Affordable Care Act Employer Shared Responsibility Notice Requirements

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1 Matt Isbellʼs Affordable Care Act Employer Shared Responsibility Notice Requirements COBRA Resources, Inc. P.O. Box Kalamazoo, MI Visit us online at for more information, program schedules and answers to your questions 1

2 COBRA Resources, Inc. COBRA Resources, Inc. is a unique company organized for the purpose of bringing to U.S. employers dynamic and professional training programs which hold the interest and attention of participants so as to accelerate their understanding and ability to interface with federal health and benefits legislation, such as the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). By concentrating in this area of federal law, the company pulls together all of the available resources on COBRA, including the Internal Revenue Service, Department of Labor, Federal courts, labor attorneys, and more. In addition to the seminar you are attending today, COBRA Resources, Inc. also presents in-house training programs and convention workshops. We hope that you find the seminar worthwhile and will join us in the future when we return to your area. Matthew G. Isbell For 25 years, Matt has consulted with insurance companies, TPAʼs and employers on compliance issues, but his true passion is seminars. At 2400 educational conferences, Matt has personally guided employees of the IRS and U.S. Department of Labor, along with benefits like yourself, on successful federal compliance procedures. Matt as even trained the staffs of national compliance companies which is why he is considered the leader in federal compliance training. His upbeat, 110% effort in conducting the seminar has lead an attendee at several of Mattʼs seminars to describe his presentations as not really a seminar, but an event not to be missed. By including attendees personal experiences from the front lines in the benefits office, Matt integrates the information throughout the day to show correct administration procedures. His positive style will reinforce your proper compliance efforts, and will help you identify any potential flaws in your system before they become actual problems. Matt also has the unique ability to take the legal mumbo-jumbo of federal laws and explain it in a plain English way for you to learn. Widely known for his energetic presentations, he will help you see the entire compliance picture in a way that is entertaining while being highly informative. As founder of COBRA Resources, Inc. Matt is sought after as a convention workshop/seminar speaker. Disclaimer The material contained in this manual, other than IRS and Department of Labor Final Regulations, opinion papers and IRS forms regulations and rulings, is intended to be a summary of the law only and not a complete description. It is presented in a manner to assist in understanding the nature of the law. These written materials and answers provided to questions during the seminar should not be construed as constituting legal advice and are only intended for use in conjunction with this program. Certain statutes, regulations, etc. may be amended or overruled following a course presentation and/ or purchase of these materials. Consultation with your legal and accounting professional before and in conjunction with the use of these materials is recommended. 2

3 General Provisions General Definition of an Applicable Large Employer (ALE) 50+ Full Time Employees For 2015 and after, employers employing at least 50 full-time employees or a combination of full-time and parttime employees that is equivalent to 50 full-time employees will be subject to the Employer Shared Responsibility provisions under section 4980H of the Internal Revenue Code. As defined by the statute, a full-time employee is an individual employed on average at least 30 hours of service per week. An employer that meets the 50 full-time employee threshold is referred to as an applicable large employer. Under ACA, an employee is considered full-time of they work on average 30 hours per week or 130 hours per month. If, by the nature of the employees position, he or she is reasonably expected to work on average 30 hours per week or 130 hours per month, they should be classified as full-time for benefit eligibility purposes and must be offered benefits subject to a maximum 90-day waiting period If the employee is definitely not full-time, there is no requirement to offer coverage If it is unknown whether the employee is full-time or part-time, they are known as a variable hour employee Originally, the determination as to whether a variable hour employee was full-time was to be done EACH MONTH! Naturally, there was plenty of concern about changing eligibility status every 30 days and the administrative burden that would create, especially for employers with heavy variable hour employee populations An optional safe harbor method was created for determining a variable hour employeeʼs full-time status using a look-back measurement period. There are two types of measurement periods. The standard measurement period is applied to all employees in a group (more on that later) and begins and ends on the same date for all employees in the group. The initial measurement period is applied per newly hired variable hour employee and generally coincides with the beginning of employment. If they are determined to be full-time in the measurement period, their full-time status and eligibility for benefits is locked in for the following stability period. In general, the stability period is the same length as the measurement period, but cannot be less than 6 months long. Various Employee Categories Volunteers: Hours contributed by bona fide volunteers for a government or tax-exempt entity, such as volunteer firefighters and emergency responders, will not cause them to be considered full-time employees. Educational employees: Teachers and other educational employees will not be treated as part-time for the year simply because their school is closed or operating on a limited schedule during the summer. Seasonal employees: Those in positions for which the customary annual employment is six months or less generally will not be considered full-time employees. Student work-study programs: Service performed by students under federal or state-sponsored work-study programs will not be counted in determining whether they are full-time employees. Adjunct faculty: The final regulations provide as a general rule that, until further guidance is issued, employers of adjunct faculty are to use a method of crediting hours of service for those employees that is reasonable in the circumstances and consistent with the employer responsibility provisions. However, to accommodate the need for predictability and ease of administration and consistent with the request for a bright line approach, the final regulations expressly allow crediting an adjunct faculty member with 2. hours of service per week for each hour of teaching or classroom time as a reasonable method for this purpose. 3

