NEW BUSINB. Shardé TH STREET, 16 TH FLOOR FRESNO, CALIFORNIA T: (559) F: (559) WEST "C" STREET, SUITE 620

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1 6033 WEST CENTURY BOULEVARD, TH 5 FLOOR LOS ANGELES, CALIFORNIA T: (310) F: (310) MAIN STREET, 7 TH FLOOR SAN FRANCISCO, CALIFORNIA T: (415) F: (415) NORTH N PALM AVENUE,, SUITE WEST "C" STREET, SUITE TH STREET, 16 TH FLOOR FRESNO, CALIFORNIA T: (559) F: (559) SAN DIEGO, CALIFORNIA T: (619) F: (619) SACRAMENTO, CALIFORNIAA T: (916) F: (916) CALIFORNIA ASSOA OCIATION OF SCHOOL BUSINESSS OFFICIALS (CASBO) 2016 AN NNUAL CONFERENCEE & CALIFORIA SCHOOL BUSINB NESS EXPO NEW ACA Dev elopments and How They Impact Schools 4/ /16/16 PRESENTED BY: Shardé C. Thomas

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3 APRIL 13-16, 2016 NEW ACA Developments and How They Impact Schools THESE MATERIALS HAVE BEEN PREPARED BY LIEBERT CASSIDY WHITMORE THEY HAVE NOT BEEN REVIEWED BY STATE CASBO FOR APPROVAL, SO THEREFORE ARE NOT AN OFFICIAL STATEMENT OF CASBO Agenda ACA IRS Reporting Employer Mandate Transition Relief Affordability Determinations Flexible Contributions Cash in Lieu Group Health Plan Mandates Cadillac Tax 2 ACA IRS REPORTING All rights reserved 1

4 Who Must Report? Health insurers and plan sponsors of selfinsured plans Applicable large employers 50 or more full time employees, including FT equivalents 4 Reporting Deadlines Extended Due dates for IRS returns extended February 29 May 31, 2016 for hard copy filing; March 31 June 30, 2016 for e file (required for more than 250 returns) Due date for written statement furnished to each employee extended January 31 March 31, 2016 (already passed) 5 Determining Forms to File All rights reserved 2

5 Reporting Penalties Failure to timely file correct return $250 per return (up to $3,000,000) Failure to timely provide correct written statement to employee $250 per statement (up to $3,000,000) Intentional disregard of filing requirements $500 per return (no calendar year cap) 7 Temporary Relief 2016 For 2016 reporting (2015 data), IRS will not impose penalties if: Good Faith Effort Incorrect or Incomplete Info = No penalty BUT Returns and Statements to Employees must be timely! 8 Action Items Finalize Plan for Reporting Create Internal Procedures Revisit Vendor Contracts for 2017 and beyond Calendar new IRS filing deadlines All rights reserved 3

6 EMPLOYER MANDATE 10 Large Employer Mandate Applicable Large Employers Trigger: FT employee purchases subsidized coverage in exchange (Penalty A) Employer does not offer minimum essential coverage to substantially all FT employees & dependents; or (Penalty B) Coverage offered is unaffordable or doesn t provide minimum value 11 Avoiding Penalty A Must Offer Minimum Essential Coverage to Substantially All Full Time Employees & their Dependents All rights reserved 4

7 Avoiding Penalty A Offer Employees continuously covered under plan are considered to have been offered coverage each year until they dis enroll ( opt out ) Employees who opt out must be given a yearly offer of coverage 13 Avoiding Penalty A Minimum Essential Coverage A group health plan! Substantially All 95% of full time employees Dependents Children up to age 26 (but not stepchild or foster child) Not spouses 14 Avoiding Penalty B Triggered by: Failure to offer Affordable Coverage that Provides Minimum Value to Full Time Employees All rights reserved 5

8 Avoiding Penalty B What is Minimum Value? A Minimum Value Plan = An Employer Health Plan that covers at Least 60% of The Cost of the Total Allowed Benefits Actuarial determination Ask insurer/broker 16 Affordable Coverage Affordability Safe Harbors Not measured against the coverage employee selects Measured against the lowest cost plan offered to employees for single, employee only coverage No requirement that dependent coverage be affordable to avoid penalties 17 Affordability Safe Harbors Increase in percentage of Affordability Safe Harbors 2015: increase from 9.5% to 9.56% 2016: increase to 9.66% Safe Harbor Options Form W 2 Rate of Pay Federal Poverty Line All rights reserved 6

