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Affordable Care Act - Employers Turn to BPS Providers

At Equifax Workforce Solutions Forum 2015, the Affordable Care Act (ACA) was one of the main topics of discussion. And it’s no wonder why: ACA is now in effect, and many U.S. corporations and individuals are still not ready, despite the act’s effective date being delayed from January 2014 to January 2015.

The Congressional Budget Office estimates that employer-shared ACA responsibility penalties will produce revenue of $8bn in 2016 (from 2015 penalties). This may sound surprising because ACA was signed into law in March 2010 with a clear employer mandate: companies with 50 or more FTEs are expected to offer healthcare benefits to at least 95% of their FTEs or pay a penalty.

To be ready, companies have been scrambling to determine if they are required to conform, who is eligible, and if they will indeed offer benefits to all those who are eligible. Perhaps unsurprisingly, with the law running to ~2,400 pages, this process is far from straightforward. Here are a few key determinants (without all the details) of which businesses should provide coverage for their employees:

  • For businesses with less than 50 full-time equivalent employees (FTEs), offering health insurance to employees is optional – there are no penalties
  • Companies with 50 or more FTEs may be penalized if they do not offer coverage to at least 95% of its FTEs or if they offer coverage that doesn’t meet the ACA’s requirements. The penalty, or Employer Shared Responsibility (ESR) payment, is $2,000 per employee
  • The law requires businesses to offer coverage only to those employees who work 30 hours per week or more (as defined by statute, a full-time employee is an individual employed on average at least 30 hours of service per week). An employer that meets the 50 FTE threshold is referred to as an applicable large employer (ALE)
  • To be subject to the ESR provisions for a calendar year, an employer must have employed during the previous calendar year at least 50 full-time employees or a combination of full-time and part-time employees that totals at least 50. Seasonal workers are also taken into account in determining the number of full-time employees 
  • The individual mandate under ACA went into effect January 2014 with a penalty of $95 or 1% of income, whichever is greater, for an individual who chooses not to elect coverage. In 2015 the penalty becomes the greater of either 2% of earnings or $325 for an individual ($162.50 for children under 18) and up to $975 per family. It will be included in the individual/family tax filing; penalties will continue to increase over the coming years.

Clearly, employers face significant challenges and have many decisions to make regarding ACA. Some have tried to avoid the ACA mandate by reducing employee hours below an average of 30 hours per week to avoid offering healthcare. However, this is likely to be detrimental in terms of lower employee morale and loss of talent. And, further adding to the complexity, there will be instances where it is cheaper for employees to purchase healthcare through an exchange with subsidies than to take healthcare insurance offered by their employer (currently there are ~12m employees in exchanges and ~8m have qualified for subsidies).

Given the complexity of ACA, we can expect to see an increase in employers seeking help from third party providers such as Equifax Workforce Solutions, who can assist with the entire ACA process, including understanding the regulations, determining eligibility, and ACA IRS reporting.

Equifax’s ACA platform provides employers with capabilities including:

  • Measuring and tracking ACA eligibility
  • Deciding to "pay or play"
  • Communicating eligibility status with automated reports and notifying stakeholders of potential changes in eligibility status
  • Reporting to the IRS
  • Updating of calculations, models, and reports as new provisions are rolled out.

Equifax’s ACA platform covers ~8.3m employees. Client size ranges from 700 employees to 300,000; Equifax’s sweet spot is companies with 7,500 – 40,000 employees, though it has ~20 clients with <2,500 employees.  

Other vendors helping employers include:

  • ADP, who in 2013 launched a healthcare reform website to inform employers about the ACA, including an interactive ACA compliance timeline (to track guidance, deadlines, changes and updates) and downloadable materials (infographics, webinars, and white papers). Also in 2013, ADP enhanced its PEO offering, TotalSource, to help small and midsized businesses manage compliance and avoid penalties with the ACA. In 2014 ADP launched a Health Compliance offering to help employers comply with ACA and avoid financial penalties
  • In 2013, Ceridian enhanced its Dayforce HCM platform for ACA compliance, specifically the Employer Shared Responsibility provision. In 2014 Ceridian added capabilities to ensure compliance with ACA including a single real-time system for ACA variable hour employee benefits eligibility calculations & enrollments.

To date, ~16m Americans have gained health coverage under ACA. But it is clear that many employers are still struggling to get to grips with their ACA responsibilities and processes, and to ensure that employee communications on the subject are clear and constructive throughout. Hence, third party providers can expect to have a significant role to play.

In a subsequent blog I will look at the state and federal exchanges that will make subsidies available to employees who apply and qualify. 

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