VSEBT Recommendations on Tracking Variable Hour Employees. May 17, 2013

Transcription

1 VSEBT Recommendations on Tracking Variable Hour Employees May 17, 2013

2 Definitions and Discussion Points Who is an employee? IRS will define employee based on IRS s common law test who controls work performed and how work is done Who is a full-time employee? Employee works 30 hours or more per week, measured monthly and 130 hours of service in a calendar month is treated as monthly equivalent of 30 hours of service per week What is an hour of service? Each hour for which an employee is paid or entitled to payment for the performance of duties or for a period of time during which no duties are performed due to vacation, holiday, illness, incapacity, layoff, jury duty, military duty, or leave of absence What is unaffordable coverage? FTE s required contribution exceeds 9.5% of taxpayer s household income for the taxable year Affordability is based on cost of self-only coverage, even if employee elects family coverage Remember: The Shared Responsibility penalty is a monthly penalty so affordability is based on a per paycheck deduction (affordability) Proprietary & Confidential April\

3 Action Items for Districts Action Items for VSEBT Districts Step 1: Determine which groups of employees receive MEC (minimum essential coverage) Full-time employees Step 2: For employees who do not receive MEC, review category Interns, Temporary (are the temporary employees common law employees of the employer?), and Part-time/variable-hour/seasonal? Step 3: Are employees who do not receive MEC Full-Time Employees? Variable-hour employees Seasonal employees (for 2014 year waiting for IRS to provide guidance) For now, employers can make good faith determination on seasonal employees Any employees not offered health care coverage Employer must demonstrate that these employees are not Full-Time Employees under the ACA Step 4: For variable-hour & seasonal employees, employers must establish length of time for Measurement period Administrative period (optional) Stability period Proprietary & Confidential April\

4 Determining Full-Time Employees Under the ACA Administrative Consideration: Hours of Service Most employers already have hours of service for hourly employees for payroll purposes Calculate actual hours of service from records of hours worked for which payment is made or due (e.g., includes paid vacation, holiday, illness/std, layoff, jury duty, military leave, and certain leaves) For non-hourly employees, an employer must calculate hours of service under one of these methods Use actual hours of service from records of hours worked and hours for which payment is made or due Use a days-worked equivalency method (credit 8 hrs of service/day for each day that the employee would be required to be credited with at least 1 hour of service) Use a weeks-worked equivalency method (credit 40 hrs of service/week for each week that the employee would be required to be credited with at least 1 hour or service) Proprietary & Confidential April\

5 Determining Full-Time Employees Under the ACA Action Items for Employers With Variable Hour and Seasonable Employees Establish look-back measurement period Period of time over which employer tracks employee s hours of service Cannot be less than three months or more than twelve months in duration Initial measurement period for new employees will be based on each employee s hire date (but does not have to begin on the employee s hire date) Standard measurement period for ongoing employees will be a uniform period of time set by employer Establish administrative period optional (up to 90 days in duration) Begins immediately after the end of a standard measurement period and ends immediately before the associated stability period Employer looks back at employee s hours of service in measurement period Did employee work an average of 30 hours per week during measurement period? - If yes, then employee is a Full-Time Employee - If no, then employee is not a Full-Time Employee and employer has to keep tracking hours of service in next measurement period Proprietary & Confidential April\

6 Defining Full-Time Employee Status of Ongoing Employees Measurement Period (MP) Administrative Period (AP) 3 12 months Up to 90 days Stability Period (SP) At least 6 months, but see rules below Determines offer of health care coverage for stability period Average hours worked Determine whether an ongoing employee is a Full-Time Employee Buffer between MP and SP Allows for measuring and enrolling full-timers Eligibility period for employees averaging 30 hours or more during MP SP can t be shorter than MP for FTEs SP can t be longer than MP for non-ftes Measurement Period Considerations Longer period may reduce number of FTEs due to turnover Shorter period provides more time to make workforce adjustments to mitigate cost Stability Period Considerations Shorter period reduces coverage commitment but creates administrative complexity Longer period that aligns with calendar years is most practical administratively Proprietary & Confidential April\

