Affordable Care Act and the UMC Update

Transcription

1 Affordable Care Act and the UMC Update National Association of Commissions on Equitable Compensation September 10, 2014

2 Disclaimer The material in this update is provided as general information and education. It should not be construed as, and does not constitute, legal advice nor accounting, tax, or other professional advice or services on any specific matter, nor does this message create an attorney-client relationship. Readers should consult with their counsel or other professional advisor before acting on any information contained in this presentation. 2

3 Agenda Changed Landscape 2014 UMC Question: Who Is the Employer of Clergy? Employer Shared Responsibility ACA* Reporting Requirements Conference Strategies Clergy Impact ACA Litigation to Watch * ACA: Affordable Care Act (Patient Protection and Affordable Care Act, PPACA) 3

4 Changed Landscape 2014

5 Reminder ACA 2014 Individual Mandate Individual insurance market reforms Health Insurance Marketplace ( exchanges ) Government assistance for modest income premium tax credits (PTCs) Employer Shared Responsibility Rule Pay or play or Employer Mandate January 2015 (100+ FTEEs*) January 2016 (50-99 FTEEs) Expanded Medicaid (some states) * FTEEs: Full-time equivalent employees 5

6 August 2014 State Exchange Federal Exchange (No State Exchange) State Exchange Using Federal Exchange Support in 2015 State SHOP/Federal Exchange Partnership Exchange State Exchange Used Federal Exchange Support in 2014

7 August 2014 No Expansion Expansion Expansion Pending Considering Expansion

8 ACA Enrollment As of August 2014 ACA expanded enrollment Expanded Medicaid enrollees Marketplaces enrollees Open Enrollment Period: Closed (mainly) million million 9.2 million How many have paid for Marketplace Plans? 8.0 million (approx. 94%) Off-Marketplace QHPs*: 6.0 million (est.) PTC-Eligible: Previously Uninsured: 87% (est.) 57% (est.) * QHPs: Qualified health plans 8

9 Individual Mandate

10 Individual Mandate 2014 Have minimum essential coverage (MEC) or pay excise tax with April 2015 tax return* Individual Penalty (Adults) Maximum Greater of $95 or 1% of income Greater of $325 or 2% of income Greater of $695 or 2.5% of income Family penalty: Limited to 3x (300%) individual penalty Child penalty: 50% of individual adult penalty National average** bronze plan premium Certain exemptions apply examples: No affordable coverage (costs > 8% of modified adjusted gross income [MAGI]); hardship; low income (less than tax filing threshold) Undocumented aliens Religious objectors (Amish); health care sharing ministries * Line 61 Form ** $2,448 per individual in 2014; $12,240 for family of five or more. 10

11 Minimum Essential Coverage Government coverage Medicare, Medicaid, CHIP*, TRICARE and veterans coverage Employer-sponsored coverage Church health plans are minimum essential coverage Individual market plans Exchange plans, private market plans, grandfathered plans Other health benefit plans recognized by HHS** examples: Student health plans and state high-risk pools (2014 only) Medicare Advantage plans Refugee Medical Assistance AmeriCorps coverage Foreign health services (if approved) * CHIP: Children s Health Insurance Program ** HHS: U.S. Department of Health and Human Services 11

12 Tax Credits and Market Reforms

13 Market Reforms Premiums Guaranteed issue/renewal and no pre-existing condition exclusions Risk Pool: All QHPs (Marketplace and off-exchange) Community-rating: Premium rate variation limits Age: 3:1 (age 21 to 64) Tobacco use: 1.5:1 Family size Geography (regional cost factors) States can vary these factors Example: New York and Vermont use pure community rating Rate shock for young (healthy) Rate joy for older (less healthy) 13

14 Premium Tax Credits Exchange plan premiums subsidized with federal assistance: Premium tax credit (PTC) Individuals and families with household income* between % of federal poverty level (FPL) $11,670 (Single) 100% of FPL 400% of FPL $23,580 (Family of 4) $46,680 (Single) $94,320 (Family of 4) State and federal exchanges eligible for PTCs Subject to ongoing federal court litigation challenge * Household income: Modified adjusted gross income (MAGI) 14

