The Affordable Care Act:Using HR Technology to Ensure Compliance

Spring 2013 • Lockton Companies

L O C K T O N C O M P A N I E S

MATTHEW KAISER, SPHR, CEBSVice President

Director of Technology Solutions(816) 960-9418

mkaiser@lockton.com

Preparing for Change

With 2014 on the horizon, employers are wrestling with decisions about

how they can best prepare for compliance with the Patient Protection

and Affordable Care Act (PPACA). Employers should ask themselves the

following questions:

� Is my current human resources (HR) technology sufficient to

support our increased administration needs?

� Would it make sense to outsource certain elements of our

compliance activities?

� What new systems have been released that might help us more

effectively manage our responsibilities and our workforce?

When I first entered the workforce as a part-time retail employee while in high school, I quickly learned a new set of rules. First, my friends could not stop by to see me at work (which they did anyway). Second, I had to wear a shirt and tie (I had two and rotated them daily). And finally, under no circumstances was I allowed to work any overtime. This final rule from the store manager was the most frustrating to me. I needed as much money as possible to repair my old Pontiac. But, as the weekend approached, I’d often find the very dapper Rick (my manager) with his crisp shirt sleeves rolled up, bent over his paper reports, determining who still had hours they could work over the weekend and who needed to be taken off the schedule.

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If Rick was around today, he quite possibly would have a new 30-hour threshold he would be managing to due to health reform. The PPACA is affecting employers as new regulations are released and implementation deadlines are looming. With the Act’s requirement that, beginning in January 2014, all large employers must offer their full-time employees health insurance (or pay a penalty), employers have begun to look at how they can manage their workforces to both comply with the law and to minimize any increased costs. In addition, employers want to know how their HR technologies will help them in this workforce management. Will special software be required or will their existing time and attendance or benefits administration solutions handle this responsibility?

Health Reform’s Impact on Workforce Management

As of January 2014, large employers must offer coverage to their “full-time employees” or risk penalties (we refer to this as the “play or pay” obligation).

� Generally speaking, large employers are those who employed in their controlled group an average of at least 50 full-time equivalent employees during the preceding calendar year. The 50-employee threshold is reached by combining:

h Number of full-time employees. The health reform law defines a full-time employee for this purpose as one who averages at least 30 hours per week.

h Number of full-time equivalents (defined as all other employee hours divided by 120). This is to be calculated each month, then averaged for the look-back period of the prior calendar year

� Employers are not required to offer health insurance to employees who average less than 30 hours per week.

Some employers, such as those in retail, hospitality and food service industries, have a sizable number of variable-hour employees in their workforces. Special rules apply for determining when variable-hour and seasonal employees average 30 hours and need to be offered coverage (see Lockton’s Health Reform Advisory Practice Alert from January 21, 2013).

While some of these employers will decide to offer all employees full-time health benefits, others may consider managing their workforce under the 30-hour threshold to minimize the number of employees eligible for benefits. While, like my old boss, they may have paper schedules to manage, it is far more likely they will turn to their HR technology to help them estimate and manage the population of their workforce.

Spring 2013 • Lockton Companies

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HR Technology Requirements: More Than a Time Clock

In order to define who is a full-time employee and therefore who is to be offered health insurance, HR systems must be able to analyze each employee’s employment status, hours worked and time off. The system, ideally, must also decipher the myriad of health reform rules surrounding the full-time employee calculations, yet be flexible enough to meet each employer’s specific plan design.

Any single employer may have multiple HR technologies from multiple vendors in place at any time, including payroll, time and attendance (also known as workforce management), benefits administration or even stand-alone calculation engines designed for specific processes. There are three systems most likely to manage this determination and another that will support them.

Time and Attendance

This system houses the transactional details of employees’ time on the job. This functionality may be housed within a point-of-sale (POS) system at a retail business. This category of applications is also known as time and labor management (TLM) or workforce management.

