Employer Shared Responsibility ( Pay or Play )

Transcription

1 Employer Shared Responsibility ( Pay or Play ) Starting on January 1, 2015, employers with 50 or more full-time and full time equivalent (FTE) employees will be assessed a fine by the federal government if they fail to offer the opportunity to enroll in minimum essential coverage to at least 95% of their full-time employees, and only one of those full-time employees buys individual health insurance in the Exchange and is determined eligible for an advance payment of the premium tax credit (a premium subsidy) or a cost-sharing reduction. Even those employers that do offer minimum essential coverage to at least 95% of their full-time employees could be subject to assessable fines if the coverage the employer offers is not considered affordable or does not represent minimum value to the employee. The term minimum essential coverage is defined broadly in Internal Revenue Code (IRC) Section 5000A(f) as any of the following: 1. Government sponsored programs, like: a) the Medicare program under part A of title XVIII of the Social Security Act, b) the Medicaid program under title XIX of the Social Security Act, c) the CHIP program under title XXI of the Social Security Act, d) medical coverage under chapter 55 of title 10, United States Code, including coverage under the TRICARE program; e) a health care program under chapter 17 or 18 of title 38, United States Code, as determined by the Secretary of Veterans Affairs, in coordination with the Secretary of Health and Human Services and the Secretary of the Treasury, f) a health plan under section 2504(e) of title 22, United States Code (relating to Peace Corps volunteers); or g) the Nonappropriated Fund Health Benefits Program of the Department of Defense, established under section 349 of the National Defense Authorization Act for Fiscal Year 1995 (Public Law ; 10 U.S.C note). 2. Coverage under an eligible employer-sponsored plan. 3. Coverage under a health plan offered in the individual market within a State. 4. Coverage under a grandfathered health plan. 5. Such other health benefits coverage, such as a State health benefits risk pool, as the Secretary of Health and Human Services, in coordination with the Secretary, recognizes for purposes of this subsection. Although there have been rumors in the industry stating that because the definition of minimum essential coverage is so broad, employers could get away with offering bare bones or skinny plans to their fulltime employees to avoid part of these fines, Blue Cross and Blue Shield of Louisiana does not encourage this practice. The U.S. Treasury and The White House have stated that they expect employers to maintain robust plans and even expand the coverage they offer to their employees. We hope that after reading this document, and becoming familiar with how the Employer Shared Responsibility rules work, you understand the reason why we don t encourage the use of bare bones or skinny plans. In order to determine if you could be subject to Employer Shared Responsibility fines, you must make several separate analyses that we will describe below. The purpose of this document is to help you understand the different concepts and to give you an overall view of the Employer Shared Responsibility rules. It is not our intention to give you legal or financial advice, or to give you a comprehensive guide as to how to make the different analyses that you need to make as an employer to determine your exposure to these fines. We strongly recommend that you seek professional assistance to determine your exposure and what business decisions you will need to make to respond to the changes that the Affordable Care Act represents to your business. The information in this document is based on the Notice of Proposed Rulemaking and Notice of Public

2 Hearing on Shared Responsibility for Employers Regarding Health Coverage (hereinafter referred to as the Proposed Rule ), issued by the Internal Revenue Service on January 2, 2013 (78 F.R. 218), and the announcement issued by the U.S. Treasury ( Implement-the-ACA-in-a-Careful-Thoughtful-Manner-.aspx), and The White House ( on July 2, 2013, and IRS Notice and IRS Notice The information here provided will need to be updated whenever the Final Rule or any further guidance from the IRS on this subject is made public. Who is an employer for Employer Shared Responsibility purposes? The term employer means the person that is the employer of an employee under the common-law standard (See 26 C.F.R. 3401(c)-1(b)). For purposes of determining who is an Applicable Large Employer (ALE), all persons treated as a single employer under IRC Section 414(b), (c), (m) or (o), are treated as a single employer. Therefore, all employees of a controlled group of entities under Section 414(m), or under Section 414(o) are taken into account in determining whether the members of the controlled group or affiliated service group together are an ALE (all hereinafter referred to as a Controlled Group ). For purposes of determining ALE status, the term employer also includes a predecessor employer and a successor employer. Are you an Applicable Large Employer (ALE)? The first analysis that you will need to make is whether you meet the definition of Applicable Large Employer (ALE). Only ALEs will be subject to Employer Shared Responsibility fines. You will need to assess your ALE status every calendar year starting on 2015, based on your employee count for the previous calendar year. This means that you will need to start putting your compliance into place for 2014 so that you are ready to determine your ALE status and avoid fines for You will be considered an ALE for a given calendar year if you employed an average of at least 50 fulltime and full-time equivalent (FTE) employees on business days during the preceding calendar year. Please remember: if you belong to a Controlled Group, you will need to count the employees of all the constituent entities, because you are all considered a single employer. A full-time employee is an employee who is employed an average of at least 30 hours of service per week, or at least 130 hours of service in a calendar month. The Proposed Rule allows you to choose either the hours/week or the hours/calendar month criteria, as long as you apply it reasonably and consistently. A full-time equivalent (FTE) employee, on the other hand, means a combination of employees, each of whom individually is not treated as a full-time employee because he or she is not employed on average at least 30 hours of service per week, but who, in combination, are counted as the equivalent of a fulltime employee, solely for purposes of determining whether the employer is an ALE. When counting full-time employees and FTEs, the employer must include seasonal workers. The Proposed Rule defines this term broadly, as workers who perform labor or services on a seasonal basis as defined by the Secretary of Labor, including, but not limited to, workers covered by 29 CFR (s)(1), and retail workers employed exclusively during holiday season. An employer s status as an ALE for a calendar year is determined by taking the sum of the total number of full-time employees (including any seasonal workers) for each calendar month of the preceding calendar year, and the total number of FTEs (including any seasonal workers) for each calendar month

