UPDATE ON THE AFFORDABLE CARE ACT: EMPLOYER MANDATE

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1 Bill Enck, CPA, CPC, APA Roger Prince, JD, APA UPDATE ON THE AFFORDABLE CARE ACT: EMPLOYER MANDATE berrydunn.com GAIN CONTROL

2 INDIVIDUAL MANDATE 1/1/2014 Individual mandate effective 1/1/2014 Code 5000A Effective 1/1/2014 most U.S. taxpayers must be enrolled in minimum essential coverage or be subject to a penalty Penalty called a Shared Responsibility Payment Open enrollment began (where available) on 10/1/2013 2

3 INDIVIDUAL MANDATE 1/1/2014 Penalty amounts are the greater of: $95/adult + $47.40/child (up to $285/family) $325/adult + $162.50/child (up to $975/family) OR OR OR $695/adult + $347.40/child (up to $2,085/family) 1.0% of household income 2.0% of household income 2.5% of household income 3

4 INDIVIDUAL MANDATE 1/1/2014 Nine categories of individuals are exempt from the penalty provisions: Individuals who cannot afford coverage (premium > 8% of household income); Taxpayers with income below the income tax filing threshold; Members of Indian tribes; Hardship Individuals who experience short coverage gaps Religious conscience Members of a health care sharing ministry Incarcerated individuals Individuals who are not lawfully present 4

5 INDIVIDUAL MANDATE 1/1/2014 Premium credits through the Exchanges Code 36B When can an individual receive a Premium Tax credit through an Exchange? Premium tax credits are generally available for individuals who: Have household income between 100% and 400% of the federal poverty level (FPL) and enroll in coverage through an Exchange, Are not eligible for government sponsored coverage, and Are not eligible for employer coverage or employer coverage is unaffordable or does not provide minimum value. May not be claimed as a tax dependent of another taxpayer If married, file a joint return 5

6 INDIVIDUAL MANDATE 1/1/2014 Premium credits through the Exchanges Code 36B When can an individual receive a Premium Tax credit through an Exchange? Based on 2013 numbers: 100% FPL 400% FPL Single $11,490 $44,680 Family of 4 $23,550 $94,200 6

7 LARGE EMPLOYER PAY OR PLAY MANDATE DELAYED EFFECTIVE DATE 1/1/2015 One-year delay announced by IRS on 07/02/2013 Employer mandate compliance date now 01/01/2015 Annual reporting requirements for all employers delayed to

8 THE EMPLOYER MANDATE What MIGHT employers want do in 2014? Get familiar with IRS reporting rules for IRC Sec Reporting of minimum essential coverage (MEC) All insurance companies and employers with self-insured plans Report to IRS and to covered individuals [Form 1095-B] Timing similar to Forms W-2 Information required on all covered individuals 8

9 THE EMPLOYER MANDATE What MIGHT employers want do in 2014? Get familiar with IRS reporting rules for IRC Sec Coverage reporting by Applicable Large Employers All large employers must comply Report to IRS and to covered individuals [Form 1095-C or W-2?] Timing similar to Forms W-2 Information required Certification as to whether MEC is provided The number of FT EEs for each month For each FT EE, the EE s share of the single premium cost 9

10 LARGE EMPLOYER PAY OR PLAY MANDATE DELAYED EFFECTIVE DATE 1/1/2015 Applicable large employers required to offer minimum essential coverage that is affordable and meets minimum value standards or pay a penalty Penalty called the Shared Responsibility Payment or Assessable Payment Applies to For-profit, Non-profit and Governmental entities Applies to fully-insured and self-insured arrangements Related Employers are aggregated in same way as for retirement plan purposes for large ER determination 10

11 LARGE EMPLOYER PAY OR PLAY MANDATE DELAYED EFFECTIVE DATE 1/1/2015 Applicable Large employers who are they? Those who employed an average of at least 50 full-time equivalent employees in prior calendar year (using all 12 months) Monthly calculation to derive average (130 hours/month) Transition rule for 2014 would have allowed use of any 6 or more consecutive months from 2013! Will this be available for 2015? 11

12 LARGE EMPLOYER PAY OR PLAY MANDATE DELAYED EFFECTIVE DATE 1/1/2015 Applicable Large employers who are they? Full time (FT) EE defined as one who is employed for an average of at least 30 hours/week [130 hours/month / ((52x30)/12=130)] Re-casting EEs as 29ers Full time equivalent (FTE) number determined by adding all monthly hours of non FT EEs and dividing by 120 Hours worked by an EE in excess of 120 are ignored 12

13 EMPLOYER MANDATE 01/01/2014 Employer Play or Pay rules become effective Code 4980H Large employer definition Applicable Large employers Seasonal Worker exception A seasonal worker is a worker that performs work on a seasonal basis as per DOL rules. Count all workers for all months (including Seasonal Workers) If the count exceeds 50 for 120 days (or 4 months) or less, AND The EEs in excess of 50 during the period were Seasonal Workers, Then, you are NOT an applicable large ER 13

