Minimize Healthcare Reform Penalties with Pay or Play Analysis
1. Pay or Play 2014
Minimizing healthcare reform tax penalties
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1
2. Large employer groups: 50+ employees
(Total hrs worked for all employees)/1560 = Total
employee equivalents
Ex: (124,800 hrs worked)/1560 = 80 employees
“Full Time” = 30+ hours a week
Expanded employer responsibility
Medical coverage to all full time employees
9.5% rule
2
Business Impacts of
Healthcare Reform
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3. 3
What do benefits cost?
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4. 4
Business Taxes and Penalties
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6. Pay or Play:
Where is the business currently?
What if we do nothing?
What are the options?
Increase benefits
Remove benefits
Change wages
Reduce hours/increase personnel
6
The Goal: Minimize Penalties
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7. 7
Health Care Reform Calculator Completed Sample B
Presented by: David Frazier & Associates, Inc.
This group offers relatively inexpensive coverage ($78/month) to most of its employees, but not all full time
employees. This practice (of offering coverage to some, but not all employees) is common in the retail, agriculture
and logistics fields. Because of the low expense of the plan, all employees would be paying less than 9.5% of their
annual wages towards single coverage. However, the government penalizes employers who do not provide health
care to substantially all of their full time employees very steeply. The possible options you can model here include:
1. Maintain the status quo, but incur the $642,000 in new penalties assessed by the federal government
(increasing costs by almost 60 percent).
2. Extend health care coverage to the 18 employees not currently receiving it, increasing total plan costs by about
$42,487 for single coverage, but removing $642,000 in fines. The $42,487 bump could be offset by a modest
increase in employee contributions as well.
3. Cut coverage completely, which would incur $642,000 in fines and eliminate a great retention and recruiting
tool. This is a great place for brokers to drive home why keeping coverage is a vital strategic choice for employers in
the medium and long-terms.
Begin
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8. 8
Minimum Value (as determined by the MV Calculator): 68.00%
Does this plan provide minimum value? YES
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9. Rate & Census Information
9
Plan Information
Group Name Sample Group B
Effective Date 3/1/13
Employer's Marginal Tax
Rate
30.0%
Tier Count
Monthly Total
Rate
Monthly
Employee
Contribution
Monthly
Employer
Net Cost
Single 191 359.00 78.00 281.00
Ee/Sp 44 682.00 342.00 340.00
Ee/Ch 21 787.00 427.00 360.00
Ee/Ch(ren) 0 0.00 0.00 0.00
Ee+1 0 0.00 0.00 0.00
Family 77 1092.00 677.00 415.00
Waivers 0 0.00 0.00 0.00
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10. 10
Employee Information
Coverage Eligibility Key
Employee and Children Offered
Coverage
Employee and Children Not
Offered Coverage
1 0
Employee
Identifier
Employee Monthly Rate
of Pay (x 12) or Annual
W2 Income
Coverage
Eligible
1 15926 1
2 79644 1
3 75468 1
4 75069 1
5 61320 1
6 68694 1
7 88288 1
8 17154 1
9 34643 1
10 69858 1
11 62407 1
12 70140 1
13 41523 1
14 29814 1
15 29572 1
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11. Results
11
Summary of Results: Pay or Play Analysis
Potential Penalties
Full-time employees 351
Potential Penalty (Cost) for not offering coverage to substantially all full-time
employees $642,000
Employees paying more than 9.5% of income for single coverage
0
Does the plan pay for at least 60% of covered expenses for a typical
population? (See Benefit Plan Value page for percentage)
YES
Maximum penalty for providing unaffordable coverage or not offering
coverage to all full-time employees $0
Total Potential Penalties Accrued $642,000
Cost of Providing Coverage
Annual cost of current plan $2,390,256
Employee contributions -$1,092,504
Value of Federal Tax Deduction -$389,326
Employer's net cost of current plan $908,426
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12. 12
Sample Group B
2014 Health Care Reform Penalty Projections
Presented by:
David Frazier & Associates, Inc.
Module 1: Current Penalty Projections
These are projected maximum penalties based on the information entered in the previous sections. Actual penalty amounts will depend on
whether one or more full-time employees that receive the subsidized coverage through an exchange and may be determined by the number
of full-time employees that receive the subsidized exchange coverage.
Does the plan provide minumum value (cover at least 60% of
costs):
YES
Will employer incur penalties for not providing a minimum
value plan (if any full-time employee enrolls in subsidized
exchange coverage):
NO
Penalty for not providing coverage to all full-time employees: $642,000.00
Projected maximum penalty for providing unaffordable
coverage or not offering coverage to substantially all full-time
employees:
$0.00
Number of employees paying more than 9.5% of income: 0
Total penalties projected under current plan structure: $642,000.00
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13. 13
Module 2: Potential Penalties and Costs
The following are penalties or costs that may be incurred if changes to the plan or payroll are made,
including eliminating coverage. Penalties will only be triggered if coverage is not offered to substantially
all employees (and children) and one or more employees receives subsidized health coverage through an
exchange.
Penalty amount for eliminating coverage for all full-time
employees:
$642,000.00
Annual income below which plan is considered
unaffordable:
$9,852.63
Increase in payroll needed to make plan affordable to all
employees:
$0.00
Monthly employee contribution for single coverage
allowable to avoid unaffordability penalty: $95.40
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14. 14
Sample Group B
Module 3: Current and Projected Plan Costs
Stated here are current plan costs, as well as projected costs if changes are made to avoid penalties. New contributions reflect increasing
employer contribution to make employee contribution for single coverage less than 9.5% of income.
Total annual cost of current plan:
$2,390,256.00
Total employee contributions (annually):
-$1,092,504.00
Tax deduction for offering coverage:
-$389,325.60
Total net cost of current plan :
$908,426.40
Net cost if employer's single tier contribution increased:
$908,426.40
Net cost if all full-time employees made eligible for coverage:
$950,913.60
Total plan cost with changes needed to avoid penalties:
$950,913.60
Current full-time payroll:
$17,522,761.00
Total full-time payroll if wages are increased to avoid penalty: $17,522,761.00
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