9 Large Employer Mandate Penalties Increase Penalty A 2015: $2,080/yr x # of FT employees less : $2,160/yr x # of FT employees less 30 Penalty B 2015: $3,120/yr x # of FT employees who obtain subsidized coverage through Covered California 2016: $3,240/yr x # of FT employees who obtain subsidized coverage through Covered California *Will continue to increase annually 19 Large Employer Mandate Penalties Increase Penalty A 2015: $2,080/yr x # of FT employees less : $2,160/yr x # of FT employees less 30 Penalty B 2015: $3,120/yr x # of FT employees who obtain subsidized coverage through Covered California 2016: $3,240/yr x # of FT employees who obtain subsidized coverage through Covered California *Will continue to increase annually 20 Action Items re: Employer Mandate Update Policies New Affordability Provision: 9.5%, or the applicable legal percentage for the calendar year Reassess Affordability Reassess Potential Penalties All rights reserved 7

10 AFFORDABILITY DETERMINATION 22 Flex Contributions Flex contributions only help make premiums affordable for Employer Mandate if they qualify as Health Flex Contributions 1) Employee may NOT cash out; 2) Employee may use the amount to pay for minimum essential coverage; and 3) Employee can use the amount exclusively to pay for medical care. 23 Flex Contribution Example 1 Liebertown USD offers employees coverage under a Section 125 cafeteria plan. An employee contributes $200 per month toward the cost of coverage. The District offers flex contributions of $600 for the plan year that can be used for: any benefit under the cafeteria plan, including a dependent care flexible spending account, or the employee may elect to receive the $600 in cash. Is the District s contribution a Health Flex Contribution? All rights reserved 8

11 Flex Contribution Example 2 Liebertown USD offers employees coverage under a Section 125 cafeteria plan. The employee premium for the lowest cost plan is $200 per month. The District offers flex contributions of $600 for the plan year that can only be used toward the health coverage or contributed to a health flexible spending arrangement. Is the District s contribution a Health Flex Contribution? 25 Transition Relief for Flex Contributions Plan years beginning before 1/1/17 Not available if arrangement with non health flex contribution: adopted after 12/16/15 or if arrangement substantially increases amount of non health flex $$ Can use the non health flex dollars toward affordability determination. 26 Action Items re: Flex Contributions Determine whether lowest cost plan is affordable without applying flex contributions? If not affordable, determine whether flex contributions are health flex contributions? If not affordable and not health flex contributions, must look at potential restructure All rights reserved 9

12 Cash In Lieu Employee receives cash as incentive to opt out of health benefits Note: If offered outside of cafeteria plan, potential constructive receipt issue Employee electing nontaxable benefits (instead of cash) will be in constructive receipt of the cash he/she could have elected 28 Cash in Lieu 3 Potential Issues : (1) Can t be applied to reduce employee s premium contribution for the affordability analysis (Employer Mandate); (2) Whether it may have the effect of increasing employee contributions to the lowest cost premium (Employer Mandate); (3) Is it a group health plan that must comply with the ACA group health plan mandates? (Group Health Plan Mandate) 29 Cash in Lieu Issue #1 Cash in Lieu can NOT be applied to reduce employee s premium contribution for the affordability analysis (Employer Mandate) Why? Employee is not required to use $ toward health/medical costs. Doesn t satisfy health flex contribution definition All rights reserved 10

13 Cash in Lieu Issue #2 Cash in lieu payments have the net effect of increasing employee contributions above the premium contribution Example: Cactus USD requires Don to pay $200 per month for the cost of health coverage. At the same time, the District offers Kat $100 per month cash in lieu if Kat declines coverage. Therefore, the net effect of Don electing coverage costs him $300 per month because he is missing out on the $100 cash in lieu (that Kat gets) and has to provide a $200 salary reduction contribution. 31 Cash in Lieu Issue #2 cont. Unconditional v. Conditional Opt Out Unconditional: Opt out = get cash Conditional: Opt out + provide proof of group health coverage = get cash Treated Differently Unconditional: Cash amount added to employee premium contribution Conditional: May be ok (not added to premium); But rule pending further IRS guidance 32 Cash in Lieu Issue #3 May not give cash to reimburse employee for coverage purchased through Covered California. Why? Potential violation of ACA Group Health Plan Mandates All rights reserved 11