4 Are you a "Large Employer"? An "employer" includes all types of common law employers, including private employers, public employers, churches and non-profit employers. A "large" employer is an employer who employed an average of at least 50 full-time employees (including full-time equivalent employees) on business days during the preceding calendar year. If an employer does not have at least 50 full-time employees, it still can be subject to the Pay or Play Rule if: The employer is part of a "controlled group" and the total full-time employees (or full-time equivalent ("FTE")) employees) of the controlled group at least equals 50. Each employer in a controlled group is generally called an "applicable large employer member." The Pay or Play Rule penalty generally applies separately with respect to each applicable large employer member. A control group relationship exists if the businesses have one of the following relationships: Parent-subsidiary A parent-subsidiary controlled group exists when one or more chains of corporations are connected through stock ownership with a common parent corporation; and 80 percent of the stock of each corporation, (except the common parent) is owned by one or more corporations in the group; and Parent Corporation must own 80 percent of at least one other corporation. Brother-sister A brother-sister controlled group is a group of two or more corporations, in which five or fewer common owners (a common owner must be an individual, a trust, or an estate) own directly or indirectly a controlling interest of each group and have effective control. Combination of the above A combined group consists of three or more organizations that are organized as follows: Each organization is a member of either a parent-subsidiary or brother sister group; and At least one corporation is the common parent of a parent-subsidiary; And is also a member of a brother-sister group. * The employer is a new employer and it expects to employ an average of at least 50 full-time employees in the current calendar year; * The employer is deemed to be "large" due to a predecessor employer; or * The employer has enough FTE employees to cause the employer to be treated as a large employer Health Insurance Responsibility of an ALE Under the ACA, an ALE is required to offer group health insurance to all eligible full-time employees that meet a three part test. The health plan must provide Minimum Essential Coverage The health plan must meet a Minimum Value Test The plan must be Affordable Under the Employer Shared Responsibility provisions, if these employers do not offer affordable health coverage that provides a minimum level of coverage to their full-time employees (and their dependents), the employer may 4

5 be subject to an Employer Shared Responsibility penalty if at least one of its full-time employees receives a premium tax credit for purchasing individual coverage on one of the new Health Insurance Exchanges, also called a Health Insurance Marketplace (Marketplace). If the employer provides health insurance that meets the above tests and an employee waives the employer coverage and purchases an individual plan in the Health Insurance Marketplace, the employee will NOT qualify for a Premium Tax Credit. Effective Date - January 1, 2015 The Employer Shared Responsibility provisions are effective January 1, 2015, meaning that no Employer Shared Responsibility penalties will be assessed for Employers will use information about the number of employees they employ and their hours of service during 2014 to determine whether they employ enough employees to be an applicable large employer for All Applicable Large Employers Are Subject To the Requirements All employers that are applicable large employers are subject to the Employer Shared Responsibility provisions, including for-profit, non-profit, and government entity employers. Small Businesses with fewer than 50 employees: (about 96% of all employers): Under the Affordable Care Act, companies that have fewer than 50 employees are not required to provide coverage or fill out any forms in 2015, or in any year, under the Affordable Care Act. Employers with 50 to 99 employees (about 2% of employers): Companies with employees that do not yet provide quality, affordable health insurance to their full-time workers will report on their workers and coverage in 2015, but have until 2016 before any employer responsibility payments could apply. Larger employers with 100 or more employees (about 2% of employers): The overwhelming majority of these companies with 100 or more employees already offer quality coverage. Todayʼs rules phase in the percentage of full-time workers that employers need to offer coverage to from 70 percent in 2015 to 95 percent in 2016 and beyond. Employers in this category that do not meet these standards will make an employer responsibility payment for

6 IRS FORM 1095-A Health Insurance Marketplace Statement If an individual has coverage through a Marketplace the Marketplace will send the individual information about the coverage on Form 1095-A. The Marketplace should mail these forms by early February, The form will show details of an individualʼs insurance coverage such as the effective date, amount of the premium, and the advance payments of the premium tax credit or subsidy. Premium Tax Credit: Individuals will use the information on Form 1095-A to complete Form 8962, Premium Tax Credit (PTC) in order to claim the premium tax credit or to reconcile advance credit payments on the federal tax return. Individuals may receive more than one Form 1095-A if anyone in their households switched plans in 2015 or reported life changes (such as getting married or having a baby) after their coverage began, or if they had more than one policy covering people in the same household. Individuals will get a Form 1095-A even if they only had Marketplace coverage for part of Taxpayers who receive a Form 1095-A in the mail from the Marketplace should check to make sure the information matches their records, including items like the start and end dates of their coverage and the number of people in their household. Part I. Recipient Information reports information about you, the insurance company that issued your policy, and the Marketplace where you enrolled in the coverage. 6