15 MAGI (Code 36B) Modified adjusted gross income (MAGI) Taxpayer s adjusted gross income (AGI) (Code 62) Form 1040 line 37 (last line of Page 1) Increased by: Foreign income Tax-exempt interest Non-taxed Social Security benefits Clergy housing/parsonage not included Employee 401(k)/403(b)/FSA contributions reduce MAGI Certain above-the-line deductions reduce MAGI 15

16 PTC Eligibility Requirements Two main requirements* (Both required to be PTC-eligible ) MAGI Between 100% and 400% of federal poverty level (FPL) Inadequate or no employer coverage No employer coverage Employer coverage is less than minimum value Employer coverage is not affordable to employee * Other requirements include not being: 1) incarcerated 2) covered by Medicare, Medicaid or other govt. coverage: CHIP, TRICARE, etc. 3) married, filing separately 16

17 PTC Eligibility: % of FPL (2014) Household Income (MAGI) % FPL Single Family of 2 Family of 3 Family of 4 100% $11,670 $15,730 $19,790 $23, % $16,105 $21,707 $27,310 $32, % $17,505 $23,595 $29,685 $35, % $23,340 $31,460 $39,580 $47, % $29,175 $39,325 $49,475 $58, % $35,010 $47,190 $59,370 $70, % $46,680 $62,920 $79,160 $94,320 >400% $46,681 $62,921 $79,161 $94,321 For families/households with more than 4 persons, add $4,020 for each additional person. 17

18 PTC Impact on Premium (Illinois) Clergyperson age 50; spouse age 50; MAGI $40,000 State Bronze Plan w/o PTC Bronze Plan with PTC Silver Plan w/o PTC Silver Plan with PTC CA $586 $58 $796 $268* IN $782 $128 $922 $268 NY $616 $104 $780 $268 OH $554 $44 $778 $268 OR $516 $129 $628 $268 TX $370 $115 $528 $268 VA $532 $10 $790 $268 * Equal to 8.05% of MAGI 18

19 Exchange (Marketplace) Plans

20 Exchange Plans Bronze Silver Gold Platinum Group Plans Actuarial Value 58-62% 68-72% 78-82% 88-92% 60% Covered Services Essential health benefits and preventive services Essential health benefits and preventive services Essential health benefits and preventive services Essential health benefits and preventive services Preventive services (need not cover Essential Health Benefits) Essential Health Benefits No annual limits No annual limits No annual limits No annual limits No annual limits (on covered EHBs) 2014 Deductible Maximums $2,000 Individual $4,000 Family $2,000 Individual $4,000 Family $2,000 Individual $4,000 Family $2,000 Individual $4,000 Family None 2014 Out-of- Pocket Maximums $6,350 Individual $12,700 Family $6,350 Individual $12,700 Family $6,350 Individual $12,700 Family $6,350 Individual $12,700 Family $6,350 Individual $12,700 Family Silver plan used to determine any government subsidies through the exchange 20

21 Cost-Sharing Reductions Limited to those between 100% and 250% FPL MAGI Actuarial Value Deductible Max Out-of-Pocket Doctor Visit Co-pay Hospital Co-pay 100% 150% FPL 94% Silver Plan $0 $1,000 $10 $ % 200% FPL 87% Silver Plan $250 $2,000 $15 $ % 250% FPL 250% FPL 73% Silver Plan 70% Silver Plan $1,000 $4,000 $30 $1,500 $2,000 $5,500 $30 $1,500 21

22 Who Is the Employer?

23 IRS Standard (for Now) Churches [e.g., UMC local churches] and conventions and associations of churches [e.g., annual conferences, denominations] may use a reasonable, good faith interpretation of [the Tax Code] to determine who is an applicable large employer under the Employer Mandate 1 Treating appointed clergy as employee of local church that pays their salary and issues their W-2 should be reasonable, good faith interpretation 2 Treating local churches a separate employers from the conference and from each other (generally) seems reasonable, good faith interpretation 23

