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Weathering Change Under The New Healthcare Law

Posted By Administration, Wednesday, January 15, 2014
Updated: Tuesday, January 14, 2014

In the past few months, it has become clear that administration of the Affordable Care Act (ACA) and preparation for compliance are highly complex processes which are stirring up a great deal of confusion. Lack of adequate preparation is going to create challenges for all employers, and none more so than those of us in the production world. In co-employment relationships, such as those that exist within the entertainment industry, the ACA provides that the co-employer who directs and controls the worker’s day-to-day functions is the responsible employer. This means that the production company typically will be responsible for providing coverage under the ACA, and that has come as a surprise to much of the industry.

All employers with at least 50 full-time employees and equivalents must offer affordable and adequate health coverage starting January 1, 2015, or pay a penalty tax. The IRS issued proposed regulations at the end of 2012 to implement this employer play-or-pay health coverage mandate. The mandate for individuals to obtain minimum essential health coverage, however, begins January 1, 2014. On October 1, the public health insurance exchanges opened for business and it was reported that thousands began signing up. Fulltime production employees not covered under union or employer health plans will be required to meet this requirement or face a penalty, and it is up to all of us to help get the word out to them.

What does this all mean for producers and members of the producing team? How are the unique needs of such a highly transient workforce being addressed? Where does one begin to assess how they will be impacted by the requirements and what the best course of action should be?

The industry has looked to my company for answers and solutions that will help mitigate their exposure. Fortunately, because of our role as a statutory employer of production workers, we are uniquely qualified to assist. For the better part of the past year, Joe Scudiero, our Senior Vice President and Chief Labor Counsel, and I have been analyzing how the ACA will affect our industry. We’ve been meeting with all of the studios and many major and commercial independent production entities and hosting seminars and webinars in order to discuss what we have learned.

Among the top concerns we have heard from the industry are confusion over what is affordable and adequate coverage, determining eligibility, lack of consolidated reporting across productions and production payroll companies, misunderstanding of government reporting obligations, and knowing where to find an insurance plan to meet the requirements. There will be instances in which a producer believes that it might be more cost-effective to pay the penalty rather than provide coverage but even this determination is complicated. For instance, though you would only be obligated to provide insurance for those full-time employees not covered under a union or employer health coverage plan, if you opted to pay the per-head penalty for not providing coverage, the penalty would be assessed on almost all workers on your production, including union members. A myriad of questions abound regarding what happens when a production worker is between shows and how COBRA eligibility will work; and while the studios have human resources and benefits professionals who are able to address these questions, we know that a majority of independent production entities will be on their own.

Producing entities had their first ACA obligation begin on October 1 and this will be ongoing when hiring new workers. Pursuant to Department of Labor regulations issued in

May 2013, employers must distribute a Notice of Exchange (NOE) to all current employees (including union, non-union, full-time, and part-time) stating whether or not they will offer compliant health coverage and informing their employees about government health insurance exchanges. While any new hires through 2014 must be provided the notice within 14 days of hire, beginning in 2015, the NOE must be provided on the date of hire.

We do not recommend that you attempt to answer all of the ensuing questions on your own, but rather seek the assistance of a trusted and knowledgeable advisor. Though employer compliance is not required until 2015, we are working with a number of studios who are choosing to begin compliance in January 2014. We will be happy to share what we all learn from the experience.

In the meanwhile, following are some essential details and sample scenarios to help you begin to comprehend the new laws. Though by no means a comprehensive set of guidelines, it is intended to assist you in planning your next steps toward compliance. There are a number of resources available to you — please do not hesitate to contact my team or your preferred service provider for more in-depth information and guidance or visit our online compliance center at www.entertainmentpartners.com/aca/. Though it may initially seem overwhelming, it is important to remember that all businesses are facing the challenge of wading through these new requirements and that we are all in this together.

The ACA Employer Mandate Ÿ- Play or Pay?

America’s new healthcare law is commanding everyone’s attention these days and has created an entirely new vocabulary for employers. One new term — "play or pay” — takes on a different meaning from what the industry is used to; here it is shorthand for the decisions employers must face in 2015. For employers in the entertainment industry, arriving at that decision is not a simple calculation.

For example, the majority of your crew on a given union production is receiving coverage through their union or guild plans. Does your company opt to play by offering compliant coverage to the remaining full-time, non-union crew? Or do you simply pay the no-coverage penalty tax on this small segment of your workforce?

While the latter may seem to be the easiest option, the decision is not as straightforward as it looks and will often not be the most cost-effective choice. Review the graph and infographics below for a more comprehensive breakdown.

Assessing the Impact

As production companies begin to grapple with the employer responsibilities, properly assessing their workforce and estimating their play-or-pay options will be crucial to managing production budgets in 2014 and beyond. However, this is only one simplified example of the changes entertainment employers face under the ACA. Their jobs are even tougher as they tackle the ACA’s many complex requirements and challenges, including:

· Adapting to changing ACA requirements

· Managing all ACA employer mandate responsibilities

· Evaluating employee status and healthcare eligibility correctly

· Accurate analytics and ACA reporting to the IRS

· Ensuring compliance and controlling costs

*The current regulations are interim and final guidance on the employer mandate is expected to be issued before 2015.

PLAY or PAY?

