SHARED RESPONSIBILITY PENALTIES UNDER ACA

Transcription

1 SHARED RESPONSIBILITY PENALTIES UNDER ACA What Employers Need to Know Before January, 2014 April 11, 2013 Copyright 2013 by The Segal Group, Inc., parent of The Segal Company and its Sibson Consulting Division. All Rights Reserved

2 Agenda Employer Shared Responsibility Penalty Overview How to Avoid the Penalty Safe Harbors What Institutions Should do Now Copyright 2013 by The Segal Group, Inc., parent of The Segal Company and its Sibson Consulting Division. All Rights Reserved

3 Health Care Reform STRATEGIC OPTIONS Employers need to address the many additional requirements for employer sponsored plans: 1 Assessment Assess the compliance, design, administrative and financial impact of various reform provisions and explore opportunities. 2 Benchmark Benchmark anticipated approaches taken by your comparison market regarding areas such as health care exchanges, EGWPs and avoiding the excise tax. 3 Modeling Model potential impact of alternatives related to health care exchanges, low income subsidy, excise tax and EGWPs. 4 Strategy Develop a strategy for addressing health care reform and implications for the HR strategy and the employer s ability to attract, retain, sustain and transition the people necessary to carry out the business strategy. 2

4 Employer Shared Responsibility Penalty Applies to large employers (not group health plans) with 50 or more fulltime employee equivalents Full time = on average 30 or more hours of service per week (130 hours per month) Is assessed only when one full-time employee obtains federally subsidized coverage through Exchange Effective date: January 1, 2014 Transition rules for institutions with fiscal year group health plans 3

5 Can Individuals with Employer-Sponsored Coverage Receive Federally Subsidized Exchange Coverage? Generally, no However, employees may apply for the premium assistance tax credit and/or cost-sharing subsidies when their employer-sponsored coverage is Not of minimum value (below 60% of actuarial value), and/or Not affordable (the employee premium for self-only coverage exceeds 9.5% of household income) 4

6 Income Eligibility for Federally Subsidized Coverage: Between 100% & 400% FPL Persons in Family 100% FPL 133% FPL 250% FPL 400% FPL 1 $11,490 $15,282 $28,725 $45,960 2 $15,510 $20,628 $38,775 $62,040 3 $19,530 $25,975 $48,825 $78,120 4 $23,550 $31,322 $58,875 $94,200 5 $27,570 $36,668 $68,925 $110,280 6 $31,590 $42,015 $78,975 $126,360 7 $35,610 $47,361 $89,025 $142,440 8 $39,630 $52,708 $99,075 $158, Federal Poverty Line guidelines for the 48 contiguous states 5

7 Institution Strategies How to Avoid or Minimize the Employer Penalty Under proposed Treasury rule, offer group health coverage to: 95% of full-time employees, and Employees children up to age 26 Have a plan design that: Meets the 60% test, AND Does not require any full-time employee to contribute more than 9.5% of W-2 wages (Box 1)* for self-only coverage *Proposed rule published Jan. 2, 2013 sets out additional safe harbor affordability tests, in addition to the W-2 safe harbor. 6

8 Large Employer Determining Size Penalty applies to employers with 50 or more full-time employee equivalents (FTEs) on business days during the preceding calendar year, based on hours of service during that year Must aggregate hours of part-time employees to create total number of full-time employees (PT employees who work less than 30 hours a week are not subject to the penalties) Employment is determined under common-law standards, meaning that an employment relationship exists if an employee is subject to the will and control of the employer as to the work performed and the means of performing it Not a large employer if employer has more than 50 full-time FTEs for 120 days or fewer during a calendar year and the excess over 50 were seasonal workers 7

9 Controlled Groups: All employees of a controlled group or an affiliated service group are taken into account in determining whether the group members each have 50 or more FTEs But, each employer-member of the group is treated separately for purposes of computing and assessing any applicable penalty State or local governmental entities, Indian tribal entities or churches, may apply a reasonable, good-faith interpretation of the controlled group rules to their operations Governmental employers may wish to document how entities are aggregated for purposes of implementing the penalty until further guidance is available 8

