DO S, DON TS AND COMMON MISUNDERSTANDINGS RELATED TO EMPLOYEE BENEFITS AND PPACA July 23, 2015

Transcription

1 WILLIS COMPLIANCE ACADEMY A SERVICE OF THE NATIONAL LEGAL & RESEARCH GROUP DO S, DON TS AND COMMON MISUNDERSTANDINGS RELATED TO EMPLOYEE BENEFITS AND PPACA July 23, 2015 Presenters: Jason N. Sheffield, Managing Attorney Bobby Otte, Executive VP, Willis of Colorado

2 AGENDA Overview of employer provided benefits in the PPACA era Common Misunderstandings PPACA reporting requirements Cadillac Tax (2018)

3 Higher Costs Depress Salary Increase? 2

4 Higher Deductibles Lowers Perceived Value Single Coverage, by Firm Size, * Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits,

5 Total Rewards Composition* Unintentional or Inadvertent Changes to the Total Rewards Mix SOURCE: * Employer Costs for Employee Compensation, US Department of Labor, Bureau of Labor Statistics, historical tables, June

6 PPACA - Overview All residents of the US must have minimum essential health coverage Coverage can be available via several outlets Individual insurance markets Traditional private insurance State exchanges/marketplaces Group insurance Employer Union Government provided Medicare Medicaid Tricare Others 5

7 PPACA Individual Mandate PPACA US residents must have coverage of some sort or potentially be subject to penalties Penalties on sliding scale based on income (and increasing over time) Enforced via Income Tax returns 6

8 Every State Has An Exchange * Source: Council of Insurance Agents & Brokers, Steptoe & Johnson, August 2013

9 BECAUSE OF THE INDIVIDUAL MANDATE, THE PERCEIVED VALUE OF EMPLOYER PLANS IS HIGHER THAN EVER

10 Cost Shift: Fewer Sponsored Plans to Shoulder PPACA Cost Non-Elderly Americans With Employer Coverage* Percentage Employment Based *Source: U.S. Census Bureau, 2011; Employee Benefits Research Institute,

11 Pay or Play Continuum (for large employers, 50+FTE s) PLAY PLAY & RE-DIRECT SELECTIVE PLAY PAY & DEFINED CONTRIB PAY * Offer minimum essential coverage to all full time equivalent employees Plan meets minimum value or higher (60% actuarial value) Plan remains affordable (safe harbor: contributions no higher than 9.5% of employee W2 for single coverage Offer minimum essential coverage to all full time equivalent employees Encourage low wage earners (100% - 400% of federal poverty level) to qualify for government subsidies Pay $3,000 for each employee who leaves plans and receives subsidy Offer plan to ONLY select portion of population (by hours worked, by class, etc.) Direct all others to exchanges Pay $2,000 for all full time employees or equivalents Plan may fail nondiscrimination testing Discontinue employer sponsored plan Pay $2,000 for all full time employees or equivalents Direct ALL employees to exchanges Provide defined contribution $ to purchase coverage on exchanges ($ = taxable) Let s play two! - Ernie Banks Discontinue employer sponsored plan Pay $2,000 for all full time employees or equivalents Direct all employees to exchanges * An employer that prefers to offer no coverage should strongly consider offering minimum essential coverage with NO employer contributions to all of it s employees and dependents, just to keep open the possibility of minimizing the play or pay excise tax. 10

12 Workplace Reaction Reducing Hours Forever 21 Under Fire for Cutting Hours reported by InvestorPlace Obamacare leading to part-time nation The Detroit News Editorial Page Temp Nation Kelly Services = 2 nd Largest Private Employer In The World (538k Employees) Only 47% of American Adults are Employed Full Time * Source: BLS Temporary Work: Increased 50% since recession end June 2009* Increasingly prevalent for skilled positions such as lawyers, doctors and IT Strategic Change UPS to End Health Benefits for Some Working Spouses of Employees WSJ Walgreens moves workers to private health-care exchange The Washington Post Shift to Defined Contribution Private Exchange Option HDHP Full Replacement/Repositioning Coverage Eg: Nationwide, FedEx and Marathon Oil Bare Minimum Value Option Deductible: $6,350/$12,700 Coinsurance: 100% Preventive: 100% Contributions*: Single: $120 Family: $700 * Assumes: Cost: $300 single, $700 not single Wage: Minimum Wage of $15,300 11

