Restaurateurs Unintended Consequences of the ACA

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1 Restaurateurs Unintended Consequences of the ACA The Public Exchanges, Private Exchanges, and Restaurant Employees December 2013 Lockton Companies With the delay of the employer health insurance mandate announced in early July 2013, most in the restaurant industry celebrated with a sigh of relief or started jumping for joy. The party lasted for a few days as the industry grappled with the impact of the delay on the plan s adjustments, eligibility changes, employee contribution discussions, and the compliance and reporting requirements soon to be thrust upon us. Most pushed the pause button on implementation and are enjoying the extra time to plan for the January 2015 implementation and are hoping that many of the ongoing questions will be cleared in the next 13 months. With the daily news briefings, the struggling Healthcare.gov website rollout and the political climate, it was easy for stress to rebuild and that overwhelmed feeling to creep back into the process. Many have questions about the next steps and how to best prepare for the 2015 employer mandate. MICHAEL KAHLEY Senior Vice President Lockton Dunning Benefits mkahley@lockton.com ABOUT LOCKTON Lockton Companies ranks as the world s largest privately owned, independent insurance brokerage firm, providing risk management, insurance, and employee benefit solutions to restaurant organizations across the globe. Our foodservice experts have considerable experience in servicing clients in quick-service, casual dining, and upscale segments and understand the day-to-day challenges that restaurant companies encounter. Since our founding, Lockton has remained committed to the restaurant industry and continues to monitor ongoing trends and issues that impact your business, both financially and operationally. We pride ourselves in providing leading-edge products and services that enable you to make informed decisions and run your business effectively. It is that commitment that allows us to do what we do best: help make our clients businesses better. We think the following five steps will help you better understand how to reset your planning process and comprehend the effect of recent changes on your employer requirements in L O C K T O N C O M P A N I E S

2 1 Begin communicating with your employees about their options in the marketplace. Exchanges Television, newspapers, and community organizations are all avenues where your employees, both those currently insured and those who may be eligible for your plan in 2015, are hearing about the possible solutions available to them on the public health insurance exchanges. Employees evaluating those options are likely to find a complicated process as the healthcare.gov website combines the availability of plan options, potential subsidies, and the integration of several federal databases to coordinate enrollment. During the process, your employees could find frustration when they are asked to complete information from the October 1, 2013, exchange notification to help qualify their eligibility for subsidy. Determine how many variable hour employees are seriously considering coverage on the public exchange. Consider individual private exchange options... employers are exposed to no cost in these exchanges. The October 1, 2013, exchange notification was designed to provide ample notice to your employees about the employer s intent to promote both qualifying and affordable coverage and better define who might be eligible for the employer-based coverage. That s the easy part that most of you accomplished. The notice template also left room for an optional section called the Employer Coverage Tool that many employers chose not to complete. The Employer Coverage Tool needs to be provided for each employee who requests one. This tool gives employees the information needed in order to qualify for a subsidy. While this tool may seem like a new burden simply addressed with providing a copy of the completed form, employers should seize on this opportunity to track how many, and who, asks for a copy of the Employer Coverage Tool. Since this is required to receive a subsidy, employers can use the requests for the form as an indication of just how many variable-hour employees are seriously considering coverage on the public exchange. Additionally, employers should consider individual private exchange options available to help employees get access to better networks, public subsidies, and more plan options that are available on the public exchanges. Employers are exposed to no cost in these exchanges, and employees stand to gain considerably better benefit plans in the process. Why Communicate Exchanges To Your Employees Your communication strategy should allow you to better understand employee buying habits, and the confusion in the marketplace gives employers a chance to show the value they have for quality employees by educating their employees to the options available in the marketplace. 2

