Title
Short- and Long-Term Impacts of the Affordable Care Act (ACA)
Recommended Action
City Manager Recommendation:
Briefing and discussion.
Report
Issue:
Presentation to understand the mandate and requirements of the ACA and the short and long-term impacts of the requirements as they pertain to the City
Staff Contact:
Stacy Hamilton, Accounting Services Supervisor, Administrative Services Department Finance Division, 360.753.8004
Presenter(s):
Stacy Hamilton, Accounting Services Supervisor and Stacie Tellers, Senior Accountant
Background and Analysis:
The mandate/requirement of the ACA for employers with more than 50 employees is that the employer must offer affordable, minimum value health insurance to at least 95% of full-time employees (FTEs) and their children within 90 days of hire. Minimum value means that the plan pays more than 60% of allowed costs.
Short-Term Impact to the City
There are two possible penalties that can be incurred if an employer does not comply with the above requirements of the ACA: 1) a no coverage penalty; and/or, 2) an insufficient coverage penalty. The penalties are as follows:
· No coverage penalty of $2,000/month for each FTE over 30 FTEs, imposed when:
o Employer does not offer coverage to at least 95% of FTEs and their children; and,
o When one or more FTEs receive a premium tax credit when obtaining coverage on the State exchange plan;
· Insufficient coverage penalty of $2,000 per FTE for each FTE over 30 FTEs
OR
$3,000 per FTE receiving tax credit, whichever is less, imposed when:
o Employer does not offer minimum value coverage to at least 95% of FTEs
o An employee receives a premium tax credit when obtaining coverage on the State exchange plan
Long-Term Impact to the City - Cadillac Tax
Beginning January 1, 2018, a 40% excise tax will be imposed on high cost employer coverage health insurance benefits exceeding certain thresholds, which are as follows:
· $10,200 limit for individual plans
· $27,500 for family plans
· $11,850/$30,950 for retirees age 55 through 64 and high-risk professionals (police, fire, emergency medical)
o At this time, until further guidance/clarification is provided regarding "high-risk professionals", the law reads that these thresholds apply when "a majority of the workforce" is in high-risk jobs. At this time, "a majority" of the City's workforce is not made up of high-risk professionals, therefore these thresholds do not apply to our police and fire - they are subject to the $10,200/$27,500 thresholds same as all other employees of the City.
Benefits subject to the thresholds include: medical (total premium regardless of employee and/or employer contributions), employee & employer flexible spending arrangement (FSA) contributions, health reimbursement arrangements, City's contribution to IAFF members MERP (medical expense reimbursement plan), and employer contributions to health savings accounts.
Neighborhood/Community Interests (if known):
N/A
Options:
N/A
Financial Impact:
Short-Term Impact
Regarding the two types of possible penalties, the City does not expect to incur either of these penalties because the City currently offers, and will continue to offer, affordable, minimum essential value health insurance to all employees and their children, excluding seasonal employees, and the coverage is offered at the date of hire and begins the month following the date of hire.
Long-Term Impact
The Cadillac tax will impact the City in 2018 for both active employees and retirees. The financial impact of the tax for active employees depends on number of factors, including:
· Annual increase in healthcare premiums from now until 2018 and annual rate increases thereafter;
· Amount by which employees fund their FSA
· Amount by which the City contributes to IAFF members MERP accounts
For retirees, the factors include:
· Annual increase in healthcare premiums from now until 2018, and annual rate increases thereafter
· Annual cost of Medicare Part B reimbursements
· Annual amount of healthcare cost reimbursements