24 UMC Clergy Employer Clergy: Self-employed for FICA/SECA purposes (statutory) Tax Court case: Weber v. Commissioner UMC clergy: employees for income tax purposes Applied common-law standard Court declined to decide if local church of annual conference was employer 24

25 UMC Clergy Employer Common-Law Test Plurality of 20 factors point to local church Key factors: Day-to-day control of method, manner and means of the work ACA Marketplace Notice Employer is local church W-2 Reporting (once applied) Local church Employer Shared Responsibility Reasonable, good faith argument for local church Employee Coverage Reporting Reasonable, good faith argument for local church 25

26 Employer Shared Responsibility

27 Employer Shared Responsibility Effective date: Also called Employer Mandate or pay or play rule Statute: January 1, 2014 July 2013 delay for all employers January 1, 2015 New delay for some employers 2016 Applies only to large employers Applicable large employer: averages 50 or more full-time equivalent employees (FTEEs) Small employers: (<50 FTEEs) exempt 27

28 UMC Impact Employer Shared Responsibility Rule should not apply to most UMC local churches However, each annual conference will likely have a few (up to a few dozen) local churches subject to the Rule Example: 3-12 in Indiana 50+ in Oklahoma Many annual conference offices affected General agencies affected 28

29 Final Rule Highlights Mid-sized employers (50 99 FTEEs) Delay January 1, 2016 Certification required: employer must certify to IRS: No layoffs to avoid 100 FTEEs in 2014 No benefits cutbacks Large employers (100+ FTEEs) Transition rules easier compliance for 2015 Offer coverage to 70% of FTEs in health plan 2016: Offer coverage to 95% of FTEs Deduct 80 FTEs from no coverage penalty in : Deduct 30 FTEs 29

30 Employer Aggregation Controlled Group rules of Code 414(c) apply lumping together closely affiliated employers Local Churches Day care centers Schools and after-school programs Summer camps Other ministries Conferences Summer camps Agencies, boards, etc. Foundations Possibly also: schools, hospitals, retirement homes over which conference may have control for board appointments 30

31 Employer Aggregation Rule for churches* reasonable good faith interpretation Common control exists where: Test 1: Organizations share EIN** Test 2: Organizations share 80% of board members/trustees (or controls 80% of other board), or One organization provides 80% of operating funds for another; and organizations share some common management or supervision * Churches and conventions and associations of churches ** EIN: Employer identification number 31

32 Counting Employees Employer Shared Responsibility Rule Is an employer subject to the rule in 2015? Counting to 50 (or 100) in 2014 Employee Type Full-time employees (FTEs) Part-time employees (PTEs) (< 30 hours/week ) Paid-leave employees (vacation, jury duty, disability, leaves of absence) Seasonal Workers Rule or Accommodation 30 hours/week (130 hours/month) Added to FTE count to determine: Is employer subject to Rule? Aggregate monthly hours worked 120 (no employee counted >120 hours) Added to FTE count to determine: Is employer subject to Rule? Employer not subject to Employer Mandate ( Rule ) if exceeds 50 FTEEs solely due to seasonal employees for less than 120 days of year 32

33 Employer Offer of Coverage Large employers must provide affordable coverage with minimum value to: Full-time employees (FTEs) (30+ hours/week) Excludes certain seasonal employees (< 6 months) Excludes part-time employees Dependent children (up to age 26) of FTEs Or else pay a penalty Spouse coverage not required Small employers: Exempt 33

34 Offer of Coverage Large Applicable Large Employer (100+ FTEEs) Offer coverage to 70% of FTEs in 2015 Offer coverage to 95% of FTEs in 2016 Mid-sized Applicable Large Employers (50 99 FTEEs) 2015: not required to offer coverage (must certify to IRS) 2016: offer coverage to 95% of FTEs 34