13 CREATING AND MAINTAINING A COMPETITIVE TOTAL REWARDS PACKAGE

14 So Why Offer Benefits anyway? Competitive Advantage (or at least mitigate the disadvantage) Attract Retain Engage Top Talent 13

15 Competitive Financial/Tax Advantage Maximize Employment Deal Total Rewards, After Taxes Financial and Tax advantages of employer provided coverage: Employer contribution to benefits is not taxable to employees and not subject to employer payroll taxes. Employer paid stipend for employee to purchase coverage on their own is taxable to employee and subject to employer payroll taxes. Penalties for large employers can be costly Cannot assume employees will get subsidies from the public exchange Costs of coverage on exchanges is paid with after-tax funds so same Δ will result in less buying power 14

16 Competitive Financial/Tax Advantage Maximize Employment Deal Total Rewards, After Taxes Sweet Spot Affordable - Employee & Employer Sustainable - Avoid anti-selection, migration Quality Perceived cost/benefit value, provider network Appropriate - Role within Total Rewards Strategy 15

17 COMMON MISUNDERSTANDINGS

18 Common Misunderstanding #1 Employer gives employees a bonus or stipend so they can purchase health coverage of their choice and considers it nontaxable since it is specifically designated for employees health coverage. This is not allowed. Any compensation, even if clearly intended for the employee to purchase health coverage, is taxable It is a good idea to show the stipend as a separate item on the pay stub. Reminds employee that employer is helping with cost of insurance Keeps it out of the base salary in case an employer plan is later offered. Keeps it out of the base salary for calculation of raises. 17

19 Common Misunderstanding #2 Full Time means year round 40 hour a week employees Wrong Full Time now means at least 30 hours per week on average. You can no longer define what full time means for your organization. You can no longer exclude certain classes of employees. Part time ee might qualify for coverage if they work enough hours even if they aren t supposed to work more than 29 hours per week. Seasonal could qualify if the season is long or is extended or if a person is hired for two seasons during the year. 18

20 Common Misunderstanding #3 Employer provides health insurance to its District Manager but not to any other employees (or has a significantly higher employer contribution to coverage or has richer plan design for the district manager) May not pass anti-discrimination testing. Better idea is to provide a stipend or additional compensation and include it in taxable income. 19

21 Common Misunderstanding #4 PPACA doesn t apply to small employers WRONG most provisions of PPACA apply to all health plans. The employer mandate to offer affordable minimum value coverage does not apply to small employers (Fewer than 50 FTE s). Reporting requirements are more extensive for large employers but there are some requirements for small employers as well. 20

22 EMPLOYER REPORTING REQUIREMENTS FOR 2015 (IN EARLY 2016)

23 It s Not That Complicated Really! Source: Groom Law Group PPACA 102 (2015) 22

24 IRC 6055 & 6056 Reporting - Overview Purpose Determine whether ALEs subject to Pay or Play are offering to substantially all FTEs MEC that is affordable and provides MV Intended to simplify and streamline information reporting process for insurers and plan sponsors Shows satisfaction of the Individual Mandate requirements What are the general reporting requirements? IRC Sec annual reporting of MEC for Individual Mandate IRS transmittal Form 1094-B and reporting Form 1095-B (the B Forms ) IRC Sec annual reporting by ALEs for Employer Mandate IRS transmittal Form 1094-C and reporting Form 1095-C (the C Forms ) PPACA 102 (2015) 23

