Affordable Care Act s Frequently Asked Questions (FAQs) Provided by NECA and Tiffany Downs, FordHarrison

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1 Affordable Care Act s Frequently Asked Questions (FAQs) Provided by NECA and Tiffany Downs, FordHarrison (Last updated September 19, 2013) Disclaimer We share this information with our members for general informational purposes only. It does not necessarily address all of your specific issues. It should not be construed as, nor is it intended to provide, legal advice. Questions regarding specific issues and application of these rules to your plans should be addressed by your legal counsel. Requirements for All Employers 1. Do all employers (large and small) have to distribute the Notice of Coverage Options for the Exchanges (Marketplaces) by October 1, 2013? Yes. The Notice of Coverage Options needs to be sent to all employees, including those not eligible for benefits. There are two different model notices: (1) one for those employees who are offered employer sponsored coverage and (2) one for those employees who are not eligible for coverage. The model notices require more than is required under the regulations. Part B of the model notices is optional. NECA contractors may use one of the applicable model notices, use part A of the model notices, use a modified version of the notices, or create their own notices. The notice must: Inform employees about the existence of the exchange and describe the services provided by the exchange and the manner in which the employee may contact the exchange to request assistance. Explain how employees may be eligible for a premium tax credit or a cost-sharing reduction if the employer's plan does not meet certain requirements. Inform employees that if they purchase coverage through the exchange, they may lose any employer contribution toward the cost of employer-provided coverage, 1

2 and that all or a portion of this employer contribution may be excludable for federal income tax purposes. The notices can be delivered by hand, first-class mail, or to those employees who have access to a computer as part of their every day work duties or who consent to receive electronic communications in compliance with the DOL s electronic disclosure rules. 2. Can the Notice of Coverage Option be distributed by a third party on behalf of the employer? Yes. The Notice of Coverage Options can be distributed by a third party on behalf of the employer, but the notices have to be distributed to all employees (those employees who are part of the collective bargaining agreement, administrative employees, part-time, seasonal, etc), and the responsibility remains with the NECA contractor to make sure it is accomplished. NECA contractors could allow multiemployer plans (if the multi-employer plan agrees to send the notice) to distribute the notice to those employees who are covered under a collective bargaining agreement, but the contractor needs to make sure that it sends the notice to other employees not eligible for or covered by a multi-employer plan. 3. Can an employer be fined for failing to provide employees with the Notice of Coverage Options? No, there is no fine or penalty under the law for failing to provide the notice. But NECA contractors should provide a written notice to its employees about the Health Insurance Marketplace (Exchanges) by October 1, 2013, as it may be subject to an audit by governmental agencies. 90 day Waiting Period 4. Does the 90 day waiting period apply to employees who receive coverage under a multi-employer plan? Yes, but after an employee satisfies the plan s eligibility rules. The 90 day waiting period starts when an employee becomes eligible for coverage. A waiting period is the period that must pass with respect to the individual before the individual is eligible to be covered for benefits under the terms of the plan. The proposed rules also provide that a waiting period is the period that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of the plan can become effective. For this purpose, being otherwise eligible to enroll in a plan generally means having met the plan's substantive eligibility conditions (such as being in an eligible job classification or achieving job-related licensure requirements specified in the plan's terms). However, eligibility conditions based solely on the lapse of time are permissible for no more than 90 days. Other conditions for eligibility under a plan are generally permissible unless the condition is designed to avoid compliance with the 90-day waiting period limitation. 2

3 The Department of Labor has given an example of the application of the 90 day waiting period to multi-employer plans: If a multi-employer plan operating pursuant to an arms-length collective bargaining agreement has an eligibility provision that allows employees to become eligible for coverage by working hours of covered employment across multiple contributing employers (which often aggregates hours by calendar quarter and then permits coverage to extend for the next full calendar quarter, regardless of whether an employee has terminated employment), the Departments would consider that provision designed to accommodate a unique operating structure, (and, therefore, not designed to avoid compliance with the 90-day waiting period limitation). Thus, the example seems to allow an eligibility condition that a person work 1,500 hours to be eligible for coverage under the plan, and that condition does not violate the 90 day waiting period. Individual Mandate (Penalty) 5. If an employee has coverage under a multi-employer plan, will the employee be considered to have minimal essential coverage to avoid an individual penalty? Yes. Under the ACA, the shared responsibility provisions require certain individuals to maintain minimum essential health insurance coverage or pay a penalty. Minimum essential health insurance coverage includes coverage under an employer-sponsored, fully- or self-insured health plan if the plan provides for comprehensive health care coverage (e.g., coverage that is more than a limited-scope indemnity, accident, dental, or vision plan). There has been some debate about whether coverage offered through a multiemployer plan would be considered an employer-sponsored plan for purposes of the minimum essential coverage rules. The final regulations clarify that under the ACA, a plan offered to an employee on behalf of an employer, e.g., through a multi-employer plan, will be considered an employer-sponsored plan. Accordingly, individuals covered by a multi-employer plan that provides minimum essential health insurance coverage do not need to obtain other coverage to avoid a penalty under the shared responsibility provisions of the ACA. It is still unclear how the employer mandate (penalty) and other provisions of the ACA will apply to multi-employer plans. The regulations state, No inference is intended from this treatment that the third party is the employer for this or any other provision of the Code or related laws. Determining Large Employer Status 3

