The Affordable Care Act: The Employer Shared Responsibility Penalty & Educational Institutions

Transcription

1 The Affordable Care Act: The Employer Shared Responsibility Penalty & Educational Institutions March 4, 2014 Oklahoma CUPA-HR Spring Conference Copyright 2014 by The Segal Group, Inc. All rights reserved.

2 Agenda* 1. Employer Shared Responsibility Penalty Overview How to Avoid the Penalty Safe Harbors 2. Special Rules Applicable to Educational Institutions The Academic Year Adjunct Faculty 3. Transition Rules 4. What Educational Institutions Should Do Now * Final Rule published Feb. 12, Key changes shown in red. 1

3 Employer Shared Responsibility Penalty 2

4 Employer Shared Responsibility Penalty Applies to large employers (not group health plans) with 50 or more full-time employee equivalents Effective 2015: Large employers with 100 or more FTEs Effective 2016: Large employers with 50 to 99 FTEs Full time = on average 30 or more hours of service per week (130 hours per month) Is assessed only when one full-time employee obtains federally subsidized coverage through Exchange Transition rules for employers with non-calendar year group health plans 3

5 Can Individuals with Employer-Sponsored Coverage Receive Federally Subsidized Exchange Coverage? Generally, no However, employees may apply for the premium assistance tax credit and/or cost-sharing subsidies when their employer-sponsored coverage is Not of minimum value (below 60% of actuarial value), and/or Not affordable (the employee premium for self-only coverage exceeds 9.5% of household income) 4

6 Income Eligibility for Federally Subsidized Coverage: Between 100% & 400% FPL Persons in Family 100% FPL 133% FPL 250% FPL 400% FPL 1 $11,490 $15,282 $28,725 $45,960 2 $15,510 $20,628 $38,775 $62,040 3 $19,530 $25,975 $48,825 $78,120 4 $23,550 $31,322 $58,875 $94,200 5 $27,570 $36,668 $68,925 $110,280 6 $31,590 $42,015 $78,975 $126,360 7 $35,610 $47,361 $89,025 $142,440 8 $39,630 $52,708 $99,075 $158, Federal Poverty Line guidelines for the 48 contiguous states 5

7 Employer Strategies How to Avoid or Minimize the Employer Penalty Under proposed Treasury rule, offer group health coverage to: 2015: 70% full-time employees, 2016: 95% of full-time employees, and Employees children up to age 26 Have a plan design that: Meets the 60% test, AND Does not require any full-time employee to contribute more than 9.5% of W-2 wages (Box 1)* for self-only coverage * Final Rule retains the three safe harbor affordability tests. In addition, the Final Rule provides additional detail, including clarification that the safe harbors can be applied to any reasonable category of employees, provided that it is done on a uniform and consistent basis for all employees in a category. 6

8 Large Employer Determining Size Penalty applies to employers with 50 or more full-time employee equivalents (FTEs) [oneyear delay for employers with employees] on business days during the preceding calendar year, based on hours of service during that year Must aggregate hours of part-time employees to create total number of full-time employees Employment is determined under common-law standards, meaning that an employment relationship exists if an employee is subject to the will and control of the employer as to the work performed and the means of performing it Sole proprietor, partner or 2-percent S corporation shareholder are not employees Not a large employer if employer has more than 50 full-time FTEs for 120 days or fewer during a calendar year and the excess over 50 were seasonal workers 7

9 Controlled Groups All employees of a controlled group or an affiliated service group are taken into account in determining whether the group members each have 50 or more FTEs [one-year delay for employers with employees] But, each employer-member of the group is treated separately for purposes of computing and assessing any applicable penalty State or local governmental entities, Indian tribal entities or churches, may apply a reasonable, good-faith interpretation of the controlled group rules to their operations Governmental employers may wish to document how entities are aggregated for purposes of implementing the penalty until further guidance is available 8