35 Penalties No Coverage At least one FTE qualifies for PTC* Inadequate Coverage Employer offers coverage and at least one FTE qualifies for PTC* Penalty 2015 = $2,000 per FTE (minus first 80 FTEs) Penalty 2016 = $2,000 per FTE (minus first 30 FTEs) Penalty = $3,000 per FTE receiving a PTC (limited to No Coverage penalty) Penalties adjusted for inflation after 2014 Part-time employees count toward determining applicability of the Rule but do not count for penalty assessed. * PTC: Premium tax credit 35

36 Affordability

37 Three Affordability Rules Employee s Cost for Premium ACA has several definitions of affordable <9.5% of MAGI for individual coverage Employer avoids employer mandate penalty ( pay or play ) Safe Harbor: <9.5% of W-2 wages (known to employer) for individual coverage >8% of MAGI for individual coverage Employee may avoid individual mandate penalty Determined separately for spouse, dependent children >9.5.% of MAGI for individual coverage Employer plan is unaffordable Employee is eligible for PTC! Dependent coverage affordability glitch Family coverage is affordable if cost to employee: <9.5% of MAGI for self-only coverage 37

38 Affordability Safe Harbors Safe harbors for affordability under Employer Shared Responsibility Rule W-2 Wages: Employee contribution for self-only coverage in lowest-cost plan is less than 9.5% of W-2 wages Rate of Pay: For any month, employee share of monthly cost for self-only coverage in lowest-cost plan is less than 9.5% of 130 hours multiplied by employee s hourly rate of pay FPL*: For any month, employee share of monthly cost of self-only coverage of lowest-cost plan is less than 9.5% of 1 /12 of FPL for a single individual * FPL: Federal poverty level 38

39 Individual Mandate Affordability Exemption If individual cannot find coverage anywhere (employer or Marketplace) that costs less than 8% of MAGI, then: Exempt from individual mandate penalty Determined separately for families/dependents 39

40 Tax Credit Eligibility Employee s required contribution (share of premium) for self-only (individual) coverage under employer plan cannot exceed 9.5% of household income* (MAGI) If employee contribution exceeds 9.5% of MAGI, can opt out; choose exchange coverage and PTC Dependent coverage affordability glitch Cost to cover dependents affordable as long as it does not cost the employee more than 9.5% of MAGI to cover self-only * MAGI: Modified adjusted gross income Note: Employers often have no information about employees household income 40

41 Conference Affordability Approaches Clergy (employee) contribution for self-only coverage of conference minimum salary Similar to rate of pay safe harbor of federal poverty level (FPL) for % of $11,670 = $92.39 per month 41

42 ACA Reporting and Tax Forms

43 Employer Coverage Reporting Applicable large employers* must report covered full-time employees (FTEs) to IRS (Code 6056) Required for 2015 calendar year Even if not subject to Employer Mandate until 2016 Submit Form 1095-C for each covered FTE to IRS by March 31, 2016 Provide statement to all covered FTEs by February 1, 2016** Penalty for failures: $100 per FTE; maximum $1.5 million per calendar year [for both IRS Form and participant statement] This reporting is an employer responsibility. GBPHB/CBOP will likely not perform this reporting for churches. * Applicable large employer: 50+ full-time equivalent employees ** January 31 most years 43

44 Plan Health Reporting Minimum essential coverage (MEC) reporting (Code 6055) beginning with 2015 calendar year GBPHB for HealthFlex; CBOP for self-insured conference plan should report for all plan participants and dependents Insurance company for fully-insured plans Local church in some cases (local church self-insured plan) Plan Sponsor submits Form 1095-B to IRS (March 31, 2016) Plan issues statements to all covered lives participants and dependents (February 1, 2016) Penalties similar to Section 6056 Reporting This reporting is a Plan Sponsor responsibility. 44

45 Tax Forms Form 1040 Line 61 (New): Individual Mandate Form 8962 Premium Tax Credit Form A: Marketplace Coverage 1095-B: Plan Coverage (insured or self-funded employer plans) 1095-C: Employer-Provided Coverage 45

