Affordable Care Act Key Questions for Employers

Transcription

1 Affordable Care Act Key Questions for Employers May 16, 2013

2 Key questions an employer must ask Am I potentially subject to the penalty? When are the rules effective? Who do I have to cover? When do I have to cover them? What coverage must I provide? Do I need to subsidize coverage? What are the penalties? What do I need to tell my employees? 1

3 Am I potentially subject to the penalty? Your organization is potentially subject to the penalty if you are an applicable large employer The term "applicable large employer" means, with respect to a calendar year, an employer who employed an average of at least 50 full-time employees and FTEs (combined) during the preceding calendar year - In this case, the employer is determined on a controlled group or an affiliated service group basis Note: You can not simply break up a company into two or more related companies to avoid the requirements 2

4 Controlled groups For employee plan purposes, brother-sister controlled group requires 80% common ownership by five or fewer persons (it is 50% for income tax rules) - For example, if Mary and Jim each own 45% of both ABC Corp and XYZ Corp, the ABC and XYZ are in a brother-sister controlled group relationship For brother-sister, there is also a 50% identical ownership standard to meet. For parent-subsidiary controlled groups it is an 80% standard for both income tax and employee plans - For example, ABC Corp owns 90% of XYZ Corp 3

5 Full-time employees and FTEs Full-time employees - Work on average 30 hours or more each week Full-time equivalent employees (FTEs) - The hours of part-time employees for the month are aggregated and divided by 120 Example - A company has 47 full-time employees, and - 10 employees who work a combined 600 hours in the month ( = 5 FTEs) = 52 full-time employees - The company is an applicable large employer 4

6 Employee determination process In any year, an employer must look to the prior year to determine its full-time and FTE employee counts You have to determine full-time employees and FTEs each month - However, for 2013, an employer can use a period of less than 12 consecutive months but at least six consecutive months in determining its average employment number 5

7 Applicable large employers include For-profit (public or privately held) Not-for-profits Churches Federal, state, and local governments 6

8 New employer rule Example: - New company created May 1, If NEWCO can reasonably be expected to employ on average at least 50 full-time employees during 2014, and actually employs an average of at least 50 full-time employees during 2014, NEWCO is an applicable large employer 7

9 Pay or Play effective January 1, 2014 First year transition rules for some non-calendar year plans - Delay until start of the plan year for those employees who were eligible on December 27, Delayed until start of non-calendar year plan for all employees if the employer offered the plan to: At least 1/3 of all employees at the most recent open enrollment The plan covered at least 25% of all employees on any day between October 31, 2012 and December 27,

10 Employees eligible for coverage Fulltime employees - 30 hours a week hours a month can be used Special rules for: - Variable hour employees - Seasonal employees For non-hourly employees use: - 8 hours a day - 40 hours a week Note: The FTE concept for applicable large employers does not apply here. 9

11 Union plans No special exceptions for union plans or union employees - Some limited transition rules apply in IRS is seeking comments on this issue 10

12 Union transition rule For 2014, no penalty assessments apply if: - The employer is required to make a contribution to a multiemployer plan under a collective bargaining agreement, - Coverage under the multiemployer plan is offered to the full-time employee (and the employee s dependents), and - The coverage offered to the full-time employee is affordable and provides minimum value. 11

13 When does coverage apply? If a new employees is a clearly a fulltime employee, the employer must offer coverage within 90 days of hire. - Temporary employee issue - Many employers use a temp-to-hire practice of hiring new employees - The issue is: If you hire the temp-to-hire person as an employee, what is their date of hire? 12

14 Determining fulltime status Determined monthly - IRS provides safe harbor approaches for: On going employees Seasonal or variable hour employees - The safe-harbor approaches require an understanding of several concepts, including the standard measurement period, the stability period, and an administrative period. 13

15 Safe harbor for ongoing employees An example of the interplay between the three periods is as follows: Administrative period (optional) Oct. 16 through Dec. 31 Standard measurement period Stability period 12 months ending each Oct. 15 Next Jan 1 to Dec 31 14

16 Minimum essential coverage Not a defined term. Essentially it is a group health insurance policy. The policy must meet the 2014 insurance policy mandates regarding - No annual limit - No lifetime limit - No cost-preventive services 15

17 Minimum value A plan must cover at least 60% of total allowed costs in the following benefit categories: - Physician and midlevel practitioners (e.g. an APN s charges) - Prescription drugs - Hospital and emergency room services - Imaging and laboratory services A plan can satisfy this by design-based safe harbors, the HHS calculator, or an actuarial certification 16

