Holding Companies, Beware: The Affordable Care Act is Here

Posted in: Employee Benefits

Decentralized subsidiary companies with fewer than 100 employees that are selecting their own benefit plans need to take a close look at the employer mandate of the Affordable Care Act (ACA) — which will essentially force these type of subsidiaries and their holding companies to change the way they do business.

The mandate requires companies with 100 or more full-time employees to provide health care benefits beginning in 2015, and for companies with 50 or more full-time employees to provide coverage starting in 2016. Holding companies with decentralized employee benefit plans will likely be on the hook to meet the mandate, too — and this is where it gets tricky. Consider the following:

Subsidiaries with less than 50 employees may think they do not have to comply with the employer mandate. However, the determination of whether separate companies within a controlled group are subject to the mandate (and the effective date of compliance) must be made on the employee head count of all the companies combined. So, if all the subsidiaries combined have more than 50 employees, the mandate will apply.

This means the decentralized group health plans that have been the norm for small subsidiaries could be subject to fines of up to $3,000 — per employee, per year — if they do not meet ACA requirements, which stipulate that employers:

  • Offer medical coverage to employees working 30 or more hours per week,
  • Understand how to calculate hours for variable hour employees,
  • Offer a ‘minimum value’ plan,
  • Pass an affordability test, and
  • Report plan information to the government.

The problem with decentralized benefit plans is that each subsidiary could be working under the assumption that they fall into an ACA compliance category based on their own number of full-time employees. Worse yet, they could be getting incorrect advice from their local broker because that broker is unaware that the group is part of a larger holding company, or the broker is only experienced in working with small groups and is unaware of the ACA requirements.

Alarmingly, no one is looking at the whole picture and notifying the separate companies that the rules have changed. If you are a holding company, here are some questions you might want to consider:

  • Do the subsidiaries within the controlled group have more than 50 full-time employees total? This determines if, and when, a group must comply with the ACA.
  • If there are more than 50 employees, does each group plan meet the ACA requirements listed above?
  • If not, what is the cost of the potential penalties vs. the cost to comply?
  • Is each subsidiary ready for the ACA’s 2015 reporting requirements?
  • Finally, has each subsidiary completed projections for ACA’s potential 40 percent excise tax hit in 2018 (this is the so-called “Cadillac tax” applied to expensive health care plans) and developed avoidance strategies?

There are several things companies can do to ensure compliance with ACA. This online tool will help you get organized and reveal areas where you might need further assistance, as some of the steps can be quite complex and require extensive expertise.

I recommend that the holding company engage one professional to perform an overall review of all of the subsidiaries within the controlled group. Such an expert will help you determine which subsidiaries are compliant based on the requirements discussed above, make informed decisions through a cost-benefit analysis, and then implement those decisions.  As the 2015 deadline to comply with the employer mandate is rapidly approaching, and this process can take a while, I recommend you contact an expert as soon as possible, particularly if you have variable hour employees whose measurement period has already begun.

Changes resulting from the ACA require an adjustment to your policy and procedures — and provisions of the employer mandate might come as a surprise to holding companies and their subsidiaries. If you have questions or need an expert to help with any of these issues, please feel free to get in touch with me at 410-773-4121 or mcoan@psafinancial.com.

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