46 W-2 Reporting Employers (e.g., local churches) required to report value of health coverage on employees W-2s January 2013 on secular, large employer W-2s Temporary exemption remains for: Employers in church plans (unless church plan is subject to ERISA) Small employers (fewer than 250 W-2s) IRS may end the exemption upon 6 months notice No earlier than 2014 (more likely for 2017 tax year) 46

47 Reimbursement Arrangements

48 Health Reimbursement Arrangements IRS Notice : restrictions on health reimbursement arrangements (HRAs) No stand-alone HRAs for active employees HRAs only allowed if integrated with group plan Will allow establishment of private exchanges Prohibits combining HRAs with public exchanges Stand-alone HRAs allowed for retiree-only plans However, no PTC* for those retirees (i.e., no double dip on tax benefits) * PTC: premium tax credit 48

49 Employer Payment Plans Restricts 1961 IRS rule (Rev. Rul ) that allowed employers to reimburse premiums paid for individual health insurance policies on a tax-favored basis ( employer payment plans ) Many local churches relied on this practice Particularly for lay employees, deacons, part-time clergy Individual policies (through exchanges or in private market) can only be paid with taxable income! Marketplace plans cannot be paid tax-free by: Employer, or Through cafeteria plan pre-tax (other than SHOP) 49

50 ACA Pressures on Employer Plans

51 New ACA Fees on Plans PCORI* Fee applies to fully-insured and self-insured plans for years 2012 to 2019 $1 per covered life in 2012 $2 in 2013 Indexed to inflation IRS Form 720 with payment Transitional Reinsurance Fee applies to fully-insured and self-insured plans for years 2014 to 2016 $63 per covered life in 2014 $44 in 2015 $25 in 2016 (estimate) Paid to HHS in two installments * PCORI: Patient-Centered Outcomes Research Institute 51

52 Cadillac Plan Tax 2018 Applies to fully-insured and self-funded plans Assessed on the cost of coverage for plans in excess of certain thresholds 40% excise tax on plan s cost in excess of: $10,200 for individual coverage $27,500 for family coverage Increased threshold for plans that cover pre-medicare retirees or high-risk jobs $1,650 individual or $3,450 family Adjusted for inflation (CPI*)+1% ( ); CPI only after 2020 * CPI: Consumer Price Index 52

53 Employee Protections Department of Labor (OSHA) rule protecting employees from retaliation: Reporting violation of ACA protections or cooperating in investigation Interfering with receiving premium tax credit Even if PTC receipt causes pay or play penalty to employer Complaint process with OSHA Class Action Bar eyeing this provision Employer reducing hours to avoid Employer Mandate 53

54 Non-Discrimination Rule Highly compensated employee (HCE) defined differently than for retirement plans 5 highest-paid officers, or Highest-paid 25% of all employees Every employer has HCEs Penalties for non-compliance are different Self-funded: Benefits of HCE become taxable Insured: Excise tax ($100/day per HCE), civil money penalty, or a civil action to compel nondiscrimination Enforcement of Section 105(h): on hold pending further IRS guidance Late 2014 (Est.) Strange legislative and regulatory history 54

55 Excise Tax Penalties Code 4980D Applies to church plans $100/day per affected individual accumulates quickly Plan/employer violations of ACA SBC*, pre-existing condition exclusions, annual/lifetime limits, dependent child coverage, preventive health coverage, health plan reporting, claims and appeals, patient protections These are already in effect. * SBC: Summary of benefits and coverage (standardized) 55

56 Conference Strategies

57 Conference Strategies Connectional and Policy Considerations Book of Discipline Judicial Council Decisions 674, 866, 935 and 1014 ACA Employer Shared Responsibility Rule State s (or states ) embrace of ACA Appointment process and itineracy concerns Equity of health coverage Tax implications Unintended consequences (e.g., increased DAC*) * DAC: Denominational average compensation 57

58 Conference Strategies Status Quo Mandatory plan for all conference clergy possible PROS Maintains ease of appointment No disruptive change for covered participants Forgoes cost savings in exchange plans with PTCs CONS May cause more tension with local churches (seeking cost savings) Plan costs continue to rise New ACA burdens (fees, reporting, taxes, etc.) 58

