CC 2014-11-25 _08.c. Resolution Affordable Care ActMEMORANDUM
TO: CITY COUNCIL
FROM:
BY:
DEBORAH MALICOAT, DIRECTOR OF ADMINISTRATIVE SERVICES~
KAREN SISKO, HUMAN RESOURCES MANAGER~
SUBJECT: CONSIDERATION OF A RESOLUTION ADOPTING PROCEDURES
FOR IMPLEMENTATION OF THE PATIENT PROTECTION AND
AFFORDABLE CARE ACT ("ACA")
DATE: NOVEMBER 25, 2014
RECOMMENDATION:
It is recommended the City Council adopt the attached resolution adopting procedures
for implementation of the Patient Protection and Affordable Care Act ("ACA").
IMPACT ON FINANCIAL AND PERSONNEL RESOURCES:
The cost of providing medical coverage under the ACA is based on the number of
employees that are eligible for this benefit and opt to enroll in the City's medical plan.
The City has determined that currently four additional employees who are scheduled to
work over thirty· hours per week, but less than forty hours per week may be eligible for
coverage. The 2014/15 budget included $20,000 to provide coverage for employees
who may become eligible during the year, however the final cost will depend on the
number of employees that opt for coverage.
Administrative Services staff will have the additional burden to track weekly hours for all
employees and conduct various open enrollment periods each year for those
employees who qualify for medical benefits. Supervisors will have to monitor work
hours of employees in positions that are not budgeted to work more than 30 hours per
week.
BACKGROUND:
On March 23, 2010, the Patient Protection and Affordable Care Act ("ACA") was
enacted by Congress. The individual mandate is that all citizens and legal residents
must have minimum essential health care coverage beginning in 2014 or face a penalty.
On January 2, 2013, the IRS released proposed regulations on the Employer Shared
Responsibility under the ACA. An employer with more than fifty full-time employees
may be subject to a penalty if it does not offer affordable health coverage that provides
a minimum level of coverage to at least 70% of its full-time employees and their
dependent children to age 26 commencing January 1, 2015 and 95% of its full-time
employees and dependent children effective January 1, 2016. A full-time employee
under the ACA is defined as an employee with an average of at least 130 hours per
Item 8.c. - Page 1
CITY COUNCIL
CONSIDERATION OF A RESOLUTION ADOPTNG PROCEDURES FOR
IMPLEMENTING THE PATIENT PROTECTION AND AFFORDABLE CARE ACT
NOVEMBER 25, 2014
PAGE2
"I
month (thirty hours per week) of service. Currently, all budgeted full-time salaried
employees who work forty hours per week are covered under the City's health plan.
Effective January 1, 2015, employees who work an average of thirty hours or more, but
less than forty hours per week will also be eligible for coverage.
ANALYSIS OF ISSUES:
As an employer with more than fifty full-time employees, the City is subject to "pay or
play" penalties under the ACA. Affordable, minimum value coverage must be offered to
each full-time employee and their dependent children to age 26. Failure to provide
affordable, minimum value coverage may result in one of two possible penalties:
• Penalty A: If the employer does not offer minimum coverage to at least 70% of
its employees effective January 1, 2015 and 95% of its full-time employees
effective January 1, 2016 and the employer has received a Section 1411
certification that an employee received a federal subsidy to help pay for
insurance coverage from an insurance exchange, the penalty is $2,000/year for
every full-time employee (# full-time employees minus 30) whether or not
coverage was offered to any employees.
• Penalty B: If the employer does offer coverage but it is not affordable, minimum
value coverage and the employee then receives a federal subsidy through an
exchange, the penalty is $3,000/year for every full-time employee not offered
appropriate coverage. This penalty goes into effect January 1, 2015.
Since the Internal Revenue Service ("IRS") penalties could be substantial, it is critical
that the City maintain records of hours worked by each employee and appropriate
documentation of coverage election.
The City must determine which employees are eligible for health coverage by
establishing an initial measurement period to determine hours of service. An employee
must work an average of 130 hours per month (30 hours per week) during the
measurement period to be an eligible full-time employee. The City's initial transitional
measurement period is December 1, 2013 to November 30, 2014. Under the ACA, full-
time employees who are eligible for health coverage must have their coverage begin by
January 1, 2015.
To determine whether the health plan offered is affordable, the ACA allows three safe
harbors that the City can utilize. A plan is deemed affordable if the employee's required
contribution for the calendar year for the employer's lowest cost, employee-only
coverage that provides minimum value during the entire calendar year does not exceed
9.5 percent of: (1) the employee's W-2 wages from the employer for the calendar year,
(2) the employee's rate of pay, or (3) the federal poverty level.
Budgeted full-time salaried positions that are staffed at forty hours per week receive
affordable coverage that exceeds the ACA guidelines as established by their respective
Memorandum of Understanding or by resolution.
