Health Care Reform Update: Why the One Year Delay in the Employer Mandate is NOT Good News. July 31, 2013

Transcription

1 Health Care Reform Update: Why the One Year Delay in the Employer Mandate is NOT Good News July 31, 2013 John M. Peterson Anna Richardson Smith Kaufman & Canoles, P.C. Disclosure The following disclosure is required pursuant to IRS Circular 230 and applicable state and local tax provisions, the regulations that govern the practice of tax advisors. Any advice concerning Federal, state and local tax issues contained in this written communication (and any attachments) has not been written nor is it intended by the author or Kaufman & Canoles, PC to be used, and cannot be used, for the purpose of (i) avoiding federal, state or local tax penalties that may be imposed by the Internal Revenue Service or applicable state or local tax provisions, or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein. If a formal covered opinion intended to provide such protection is desired, please contact us to discuss the issues and costs involved in preparation of such a covered opinion. 2 1

2 Delay is NOT Good News Employer mandate is NOT the main ACA issue for employers Mandate delay may cause employers to lose sight of the more important issue of designing the employer insurance offering so as to not preclude availability of government subsidies for lower income employees through the health insurance Marketplace Employer plan design decisions need to be in place before October 1 st notice deadline 3 Key Dates March 23, PPACA June 28, Supreme Court decision November 6, election December 28, employer mandate prop. regs January 1, % & 3.8% pay for taxes began May 8, DOL guidance on Marketplace notice July 1, original date to start tracking employees Small employers to determine 2014 exemption Large employers to determine 2014 full-time employees July 2, Employer Mandate delayed until

3 Key Dates October 1, distribution of Marketplace notice to all employees, first open enrollment period begins November 1, probable start date for first 12 month measurement period for large employers with calendar year health plans (employee hour tracking) January 1, health insurance Marketplace opens, individual mandate begins, small employers begin tracking employee hours for determination of small employer status for 2015 First day of 2015 health plan year- large employer mandate & penalties begin 5 The Employer Mandate Under the ACA large employers will become subject to nondeductible penalty taxes unless they offer adequate and affordable group health insurance to their full-time employees Originally scheduled to take effect January 1, 2014 for calendar year plans Fiscal year plans that qualified for transitional relief: first day of 2014 plan year (2014 renewal date) Small employers exempt (<50 full-time & FTEs) No mandate for large employers to cover part-time employees (<30 hours/week, 130 hours/month) 6 3

4 The One Year Delay On July 2 nd the IRS announced a one year delay in the effective date of the large employer reporting (IRC section 6056) and employer mandate/penalties (IRC section 4980H) Reason: the IRS has to create a massive new computer system to coordinate data reported by employers, the Marketplace, insurers and individual taxpayers in order to determine large employer penalties Large employers must report health coverage availability and affordability for all employees on a monthly basis 7 But It s Not Really a Year IRS was offering special 6 month transition relief for mandate determinations when effective date was 2014 Small employer determination: could count full-time employees and full-time equivalents over any month period instead of entire 2013 calendar year Large employer first measurement year for determining fulltime employees could be as short as 6 months Result: July 1, 2013 was latest employee tracking start date IRS not likely to extend transition relief into 2014 Small employer testing for 2015 probably begins January 1, 2014 Large employer measurement period for determining 2015 FT employees could begin as early as November 1,

5 Other ACA Provisions Not Delayed The delay in the implementation of the employer mandate does NOT delay any other major upcoming ACA provisions October 1, 2013 Employers must still provide the required notice of the opening of the health insurance Marketplace and availability of subsidies Government sponsored ongoing media blitz to inform the public of the Marketplace opening First Marketplace open enrollment period runs from October 1, 2013 to March 31, Not Delayed January 1, 2014 Insurance purchased through the Marketplace begins Lower income employees (up to 400% of Federal poverty line) begin receiving subsidies towards health insurance coverage Later of January 1, 2014 or 2014 renewal date ACA insurance quality provisions will increase cost/premiums No rating for preexisting conditions No annual or lifetime limits on benefits No cost preventive care Maximum 90 day waiting period Some small employers adopting early renewals 12/1/2013 to delay premium increases as long as possible (to 12/1/2014) 10 5

6 Focus on Mandate Misplaced Employers have been focused on penalty tax exposure Am I a large employer subject to the employer mandate? If so, how do I minimize exposure to penalties if I don t offer adequate and affordable coverage to all full-time employees? But that focus is somewhat misplaced 95% of businesses will qualify for the small employer exemption 95% of the remaining 5% already offer adequate and affordable coverage and will not be materially impacted by the mandate For the remaining employers materially impacted there are usually planning steps that can be taken to minimize/avoid the penalty Cutting back employee hours to less than 30 week/130 month Breaking a single business into 2 or more UNRELATED businesses 11 Bigger Issue - Marketplace Subsidies All individuals lawfully present in the US and not incarcerated can shop for and purchase health insurance through the new health insurance Marketplace Those with household income between 100% and 400% of Federal Poverty Level will be eligible for advance premium tax credits paid directly by the Marketplace to their selected insurer Those between 100% and 250% of FPL will also qualify for costsharing reductions (limits on deductibles and co-pays) if they purchase at least Silver coverage Collectively: Marketplace subsidies 12 6

