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HomeMy WebLinkAboutStaff Report 3.E 7/21/2014.g p' L Udt a0'� I85a DATE: July 21, 2014 TO: FROM: SUBJECT: Honorable Mayor and Members of the City Dianne Dinsmore, Human Resources Direct Resolution Adopting Safe Harbors Under th Care Act RECOMMENDATION Agenda Item #3.E y Manager and Affordable It is recommended that the City Council adopt the attached Resolution Adopting Safe Harbors Under the Patient Protection and Affordable Care Act (ACA), and delegating authority to the City Manager or his/her designee to implement the details of the Safe Harbors through an Administrative Policy. BACKGROUND Effective January 1, 2015, the Affordable Care Act mandates that a large employer (at least 50 full time employees, including full-time equivalents) offer affordable health care to substantially all of its "full-time" employees or face potential penalties. The new law defines a "full-time" employee as one who averages 30 or more hours of service per week in any given month. The penalties are triggered when a "full-time" employee obtains subsidized coverage through Covered California, California's health benefits exchange. The City of Petaluma is considered a "large employer" for the purposes of ACA. As a larger employer the City has the responsibility of offering all "full-time" employees (employees working on average 30 or more hours per week or 130 hours per month) affordable health care coverage. While all bargaining unit employees will continue to be eligible for and offered affordable medical coverage in accordance with the applicable bargaining agreement or compensation plan, the City does have non -regular part-time employees who are not covered under such agreements or plans. The IRS allows employers to adopt a "Look Back Measurement Method Safe Harbor" to determine whether an employee is "full-time" for purposes of the ACA. Under the Look Back Method the employer establishes a "standard measurement period" that can be no less than three months and no more than twelve months. At the end of the standard measurement period, the employer looks back at hours worked during that measurement period and calculates the average number of hours worked weekly or monthly by each employee. Any employee determined to be Agenda Review: City Attorney Finance Director City Manager "full time" under this method must then be offered affordable health care coverage during an identified "administrative period." If the employee elects health care coverage, s/he would continue coverage during the ensuing "stability period." There are many details to the ACA and the Safe Harbors which are best placed in a City Administrative Policy. Thus, staff is recommending that the City develop administrative policy that will, on a uniform and consistent basis, lay out the protocols the City will follow to comply with the mandates. The Administrative Policy will establish how the City will measure and track employees' hours of work and identify the standard measurement, administrative and stability periods. In addition, it will outline the affordability safe harbors (i.e. Form W-2 Safe Harbor, Rate of Pay Safe Harbor, or Federal Poverty Line Safe Harbor) used to ensure the minimum value coverage that the City offers its full-time employees meets the affordability standards of the ACA. The ACA continues to change as the Departments of Treasury, Labor and Health and Human Services issue guidance and regulations. It is recommended that the Council adopt the safe harbors pursuant to the attached Resolution and delegate authority to the City Manager or his/her designee to establish and modify an Administrative Policy that will describe the details of these safe harbors in compliance with the ACA. A sample policy from the City of Pleasanton is attached for illustrative purposes only. The Resolution or Administrative Policy does not impact the benefits or coverage currently offered to bargaining unit employees. FINANCIAL IMPACTS None. ATTACHMENTS 1. Resolution 2. Sample policy ATTACHMENT 1 RESOLUTION ADOPTING SAFE HARBORS UNDER THE PATIENT PROTECTION AND AFFORDABLE CARE ACT AND DELEGATING AUTHORITY TO THE CITY MANAGER TO IMPLEMENT THE DETAILS OF THE SAFE HARBORS THROUGH AN ADMINISTRATIVE POLICY WHEREAS, the Patient Protection and Affordable Care Act ("ACA") was enacted on March 23, 2010; WHEREAS, ACA added Section 4980 Shared Responsibility for Employers Regarding Health Care Coverage (Section 4980H) and Section 6056 Certain Employers Required to Report on Health Insurance Coverage (Section 6056) to Title 26 of the United States Code, the Internal Revenue Code; WHEREAS, Section 4980H imposes an assessable payment on an applicable larger employer when (1) it fails to offer "substantially all' of its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage or offers coverage to "substantially all' of its full-time employees (and their dependents), but that coverage is either "unaffordable" or does not provide "minimum value" and (2) any full- time employee is certified to the employer as having received a subsidy for coverage through the exchange ("Assessable Payment'); WHEREAS, Section 6056 requires the City