Item 8.c. - Page 2
CITY COUNCIL
CONSIDERATION OF A RESOLUTION ADOPTNG PROCEDURES FOR
IMPLEMENTING THE PATIENT PROTECTION AND AFFORDABLE CARE ACT
NOVEMBER 25, 2014
PAGE3
The regulations for the ACA are very complex and modifications will have to be made to
the City's procedures as rules are updated and clarified over the next several years. It
is recommended that authority be given to the City Manager to establish an
Administrative Policy to ensure compliance with ·Sections 4980H and 6056 of the
Internal Revenue Code. The policy may then be updated as changes become available
from the IRS.
ADVANTAGES:
By complying with the rules of the Affordable Care Act, the City will not be subject to
substantial penalties that could be imposed following an IRS audit, if triggered. The City
will also be providing a new health plan benefit to employees who work more than thirty
hours per week.
DISADVANTAGES:
The Affordable Care Act will incur additional benefit costs for the City. It also involves
additional staff time to monitor hours during the measurement period and enroll eligible
employees in health coverage.
ALTERNATIVES:
The following alternatives are provided for the Council's consideration:
Approve staff's recommendation by adopting the Resolution to establish
procedures to implement the ACA;
Offer health coverage to eligible hourly compensated employees, but do not pay
a City contribution and pay Penalty B;
Modify as appropriate and approve staff's recommendation; or
Provide direction to staff.
ENVIRONMENTAL REVIEW:
No environmental review is required for this item.
PUBLIC NOTIFICATION AND COMMENTS:
The Agenda was posted in front of City Hall on Thursday, November 20, 2014. The
Agenda and report were posted on the City's website on Friday, November 21, 2014.
No public comments were received.
Item 8.c. - Page 3
RESOLUTION NO. -----
A RESOLUTION OF THE CITY OF ARROYO GRANDE
ADOPTING PROCEDURES FOR IMPLEMENTATION OF
THE PATIENT PROTECTION AND AFFORDABLE CARE
ACT (" ACA")
WHEREAS, the Patient Protection and Affordable Care Act ("ACA") was enacted on
March 23, 201 O;
WHEREAS, ACA added Section 4980H 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 large
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 an applicable large employer to file with the Internal
Revenue Service an annual return for each full-time employee;
WHEREAS, the City of Arroyo Grande ("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 of Arroyo Grande ("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 of Arroyo Grande ("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 reporting purposes and for purposes of the Assessable Payment.
WHEREAS, the Department of Treasury issued final regulations regarding Section
4980H that permit the City of Arroyo Grande ("City") to use one of three affordability
safe harbors for any reasonable category of employees as long as the safe harbor is
applied on a uniform and consistent basis for all employees in the category (79 Federal
Register 8544, 8599-8601, February 12, 2014);
Item 8.c. - Page 4
Resolution No.
Page 2
WHEREAS, the City of Arroyo Grande ("City") intends to use the affordability safe
harbors as contemplated in the final regulations;
WHEREAS, the City of Arroyo Grande ("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 of Arroyo Grande ("City") expects that further guidance and
regulations may be issued regarding ACA.
NOW, THEREFORE BE IT RESOLVED by the City Council of the City of Arroyo
Grande as follows:
1. The City of Arroyo Grande hereby establishes the Look Back Measurement
Method Safe Harbor with regard to all employees for the purpose of identifying
full-time employees for calculation of the Assessable Payment and for IRS
reporting purposes.
2. The City of Arroyo Grande does not establish the Look Back Measurement
Method Safe Harbor for the purpose of determining eligibility for an offer of
medical coverage for 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 and employees in the Management
group shall be governed by the Management Resolution.
3. The City of Arroyo Grande hereby delegates authority to the City Manager,
including his/her designee(s), to create an Administrative Policy that establishes
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 of Arroyo Grande 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. The City of Arroyo Grande hereby delegates authority to the City Manager,
including his/her 9esignee(s), to establish an Administrative Policy to comply with
any of the three affordability safe harbors in accordance with and as permitted by
Section 4980H.
Item 8.c. - Page 5
Resolution No.
Page 3
6. The City Manager, including his or her designee(s), shall have authority to
create, modify or amend the Administrative Police to ensure the City's
compliance with Sections 4980H and 6056 of the Internal Revenue Code.
On motion of Council Member , seconded by Council Member
, and on the following roll call vote, to wit:
AYES:
NOES:
ABSENT:
the foregoing Resolution was passed and adopted this 25th day of November, 2014.
Item 8.c. - Page 6
RESOLUTION NO.
PAGE4
TONY FERRARA, MAYOR
ATTEST:
KELLY WETMORE, CITY CLERK
APPROVED AS TO CONTENT:
ACTING CITY MANAGER
APPROVED AS TO FORM:
TIMOTHY J. CARMEL, CITY ATTORNEY
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