10 The 4980H(a) Penalty If a large employer does not offer to full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage and one full-time employee receives federally subsidized coverage in the Exchange Penalty is $2,000 (annualized) times the total # of full-time employees (minus first 30 workers) To avoid the 4980H(a) penalty, employer must offer minimum essential coverage to at least 95% of its full-time employees (and their dependent children) 9

11 The 4980H(b) Penalty If a large employer does offer to full-time employees (and their dependent children) the opportunity to enroll in minimum essential coverage, but one full-time employee still receives federally subsidized coverage in the Exchange Penalty is $3,000 (annualized) times the # of full-time employees getting a tax credit in an Exchange (subject to a penalty maximum) This penalty option is only available to employers who offer coverage to at least 95% of their full-time employees (and their dependent children) 10

12 Dependent Coverage Dependents must be offered coverage Includes children under Code Section 152(f)(1) who are under age 26 (sons, daughters, adopted sons/daughters, stepchildren and foster children) Coverage does not have to be offered to spouses Transition Rule: Employers that do not currently offer dependent coverage will not be subject to a penalty for the plan year that begins in 2014 if they are taking steps to offer dependent coverage 11

13 Hours of Service Hours of service include both hours paid based on performance of duties as well as paid time for vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence Special rules apply to unpaid leave subject to the Family and Medical Leave Act of 1993 (FMLA), and the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA) For employees not paid on an hourly basis, employers may use one of three methods to calculate hours of service: 1. Counting actual hours of service; 2. Using a days-worked equivalency, which credits the employee with eight hours of service for each day; or 3. Using a weeks-worked equivalency of 40 hours of service per week Hours of service do not include hours of service worked outside the United States 12

14 Safe Harbors Proposed Treasury rule and IRS Notice (effective until at least end of 2014): Create safe harbors for employers to determine whether employees work full time for penalty purposes Address 4 categories of employees: 1. Variable Hour Employees 2. Seasonal Employees 3. Ongoing Employees 4. New Employees 13

15 Hours of Service: To Count or Not to Count? IRS created safe harbor rules for determining and calculating liability Safe harbors determine who is treated as a full-time employee and who is not Count hours of service during measurement period Lock in status as full-time employee (or not) for associated stability period Safe harbors are voluntary Do not need to use these safe harbors if it is reasonably clear which employees have 30 or more hours of service per week (130 hours per month) and which have fewer than that May want to rely on these safe harbors if you have variable hour and/or seasonal employees 14

16 Determining Full-Time Employee Status Variable Hour Employees and Seasonal Employees Variable Hour Employees Employees for whom, based on facts and circumstances on their start date, it cannot be determined whether the employee is reasonably expected to have on average at least 30 hours of service/week during the initial measurement period Seasonal Employees Workers who perform services on a seasonal basis Through at least 2014, employers may exercise reasonable, good faith to define seasonal employees These are the types of employees for whom the safe harbors were designed. 15

17 Determining Full-Time Employee Status Special Rules For Higher Education: Leaves and Breaks Averaging rules apply to: Employees of educational organizations (including non-faculty) who are returning from employment break periods of at least 4 consecutive weeks Employees returning from special unpaid leave (FMLA, USERRA, jury duty) Employer may either: Disregard the break/leave (i.e., effectively use a shorter measurement period such as the academic year), or Credit the employee with the average number of hours that s/he worked during the weeks in the measurement period that are not part of the leave/break period However, an educational organization is not required to credit any employee in a calendar year with more than 501 hours of service for any employment break period 16

18 Determining Full-Time Employee Status Ongoing Employees and New Employees Ongoing Employee is one who has been employed by an employer for at least one Standard Measurement Period New Employee is one who has been employed by an employer for less than one Standard Measurement Period 17

19 Special Rules for Adjunct Faculty Comments are invited about how to best determine the full-time status of employees whose compensation is not based primarily on hours worked and may be subject to safety-related limits (e.g., adjunct faculty, commission-based sales, pilots) Until further guidance, employers must use a reasonable method for crediting hours of service (it is not reasonable to credit these employees for only some hours of service) For example: If Full-time faculty are required to teach 3 classes a semester then limit adjuncts to 2 classes per semester, credit 3 hours per course hour taught etc. If adjunct faculty are used: (1) determine reasonable method for crediting hours of service and document rationale; and (2) watch for future guidance from Treasury/IRS. 18

