Archive for the ‘Healthcare’ Category

The Cost of NOT Offering Health Insurance to Employees

May 30, 2013


ACA is here to stay, and employers, large and small, are assessing their workforce composition and the obligations or penalties which will kick in next year.  Businesses which are deemed to be small employers under the regulations are breathing a sigh of relief that the burdensome requirements of the new legislation do not apply to them.  Large employers, those employing 50 or more FTEs as defined by the law, are deciding whether to “play or pay”, meaning to offer health insurance or pay an IRS penalty for not doing so.  Whether an employer is exempt from the requirement or calculates that the penalty is less expensive than paying health insurance premiums, the consequences of not offering health insurance can hit the bottom line hard.

Unfortunately, the sensibility of offering health insurance is escaping many employers.  The 2013 Aflac Workforce Report examined issues impacting employee benefits.  As shown by the results below, a gap exists between employer and employee perceptions of the importance of benefits.


Employers believe benefits are extremely or very influential on:

Employees believe benefits are extremely or very influential on:

Job satisfaction – 56%

Job satisfaction – 79%

Loyalty to employer – 50%

Loyalty to employer – 66%

Willingness to refer friends – 39%

Willingness to refer a friend – 54%

Work productivity – 32%

Work productivity – 62%

Decision to leave company — 34%

Decision to leave company – 55%

Read the full study at

Employers who fail to recognize the value that employees place on benefits put their business at a disadvantage for talent attraction and retention.  Losing an employee who defects to a competitor for a more attractive benefit package creates costs which are no less important or real than the costs associated with paying vendors for goods or services.  These are very real costs to the employer, but rarely are they measured because no process is in place to tabulate the costs; such costs are not reported to top management; and many employers view turnover as an inescapable cost of doing business.

Numerous sources provide estimates of the cost to replace an employee.  The range is anywhere from $2,000 to $7,000 for an $8.00 per hour employee, or 30-50% of the annual salary of an entry level employee.  For middle level employees the replacement cost is estimated at 150%, and for specialized, high level employees or management the cost can be as high as 400% of their annual salary.   Consider the direct and indirect costs of hiring a new employee:

Terminating the Departing Employee

Processing a terminated employee includes:

  • ·         Conducting  an exit interview, stopping  payroll, and revoking passwords and other security privileges
  • ·         Processing the various forms needed to terminate an employee and updating personnel records
  • ·         Communicating the termination to the existing staff


Recruiting a Replacement Employee

Finding a replacement for the terminated employee requires:

  • ·         The internal or external recruiter’s time to understand the open position requirements and the desired qualifications
  • ·         Placing and paying for advertisements and job postings for the open position or incurring outsourcing costs for a search firm
  • ·         Conducting interviews, discussing assessments and selecting a finalist. Keep mind the multiples associated with this process                  as generally there are several candidates for a position.
  • ·         Incurring costs of educational, credit, criminal background, and other reference checks

Managing the Vacant Position

The time between the employee’s resignation notice and hiring of a replacement places additional burden on supervisors and staff which includes:

  • ·         Identifying and assessing the status of incomplete or pending work
  • ·         Re-assigning work to other employees, shifting the responsibility to supervisory personnel or hiring a temporary employee.   It may also be necessary to explain and review work assignments more carefully if the work has been assigned to someone who normally does not do it.
  • ·         Following up with customers to communicate change in personnel
  • ·         Assessing the impact on potential loss in sales, production delays or new product introductions

Orientation and Training of the New Employee

Once a new employee is hired, onboarding and training are required to:

  • ·         Add the new person to payroll, establish computer and security passwords, and issue  identification cards
  • ·         Establish an email account, telephone extension, and credit card accounts
  • ·         Assign  equipment such as a desktop, laptop, cell phone, or automobile
  • ·         Train the employee on duties, expectations and responsibilities
  • ·         Integrate the employee into the right team of peers
  • ·         Introduce the employee to the organization and  customers

Impact on Customer Relationships

When a knowledgeable employee leaves, taking experience and customer service ability with him or her, customer relationships can suffer if:

  • ·         The employee takes the customer with him or her to the new employer
  • ·         Customer commitments are not met after the employee leaves because of the intimate knowledge the employee had of a transaction or arrangement
  • ·         Customers become frustrated or annoyed dealing with trainees

Replacing key personnel, such as those with highly technical or industry knowledge or management experience, magnify many of the costs described above.   And the longer a specialized or management position is vacant, the potential harm to a business grows.