4 6. Do employees of certain related entities have to be counted to determine if a company is a large employer? Yes, if the related entities are within the same controlled group. For purposes of identifying whether a company is considered a large employer and subject to the employer shared responsibility penalty (otherwise known as the pay or play penalty), the ACA applies the long-standing Internal Revenue Code controlled group rules to combine employers. All related companies, as defined under the Code, are treated as a single employer for purposes of the ACA, and the employees of all related employers within the controlled group are counted when determining whether the controlled group, treated as one, is a large employer. This means that some entities that might otherwise escape application of ACA s employer shared responsibility mandate (because they have less than 50 employees within an individual organization) could be considered a large employer under the mandate as a result of controlled group relationships. The controlled group rules are complex and require reading multiple sections of the Internal Revenue Code, regulations, and other IRS guidance. This summary is meant to provide a brief overview of the controlled group rules. A. Parent-subsidiary controlled group. A parent-subsidiary controlled group is one or more chains of corporations connected through stock ownership with a common parent if 80% or more of the total combined voting power of all classes of stock entitled to vote (or 80% or more of the total value of all shares of all classes of stock) of each of the corporations is owned, directly or indirectly, by one or more of the other corporations; and the common parent corporation owns, directly or indirectly, 80% or more of the total combined voting power of all classes of stock entitled to vote (or 80% or more of the total value of shares of all classes of stock) of at least one of the other corporations. B. Brother-sister controlled group. A brother-sister controlled group of corporations is a group where five or fewer persons (individuals, estates, or trusts) own, directly or indirectly, stock possessing 80% or more of the total combined voting power of all classes of stock entitled to vote (or 80% or more of the total value of all shares of all classes of stock) of each corporation; and more than 50% of the total combined voting power of all classes of stock entitled to vote (or more than 50% of the total value of all shares of all classes of stock) of each corporation, taking into account the stock ownership of each owner only to 4

5 the extent that the level of ownership interest is identical with respect to each corporation. Both types of controlled groups apply special constructive ownership and attribution rules between related and family member shareholders. C. Affiliated Service Groups Under the affiliated service group ( ASG ) rules, entities may also be aggregated if one or more of the business entities constitute a service organization, which is defined in the Code as an organization the principal business of which is the performance of services. An organization is a service organization if capital is not a material income-producing factor for the organization or if it is engaged in a specified service field. Large Employer Penalty and Multi-employer plans 7. For multi-employer plans, what happens when an employer fails to pay their contributions to the Plan (but the employee s coverage continues because of bank hours), does the employer get assessed any penalties and who reports it, plan or employer? We do not have an answer to this question yet. Additional guidance is expected to be issued. Cadillac Plan Tax 8. For multi-employer plans, which entity (plan or contributing employer) will pay the 40% excise tax ( Cadillac Tax ) if the cost of coverage provided exceeds the permissible limits ($10,200 for single coverage and $27,500 for family coverage)? Unknown for certain at this time. A Cadillac Plan is determined based on the cost of the coverage provided. Effective January 1, 2018, the cost of a plan with single coverage that exceeds $10,200 annually, or family coverage that exceeds $27,500 annually, will be considered a Cadillac Plan. Beginning in 2018, coverage with a cost that exceeds those amounts will be subject to a 40% excise tax on the value of coverage that exceeds the above amounts. The tax is imposed on insurers for insured plans (and likely passed on to employers in the form of higher premiums), and on plan sponsors for self-insured plans. The tax is expected to be imposed on the Plan because the current guidance indicates that for multi-employer plans (such as Taft-Hartley plans), the plan sponsor is required to calculate the tax. However, it is anticipated that the Plan will pass on the cost of the tax in the form of increased contributing employer contributions and/or participant 5

6 contributions, unless the Plan (trustees and administrators) makes plan design changes to preclude the imposition of the excise tax beginning in More guidance is expected to be issued relating to the Cadillac Tax. 6