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Thursday, January 16, 2014

My Opinion: Plan Now to Discontinue Executive Benefits Next Renewal

Part of my first-year's learning in Senior Living has been discovering that some communities, even with small workforces, have special benefits for their management teams.  This will become problematic and potentially cause employers to pay penalties once the Affordable Care Act is fully implemented.  Since most plans are based upon the calendar year and have renewed for 2014 now is the time to plan and communicate a discontinuation of those plan options. The regulations have not yet been written and so implementation is delayed: this gives employers time to eliminate those plans for 2015.

Section 2716 of the Affordable Care Act prohibits discrimination based upon salary in the provision of benefits under a pre-tax benefits plan. In layman's terms, your highly compensated management cannot receive better benefits than the rest of your employees and your plan still enjoy pre-tax status.  For the definition of "highly compensated employee" the government could have used a simple definition ($115,000 for 2014) but of course, why do something simple regarding the ACA? 

Instead of the simple definition the Act uses the test included in Section 105(h)(5) of the Internal Revenue Code.  Under this test an employee is "highly compensated" if any of the three criteria below are met:
  1. The employee is one of the five highest paid officers in the company.
  2. The employee is a shareholder who owns more than 10% of the employer's stock.
  3. The employee is among the highest paid 25% of employees.
In small workforces virtually all the management team will be included in #3 above.  In privately held "mom and pop" communities where the Executive Director has equity, it is possible to meet #2.  In privately held communities where the owner or spouse are employed they may meet all three criteria.

While this test applies primarily to self-insured plans, the news for fully insured plans is worse.  Those tests have not ye tbeen issued but will include a formula to account for part-time employees.  Remember, the Employer Mandate penalties under ACA were delayed for this year because the definition of an eligible part-time employee has not yet been settled.  Employers with fully-insured plans who want to keep an executive tier of coverage therefore have no way of knowing if their plan will pass or be determined as discriminatory.

If you already have a separate Executive Plan that is grandfathered in you may keep it.  However if you simply have one plan and give your executive team better pricing or benefits your plan will probably not pass testing under Section 2716.  Your best course of action is to communicate this now and give your management team time to adjust to the loss of benefits.  Since this change will save the employer money, you may also want to consider repurposing those savings into increased salary or paid time off (both still unregulated) as compensation for lost benefits.

Wednesday, January 01, 2014

Wait Just a Minute: the Affordable Care Act May Work

The withering criticism of the Affordable Care Act ("Obamacare") has led many to believe that it is a disaster, that it will never work, etc...  If you only watch conservative television or listen to conservative talk radio and politicians then you might be convinced of this "fact".  Best to hang on for a moment.

One of the criticisms is that "nobody is signing up" as often-reported on Fox News which is omnipresent in the YMCA where I work out.  Early in the enrollment process there were daily reports of "single digit" enrollments in some states.  This was due to the HHS software being as bad at reporting as it was at enrolling.

The software bugs are being fixed and enrollments are happening, and this week no more conservative voice than The Washington Post reports that HHS may actually meet their first enrollment goal of 7 million enrollees for 2014.  If that target is attained, given the large amount of negative publicity, the daily rants from conservative media, the software debacle and a Republican campaign last fall to discourage enrollment by uninsured Americans, it will be a significant accomplishment.

Personally I have seen two anecdotal situations that affirm this forward momentum.  I have a family member who was unable to afford coverage for himself and his wife because of her preexisting conditions.  Last month they secured subsidized coverage for the two of them for $120/month.  The first month of Exchange enrollment I had a friend, a small-market realtor, who looked on line and complained to me that single coverage for her would be over $600/month.  After working through the repaired website and getting to the subsidy calculations, she secured free coverage for a bronze plan.

Time will tell what full implementation of the ACA brings.  Right now it is still a political football with supporters looking past every flaw and detractors ignoring every success.  Looking at it impartially (although I am on record as supporting universal, non-employer-sponsored coverage) the program has a fighting chance to overcome Kathleen Sebelius' incompetence and the Republican opposition machine.  It will certainly have unintended consequences: all changes of this magnitude do. The ultimate question will be 2-3 years down the road when we attain full implementation, see the consequences both intended and unintended, and judge for ourselves if this was or was not a societal step forward.