14 Action Items re: Cash in Lieu Require Proof of Group Health Coverage as a condition to receive cash in lieu (update Policies/Contracts) Labor Negotiations: ACA Re opener since regulations will be issued to address cash in lieu Be on the lookout for new guidance & regulations 34 Health Reimbursement Arrangement (HRA) Employer contributions to HRA may reduce employee s required premium contribution for the Employer Mandate Only to the extent the employer s contribution is required under the HRA Example: If the School District contributes a required $1,200 per year under an HRA, the employee s required contribution will be reduced by $100 per month (1/12 of $1,200) 35 ACA GROUP HEALTH PLAN MANDATES All rights reserved 12

15 Group Health Plan Mandates All group health plans must comply with ACA Group Health Plan Mandates: Must include preventative care services No exclusions for pre existing conditions Coverage for children up to age 26 No annual or lifetime dollar limits on essential health benefits. 37 Is the Arrangement a Group Health Plan? Group Health Plans Must Comply HRAs (Health Reimbursement Arrangements) Health FSAs (that are not excepted benefits) Employer Payment Plans Don t Need to Comply Excepted Benefits Retiree Only Plan Less than two employee participants 38 Employer Payment Plan = Group Health Plan One for which [the employee] pays the premium directly to the insurers and the employer pays a part of such premiums upon proof that the insurance is in force and is being paid for by the employees. Revenue Ruling All rights reserved 13

16 Meeting Group Health Plan Mandates Not a group health plan = No penalties Group health plan = Ask: Can the structure of the arrangement by itself, satisfy ACA Group Health Plan Mandates? If yes = no penalties If no = Ask: Can it be integrated with an ACA compliant group health plan? 40 Cafeteria Plan No integration = Failure to meet ACA group health plan mandates Employer s cafeteria plan contributions cannot directly reimburse an employee for coverage purchased through Covered California (no integration w/ exchange coverage) Covered California plan is not group health plan 41 Penalties PHSA: $100 per day for each individual subject to arrangement s failure to comply All rights reserved 14

17 Action Items Complying with ACA Group Health Plan Mandates Identify arrangement (Health FSA; HSA; HRA; cash in lieu; employer payment plan) Determine whether arrangement is a group health plan Does it comply with ACA on its own? Is it integrated with a compliant group health plan? Require Proof of Group Health Coverage for Opt Out 43 CADILLAC TAX 44 Cadillac Tax Postponed The Cadillac Tax has been postponed until 2020 A high plan cost excise tax Initially scheduled for 2018 Applies to all plans Applies to many types of group health plans made available to an employee by an employer All rights reserved 15

18 Excise Tax Penalties 40% on Excess Benefit over Threshold Threshold: $10,200 for individual coverage and $27,500 for family coverage for Multi employer plans: higher limit Individual = $850/month; Family = $2, Other adjustments Health cost; Age and gender; Cost of living 46 Questions? Shardé C. Thomas Associate Los Angeles Office sthomas@lcwlegal.com Thomas All rights reserved 16

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20 ACA IRS Reporting Employer Action Item Checklist for ACA Finalize Plan for Reporting Create Internal Procedures Revisit Vendor Contracts for 2017 and beyond Calendar new IRS filing deadlines Employer Mandate Update Policies/Procedures with flexible language for affordability percentage Reassess affordability based on increased percentage under Safe Harbor Reassess potential penalty exposure for budgeting/exposure Flex Contributions Reassess affordability if you offer flex contributions: Determine whether lowest cost plan is affordable without applying flex contributions? If not affordable, determine whether flex contributions are health flex contributions? If not affordable and not health flex contributions, must look at potential restructure. Cash in Lieu Require proof of group health coverage as a condition for employee to receive cash in lieu (update Policies/Contracts, which may be negotiable) Labor negotiations: include ACA re-opener (broad enough to cover potential penalties for employer offering cash in lieu) Be on the lookout for new guidance/regulations ACA Group Health Plan Mandates Identify arrangement (Health FSA; HSA; HRA; cash in lieu; employer payment plan) Determine whether arrangement is a group health plan Does it comply with ACA on its own? Is it an excepted benefit? Is it integrated with a compliant group health plan? Require Proof of Group Health Coverage for Opt Out 2016 CASBO Annual Conference & California School Business Expo Liebert Cassidy Whitmore NEW ACA Developments and How They Impact Schools