3 of the preceding calendar year, and dividing by 12. The result, if not a whole number, must be rounded to the next lowest whole number. If the result is 50 or more, the employer is an ALE for the current calendar year, unless it can claim a seasonal worker exemption. An employer whose above calculation is 50 or more can claim a seasonal worker exemption if the sum of its full-time employees and FTEs exceeds 50 for 120 days or less during the preceding calendar year, and the employees in excess of 50 who were employed during that period of no more than 120 days are seasonal workers. Four calendar months may be treated as the equivalent of 120 days. The four calendar months and 120 days do not need to be consecutive. If you can claim a seasonal worker exemption, you are not an ALE. What if I am not an Applicable Large Employer? If after you have done the above calculation, you determine that you are not an ALE for the calendar year which starts on or after 2015, you will not be subject to Employer Shared Responsibility fines if you do not offer minimum essential coverage to at least 95% of your full-time employees for the current calendar year, disregarding whether any of them buys individual health coverage in the Exchange and gets a subsidy or a cost-sharing reduction. You must keep in mind that you should redetermine your ALE status every year to make sure that your status has not changed. Not being an ALE for a specific calendar year does not mean that it is a good idea not to offer good health coverage to some or all of your employees. Because the Health Care Reform is expected to make individual and small group coverage more available, it may be in your best interest to offer health benefits to your employees that will help you compete in the new market. Also, not being an ALE suggests that you could qualify for a tax credit from the Federal Government to cover part of the costs of your health insurance coverage if you purchase your coverage through the Small Business Health Options Program (SHOP). Furthermore, you should consider that if your business grows into becoming an ALE for any future calendar year, having a good employee health plan in place can make your future compliance efforts a lot easier. Blue Cross and Blue Shield of Louisiana has great options for you! Please consult with any of our sales representatives for details. What if I am an Applicable Large Employer? Once you have determined that you are an ALE, the next step will be to identify which of your employees are considered full-time employees for Employer Shared Responsibility liability purposes. You will be required as an ALE to offer minimal essential coverage to at least 95% of those full-time employees to avoid fines. You must also evaluate the type of health coverage that you are offering to those employees to determine if it meets the affordability and minimum value tests. What Constitutes an Offer of Coverage? An ALE will not be treated as having made an offer of coverage to a full-time employee for a plan year if the employee does not have an effective opportunity to elect to enroll (or decline to enroll) in the coverage no less than once during the plan year. Whether an employee has an effective opportunity will be determined based on all the relevant facts and circumstances, including adequacy of notice of the availability of the offer of coverage, the period of time during which acceptance of the offer of coverage may be made, and any other conditions on the offer. If an ALE fails to offer coverage to a full-time employee for any day of a calendar month, that employee is treated as not having been offered coverage during the entire month. However, in a calendar month in which the employment of a full-time employee terminates, if the employee would have been offered coverage for the entire month, the employee is