10 The 4980H(a) Penalty If a large employer does not offer to full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage and one full-time employee receives federally subsidized coverage in the Exchange Penalty is $2,000 (annualized) times the total # of full-time employees (minus first 80 workers in 2015, and first 30 workers in 2016 and beyond) To avoid the 4980H(a) penalty, employer must offer minimum essential coverage to at least 70% in 2015, and 95% in 2016 and beyond of its full-time employees (and their dependent children) 9

11 The 4980H(b) Penalty If a large employer does offer to full-time employees (and their dependent children) the opportunity to enroll in minimum essential coverage, but one full-time employee still receives federally subsidized coverage in the Exchange Penalty is $3,000 (annualized) times the # of full-time employees getting a tax credit in an Exchange (subject to a penalty maximum) This penalty option is only available to employers who offer coverage to at least 70% in 2015, and 95% in 2016 and beyond of their full-time employees (and their dependent children) 10

12 Dependent Coverage Dependents must be offered coverage for the entire calendar month in which the dependent turns age 26 Includes children under Code Section 152(f)(1) who are under age 26 (sons, daughters, adopted sons/daughters) Stepchildren and foster children excluded for purposes of this penalty Coverage does not have to be offered to spouses Transition Rule: Employers that do not currently offer dependent coverage will not be subject to a penalty for the plan year that begins in 2014 if they are taking steps to offer dependent coverage 11

13 Hours of Service Hours of service include both hours paid based on performance of duties as well as paid time for vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence Special rules apply to unpaid leave subject to the Family and Medical Leave Act of 1993 (FMLA), and the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA) For employees not paid on an hourly basis, employers may use one of three methods to calculate hours of service: 1. Counting actual hours of service; 2. Using a days-worked equivalency, which credits the employee with eight hours of service for each day; or 3. Using a weeks-worked equivalency of 40 hours of service per week Hours of service do not include hours of service worked outside the United States 12

14 Safe Harbors Two methods for employers to determine whether employees work full time for penalty purposes Look-Back Measurement Method Monthly Measurement Method Address 5 categories of employees: 1. Variable Hour Employees 2. Seasonal Employees 3. Part-time Employees 4. Ongoing Employees 5. New Employees 13

15 Hours of Service: To Count or Not to Count? IRS created safe harbor rules for determining and calculating liability Safe harbors determine who is treated as a full-time employee and who is not Count hours of service during measurement period Lock in status as full-time employee (or not) for associated stability period Safe harbors are voluntary Do not need to use these safe harbors if it is reasonably clear which employees have 30 or more hours of service per week (130 hours per month) and which have fewer than that Focus on hours of service during the academic year May want to rely on these safe harbors if you have variable hour and/or seasonal employees 14

16 Determining Full-Time Employee Status Variable Hour Employees and Seasonal Employees Variable Hour Employees Employees for whom, based on facts and circumstances on their start date, it cannot be determined whether the employee is reasonably expected to have on average at least 30 hours of service/week during the initial measurement period Final Rule provides factors to consider Seasonal Employees Workers who perform services on a seasonal basis Employers may exercise reasonable, good faith to define seasonal employees but the category is limited to employees who are hired into a position for which the customary annual employment is six months or less Part-Time Employees A new employee that an employer reasonably expects to work an average of fewer than 30 hours per week during the employee s initial measurement period Factors to consider include: whether the employee is replacing an employee who was (or was not) full-time; the extent to which weekly hours of service of employees in the same or comparable positions have varied above and below 30 during recent measurement periods; and whether the job how the job was documented or communicated to the new hire These are the types of employees for whom the safe harbors were designed. 15

17 Determining Full-Time Employee Status Ongoing Employees and New Employees Ongoing Employee is one who has been employed by an employer for at least one Standard Measurement Period New Employee is one who has been employed by an employer for less than one Standard Measurement Period 16

