Affordable Care Act Implementation for Employers

Transcription

1 Affordable Care Act Implementation for Employers 2014 League of California Cities City Attorneys' Spring Conference May 9, 2014 Click icon to add picture Anne Hydorn, Partner direct Introduction Monikers you may hear Obamacare Health Care Reform Affordable Care Act or ACA It s all one and the same Name of the law = Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act Upheld by the Supreme Court on June 28, 2012 Broad array of new requirements spanning from 2010 to 2018 Continues to be political hot-button 1

2 Overview Detailed and comprehensive law with many complex rules Adds many market reforms to health care insurance coverage Establishes health insurance exchanges both state and federal also called the marketplace Requires most individuals to obtain health insurance coverage or pay a tax penalty (the individual mandate ) Large employers must either offer qualifying coverage or pay a potential tax penalty (the employer mandate ) Guidance continues to come out in the form of notices, rulings, FAQs, and regulations from the federal government agencies (IRS, DOL, and HHS) For Discussion Today Exchanges the Marketplace Employer-Shared Responsibility Rules 2

3 Exchanges EXCHANGES (2014) The Marketplace What is an Exchange? Government-operated marketplace for selling health care plans to individuals and eligible employers Offer Qualified Health Plans ( QHP ) State mandate every state required to establish an Exchange by January 1, 2014 If a state doesn t satisfy the rule, federal government establishes and provides the Exchange for that state Goals: enhance competition in the health insurance market, improve choice of affordable health insurance, and give small businesses the same purchasing power of large businesses 3

4 Functions of Exchanges Certifying or decertifying QHPs Rating QHPs offered under the Exchange (e.g., quality and price ratings) Providing standardized consumer information on QHPs Operating a website and call center providing comparative information and allowing individuals to apply for or purchase coverage Determining exemption from individual mandate and granting approvals relating to hardship or other exemptions Determining individual eligibility, including for federal subsidies Federal subsidies = premium assistance credit or a cost-sharing reduction California s Exchange: Covered California First state health exchange formed under the ACA It is one of 17 state-based marketplaces for health care Provides name-brand health insurance policies e.g., Anthem, Blue Shield, Health Net, and Kaiser Consumer website: All kinds of help for consumers: certified agents, enrollment counselors, navigators, service center, outreach programs, and shop and compare tools Exchange insurance purchased with post-tax dollars 4

5 Who Can Get a Federal Subsidy? Subsidy may be available if: you have household income between 100% and 400% of the federal poverty line 2 person family income up to $62,920 (2014) 4 person family income up to $95,400 6 person family income up to $127,880 you are not eligible for Medicaid (or other government-sponsored programs like CHIP) you are not eligible for employer-provided coverage or are eligible for employer-provided coverage, but it is not of minimum value or affordable (more about this later) Notice of Exchange Employers subject to FLSA required to provide Notice of Exchange For current employees, first notice was required by October 1, 2013 New employees hired after October 1, 2013, provide at time of hire Content requirements Existence of Exchange: including description, services, and contact information Possible eligibility for premium assistance or cost-sharing reduction Possible loss of employer s contributions toward premium costs, and that some or all of those contributions are excluded from federal income tax No fine or penalty under the law for failing to provide the notice Model Notice is available on the DOL website: 5

6 EXCHANGES Employers (2014) Affordable Care Act Some of the New Requirements Affecting Employers W-2 reporting: cost of employer-sponsored health coverage (2012) Summary of Benefits and Coverage (2012) Cap on Health Care FSA employee contributions (2013) Increased Medicare taxes (2013) Exchange notices (2013) Employer-Shared Responsibility requirements Play or Pay ( ) Cadillac tax (2018) 6

7 PENALTY Employer TAX ON Shared LARGE EMPLOYERS (2014) Responsibility Play or Pay Large Employers Must Play or Pay Prior to health care reform, no employers were required to offer health coverage to employees Beginning January 1, 2015, possible penalty tax on certain Large Employers Penalty tax applies to all employers: private, governmental, for-profit, and non-profit The Congress expected the IRS to get $13 billion dollars from employer penalties in FY implementation now delayed until 2015 Individual mandate still went into effect January 1,

8 Play or Pay Effective Dates Proposed regulations (January 2013) play or pay rules originally effective January 1, 2014 Notice (July 2013) one year reprieve for all affected employers delay to January 1, 2015 Final IRS regulations published on February 12, 2014 Additional one-year reprieve for employers with full-time equivalent employees now effective January 1, 2016, but special conditions apply to take advantage of delay For large employers with 100+ full-time equivalent employees still effective January 1, 2015 Special (and extremely complicated) transition rules for noncalendar year plans Who is a Large Employer? Large Employer for current calendar year if in prior calendar year period, averaged at least 50 full-time employees (or full-time equivalents FTEs) Special transition 2014 look-back period for determining 2015 status (any consecutive 6-month period, if desired) Full time = avg. at least 30 hours of service per week or 130 hours of service per month (part-time is anything less) Common law definition of employee applies (excludes leased employees, independent contractors, sole proprietors, partners, and 2% S corporation shareholders); definition hard to apply Must count all hours of service for which employee is paid or entitled to pay including for paid time off (e.g., vacation, sick etc. no limit) All employees of a controlled group are counted to determine whether each entity within the controlled group is a Large Employer 8

