San Francisco HCSO and the ACA - questions answered, more raised

The SF Office of Labor Standards and Enforcement has issued some answers to FAQ's from employers and employees.  Covered Employers are still required to make required contributions on behalf of employees. But the use of Health Reimbursement Arrangements (HRA's) could create problems for both employer and employee.

Oh, and the required Health Care Expenditure rate is going up in 2014:

$2.44/hour worked for large employers (100+ employees)

$1.63/hour worked for small/medium employers (20-99 employees)


New Taxes on your Small Group Health Plan - Coming in 2014

The Affordable Care Act created a number of new fees and taxes, to help subsidize tax credits to individuals and families, and to help stabilize the new guarantee-issue individual market.

There are four new taxes that will hit small group health plans in 2014. Most insurance companies have simply built these new taxes into their 2014 rates and they will be realized by small employers upon their 2014 renewal.

However, Blue Shield of CA has elected to break out two of the taxes, totaling 3.6% of monthly premiums, and add them as new line items beginning with your January 2014 invoice - even if your Blue Shield renewal date is later in the year.

Explanation of the Health Insurer Tax and Transitional Reinsurance Tax

Sample Blue Shield letter to small group clients, to be mailed later this week.


Small group carriers offering "early renewal" December 1. Good idea?

Almost all small group medical carriers are offering the option for small businesses to change their current plan year renewal date to December 1, 2013.  The idea is to renew at then-current rates, buying themselves up to 11 months of time, before the full effects of the Affordable Care Act kick in.

Is this a good idea?

Small businesses are being asked to make this decision with limited information. Even businesses with plans scheduled to renew January 1, 2014 don't yet know what their 2014 rates will be. Kaiser is requiring small business clients to submit an Intent to Renew Early no later than this Friday, August 30.  Any small business that thinks they may want to renew their Kaiser plan early, or simply wants more time to decide should complete this form before Friday. It is not binding (Kaiser will require a final decision by the beginning of October). Please also refer to Kaiser's FAQ on early renewal.

Pay somewhat higher rates now, to postpone even higher rates?

Yes, this is the crux of it. Depending on your plan, carrier and demographics, carriers are offering the "opportunity" to end your current 12-month contract early, and pay higher rates beginning December 1, 2013. For groups with anniversary dates in the first half of the calendar year, the likely early-renewal rate increase would be 4% to 15%.  Please contact your Allpointe broker  if you have questions about your specific plan, and what early renewal rates are offered.

Some guidance for small business owners

We have spent countless hours over the past several years following the developments of the Affordable Care Act.  Bradley Vaccaro recently was certified by the National Association of Health Underwriters as a PPACA Professional. We fully expect the changes coming in 2014 to vary widely in how they affect our clients. Some are likely to benefit and see lower-than-expected rates in 2014. Others could be looking at significant year over year rate jumps, and could benefit from an early renewal. Here is our best guidance on which category your business falls into:

Most Likely to Benefit from Early Renewal

  • Anniversary date in early 2014. In general, we don't think it makes sense for clients who renewed in June, 2013 or later to renew again in December.  Pay higher rates starting December 1 for 7+ months to push off next year's rates by a few months?  Probably not a net gain. We think the businesses most likely to benefit from early renewal have anniversary dates of January 1, or at least Q1 2014.
  • Very healthy groups with a low RAF.  Beginning in 2014, small groups will move to community rating, meaning rates will be determined by age and geography only. The Risk Adjustment Factor (RAF) will be eliminated.  Effectively all groups will have a 1.00 RAF -- which means that groups who currently have a .90 RAF (very healthy and/or larger groups) are going to see rates rise just to get to the same level of parity as everyone else.
  • Disproportionate number of employees in specific age ranges.  Small groups currently have very wide "age bands" -- rates are the same for all employees in the same age band.  Under 30, 30-39, 40-49, etc.  In 2014, all small groups will move to premiums determined by the actual age of each employee.  If your group happens to have a disproportionate number of employees aged 36-39 and 46-49, their rates could increase more significantly than most others.
  • Large percentage of employees under age 40.  Beginning with 2014 plan renewals, rates will be somewhat "compressed," as the ACA requires no more than a 3:1 ratio of the highest rates for oldest employees to the lowest rates for youngest employees.  That is, if the cost for a 25-year old employee is $250/month, your 64-year old employee cannot be more than $750/month. Overall, we expect this to mean larger increases for the younger employees.
  • High level of participation in one of Anthem Blue Cross' Generic Rx-only PPO plans. These plans have been a great value and are popular for their low deductibles and moderate costs. But "generic Rx-only" won't meet minimum requirements in 2014, and we expect these plans to be eliminated at your 2014 renewal.
  • High participation in high-deductible PPO plans.  The Affordable Care Act expressly required small group plans to have a maximum deductible of $2,000 for a single employee ($4,000 for a family). This has been amended to allow a handful of higher deductible options at the Bronze (possibly Silver) tier of new plans in 2014. HSA-compatible plans will survive, but we expect there to be only a few plan options available with deductibles higher than $2,000 annually for a single employee.  Lower deductibles generally mean higher premiums.