to file with the Internal Revenue Service an annual return for each full-time employee; WHEREAS, the City of Petaluma ("City") is considered an applicable large employer because it employed an average of at least 50 full-time employees (including full-time equivalents) on business days during the preceding calendar year; WHEREAS, the Department of Treasury issued final regulations regarding Section 4980H that permit the City to adopt the Look Back Measurement Method Safe Harbor in order to determine the status of an employee as "full-time" for purposes of reporting and calculating the Assessable Payment, if any (79 Federal Register 8544, 8586, February 12, 2014); WHEREAS, the City intends to adopt the provisions of the Look Back Measurement Method Safe Harbor in order to determine the full-time status of its employees for purposes of the Assessable Payment and reporting; WHEREAS, the Department of Treasury issued final regulations regarding Section 4980H, that permit the City to use one of three affordability safe harbors for any reasonable category of employees as long as it is applied on a uniform and consistent basis for all employees in the category (79 Federal Register 8544, 8599-8601, February 12, 2014) ; WHEREAS, the City intends to use the affordability safe harbors as contemplated in the final regulations; WHEREAS, the City intends to use good faith efforts to comply with legal requirements under ACA despite that they have not yet been fully developed; and WHEREAS, the City expects that further guidance and regulations may be issued regarding ACA. NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Petaluma: Establishes the Look Back Measurement Method Safe Harbor with regard to all employees for the purposes of identifying full-time employees for calculation of the Assessable Payment and IRS reporting. 2. Does not establish the Look Back Measurement Method Safe Harbor for the purpose of determining eligiblity for an offer of medical coverage as to any employee. All represented employees' eligibility for an offer of medical coverage shall continue to be governed by the terms of any applicable memorandum of understanding or compensation plan. Delegates authority to the City Manager, including his/her designee(s), to create an ACA Administrative Policy that establishes standard measurement, administrative and stability periods, governs the measurement and tracking of employees' hours of service, and/or otherwise establishes procedures in accordance with Section 4980H to comply with the Look Back Measurement Method Safe Harbor. 4. For each reasonable category of employees, the City in its sole discretion, but on a uniform and consistent basis for all of the employees in a reasonable category, will apply one of the three affordability safe harbors (i.e. Form W-2 Safe Harbor, Rate of Pay Safe Harbor, or Federal Poverty Line Safe Harbor) to determine the affordability of the minimum value coverage that it offers its full-time employees. 5. Delegates authority to the City Manager, including his/her designee(s), tc establish the Administrative Policy to comply with any of the three affordability safe harbors in accordance with and as permitted by Section 4980H. 6. Delegates authority to the City Manager, including his/her designee(s), to establish and modify as needed an Administrative Policy to ensure the City's compliance with Sections 4980H and 6056 of the Internal Revenue Code. ATTACHMENT 2 Sample Policy Provided for Illustrative Purposes Only City of Pleasanton Affordable Care Act Compliance Procedures The Affordable Care Act provides that a large employer (more than 50 employees) offer affordable healthcare coverage with a minimum essential value to atleast 70% of full-time employees (increases to 95% after the first year) as defined by the Acta If a large employer does not satisfy these mandates, penalties may be assessed through the IRS. As a large employer under this Act, the City of Pleasanton has adopted the following protocols.t6 comply with the mandates. Notice of Exchange (Marketplace) A notice will be provided to all City emplc coverage on the Exchange or Marketplace. California". The notice will include eligib coverage and contact information for quesi later than October 1, 2013 and to new hire! attached) The City of Ph the legislation. Calculator is w to of California's exchange is called "Covered rmation; information about employer e notice will be provided to all employees no 14 days of their hire date. (Sample notice n Essential Coverage as outlined by by the Health & Human Services The City of Pleasanton offers at least 95% of all full-time employees coverage. For purposes of the Affordable Care Act, "full-time" is defined as any employee working an average of 30 or more hours per week or 130 or more hours per month. Safe harbors are available to employers to establish measurement periods for purposes of determining full-time hours and healthcare eligibility. The City has adopted a measurement period of 12 months. (See Safe Harbor Section) The City has adopted an Affordable Care Act full-time employee definition as 130 hours or more per month as averaged over the applicable measurement