The Health Care Reform bill will drastically effect how every small business operates when managing company benefits. This article brings attention to the major issues that employers need to know about, especially health care reform for small business ,and details specific services that many Professional Employer Organizations (PEO) are rolling out in order to keep their clients compliant and ahead of the curve.
Health Care Reform For Small Business – PEOs to the Rescue
Professional Employer Organizations offer a one-stop solution for companies averaging 5 to 100 employees. They provide HR consulting, employee benefits, payroll, workers comp insurance, and many other employer-related services. As more regulations are created, and managing them becomes more difficult for employers, the PEO value proposition become more attractive.
Small business tax credit – This tax credit is applicable for businesses with less than 25 full-time employees with an average wage below $50,000. The maximum credit equals 35 percent of the employer’s contribution to health insurance premiums, but it is unlikely the maximum credit will be applied. Calculating exactly what an employer qualifies for is an extremely sensitive process.
How PEOs help: PEOs proactively consider whether their clients qualify for the credit and pass the total amount directly to the client. Since most PEOs manage their clients’ payroll and insurance plans, calculating the credit amount is much easier.
W-2 provision – Employers must report the aggregate cost of employer-provided coverage on employees’ W-2s for informational purposes.
How PEOs help: PEOs manage all aspects of their clients–payroll and benefits–so complying with this provision is synergistically efficient. The amount will be shown on all PEO work-site employees’ paychecks.
Wellness Grants are available for businesses with fewer than 100 employees to assist in implementing employee wellness programs. There is $200 million dollars that will be distributed over a five year period.
How PEOs help: Since many PEOs partially self-insure their health insurance policies, they have always had a vested interest in proving their clients’ employees easy access to wellness programs. Most PEOs have long offered robust wellness programs that help employees live healthier lives, and consequently, make less medical claims – which is cheaper for everyone.
FSA limits – all employee contributions to the FSA or Flexible Spending Account are limited to $2,500 per year. The penalty for using Flexible Spending Accounts incorrectly will be an increase from 10 percent to 20 percent.
How PEOs help: PEOs manage all aspects of FSA administration for their clients – all FSA offered to client employees will be adjusted seamlessly to comply with this provision.
Tax increases – Medicare payroll tax increase of 0.9% on self-employed individuals and employees with respect to earnings and wages received during the year above $200,000 for individuals above $250,000 for joint filers will go into effect. The new tax does not change the employer’s tax obligations, but self-employed individuals are not permitted to deduct any portion of the additional tax. In addition, there will be a new 3.8% Medicare contribution on certain unearned income from individuals with AGI over $200,000 ($250,000 for joint filers).
How PEOs help: Professional Employer Organizations are responsible for deducting and filing all payroll taxes to the appropriate governing body. Unlike a payroll service, PEOs are often responsible and liable for calculating and deducting the proper amounts.
Notices & Fines
1. Plan sponsors must supply participants at enrollment or re-enrollment a new form of plan summary that must include information on benefits, exclusions, and cost-sharing requirements. Those that do not comply with this provision are subject to a noncompliance fee of $1,000 for each failure.
2. Employers must provide a written notice regarding the existence of the Insurance Exchange and that the employee might qualify for subsidies by March 1, 2013.
3. Plan sponsors will be required to provide an annual statement to the government and covered individuals reflecting the months during the calendar year for which the individual had “minimum essential coverage”. Those that do not comply with this are subject to a noncompliance penalty of $50 for each missed statement to an employee up to a maximum of $100,000.
How PEOs help: PEOs are often the plan sponsor for all their clients’ healthcare, unless they “carve out” benefits, which would mean they are not the plan sponsor, and the client maintains their own health insurance. Should a client be receiving healthcare through a PEO sponsored plan, each of these mandates falls squarely on the shoulders of the PEO. Notice the trend–due to co-employment, many of the additional requirements put forth by health care reform for small business are burdens for the PEO.
State-based insurance exchanges open – State-based insurance exchanges are planned to pool employers together into one large group much like PEOs have done for years in order to reduce overall premiums. However, the exchange program has been attempted in other states and has not had the same success that PEOs have had. As with many public programs, cost-efficiency and timely service is inferior to that offered by private entities. We don’t foresee this principle changing.
How PEOs help: PEOs have long pooled employers together for cooperative purchases of many items including health insurance, the result is lower cost. There is one key component to a PEO’s pool that will make it far cheaper and more efficient than a public pool of employers – choice versus the lack that health care reform for small business offers. PEOs have the ability to select which companies they bring into their pool, and have a natural propensity to decline less healthy groups, or provide them with a higher tiered price that reflects their risk. It is doubtful that the public pool will have the choice as to who comes into their pool. Much like a community-rated health plan, the burden of the sick will be paid for by the healthy, and just like community-rated plans, they will be more expensive overall. I knew I didn’t like public pools.
Mandated Coverage – Companies with 50 or more full-time workers will be required to either provide “qualified” health coverage or pay a $2000 fine for each employee.
Free rider surcharge coincides with mandated coverage and is applicable for businesses with an average of 50 or more full time employees. There are three major components:
1. The plan design is expected to pay at least 60% of allowed charges.
2. Employee contribution must not exceed 9.8% of the employee’s household income.
3. Voucher Requirement if the employee contribution is more than 8% and the employee’s household income is less than or equal to 400% of the Federal Poverty Level.
How PEOs help: Most PEO plans have long offered 60% cost sharing in even their weakest plans. Employee contribution strategies are something PEOs consult with their clients about each year to meet company goals while still complying with ERISA. This provision will make things a bit more complicated to deal with; however, PEOs will be ready for it, and will consult their clients towards a compliant strategy.
Auto enrollment for employers with 200 employees or more – This provision states that employers must automatically enroll new full-time employees in its health plan. Employees may opt out.
How PEOs help: Most PEOs utilize internally, and also offer access to a Human Resources Information System (HRIS) to enjoy the benefits of technology when managing employees. Automatically enrolling employees in the cheapest plan available is very easily done.