In light of the cost to replace an employee, is it a wise decision to not offer health insurance?  It hardly seems so when the actual costs to replace an employee can easily exceed the employer’s share of health insurance premiums.  And if administration costs of a group health plan are a concern, they will only be substituted by the administration of terminating and hiring replacements.  Failing to offer health insurance will not only cause employees to seek benefits elsewhere, but will also place a company at a competitive disadvantage in attracting new talent.  The best and brightest will find the employers with the most attractive benefit package, leaving those who do not with a mediocre workforce.

The complexity of the new healthcare requirements can be overwhelming, especially for an organization which does not have the resources in-house to deal with them.   But working with the right team of experts can assist a business in developing a strategy for managing costs and attracting and retaining the talent needed to support growth and long term viability.  A knowledgeable insurance broker and a healthcare reform consultant can help develop a workforce structure and benefits package to ensure a business has the human capital to meet its goals.

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The Affordable Care Act Regulations Become Even More Complex With Regard to Employer Compliance

January 13, 2013


Affordable Care Update:  New proposed regulations were released by the Department of the Treasury and IRS concerning employer shared responsibility provisions under the Affordable Care Act (the “Act”).  The proposed regulations are not yet final, but build on five earlier notices that address, in detail, large employer responsibilities and penalty assessment calculations under the law that goes into effect next January.

The proposed regulations include details on the classification and treatment of various types of employers and employees for purposes of determining whether an entity is a “large employer”  and an individual is a “full time employee” for purposes of the Act.   In general, the IRS has confirmed that the common law standard will be used to determine whether individuals are considered employees for purposes of the Act.  Under this standard, “an employment relationship exists when the person/entity for whom services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work, but also as to the details and means by which that result is accomplished.”  In this connection it is unnecessary for the employer to actually direct or control how services are performed as long as it has the right to do so.   Interestingly, we note that this definition of who is an employee differs from that applied by the Fair Labor Standards Act.

The proposed regulations also confirm that:

  • Large employers (at least 50 full time employees or full time equivalents) that fail to offer minimum essential health coverage to employees and their dependents will be penalized at the rate of $166.66 per month per employee (1/12 of $2,000) in excess of the established threshold of 30 for every month that coverage is not provided when any full time employee receives a premium tax credit or cost sharing reduction that is certified to the employer.  This is known as the Section 4980H(a) penalty.
  • Large employers that offer coverage but still have full time employees who become certified for premium tax credits or cost sharing reductions will be liable for penalties based on the number of employees receiving the tax credits or cost sharing reductions.  The proposed regulations note that this situation may arise when, 1) coverage is “unaffordable” as defined by the Act, 2) the coverage provided does not meet the minimum essential coverage requirements, or 3) the employer offers coverage to least 95% of its employees but less than 100% of the full time workforce and has at least one uncovered employees that receives the tax credit or cost sharing assistance.  This penalty is equal to $3,000 per affected full time employee per year and is referred to under Section 4980H(b).
  • For purposes of the Act, dependents are defined as children under the age of 26.  The proposed rule confirms that spouses are not considered dependents for purposes of the Act.
  • Hours of service including vacation, sick leave, FMLA leave, jury duty and other paid leaves are considered for purposes of calculating full time status.
  • To establish the framework for calculating large employer status, the proposed regulations establish a “look-back measurement period” that can last for up to 12 months, followed by a “stability” period for determining the FTE count.  The proposed rules contain numerous details that address changes in employment status, changes in hours worked, employment breaks, treatment of new employees, measurement of service provided by variable hour and seasonal workers as well as the treatment of common law employees of temporary staffing agencies.