Least likely to benefit from early renewal (could even benefit from new structure in 2014)

  • If you said, "That's not us," to most or all of the points above.
  • One or more employees that have a single child enrolled as a dependent.  Currently, it doesn't matter if you have one child or five -- the premiums for any number of children on a small group plan are the same.  In 2014, each dependent will have his/her own cost, based on their age.
  • Groups that would like to offer multiple carrier plans.  The new Covered California small business exchange (SHOP) will make it easy for employers to offer Blue Shield, Health Net and Kaiser alongside each other, without concern about how many employees choose which carrier. We expect some groups to consider switching to the small group exchange on January 1, 2014.
  • Groups that can't stand paper forms.  Don't jump into the small business exchange just for this reason, but online plan comparison, open enrollment, and new hire onboarding is expected as part of the rollout from Covered California, bringing small groups on par with their bigger competitors.
  • Groups that qualify for the Small Business Tax Credit.  The credit jumps from 35% to 50% in 2014 -- but only if you buy your small business plan through the SHOP. Because the credit phases out for businesses that have close to 25 employees and average wages approaching $50,000/year, it is our experience that most urban California clients do not qualify.  But some do, especially non-profits and businesses with 10 or fewer employees.

There may be some ancillary challenges to renewing early, such as having to run another open enrollment period in November. And your dental, vision, life, disability, and Flex plans may or may not allow a change to your plan anniversary with those carriers.  But please begin looking at your demographics, and seeing where your business stands against this list.  And do not hesitate to call 888-992-2244 or email to discuss your options.

What To Do With This Blue Shield Rebate Check?

Small businesses and individuals will be receiving a rebate from Blue Shield by August 1st.  Employers, please review the details here, about valid ways to return these refunded premiums to your employees.  Reducing the cost of future insurance coverage is a legitimate use of the rebate.

From Blue Shield:

Medical Loss Ratio Rebates and Notifications

Last month, we informed you that Blue Shield reported its 2012 Medical Loss Ratio (MLR) by market segment to the Department of Health and Human Services (HHS). We are now sharing our rebate information with you.

Blue Shield did not meet the MLR thresholds for the following market segments:

  • Individual and Family plans regulated by the Department of Insurance (DOI)
    The MLR threshold for this market segment is 80%. Blue Shield reported an MLR of 78.0%. The Individual and Family plan MLR was 2% below the 80% threshold. As a result certain subscribers will receive premium rebates by August 1, 2013. The 2% of premium revenue equals $13.3 million that will be returned to 226,034 Individual and Family plan subscribers who were enrolled in the Blue Shield Life plans that did not meet the MLR threshold. The average rebate amount per subscriber is about $59.
  • Small Business plans (50 or fewer employees) regulated by the Department of Managed Health Care (DMHC)
    The MLR threshold for this market segment is 80%. Blue Shield reported an MLR of 76.6%. The Small Business MLR was 3.4% below the 80% threshold. As a result, certain subscribers will receive dues rebates by August 1, 2013. The 3.4% of dues revenue equals $24.5 million that will be returned to 29,232 Small Business policyholders who were enrolled in the Blue Shield plans that did not meet the MLR threshold. The average rebate amount per Small Business policyholder is about $827.

Rebates coming to small business from Anthem and Blue Shield of California

Chad Terhune of the LA Times reports that Anthem Blue Cross and Blue Shield of California will be required to issue rebates to small businesses this August, for failing to meet the minimum 80% medical loss ratio threshold in 2012, as required under the Affordable Care Act.

Blue Shield of California insures 29,000 small businesses in California, while Anthem Blue Cross is the largest small business insurer in the state, covering 45,000 small businesses.  Your Allpointe broker will be contacting you once specific dollar amounts are released.

Say Goodbye to the 90-day Waiting Period

Beginning in 2014, the Affordable Care Act will require a maximum 90-day waiting period for new hires to join a group medical plan.  California has taken this a step further: Governor Brown signed AB 1083 into law near the end of 2012, reducing that maximum waiting period further -- to 60 days.  Let's take that a step further, as the practical application for small business effectively makes the maximum waiting period one month or 30 days.  Why is this?  Well, currently every carrier for small groups uses a "first of the month following completion of the waiting period" as the eligibility date for a new hire.