3 December 2013 Lockton Companies 2 Establish the measurement period for your variable-hour employees and begin monitoring labor trends immediately. Understanding the difference between full-time employees and their variable-hour compatriots is the key to managing the health reform liability each organization faces in For those employees hired with the expectation that they will work in excess of 30 hours per week (or 130 hours per month), qualifying and affordable benefits must be extended within 90 calendar days of their date of hire or change in class where the hours expectation is met. As full-time employees, this isn t necessarily news since most employers provide coverage to administrators, managers, and shift leaders where this expectation is most commonly applied. Variable-Hour Employees The real concern is for employees for whom there is no immediate expectation of working in excess of 30 hours per week (or 130 hours per month). These are termed variable-hour employees, and regulatory guidance provides that employers may evaluate the hours worked within this class over a period of no more than 12 months, while allowing for the completion of a calendar month for administrative purposes. So, employers can watch variablehour employees over a 12-month timeframe to see if their average hours worked falls above or below the statutory 30-hour-per-week requirement for extending coverage. When an employee is determined to work the requisite hours throughout the measurement period, they qualify to continue their coverage, subject to paying their portion of the premium and remaining an active employee, for a timeframe equal to the measurement period. This is called the stability period. Why Measure Employees Hours Employers should consider how to measure employees now since the employees on the payroll today are the ones who may ultimately be eligible beginning in Delays to establishing the measurement process increases the risk that more employees will meet the requirements and therefore, increase the cost of compliance for employers. If an employer utilizes the measurement period for 12 months, then the employee can stay on the plan for 12 months, even if his or her hours dip below the 30-hour average in the following year. Armed with this tool and looking out to January 2015, employers should consider how best to measure their employees hours in The averaging takes a look at the hours worked over the entire 12-month process, so proper management of the hours should be able to control the labor pool to give the most productive employees the hours and prevent anyone from just squeaking by at an average of 31 hours. Control the labor pool to give the most productive employees the hours and prevent anyone from just squeaking by. 3

4 3 Model the increased costs of providing the coverage along with the increased expenses of managing the new responsibilities under ACA. Costs of Compliance and Health Insurance Once you have evaluated the measurement period and its impact on the potential eligible population, modeling the costs of compliance and the provision of qualifying and affordable health insurance becomes possible. A typical quick-service restaurant can expect between two and four additional eligible employees to participate per store at an average tax-adjusted employer cost of approximately $2,500 per employee per year. Given the $2,500 employer premium obligation estimate and the usual turnover in the restaurant industry, providing access to insurance tends to be the least expensive option for most employers. Consideration should also be given to who actually qualifies for access to the insurance. If a variable-hour employee has to work at least 12 consecutive months at an average of 30 hours per week or more to get access to employer-provided coverage, then the employer should consider what plans and contributions should provide the best benefits for long-term, valuable team members. Restaurant employers consistently struggle to find quality, long-term employees and the consistent employment experience that comes with them. Training efforts, customer familiarity, and a consistent service delivery tend to multiply the value of the hours these employees work. In a sense, providing qualifying and affordable coverage to these employees is a significant effort in employee retention and managing other soft costs tied to turnover. For that reason, employers should consider what benefits and premiums employees are exposed to in the public exchange (where most will find access to coverage while in their measurement period) to avoid any unintended consequences of benefit eligibility. Let s take a hypothetical employee, Kayla, as an example of the potential transitional impact of an employer s plan provision to highlight the problems and opportunities involved in your plan offerings. 4

5 December 2013 Lockton Companies Meet Kayla 24 years old, married, mom Husband, contractor/student Server Earns $16,560 ($11.50, 120 hours/month) Spends $176 per month in exchange ($1.47 per hour) Covers entire household $400 deductible, 80% coinsurance, $20 office co-pay, $2,500 out-of-pocket $400 deductible, 80% coinsurance, $20 office copay, $2,500 out-of-pocket Net pay: $10.03 per hour If we carefully evaluate Kayla s circumstances while she is in the measurement period, we can see that she and her family are eligible for great coverage at a reasonable premium in the public exchange. For $176, her family gets a low out-of-pocket plan. Problems arrive when Kayla gets promoted to shift leader, which is a full time position. With her promotion, she must be provided access to the employer s qualifying 60 percent actuarial-valued plan, where the employer asks her to pay $90.00 per month to participate for KAYLA PROMOTED TO SHIFT LEADER Earns $23,490 ($14.50, 135 hours/month) Spends $740 per month in employer plan Covers entire household, $2,000 deductible, 60% coinsurance, $25 office co-pay, $5,500 out-of-pocket Net pay: $8.26 per hour employee-only coverage. Because Kayla also needs to provide coverage for her spouse and children, she is required to pay $740 per month to add her dependents. This plan and contribution philosophy meets the guidelines provided within the ACA for employers, but it also disqualifies Kayla from receiving the federal subsidies on the public exchange, where she had coverage before her promotion. So, in order for her to maintain the less expensive, better coverage from the public exchange, Kayla has to quit her job. This doesn t serve Kayla through job security or stability, and it doesn t serve the employer either. For this reason, employers should consider the plans and costs employees are exposed to on the public exchange to better manage the expectations of their valuable, long-term employees. Employers should consider plans and costs employees are exposed to the public exchange to manage expectations of their valuable, long-term employees. 5

