Employer Responsibility Under the Affordable Care Act: Where Are We Now?

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1 Employer Responsibility Under the Affordable Care Act: Where Are We Now? March 28, 2014 All materials have been prepared for general information purposes only. The information presented is not legal advice, is not to be acted on as such, may not be current and is subject to change without notice.

2 What was Delayed... Again? Only the imposition of penalties on employers has been delayed. The penalties on individuals remain effective for Some additional transition relief for Applicable Large Employers with less than 100 full-time equivalent employees. Final Regulations issued February 12, 2014 provide some additional clarification and transition relief.

3 What is an Applicable Large Employer? Do you have more than 50 full-time equivalent employees? Applicable Large Employer Status determined during previous calendar year. For Applicable Large Employer status in 2015, Employer may choose any 6 consecutive month period in Determine number of equivalent employees on a monthly basis. Part Time Employees monthly hours added together then divided by 120 = # of full-time equivalent employees (then add to actual full-time employees).

4 Corporate Re-organization and Family Does breaking up my company into smaller pieces help me avoid the 50 FTE threshold? Aggregation rules combine all related entities to determine if an employer is an Applicable Large Employer. Attribution rules apply to ownership among family members for purposes of aggregation rules.

5 Who is the Employer? What if I outsource my employees to a staffing/ employee leasing organization? Existing or new employee leasing relationships should contractually address employer shared responsibility rules. Beware of anti-abuse rules. Review independent contractor classifications.

6 Two Potential Penalties for Employers 1 st penalty tax is assessed for failing to offer minimum essential health coverage to at least 95% (70% in 2015) of your full-time employees (FTEs) and their dependents (does not include spouses). 2 nd penalty tax is assessed when coverage offered does not meet minimum value test (must cover at least 60% of allowable expenses) and/or employee contributions charged for single FTE coverage is unaffordable (i.e. exceeds 9.5% of employee s household income).

7 Penalties on Employers Penalties are determined and assessed on an entity by entity basis, not the entire Applicable Large Employer. Both penalties are not tax deductible. Each entity may consider separate decisions with respect to penalties.

8 Penalties on Employers Transition Relief for Employers with less than 100 Full- Time Equivalent Employees. No penalty through 2015 plan year if: 1- Employer employs at least 50 full-time equivalent employees but fewer than 100 full-time equivalent employees during Employer maintains the size and overall hours of service of its workforce (bona fide business reason reduction exception). 3- Employer does not eliminate or materially reduce previously offered health coverage.

9 Penalty for Failure to Offer Coverage 1st penalty is $2,000 x # actual FTEs minus 30 (80 for 2015 plan year) x 1/12 for each month health coverage was not offered. Assessed only if FTE receives a premium subsidy to purchase coverage through the exchange or marketplace. If employee was offered coverage, but declined, their waiver will not trigger a penalty even if they enroll on the exchange.

10 Premium Tax Credit Controversy HEALTH CARE REFORM Litigation ongoing on whether a premium tax credit (the trigger for employer shared responsibility excise taxes) may be issued for an exchange other than state based (such as Federally facilitated on behalf of state). Final Regulations and IRS FAQ on February 12, 2014 Final Regulations definitively state Federal Government s position: Yes!

11 Penalty for Not Offering Coverage HEALTH CARE REFORM The 30 employee reduction for purposes of calculating the penalty is allocated ratably across all entities. This number is temporarily increased to 80 for Any penalties are imposed separately upon each entity comprising an applicable large employer.

12 Failure to Offer Health Coverage Safe Harbor Provided employer offers coverage to at least 95% (70% in 2015) of its full-time employees, then 1 st penalty tax is not triggered. Failure to offer coverage is not required to be inadvertent; strategic exclusions may be considered. If employee who is not offered coverage receives a premium subsidy, then the second penalty applies.

13 Who is a Dependent? Children who are under age 26, excluding foster children and step-children Remember, dependents does not include spouses. Some limited transition relief from excise tax for failure to offer dependent coverage if employer takes steps to add dependent coverage in 2015.

