calculator:http://healthreform.kff.org/subsidycalculator.aspx

http://healthreform.kff.org/subsidycalculator.aspx


Federal Poverty Levels & Subsidies

2013 Poverty Levels 100% of FPL 400% of FPL

Single $11,490 $45,960

Two Person $15,510 $62,040

Family of Four $23,550 $94,200

AK & HI are higher.


Annual Employee Tax Impact

2013 Single Tax Rate, with one exemption and standard deduction.

Fringe in Paycheckv

“Bona Fide” Fringe Plan

Base wage $35,000 Base Wage $35,000

Fringes $7,750 Gross Wages $35,000

Gross Wages $42,750 Federal Taxes ($3,304)

Federal Taxes ($4,991) Net Wages $31,696

- - Fringes $7,750

Total Wages $37,759 Total Wages & Benefits $39,446



Challenges with Exchanges

• Coverage is not free and many

will not qualify for subsidies

• Only way an individual can get

the subsidy is to enroll in the

exchange

• “Bronze, Silver Gold and

Platinum” plans cover 60-90% of

costs

• Rating issues – 3:1 premium

differential for age


Strategic Business Considerations• Leverage the fringe dollars for health benefits

• Cost Reduction Strategies

– Track premium dollars via hour banking by the hour and not

monthly

– Leverage consumer driven plans – HDHP’s

– Prevailing Wage compliant HRA

• Build inventory i.e. bid and win more while increasing profits

• Must get covered and credible – virgin or groups on limited medical present underwriting challenges

• Process for covering and onboarding new employees for newly awarded contracts that take you above 50 FTE’s? (100+ in 2015)

• How to contain costs and stabilize or reduce rates? Does the inclusion of your field workers lower your risk profile?

• How to remain in compliance? How much will it cost me?

• Do I partner with a generalist or a specialist?


Strategic Business Considerations• Limited medical does not comply with PPACA after 1/1/2014

• Taking good care of key employees – reputation? Union

pressures? Message GC’s can send to subs?

• Competition – large & small employers – what will they do to

compete?

• Bidding 2-3 years out – assuming what costs?

• Discrimination rules limit coverage disparities & carve outs


Managing Employee Objection

• Employee objection to employer provided benefits over fringe

as wages largely mitigated

• Message and Talking Points for Offering Benefits:

• The federal government and healthcare reform law is requiring it.

• Contracting agencies and certain local ordinances are beginning to look

closer for it in the bid process

• The fringe is an employer contribution, not “the employees’ money”

• Competitors that offer benefits will likely have lower bids

• Lowest bidder wins on government work

• Prevailing wages are generally higher than those on private work

• Employees greatly reduce their tax burden


Tools to Support Contractors


Single Source Administration

• One partner to administer and manage a complete benefits

array

• Major medical, dental, vision, life, disability, critical illness,

HRA, EAP, retirement, etc.

• Holistic employee communications

• Prevailing wage, PPACA & ERISA compliance over all

programs

• Detailed reporting for all aspects of your benefit strategy

• Opportunity to offer employees the best array without the

added burden to you or your staff


Total Fringe Hourly Breakdown

• Keep it simple and efficient

• Remaining fringe dollars can be funneled to retirement or HRA

• HRA can be instrumental in health plan design & cost structure

• This type of approach can be set up & managed entirely online

Fringe rate $15.00 v Fringe rate $15.00

Medical single $2.00 Medical family $4.00

Vacation $1.00 Vacation $1.00

Apprentice $.25 Apprentice $.25

Retirement $11.75 Retirement $9.75


Compliance

Work with benefits partners that offer this value as a part of their

standard solution.


Wellness

HealthCare Reform allows for employer grant money when Wellness

Programs are offered. As preventive care is required & is cost free, this

is one key way to control current and future costs:

• Leverage your Carrier Partners

– Carrier Websites – free and useful tools for Employer and

Employees

– Built-In Carrier Wellness programs e.g. UHC Simply Engaged

– Leverage 3rd party wellness services e.g. Virgin HealthMiles

• Employer Sponsored Contest

• Biometric Screenings

• Evaluate claims reports (large groups)

• Create a Culture of and Competition for Wellness


Benefits of Utilizing a Trust

• Satisfies one of the key DOL bona fide benefit criteria for

government contractors

• Fully insured benefits

• Advantages of a larger pool in the underwriting process

• Can obtain coverage for virgin groups or those on limited

medical

• Stabilizes cash flow and lowers renewal risk

• 3rd party trustee provides fiduciary risk protection


Q & A

What next?


More Questions?

Adam Bonsky – EVP Government Markets

[email protected]

(512) 827-5300

Steve Slade – Director, Defined Contribution Plans

[email protected]

(512) 827-5313

Henry Beceiro – BB&T CEBS

[email protected]

(858) 875-5407

mailto:[email protected]




Appendix

• Source: IRS Notice 2014-82; IRS Final Regulations, “Shared Responsibility for Employers Regarding Health Coverage, February 12, 2014.”

https://federalregister.gov/a/2014-03082

https://federalregister.gov/a/2014-03082

Documents

Health Care Reform and How Your Decision Will Affect Your ... · Health Care Reform and How Your Decision Will Affect Your ... • Health Care Reform1 and its Impact ... • Impact