4 treated as having been offered coverage for that entire month. Counting and Coverage Periods for Ongoing Employees Your employee count and the coverage period that you are required to offer must be determined in a different way depending on whether they are ongoing employees or new hires. We will describe first the counting and coverage periods that the Proposed Rule prescribes for ongoing employees. To count the hours of service of your ongoing employees, you must define what will be your annual standard measurement period. This is a predetermined period of time of each year in which, once it passes, you will look back and measure the hours of service of your ongoing employees to determine if they are full-time for such period. You are allowed to choose a period of at least 3 but not more than 12 consecutive months. If you have a payroll period that is one week, two weeks or semi-monthly, you are allowed to treat as a measurement period a period that ends on the last day of the payroll period preceding the payroll period that includes the date that would otherwise be the last day of the measurement period, provided that the measurement period begins on the first day of the payroll period that includes the date that would otherwise be the first day of the measurement period. An ALE may also treat as a measurement period a period that begins on the first day of the payroll period that follows the payroll period that includes the date that would otherwise be the first day of the measurement period, provided that the measurement period ends on the last day of the payroll period that includes the date that would otherwise be the last day of the measurement period. An employee who is determined to have an average of at least 30 hours of service per week during the standard measurement period must be treated as a full-time employee, and the ALE will be required to offer him/her coverage for an entire stability period. This is a period that begins immediately after the standard measurement period, and that lasts at least six months, but cannot be shorter than the standard measurement period, if the period that you chose for that is longer than six months. You must offer coverage to an employee determined to be a full-time employee during the standard measurement period for the entire duration of the associated stability period, regardless of the employee s number of hours of service during such stability period. The Proposed Rule gives an ALE the option to have an administrative period. This is a period of up to 90 days for the purpose of doing things like counting employees, making the enrollment notices and offers for the subsequent stability period, and doing the enrollments. If the ALE chooses to have an administrative period, it must begin immediately after the end of the standard measurement period and end immediately before the associated stability period. To prevent this administrative period from creating a gap in coverage, the period must overlap with the prior stability period, so that ongoing employees that are enrolled in coverage because of their full-time status based on a prior measurement period must continue to be covered during the administrative period. Counting and Coverage Periods for New Hires For new hires, the first rule that an ALE must keep in mind is that it will have to offer coverage to any employee that is reasonably expected to serve in a full-time basis upon his/her start date. Although the ALE will not be held subject to a fine for the first three full calendar months of employment for those new hires, if it fails to offer coverage to those employees by the end of those three months, the ALE will be subject to fines for those first three months as well as for any subsequent months.

5 For new variable hour employees and new seasonal employees, ALEs are permitted to determine whether the new employee is a full-time employee using an initial measurement period of between 3 and 12 months that begins on any date between the employee s start date and the first day of the first calendar month following the employee s start date. If the ALE determines that the new variable hour or new seasonal employee averages at least 30 hours of service per week during this initial measurement period, it must offer coverage to that employee for a stability period that must be of the same length as the stability period for ongoing employees. This stability period must be at least six consecutive calendar months in length, and no shorter in duration than the initial measurement period. If, to the contrary, the ALE determines that the new variable employee or new seasonal employee does not have on average at least 30 hours/week during the initial measurement period, it is permitted to treat the employee as not a full-time employee during the associated stability period that follows the initial measurement period. The stability period for new variable or seasonal employees not being treated as full-time employees must not be more than one month longer than the initial measurement period, and must not exceed the reminder of the standard measurement period, plus any associated administrative period, in which the initial measurement period ends. Transitioning from New Hire to Ongoing Employee Once the new variable hour or new seasonal employee has been employed for an entire standard measurement period, the ALE must test him/her for full-time employee status, beginning with that standard measurement period, and at the same time and under the same conditions that apply to other ongoing employees. How to Count Hours of Service The Proposed Rule states that when an employee (whether ongoing or new hire) is paid on an hourly basis, the employer must calculate the actual hours worked and hours for which payment is made or due. However, for employees that are paid on a non-hourly basis, the employer must calculate the hours of service using one of the following methods: 1. Using the actual hours of service from records of hours worked and hours for which payment is made or due. 2. Using a days-worked equivalency whereby the employee is credited with 8 hours of service for each day for which the employee would be required to be credited with at least one hour of service. 3. Using a weeks-worked equivalency whereby the employee is credited with 40 hours of service for each week of which the employee would be required to be credited with at least one hour of service. The number of hours of service calculated using the days-worked or weeks-worked equivalencies must reflect generally the hours actually worked and the hours for which payment is made or due. An ALE is not permitted to use these equivalency methods if the result is to substantially underestimate an employee s hours of service. The Proposed Rule gives as example that if an employee generally works three 10-hour days per week, an ALE may not use the days-worked equivalency, because that would substantially underestimate the employee s hours of service as 24 hours/week, instead of the 30 hours/week the employee actually serves. An employer is not required to use the same method for all non-hourly employees, and may apply different methods for different classifications of non-hourly employees, provided the classifications are reasonable and consistently applied. Also, when the employer is a member of a Controlled Group, each

