The Affordable Care Act s Employer Mandate

Transcription

1 The Affordable Care Act s Employer Mandate September 10, 2014 Starting in 2015, as you may by now have heard, the Patient Protection and Affordable Care Act (the Affordable Care Act or the Act ) generally requires large employers to offer healthcare coverage to their employees or face financial penalty, the so-called employer mandate. With the 2014 calendar year swiftly waning, employers must determine if they should provide healthcare coverage to their employees to avoid such penalties. Initially scheduled to take effect on January 1, 2014 under the Affordable Care Act, the mandate for employers with more than 100 employees was delayed by Internal Revenue Service ( IRS ) regulations until January 1, The IRS gave employers with 50 to 99 employees an additional year after that to comply. In general, the Affordable Care Act provides that any applicable large employer who fails to offer its full-time employees the opportunity to enroll in minimum essential coverage through an employer-sponsored health plan, or who offers these employees the opportunity to enroll in such minimum essential coverage that is either: Unaffordable because the employee s required contribution would exceed 9.5 percent of the employee s household income; and/or Does not provide minimum value because the health plan s share of the total allowed cost of benefits is less than 60 percent - Is subject to financial penalties if any of these full-time employees purchases health insurance through a state-based American Health Benefit Exchange ( Exchange ) and receives a premium tax credit or cost sharing reduction. In general, the penalties are as follows: For employers that do not offer health coverage to full-time employees (and their dependents), the penalty is $2,000 for each full-time employee in excess of 30 employees; or For employers that offer coverage that is unaffordable or does not provide a minimum value, the penalty is $3,000 for each full-time employee receiving a premium tax credit. 98 North Washington Street Boston, MA (617) Constitution Avenue NE Washington DC (202)

2 The penalty for both non-offering and offering employers for any month, however, is capped at the amount calculated by multiplying the number of full-time employees during the month that exceed 30 by $ (one-twelfth of $2,000), regardless of how many employees are receiving a premium tax credit or cost-sharing reduction. In other words, the maximum amount that an employer could pay is capped at the penalty it would be assessed for failing to offer the opportunity to enroll in minimum essential coverage. Thus, the penalty imposed on an "offering" employer can never exceed the penalty imposed on a nonoffering employer with the same number of employees. A. Employers Responsibility for offering Minimum Essential Coverage 1. Large Employer Such large employers are employers that had an average of 50 or more full-time and full-time equivalent employees on business days during the preceding calendar year, although this minimum number has actually been increased to 100 full-time and full-time equivalent employees for the 2015 calendar year only by IRS regulations. Thus, in 2015 a large employer is one that employed, on average, 100 or more full-time or full-time equivalent employees in In 2016 a large employer will be considered one that employed 50 or more full-time employees or full time equivalents in A full-time employee is one who is employed on average at least 30 hours per week or 130 hours per calendar month, including vacation and paid leaves of absence. There are two methods for determining full-time status of employees. The first is the average number of hours worked each calendar month. The second method uses a "look-back" analysis. Under the look-back measurement, an employer selects a "standard measurement period" of three to twelve months and determines whether the employee worked an average of 30 hours per week during that period. For each employee who did, the employee will be considered fulltime for (and thus must be covered during) the "standard stability period." That stability period generally must be at least six consecutive months but not shorter than the chosen standard measurement period. For new employees, a full-time employee is one whom the employer reasonably expects to be full time (and not seasonal) at the time of hire. Page 2

3 2. Penalty for Employers Failing to Offer Opportunity to Enroll An applicable large employer failing to offer its full-time employees the opportunity to enroll in minimum essential coverage under an employer-sponsored health plan for any month is subject to a penalty if just one of its full-time employees purchases health insurance through an Exchange who also receives a premium tax credit or cost sharing reduction for purchasing this insurance. The penalty amount is calculated by multiplying the number of all of the full-time employees that exceed 30 during the month by $ (one-twelfth of $2,000), regardless of how many employees are receiving a premium tax credit or cost-sharing reduction. To avoid the penalty in 2015, the IRS has determined that a large employer must offer coverage to 70 percent of its full-time employees and their dependents. To avoid the penalty in 2016 it must offer coverage to 95 percent of its full-time employees and their dependents. 3. Penalty for Employers Offering Coverage that is Unaffordable or lacking Minimum Value An applicable large employer offering its full-time employees the opportunity to enroll in minimum essential coverage under an employer-sponsored health plan that is unaffordable or without minimum value for any month is likewise subject to a penalty if at least one of its full-time employees purchases health insurance through an Exchange while also receiving a premium tax credit or cost sharing reduction for doing so. The penalty amount is calculated by multiplying only the number of full-time employees receiving a premium tax credit or cost-sharing reduction during the month by $ (one-twelfth of $3,000). The penalty for both non-offering and offering employers for any month, however, is capped at the amount calculated by multiplying the number of full-time employees during the month that exceed 30 by $ (one-twelfth of $2,000), regardless of how many employees are receiving a premium tax credit or cost-sharing reduction. In other words, the maximum amount that an employer could pay is capped at the penalty it would be assessed for failing to offer the opportunity to enroll in minimum essential coverage. Thus, the penalty imposed on an "offering" employer can never exceed the penalty imposed on a nonoffering employer with the same number of employees. Page 3