7 VSEBT Recommendation: Determination of FTE for Ongoing EE s First Year 2013/2014 7/1/2013 8/1 Measurement Period (MP) August 1 April 30 (9 months) Administrative Period (AP) May 1 June 30 (61 days) 6/30/2014 7/1/2014 Stability Period (SP) 12 months Measurement Period (MP) July 1 April 30 (10 months plus Admin Period) (AP) 6/30/2015 Coverage Continued for FTE treated as any ongoing FTE 7/1/ month Measurement Period plus Admin Period to match SP (for non FTE s) July time must be based on average hours worked) Determine average hours worked (30 or more) for FTE Measurement Period (MP) July 1 April 30 (10 months plus Admin Period) 61 Day Administrative Period Allows for measuring and enrolling full-timers Send out Annual Enrollment material in early May(Due back by June 1st) (AP) 6/30/ month SP Coverage Period for eligible FTE s SP must be as long as MP* For eligible FTE s coverage continues: EE treated as an ongoing employee *Rules apply to MP & SP Measurement Period (MP) Administrative Period (AP) Stability Period (SP) Proprietary & Confidential April\

8 Example 1: Ongoing Employee (Yearly measurement) The district Uses a 9 month standard measurement period that begins August (10 mos. following years Uses a 2 month (61 days) administrative period Offers coverage during a stability period that equals the Plan year (7/1) Based on hours worked during the standard measurement periods, employee is eligible for coverage in the 2015 plan year and the 2017 plan year, but not eligible for coverage in the 2016 plan year 9-month standard measurement period (81/2013 4/30/2014) Works full-time 10-month standard measurement period (7/1/2014 4/30/2015) Doesn t work full-time 10-month standard measurement period (7/1/2015 4/30/2016) Works full-time AP AP AP 12-month Stability period (7/1/2014 6/30/2015) Offer coverage 12-month Stability period (7/1/2015 6/30/2016) Don t offer coverage 12-month Stability period (7/1/2016 6/30/2017) Offer coverage Proprietary & Confidential April\

9 Defining Full-Time Employee Status of Newly Hired Employees New Variable-Hour and Seasonal Employees Initial Measurement Period (IMP) Administrative Period (AP) 3 12 months Up to 90 days Stability Period (ISP) Same length as for ongoing employees Considerations IMP begins on any date between the employee s start date and 1 st day of the calendar month following the employee s start date AP includes all periods between the employee s start date and the date the employee is first offered coverage under the plan, other than the IMP IMP plus AP must not last beyond last day of 1 st calendar month following employee s one-year anniversary No more than 13 months plus a partial month Transition to ongoing allows for extension of coverage for balance of overlapping ongoing stability period Administrative capabilities/limitations will weigh heavily on length of MP/AP decision Proprietary & Confidential April\

10 Example 2: Newly Hired Employees (DOH Mid-month) Partial month administrative period beginning on date of hire 11-month initial measurement period beginning on 1st day of month following date of hire 2-month administrative period following the initial measurement period 12-month stability period Employee hired on 11/10/2014 AP 11-month Initial measurement period 12/1/ /31/2015 AP 12-month Initial stability period (1/1/ /31/2016) Proprietary & Confidential April\

11 Example 3: Transition of New Hire to Ongoing Employee Employee hired on November 10, 2014 Works full-time during the initial measurement period Does not work full-time during his/her first standard measurement period Must be offered coverage during the entire initial stability period Is not required to be offered coverage during portion of first standard stability period after the end of the initial stability period Employee hired 11/10/2014 / Initial measurement period (12/1/2014/ 10/31/2015) Works full- time AP 12-month Initial stability period (1/1/ /31/2016) Offer coverage 10 -month standard measurement period (7/1/2015-4/30/2016) Does not work full-time AP Proprietary & Confidential April\ month remaining stability period (1/1/2017 6/30/2017) Don t offer coverage

12 Appendix ACA Provisions

13 PCORI Fee What type of coverage is subject to the PCORI fee? Health issuers of insured plans Responsibility of health insurance issuer Plan sponsors of self insured group health plan Final regulations specifically confirmed that the PCORI fee applies to: Retiree-only plans (in a different section of the Affordable Care Act than the group market reforms) COBRA participants Individuals residing in the United States Plans/participants excluded: Self-insured expatriate group health plans are excluded Excepted benefits Dental and vision if - separate policy of insurance, or - separate election and separate contribution Health FSA if no matching contribution (or if matching, analysis required) Employee assistance program, disease management program, or wellness program if the program does not provide significant benefits in the nature of medical care or treatment (final regulations apply this rule to insured plans as well) Proprietary & Confidential April\