For more detailed information about the newly proposed rules, please request a copy of our whitepaper with full details on shared responsibility rules under the Affordable Care Act.  Please send your whitepaper request to

Healthcare Reform Update: Small Business Considerations for Implementing Health Care Reform

November 27, 2012

Healthcare Reform Update: Small Business Considerations for Implementing Health Care Reform

Now that the election is over, we have clarity on at least one front – healthcare reform measures set forth in the Patient Protection and Affordable Care Act of 2010 (“ACA”) are on track for continued implementation.
Health insurance coverage, offered as a benefit of employment, is a mainstay of compensatory arrangements in place throughout the United States. According to the Kaiser Foundation, almost 160 million people under the age of 65 receive health insurance benefits through employer sponsored health plans. The ACA contains numerous provisions that will affect the decisions employers make in the future about employer sponsored insurance coverage after changes go into effect at the beginning of 2014, including requirements for certain large employers to offer acceptable health insurance options to employees or face penalties for their failure to comply.

While the ACA does not expressly mandate that employers offer acceptable health coverage to employees, those with at least 50 full-time equivalent employees (FTEs) may be penalized, beginning in 2014, if acceptable plans are offered but one or more of the company’s full-time employees obtains a premium subsidy through a Health Insurance Exchange (“Exchange”) or the offered plans are deemed unaffordable and/or lacking essential coverage. Employers with more than 30 full-time employees may also be penalized if no employer plan is offered and at least one full-time employee receives a cost subsidy, such as a premium credit, toward coverage secured through an Exchange. Employees may be eligible for credits based on income level and their eligibility for Medicaid benefits.

It has been estimated that only 36% of small businesses offered health insurance benefits by 2011 and 79% of those businesses now indicate that they do not expect to interrupt health insurance coverage for their employees as a response to the mandate imposed by the ACA. However, 69% of those same employers indicated that they will require their employees to participate to a greater degree in cost-sharing initiatives to keep employer costs down through higher co-pays and deductibles. For small businesses the average growth in paid wages was just over 2% in 2011, while the cost of health insurance benefits grew by 9%. It is also noteworthy that, as of November 2012, 26% of small businesses indicated that they are not yet prepared to implement changes designed to accommodate the requirements of the legislation. The ACA requires that:
1. Employers with 50 or more full time equivalent employees must offer a minimum level of coverage or be subject to calculated penalties.
2. Small employers with fewer than 25 employees may be eligible for federal tax credits that will offset up to half of the employer portion of health coverage premiums.
3. As of 2014 insurance deductibles will be limited to no more than $2,000 for individuals and $4,000 for individuals and their insured dependants.
4. Essential health benefit levels must be in place for non-grandfathered plans as of 2014 and all such plans will be rated based on the percentage of actuarially defined coverage of health costs with the minimum level of coverage being set at 60%.
5. Non-deductible penalties will apply as of 2014 and may be triggered for “large” employers whether or not employer sponsored coverage is made available based on employees obtaining premium credits for coverage purchased through a health insurance exchange. Penalties may also apply if employee contributions exceed a percentage of household income.
For more detailed information on the provisions of the Affordable Care Act, please request a copy of C3 Advisors’ updated whitepaper entitled “Healthcare Reform – What Employers Need to Know Now” by e-mailing your request to

Health Care Reform-#1 Stat for Small Businesses

October 3, 2012

Don’t assume your business is not subject to the Affordable Care Act requirements because you employ less than 50 full-time people.  Part time and seasonal workers are included in the calculation and can have a material impact on the result.

Small business owners must calculate the FTE (Full Time Equivalent) number to determine if they are subject to the Affordable Care Act (ACA) provisions for Large Employers.  An employee is full time if he/she works 30 or more hours per week.  Employees who work less are part time.  For purposes of the ACA, part time employees must be included in the calculation.  Here is the formula:

# of employees who work at least 30 hours/week


# of employees who work less than 30 hours/week,  divided by the average number of hours these employees work

An example is:

A company with 35 employees working at least 30 hours per week and 25 employees working 24 hours a week on average

35 +[ 25 x (24/30)] = 55 FTEs for purposes of the ACA.  This company is a Large Employer and must comply with the ACA.

Seasonal workers who work 120 days or more in a calendar year are added to the calculation based on the number of hours per week that they work.