6 ALE member is not required to apply the same methods as the other ALE members in its group for the same or different classifications of non-hourly employees, provided that the classifications are reasonable and consistently applied by the ALE member. Calculating Hours of Service During Special Unpaid Leave or Employment Break Periods of Ongoing Employees In applying the look-back measurement method to determine whether to treat an ongoing employee as a full-time employee, the ALE must determine the employee s average hours of service by computing the average after excluding any special unpaid leave, and if the employer is an educational organization, also excluding any employment break period, and using that average as the average for the entire measurement period. A special unpaid leave refers to: 1. Unpaid leave that is subject to the Family and Medical Leave Act (FMLA), 2. Unpaid leave that is subject to the Uniformed Services Employment and Reemployment Act (USERRA), or 3. Unpaid leave on account of jury duty. An 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 hours of service for an ALE. In the alternative, the Proposed Rule allows, for purposes of determining an employee s average hours of service, that the ALE treat the employee as credited with hours of service for any periods of special unpaid leave and employment brake period during the 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 a period of special unpaid leave or employment break period. However, in the case of educational organizations, no more than 501 hours of service during employment break periods in a calendar year are required to be excluded or credited (depending on the method chosen) in respect of special unpaid leave. In computing the average weekly rate, employers are permitted to use any reasonable method if applied on a consistent basis. Also, if an employee s average weekly rate is being computed for a measurement period and that measurement period is shorter than 6 months, the six-month period ending with the close of the measurement period is used to compute the average hours of service. Permissible Employee Categories An ALE (or each ALE member within a Controlled Group) may use measurement periods and stability periods that differ either in length or in starting and ending dates for the following categories of employees: 1. Collectively bargained employees and non-collectively bargained employees, 2. Each group of collectively bargained employees covered by a separate collective bargaining agreement, 3. Salaried employees and hourly employees, 4. Employees whose primary places of employment are in different States. Rehired Employees or Employees Resuming Service After a Period of Absence For rehired employees after termination of employment, or employees that resume services after a period of absence, the general rule is that if the employee is treated as a continuing employee, he/she

7 retains, upon the resumption of services, the status that employee had with respect to the application of any stability period. However, the Proposed Rule allows that an employee that has not have an hour of service for at least 26 consecutive weeks preceding the resumption of service, be treated as a new hire, only for Employer Shared Responsibility purposes. The Proposed Rule allows the ALE to establish a shorter period of not less than four consecutive weeks, as long as the shorter period exceeds the number of weeks of that employee s period of employment immediately preceding the period during which the employee was not credited with any hours of service. Assessable Fines Fines against ALEs will be assessed in two levels, depending on the type of violation. The first assessment level, under IRC Section 4980H(a), is for those ALEs that fail to offer the opportunity to enroll in minimum essential coverage to at least 95% (or, if greater, five) of its full-time employees (and their dependents). Those ALEs will be subject to an assessable fine equal to the product of $2,000 and the number of the ALE s full-time employees minus 30, prorated to each calendar month that the coverage was not offered. If the employer is a member of a Controlled Group, the 30 full-time employees that are used for the reduction of the assessment are ratably allocated among all the ALE members on the basis of the number of full-time employees employed by each ALE member during the calendar year. Also, to be subject to this fine, the ALE must have received a Certification from the Exchange under Section 1411 of the Patient Protection and Affordable Care Act, with respect to at least one full-time employee, which means that the employee bought individual health insurance coverage from the Exchange, and qualified for an advance payment of the premium tax credit or a cost-sharing reduction. The second assessment level is under IRC Section 4980H(b), for those ALEs that do offer the opportunity to enroll in minimum essential coverage to at least 95% (or, if greater, five) of its full-time employees (and their dependents), but the coverage offered fails the affordability or minimum value tests. For this assessment too, the ALE must have received a Certification from the Exchange under Section 1411 of the Patient Protection and Affordable Care Act, but the difference is that the fine will be equal to the product of $3,000 and the number of full-time employees for which the ALE received such Certification, prorated to each calendar month in which the coverage offered failed any of the tests. If the employer is a member of a Controlled Group, the fine is imposed only upon the ALE member for which the employee worked. If the employee worked for more than one ALE member of a Controlled Group during a calendar month, the liability for the fine is allocated among the different ALE members in accordance with the number of hours of service the employee did for each ALE member. A fine assessed under Section 4980H(b) may never be greater than the fine the ALE would have paid under Section 4980H(a) for each calendar month, and an ALE may never be fined under both sub- Sections at the same time. For purposes of a Section 4980H(b) assessment, an employer-sponsored plan does not provide minimum value if the plan's share of the total allowed costs of benefits provided under the plan is less than 60% of such costs. In other words, the plan offered to the employee must have at least a 60% actuarial value, which is a measurement of how generous the plan is in the coverage it offers. For purposes of a Section 4980H(b) assessment, an employer-sponsored plan is affordable if the employee s required contribution to the plan does not exceed 9.5% of that employee s household income for the taxable year. Household income means (according to IRC Section 36B(d)(2)(A)) the modified adjusted gross income of the employee and any members of the employee s family (including any spouse and dependents) who are required to file a federal income tax return. Modified adjusted gross income means (according to IRC Section 36B(d)(2)(B) and 26 C.F.R. 1.36B-1(e)(2)) adjusted gross