20 New Terms from the 4980H Safe Harbors Standard Measurement Period Applies to ongoing employees Not less than three (3) months and not more than 12 consecutive calendar months Stability Period At least six (6) consecutive calendar months Complex rules govern maximum length Begins after the measurement period and applicable administrative period Administrative Period Optional period up to 90 days, between the measurement and stability periods Cannot shorten or lengthen either measurement or stability period Must overlap with prior stability period to ensure there are no gaps in coverage 19

21 New Terms from the 4980H Safe Harbors Initial Measurement Period Applies to new employees May be between three (3) and 12 months Begins on any date between start date and first day of next calendar month Initial measurement period and administrative period together cannot extend beyond the last day of the first calendar month beginning on or after the first anniversary of the employee's start date 20

22 Determining Full-Time Employee Status Special Categories Created by Employer As set by the Employer, the measurement and stability periods may have different lengths or start/end dates, based on these categories: Each group of collectively bargained employees covered by a separate collective bargaining agreement Collectively bargained and non-collectively bargained employees Salaried and hourly employees Employees located in different States The determination must be made on a uniform and consistent basis for all employees in the same category; Employer may change these periods on prospective basis. 21

23 Special Rules: Rehired New Employee or Continuing Employee? If employee is not credited with hours of service for at least 26 consecutive weeks treat as new employee If break is less than 26 weeks, but is at least 4 consecutive weeks treat as new employee if break was longer than work period immediately preceding the break EXAMPLE: an employee works for 3 weeks, terminates employment, and is rehired 10 weeks later. Employee is treated as a new, rehired employee. Otherwise, treat as continuing employee and apply SMP and SP as if there were no break EXAMPLE: if employee returns during SP for which employee is a full-time employee based on previous measurement period, the employee is treated as a full-time employee upon return and through the end of the SP 22

24 Determining Full-Time Employee Status Ongoing Employee & July 1 Plan Year Employer adopts 12- month SMP beginning on May 15 (through April 14 of following year). Teacher averaged at least 30 hours per week during academic year and is credited with those same hours during summer break. Employer adopts 2.5 month AP of April 15, through June 30. Employer adopts SP of July 1 through June 30 (the plan year). For this SP, employee is treated like a full-time employee. No penalty during SMP. 23

25 Determining Full-Time Employee Status New Employee 12-month IMP for new variable hour janitor Begins on first day of employment For this employee, Sept. 1, 2014 August 31, 2015 Janitor works on average 28 hours per week during academic year and does not work during summer break. Employee is not a full-time employee. Employer does not offer coverage for the 12-month SP that begins Oct. 1, Employer is not penalized during IMP. Measure again during first SMP that begins after start date. 24

26 Agenda Employer Shared Responsibility Penalty Overview How to Avoid the Penalty Safe Harbors What Institutions Should do Now Copyright 2013 by The Segal Group, Inc., parent of The Segal Company and its Sibson Consulting Division. All Rights Reserved

27 Health Care Reform What Plan Sponsors Should Do Now Understand Your Institution First step in understanding ACA s opportunities: Review the organizational culture and Employee Value Proposition Questions to ask: How do benefits fit within the institution s vision of the ideal culture? What role do benefits play role in attracting and retaining talent? How are benefits perceived by faculty and staff? Is the value understood? What effect do benefits have on presenteeism and productivity? Where do faculty and staff rank their benefits as part of their overall compensation package? Would other forms of compensation be more valuable to them? Can the employer provide more responsive and valuable health care and ancillary benefits than what is offered to individual consumers through Public and Private Exchanges? What actions will competitors take with regard to health care reform? 26

28 Health Care Reform What Plan Sponsors Should Do Now continued Understand The Cost Review the actuarial value of the plans What is the current level? How much room is there for future changes to plan? Review plan design against cost sharing requirements if non-grandfathered Is current plan design compliant with cost sharing requirements under ACA? A plan with actuarial value above 60% may still need to be improved based on new cost sharing rules Review the impact of new fees and taxes on premiums (e.g., Comparative Effectiveness, Temporary Reinsurance, Taxes on Fully-Insured Plans) Review the current rate structure to determine potential exposure to excise tax Review contribution structure against salary structure Explore current exposure to employer shared responsibility penalties Are current contributions too high based on employee income? What opportunities exist to offset company costs?» Higher spouse contributions?» Increase waiting period for coverage 27