7 Part II. Coverage Household reports information about each individual who is covered under your policy. Part II also tells the IRS the months that the individuals identified are covered by health insurance and therefore have satisfied the individual shared responsibility provision. Part III. Household Information reports information about your insurance coverage that you will need to complete Form 8962 to reconcile advance credit payments or to claim the premium tax credit when you file your return. Column A. This column is the monthly premium amount for the policy in which you enrolled. Column B. This column is the monthly premium amount for the second lowest cost silver plan (SLCSP) that the Marketplace has determined applies to members of your family enrolled in the coverage. The premium for the applicable SLCSP is used to compute your monthly advance credit payments and the premium tax credit you claim on your return. 7

8 Employer Reporting Requirements The filing of employer informational returns support enforcement of the individual insurance mandate and employer mandate as authorized by section 6055 and 6056 of the Internal Revenue Code. Section 6056 requires those employers to report to the IRS information about the health care coverage, if any, they offered to full-time employees, in order to administer the employer shared responsibility provisions of section 4980H of the Code. Section 6056 also requires those employers to furnish related statements to employees that employees may use to determine whether, for each month of the calendar year, they may claim on their individual tax returns a premium tax credit under section 36B (premium tax credit). In General Section 6056 Code Section 6056 requires applicable large employers (those with at least 50 full-time employees, including full-time equivalents) to report the terms and conditions of health plan coverage offered to fulltime employees which helps the IRS administer the Employer Shared Responsibility penalty. A full-time employee generally includes any employee who was employed on average at least 30 hours of service per week and any full-time equivalents (for example, 40 full-time employees employed 30 or more hours per week on average plus 20 employees employed 15 hours per week on average are equivalent to 50 full-time employees). Combined Group Rules For purposes of the information reporting requirements under section 6056, each ALE member must file an information return with the IRS and furnish a statement to its full-time employees, using its own EIN. All persons treated as a single employer under section 414(b), (c), (m), or (o) are treated as one employer for purposes of determining applicable large employer status under section 4980H. Under those rules, companies will be combined and treated as a single employer for purposes of determining whether or not the employer has at least 50 full-time employees (including full-time equivalents) and together will be an applicable large employer. Each of the companies that is combined is referred to as an ALE member. When the combined total of full-time employees (including full-time equivalents) meets the threshold, each separate company or ALE member is subject to the employer shared responsibility provisions even if a particular company or companies individually do not employ enough employees to meet the 50-full-time-employee threshold.. 8

9 1095-C and COBRA QBs Under the Affordable Care Actʼs (ACAʼs) Employer Shared Responsibility provision, better known as the Play or Pay provision, applicable large employers (ALEs) are required to provide a report to each of their full time employees for coverage offered to the employee for any months in the calendar year (e.g., 2015) and that the offered coverage was of minimum value and affordable. This report to the full time employee is on Form 1095-C. The IRS has provided guidance in the Instructions for Forms 1094-C & 1095-C for how the ALE should report coverage when COBRA is involved. The reporting differs based on whether the ALEʼs group health plan is insured or self-insured. Insured ALE reporting The issuer of the ALEʼs group health plan will provide a report to each responsible individual enrolled in the ALEʼs group health plan, including COBRA qualified beneficiaries (QBs), on Form 1095-B. The insured ALE is responsible to provide a Form 1095-C Full time employee report of coverage offer only to an employee that was considered a full time employee for any month(s) of the calendar year, by completing Parts I and II of the 1095-C. Termination of Employment: If a full time employee had the qualifying COBRA event of termination of employment during the calendar year and the former employee was offered COBRA, the ALE does not report the COBRA offer as an offer of coverage on the employeeʼs Form 1095-C. Rather, for any months after the termination of employment, the ALE uses code 1H (no offer of coverage) on line 14 in Part II of the 1095-C. In addition, the ALE would report $0 as the cost of the former employeeʼs coverage on line 15 in Part II and use code 2A (employee not employed) in line 16 of Part II for the month(s) after the termination of employment. 9