7 Opposing Interests EMPLOYER: to avoid penalty exposure large employer must offer adequate (60% Bronze) and affordable (self-only employee contribution <9.5% income) coverage to all full-time employees EMPLOYEE: to obtain Marketplace subsidies employee cannot be offered adequate and affordable coverage from his employer EMPLOYEE S FAMILY MEMBERS: if employer offers coverage for spouse and/or dependents (even if entire premium paid by employee) then spouse and dependents are also ineligible for any Marketplace subsidies 13 Advance Premium Tax Credits Overview Individuals and households 100% to 400% FPL can potentially qualify for Advance Premium Tax Credits (APTC) 70% of US households fall under 400% FPL Paid directly by the Marketplace to selected insurer Amount reconciled on individual income tax return APTC sets employee s premium for 2 nd lowest cost Silver plan at between 2% and 9.5% of household income 100%-133% FPL pay 2% of household income for 2 nd lowest Silver plan, government pays the balance 300%-400% FPL pay 9.5% of household income for 2 nd lowest Silver plan, government pays the balance APTC caps individual/household share of premium at a % of household income, not a % of the actual premium 14 7

8 Advance Premium Tax Credit Table Percentage of household income contribution towards 2 nd lowest cost Silver (70%) coverage in Marketplace: 100% to 133% FPL 2% From 133% to 150% 3% to 4% From 150% to 200% 4% to 6.3% From 200% to 250% 6.3 % to 8.05% From 250% to 300% 8.05% to 9.5% From 300% to 400% 9.5% Example of inverse linear sliding scale 225% FPL is half way between 200%-250% band Household income contribution half way between 6.3% and 8.05% = 7.04% Online calculator: search Kaiser Subsidy-Calculator Federal Poverty Levels (FPL) One person household 100% FPL $11, % FPL $15, % FPL $45,960 Two person household 100% FPL $15, % FPL $20, % FPL $62,040 Four person household 100% FPL $ % FPL $31, % FPL $94,

9 Illustrating the Conflict July 1, employer renews group health insurance coverage for 12 months No concern over minimum value or affordability Large employer- mandate/penalties don t start until 2015 Small employer- not subject to mandate/penalties October 1, employer provides required Marketplace notice to all employees Applies to both large and small employers Advises employees of opening of Marketplace and opportunity for subsidized insurance coverage January 1, 2014 Accompanied by government media blitz Employees start comparison shopping 17 Illustrating The Conflict Joe Employee age 35 earns $30,000/year ($15/hour) and supports a family of 4 (unemployed spouse and 2 children under age 20) Household at 126% of Federal poverty level Joe investigates Marketplace subsidy and finds the following options for his family: Silver (70% actuarial value) family coverage Total annual premium $11,137 Family share of premium 2% of income ($50/month, $600/year) Government APTC $10,537 plus cost sharing reductions Bronze (60% actuarial value) family coverage Total annual premium $9,230 Family share of premium $0 Government APTC $9,230 Note: subsidy calculations from the Kaiser Family Foundation Subsidy-Calculator 18 9

10 Illustrating The Conflict January 1, assume employer is NOT offering Joe adequate and affordable coverage so Joe enrolls his entire family in the $50/month Silver coverage in the Marketplace July 1, 2015 employer renews its group coverage and to avoid penalty decides to offer Bronze coverage with Joe s share of the premium for self-only coverage set at $200/month Family coverage available at $800 more per month Employer coverage now adequate and affordable Joe s premium for self-only coverage <9.5% of income Joe s entire family now loses Marketplace subsidy! Joe s reaction? 19 Small Employer Strategies Small Employers (exempt from mandate/penalties) Don t offer affordable coverage to any lower income employees after January 1, 2014 Enables those employees to enjoy Marketplace subsidies Two strategies Don t offer any coverage to lower income employees Offer coverage to all employees but set premium at unaffordable level In comparing value of employer subsidy to the Marketplace subsidy remember that the employer subsidy is more valuable Employer subsidy is tax free to the employee Employee s share of Marketplace premium is after tax (non-deductible) Can still offer higher income employees insurance in 2014 Nondiscrimination regulations not yet issued IRS says regulations not effective until 2015 at the earliest We ll be discussing non-discrimination rules next year- stay tuned Possible long term result: small employers may stop offering group insurance and push all employees to the Marketplace 20 10

11 Large Employer Strategies Large Employers (subject to mandate/penalties in 2015) Don t offer affordable coverage to lower income part-time employees after January 1, 2014 Part-time = less than 30 hours/week in prior measurement period Enables those employees to enjoy Marketplace subsidies and never expose employer to penalties Offer all full-time employees affordable Bronze level selfonly coverage no later than January 1, 2014 Don t wait until normal 2015 renewal date Avoids Joe problem illustrated above 21 Large Employer Strategies Large Employers (subject to mandate in 2015) Don t offer lower income FT employees the option to purchase spouse or dependent coverage in 2014 Enables employee s spouse & dependents to obtain subsidized Marketplace coverage Will insurers allow this structure? Must offer dependent coverage in 2015 to avoid penalty No ACA requirement to ever offer spouse coverage 22 11