6 Why Model Plans and Contributions Modeling different plans and contributions based on Kayla s reality is an important step in managing the unintended consequences of an employer s ACA compliance strategy. Additionally, until an employer comes to understand how the ACA will serve the employer and it s valuable, long-term employees the employer will probably not be able to communicate its intentions well and deliver a positive message to internal and external constituents. 4 Consider communication, managing eligibility, maximizing the enrollment process, and collecting necessary data for government reporting to be part of the same process. Upcoming Regulations In early September 2013, the IRS issued proposed regulations regarding the significant reporting obligations insurers and employers must meet under the ACA, for 2015 and later years. The reporting will enable the IRS to identify which individuals and employers are complying with the law s individual and employer mandates, respectively, and to verify the legitimacy of the premium subsidies supplied to individuals purchasing coverage in the public health insurance exchanges, or marketplaces. With regard to the employer mandate, employers subject to the mandate must make calendar year-end filings with the IRS indicating: Whether they offered at least bare-bones coverage (minimum essential coverage) to full-time employees and children. The months during the calendar year for which coverage was available. Each full-time employee s share (by calendar month) of the lowest cost coverage option (employee-only tier). The report must also include the identity and, for each calendar month, the number of full-time employees, as well as the months during which they had coverage. Open Enrollment Your open enrollment process is an important place to begin capturing the data that employers will need to comply with these reporting requirements. Employers need demographic data not only for the employees and dependents on the plan, but also those employees and dependents that waive their coverage. Employers need demographic data not only for the employees and dependents on the plan, but also those employees and dependents that waive their coverage. With the additional concern that many of these newly eligible employees have not had coverage before, how the plan options, costs, and enrollment process are communicated will likely have to be very different from the historical paper and enrollment meeting process. 6

7 December 2013 Lockton Companies Why Prepare in 2014 Employees will need tools to help them determine what coverage is best for them and not just how the plans pay for certain ailments or accidents. Potential enrollees will need to see the taxable effect of their elections on take-home pay in order to better understand the impact of their choices. And, employers will need a consistent way to deliver the enrollment message and communicate the employee selections to the appropriate insurance carrier partners. How an employer is viewed by its employees for the solutions it offers for the ACA will be measured in how effectively it communicates its intentions and the delivery of the promises made in the process. 5 Consider the changing marketplace for your ACA strategy. When exchange options have been discussed, ACA costs modeled, plan designs and contributions determined, and systems identified, employers are then well equipped to evaluate the best carrier partners to implement their strategy. Historically, employers have asked insurance carriers to bid on a replica of the benefits provided in the previous plan year. The complexities of a newly eligible population and the necessary interaction of the insurance marketplace with technology have created a change in the most effective way to source the insurance for ACA solutions employers want to roll out to their employees. Considering participation requirements, lack of credible claims experience on a currently uninsured population and the addition of benefit plan designs to the conversation, it is imperative that employers dictate specifically what they are looking for from the insurance marketplace. Most of these partners have not been at the table during the formation of your strategy, so direct requests to insurance carriers and potential outsourcing vendors who can meet program requirements and work through the unique challenges facing the restaurant industry are imperative. It is imperative that employers dictate what they are looking for specifically from the insurance marketplace. Take Time Now The five considerations above will not produce a good strategy on their own. Time and frank discussion about employer objectives and impact on restaurant operations will be important to making all of this work in harmony. It takes time, it takes a willingness to tackle some tough questions, and it takes a commitment to not doing things the way they have always been done. At Lockton, our hope is that employers will take advantage of the gift provided in the delay of the employer mandate to begin the process now. Why Consider Other Insurance Carriers and Outsourcing Partners Being armed with what you need from the marketplace and working with consultants who understand the changing landscape of restaurant employee benefits can help employers find the marriage of a well-thought-out strategy and a marketable insurance program. 7

8 Our Mission To be the worldwide value and service leader in insurance brokerage, employee benefits, and risk management Our Goal To be the best place to do business and to work Lockton, Inc. All rights reserved. Images 2013 Thinkstock. All rights reserved. g\whitepaper\kahley\2013\kahley_restauranteurs unintended consequences of the ACA_Dec13.indd