Employers need to be aware that decisions they are making now about the size and make-up of their workforce will affect whether they exceed the 50 employee threshold that triggers the "pay or play" penalty in the Affordable Care Act. This presentation will focus on strategies for avoiding or minimizing exposure to the penalties under the Act.

1. Employers on the Edge:
Strategies for Dealing with
the Affordable Care Act
J. Kevin West
April 9, 2013
Salt Lake City
25th ANNUAL EMPLOYMENT LAW SEMINAR
parsonsbehle.com

2.  Patient Protection and Affordable Health
Care Act of 2010
 Also known as:
– PPACA
– ACA
– Obamacare
ACA BASICS
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3.  Timeline for rollout of ACA provisions:
ACA BASICS
Date Action
09/23/10 IRS non-discrimination rules extended to fully insured plans
12/31/11 Medical loss ratio refunds take effect
08/01/12 Preventative services for women required
09/23/12 Summary of benefits must be issued to plan participants
01/01/13 Employers must report cost of health plan coverage on form W-2.
Flex plan contributions limited to $2,500
03/01/13 Employees must be notified of state insurance exchanges
2014 Plans must eliminate adult pre-existing condition exclusions
Penalty of $2,000 per f/t employee not covered by the employer’s health plan
Employers must provide “affordable coverage” or pay a fine of $3,00 per employee
Increased Medicare tax on high wage earners
Limitation upon waiting periods of longer than 90 days
Mandatory coverage for clinical trials for life-threatening illnesses
Expansion of wellness incentives for health plans
Caps on out-of-pocket maximums for health benefits for essential benefits
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4.  The “individual” mandate
 The employer mandate
– Aka “shared responsibility” rules
– “Play or pay” rules
Mandates (and Womandates)
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5.  “Larger employers” who fail to provide
affordable health insurance coverage to
their employees will be penalized
Play or Pay: Basic Concept
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6. A. When are the rules effective?
January 1, 2014
(but stay tuned, because what you do in 2013 may
affect whether P or P hits your company)
Play or Pay: ABC’s of ACA
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7. B. Does “Pay or Play” apply to my company
(i.e., am I a “large employer”)?
 An average of 50 or more f/t employees
during the preceding calendar year
Play or Pay: ABC’s of ACA
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8. 5 Step Analysis:
Am I A “Large Employer”?
Step 1:
Step 2:
 Include all “controlled” entities for head
count purposes
– 80% of entities owned by a common owner
 Count all “employees”
– leased employees not counted
– independent contractors not counted
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9.  Mischaracterization of independent
contractors can result in a double whammy:
– Employer withholding penalties
– ACA penalties
e.g., employer with 49 f/t employees and 3
misclassified “independent contractors” = serious
financial consequence
CAUTION !
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Step 3: Calculate the hours of service
 Hourly employees: actual hours
 Non-hourly employees: 3 options
1) actual hours of service
2) 8 hours for each day required to work
3) 40 hours for each week required to work

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Step 4: Calculate f/t employees and FTE’s in
each month
 Identify “full time” employees: average of 30
or more hours/week
 Count FTE’s: for all other
employees, count hours of service in the
month and divide by 120

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Example: hours worked in March 2013:
Bob 90 hours
John 30 hours
Mary 60 hours
Jane 60 hours
Total 240 hours
÷ 120
= 2 FTE’s

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Step 5: Add full time and FTE’s for each month in the
preceding calendar year, then divide by 12
Example:
Jan 40 Jul 55
Feb 46 Aug 55
Mar 52 Sept 56 = 634 ÷12 = 52.8
Apr 52 Oct 54
May 50 Nov 60 Congrats – you are
June 58 Dec 56 a “large” employer!

