Employee Benefits Pro Panel
Even the most educated, seasoned employers can feel overwhelmed and frustrated when it comes to the guidelines surrounding employee benefits, especially with recent changes in the law. We compiled a panel of local experts to guide you through some of the most pressing questions facing employers today.
Vice President, Benefits
John Akers brings more than 20 years of Employee Benefits expertise to the team at Ollis/Akers/Arney. He is licensed in Property and Casualty and Life and Health and has earned the Certified Insurance Counselor (CIC) designation and was voted Outstanding Young Agent of Missouri.
CEO at Nixon & Lindstrom Insurance
Trevor Crist is CEO of Nixon & Lindstrom Insurance in Springfield, Missouri. He has 14 years of industry experience and holds professional designations of Registered Health Underwriter (RHU) and Registered Employee Benefits Consultant (REBC).
Director of Compliance
Marshall Kinne is the Director of Compliance for Med-Pay, Inc. He is a licensed Life and Health Producer. Prior to Med-Pay, Marshall served on the congressional staff of then Congressman Roy Blunt in Washington, DC. He is a graduate of Southern Methodist University and is active in the local civic and nonprofit community.
Employee Benefit Design
Ken Stephens established Stephens Insurance & Financial Services in 1985 specializing in Life, Health, Disability, Investment Planning and Financial Services. In 1997 he co-founded Employee Benefit Design, LLC and has been serving individual and employers with their Insurance & Financial needs for over 30 years.
What does it mean when an organization self-funds their health insurance, and what are some benefits of this funding arrangement?
Ken Stephens Self-funded health insurance is an insurance arrangement in which the employer assumes some of the claim risk instead of the insurance company, up to a certain dollar amount, to cover employee and dependent healthcare costs. Very large companies may self-insure all their medical claims; however, most companies still purchase “stop-loss” coverage or “reinsurance” (e.g., $50,000 deductible on each covered person) to assume the risk when the claim accumulates to that level. This is different from a fully insured plan where the employer contracts with an insurance company to provide benefits and pays a set monthly premium regardless of how many claims the group is experiencing. A company that is “self-funded” can experience savings vs. a fully insured plan if their claims experience is favorable. The opposite is true if their claims are high. Additionally, a self-funded plan is not subject to some state law mandates and regulations like a fully insured plan and the employer is in more control of what coverage type is offered. There are also lower Affordable Care Act (ACA) fees on self-funded plans vs. fully insured.
Marshall Kinne Put simply, instead of transferring the risk and reward of claims experience to an insurance carrier, an employer that self-funds utilizes its own funds combined with employee premium contributions to pay for health insurance claims. A reinsurance called “stop loss” is purchased by paying a fixed premium to cap the plan’s per individual and aggregate exposure. Eligible expenses over the stop loss deductibles are reimbursable to the plan by the stop loss carrier. Typically, a third party administrator is engaged to manage all administration of the plan on behalf of the sponsoring employer. One of the largest benefits of this arrangement is the organization sponsoring the plan is able to benefit from positive claims experience, since they only pay for claims that are incurred. Additionally, the breadth and timeliness of reporting options available allow organizations to build a plan design that fits the organization’s unique needs.
Trevor Crist In a traditional “fully insured” health plan, employer, insurance carrier, and employees have fairly fixed roles. The organization pays fixed premiums but won’t be reimbursed if claims come in lower than expected. When using a self-funded plan, employers assume a portion of the liability in exchange for financial benefits such as tax benefits, greater degree of flexibility over the plan’s design, reduced administration costs, and potential savings from lower than anticipated utilization. Recently, the ACA has also made self-funded arrangements attractive for some smaller employers based on ability to avoid Community Rating.
What is Community Rating, and how will it affect my benefits and premium rates?
Marshall Kinne Community Rating is a provision of the ACA that limits the extent to which health insurance carriers can vary premium rates in the fully insured individual and small group market (50 employees or fewer). The factors allowed in establishing premium rates under Community Rating are limited to geographic area, family size, age and tobacco use. Ratio adjustments allowed for rating are limited under this provision. For age rating a maximum ratio of 3:1 for adults can apply, and for tobacco use, the maximum ratio is 1.5:1.