14 PCORI Fee What if a participant is covered by more than one option that is subject to the PCORI fee? An employer with more than one self-insured health plan option subject to the PCORI fee (e.g., a self-insured medical option with a separate self-insured prescription drug plan option) is permitted to treat the options as a single plan if just one plan sponsor and the same plan year for both options Rule applies even if separate IRS Form 5500s If plan sponsor provides an HRA and another self-insured major medical plan again, employer only counts the participant who enrolls in the HRA and the major medical plan once If a plan sponsor provides an HRA and a fully-insured major medical plan, employer must count the covered life and the insurer must count the covered life Is the PCORI fee a plan expense? No. Since the PCORI fee is imposed on the plan sponsor and not the plan, the U.S. Department of Labor does not consider the fee to be a plan expense under Title I of ERISA and can t be included in employee contributions The U.S. Department of Labor is expected to provide guidance in the future Proprietary & Confidential April\

15 PCORI Fee How to calculate the fee? Amount of the fee for a plan year is equal to: Average number of covered lives x the applicable dollar amount To determine the average number of covered lives in a self-insured plan, plan sponsor must use one of three methods: Actual count Plan sponsor adds the total number of lives covered by the plan for each day of the plan year and divides by the total number of days in the plan year Snapshot (snapshot count or snapshot factor) Snapshot count: the actual number of lives covered on the designated date Snapshot factor: the sum of the number of participants with self-only coverage on that date, plus the product of the number of participants with coverage other than self-only coverage on the designated date and 2.35 Many details Form 5500 method Only available if filed by the due date for the PCORI (July 31) Sum of the total participants covered at the beginning and the end of the plan year as reported on the IRS Form 5500 divided by 2 Proprietary & Confidential April\

16 Transitional Reinsurance Program What is the transitional reinsurance program? Reinsurance contributions to be paid to issuers that cover high-cost individuals in non-grandfathered, individual market plans in the exchanges Mitigates the risk of adverse selection for issuers offering plans in the exchanges Contributing entities (i.e., health insurance issuers, TPAs (if the TPA is submitting contributions on behalf of a self-insured group health plan), and self-insured group health plans) are expected to be required to make 2014 reinsurance contributions of $63 per covered life (includes employees, spouses, and dependents) of major medical coverage HHS proposes to define major medical coverage as health coverage for a broad range of services and treatments including diagnostic and preventive services, as well as medical and surgical conditions, including inpatient, outpatient, and emergency room settings States operating their own transitional reinsurance program may request supplemental reinsurance contribution amounts from health insurance issuers, but not self-insured group health plans covered by ERISA Proprietary & Confidential April\

17 Transitional Reinsurance Program How is the transitional reinsurance program contribution amount calculated? Contributions required for enrollees in major medical coverage No contributions required for enrollees of excepted benefits, HSAs, HRAs integrated with a self-insured group health plan or health insurance coverage, Health FSAs, EAPs and wellness programs that do not provide major medical coverage If enrollee is covered by Medicare and employer-provided group health plan, the employer-provided group health plan is only considered major medical coverage if it is the primary payer under the Medicare Secondary Payer rules Methods for Counting Average Number of Covered Lives Health insurance issuers may use Actual count, Snapshot count, Member Months or State Form method based on first 9 months of benefit year Self-Insured Group Health Plan methods for counting mirror those available under the PCORI fee (i.e., Actual count, Snapshot count, Snapshot Factor (2.35), 5500 method) Plan sponsor with Self-Insured and Fully-Insured major medical coverage options must use Actual count or Snapshot count method Plan Sponsor may use different counting method for Reinsurance than used for PCORI Fee, so HHS does not expect counts in returns for each to be consistent Proprietary & Confidential April\