Benefits Administration

This system looks at incoming data on an employer’s census to determine who is eligible for various benefits. Of course, once an offer of benefits is triggered, employees will use this system to learn about and enroll in their benefits.

Business Intelligence (Workforce Analytics)

These reporting engines help segment transactional data and provide predictive analysis. Analytics functionality is often outside of HR, falling into the purview of a company’s information technology staff.

Payroll

This core business system plays a supporting role to the three systems noted above. Because one of the tenets of health reform is that the offer of health insurance must be “affordable,” employers will likely use their payroll data to ensure compliance. A safe harbor could be created by ensuring that each employee’s cost of health insurance is less than 9.5 percent of his or her wages.

The system, ideally, must also decipher the myriad of health reform rules

surrounding the full-time employee calculations, yet be flexible enough to

meet each employer’s specific plan design.

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Surveying Current Options

Lockton’s HR Technology & Outsourcing Practice recently interviewed multiple payroll, time and attendance, reporting and benefits administration vendors to find out how they will be supporting health reform law. We expected to find that the systems closest to the transactional details would be the ones performing the calculation and then passing an “eligibility flag” to the benefits systems to trigger an offer of coverage.

We were surprised to find that the vast majority of vendors expect – at least in the short term – the benefits administration system to be responsible for identifying full-time employee status and calculating benefit eligibility. The anticipated process will require that the payroll or time and attendance system produce an electronic file containing employees’ reported hours, which the benefits system will analyze to determine enrollment eligibility based on workforce

rules established by the employer. This dependence on the benefits administration vendors seems a short-term solution. We expect changes as vendors make adjustments to their systems based on new regulations.

At this point, a few key vendors have functionality already deployed that can identify which employees meet the full-time employee definition under health reform. Most other vendors report that a solution is in “developmental stages.” Typically, the biggest systems and vendors are the slowest to change, so it is not surprising that the first vendors to offer support in the review of historic data to determine full-time equivalency are the smaller, more nimble vendors. Many of these are business intelligence vendors (also known as workforce analytics), such as Equifax, Visier, and Information Builders. Many of these platforms were preexisting business intelligence systems that now can be pointed to labor data to help an employer manage its exposure.

The vast majority of vendors expect the benefit

administration system to be responsible for

identifying full-time employee status.

Spring 2013 • Lockton Companies

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Equifax’s eThoria is an example of a business intelligence engine that can be pointed at financial, organizational or HR data. However, since Equifax is already providing HR services for employers through their compliance, tax and other HR solutions, this gives them a first-mover advantage around health reform. With domain expertise, they have quickly branded eThoria to help employers model possible health insurance strategies.

Vendor Work in Progress

Employers should expect many HR technology vendors to deploy new functionality or bring new solutions to market by the third quarter of 2013, as vendors are assembling product development teams now. While most solutions available as of the publication of this paper are one-off reporting tools configured to look at the HR data, soon mainstream systems will be updated to provide this functionality in the core applications employers already use to run their businesses.

Kronos’ Workforce Central® appears to be the most developed, which we predicted, given the size of their market share in the time and attendance space. The key to their value proposition is their scheduling capabilities, which will help employers proactively manage their workforce under a particular hour threshold on a go-forward basis. Another similar application with scheduling capability is Ceridian’s Dayforce. They recently launched new HR and payroll modules to accompany the existing time and attendance functionality.

Ultimate Software’s UltiPro® is already delivering some of the best HRIS business intelligence tools with their included reporting engine, IBM’s Cognos. If an employer has access to their time and attendance data and understands the complexity of the tool, this engine can be used now to provide workforce analysis. Already in 2013, Ultimate Software has released prebuilt analytics or queries for this toolset to simplify implementation by an employer.

Employers should devise a technology approach

that is based on the intended strategy for handling

their variable-hour population.

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In the benefits administration space, several vendors all report work under way to support the eligibility determination by their third quarter 2013 release. bswift has stated that they will release, by August 2013, additional accumulators that allow configuration based on the employer’s rules and various look-back periods. Other vendors reporting similar plans include BusinesSolver, Empyrean and ADP.

