| Loss of Management carve-out, Section 105(h), | | | | - Expanded eligibility for groups of employees who are |
| Grandfathered Plans | | | | not currently eligible and for dependent children up to |
| Section 105 (h) prevents discrimination in the workplace | | | | age 26 |
| as it pertains to employee benefits and employees | | | | - Elimination for lifetime and annual maximums |
| income levels. Its intent is for employers to offer the | | | | - elimination of pre-existing limitation for dependent |
| same plans and contribution strategies to rank and file | | | | children under age 19 |
| employees and executives alike. | | | | Many PEO clients have heard that increases this year |
| Health care reform has mandated that effective 2010 | | | | should be lower than usual due to health care reform. |
| all group plans must comply with Section 105(h) unless | | | | They are gravely mistaken, the three points listed |
| they have grandfathered status. | | | | above do nothing but expand coverage and incur |
| To obtain grandfathered status you must not have | | | | costs for all medical carriers; it's unrealistic to think a |
| made any changes to your group plan design | | | | PEO has the ability to counter this. |
| (co-pays, RX costs, etc.) other than adding or dropping | | | | Tax Credits - A Mixed Bag |
| employees. | | | | Are PEO clients eligible to receive tax credits even |
| What does this mean for PEOs? | | | | though they are co-employed? Yes. |
| If a PEO makes changes to their group plan | | | | Will tax credits make it cheaper for small employers to |
| descriptions during annual benefit enrollment this year | | | | provide health coverage and therefore open up more |
| they will lose grandfathered status. PEOs regularly | | | | markets for PEOs? Yes. |
| change plan descriptions yearly to keep costs low for | | | | Will existing PEO clients get a big check from Uncle |
| clients. | | | | Sam? Probably not. |
| If a PEO loses grandfathered status they will no longer | | | | Most have already heard that businesses with fewer |
| be allowed to provide management carve-outs, which | | | | than 25 employees and wages averaging less than |
| is a strategy used to offer different levels of benefits | | | | $50k per employee are eligible for a credit. Most have |
| to different classes of employees. | | | | also heard that the credit is equal to 35% of |
| An example of a management carve-out is an | | | | employer's premium costs. However most haven't |
| employer paying 50% of coverage for regular | | | | realized that the 35% credit gradually phases out if |
| employees, and 100% of coverage for executives. For | | | | your average wage is over $25k and you employ |
| instance a company with 103 employees; 100 lowly | | | | more than 10 employees. |
| compensated factory workers paying for 50% of their | | | | According to NAPEO the average PEO client is 17 |
| health coverage, and 3 highly compensated executives | | | | employees, so already the tax credit will be mitigated |
| paying 0% of their health coverage, they will be forced | | | | due to employee count. Furthermore, most PEOs have |
| to choose. Either increase employer contribution for | | | | switched their marketing focus from blue-collar |
| the factory workers, or limit employer contributions | | | | industries (with lower average wages) to white-collar |
| executives, either way they must be equal. | | | | industries where average wages of $25k are |
| There are several major PEOs that will lose | | | | non-existent. The impact of this credit is severely |
| grandfathered status this year and a few that will | | | | limited for most PEO clients. |
| retain it. | | | | PEOs will have their work cut out for them in the |
| Increased Medical Costs | | | | upcoming years, and most have dedicated additional |
| As we roll into July, we're on the precipice of receiving | | | | resources to understand and manage for the |
| official information from many national PEOs in regard | | | | upcoming changes so that their clients don't have to. |
| to their annual health increases, and they are all going | | | | However as I often mention, PEOs are not |
| to be higher than normal. Health insurance carriers | | | | commodities and are not created equally, PEO |
| have passed an additional 4-6% increase on to PEOs | | | | shoppers will need to be more educated on who is |
| in order to cope with the rising costs brought on by | | | | who in the PEO industry in order to make the best |
| health care reform. So if your increase was 12% last | | | | choice for their future. |
| year, expect 16-18% this year! | | | | To determine which PEO is right for your business, |
| The following HCR mandates are effective in 2010 | | | | contact PEO Spectrum for a free vendor comparison |
| and have directly caused additional cost: | | | | and cost analysis. |