18 Transitional Reinsurance Program How is the transitional reinsurance program contribution amount calculated? If two or more plans collectively provide major medical coverage for the same covered lives, plans are treated as a single self-insured group health plan This avoids double counting of a covered life for major medical coverage offered across multiple plans This also means the plan sponsor is responsible for calculating contributions due and reporting to HHS the average number of covered lives calculated, the counting method used, and the names of the plans being treated as a single group health plan For this purpose, plan sponsor means employer, employee organization or joint board of trustees (in case of a multiemployer plan), trustee (in case of plan established by a VEBA), person identified in plan document Counting methods for average number of covered lives in a benefit year: If one of the plans is fully-insured, use Actual Count or Snapshot Count method If none are fully-insured, use Actual Count, Snapshot Count, or Snapshot Factor method Health insurance issuers and TPAs, on behalf of self-insured group health plans, are required to submit contributions to an applicable reinsurance entity, however: With respect to self-insured group health plans, the plan is liable for the contributions A self-insured group health plan is not required to use a TPA to make contributions Proprietary & Confidential April\

19 Transitional Reinsurance Program When are the counts and contributions required to be made? Contributing entities must submit to HHS no later than November 15 of benefit year 2014, 2015, and 2016 a count of the average number of covered lives of reinsurance contribution enrollees for each benefit year Within 15 days of submission or by Dec. 15, whichever is later, HHS will notify each contributing entity of the reinsurance contribution amounts to be paid based on that count Contributions must be remitted within 30 days after the date of notification by HHS Are sponsors of self-insured group health plans able to deduct reinsurance contributions? Yes Sponsor of self-insured group health plan may treat contributions as either tax deductible as an ordinary and necessary business expense OR as a plan expense under Title I of ERISA, subject to any disallowance or limits under the Code If a multiemployer plan or a plan funded through a VEBA, the employer or employers contributing to the plan may deduct their contributions to the plan, subject to any disallowance or limits under the Code Proprietary & Confidential April\

20 The ACA Definitions Who is an applicable large employer? Employer that employed an average of at least 50 full-time employees on business days during the preceding calendar year Who is an employee? IRS will define employee based on IRS s common law test Who is a full-time employee? Employee works 30 hours or more per week, measured monthly and 130 hours of service in a calendar month is treated as monthly equivalent of 30 hours of service per week What is an hour of service? Each hour for which an employee is paid or entitled to payment for the performance of duties or for a period of time during which no duties are performed due to vacation, holiday, illness, incapacity, layoff, jury duty, military duty, or leave of absence What is minimum essential coverage? An employer group health plan qualifies as minimum essential coverage for purposes of the shared responsibility payment. Note minimum essential coverage is different than essential health benefits What is unaffordable coverage? FTE s required contribution exceeds 9.5% of taxpayer s household income for the taxable year Affordability is based on cost of self-only coverage, even if employee elects family coverage What is minimum actuarial value? Plan must pay at least 60% of covered expenses Proprietary & Confidential April\

21 Variable Hour and Seasonal Employees Look-back Measurement Period Period over which employer tracks employee s hours of service Cannot be less than three months or more than twelve months in duration Initial measurement period for new employees based on each employee s hire date But does not have to begin on employee s hire date Standard measurement period for ongoing employees uniform period set by employer Administrative Period Calculations, communications, enrollment Optional (up to 90 days in duration) Begins immediately after end of standard measurement period Ends immediately before associated stability period Stability Period Period for which employer must offer health care coverage to Full-Time Employee to avoid No Coverage Penalty or Inadequate Coverage Penalty Stability period must be at least as long as measurement period, but not less than six months, with some special requirements Proprietary & Confidential April\

22 Variable Hour and Seasonal Employees Special 2014 transition rule Solely for stability periods beginning in 2014: Employers may adopt a transition measurement period that: Is shorter than 12 months At least six months Begins no later than 7/1/2013 and Ends no earlier than 90 days before the first day of the plan year beginning on or after 1/1/2014 Example: employer with calendar year plan could use a measurement period from 5/1/2013 through 10/31/2013 (six months), followed by an administrative period ending on 12/31/2013 Proprietary & Confidential April\