29 Key Engagement Components Model of HCR Modeling STRATEGIC OPTIONS Inputs and outputs for modeling the various HCR scenarios include Claim Experience and Plan Data Assumptions Claim Costs Administrative Expenses Actuarial Value of Plan Number of Lives Salary/Pay Claim Cost Trend Trend to Federal Poverty Level Impact on Taxes Household income Health Care Reform Model Program savings for single vs. family coverage by household income level (% above federal poverty level) Distribution of aggregate program savings by household income bracket Graphs showing relationship between value of federal subsidy and household income level Value of low income subsidy and premium tax credit Projected costs relative to Excise Tax 28

30 Savings from Exchange VALUE OF EXCHANGE BY COVERAGE TIER AND INCOME LEVEL STRATEGIC OPTIONS 29

31 Conduct Analysis to Understand Impact and Options As Health Care Reform regulations and the market continue to evolve, plan sponsors need to model the impact and make sound decisions. SCENARIO ANALYSIS Scenario 1a Scenario 2a Scenario 1b Scenario 2b Scenario 3 Do Not Offer Medical Coverage Do Not Offer Medical Coverage and Provide Employee Salary Subsidy Continue to Not Offer Medical Coverage Continue to Not Offer Medical Coverage and Provide Employee Salary Subsidy Continue to Offer Medical Coverage Status Quo: Projected Net Corporation Cost $38,498,000 $52,375,000 Corporation Cost Breakdown Additional Payroll $0 $27,404,000 $0 $30,843,000 $0 Penalty and Taxes $7,374,000 $11,094,000 $7,374,000 $11,469,000 $0 Excise Tax $0 $0 $0 $0 $3,793,000 Cost of Medical Offering $0 $0 $0 $0 $52,375,000 Projected Total Cost $7,374,000 $38,498,000 $7,374,000 $42,312,000 $56,168,000 Projected Savings $31,124,000 $0 $45,001,000 $10,063,000 -$3,793,000 SENSITIVITY ANALYSIS Excise Tax PROJECTED CASH FLOW ANALYSIS 30

32 Conduct a Workforce Review Status Less Than 25 Hours 25 Hours to Less than 30 Hours Average Hours Bracket 30 Hours to Less than 35 Hours 35 Hours to Less than 40 Hours 40+ Hours Total Full Time Electing ,000 2,300 3,500 Part Time Electing Full Time Not Electing ,100 Part Time Not Electing 1, ,100 Total Electing ,100 2,320 3,700 Total Not Electing 1, ,200 Lookback Period41 Eligibility Total Part Time Eligible (>30 Hours) Average Full Time (Automatically Eligible) Total Eligible for Benefits Average Number of EE's During Period Percentage Eligible Pay Periods Length 1/8/2012-4/1/2012 1st Q 2012 (13 Weeks) 1,100 5,000 6,100 7, % 4/8/2012-7/1/2012 2nd Q 2012 (13 Weeks) 1,200 4,900 6,100 7, % 7/8/2012-9/30/2012 3rd Q 2012 (13 Weeks) 1,150 4,950 6,100 7, % 10/7/ /30/2012 4th Q 2012 (13 Weeks) 1,350 4,850 6,200 8, % 1/8/2012-7/1/ Months (26 Weeks) 1,000 5,000 6,000 7, % 7/8/ /30/ Months (26 Weeks) 1,150 4,900 6,050 8, % 4/8/ /30/ months (39 Weeks) 1,050 4,900 5,950 7, % 1/8/ /30/ Month (52 Weeks) 900 4,850 5,750 7, % Review workforce to understand impact of look back periods In general, the longer the look back period, the harder to become eligible for coverage As part of a work force review, consider the potential exposure to faculty and staff eligible under the 30 hour rules that are not currently electing coverage To combat additional costs, employers may look to curb cost by managing work schedules, resulting in true part-time employees (MUST BE DONE Prior to 2014) To the extent that analysis results in changes to workforce structure, institutions will need to consider associated costs, including: Training costs Hiring costs Loss of Employee Effectiveness Mentoring Productivity Loss 31