14 Penalty for Unaffordable or Less than Minimum Value Coverage. 2nd penalty is $3,000 x actual # FTEs who receive a federal premium subsidy x 1/12 for each month health coverage is not affordable. There are three safe harbors regarding affordable coverage for the single FTE. Only one employer-offered plan must satisfy the minimum value and affordability requirements.

15 Affordable Coverage Safe Harbors HEALTH CARE REFORM W-2 Safe Harbor: FTE employee contribution for single coverage does not exceed 9.5% of employee s W-2 wages (Box 1). Rate of Pay Safe Harbor: FTE s hourly rate x 130 hours does not exceed 9.5% of this computed monthly wage. Federal Poverty Line Safe Harbor: FTE s contribution does not exceed 9.5% of the FPL for an individual ($11,490)

16 The Stand-Alone Health Reimbursement Arrangement Many Employers ask whether they may satisfy their obligations by contributing to a health reimbursement arrangement for employees to purchase health insurance on the marketplace. Recent guidance definitively states no.

17 Who is a Full-Time Employee? HEALTH CARE REFORM The employee averages at least 30 hours/week during a calendar month; or at least 130 hours/month. Include hours actually worked plus hours for which the employee is entitled to pay because of sick leave, holiday, vacation, military duty, etc.

18 Who is a Variable Hour Employee? If you can t determine on their hire date whether the person will work at least 30 hours/week, the person is considered a variable hour employee. For 2015, can not consider likely short duration of otherwise full-time employee s employment to classify as variable.

19 What is a Seasonal Employee? HEALTH CARE REFORM Good faith interpretation of the term by Employer. Position for which customary annual employment is six months or less.

20 How is a Full-Time Employee Determined? Measurement Period must be at least 3 months and no more than 12 months. Transition rule: May use shorter measurement period in 2014 for full year stability period in 2015 Duration of the Stability Period may not be less than the duration of the Measurement Period, except: If variable hour employee is determined to be FTE, Stability Period must be at least 6 months Administrative Period can not exceed 90 days and is included in the overlapping Stability Period.

21 How is a Full-Time Employee Determined? Alternative method to determine full-time employees is on a monthly basis. Measurement, Administrative and Stability Period provides Employers less complexity and more flexibility.

22 Termination and Re-Hire of Employees Employee maintains status under current Stability Period. Person is treated as new employee under two conditions: 1st, they did not have an hour of service for the employer for at least 13 consecutive weeks immediately preceding date of re-hire; or 2 nd, Person did not have an hour of service during period that is at least 4 consecutive weeks and exceeds the employee s period of employment that immediately preceded date of termination. In which case, Employer uses the optional Rule of Parity.

23 COBRA If employer coverage ends, COBRA rights still apply. Has the employment relationship ended? If not, employee may still be counted as FTE for the remainder of the stability period for purposes of 4980H taxes (with some exceptions). If employee is paying full COBRA costs, then coverage may not be affordable, which could result in a $3,000 penalty.

24 Salaried/Exempt Employees Working Part-Time HEALTH CARE REFORM Count actual hours or use available equivalencies. For non-hourly employees, use days worked (8 hours/day) or weeks worked (40 hours) equivalency methods. Under no circumstances may these methods be used if doing so would understate amount of hours non-hourly employee worked.

25 Changes to Wellness Programs HEALTH CARE REFORM Recent guidance holds that nondiscriminatory wellness program rewards that affect premiums do not count towards affordability. Must assume employee fails to achieve reward (except programs related to tobacco use). No limitation on rewards for wellness programs that are participatory wellness programs (not based on a health condition). Example: reimburse for cost of gym membership, premium reduction for taking health risk assessment. Effective for Plan Years beginning on or after January 1, 2014.

26 Changes to Wellness Programs HEALTH CARE REFORM Health contingent wellness program rewards limited to 30% of total cost of employee-only coverage under the plan (up to 50% for tobacco use-related programs, or in combination with other programs). Health contingent wellness programs include attaining certain standards for cholesterol, BMI, or non-smoker status, or satisfying a reasonable alternative standard. Health contingent wellness programs sub-divided into activity-only wellness programs and outcome-based wellness programs.