period. ✓ Failure to comply with this provision results in exposure to Penalty A. Penalty A = $166.67 x (# of FT employees employed during that month — 30). Example, for an organization of 500 full-time employees the calculation = $166.67 x (500-30) = $78,335. The penalty is assessed for every month out of compliance. Pagel of 4 Minimum Value The City's current benefits program complies with the "Minimum Value" requirement of the Affordable Care Act. Under the Act, an employer must pay for at least 60% of the employee's healthcare costs, including co -pays. Accordingly, the employee must not be required to pay more than 40% of their healthcare costs, including co -pays. The City of Pleasanton's current lowest cost, employee -only plan does not require an employee contribution for premiums, and co -pays are currently $10 for most visits. ✓ Failure to comply with this provision results in exposure to Penalty B. Penalty B = lesser of Penalty A or $250 X (# of employees receiving subsidy through the Exchange during that month). Example, if an employer has 500 full-time employees and 10 employees enroll in subsidized coverage = $250 x 10 = $2,500. Penalty A = $78,335. The employer would be required to pay the lesser of the two and would pay $2,500.. The penalty is assessed for every month out of compliance. Affordability The City's current benefits program complies with the affordability provisions of the Affordable Care Act. Under this provision, the employee's cost for healthcare cannot be more than 9.5% of the employee's household income. Affordability can be calculated by dividing the employee's contribution to healthcare by the employee's monthly pay (hourly rate of pay x 130 hours). The City currently does not require an employee contribution to the lowest cost, employee -only plan. ✓ Failure to comply with this provision results in exposure to Penalty B. Penalty B = lesser of Penalty A or $250 X (# of employees receiving subsidy through the Exchange during that month). Example, if an employer has 500 full-time employees and 10 employees enroll in subsidized coverage = $250 x 10 = $2,500. Penalty A = $78,335. The employer Would be required to pay thelesser of the two and would pay $2,500. The penalty is assessed for everymonth out of compliance. City of Pleasanton's Safe Harbor for Calculating Full-time Employees The City of Pleasanton will adopt the Look -Back Measurement method, a 12 month measurement period for purposes of calculating full-time employees and determining eligibility for offering healthcare. Employee hours will be recorded on a monthly basis during the Standard Measurement Period. A report of hours for all employees will be provided by Payroll to Human Resources every month. Human Resources will be responsible for calculating the average number of monthly hours over the 12 month Standard Measurement Period. This calculation will be done by Human Resources during the "Administrative Period" and employees averaging 130 hours or more per month will be offered healthcare coverage for the following "Stability Period". (Eligible temporary employees will be offered the lowest cost HMO employee -only coverage at Page 2 of 4 the City's expense. All other employee groups will be offered coverage per their employment agreements. t) The following are the identified periods. 1st Standard Measurement Period (12 months): May 2013 — April 2014 (Includes the pay period including the first of the month in May 2013 and excludes the pay period including the last day of the month in April 2014) Administrative Period (2 months): (May 1, 2014 — June 30, 2014) 1st Stability Period (12 months): (July 1, 2014 through June 30, 2015) 2nd Standard Measurement Period (Includes the pay period including th pay period including the last day_of t Admin Period (2 months): (May 1, 2015 — June 30, 2015) 2nd Stability Period`( (July 1, 2015 through 3rd ludes the period in 2 months): May 2015 — April 2016 irst of the month in May 2015 and excludes the month in April 2016) in the same manner for future years. New Hires Initial Measurement Period (12 months): Begins the pay period including the first of the month following hire and excludes the pay period including the last day of the 12d' month. New hires will also be included in the next Standard Measurement Period (New employee will have two overlapping measurement periods in the first year) ' Clarifying language regarding the ability to provide a different benefit to temporary employees expected in 2014. Page 3 of 4 New Employee Protocol If an employee is reasonably expected to average 130 hours or more per month during his/her initial measurement period, healthcare coverage will be offered within 60 days of hire. If an employee is not reasonably expected to average 130 hours or more per month during his/her initial measurement period, healthcare coverage will not be offered within 60 days of hire and the initial measurement period will be relied upon to determine eligibility. If eligible, coverage will begin no later than the fust of the month following employee's=first anniversary. (If employee is hired on 2/4/13 and is deemed eligible, coverage will begin on 3/1/14) Page 4 of 4