33 NEXT Decision Tree Understand Your Options Develop a strategy on how to offer benefits in the future NO Continue to offer Medical Benefits YES Pay the $2,000 free rider penalty & Employees get insurance on their own Coverage is not affordable and/or of minimum value Employer pays $3,000/employee who gets tax credit via the exchange Benefit Platform Coverage is affordable and of minimum value Employer would most likely need to provide additional compensation to make faculty and staff whole Public Exchange Some employees may be eligible to receive government subsidy Individuals and groups less than 50 employees eligible (large groups may eligible beginning in 2017) Continue to offer Employer sponsored plan Continue offering coverage as today May be subject to excise tax and other penalties Offer coverage via a Private Exchange Employees not eligible for government subsidy Employer funding approach (i.e. defined contribution) Administrative Considerations Service 1. Relationship between exchange manager and providers 2. Account management expectations Employer Fees 1. Compliance with PPACA taxes, fees (i.e. excise tax) 2. Indirect & direct costs to Employer (i.e. commissions, administrative fees, set up fees) Plan Design 1. Flexibility of the exchange s design, coverage levels and coverage tiers 2. Network availability 3. Underwriting methodology Employee Impact 1. Out of pocket fees and premium rates (including Retiree) 2. Ease of Exchange Navigation 3. Comparison of current coverage and costs to the Exchange offering 4. Communication with the Employer 32

34 Opportunities to Manage Cost What opportunities exist to manage cost: Encourage healthy behaviors through programs and behavioral economics Manage cost of the acutely ill Review vendor relationships and cost effectiveness Explore or feature HSA/HDHP plans Consider a defined contribution approach Manage workforce to ensure appropriate employees receive benefits For retirees: EGWPs and Part D plans Possible defined contribution health benefits 33

35 Offer Coverage via a Private Exchange Private Exchange Considerations When considering an exchange-based model, institutions should consider: Administrative complexity and requirements of each exchange Compliance with ACA requirements, taxes, and fees Ability to exploit the Low Income Subsidies available in the Public Exchange Flexibility of the model regarding plan design and coverage tiers Costs both directly through fees and rates, and indirectly through commissions Cost to the employee or retiree Relationships between the exchange manager and coverage providers and availability of networks Underwriting methodology, and renewal expectations year over year Account management model, and ability of the employer and employee to receive expected levels of service from the carriers Ease of navigation in the exchange how easy is it to assess coverage options 34

36 Offer Coverage via a Private Exchange Evaluation Criteria for Private Exchange Partners The successful vendor should provide: access nationally to a broad variety of health care plans and/or plan designs, including plans similar to the current plans offered by the employer, multiple avenues for retiree counseling, user friendly plan comparison tools, and ongoing support, strong enrollment and communications support, billing and premium collection and remission, customer service, administration, and reporting to the institution, meaningful performance guarantees, and evidence that services and model is scalable. 35

37 Consider Workforce Stability Direct and Indirect Costs Turnover Cost Model inputs using the Replacement model: Cost of Turnover expenses include direct expenses and indirect expenses which can be reduced through effective workforce stability planning and implementation 36 36

38 A Final Reminder Things to do next: Access plans and workforce composition based on new guidance for: Affordability of plans Effect of new taxes and fees Part-time eligibility Impact of the low-income subsidy The looming excise tax Review Pay or Play options in light of the analyses above Review new coverage models like exchanges Communicate to Employees and Retirees along the way, and not just the required notices 37

39 Resources As always, employers and plan sponsors should rely on Legal Counsel for authoritative advice on the interpretation and application of federal laws and regulations. 38

40 Questions 101 N Wacker Drive, Suite 500 Chicago, IL T Steve Cyboran scyboran@sibson.com 39

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42 Appendix Transition Rules for First Year Copyright 2013 by The Segal Group, Inc., parent of The Segal Company and its Sibson Consulting Division. All Rights Reserved

