PEOs, The PPACA and Health Care Reform Debated
Our previous blog post on Healthcare Reform and Professional Employer Organizatiions started a lively discussion after we distributed the article to various LinkedIn discussion groups. More than 30 individuals added their comments in the Healthcare Exchange Linkedn discussion group The subject attracted a wide range of opinions from a diverse group of health insurance brokers, HR professionals, and small business owners.
Whose Employees Are They?
Aaron Hoffman Vice President, RSS Insurance Services in Denver, Colorado asked • Bruce- I have a question for you as a PEO. Are the FTE calculations based on the employees reported under the PEO’s UITR or the employees managed by the specific worksite employer?
Jeffrey Buchanan a broker with West Callaway Stotka, Inc. in Pleasant Hill, California agreed • Great question—sort of a double edge sword. If the employees are common law employees of the employer (the business) then the FTE count lies with the business. If the PEO is the common law employer, I believe the PEO has the FTE count to deal with. So if it’s the business whi is the common law employer and the business has 45 FTE’s the business can avoid the shared responsibility payment. If the PEO is held to be the common law employer (must offer coverage), the PEO will have to have a plan in place. Will they, the PEO mandate the business pay for coverage? Small employer may be better off not in the PEO? I really don’t know? The regs are vauge. Any thoughts?
Eric Kane Account Executive at Cool Insuring Agency Inc. in Albany, New York added • The proposed regulations do not address how the pay or play provisions apply to PEOs. The general rule is that leased employees are not considered employees of the service recipent for purposes of ACA”s pay or play provisions, it is still unclear as to how this applies to PEOs. There is some indication that the pay or play provisions will attach at the client level, thus making the client company the “employer” for this purpose. However, until guidance is issued on the pay or play rules with respect to PEOs, these organizations should use the common law standard to determine whether an employement relationship exists.
Margie Brownlee, RHU, REBC Account Mgr at OMS Staff Solutions, LLC in Lakeland, Florida followed up • Hi Eric, I am looking at Federal Register Vol 78 page 221 “As noted in Notice 2011-36, section 414(n), which treats leased employees (as defined in section 414(n)(2) as employees of the service recipient for various purposes, does not cross-reference section 4980H (and is not cross-referenced by section 4980H) and accordingly does not apply for section4980H purposes. I am taking this to mean that leased employees are not tied to Section 4980H. The employment relationship may apply to some aspects but not to 4980H. Guess we will have to wait for further clarification as it involves PEOs.
Our Response • @Eric @Margie @Jeff - Great points, and I agree with your observations and interpretations. My understanding is that credit will be applied at the client level. The standard is whoever exercises “care and control” of the “recipient” worksite co-employer.
The IRS is aware of the PEO reporting issue and the need for clarity. They are in the process of implementing guidelines, updating forms, and will be focusing on compliance, not only for the purpose of applying Small Business Health Insurance Credits but for reporting and collecting unemployment taxes as well.
PEO Master Group Medical Plans
Armand Smith, CIC Insurance and Employee Benefits Broker Chicago, Illinois stated • I have worked for a couple of PEOs and both of them their plans rates blew up because eventually the claims were more than they could handle and the good groups moved on.
Michael Schunk, CEBS President of Employee Benfits Advisors, LLC in Fort Lauderdale, Florida agreed • Armand, good point. - I’ve seen PEOs place groups in a preferred rating tier simply to write the business. Then at renewal the group gets a huge rate hike. Bottom line is the People with integrity will do the right thing, regardless of whether they are an insurance agent or a PEO salesman.
Our Response • @Michael @ Armand @Dave- You seem shocked that some PEOs and PEO clients may have experienced higher claims than expected. That is what happens when underwriting small group health insurance. Are you telling us that carriers never “lowball” rates to gain market share, then increase rates 40% or 50% at renewal? PEOs to not operate in a vacuum. The are subject to the same market conditions as the carriers, who for the most part, dictate underwriting guidelines and pricing to the PEOs.
Our job, as consultants is knowing which markets can provide our clients with the most favorable rates based on census, underwriting, and your client’s plan preferences.
Gary Whiddon Principal at Digital Benefit Advisors, Los angeles, California wanted to know • Do PEO’s have to adhere to the 85% MedicAl Loss Ratio while small groups insurers require only a 80%?
Our Response • @Gary - PEOs are not insurance companies. Less than 10% of the over 700 PEOs operating in the US offer a “master group health insurance policy”. Most of these health plans are available from the larger national and regional PEO’s. They are usually fully insured plans from carries like Aetna, Humana, and the Blues. The larger PEOs work with brokers like Aon and Marsh. Most smaller PEOs provide coverage written in the standard markets using either an in-house agency or a broker relationship.
It is the carriers who must satisfy the MLR rules, not the PEO.
The PEOs handle all of the enrollment, on-boarding, benefits administration, and client support services internally or through established 3rd party relationships. Plan designs, markets, networks, pricing, choice, quality and level of service will vary by PEO.
We wish to thank everyone for their participation in the Linkedin discussion group. We welcome your questions, comments and contributions. Please submit any questions and comments you may have about The Patient Protection and Afforadable Care Act or Obamacare and how a professional employer organization can help you. We will attempt to address and clarify any issues or concerns you have about co-employment administration, employee leasing, HR outsourcing and professional employer organizations.