14 EMPLOYER MANDATE 01/01/2014 Employer Play or Pay rules become effective Code 4980H Affordable coverage. Defined in IRC 36B. Employee premiums for single coverage may not exceed 9.5% of EE s annual household income (affordability test) W-2 safe harbor Rate of pay safe harbor Federal poverty line safe harbor 14

15 EMPLOYER MANDATE 01/01/2014 Employer Play or Pay rules become effective Code 4980H Minimum value coverage. Defined in IRC 36B. Plan must be designed to pay at least 60% of covered costs (minimum value test). How to measure minimum value? A minimum value calculator has been made available by the IRS and HHS (Excel based spreadsheet available online) Design based safe-harbor plan designs will be made available (Three designs provided in Proposed Regulations issued 5/3/2013) Actuarial certifications may be used for plans with nonstandard features 15

16 LARGE EMPLOYER PAY OR PLAY MANDATE DELAYED EFFECTIVE DATE 1/1/2015 Employer Play or Pay rules become effective Code 4980H(a) Penalty Where ER offers no coverage or offers coverage to less than 95% of FT employees and at least 1 FT EE goes to Marketplace and qualifies for a premium tax credit or cost-sharing reduction, then ER must pay $167/Mo (2,000/year) All FT EEs (less first 30) FTEs are NOT counted for penalty purposes! 29ers 16

17 LARGE EMPLOYER PAY OR PLAY MANDATE DELAYED EFFECTIVE DATE 1/1/2015 Employer Play or Pay rules become effective Code 4980H(b) Penalty Where ER offers coverage but coverage is either unaffordable or fails minimum value, then ER must pay lesser of $250/Mo ($3,000/year) All FT EEs who go to Exchange and get Premium Credit or Cost Sharing Subsidy OR Use calculation for no coverage FTEs are NOT counted for penalty purposes! 29ers 17

18 THE EMPLOYER MANDATE COMPLIANCE STRATEGIES Optional Look-back rules Count FT EEs on other than a monthly basis Optional Look Back Measurement Period Method Standard Measurement period (SMP) Administrative Period (AP) Stability Period (SP) 18

19 THE EMPLOYER MANDATE COMPLIANCE STRATEGIES Optional Look-back rules Counting the number of FT EEs for penalty purposes Ongoing EEs Calendar Year Plan Example MP = 10/01/ /30/2014 AP = 10/01/ /31/2014 SP = 01/01/ /31/ months 3 months 12 months (coverage year) 19

20 THE EMPLOYER MANDATE COMPLIANCE STRATEGIES Optional Look-back rules Counting the number of FT EEs for penalty purposes New EEs If, upon hire, EE is reasonably expected to work 30 hours hours/week, then Must be considered FT during current SP Must be offered health coverage after any waiting period < 90 days 20

21 THE EMPLOYER MANDATE COMPLIANCE STRATEGIES Optional Look-back rules Counting the number of FT EEs for penalty purposes New EEs If, upon hire, EE is reasonably expected to work <30 hours/week they are called a Variable Hour EE If, upon hire, EE is reasonably expected to be a Seasonal Employee they are called a Seasonal EE MAY USE AN INITIAL MEASUREMENT PERIOD PROCESS 21

22 THE EMPLOYER MANDATE COMPLIANCE STRATEGIES Defined Contribution Plans Will an ER pre-tax subsidy or pre-tax arrangement provided to EEs for their purchase of health coverage in the individual market be allowable going forward? No. Arrangement will fail ACA There must be an ACA eligible group plan in place for pre-tax benefits 22

23 THE EMPLOYER MANDATE COMPLIANCE STRATEGIES Defined Contribution Plans The growing use of Private Exchanges Private companies are opening their own Exchanges to offer group coverage to ERs Aon Hewitt ADP Towers Watson No tax subsidies Greater choice for EEs 23

24 EXAMPLE Darden Restaurants, Inc. Switched to DC model effective 1/1/2013 Employees given a $ subsidy and sent to a private exchange 24

25 THE EMPLOYER MANDATE COMPLIANCE STRATEGIES Potential use of a skinny plan Greater than 100 employees Premiums could be as little as $50/month or less Meets MEC requirement Fails minimum value Avoids $2,000/EE penalty Plan for $3,000 per subsidized EE penalty 25

26 ACA RESOURCES Official Federal On-line Marketplace also provides links to all State Marketplaces HealthCare.gov Government website to help businesses understand the ACA business.usa.gov/healthcare Department of Labor health reform web directory dol.gov/ebsa/healthreform 26

27 ACA RESOURCES IRS ACA tax provision directory irs.gov/uac/affordable-care-act-tax-provisions Department of Health & Human Services (HHS) ACA education page hhs.gov/iea/acaresources/ Kaiser Health Reform Subsidy Calculator [not endorsed or vetted by BerryDunn] healthreform.kff.org/subsidycalculator.aspx 27