The Affordable Care Act: Issues for Employers

Transcription

1 The Affordable Care Act: Issues for Employers Paul W. Madden Whiteford, Taylor & Preston L.L.P. (401) Direct Fax: (410)

2 Topics Covered Employer Shared Responsibility Provisions Taxes and Fees Impact of ACA on Small Employers The coming non-discrimination rules

3 Employer Shared Responsibility Applicable large employers must provide minimum essential coverage (MEC) to their full-time employees and dependents. MEC must have minimum value (MV) and be affordable. Applicable large employer: 50 or more full-time equivalent employees aggregated within the controlled group Failure to provide such coverage may result in penalties

4 Shared Responsibility Penalties Employer penalty for failure to provide MEC to 95% of full time employees is $2000 per year times (total FTs minus 30). Employer is subject to this penalty if any employee, applies for insurance on an Exchange is not eligible for coverage under Medicaid, and receives subsidized coverage

5 Shared Responsibility Penalties Penalty if employer provides MEC but coverage either does not have MV or is not affordable. Employer penalty is $3000 per year for each employee that receives a credit or subsidy (unless penalty for failure to provide MEC is smaller).

6 Affordability Explained Employer must provide at least one plan with employee-only premiums that don t exceed 9.5% of an employee s household income IRS allows 3 safe harbors: W2: premiums can t exceed 9.5% of an employee s W2 - Box 1 wages Rate of Pay: premium can t exceed 9.5% of monthly salary or an employee s hourly rate of pay X 130 Federal Poverty Level: premium can t exceed 9.5% of FPL for an individual

7 Affordability Explained Affordability applies only to the employeeonly premium Coverage for children (age 26) is required but need not be affordable Spousal coverage is not required

8 Minimum Value Explained Minimum value (MV) coverage: employer must provide at least one plan that provides 60% MV coverage 60% MV: plan covers, on average, at least 60% of the allowed costs under the plan 3 ways to determine MV: MV calculator Safe harbor checklist Actuarial determination

9 Phase in of Employer Shared Responsibility Provisions No employer penalties for 2014 In 2015, the employer shared responsibility provision will apply to employers with 100 or more full-time equivalent employees Beginning in 2016, the employer shared responsibility provision will apply to employers with 50 or more fulltime equivalent employees

10 Phase in of Employer Shared Responsibility Provisions In 2015, in order to avoid a penalty for not offering minimum essential coverage (MEC), applicable large employers must offer coverage to at least 70% of fulltime employees and their dependents. In 2016, applicable large employers must offer coverage to at least 95% of full-time employees and their dependents to avoid this penalty.

11 Phase in of Employer Shared Responsibility Provisions In 2015, employer penalty for failure to provide MEC to 70% of full time employees is $2000 per year times (total FTs minus 80). In 2016, employer penalty for failure to provide MEC to 95% of full time employees is $2000 per year times (total FTs minus 30).

12 Phase in for Non-Calendar Year Plans Plan is not subject to employer shared responsibility rules until the PY that begins in 2015, if the plan can satisfy specific requirements. Employer must maintain a non-calendar year plan as of December 27, The plan year was not modified after December 27, 2012 to begin at a later calendar date. Full-time employees must be provided with MEC that has MV and is affordable by the first day of the 2015 PY.

13 Issues with Full Time Employees Special industry rules (airlines, commissioned sales, real estate, international, ex-pat, education) Adjunct Faculty reasonable method for crediting hours Volunteers bona-fide volunteer hours are not counted as hours of service. Must be volunteer of government entity or 501(c) nonprofit

14 Issues with Full Time Employees Work-study Federal, State or local workstudy program hours are not counted as hours of service On-Call Employees reasonable method until guidance is issued No new relief for short-term and high-turnover employees

15 Patient Centered Outcome Research Institute Fee Paid annually by fully-insured and self-funded plans Insurance carriers pay for fully-insured plans (built into rates) Plan sponsors pay for self-funded plans HRAs are self-funded plans if same PY as major medical plan, then only pay fee once Health FSAs that are excepted benefits are exempt from the fee Cannot pay fee from plan assets Applicable on PY beginning on or after 10/2/2011

16 Patient Centered Outcome Research Institute Fee Fee during first year = $1 per covered life Fee during second year = $2 per covered life Covered lives: employees, spouses, domestic partners, children, retirees, COBRA beneficiaries Special HRA and health care FSA rule: count each participant only(excludes spouse and dependents)

17 Transitional Reinsurance Fee Additional annual fee to fully-insured and self-insured plans Insurance carriers pay for fully-insured plans (built into rates) Employers pay for self-funded plans Stabilization fund for the individual insurance exchange Fees assessed: 2014, 2015 and 2016