18 New Terms from the 4980H Safe Harbors Standard Measurement Period Applies to ongoing employees Not less than three (3) months and not more than 12 consecutive calendar months Stability Period At least six (6) consecutive calendar months Complex rules govern maximum length Begins after the measurement period and applicable administrative period Administrative Period Optional period up to 90 days, between the measurement and stability periods Cannot shorten or lengthen either measurement or stability period Must overlap with prior stability period to ensure there are no gaps in coverage 17

19 New Terms from the 4980H Safe Harbors Initial Measurement Period Applies to new employees May be between three (3) and 12 months Begins on any date between start date and first day of next calendar month Initial measurement period and administrative period together cannot extend beyond the last day of the first calendar month beginning on or after the first anniversary of the employee's start date 18

20 Determining Full-Time Employee Status Special Categories Created by Employer As set by the Employer, the measurement and stability periods may have different lengths or start/end dates, based on these categories: Each group of collectively bargained employees covered by a separate collective bargaining agreement Collectively bargained and non-collectively bargained employees Salaried and hourly employees Employees located in different States The determination must be made on a uniform and consistent basis for all employees in the same category; Employer may change these periods on prospective basis. 19

21 Monthly Measurement Method Employers can determine full-time status using either the monthly measurement method or the look-back measurement method If an employee does not fall within any of the three categories for which the look-back measurement method may be used, the employee must be tested for full-time status under the monthly measurement method The employee s actual monthly hours must be compared to the 130-hour full-time threshold A new employee whose hours equal or exceed the 130-hour threshold must be treated as full-time by the end of the third full calendar month after the employee s date of hire To avoid the penalty for such employee, the employer must offer coverage by the following day (i.e., the first day of the fourth full calendar month after employment begins) If the employee is otherwise eligible to participate in the plan, the employer must allow the employee to enroll within 90 days of being hired 20

22 Special Rules for Educational Institutions 21

23 Special Rules: Rehired New Employee or Continuing Employee? If employee is not credited with hours of service for at least 26 consecutive weeks treat as new employee If break is less than 26 weeks, but is at least 4 consecutive weeks treat as new employee if break was longer than work period immediately preceding the break EXAMPLE: An employee works for 3 weeks, terminates employment, and is rehired 10 weeks later. Employee is treated as a new, rehired employee. Otherwise, treat as continuing employee and apply SMP and SP as if there were no break EXAMPLE: If employee returns during SP for which employee is a full-time employee based on previous measurement period, the employee is treated as a full-time employee upon return and through the end of the SP. The break-in-service rules which were modified by the Final Rule do not apply to employees of educational institutions 22

24 Determining Full-Time Employee Status Special Rules: Leaves and Breaks Averaging rules apply to: Employees of educational organizations (including teachers) who are returning from employment break periods of at least 4 consecutive weeks Employees returning from special unpaid leave ( FMLA, USERRA, jury duty) Employer may either: Disregard the break/leave (i.e., effectively use a shorter measurement period such as the academic year), or Credit the employee with the average number of hours that s/he worked during the weeks in the measurement period that are not part of the leave/break period However, an educational organization is not required to credit any employee in a calendar year with more than 501 hours of service for any employment break period 23

25 Special Rules for Adjunct Faculty Guidelines issued on adjunct faculty Employers must use a reasonable method for crediting hours of service (it is not reasonable to credit these employees for only some hours of service) For example: Adjunct professor should be credited for prep time, as well as classroom time This method will be deemed reasonable: credit an adjunct faculty member with 2-1/4 hours of service for each actual hour of class time, plus any additional hours of service attributable to such things as office hours, attendance at faculty meetings, etc. This safe harbor is available until the end of 2015 If adjunct faculty are used: (1) determine reasonable method for crediting hours of service and document rationale; and (2) review new guidance from Treasury/IRS. 24