PLAY

Start: 400 Total Employees


MINUS 40 part-time employees

The ACA doesn’t apply to them outside of determining employer coverage.

The employer mandate applies only to full-time employees. You are required to offer coverage to at least 95% of your full-time employees (and their dependents) to avoid Part A penalties ($2,000 annual penalty tax per full-time employee minus the first 30 full-time employees).


MINUS 40 variable-hour employees

(e.g. day and weekly hires)

Variable-hour employees are not entitled to coverage until they’ve completed a full measurement period and satisfied full-time eligibility.


MINUS 80 short-term employees

They work full-time, but less than 90 days.

A full-time employee who is employed less than 90 days is not eligible for coverage if the employer has made an offer of coverage subject to a 90-day wait period.


MINUS 200 union workers

They’re covered by their union benefit health plans.

For 2015, you will be compliant if you are contributing to a multi-employer health plan (i.e. union/guild plans) that meets the affordability, adequate value and all other requirements.



Headcount for coverage calculation = 40 employees

Average annual premium = $3,000

$120,0001 Total Employer Cost (tax deductible)

PAY

Start: 400 Total Employees


MINUS 40 part-time employees

The ACA doesn’t apply to them outside of determining employer coverage.

The employer mandate applies only to full-time employees. You are required to offer coverage to at least 95% of your full-time employees (and their dependents) to avoid Part A penalties ($2,000 annual penalty tax per full-time employee minus the first 30 full-time employees).


MINUS 40 variable-hour employees

(e.g. day and weekly hires)

Variable-hour employees are not entitled to coverage until they’ve completed a full measurement period and satisfied full-time eligibility.


MINUS 0 short-term employees

If there is no plan offered, the employer is unable to exclude short-term employees from the Part A penalty base calculation.


MINUS 0 union employees

Since your non-union employees exceed 5% of your production’s workforce, you will be required to pay the "no coverage” penalty tax of $2,000 (i.e. Part A) per full-time employee (minus the first 30 full-time employees).


MINUS 30 full-time employees

There is a safe harbor to exclude the first 30 full-time employees.


Headcount for coverage calculation = 290 employees

Penalty tax over 12 months = $2,000

$580,0002 Total Employer Cost (non-deductible)



UNDERSTANDING PRODUCTION WORKER OPTIONS

Employers may have one year before they must comply with their employer mandate obligations under the ACA, but this is not so for individuals. As of January 1, 2014, individuals must enroll in "minimum essential coverage” or pay an annual penalty of $95 or up to one percent of income, whichever is greater. The yearly penalty increases in future years.

What health coverage options do production workers have? With the exception of a minor segment that would fall under public programs such as Medicare and Medicaid, health coverage is available through two primary sources: group plans and public exchanges. Here’s a quick look at these sources:

Group Plans

A large segment of the production workforce may already be covered through the unions and guilds. Others may have coverage through their spouses’ plans. The remaining segment of eligible, non-union workers can obtain a health plan through their employer group policy (if offered) or opt to get their own individual plan through the public exchanges. An obvious advantage to choosing an employer plan is the employer contribution, limiting the worker’s share of the premium to no more than 9.5% of adjusted gross household income.

Transportability is one of the most essential considerations when offering health benefits to a transient workforce.

The drawback to a traditional employer-based group plan is when production workers move on to their next project, they’ll face re-enrolling in a new employer group policy likely to involve a different network, doctors, and premium rates. Union members covered by a multi-employer health plan avoid this issue since they maintain the same coverage regardless of the project or employer if they meet eligibility requirements. Similar to multi-employer plans, there are employer group plan options available through a private entertainment industry exchange that enable non-union workers to carry coverage from production to production.

Public Exchanges

Publicly-run exchanges offer health coverage for those who are ineligible for or decline group health plan benefits through their union, guild or employer. Some eligible non-union workers also may elect to buy coverage through a public exchange. Once they enroll in a health plan through the public exchange, they carry their coverage with them, and depending on their income level, they may receive a government subsidy to reduce the price of their health plan if they have not declined an offer of compliant health coverage from their employer. Those workers who decline compliant employer sponsored coverage will pay 100% of the cost on an after-tax basis and will not qualify for a subsidy. When shopping the exchanges, the key variables impacting a plan’s cost and value include tax subsidies, benefits, coverage limits, out-of-network reimbursements, stability, and plan administration and support services. While the federal marketplace has gotten off to an undeniably rocky start, several state exchanges have fared better. Nonetheless, the volatility of the enrollment process and uncertainty of the insurance market should also be factored in when evaluating health coverage options through public exchanges.

Some production entities may regard offering health insurance or paying the penalty tax as solely a financial decision, while others may view offering insurance an incentive to attract and retain high-quality workers. Either way, it is up to employers to help their crews understand their options and properly assess their choices.

*To be eligible for a subsidy, a person (1) must not be eligible for medical insurance through an employer-based plan and (2) have a household income of less than 400% of the federal poverty level.

THE INDIVIDUAL INSURANCE MARKET

Coverage through individual insurance market plans may also be an option; however, many carriers are pulling out of the individual market to avoid the uncertainty tied to ACA changes and are directing their administrative and marketing services to the exchanges.

Individual market plans and employer plans specific to the entertainment industry are listed under "ACA Resources.”


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