Community Rating itself will not directly affect your benefits, but it will impact premium rates. Generally speaking, this rating method is expected to increase premiums for employers with younger populations.
Trevor Crist Prior to health care reform, insurers were allowed to charge different rates based upon several factors such as age, gender and a member’s personal medical history. With Community Rating, insurers may base rates solely upon the plan, member’s age, geographical area and tobacco usage. As a result, groups with a young and/or healthy population are seeing an increase in premiums while those with highest utilization are seeing a reduction.
How do I know if my organization is subject to the employer reporting requirements of the Affordable Care Act?
Trevor Crist In 2016, if you have 50 or more full time employees or full time equivalents (FTEs), you are considered an applicable large employer (ALE) and are required to file information returns with the IRS. The reason you must file the information returns is because if you have 50 or more FTEs in 2016, you are required to offer minimum essential coverage to 95% of full time employees or pay a penalty.
Ken Stephens Also, if your organization is considered a control group or a group that would fall under the categories of affiliated, parent or brother-sister groups and the combined organizations equal 50 full time or full time equivalent employees, then reporting is mandated. Consulting with your CPA can help determine whether or not your organization is considered a control group.
How do I calculate my number of FTEs (Full Time Equivalent Employees)?
Trevor Crist Take cumulative monthly hours of all part time employees (those working less than 30 hours a week) and divide by 120. This will give you your Full Time Equivalent for those workers. Add that number to your number of full time employees (those working 30 or more hours a week and 130 hours in a calendar month). These two numbers together determine your total number of FTEs for the month. Repeat this calculation for each calendar month. Add the monthly totals together and divide by 12 to determine your average monthly full time employee count.
Marshall Kinne It’s important to note that for 2015, transition relief allows an employer to use any 6 consecutive months in 2014 to calculate ALE status.
When does the ACA say I have to go to this type of plan and rating structure based on my number of employees?
John Akers If you have fewer than 50 employees, Community Rating is already mandated for new programs. As of January 1, 2016, groups with 50 to 99 employees are subject to Community Rating. Many businesses that already had programs in place have been able to grandfather those plans, although October 1st of 2017 is the date the law currently says that grandfathered status will expire. Consult a health insurance specialist to make sure you are properly positioned with your current program to keep your experience rated status as long as the law will allow.
Marshall Kinne Fully insured plans offered to individuals and small employers must at the latest move to a community rated plan for plan years beginning on or after October 1, 2017. For purposes of Community Rating, small employer is currently defined as an employer with 50 employees or less. For plan anniversaries on or after January 1, 2016, the small employer definition is to be modified to include employers with up to 100 employees. In October, Congress approved and President Obama signed the PACE Act. This law will allow states to decide whether or not to expand the current definition of small employer, a decision the Missouri Department of Insurance has yet to make as of this writing.
What are my responsibilities to stay compliant under the ACA, and will you keep me compliant with the Affordability Test?
Ken Stephens To stay compliant, employers with 50+ employees must “pay or play” (pay a fine or offer coverage). The fine is $2,000 per benefit eligible employee minus the first 30 employees in 2016. If your plan does not meet “minimum-value” or is not “affordable,” there is a $3,000 penalty to the employer if an employee goes to the marketplace and qualifies for a subsidy. There are several intricate components to the ACA laws and each employer will have to meet certain compliance criteria based on the type of coverage they offer and who they offer coverage to as some will have measurement periods for variable hour employees or wellness programs established.
John Akers There are numerous responsibilities under the law, and you should choose a benefits consultant with robust technology and compliance solutions to help you navigate the many facets of the legislation. Your benefits consultant, accountant and payroll vendor, if you have one, should work in concert to help you stay in compliance with the affordability test.
Is there any way I, as an employer, can be penalized under the ACA? How do I avoid it?
Marshall Kinne Yes. Generally, all Applicable Large Employers (ALEs) are subject to the employer mandate. For 2015, relief is available for ALEs with 50–99 full-time and full-time equivalent employees, subject to certain requirements.
An ALE can avoid all excise taxes if it offers all of its full-time employees (and their dependent children) minimum essential coverage (MEC) that is affordable and provides minimum value. Virtually all employer sponsored plans meet the MEC requirement. A plan is considered to be affordable if the premium for the self-only tier of coverage does not exceed 9.5% of household income. For purpose of the affordability determination, employers may utilize three safe harbor methods: Form W-2 safe harbor, rate of pay safe harbor and federal poverty line safe harbor. Use of the safe harbors relies on an affordability determination utilizing 9.5% as the affordability threshold. A plan provides minimum value if it is designed to pay at least 60% of the total allowed cost of benefits.
