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Health Care Reform's Shared Responsibility Provision
2016 guidance on “Pay or Play”CONVERTING PENALTIES INTO PREMIUMS
Legal disclaimer: This presentation is for informational purposes only. Readers should consult a CPA, Tax Advisor or other advisors for counseling specific to their situation
Prepared by:Manny Manso, RHU, ChHC, CDHC
PAY OR PLAY
Prepared by: Manny Manso, RHU, ChHC, CDHC
The decision to pay the penalty and drop benefitsmay or may not be the right choice
There are several consequences that many haveoverlooked where the temptation to take the easyway out and pay the penalty may have much deeperfinancial consequences to an employer
PAY OR PLAY
Yes or No?
Prepared by: Manny Manso, RHU, ChHC, CDHC
And if an employer decides to continue to providebenefits, there could still be penalties that can beavoided with strategic solutions
Yes or No?
Do you fully understand the consequences and ways to craft the right model and avoid
paying any type of penalty?
PAY OR PLAY
Prepared by: Manny Manso, RHU, ChHC, CDHC
Must offer actuarial or minimum value to at least 95% offull‐time employees
Employer Shared Responsibility Violations Subject to Penalties
Must offer affordable coverage as measured by theemployees’ share of the premium contribution to no more9.5% “hard‐wired” of the employees’ wages (9.56%)
The affordability test applies to the lowest‐cost optionavailable to the employee
PAY OR PLAY
Prepared by: Manny Manso, RHU, ChHC, CDHC
No‐Offer Pay or Play Penalty
$2,000 times the number of full time employees(minus 30 FTEs) *
FTE defined as working 30 or more hours per week
No part‐time employee coverage requirement
* Only one subsidy will trigger penalty for all FTEs minus allowable reductions for that year
NO OFFER PENALTY
Prepared by: Manny Manso, RHU, ChHC, CDHC
UNAFFODABLE PENALTY
Unaffordable Pay or Play Penalty
$3,000 for each full‐time employee who enrolls inexchange and receives subsidy if employee’scontribution for single coverage under employer planexceeds 9.5% of his or her W‐2 income and/or ifminimum actuarial value of benefit program is below60%
Prepared by: Manny Manso, RHU, ChHC, CDHC
Manufacturing firm with 185 full‐time enrolled employees
Marginal corporate tax rate of 35%
Payroll tax rate (FICA, FUTA, SUTA, other) of 13%
XYZ COMPANY DEMOGRAHPICS
Wage of lowest paid employee is $17,000 a year
THESE WILL BE IMPORTANT FACTORS AS WE MOVE ALONG
EXAMPLE
25 employees in waiting period, waiving, declining benefits or not participating
160 employees enrolled in health plan
Prepared by: Manny Manso, RHU, ChHC, CDHC
ONE BENEFIT OFFERING
EMPLOYER CONTRIBUTES 50% OF EMPLOYEE ONLY
XYZ COMPANY
$150 monthly contribution supports anyone making $18,947.37 or more$18,947.37 / 12 = $1,578.95 X 9.5% = $150.00 monthly premium
Consequently, premium is unaffordable for 14 employees making between $17,000, the wage of lowest paid employee and $18,947.37
HOW MANY EMPLOYEES ARE EARNING LESS THAN $18.947.37? (LET’S ASSUME 14)
Prepared by: Manny Manso, RHU, ChHC, CDHC
XYZ COMPANY
THE BIG QUESTION
SHOULD XYS CONTINUE TO OFFER BENEFITS
OR
SHOULD XYZ PAY THE NO‐OFFER PENALTY
Prepared by: Manny Manso, RHU, ChHC, CDHC
XYZ COMPANY
WHAT IS THE NET RESULT IF XYZ PAYS THE PENALTY AND STOPS OFFERING BENEFITS?XYZ Company with 160 FT employees enrolled and 25 FT
employees in the waiting period, waiving or declining benefits *Total number of employees enrolled, in the
waiting period, waiving or declining benefits:
Number of allowable exceptions:
Number of employees subject to penalty:
Annual penalty per full‐time employee:
185
30
155
$2,000Total annual penalty for dropping coverage: $310,000 **
* Part‐timers used for FTE count, but coverage not mandate if less than a 30 hour workweek** Full amount payable if one employee applies and qualifies for exchange subsidies
Prepared by: Manny Manso, RHU, ChHC, CDHC
XYZ COMPANY
WHAT IS THE SAVINGS IF XYZ PAYS THE PENALTY AND STOPS OFFERING BENEFITS?Current employee only monthly premium:
Employer contribution:
Employer monthly contribution:
Number of employees currently enrolled:
$300.00
50%$150.00
160
Current employer annual contributions: $288,000
Total annual penalty for dropping coverage:
Initial result of dropping coverage:
$310,000
$22,000 savings
SIMPLE CALCULATION, BUT LET’S LOOK CLOSER
Prepared by: Manny Manso, RHU, ChHC, CDHC
XYZ COMPANY
WHAT IS THE INCREASE IN CORPORATE TAXES IF XYS STOPS OFFERING BENEFITS?
Current employer annual contributions:
Marginal tax rate:
Forfeited annual premium business deduction:
$288,000
35%
$100,800
Prepared by: Manny Manso, RHU, ChHC, CDHC
XYZ COMPANY
WHAT IS THE INCREASE IN PAYROLL TAXES IF XYS STOPS OFFERING BENEFITS?