18 Transitional Reinsurance Fee Fee based upon overall dollar amount that is needed to create/maintain fund 2014 fee is estimated to be $63 per participant Expected to decrease in 2015 and 2016 Fee is due late 2014/early 2015

19 Cadillac Tax Applicable beginning in % excise tax on the value of health insurance above $10,200 individual/$27,500 family Thresholds increase for certain early retirees and high risk professions

20 Cadillac Tax Limits could increase after 2018 Includes medical, FSA, HSA, HRA, onsite clinics No guidance to date

21 Impact of ACA on Small Employers Shared Responsibility Penalties apply only to applicable large employers Applicable large employer means 50 or more FTEs FTs work 30 or more hours per month FTE count is based on 120 hours per month No penalties if >50 FTEs but < 30 FTs Controlled group rules apply

22 Federal Tax Credits Section 45R provides for a small employer health insurance credit Credit is up to 50% of employer s contributions to health insurance premiums Credit is phased out for employers with > 10 FTEs or average wage > $25,000 Credit is available for 2 consecutive years after 2014

23 Federal Tax Credits Eligibility: Employer does not employ >25 FTEs for the tax year Average annual wages not > $50,000 Employer pays at least 50% of the cost of health insurance Employer pays a uniform percentage of cost of employee coverage

24 Federal Tax Credits Owners, partners and spouses are excluded from: Count of FTEs Average salary calculation Eligibility for tax credits

25 Maryland Subsidies for Small Employers Eligibility Rules: 2 to 9 full time employees (2080 hours) Employer did not offer a health plan during the last year Average wage < $50,000 Household income of < $75k to be eligible for subsidy for dependent coverage

26 Maryland Subsidies for Small Employers Full-time = 30 or more hours per week Owners, partners & spouses are eligible Maximum subsidy if average wage is < $25k $2000 for employee only coverage $5000 for family coverage Subsidies available at renewal with < 20 FTs Subsidies phase out between 10 and 19 FTs

27 Maryland Subsidies for Small Employers Subsidies available if employer has a high deductible health plan (HDHP) and funds a health savings account (HSA). Employer must have a 75% participation rate to qualify. Employer must set up a Section 125 plan to qualify for subsidies

28 Maryland Subsidies for Small Employers Subsidized coverage has been available since October 1, 2008 Both employer and employee contributions are subsidized

29 Small Business Health Options Program (SHOP) SHOP established under ACA Through SHOP, employers can provide employees with more choices Federally operated SHOPs delayed from October 1, 2013 to January 1, 2015 Maryland SHOP delayed until January 1, 2015 Federal tax credits available through Maryland SHOP April 15, 2014

30 Small Business Health Options Program (SHOP) Benefits of SHOP: Access to tax credits Employee choice option Ability to provide pre-tax health insurance

31 Employer Choice Option Benefits of SHOP: Employer selects one health insurance carrier Employer selects the options (e.g., HMO, PPO) that will be offered to employees Employees choose from the selected options

32 Employee Choice Employer selects coverage (metal) level Bronze 60% Silver 70% Gold 80% Platinum 90% Employees can select any carrier s product at that metal level

33 ACA Non-Discrimination Rules Section 10101(d) adds Section 2716 to the Public Health Service Act (PHSA) Section 2716 of PHSA requires that employer-sponsored insured plans comply with IRC 105(h)

34 Section 105(h) Non-Discrimination Rules Plan must not discriminate in favor of highly compensated individuals (HCIs) as to: Eligibility to participate Benefits provided HCIs are: 5 highest paid officers 10% owners (after Section 318 attribution) Highest paid 25%

35 Section 105(h) Eligibility Tests Plan must satisfy one of the following tests: Benefits 70% or more of all employees Benefits 80% of eligible employees (if 70% of employees are eligible) Benefits a reasonable classification of employees

36 Section 105(h) Benefits Test All benefits provided to HCIs must be provided to all other participants. Problematic for multi-state employers

37 ACA Non-Discrimination Rules Penalty for violation of Section 105(h): amounts received by HCIs will be included in taxable income Penalty for violation of ACA nondiscrimination rule can be up to $100 per day per affected individual Affected individuals = Non-HCIs

38 ACA Non-Discrimination Rules IRS Notice delayed application of ACA nondiscrimination rules until regulations or other guidance is published Notice also asked for comments on 13 separate questions. IRS has informally indicated that ACA nondiscrimination rules would not be effective until at least 6 months after publication of rules

39 Big Issues that IRS must Decide HCI Definition Which benefits are subject to the rules Employer contribution percentage Length of waiting period Application to multi-state employers Aggregation of substantially similar coverage

40 Big Issues that IRS must Decide Whether coverage provided to HCIs on an after-tax basis should be disregarded Whether non-discriminatory availability of coverage satisfies the rules Treatment of employees who waive coverage Safe harbor plan designs

41 Questions?