10 Reduction in Hours: If a full time employee had the qualifying COBRA event of reduction in hours during the calendar year and was offered COBRA due to that reduction in hours, the ALE reports the offer of COBRA as an offer of coverage and uses the same code on line 14 in Part II of the 1095-C as for any other full time employee. In addition, the employeeʼs share of the lowest cost self-only plan option on line 15 in Part II would be the full COBRA premium cost of the lowest cost single plan option the ALE offers to its full time employees and the ALE would assign the appropriate series 2 code in line 16 for the month(s) that the reduced hours employee was offered COBRA. Other COBRA Events: Insured ALEs are not responsible to provide reporting to any other QBs that were offered or enrolled in COBRA during the calendar year, such as for retirees, surviving or ex-spouses and dependents that lost eligibility. The insurer of the ALEʼs group health plan will provide a 1095-B report to these individuals if they are/were enrolled through COBRA. The Bottom Line: The only COBRA events that an insured ALE is concerned with are termination of employment for the full time employee during the calendar year and reduction in hours that led to an offer of COBRA during the calendar year to a full time employee. Self-insured ALE reporting A self-insured ALE is responsible to provide a Form 1095-C Full time employee report of coverage offer to any employee that is enrolled in the self-insured group health plan, even if not a full time employee, including through COBRA. In addition, the ALE is responsible to provide a report to non-employees (e.g., retirees, ex-spouses, former dependents, etc.) that are enrolled in the self-insured health plan, for example, through COBRA. For full time employees that were offered COBRA due to the qualifying events of termination of employment or reduction in hours during the calendar year, the self-insured ALE should follow the same reporting procedure as indicated above for insured ALEs. In addition to the reporting in Parts I and II of Form 1095-C, the self-insured ALE must complete Part III by checking the box regarding self-insured coverage and provide the required information for each of the covered individuals for all of the months the individual was covered by the self-insured health plan, including through COBRA. The IRS guidance for self-insured ALEs and their 1095-C reporting requirements provides that the ALE can use Form 1095-B, rather than Form 1095-C, to report coverage that a non-employee was enrolled in during the calendar year. Consequently, a self-insured ALE can use Form 1095-B to report COBRA coverage that a former employee was enrolled in who was not employed during any month of the calendar year or the COBRA coverage that a surviving spouse, exspouse and/or dependent was enrolled in during the calendar year. The Bottom Line: Self-insured ALEs have additional 1095-C reporting requirements beyond those required of insured ALEs, including the reporting of individuals covered through COBRA, even if the COBRA event occurred in a prior calendar year. Impact On The Human Resource/Benefits Department The IRS Forms mentioned above will be completed and filed by a variety of resources, the company accounting department, an outside accounting or payroll company, or another third party. Liability If Filed By A Third Party: Entering into a reporting arrangement, however, does not transfer the ALE memberʼs potential liability does not transfer the potential liability for failure of the ALE member to file returns and furnish statements under section If a person who prepares returns or statements required under section 6056 is a tax return preparer, that person will be subject to the requirements generally applicable to tax return preparers. While the IRS forms will be filed by accounting professionals, much of the information needed for preparing the forms will be coming from the human resources/benefits department. 10

11 Tracking Of Information Should Have Begun On January 1, 2015! Employers must carefully track every employeeʼs monthly status and keep permanent tax records documenting their status for each month. 1. Hours of Service must be tracked and based on actual hours-worked and hours for which payment is due An employee's hours of service include the following: Each hour for which an employee is paid, or entitled to payment, for the performance of duties for the employer and Each hour for which an employee is paid, or entitled to payment by the employer on account of a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence 2. In determining full time status of an employee, what measurement period is being used? 3. What stability period is being used? 4. What administrative period is being used? 5. Names of all full-time employees 6. Social security numbers 7. Dates of birth 8. Date of hire 9. Offer of health insurance - required code 10. End of Waiting period 11. Coverage status- required code 12. Employee share of least expensive plan 13. Dates of coverage 14. Certifications of eligibility 15. Total employee count Individual Documentation For Tax Filing The health care law will brings changes to federal income tax returns for individuals in tax year This year marks the first time that taxpayers will be asked questions related to health care coverage. Most taxpayers simply need to check a box indicating they had qualifying health care coverage for the entire year. Some taxpayers will have to file a new form to claim an exemption from the requirement to have health care coverage. Individual Shared Responsibility Payments: Taxpayers who do not have qualifying health care coverage and who do not qualify for an exemption will need to make an individual shared responsibility payment when they file their tax returns. Premium Tax Credits: Some taxpayers who enrolled in coverage through the Marketplace may qualify for a premium tax credit and must file a tax return to claim the credit and to reconcile any advance payments made on their behalf in In 2015, people who have qualifying health care coverage will receive tax information documents that are comparable to Forms W-2 and 1099 from their employer. Individuals that purchased coverage through the Health Insurance Marketplace, should receive IRS Form 1095-A, Health Insurance Marketplace Statement by early February, Proof of Insurance Taxpayers are not required to send in proof of health care coverage to the IRS when filing their tax return. However, itʼs a good idea to keep these records on hand to verify coverage. This documentation includes: insurance cards 11

12 explanation of benefits statements from your insurer W-2 or payroll statements reflecting health insurance deductions records of advance payments of the premium tax credit any other statements indicating that you, or a member of your family, had health care coverage. 12