23 Determining Full-Time Employees Under the ACA Ongoing Employees An ongoing employee is an individual who has been employed for at least one complete standard measurement period Employer is permitted to use measurement and stability periods of up to 12 months to determine Full- Time Employee status of ongoing employee If employee averages at least 30 hours per week during the standard measurement period, then employer must treat employee as a Full-Time Employee during a subsequent stability period that begins immediately after the standard measurement period and any administrative period Regardless of the employee s number of hours of service during stability period, so long as he or she remains an employee If employee did not average at least 30 hours per week during standard measurement period, then the employer may treat the employee as not a Full-Time Employee during a subsequent stability period that begins immediately after the end of the standard measurement period and any applicable administrative period If there is a change in an employee s position of employment or employment status before the end of the stability period, the change will not affect the classification as a Full-Time Employee (or not a Full-Time Employee) for the remaining portion of the stability period Employers are allowed to modify the measurement period to include payroll periods COBRA must be offered at the end of the Stability Period if it s determined that employee will not remain a FTE Proprietary & Confidential April\

24 Determining Full-Time Employees Under ACA New Employees New Non-Variable Hour Employee If employee is reasonably expected to be a Full-Time Employee upon hire, the employer must offer group health plan coverage before the expiration of the employee s initial 3 full calendar months of employment or will be at risk for a shared responsibility payment If employer did not offer coverage to employee by end of the employee s initial 3 full calendar months of employment, then employer is subject to penalty for those months and any subsequent months that coverage is not offered Proprietary & Confidential April\

25 Determining Full-Time Employees Under ACA New Variable-Hour and New Seasonal Employees Is New Hire a Variable-Hour Employee at Start Date? Look at the facts and circumstances at the employee s start date A new employee is a variable-hour employee if It cannot be determined that the employee is reasonably expected to work on average at least 30 hours of service/week or Initial period of 30 hours/week employment is reasonably expected to be of limited duration and it cannot be determined that the employee is reasonably expected to work on average at least 30 hours/week over the initial measurement period; e.g.: Retail worker hired at more than 30 hours/week for the holiday season but who is reasonably expected to work fewer than 30 hours/week after the holiday season Part-time worker hired for 20 hours per week but who could work more Is New Hire a Seasonal Employee? Reasonable, good faith interpretation of the term seasonal employee through at least 2014 Proprietary & Confidential April\

26 Determining Full-Time Employees Under ACA New Variable-Hour and New Seasonal Employees (cont d) Employers may use an initial measurement period/stability period to determine Full-Time Employee status No penalty for failure to offer MEC upon hire If new variable-hour employee or new seasonal employee has on average at least 30 hours per week during the initial measurement period (IMP), then employer treats the employee as a Full-Time Employee during stability period that begins after the IMP and any administrative period Change in an employee s position of employment or employment status during the IMP Example: A new variable-hour employee who is promoted during the IMP to a position in which employees are reasonably expected to be employed on average 30 hours of service/week He or she is treated as a Full-Time Employee on The 1st day of the 4th month following the change; or If earlier and the employee averages more than 30 hours of service/week during IMP, the 1st day of the 1st month following the end of IMP (plus any administrative period) Proprietary & Confidential April\

27 Determining Full-Time Employees Under ACA New Variable-Hour and New Seasonal Employees (cont d) If new employee does not have on average at least 30 hours per week during initial measurement period (IMP), then employer does not consider the employee a Full-Time Employee Coverage is not provided during the stability period that follows the IMP Stability period must not Be more than 1 month longer than the IMP Exceed remainder of standard measurement period (plus associated administrative period) in which IMP ends If employer offers MEC and does not restrict enrollment beyond 13 and a fraction months (i.e., the last day of the first calendar month beginning on or after the one-year anniversary of employee s start date), it will not be subject to shared responsibility payment Must begin to measure again as of first standard measurement period (SMP) after the date of hire (generally, after the start of the IMP) Each individual employee IMP begins with their date of hire Proprietary & Confidential April\

28 Break in Service Rules An employee can be treated as a new hire if The individual has a period of no credited hours of service for 26 weeks or more OR the period of time with no credited hours of service is at least 4 weeks and the period of time with no credited hours of service exceeds the immediately preceding period of employment Example employee works for 3 weeks, terminates, and is rehired 10 weeks after termination. In this case, the employee can be treated as a new hire upon return Special rules apply to educational organizations for Employment Break Periods Special rules apply to periods of Special Unpaid Leave (FMLA, USERRA, unpaid leave due to jury duty) Proprietary & Confidential April\