14. For 2014 only, employers may do their
calculation using a period of at least 6
consecutive calendar months in 2013
WARNING: July 1, 2013 is the deadline to “fix” your
workforce size for ACA play or pay purposes
Special Transition Rule:
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15.  “Seasonal” = worker who works on a seasonal basis
(hospitality workers, tourism, agriculture, etc.)
 If employer exceeds 50 full-time and FTE for 120
days/4 months during preceding calendar year, and
in excess of 50 employees during that period were
“seasonal”, the employer is not a “large” employer
Seasonal Employee Exception
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NOTE:
 An employer’s status is fixed as of January 1st
each year (based on prior year’s numbers)
 Dropping below 50 employees during the year
does not change status for that year

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C. Is my company’s health coverage
“affordable”?
 A large employer who offers health coverage
may still be penalized if coverage –
1) Does not provide “minimal essential coverage”
and
2) Is not “affordable”

18.  The plan’s share of the total allowed cost of
benefits is at least 60%
 IRS will be issuing guidance in the future
“Minimal Essential Coverage”
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“Affordable” = employee’s contribution toward
cost of coverage does not exceed 9.5% of the
employee’s household income for the year

20. 1) W-2 method – use W-2 wages for preceding
calendar year (retrospective)
2) Rate of pay method – use “computed” wage as
determined at beginning of year [if pay goes
up, lower amount controls] (prospective)
3) Federal Poverty Line method – if employee’s
contribution does not exceed 9.5% of Federal
Poverty line = affordable coverage
3 “Safe Harbor” Calculation Methods
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D. For large employers, who must be offered
health coverage?
 Coverage must be offered to “full-time”
employees
 “Full-time” = averages 30 or more hours per
week in a calendar month
 Another 5 step analysis (sorry!)

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Step 1: Decide if employee status will be
determined on a monthly basis or
using a “look-back” period
 If you choose monthly, the analysis ends
here; if not go on

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Step 2: Determine the look back period
 Must be at least 3 but not more than 12
calendar months (as chosen by employer)
 Different rules for ongoing vs. new
employees

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Step 3: Classify employees as “ongoing”
or “new”
 Different look-back rules apply to each
category
Step 4: Apply the look-back rules to ongoing
employees

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Step 5: Apply the look-back rules to –
 new employees
 variable hour employees
 seasonal employees
NOTE: Employers may gain more advantageous
treatment by implementing changes no later than
July 1, 2013

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E. Penalties for failure to comply – the pay in
“Play or Pay”
 Per Justice Roberts, it is an “excise tax” not
a penalty (yeah…right)
 Two types of excise taxes (aka penalties)

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1st type: $2,000 per full-time employee for failure
to offer coverage to at least 95% of full-
time employees (and their dependents)
 Penalty applies to the total non-covered full-time
employees minus 30
– FTE’s not used in calculation of the headcount for
penalty purposes
 At least one full-time employee must have sought
coverage from a health care exchange and received
a premium tax credit

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2nd type: Applies if employer offers coverage to
at least 95% of full-time employees
but coverage –
1) Does not provide “minimal value”
or
2) Is not “affordable”

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 $3,000 penalty per full-time employee who
received the premium tax credit
– OR –
 The amount of the penalty determined in the
1st type (above)
whichever is less

30.  “49’ers” – companies that try to stay below the
50 employee threshold
 “29’ers” – companies that try to keep employees
below the 29 hour threshold
49’er and 29’ers:
Strategies for Employers on the Edge
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31. Reduction in force:
reduce workforce headcount to below 50
Strategy 1: Reduce/Keep your
workforce below 50 full-time and FTE
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32. Example:
 Company X employees 54 full time workers
 It avoids ACA penalties by converting 10
workers to part-time (44 f/t + 5 FTE = 49)
 This must be done before July 1, 2013
Strategy 2: Convert full-time workers
to part-time to get below the 50 FT/FTE
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33. WARNING:
misclassification carries a heavy penalty
Strategy 3: Use independent
contractors, leased employees and
consultants
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34.  Employees form individual corporations; the
employer then contracts with the corporation
 Gimmicky and impractical, but theoretically
possible
Strategy 4: The “Protean” Approach
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35. Decide to pay instead of play
Strategy 5: Calculate the cost of
“paying” instead of “playing”
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36.  Small employer tax credit
 “Cadillac tax” penalty
Miscellaneous Issues
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37.  J. Kevin West
direct: (208) 562.4908
email: kwest@parsonsbehle.com
Thank You
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