25 Summary Who and What Employer Insured Health Plan Self-Insured Health Plan Small Employer Less than 50 full-time employees (FTEs) Does not file Insurer files Form 1095-B Files Form 1095-B Applicable Large Employer (ALE) with FTEs ALE with 100 or more FTEs ALE member files Form 1095-C and completes Parts I and II Insurer files Form 1095-B ALE member files Form 1095-C and completes Parts I and II Insurer files Form 1095-B ALE member files Form 1095-C and complete Parts I, II and III ALE member files Form 1095-C and completes Parts I, II and III All required filers will also complete the associated transmittal Forms: 1094-B and 1094-C PPACA 102 (2015) 24

26 IRC 6055 & 6056 Reporting Special Situations Multiemployer Plan Participating employer who is ALE reports compliance with Employer Mandate on C Forms (whether insured or self-insured) Form 1095-C, parts I and II only; part III left blank Insurer (insured plan), non-ale plan sponsor (e.g., board of trustees self-insured plan) or non-ale participating employer (self-insured plan) reports compliance with Individual Mandate on B Forms Multiple Employer Welfare Arrangement (MEWA) Each participating employer reports separately If ALE Plan is insured Employer prepares C Forms Form 1095-C, parts I and II; part III left blank Insurer prepares B Forms Plan is self-insured Employer prepares C Forms Form 1095-C, parts I, II and III If Non-ALE Plan is insured Insurer prepares B Forms Plan is self-insured - Employer prepares B Forms PPACA 102 (2015) 25

27 IRC 6055 & 6056 Reporting Special Situations (continued) Government Plans Government employer is ALE Plan is insured Employer prepares C Forms Form 1095-C, parts I and II; part III left blank Insurer prepares B Forms Plan is self-insured Employer prepares C Forms Forms 1095-C, parts I, II and III Government employer is non-ale Plan is insured Insurer prepares B Forms Plan is self-insured Employer can designate another government entity (DGE) to prepare B Forms PPACA 102 (2015) 26

28 Deadlines To the IRS: Electronic filing by March 31 st of the year following the compilation of the data. If reporting for 250 or more information returns, MUST file electronically Paper filing by February 28 th of the year following the compilation of the data To Taxpayers/Employees: Statements provided by January 31 of the year following the compilation of the data Information is filed on a calendar year basis regardless of the plan year basis Voluntary reporting in 2015 (reporting on 2014) PPACA 102 (2015) 27

29 Common Misunderstanding #5 The Cadillac Tax in 2018 only applies to very rich plan designs with low deductibles and low copays WRONG The Excise Tax is based on the premium, not on the plan design or benefits. Colorado employers could face this excise tax even though their plans are not rich benefits because their rates are high because the cost of care is very high, particularly in the mountain and resort areas. 28

30 Cadillac Tax Starting in 2018, implements a 40% Excise/Penalty tax on certain high-cost health coverage The Excise Tax on costs exceeding certain limits: $10,200 for single coverage $27,500 for family coverage Cost of coverage includes both employer and employee costs Cost of coverage is calculated same as COBRA premiums Includes reimbursements under a FSA/HSA & E er contributions to HSA Excludes certain HIPAA-excepted benefits

31 Cadillac Tax Thresholds are increased for retirees and individuals in high-risk professions The 2018 thresholds may be further adjusted for employers whose age and gender demographics exceed those of the national workforce Thresholds established in 2018 will be adjusted for inflation in later years 2019/2020: CPI +1%; CPI thereafter

32 Cadillac Tax Example: Individual has single coverage Cost of that coverage is $10,500 Applicable threshold for single coverage in 2018 is $10,200 Excise/Penalty tax of 40% applies to only the amount that exceeds $10,200 $10,500 - $10,200 = $300 $300 *.40 = $120 Excise/Penalty tax payment is $120 Employer must pay both the cost of coverage and the Excise Tax

33 QUESTIONS?