8 income increased by: 1. Amounts excluded from gross income under IRC Section 911, 2. The amount of any tax-exempt interests a taxpayer receives or accrues during the taxable year, and 3. An amount equal to the portion of the taxpayer s social security benefits (as defined under IRC Section 86). In consideration that ALEs do not necessarily know the household income of their employees so that they can determine the affordability of their plans, the Proposed Rule includes certain safe harbors which if met by the ALE, the plan will be considered to meet the affordability test. ALEs are allowed to apply any of the safe harbors to any reasonable category of employees, provided it does so on a uniform and consistent basis for all employees in a category: 1. Form W-2 Safe Harbor - The employee s required contribution for the calendar year for the employer s lowest cost self-only coverage during the entire calendar year (excluding COBRA or other continuation coverage) does not exceed 9.5% of that employee s Form W-2 wages from the employer for the calendar year. The employee s required contribution must remain a consistent amount or percentage of all Form W-2 wages during the calendar year (or for plans with fiscal year plan years, within the portion of each plan year during the calendar year) so that an ALE is not permitted to make discretionary adjustments to the required employee contribution for a pay period. A periodic contribution that is based on a consistent percentage of all Form W- 2 wages may be subject to a dollar limit specified by the employer. 2. Rate of Pay Safe Harbor - The employee s required contribution for the calendar month for the ALE s lowest cost self-only coverage does not exceed 9.5% of an amount equal to 130 hours multiplied by the employee s hourly rate of pay as of the first day of the coverage period. For salaried employees, the ALE is allowed to use any reasonable method for converting payroll periods to monthly salary, and use that instead of the previous formula. The ALE may use this safe harbor as long it does not reduce the hourly wages of hourly employees or the monthly wages of salaried employees during the calendar year (including through the transfer of employment to another ALE member within the same Controlled Group). If coverage is offered at least one day during the calendar month, the entire calendar month is counted both purposes of determining the assumed income for the calendar month and for determining the employee s share of the premium for the calendar month. 3. Federal Poverty Line Safe Harbor - The employees required contribution for the calendar month for the ALE s lowest cost self-only coverage does not exceed 9.5% of a monthly amount determined as the Federal Poverty Line (FPL) for the State in which the employee is employed, for a single individual for the applicable calendar year, divided by 12. If coverage is offered at least one day during the calendar month, the entire calendar month is counted both purposes of determining the assumed income for the calendar month and for determining the employee s share of the premium for the calendar month. Transition Relief The Proposed Rule and IRS Notice had established that the Employer Shared Responsibility fines would start to be assessed on January 1, 2014, with a transition relief available for ALEs with fiscal year plans that renewed at some other date within the 2014 calendar year. However, on July 2, 2013, the U.S. Treasury and The White House announced that after conversations with stakeholders, they had

9 decided to delay the annual healthcare coverage reporting required from employers and health insurance issuers under IRC Sections 6055 and 6056, and the Employer Shared Responsibility assessable fines under IRC Section 4980H until This policy was made official by IRS Notice Employers, insurers and other reporting entities were encouraged to voluntarily comply with the information reporting provisions for 2014, once the corresponding rules are issued, in preparation for the full application of the provisions for This means that ALEs will have until January 1, 2015 to become compliant with the reporting provisions and the Employer Shared Responsibility rules. This transition relief will not affect the employees eligibility for premium subsidies or cost-sharing reductions in the Exchanges in the 2014 calendar year, if their employer fails to offer them minimum essential coverage, or the coverage offered fails the affordability or minimum value tests.