If new employee Jane Smith begins work on March 15, 2014 and her employer has a 60-day waiting period, her effective date in the current system would be ... June 1, 2014.  Seventy-seven days after her date of hire, or 17 days beyond the maximum waiting period.

We expect the carriers to adapt their plan contracts upon plan renewals in 2014, to help small employers adapt to the new requirements.  Kaiser Permanente officials have stated they will offer three waiting period options for plans that renew on or after January 1, 2014:

  • First of the month following date of hire
  • First of the month following 30-day waiting period
  • NEW: Sixty days following date of hire (partial months to be prorated)

We expect other carriers to offer the same or similar options.

Many of our small group clients in competitive industries already have a first of the month following date of hire policy, but others will need to prepare and adapt.

Dept. of Labor: HRA's can not be used to reimburse individual health premiums

12/02/13 UPDATE: A colleague forwarded us the best summary we have seen addressing the various types of tax-advantaged plans that employers have used in the past to help employees pay for the cost of medical coverage. The link is a .pdf download from the American Benefits Council, prepared by Morey Crowell.


The use of Health Reimbursement Arrangements (HRA's) to provide employees with a defined employer contribution for the purchase of individual health insurance has always been a grey area, but the Department of Labor has now made it black and white.  In response to FAQ's on the implementation of the Affordable Care Act, the DOL, HHS and IRS have stated that this will not be allowed.

This practice, while extremely tax efficient for both the employer and employees, already created some legal compliance questions with respect to ERISA and HIPAA rules.  This new guidance from the Departments indicates that employers will no longer have the option to use this type of defined contribution for employees to purchase individual health coverage.

An excellent white paper from the State Health Access data Assistance Center addresses a closely related issue - whether the use of Section 125 cafeteria plans are allowable to help employees purchase individual plans on a pre-tax basis.  Short answer: before PPACA, sometimes.  After PPACA, almost never.

San Francisco HCSO - New Required Rates for 2013

San Francisco's Office of Labor Standards Enforcement has published the new (yes, higher) required employer contributions for businesses of 20 or more employees.

The rate will be $2.33/hour for large employers (100+ employees) and $1.55/hour for medium-sized employers (20-99 employees).  These rates will take effect January 1, 2013.

The OLSE has also published their analysis of the employer reporting forms from 2011, which can be downloaded here.

Please contact Allpointe is you have any questions about how the new rates or the HCSO affects your business.

Guest opinion: Common wage and pay employer mistakes

We asked our knowledgeable friends at Next Level Strategies, a local HR consulting firm, to provide additional perspective on common wage and pay mistakes made by many employers.  You know, the kind of mistakes that lead to lawsuits from former employees, or fines from the Department of Labor.  Thanks to Julie Chendes for taking the time to respond:

When we audit a new client for human resources compliance issues, wage and hour issues are second only to missing required paperwork. Almost all of our new clients struggle with at least one of the three issues mentioned in this article. There are a few additional things to note:

1. Minimum pay for exempt employees: Exempt employees must be paid at least two times the state minimum wage which is $33,280 in California. ($8.00 per hour x 2 = $16.00 per hour x 2080 work hours in a year.) If you have an employee classified as exempt but aren't paying him or her at least $33,280, we suggest you take a closer look at that employee's exemption status. Please note: much higher exempt hourly rates apply to exempt computer professionals and doctors.

2. Volunteer Workers and Internships: Volunteerism comes up frequently in our practice, usually when employers talk with us about interns and internships. Unpaid internships have a very narrow definition by the Department of Labor Standards Enforcement (DLSE).

The DLSE, which enforces wage-and-hour laws in California, has developed the following guidelines for student intern programs derived from the Federal Fair Labor Standards Act. In order to be classified as an unpaid internship, the program or training must meet the following criteria:
•    The training must be part of an established course of an accredited school or of an institution approved by a public agency to provide training for licensure, or to qualify for a skilled vocation or profession;
•    The program must be for the benefit of the trainee and not be for the benefit of the employer;
•    A regular employee may not be displaced by the intern or trainee;
•    The training must be supervised by the school or a disinterested agency;
•    The employer derives no immediate advantage from the activities of trainees or students, and on occasion the employer's operations may be actually impeded; and
•    The trainees or students are not necessarily entitled to a job at the conclusion of the training period.

Any training program or internship that does not satisfy the above criteria must pay the intern or trainee minimum wage and overtime, as applicable.  The state minimum wage is $8.00 per hour and many cities within California have higher minimum wages.