29 Special Rules for Educational Organizations The proposed regulations provided special requirements for educational organizations given they function on an academic year basis and there are employment break periods where employees may not have any hours of service These requirements are meant to address concerns that employees who work full-time during the academic year may be treated as non-ftes by averaging in the periods outside the academic year Employment break period is a period of at least 4 consecutive weeks (disregarding special unpaid leave) during which an employee of an educational organization is not credited with any hours of service, but not longer than 26 weeks (or alternatively the period of no credited hours of service is not longer than the immediately preceding period of credited hours of service) Educational organizations can use 2 methods to credit hours of service during these employment break periods Averaging method Determine the average number of hours of service/week for a measurement period by calculating the average after excluding any employment break periods and use that average for the entire measurement period or Credit any hours of service for any employment break period during that measurement period at a rate equal to the average weekly rate at which the employee was credited with hours of service during the weeks in the measurement period that are not part of the employment break period No more than 501 hours of service during an employment break period in a calendar year are required to be excluded or credited Proprietary & Confidential April\

30 Special Rules for Educational Organizations Example: Employee is employed for 38 hours of service per week on average from 9/7/13 to 5/22/14 During the summer break, this employee does not provide services (and is not credited with an hour of service) since school generally is not in session, except for limited summer classes and activities Employee resumes providing services for the employer at the start of the new school year on 9/5/14 Result: Employee is not treated as having terminated employment on May 23, 2014 and having been rehired on September 5, 2014 Period from 5/23/14 through 9/04/14 (15 weeks) during which the employee is not credited with an hour of service does not exceed 26 weeks and does not exceed the number of weeks of the employee s preceding period of employment Therefore, the employee is credited with having an average of 38 hours/week for the 15 weeks between 05/23/14 and 09/04/14 (the time period in which he was credited with no hours of service) Proprietary & Confidential April\

31 The Employer Mandate and Eligibility for Exchange Subsidies Individual is not eligible for a subsidy from an Exchange if individual has been offered affordable health care coverage of minimum value from an employer Employer must offer dependent coverage (but not spousal coverage) to employee to avoid penalty Coverage does not have to be affordable for the dependent's) The employer does not have to subsidize dependent coverage What happens if an employed individual is offered affordable employee-only coverage, but family coverage is unaffordable? Employee and family will not be eligible for subsidy in the exchange If spousal coverage is not offered, spouse can purchase coverage in exchange and receive subsidy But if spouse is offered coverage, even if spousal coverage is not affordable, spouse is not entitled to subsidy in Exchange, as long as employee-only coverage is affordable and minimum value Proprietary & Confidential April\

32 Applying the Shared Responsibility Tax The ACA, as interpreted by the Supreme Court, offers individuals a choice Buy minimum essential coverage or Pay a shared responsibility tax Most Americans already have minimum essential coverage via, e.g., Employer group health plans (insured, self-insured, grandfathered, non-grandfathered) Government health plans (Medicare, Medicaid, CHIP, Tricare) Individual health insurance policies But individuals covered only by an excepted benefits policy (dental, vision, specified disease, fixed indemnity) do not have minimum essential coverage U.S. residents or U.S. citizens in foreign nation or U.S. possession are treated as having minimum essential coverage Proprietary & Confidential April\

33 Exemptions from the Shared Responsibility Tax An individual may be exempt from the requirement to have MEC if cost of coverage exceeds 8% of household income Includes cost of employer coverage and cost of subsidized coverage through exchange If self-only coverage from employer is affordable but family coverage is not Employee must purchase self-only coverage or pay tax Family members do not have to purchase coverage and are exempt from tax Certain groups are exempt from the requirement to have coverage Religious exemption Prisoners Aliens Members of Indian tribes Insufficient income to file a Federal income tax return Short gaps in health care coverage Hardship exemption Hardship includes an individual who is not eligible for Medicaid solely because state did not expand Medicaid to 138% of FPL Proprietary & Confidential April\