18 Affordable coverage Coverage is affordable if the price for the lowest cost self-only policy does not exceed: percent of W-2, Box 1 wages percent of Federal Poverty Line - Rate of pay safe-harbor 9.5 percent of base monthly salary or hourly rate of pay (no more than 130 hours per month) No requirement to subsidize spouse or dependent coverage. 17

19 The employer penalties Applicable large employers must: - Offer minimum essential health coverage to substantially all fulltime employees (and their dependents) or pay a penalty tax - Offer affordable coverage that provides minimum value or pay a penalty tax Note: An employer does not have to: - Offer coverage to spouses - Subsidize dependent coverage 18

20 First potential penalty no offer of coverage If the employer fails to offer minimum essential health coverage to substantially all (95 percent of) employees and any one employee receives tax-subsidized coverage through an exchange, the employer must pay a $2,000 nondeductible penalty for every full-time employee - The first 30 employees are not counted in calculating the penalty - With a 40 percent combined tax rate, this is the equivalent of $3,300 per employee 19

21 Second possible penalty Part A If the employer fails to offer a fulltime employee coverage (and the first penalty does not apply) and that employee obtains tax-subsidized coverage through the exchange, the nondeductible penalty is $3,000 for that employee (or $2,000 per employee, if less) - This penalty potentially applies if the employer offers coverage to 95% or more of all fulltime employees but less than 100% 20

22 Second possible penalty Part B If the employer offers employee and dependent coverage but the coverage does not meet minimum value and an employee obtains tax-subsidized coverage through the exchange, the nondeductible penalty is $3,000 for that employee (or $2,000 per employee, if less) 21

23 Second possible penalty Part C If the employer offers employee and dependent coverage but charges more than 9.5 percent of the employee s household income (an offer of unaffordable coverage) for the employee self-only option and the employee declines the employer s plan and obtains tax-subsidized coverage through the exchange, the nondeductible penalty is $3,000 for that employee (or $2,000 per employee, if less) 22

24 Tax subsidies Not available if employee is: - Eligible for Medicaid (100% to 133% of the federal poverty line) - Has household income greater than 400% of federal poverty line - Offered or accepts coverage under an employer-sponsored plan 23

25 Monthly computations The penalty is actually assessed on a monthly basis, but all examples are annualized 24

26 Example No. 1 Employer has 180 full-time employees and does not offer health care coverage to substantially all employees One employee receives tax-subsidized coverage from a health benefit exchange The tax computation is: employees - Less 30 employee threshold $2,000 = $300,000 25

27 Example No. 2 Employer has 180 full-time employees and does not offer affordable health care coverage 20 employees receive tax-subsidized coverage from a state health benefit exchange The tax computation is: - 20 $3,000 = $60,000 26

28 Penalty on individual employer The penalty is not determined on a controlled group basis This is a planning opportunity - But watch out for traps 27

29 Potential trap Nondiscrimination testing Employers providing health care coverage through an insurance policy will need to comply with the same nondiscrimination standards that currently apply to employersponsored self-insured plans - If a plan is discriminatory, then the employer sponsoring the plan is subject to a $100 per day per individual excise tax - The IRS has delayed the effective date of this provision until it issues regulations - Remember that there are current nondiscrimination rules that apply to self-insured health benefit and cafeteria benefit plans 28

30 Discussion What are employers doing? 29

31 Employer Decision Tree Large employer? Yes Minimum coverage of FTEs? Yes Minimum value? Yes Affordable? Yes No Penalty No No No No No penalty; explore small business health care tax credit; consider insurance exchange $2,000 non-deductible penalty on all full-time employees (less first 30 FTEs) $3,000 non-deductible penalty for each employee receiving subsidy (max of $2,000 per FTE after 30) $3,000 non-deductible penalty for each employee receiving subsidy (max of $2,000 per FTE after 30) 30

32 Information that employers must provide U.S. Department of Labor has issued model forms for: - Summary of Benefits and Coverage - Notice of Marketplace Coverage 31

33 Summary of Benefits and Coverage (SBC) The SBC is a description of a health plan s provisions regarding eligibility, covered services, excluded services, cost sharing percentages, etc. - Employers must issue the SBC in connection with the first open enrollment period that starts after Sept. 23, Employers must also distribute the SBC: To newly enrolled employees In any special enrollment situation Updated version when changes are made to the plan (60 days in advance) 32

34 Employee Notice of Marketplace Coverage Employers must provide the Notice to current full-time and part-time employees (regardless of their enrollment status under existing group plans) - The Notice is due no later than October 1, 2013, - New employees must receive the Notice within 14 days of their employment start date 33

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