3. Independent Contractors: The misclassification of independent contractors (ICs) is on our Top 3 most frequently made mistakes by our clients list. The IRS has a 20-point checklist which can be downloaded free of charge from its website. We suggest you take a look at this before classifying people as ICs. We often hear justification from our clients such as, "the person has another client," "the person makes their own hours," and so on. Neither of these justifications, on the face of it, are enough to pass the IRS's test. It's about control. Who controls the client, the work output, tools, process, and the financial risk/fees/responsibility? Can the person send someone else from their company to do the work or does the work have to be done by that specific person? Will the person have an ongoing relationship with your firm or are they there for a one-off project? Is the person performing work that is core to your business model? For instance, if you do graphic design and the potential IC is a designer, that would be more heavily weighted toward them being an employee than if they performed IT or HR work for your design firm. An example of a true IC is if your sink backed up and you called, "Jack's Plumbing" to fix it. Jack, Jill or Joe could show up. They bring their own tools, use their own methodology, take on the risk of damaging your property, fix the sink (presumably without you interfering :-), and send you a bill when they are done. Is that the relationship you have with your independent contractors? We hope so.

What do I do with my rebate check from Anthem Blue Cross?

As part of the new PPACA legislation (aka "Obamacare" and "health care reform"), insurance carriers are now required to return premiums to employers if they fail to meet the minimum criterion of spending 80% of the collected premiums on actual health care services.  This percentage is also known as the Medical Loss Ratio, or MLR.  Most California carriers have been at or above 80% in the small group market, but for 2011, Anthem Blue Cross (and United Healthcare) fell a couple of percentage points short.

If you are a small employer with an Anthem Blue Cross group plan, you likely received several confusing notices, and a relatively small rebate check in the past month.  While it might be easiest to simply deposit that into the corporate checking account and forget about it, know that the Department of Labor is very much interested in making sure those funds are treated properly (fines of up to $1,000 per employee).

Anthem released a spreadsheet to help you calculate whether and how much of that rebate check is intended to for the employer, and how much for employees enrolled in the health plans.  But before your eyes gloss over, or you schedule a half-day meeting with your bookkeeper, payroll provider, and CPA, we recommend you consider this case study, provided by the National Association of Health Underwriters.  Since the rebate portion due to employees is generally very small, we think Option 2 in the case study will be the best way for most small employers to comply with the DOL rules.

If you think arranging for a healthy lunch to benefit employees, paired with a lunch & learn topic from a local nutritionist is a good solution, well, we agree.  And we would be happy to connect you with a couple of nutritionists that we know and like, who would do that type of presentation / conversation at no cost to you.

Takeaways for you:

  • If your employees contributed to the cost of their Anthem Blue Cross coverage in 2011, you will need to comply with the rebate rules (a portion must benefit them)
  • There is a hard way and an easy way to do this
  • The DOL and HHS departments have stated that good faith efforts to comply will not be penalized in the first year
  • Please contact us if you need additional guidance


San Francisco City Hall

The San Francisco HCSO "loophole"

After attending the Thursday, July 14 public hearing of the Government Oversight and Audit committee, I wrote the following email to Supervisor David Campos (as well as committee members Farrell and Chiu and my home district Sup. Cohen). As with my previous email, it has also gone unanswered. I blame my long-windedness.

Dear Supervisors Campos, Chiu, Farrell and Cohen:

This is a follow up to my previous email, after I attended the public hearing re: Supervisor Campos' proposed HCSO amendment this morning. I will first say that I do in fact agree with him on two points:

- The HCSO has been good for the City -- it has vastly increased the number of individuals with access to health care and health insurance.

- Any business (restaurants or otherwise) that are charging an expressly defined "pass-through" of HCSO expenses -- but can be proven to not actually make those expenditures on a multi-year basis -- are committing fraud and should be held accountable.

Read more

Small business heath care tax credit: a mirage?

One of the provisions of the Patient Protection and Affordable Care Act (PPACA) initially looked like it could be a huge boon to small businesses: a tax credit for dollars spent on employee health care.  Kaiser Health News has a very good summary of the tax credit, here.

We wrote about this back in April; six months later, as we talk to clients throughout the Bay Area and California, most small businesses do not qualify.  We attribute this primarily to the high cost of living in California's urban areas, and because the tax credit phases out based on two criteria: number of employees over 10, and average salary over $25,000 annually.  Combine those two and we are finding that our clients either do not qualify at all, or the credit is so small so as not to be worth the effort of applying for it.

A factor that often gets missed is that the average salary criterion is measured by FTE - Full Time Equivalent, not just average annual salary.  So, your 30-hour/week, $40,000/year employee in fact does not fall within the threshold.

Still, there are a few small businesses that may qualify, so we encourage you to use the easy online calculator from the Small Business Majority. Please contact us if you aren't sure if you qualify.