4 a. No Financial Penalty Assessed Employers should note that even though they may meet the full-time employee threshold to be a "large employer," they will not be considered such under these penalty provisions unless they have at least one full-time employee who is enrolled in a health plan through an Exchange who also receives a premium assistance tax credit or cost-sharing reduction. Put differently, even though a company may meet the full-time employee threshold to be a "large employer," it will not be penalized for failing to offer its employees affordable health insurance unless it has at least one full-time employee who is enrolled in a health plan through an insurance Exchange who also receives a premium assistance tax credit or cost-sharing reduction. And as previously discussed, individuals who are eligible for employer-sponsored coverage can only obtain premium credits for Exchange plans if their income is between 100 to 400 percent of the federal poverty level and (1) if the employee s required contribution exceeds 9.5 percent of the employee s household income or (2) if the plan offered by the employer pays for less than 60 percent of covered healthcare expenses. 4. Eligibility for Premium Tax Credits and Cost Sharing Reductions Under the Affordable Care Act, taxpayers with household in-come falling between 100 percent and 400 percent of the federal poverty level who purchase qualified health plans through state-operated Exchanges can qualify for a health insurance premium tax credit. These low to moderate income individuals purchasing such coverage through an Exchange may also qualify for cost-sharing subsidies to help pay for deductibles, copayments, etc. These cost-sharing reductions are limited to coverage months for which a premium tax credit is allowed to the insured. Cost-sharing includes deductibles, copayments, or coinsurance, but does not include premiums or spending for non-covered services. 5. Minimum Essential Coverage, Affordable and Minimum Value Defined Interestingly, the term minimum essential coverage does not require the employer to provide certain types of coverage, such as would apply to an essential health benefits plan eligible for certification by an Exchange as a qualified health plan. That is, employer-sponsored self-insured and insured large group plans are not required to conform their plans to any of the essential health benefit ( EHB ) benchmarks that HHS is proposing to apply to qualified health plans. These employer-sponsored plans need not offer all of the EHBs or even cover Page 4

5 each of the ten statutory EHB categories. But the Affordable Care Act does require such minimum essential coverage to be a group health plan offered by an employer that is affordable and that provides minimum value. Minimum essential coverage is defined in section5000a(f) of the Internal Revenue Code, as added by the Affordable Care Act, subject to the special rule contained in Code Section 36B(c)(2)(C)(i)and (ii) concerning affordable and providing minimum value. The statutory language actually sets out a special rule for employer-sponsored minimum essential coverage, providing that employees are ineligible for such coverage that is not affordable or that fails to provide minimum value as described. The definition of eligible employer sponsored plan in section 5000A(f)(2)applies for purposes of section 4980H. As a general matter, if an employee is offered affordable minimum essential coverage under an employer-sponsored plan, the individual is ineligible for a premium tax credit and cost sharing reduction for health insurance purchased through an Exchange. If an employee is offered employer-sponsored minimum essential coverage that is not affordable or that fails to provide minimum value, then the employee would be eligible for a premium tax credit and cost sharing reduction if his or her income falls between 100 percent and 400 percent of the federal poverty level. But neither of these exceptions applies if the employee nevertheless chooses to enroll in the employer-sponsored plan. The employee is only eligible for the premium tax credit and cost sharing reduction if he or she declines to enroll in such an employer-sponsored plan and instead purchases coverage through the Exchange. An employer-sponsored plan is not affordable if the employee s required contribution would exceed 9.5 percent of the employee s household income. The employee must seek an affordability waiver from the state Exchange and provide information as to family income and the lowest cost employer option offered to them. The state Exchange then provides the waiver to the employee. The employer penalty applies for any employee(s) receiving an affordability waiver. In Notice , the IRS described a safe harbor allowing employers to use an employee s Form W-2 wages (as reported in Box 1) instead of household income in determining whether coverage offered is affordable. An employer-sponsored plan under which the plan s (or employer s) share of the total allowed cost of the benefits (actuarial value) provided under the plan is less than 60 percent does not provide minimum value. A plan s actuarial value is a summary measure of a Page 5