12 The Marketplace Notice ACA amended FLSA to require employers to notify employees of the health insurance coverage options available under the Marketplace (and the related availability of government subsidies and cost sharing reductions) Originally scheduled for March 1, 2013, now required by October 1, 2013 Coincides with the opening of the initial enrollment period for the Marketplace (10/1/2013 to 3/31/2014) Future years Marketplace open enrollment probably 45 days Will be accompanied by government media blitz 23 Which employers & employees? All employers subject to FLSA must provide notice FLSA generally applies to all employers of all sizes Includes governments If you believe you re exempt from FLSA get legal confirmation Exemption from ACA employer mandate does not exempt employer from Notice requirement All employees must receive notice No exclusion of part-time employees But no separate notice required to employee s spouse or dependents 24 12

13 Notice Content- Part A What is the Health Insurance Marketplace? Can I save money on health insurance premiums if I buy through the Marketplace? Does my employer health coverage affect availability of Marketplace subsidies (premium tax credits and cost sharing reductions)? Who do I contact (at the employer) for more information? 25 Notice Content- Part B Information about employer s coverage Does employer offer coverage and to whom? Does employer offer dependent coverage? Does employer s coverage meet minimum value (Bronze 60%)? Is cost intended to be affordable? 26 13

14 Notice Content- 3 rd Page Corresponds to Marketplace Employer Coverage Tool (page 10 of the 12 page Application for Health Coverage & Help Paying Costs Technically optional but probably advisable In addition to addressing current eligibility and affordability asks what changes employer intends to make with 2014 renewal if plan year will end soon (undefined) 27 DOL Model Notices Two versions, one for employers who offer a health plan and another for those who don t The version for employers offering coverage is on the next 3 slides 28 14

15

16 31 Notice Deadlines & Rules All current employees receive notice Tuesday October 1, 2013 Future employees within 14 days of the employee s start date Best practice recommendation: date of hire Must be free of charge Must be in writing Must be written in manner calculated to be understood by the average employee 32 16

17 Hand delivery First class mail Delivery Methods Electronically ( ) For employees who regularly use at work, or who have affirmatively consented to receiving electronic notices Must take reasonable steps to assure employees actually receive electronic notice (examples: ask employees to confirm receipt and monitor notice of undelivered mail feature) Best practice recommendation: obtain and retain proof of delivery of the Marketplace notice 33 Electronic Notice Consent Disclosures Related to Consent to Electronic Notice Identifies types of documents to which consent applies States that consent may be withdrawn at any time Explains how to withdraw consent Explains how to update electronic address States that employee may obtain a paper copy on request Identifies hardware/software needed for electronic notice 34 17

18 Employer Notice Strategies Designate and educate the person in your company who is charged with ACA responsibilities (and will be designated as the contact person in the notice) Recognize that employees are terribly confused Don t deliver the notice without additional accompanying explanatory information Consider offering individual or group meetings to deliver the message, answer questions and try to clear up confusion 35 K&C Workshop 9/18 To help train your ACA/Marketplace designated person we will be offering a hands on workshop in our Norfolk training room on September 18 th (formal announcement and registration information will follow) The training will cover proper preparation and delivery of the Notice, how the Marketplace and related subsidies will operate and how to assist employees with their questions and concerns 36 18

19 Questions? John M. Peterson Anna Richardson Smith Appendix- Employer Mandate Numbers 5%- margin of error permitted in offering coverage to all full-time employees 6- minimum number of months to test under 2013 transition rules for small employer and full-time employee determinations for %- maximum % of income self-only premium for coverage to be affordable 30- threshold hours per week to be full-time employee 30- threshold number of full-time employees before any penalty tax applies 50- threshold average number of full-time employees and full-time equivalents in prior calendar year to be treated as large employer subject to mandate in following year 38 19

20 Appendix- Employer Mandate Numbers 60%- Bronze level of coverage (employer mandate) 70%- Silver level of coverage (Marketplace subsidy) 80%- Gold level of coverage 90%- Platinum level of coverage 90- maximum days in waiting period before new employee must be offered coverage 120- divisor into total part-time hours in a month to determine full-time equivalents 130- threshold hours per month to be treated as full-time employee (functional counterpart to 30 hours/week) $ monthly no coverage penalty $250- monthly unaffordable coverage penalty 39 Appendix- Individual Mandate Separate from employer mandate to offer coverage, individuals will be penalized for not purchasing coverage Individual mandate penalty greater of flat dollar amount or specified percentage of income in excess of income tax filing threshold: 2014 $95 or 1% of excess 2015 $325 or 2% of excess 2016 $695 or 2.5% of excess Exceptions/exemptions from individual penalty: lowest cost plan exceeds 8% of household adjusted gross income gap in coverage for 3 months or less IRS prevented by statute from collecting individual penalty via tax liens and levies (only from refunds) 40 20