59 Conference Strategies Changes at the Margins Encourage Marketplace enrollment for continuation (COBRA) participants and clergy on unpaid leaves (where the conference plan is costly) Allow access to Marketplace for pre-65 retirees purchase with non-taxed employer dollars or federal PTC Retiree-only stand-alone HRAs allowed, but no PTC Change dependent coverage eligibility PROS CONS Some cost savings related to certain beneficiaries Conference/church/clergy familiarization with marketplaces Cost savings of PTCs not fully realized Some administrative complexities 59

60 Dependent Coverage Options Spouse and Dependent Changes Version 1: Conference ceases covering spouses and dependents at conference/plan level Version 2: Local churches cease covering spouses, dependents or both at the local level (with conference permission) No spouses or dependents would have affordable coverage PROS CONS PTCs available for many families, based on MAGI (cost savings to clergy/churches/conferences) Equity concern for families that do not qualify for PTCs (MAGI too high) They pay full premium on exchange with after-tax $ Compensation may have to be increased 60

61 Conference Strategies Affordability Option Maintain required full-time clergy coverage, but increase required individual contributions Clergy for whom coverage is not affordable (e.g., cost exceeds 9.5% of MAGI) seek exchange coverage PROS Captures savings of premium tax credits to low-paid clergy and families May be able to support clergy in Marketplaces with excepted benefits and other wrap-around coverage CONS May create appointment frictions and equity concerns May require way to offset increased health plan premium contribution for clergy remaining in the plan Other nontaxable benefits Taxable compensation 61

62 Conference Strategies Local Church Option Allow local churches to opt out of conference plan (for full-time clergy) Clergy at churches opting out no employer coverage PROS Lower-paid can seek exchange coverage and tax credits Appointment frictions and equity concerns CONS Disruptions to conference plan risk pool Diminution in size Change in risk profile Problem for churches with multiple clergy? Some would want to remain in the plan; some would not 62

63 Conference Strategies Exit Option Terminate health plan entirely PROS CONS Significantly reduce conference administrative costs Rely on Marketplaces for individuals most local churches Rely on SHOP 1 for applicable large employers in conference (e.g., large churches, conference office) Increase taxable salary for some or all Unintended consequences Increases CAC and DAC; increases CRSP-DC 2, CPP 3 and UMPIP 4 contributions based on compensation Unintended distortions Uniform salary increases may have disparate impacts for single v. married v. family; PTC eligibility Add/increase other non-taxable benefits (UMPIP, UMLifeOptions) Increased tax burden to clergyperson (SECA & income taxes); or employee (income taxes) and employer (FICA) 1 SHOP: Small Business Health Options Program 2 CRSP-DC: Clergy Retirement Security Program-Defined Contribution 3 CPP: Comprehensive Protection Plan 4 UMPIP: United Methodist Personal Investment Plan 63

64 ACA Litigation

65 Cases to Watch Halbig v. Burwell*; King v. Burwell* Challenges to premium tax credits (PTCs) through federally-facilitated exchange (FFE)/Marketplace Sissel v. U.S. Department of HHS Challenge to ACA under Origination Clause Article I, Section 7: all revenue raising bills (e.g., tax bills) originate in House of Representatives Challenges to the ACA Contraceptive Coverage Rule For-profit: Burwell v. Hobby Lobby Tax-Exempt: Wheaton College v. Burwell * Sylvia Burwell: Secretary, U.S. Department of Health and Human Services (HHS) 65

66 General Board Supports

67 General Board Supports Health Care Reform Resources General Board website center-for-health/ health-care-reform gbophb.org 67

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69 Andrew Q. Hendren Associate General Counsel General Board of Pension and Health Benefits of The United Methodist Church 1901 Chestnut Avenue Glenview, IL Phone: (847)

70 2014 General Board of Pension and Health Benefits of The United Methodist Church, Incorporated in Illinois. 70

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