6 health plan s benefit generosity. It is expressed as the percentage of medical expenses estimated to be paid by the insurer for a standard population and set of allowed charges. 6. Employer Notification An employer must be notified if one of its employees is determined to be eligible for a premium assistance credit or a cost-sharing reduction because the employer does not provide minimal essential coverage through an employer-sponsored plan, or the employer does offer such coverage but it is not affordable or the plan's share of the total allowed cost of benefits is less than 60 percent. The notice must include information about the employer's potential liability for payments under section 4980H. The employer must also receive notification of the appeals process established for employers notified of potential liability for payments under section 4980H. B. Reporting Minimum Essential Coverage The Affordable Care Act requires information to be provided to the IRS and to individuals, in part to ensure that they have both knowledge and proof of meeting the individual mandate. Every person (including employers, insurers, and government programs) that provides minimum essential coverage to any individual must provide a return to the IRS and a statement to the covered individual. The person required to provide the return and statement is referred to as the reporting entity. In general, insurers are the reporting entities for all fully insured health insurance arrangements, and plan sponsors are the reporting entities for all self-insured arrangements. A government agency or unit is the reporting entity for any coverage under a governmentsponsored program, including any coverage that is provided through an insurer (e.g., a Medicare Advantage plan). An insurer does not have to provide a return or a statement for any coverage it offers through an individual health insurance Exchange, as the Exchange is the reporting entity for such coverage; however, insurers that offer small group coverage through a small business health options program ( SHOP ) exchange are the reporting entities for such coverage. The return provided to the IRS must include the following: Page 6

7 The name, address, and employer identification number (EIN) of the reporting entity required to file the return; The name, address, and taxpayer identification number (TIN) of the responsible individual and each other individual covered under the policy or program; The months for which, for at least one day, each individual was covered under the policy or program; For coverage provided through the group plan of an employer The name, address, and EIN of the employer sponsoring the plan; Whether the coverage is a qualified health plan offered through a SHOP exchange and the SHOP s unique identifier; And any other information as specified in forms, instructions, or published guidance issued by the Treasury. The reporting entity is also responsible for providing a statement to each responsible individual covered under the policy or program. The statement must include the contact information for the person designated as the reporting entity s contact person; the policy number of the coverage, if any; and the information included in the return to the IRS for the responsible individual and any individuals listed on the return. Reporting entities were required to begin submitting returns in 2014; however, in July 2013 the Treasury published a notice that delayed the reporting requirement until Reporting entities that do not file timely and accurate returns and those that do not provide statements to individuals could be subject to penalties. 1. Forms and Instructions Accordingly, the IRS has released draft instructions for Forms 1095-A, 1094-B, 1095-B, 1094-C and 1095-C used for reporting the coverage under the Affordable Care Act. Form 1095-A, Health Insurance Marketplace Statement, is used to report information about family members who enroll in a qualified health plan through the Marketplace ( Exchange ). It also is furnished to individuals to allow them to claim the premium tax credit. Health Insurance Exchanges must file Form 1095-A to report information on all enrollments in quali- Page 7

8 fied health plans through the Exchange. Exchanges may be state Exchanges, regional Exchanges, subsidiary Exchanges, or the federally-facilitated Exchange. Form 1095-A must be filed with the IRS and furnished to individuals on or before January 31, 2015, for coverage in calendar year Form 1095-B, Health Coverage, is used to report certain information to the IRS and to taxpayers about individuals who have minimum essential coverage and, therefore, are not liable for the individual shared responsibility payment. The return and transmittal (Form 1094-B, Transmittal of Health Coverage Information Returns) must be filed with the IRS on or before February 28 (March 31, if filed electronically) of the year following the calendar year of coverage. These forms are not required to be filed for However, in preparation for the first required filing of these forms in 2016, reporting entities may voluntarily file in 2015 for 2014 in accordance with the instructions. The draft forms and instructions are available here: Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, is used by employers with 50 or more full-time employees to report the information required under Code Sections 6055 and 6056 about offers of healthcare coverage and enrollment in healthcare coverage for their employees. Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, must be used to report to the IRS summary information for each employer and to transmit Forms 1095-C to the IRS. Form C is used to report information about each employee. Forms 1094-C and 1095-C are not required to be filed by any employer for However, in preparation for the first required filing of these forms, employers may voluntarily file in 2015 for 2014 in accordance with the instructions. The draft forms and instructions are available here: No employer shared responsibility payments under Code Section 4980H will apply for 2014 for any employer, regardless of whether they voluntarily file for For more information on transition relief from the reporting requirements and employer shared responsibility payments for 2014, see Notice * * * This Policy Update provides general information and not legal advice or opinions on specific facts Page 8