9 Penalty A Basics: Failure to Offer Penalty Employer fails to offer 95% (70% in 2015 only) of its fulltime employees and their dependents group health coverage that provides minimum essential coverage, and Receives certification that at least one full-time employee is enrolled in an Exchange AND eligible for a federal subsidy PENALTY $2,000 X [the number of full-time employees less the first 30 (80 in 2015 only)] First 30 (80 in 2015 only) employees are disregarded for purposes of calculating the tax Penalty amount adjusted for inflation beginning 2015 Who is a Dependent? Son, daughter, adopted child, or child placed for adoption up to age 26 Final regulations: remove stepchildren and foster children from definition exclude children who are not U.S. citizens or nationals, unless a resident of U.S., Canada, or Mexico confirm that the term dependent does not include a spouse clarify that a child is dependent through the end of the month he or she turns age 26 Employers may rely on the employee s representation about children and their ages 9

10 What is Minimum Essential Coverage? Group health coverage provided by an employer to its employees Very broad excludes HIPAA excepted benefits such as certain stand-alone dental and vision policies or salary reduction only health FSAs Note: stand-alone HRAs no longer viable under health care reform, because by design they do not comply with the market reforms (e.g., prohibition on annual and lifetime limits) Possible $100 per day, per affected individual penalty for noncompliance Penalty A: 2016 Example Large Employer fails to provide minimum essential coverage to 95% of its full-time employees (and dependents), and receives certification that at least one fulltime employee is enrolled in an Exchange and qualifies for federal assistance In 2016, employer has 1000 full-time and 20 part-time employees Penalty does not apply to part-timers or first 30 full-timers Penalty = $1,940,000 ($2,000* X 970) *as adjusted for inflation 10

11 Penalty B Basics: Inadequate or Unaffordable Coverage Employer offers 95% of its full-time employees (and their dependents) minimum essential coverage, but coverage does not provide minimum value or is unaffordable, and Receives certification that at least one full-time employee is enrolled in an Exchange and eligible for a federal subsidy PENALTY the lesser of: $3,000 X [the number of full-time employees receiving federal assistance], or the amount calculated under Penalty A Penalty amount adjusted for inflation beginning 2015 Penalty B: Minimum Value Minimum-value test Plan does not provide minimum value if it covers less than 60% of benefit costs Methodologies Minimum value calculator Design-based safe harbor checklists Actuarial certification 11

12 Penalty B: Affordability General rule: affordable if employee contribution for selfonly coverage of the employer s lowest cost plan that provides minimum value does not exceed 9.5% of employee s household income Final regulations provide three safe harbor methods under which employers can test the 9.5% to determine affordability, and also provide new clarifications Employee s W-2 wages Rate of Pay Federal Poverty Line Penalty B: 2016 Example Large Employer provides minimum essential coverage that doesn t meet minimum value or affordability tests, and receives certification that at least one full-time employee is enrolled in an Exchange and qualifies for federal subsidies In 2016, Large Employer offers coverage to 1000 full-time employees, of whom 20 enroll in Exchange and receive a federal subsidy Penalty = lesser of $60,000 ($3,000* 20) or $1,940,000 ($2,000* x 970) *as adjusted for inflation 12

13 Measuring Full-Time ACA focus is on full-time employees Full time = avg. at least 30 hours of service per week or 130 hours of service per month (part-time is anything less) For non FT employees (e.g., part-time or variable hour), can determine status using look-back measurement very complex rules (or can use month-by-month measurement) Must count all hours of service for which employee is paid or entitled to pay, including paid time off (e.g., vacation, sick etc. no limit) Final rules exclude bona fide volunteers If full-time during look-back measurement period, offer coverage for future stability period Recordkeeping is crucial Measurement, Administrative, & Stability Periods There are three different periods that apply when measuring employee status Measurement Period (MP) the look back period during which you record hours and measure status Administrative Period (AP) the period you use for administering the results and offering coverage (e.g., open enrollment) Stability Period (SP) the period that a FT employee must be offered coverage, regardless of their FT or PT status during that period Measurement period must be 3-12 months employer chooses Each measurement period has a corresponding stability period for offering coverage MPs 6 months or less must have SPs of 6 months MPs longer than 6 months must have equal SPs May have differing MPs and SPs for salaried versus hourly, different states, represented and non-represented, separate bargaining units, and different large employers within a controlled group 13

14 Simple MP and SP examples The MP is 3 months so the following SP is 6 months The MP is 5 months so the SP is 6 months The MP is 9 months so the SP is 9 months The MP is 12 months so the SP is 12 months Example 12 Month Measurement Period Reasons for Choosing You choose 12 months for administrative simplicity Fits with one open enrollment per year If 6 months, could need 2 open enrollments/year Example MP (measure) Oct 15 Oct 14 AP (administration) Oct 15 Dec 31 SP (offer of coverage) Jan 1 Dec 31 14

15 Enforced by the IRS Annual report by each employer to IRS beginning 2015 Includes: substantial information including name, address, SSN of every full time employee with coverage and months of coverage Annual information to each FT employee Information by Exchange to IRS IRS will use as basis for penalties Employer can challenge; but you will need records for this Another 135+ pages of regulations released regarding information reporting Very Complex but don t panic Many technical and complex rules relating to variable hour, part-time, staffing agency, and other types of employees There are ways to approach for determining strategy 15

16 Basic Questions Employers Need to Answer Who is a full time employee? How will you measure average hours worked for each employee? How you will deal with new hires in determining full time status? What coverage is offered to each full time employee? What is the value of that coverage? What is the cost of the coverage to each full time employee compared to his/her earnings? Are you subject to either of the two tax penalties? Are you better off from a financial standpoint paying the penalties? How will you report the required information to the IRS and others? What Should Employers Do Now? Understand options Don t play at all, and pay Penalty A? Play, but only partially, and pay Penalty B? Play all the way to avoid all penalties? Consider costs Weigh penalties vs. costs of health coverage Consider other soft factors: employee morale, recruiting and retention Make sure whatever decisions you make, you start tracking any needed employment data now recordkeeping will be key if the IRS shows up 16