Developing a Technology Approach That Supports Your Compliance Strategy

Employers should devise a technology approach that is based on the intended strategy for handling their variable-hour population. If employers are planning an “acceptance” approach, where they will provide health insurance choices to whatever portion of their workforce worked more than 30 hours on average during the previous year, they can safely wait until fall, when updates are planned for their existing benefits administration or time and attendance applications.

If instead an employer prefers to take a more “intentional” approach, then a more immediate investment in business intelligence may provide that ability right away. With the right tools, employers can manage their health insurance responsibility by adjusting schedules of existing employees or work groups to maximize the amount of their controllable labor that will come in under the 30-hour-per-week average. Implementing a new technology approach earlier in the year will be most beneficial, because the more time over which they have to spread the changes, the less disruptive those changes will be.

An organization that is fully ready for the implementation of January 2014’s required offering of health insurance to all full-time employees will have an answer for the following issues:

� Transactional Accuracy – Monthly tracking of hours worked by each employee.

� Adaptive Scheduling – Modeling tools that layer available workforce members over needed openings at the lowest overall cost to the organization (overtime vs. benefits eligible, etc.).

� Look Back Calculators – Analytical ability to newly eligible variable-hour employees, based on variable lookback and stability periods for service hours.

� HRIS Status Monitoring – Provides full awareness of changes in eligibility, such as part-time to full-time or full-time to part-time movements.

Spring 2013 • Lockton Companies

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� Eligibility and Enrollment – Once employees trigger eligibility or for required enrollments of new full-time employees, benefits administration tools are necessary to process each enrollment and offer other benefit options outside of medical.

� Employee Communication – Self-service and other tools to communicate required notices, such as the existence of public exchanges.

� Business Intelligence/Reporting – Ability to provide dashboards to management regarding workforce planning, as well as to meet required reporting to the government over coverage offered and population metrics.

Plan Today for January 2014

Employers should plan for January 2014 to identify and implement a strategy, as information about the workforce during the 2013 plan year will determine their health insurance eligibility beginning January 1, 2014. Some employers may be able to take proactive steps in 2013 to prevent certain employee groups from averaging 30 hours a week by reducing their hours later in the year, if that’s a strategy they choose to implement. This strategy might require the employer to start recruiting additional part-time help to ensure an adequate labor supply is available.

Lockton’s HR Technology & Outsourcing Practice will continue to monitor developments and publish updates, highlighting the vendors and systems that are providing solutions for these health reform-related issues. In the meantime, please contact your Lockton Account Team for immediate support.

What Lies Ahead?

Employers need a solution that can

calculate employee hours occurring

during their defined look-back, initial

measurement and stability periods. The

solutions can vary from paper reports

to automated benefit enrollment or

scheduling systems.

For those that hire mainly full-time

employees, the various measurement

periods are not as critical. However,

employers with a high seasonal and

variable-hour workforce are especially in

need of a trusted, effective solution.

A Year to Prepare

Define full-time employees, define

solution needs and evaluate current

systems.

Evaluate existing vendor partnerships

and new-to-market solutions, define

look-back/administrative/stability

periods. Begin configuring systems to

conform to the policies and procedures

that will be put in place in 2014.

Complete system configuration

and implementation. Begin initial

measurement and begin adjustments

to scheduling or workforce labor

supply.

Finalize any outstanding workforce

rules. Be ready for health reform-

related changes that take effect

January 1, 2014.

� Maureen Ditto, PHR Project Manager

� Brad Mandacina,CEBS, QPFC Project Manager

� Cynthia Olavarria Kaufman Solutions Consultant

� Pat Cuejilo Project Manager

� Courtney Lawrence Project Coordinator

� Eric Hollenbach Project Coordinator

Lockton HR Technology Research Team:

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Our Goal

To be the best place to do business and to work

www.lockton.com

© 2013 Lockton, Inc. All rights reserved. Images © 2013 Thinkstock. All rights reserved.

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