27 Penalties on Individuals for Failure to Maintain Coverage Failure to maintain minimum essential coverage results in the greater of two penalty calculations: the Flat Dollar Amount or the Percentage of Income test (not to exceed the cost of the national average premium for a plan that provides 60% of the actuarial value of benefits covered).

28 The Flat Dollar Amount Penalty HEALTH CARE REFORM The Flat Dollar Amount is a fixed amount ($95 per person in 2014, $695 per person in 2016) x 1/12th for each month that coverage is not maintained. Per person penalty is reduced by 50% for each person under age 18. The total Flat Dollar Amount penalty may not exceed 300% of the annual flat dollar amount.

29 Percentage of Income Test HEALTH CARE REFORM The Percentage of income test is the household income in excess of the minimum threshold amount of income required for a federal income tax return filing obligation ( $10,000 for single, $20,000 for married persons filing jointly) multiplied by the applicable percentage. The applicable percentage is 1% in 2014, 2% in 2015 and 2.5% in 2016.

30 30 HEALTH CARE REFORM ACA Reporting Requirements On 3/5/2014 IRS issued final regulations for reporting: 6055 (Minimum Essential Coverage offered in 2015) 6056 (2015 Employer Shared Responsibility mandate) Required reporting to IRS is due: If paper, 2/28/2016 or 3/1/2016 (since 2/28 is a Sunday) If electronic, 3/31/2016 (required if > 250 W-2s; no aggregation rule, so each large entity reports separately) Required reporting to employees due 1/31/2016 or 2/1/2016 (since 1/31 is a Sunday)

31 31 HEALTH CARE REFORM ACA Reporting Requirements Self-funded employers can combine 6055/6056 reports on one Form 1095-C (draft coming soon) Review existing systems and resources to assess readiness to comply with reporting requirements

32 32 HEALTH CARE REFORM 6055 Requirements Tells IRS whether individual was covered by minimum essential coverage (MEC) in preceding tax year and in what months IRC 5000A requires individual to be enrolled in MEC or pay a tax Insurers will be responsible for 6055 reporting to the IRS Self-funded employers must report to IRS: o Name, address, and EIN o Name and TIN of each individual enrolled under health plan (employee and dependents) o Use DOB if TIN is not obtained after reasonable effort o The months individual was covered

33 33 HEALTH CARE REFORM 6055 Requirements Employers will provide to employees: o Written statement enabling covered individuals to establish they were covered by MEC and months they were covered

34 34 HEALTH CARE REFORM 6056 Requirements Tells IRS if employer complies with 4980H Shared Responsibility rules For FTEs who received qualifying offer (MEC meets affordability test + offered to spouse & children) for entire 2015, employer may use simplified reports: To IRS: employee s name, address, and TIN; and Certification employee received full-year offer To Employees: copy of simplified report or certification they received full-year qualifying offer (makes them ineligible for premium tax credits under 36B)

35 6056 Requirements For FTEs receiving a qualifying offer < 12 months, then employer reports to IRS: Did the coverage provide MV? Did EE have opportunity to enroll spouse? # FTEs by month Whether EE s effective date was affected by permissible waiting period, by calendar month # FTEs covered in each month Whether the employer is a member of an aggregated group and if applicable, name and EIN of the aggregated group

36 6056 Requirements Name, address and TIN of each FTE who was covered by MEC, months coverage was available, and months for which FTE was covered For 2015 only: if ALE certifies it has made a qualifying offer to at least 95% of its FTEs (and their spouses & dependents) and provides FTEs with the required employee statement, Form 1095-C is not needed ALE does not have to identify or specify #FTEs if it certifies it made a qualifying offer to at least 98% of all its employees (includes PTEs)

37 37 HEALTH CARE REFORM 6056 Requirements IRS will grant temporary relief from penalties if filed information is incorrect or incomplete However, no relief for employers who do not make a good faith effort to comply with the reporting requirements

38 38 HEALTH CARE REFORM New ACA Guidance Final Rule for 90-day Waiting Period Applies to plan years beginning on or after 1/1/2014 Coverage must become effective by the 91st day from date of eligibility New Proposed Rule for Orientation Period Would apply to plan years beginning on or after 1/1/2015 Can use an orientation period to evaluate the employee and conduct training However, can t use this period to avoid compliance with the 90-day waiting period (WP) If employee starts 5/1, the last permitted day of the orientation period is 5/31; the 90-day WP then begins 6/1