Current employee annual pre‐tax contributions:
Payroll tax rate (FICA, FUTA, SUTA, other):
Forfeited annual employee pre‐tax payroll savings:
$486,000 *
13%
$63,180
Prepared by: Manny Manso, RHU, ChHC, CDHC
* Employee pre‐tax contributions include employee only plus other tiers
XYZ COMPANY
WHAT IS THE POST‐TAX COST OF THE PENALTY IF XYS STOPS OFFERING BENEFITS?
$310,000
35%
$108,500
Prepared by: Manny Manso, RHU, ChHC, CDHC
Total annual penalty for dropping coverage:
Marginal tax rate:
After tax cost of penalty:
After‐tax and actual cost of penalty: $418,500
XYZ COMPANY
WHAT IS THE NET RESULT IF XYS PAYS THE PENALTY AND STOPS OFFERING BENEFITS?
COST TO XYZ:
$418,500
$288,000
$294,480 *
Total financial impact of not offering benefits: $582,480
Expected savings from stopping current employer annual contributions:
Forfeited employer annual premium business deduction: $100,800
Forfeited annual employee pre‐tax payroll savings: $63,180
Annual potential net cost of penalty:
Prepared by: Manny Manso, RHU, ChHC, CDHC
* TURNOVER: SHRM statistics show average turnover cost of $7,123 per employee (higher in technical fields)
XYZ COMPANY
THE NEXT ISSUE TO REVIEW IS AFFORDABILITY
10.59%
$150.00Employee monthly contribution to single plan:
Employee contribution as a percentage of wages:
Monthly wage of lowest paid employee: $1,416.66 ($17,000/12)
Offer affordable coverage as measuredby the employee’s share of the premiumcontribution can be no more 9.5% of theemployees’ wages
Prepared by: Manny Manso, RHU, ChHC, CDHC
XYZ COMPANY
#1 SOLUTION TO AFFORDABILITYINCREASE EMPLOYER CONTRIBUTIONS
Maximum contribution threshold:
Monthly wage of lowest paid employee:
Maximum employee can contribute:
$1,416.66
9.5%
$134.58
Employee monthly contribution to single plan: $150.00
Employer monthly contribution to single plan: $150.00
Excess employee monthly contribution: $15.42
New employer monthly contribution adding $15.42 to reduce employee contribution to $134.58:
$165.42
Prepared by: Manny Manso, RHU, ChHC, CDHC
XYZ COMPANY
WHAT IS THE FINANCIAL LIABILITY?
#1 SOLUTION TO AFFORDABILITYINCREASE EMPLOYER CONTRIBUTIONS
Prepared by: Manny Manso, RHU, ChHC, CDHC
$165.42
XYZ COMPANY
WHAT IS THE FINANCIAL LIABILITY?
#2 SOLUTION TO AFFORDABILITYINCREASE EMPLOYEE(S) ANNUAL WAGES
Prepared by: Manny Manso, RHU, ChHC, CDHC
** Increased wages may be less for those earning above the wage of lowest paid full‐time employee and wage required to meet 9.5% thresholds
XYZ COMPANY
#3 RESOLUTION TO AFFORDABILITYPAY THE UNAFFORDABLE PENALTIES
WHAT IS THE FINANCIAL LIABILITY?
PREMIUMS:$79,225 ? WAGES: $27,272 ?PENALTY:$56.700 ?
Prepared by: Manny Manso, RHU, ChHC, CDHC
XYZ COMPANY ‐ OFFERING
CONVERTING PENALTY INTO PREMIUMS
THIS IS A MONTHLY AMOUNT AN EMPLOYER CAN ALLOCATE TOWARDS A BENEFIT PROGRAM INSTEAD OF PAYING THE $3,000 UNAFFORDABLE PENALTY WITH AFFORDABLE EMPLOYEE CONTRIBUTIONS BASED ON
CURRENT LOWEST PAID EMPLOYEE
Employer Contribution Projection Instead of Paying Unaffordable Penalty
Prepared by: Manny Manso, RHU, ChHC, CDHC
XYZ COMPANY ‐ OFFERING
CONVERTING PENALTY INTO PREMIUMS
THIS IS A MONTHLY AMOUNT AN EMPLOYER CAN ALLOCATE TOWARDS A BENEFIT PROGRAM INSTEAD OF PAYING THE $2,000 PENALTY BY NOT OFFERING ANY BENEFITS
Employer Contribution Projection Instead of Paying No‐offer Penalty
Prepared by: Manny Manso, RHU, ChHC, CDHC
XYZ COMPANY ‐ OFFERING
CONVERTING PENALTY INTO PREMIUMS
ADDITIONAL SAVINGS FROM EVERY EMPLOYEE
PARTICIPATING WITH PRE‐TAX CONTRIBUTIONS FOR DEPENDENT COVERAGE
Projecting Total Premium Cost Based on Participation to No‐offer Total Penalty
Prepared by: Manny Manso, RHU, ChHC, CDHC
STRATEGIES TO STAY OUT OF THE “PENALTY BOX”
Prepared by: Manny Manso, RHU, ChHC, CDHC
Manny Manso, RHU, ChHC, CDHC813‐786‐9843