John Akers There are many penalties that can be levied upon you as an employer for not complying with the law. Your responsibility and potential penalties under the law are mainly affected by the number of employees you have. A qualified benefits consultant can walk you through your responsibilities and how to avoid penalties.
When do I have to comply with the Employer Mandate?
Trevor Crist Mandate for employers with 100 or more full time equivalent employees (FTEs) was effective January 1, 2015. Currently, mandate for employers with 50 or more employees is set to take effect January 1, 2016.
What is the average rate increase you are seeing right now?
Marshall Kinne Providing an average increase is difficult as renewals have been all over the map. I can tell you that we are seeing significant price differentials between non-ACA and ACA renewal offers in the small group market. Non-ACA renewals (plans that are not yet required to comply with the Community Rating requirements and certain coverage requirements of the ACA) have generally been more competitive than ACA renewal options (those subject to Community Rating).
For large group fully insured, groups are still rated on their specific losses, so increases have varied depending on the group’s specific claims experience.
Ken Stephens It really depends on the size of the employer group plan; however, most of our clients on Non-ACA plans have experienced less than a 10% increase. That being said, a few have had higher. When we compare “Community Rates” that will be coming for these employer plans, the plan designs are worse and the rate increases are substantially higher. This is why most employers under 100 employees are taking advantage of “transitional relief” to delay going to community rated plans and rates.
John Akers Renewals vary widely, from a low of a slight decrease in rates to a high of over a 50% increase. Most have been within a range of 5 to 15%.
Trevor Crist Though they have been somewhat consistent across their plans, each carrier has been different. However, most have offered single digit renewal increases to clients still on non-ACA programs. Several carriers nationwide are seeking increases of 20%or more on ACA plans as utilization proved to be higher than expected.
I thought the Affordable Care Act was supposed to make coverage more affordable?
John Akers People of lesser means benefit from health care reform through subsidized premiums, and people who are sick and have pre-existing conditions benefit by the fact that they can no longer be turned down for coverage. The flip side of that coin is that there are significant costs associated with subsidies and guaranteed issuance of coverage. These costs are only beginning to come to light in the form of higher premiums and significant taxes levied on businesses to pay for them.
Ken Stephens Technically the stated goal of the ACA was to decrease the number of uninsured people in the country by mandating coverage for individuals and employers with over 50 employees. The law was to make health insurance more accessible and more affordable for individuals under certain income guidelines by “subsidizing” people’s insurance premiums through the law’s fines and fees. Consequently, the focus was placed on the uninsured, and two barriers they believed kept people uninsured were the cost of a plan and insurance companies not accepting clients due to poor health. To address this, the ACA implemented an advanced tax credit that could be used toward monthly premiums and it also forbid insurers from rating or denying coverage based on health for individuals or employers with less than 100 employees. Obviously for most Americans, the regulating of health insurance has not successfully lowered the cost of healthcare itself but profoundly impacted the cost of insurance coverage in a very negative way by fees and the loss of underwriting health risk. Accessibility has greatly improved for individuals, but this comes at a higher premium cost since companies have to assume all risks.
If I as an employer offer qualified/affordable coverage, are my employees still eligible to enroll in the federal-exchange?
John Akers Technically the answer is “yes”; however, the fact that you offer qualified/affordable coverage makes them ineligible for subsidies, so they have to pay the full premium cost.
What are some components of a well-rounded employee benefit offering?
John Akers The focus of a well-rounded program should be to help keep your employees well, not just treat them when they are sick. Wellness programs encompassing everything from Health Risk Assessments to Employee Assistance Programs focused on helping staff cope with stressful life events are a must. Traditional insurance products are still an important piece of a well-rounded program, but a more holistic approach to employee health and engagement produces better results and goodwill for employers offering benefits.
There is a trend for employers to offer more holistic approaches to employee benefits, including wellness programs. How does this benefit the employee and the employer? Does it help lower health care premiums?
