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The Affordable Care Act (ACA) has put the spotlight squarely on two key issues for employers: compliance and consumerism.
The rising cost of health care, along with the much-hyped health insurance marketplace, has strongly influenced employers to consider a move to a defined contribution health plan model and to offer employees a much wider array of health and welfare benefit choices. With choice comes the need to provide decision support—not only for how to choose health and welfare benefits, but also how to effectively use those benefits. Point solution systems are best suited to address both of these challenges.
The rise of point solutions in the benefits administration arena exists primarily because Human Capital Management (HCM) systems fail to effectively provide the necessary functionality for benefits enrollment and administration. The increased complexity of benefit programs, associated with government regulation, and the need to better engage employees in their choices have caused many companies to look to point solutions to manage their benefits process.
“Employers are open to trying something new,” said Jon Shanahan, president and CEO of Businessolver, a business technology firm. “Benefit point solutions were aided by other module point solution providers beating down employers’ doors to offer an HCM alternative for a specific application. We’re the beneficiary of their success. At the same time, the ACA fueled the fire with record-keeping and reporting requirements that were difficult for HCMs to quickly add to their systems.”
Defined contribution has opened the door for employees to select the best coverage for their needs. No longer are they choosing from one or two basic health plans. They are choosing from a wider array of medical plans along with numerous ancillary plans, ranging from dental to pet insurance. Most benefit modules within an HCM system don’t handle ancillary services, including common ones such as COBRA administration. Point solution providers are far more agile and provide a higher level of functionality and administration services. The good news in all this is that HCM systems are increasingly integration-friendly.
Human capital management systems understandably advocate for a single application and vendor to minimize compliance risks. “This avoids the ‘What if one vendor updates a solution, then what happens to how the rest of the system operates?’ issue,” said Jayson Saba, vice president of Strategy at Ceridian, a human resources software company. “If this is not possible, it will be critical to opt for point solutions with very strong integration capabilities, such as the ability for the customer to easily configure them.”
Companies such as CloudMills have sprung up to help with data integration, allowing separate applications and processes to be accessible immediately to one another via the cloud. “The HR world has reached a bifurcation point,” said Dianna Sheppard, CEO of the data integration company CloudMills. “If you’re a bundled solution you have to play nice with point solutions and vice versa. As best-of-breed point solutions gain momentum, clients want to take advantage of them, but don’t want to give up their HCMs or do manual entry. Point solution vendors know companies make big investments in their HCM systems, which they may keep for as long as 15 years.”
CloudMills reports that the average company has six different applications and replaces one every seven years. Existing HCMs can continue to act as the system of record with point solutions, providing discreet solutions to a unique business problem.
Compliance and Point Solutions
Compliance isn’t new, but it has gotten more complex, thanks to the ACA. Moreover, 2015 will bring a whole slew of new compliance requirements as the employer mandate ceases to be voluntary. The Department of Labor’s (DOL’s) audit scope now includes ACA compliance. Employers need to maintain records of all the ACA compliance steps and procedures put into place in a readily accessible format.
So, what are the odds of being audited? Significant. It’s been widely reported that in 2013, the DOL added some 1,000 new enforcement officers. In 2012, the DOL closed 3,566 compliance reviews with 2,570 (72.1 percent) resulting in $1.2 billion in fines and penalties.
ACA compliance for employers falls into three categories:
Tracking and calculations–Employers must carefully manage the number of employees for “large group” status, as well as initial and ongoing individual eligibility measurement and management. Other calculations include W-2 and Patient-Centered Outcomes Research Institute fees. For eligibility measurements, employers must know the number of hours worked, which is likely to be managed most thoroughly in a benefits point solution or a separate ACA tracking solution.
Education and communications–While employers have long been required to inform employees about benefit offerings, the ACA expands the requirements, including an annual Summary of Benefits and Coverages (SBC) and notice of availability of exchange offerings. Proof of notification must be documented. The complexity increases with multiple plan offerings because SBCs (and some exchanges) are plan-specific.
Reporting–The ACA requires reporting on eligibility, affordability and proof of offerings to the government and to employees. Internal Revenue Service reporting must include offer and acceptance or waiver at both the employee and employer level. This same information must be provided to employees.
Of the three areas of compliance, tracking and calculations is the most significant to benefit point solutions. The ACA requires companies to calculate and report “look-back” or measurement periods for each employee. Companies with different types of employees, e.g., variable-hour, temporary, part-time or seasonal workers, may find determining eligibility to be extremely perplexing. One small error can expose your organization to significant risks and substantial fines.
Many benefit point solutions include tools to help manage eligibility status of each employee depending on full-time criteria (30 hours per week). Tools are available to help employers accumulate, monitor and alert at the employee level according to their standard measurement period, administrative period and applicable stability period; and to determine if coverage is affordable. These tools also support the offer (and documentation) of coverage to eligible employees in a timely manner.
Managing compliance is a natural extension of point solutions’ strengths. Benefit point solutions typically have a good understanding of the complexity of the benefit landscape because they focus only on benefits, compared to HCM solutions that strive to provide end-to-end solutions.
Rhonda Marcucci, MBA, CPA, is a partner and consultant at Gruppo Marcucci (GPM).
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