26 Determining Full-Time Employee Status Ongoing Employee & July 1 Plan Year Employer adopts 12- month SMP beginning on May 15 (through May 14 of following year). Teacher averaged at least 30 hours per week during academic year and is credited with those same hours during summer break. Employer adopts 1.5 month AP of May 15, through June 30. Employer adopts SP of July 1 through June 30 (the plan year). For this SP, employee is treated like a full-time employee. No penalty during SMP. 25

27 Determining Full-Time Employee Status New Employee 12-month IMP for new part-time janitor Begins on first day of employment For this employee, Sept. 1, 2015 August 31, 2016 Janitor works on average 28 hours per week during academic year and does not work during summer break. Employee is not a full-time employee. Employer does not offer coverage for the 12-month SP that begins Oct. 1, Employer is not penalized during IMP. Measure again during first SMP that begins after start date. 26

28 Transition Rules for First Year Employers with 100 or More Employees 27

29 Transition Rules Non-Calendar Year Plans For non-calendar year plans, no penalty until the first day of the 2015 plan year Applies to non-calendar year plans in place as of Dec. 27, 2012 Applies to employees who would be eligible for coverage as of the first day of the 2015 plan year under the eligibility terms in effect on Dec. 27, 2012 Also applies to employees not eligible under the plan terms in effect on Dec. 27, 2012, under certain circumstances 28

30 Transition Rules Measurement Periods for 2014 Stability Periods Solely for stability periods starting in 2015, employers may adopt a transition measurement period that is shorter than 12 months (subject to certain conditions) Examples: Employer with calendar year plan could use a 6-month measurement period of April 15, 2014 through Oct. 14, 2014 followed by a 90-day AP that ends Dec. 31, 2014 Employer with non-calendar year plan that begins April 1 could use a 6-month measurement period from July 1, 2014 through Dec. 1, 2014 followed by a 90-day AP that ends March 31, 2015 Employer with non-calendar year plan that begins July 1 would have to use a measurement period longer than six (6) months Such as 10-month measurement period from June 15, 2014 through April 14, 2015 followed by an AP from April 15, 2015 through June 30,

31 What Educational Institutions Should Do Now 30

32 Opportunities to Manage Cost What opportunities exist to manage cost: Encourage healthy behaviors through programs and contributions Manage cost of the acutely ill Review vendor relationships and cost effectiveness Explore or feature HSA/HDHP plans Consider a defined contribution approach Manage workforce to ensure appropriate employees receive benefits For retirees: EGWPs and Part D plans Possible defined contribution health benefits 31

33 Action Steps Review size and structure of entity using controlled group rules and assess potential liability for each separate employer-member Does the employer-member have employees who might qualify for federally subsidized coverage? Does the employer-member offer coverage to 70% in 2015, and 95% in 2016 and beyond of its full-time employees and their dependent children? Does the employer-member have variable hour, seasonal employees or part-time employees? If so, does it make sense to use the safe harbors to determine their full-time status? Has the employer reviewed its policy regarding adjunct faculty? Does the plan meet the 60% minimum value test? Is employee-only coverage affordable? Should dependent coverage and contribution strategies be changed? 32

34 Governing Regulations Regulations/Guidance regarding applicability of penalty: Treasury Final Rule (published Feb. 12, 2014) Treasury FAQs (last updated Feb. 11, 2014) Responsibility-Provisions-Under-the-Affordable-Care-Act IRS Notice (issued August 31, 2012) Under the Final Rule, if and to the extent an employer has relied on Notice , the employer may continue to rely on this Notice to the extent reliance is provided in section IV of the Notice Additional guidance and regulations are expected 33

35 Resources As always, employers and plan sponsors should rely on Legal Counsel for authoritative advice on the interpretation and application of federal laws and regulations. 34

36 Questions 101 North Wacker Drive Chicago, IL T North Wacker Drive Chicago, IL T Ruth Donahue rdonahue@sibson.com Kathy Schwappach kschwappach@sibson.com 35