Ken Stephens Holistic programs can have a very positive impact on a company. However, research has demonstrated few of these programs will have a direct monetary influence on health premiums. First, any firm that is on a community rated plan will be unaffected by the health of their employees. A smoking cessation program can help as there can be significant increases for tobacco users under the ACA, but other health issues are irrelevant for these companies. Second, while height and weight are important to an underwriter, illnesses have a much greater impact on premium rates. Finally the biggest hurdle facing holistic options is the lack of participation that mid to large firms have. .This said, any holistic approach should be encouraged for the wellbeing of employees but not for premiums savings.
John Akers Benefits programs today are comprised of many interlinking programs designed to promote the total wellness of the employee. The best way to manage medical expenses is to avoid them in the first place. Lifestyle habits, job stress, financial difficulties, etc. all have an impact on an employee’s overall health as well as productivity and performance on the job. Varying studies have yielded different results regarding the effectiveness of wellness programs in general, however recent studies have shown a very positive impact when the highest-cost utilizers within a health plan are actively engaged and helped with chronic condition management.
With the increasing rise in health insurance, what have you seen businesses do to help their employees not take on a larger monthly burden?
Marshall Kinne Many employers have begun to offer consumer-driven plans to their employees. These plans typically offer a higher annual deductible in exchange for lower monthly premiums. Oftentimes the vehicle for this offering is a HDHP. This type of plan offering allows for employees to establish an HSA to contribute pre-tax dollars to pay for qualified medical expenses. More employers have also begun to offer high deductible plans that don’t qualify as HDHPs coupled with the opportunity to contribute pre-tax to a Flexible Spending Accounts (FSA). Similar to an HSA, contributions to FSAs can be used to pay for eligible medical expenses.
Trevor Crist To this point employers have helped employees most by making the decision to either stay on their current plan(s) or move to an ACA program based upon their group’s specific circumstances. This keeps cost as low as possible and just as importantly relieves employees from having to navigate the process themselves. However, employers have voiced that they too have a budget and if/when these options expire employees will most likely share in the additional investment.
Ken Stephens Another method is for employers to seek self-funded or partially self-funded options. The plan is underwritten, so if your firm is healthy and young then this could be just what you need. At the same time if your firm has a negative health history or is more seasoned, you might be facing even worse costs than community rating will offer.
What is a Health Savings Account and is it a benefit for employers to educate employees on it?
John Akers A Health Savings Account is normally paired with a qualified High Deductible Health Plan (HDHP) and is funded either by the employee, employer or both. Contributions into the account are tax deductible. Qualified expenses (i.e. doctor’s office co-pays, deductibles, prescription costs, etc.) can be paid tax-free using the account. There are limits on how much you can invest annually, but any unused funds can be left in the account to be used for future medical expenses or withdrawn without penalty at your regular tax rate in retirement. Many employers use this type of program to promote employee engagement in managing their medical expenses and spending health care dollars wisely, because the employee gets to keep what they don’t spend.
What are my reporting requirements under the IRS and ACA Section 6055 and Section 6056?
Marshall Kinne Section 6055 relates to the individual mandate while Section 6056 addresses the employer mandate. The ACA reporting requirement associated with 6055 & 6056 will vary depending on an employer’s Applicable Large Employer (ALE) status and whether they fully insure or self-insure their health plan.
Trevor Crist The ACA requires employers with at least 50 full time workers to offer their employees minimum essential health care coverage. Each year by the end of January, these employers must send a statement (tax form 1095-C) to all employees eligible for coverage, whether enrolled or not, reflecting prior calendar year. They must also send one 1094-C cover form with a 1095-C for each full time employee to the Internal Revenue Service. The purpose is to show the IRS that they offered affordable coverage to their employees, who was covered, and for how many months out of the year.
This form became mandatory with the 2015 tax year. And reporting is required in 2016 for the 2015 coverage year. Employers who provide self-funded coverage are required to complete Parts I, II and III of form 1095-C. Employers with fully insured plans must fill out Parts I and II.
For more information contact:
John Akers - Ollis/Akers/Arney 417.881.8333
Trevor Crist - Nixon & Linstrom Insurance 417.881.6623
Marshall Kinne - Med-Pay, Inc. 417.886.6886
Ken Stephens - Employee Benefit Design 417.889.6345