43 Transition Rules Non-Calendar Year Plans For non-calendar year plans, no penalty until the first day of the 2014 plan year Applies to non-calendar year plans in place as of Dec. 27, 2012 Applies to employees who would be eligible for coverage as of the first day of the 2014 plan year under the eligibility terms in effect on Dec. 27, 2012 Also applies to employees not eligible under the plan terms in effect on Dec. 27, 2012, under certain circumstances 42

44 Transition Rules Cafeteria Plan Salary Reductions for PY 2013 Employer has the option to amend its cafeteria plan to allow either or both of these changes in salary reduction elections for the non-calendar year beginning in 2013: Employee who elected salary reduction through cafeteria plan may prospectively revoke or change his/her elections for health plan coverage during the 2013 plan year regardless of whether the employee has experienced a change in status event Employee who failed to make a salary reduction election through the cafeteria plan for accident and health plan coverage may make a prospective salary election for health plan coverage on or after the first day of the 2013 plan year without regard to whether the employee experienced a change in status event Employer must amend written cafeteria plan document Retroactive amendment must be made by December 31, 2014, and effective as of the first day of the 2013 non-calendar plan year 43

45 Transition Rules Measurement Periods for 2014 Stability Periods Solely for stability periods staring in 2014, employers may adopt a transition measurement period that is shorter than 12 months (subject to certain conditions) Examples: Employer with calendar year plan could use a 6-month measurement period of April 15, 2013 through Oct. 14, 2013 followed by a 90-day AP that ends Dec. 31, 2013 Employer with non-calendar year plan that begins April 1 could use a 6-month measurement period from July 1, 2013 through Dec. 1, 2013 followed by a 90-day AP that ends March 31, 2014 Employer with non-calendar year plan that begins July 1 would have to use a measurement period longer than six (6) months Such as 10-month measurement period from June 15, 2013 through April 14, 2014 followed by an AP from April 15, 2014 through June 30,

46 New Requirements for for Non- Grandfathered Plans Preventive Services for Women (apply to plan year beginning on or after August 1, 2012) Nondiscrimination Rules for Insured Plans (awaiting regulations) Quality Reporting (awaiting guidance) For 2014 plan year cost-sharing limits cannot exceed the annual dollar limit in section 223(c)(2)(A)(ii) of the Internal Revenue Code (known as the Health Savings Account out-of-pocket maximum, which is $6,250 individual/$12,500 family in 2013) FAQs published Feb provide transition rule for first year for plans that use multiple service providers Additional information reporting relating to transparency in coverage Coverage relating to routine costs associated with approved clinical trials Provider nondiscrimination and protection of employees 45

47 Protection of Employees Employer cannot discharge or otherwise retaliate against employee with respect to compensation, terms, conditions or privileges of employment because the employee: Received a tax credit or a cost-sharing subsidy in a health insurance Exchange; Provided information to the employer or to a government official about something the employee reasonably believes is a violation of the ACA; Testified, assisted or participated in a proceeding concerning such violation; or Objected to or refused to participate in any activity or assigned task that the employee reasonably believes violates the ACA Statutory provision effective when ACA enacted; interim final rule published by OSHA on February 27, 2013 effective on publication Complaints to be filed with OSHA and investigations handled by OSHA Can result in reinstatement, back pay, compensatory damages (including attorneys fees) 46

48 Notice/Reporting Requirements Employers must provide notice to employees of the following: The existence of the state-based Exchange Services offered by the Exchange How to enroll/request information If employer s coverage is unaffordable, the fact that a tax subsidy may be available to purchase exchange coverage Statute requires such notices to be provided by March 1, 2013, but under FAQ released January 24, 2013, no action need be taken until guidance is issued; DOL expects these notices will have to be sent by late summer or fall of 2013 Not clear how this will affect contributing employers or multiemployer plans 47

49 Notice/Reporting Requirements Applicable to Large Employers Report to IRS beginning in 2015 regarding coverage options offered to all full-time employees in 2014: Employer information Whether minimum essential coverage is offered The length of the waiting period The months during the year that it was offered Monthly premium for the lowest cost option in each enrollment category Employer s share of the total allowed costs of benefits The number of full-time employees each month Name, address, and TIN of each full-time employee during the year and the months during year covered under plan Notices also provided to full-time employees by January 31 of the year following the year in which employer files the IRS return 48