39 Other ACA Guidance Non-grandfathered plan must cover breast cancer riskreduction Rx with no cost-sharing for plan years beginning on or after 9/24/2014 For 2015 MOOP limit is $6,750/Single and $13,500/Family Non-Grandfathered Plans with multiple service providers may: Divide MOOP across multiple categories of essential benefits rather than reconcile claims across multiple providers However, can t have a MOOP for MH/SA benefits that s separate from Medical-Surgical benefits

40 New FSA Carryover Rule Plan may allow up to $500 unused FSA funds to carry over to next plan year If plan has 2.5 month grace period, can not also have $500 carry over provision If you have grace period, consider amending your plan 1/1/2015 so that up to $500 unused FSA carries over to 2016 FSA elections for 2014 have 1/1/2015-3/15/2015 grace period available 40

41 41 HEALTH CARE REFORM HIPAA Electronic Transaction Standards (ETS) HIPAA covered entities register for Health Plan Identifier Number (HPID) by 11/5/2014 If deemed small health plan (annual receipts < $5M) then deadline is 11/5/2015 Similar to ERISA Plan #s for 5500 purposes; if you have a wrap document, you have a Controlling Health Plan with one HPID During 2015 covered entity obtains certification from Council for Affordable Quality Healthcare Committee on Operating Rules for Information Exchange (CAQH CORE)

42 Hardship Exemption Person who was ineligible under an employersponsored health plan may have purchased individual health insurance policy If policy was cancelled because it was not in compliance with ACA, the person may qualify for a hardship exemption from the 2014 individual mandate Interested employees must submit application along with documentation supporting cancellation Note exemption open to anyone who believes the options in the marketplace are more expensive than their cancelled policy or other available policies are unaffordable 42

43 The Impact of the Windsor Decision Decision released June 26, 2013, held : 1. Defense of Marriage Act ( DOMA ) impinged on the right of a state to define marriage and 2. Violated the right to due process & implicit equal protection as guaranteed by the Fifth Amendment to the U.S. Constitution. Did not address DOMA provision that allows states to refuse to recognize same-sex marriages performed under the laws of other states 43

44 Windsor and Same-Sex Marriage HEALTH CARE REFORM Windsor preserved states rights to define marriage This creates a lack of country-wide uniformity Individual issues and employer administrative issues 44 44

45 Windsor and Same-Sex Marriage HEALTH CARE REFORM Distinguish marriage from civil unions & domestic partnerships Only a few states provide for civil unions Civil unions create some obligations, benefits, and rights between the same-sex couple in such a union similar to those between individuals who are legally married. Only applies within the state in which created 45 45

46 Federal Tax Law Changes After Revenue Ruling Although states have different rules of marriage recognition, uniform nationwide rules are essential for efficient and fair tax administration. A rule under which a couple's marital status could change simply by moving from one state to another state would be prohibitively difficult and costly for the Service to administer, and for many taxpayers to apply

47 Federal Tax Law Changes After Revenue Ruling For federal income tax purposes: The same-sex couple will be treated as married if legitimately married in any domestic or foreign jurisdiction whose laws authorize the marriage of a same-sex couple. The tax treatment will not be dependent on the state of residence

48 Federal Tax Law Changes After Revenue Ruling Qualified retirement plan must recognize a same-sex marriage that was validly entered into in a jurisdiction whose laws authorize the marriage This means that an appointment by the participant of a non-spouse beneficiary has to be approved by the same-sex spouse 48 48

49 Unresolved Issues Retroactive application to qualified plans pre-september 16, 2013 Retroactive application to other benefits Application to state government retirement plans State income taxes connection to federal rules and states rights to define marriage Marriage for FMLA DOL position 49 49

50 50 HEALTH CARE REFORM Thank You Scott Newsom: Bruce Davis: Scott Hamner: IRS Circular 230 Notice: We are required to advise you no person or entity may use any tax advice in this presentation or any attachment or handout to (i) avoid any penalty under federal tax law or (ii) promote, market or recommend any purchase, investment or other action.