, Non-Calendar Year Health Plans Delayed Effective Date Worksheet Lisa Klinger, J.D., & Susan Grassli, J.D. 5-5-2014 DO I QUALIFY FOR THE DELAYED EFFECTIVE DATE FOR THE EMPLOYER SHARED RESPONSIBILITY REQUIREMENTS UNDER PPACA? Some but not all large employers with non-calendar year plans may start complying with employer shared responsibility provisions the first day of the 2015 plan year (rather than January 1, 2015) if certain conditions are met: The employer must have maintained a non-calendar year plan as of December 27, 2012 and has not modified the plan year since then, and The employer offered coverage to at least 1/3, or actually covered at least 1/4, of all employees as of February 9, 2014, or The employer offered coverage to at least 1/2, or actually covered at least 1/3, of all full-time employees as of February 9, 2014. As of the first day of the 2015 plan year, the employer offers affordable, minimum value coverage to at least 70% of its full-time employees. To determine whether an employer qualifies, complete the following worksheet, keep a copy in your file and send a copy to your Leavitt/GBS advisor. Following this Worksheet (2 pages) is a more detailed explanation of: 1) the transition rule that allows the delayed effective date, and 2) the potential penalties on non-compliant large employers. 1. As of December 27, 2012, did you have a non-calendar plan year? YES OR NO 2. If no, you do not qualify for the delayed effective date 3. If yes, what date did it start? 4. Have you amended your plan year to start at a later calendar date since December 27, 2012? YES or NO 5. If Yes, you do not qualify for the delayed effective date 6. If No, you must pass either Significant Percentage Test #1 or #2 Significant Percentage Test #1 (All Employees): 7. As of your most recent enrollment period before February 9, 2014, how many full-time and parttime employees did you have? 8. As of your most recent enrollment period before February 9, 2014, was your group health plan offered to at least 1/3 of your total employees? (Full-time & part-time employees) YES or NO A. If yes, how many employees were offered coverage? (This must be more than 1/3 of the number in item #7 above.) Copyright 2014 LGAA, Inc. This document is not intended or provided as legal advice. 1
9. As of any day (your choice) during the 12 months ending on February 9, 2014, did your group health plans cover at least ¼ of your total employees? YES NO A. Date you are using: B. Total number of full-time & part-time employees: C. One-quarter (1/4) of that total number: D. Number of full-time and part-time employees covered as of above date: (This must be more than 1/4 of the number in item #9C above.) Significant Percentage Test #2 (Full-Time Employees): 10. As of your most recent enrollment period before February 9, 2014, how many FULL-TIME employees did you have? 11. As of your most recent enrollment period before February 9, 2014, was your group health plan offered to at least 1/2 of your FULL-TIME employees? (Circle one): YES NO A. If yes, how many full-time employees were offered coverage? (This must be more than 1/2 of the number in item #10 above.) 12. As of any day (your choice) during the 12 months ending on February 9, 2014, did your group health plans cover at least 1/3 of your FULL-TIME employees? YES NO A. Date you are using: B. Total number of FULL-time employees: C. One-third (1/3) of that total number: D. Number of FULL-time employees covered as of above date: (This must be more than 1/3 of the number in item #12C above.) Name & Title of Person Completing this Form Company Please retain a copy of this form in your HCR Compliance file & send a copy to your Leavitt advisor. Copyright 2014 LGAA, Inc. This document is not intended or provided as legal advice. 2
EXPLANATION OF DELAYED EFFECTIVE DATE FOR EMPLOYER SHARED RESPONSIBILITY PROVISONS OF PPACA, FOR NON-CALENDAR YEAR PLANS For calendar year plans, the Affordable Care Act (ACA) provides that the effective date of the Employer Shared Responsibility provisions ( Pay-or-Play ) is January 1, 2014. However, this was delayed for one year by guidance issued in early July 2013 (IRS Notice 2013-45). Additionally, the proposed regulations (December 28, 2012) and the final regulations (February 10, 2014) include a transition rule that allows a delayed effective date for non-calendar year plans if certain criteria are met. For plans that meet these criteria, the delayed effective date means the employer will not be subject to a penalty (called an assessable payment ) under IRC section 4980H between January 1, 2015 and the first day of the 2015 plan year. For example, a plan with a September 1 plan year that qualifies for the delayed effective date will not be subject to a penalty between January 1 and August 31, 2015 even if full-time employees receive a subsidy for buying health insurance in the public insurance Marketplace. The above worksheet will help a large employer with a non-calendar year plan determine if it qualifies for the delayed effective date for the employer shared responsibility provisions. The potential transition relief applies only if an applicable large employer (ALE) maintained a noncalendar year plan as of December 27, 2012, and the plan year was not modified after December 27, 2012 to begin at a later calendar date. Rule #1, Delayed Effective Date: No 4980H penalty will be imposed on the employer between January 1, 2015 and the first day of the 2015 plan year for any employee who was eligible to participate in the plan under its terms as of February 9, 2014 (even if the employee did not enroll). This delayed effective date only applies if, no later than the first day of the 2015 plan year, the employer offers affordable coverage that provides at least minimum value to at least 70% of full-time employees (and dependents, unless the transition relief regarding dependent coverage applies). This means that even if the coverage is not offered to such employees between January 1, 2015 and the first day of the 2015 plan year, or is offered but is not affordable or does not provide minimum value, the employer will not be liable for a penalty during that time if an employee buys coverage in an Exchange/Marketplace and receives a subsidy. Caveat: It appears that, if the employers plan on February 9, 2014, required full-time employees to work more than 30 hours per week to be eligible (e.g., the threshold was 32 or 35 or 40 hours), this transition relief does NOT apply with respect to employees who worked more than 30 hours/week in 2014, but worked less than the employer s threshold for benefits. Rule #2, Significant Percentage Tests: No 4980H penalty will be imposed on the employer between January 1, 2015 and the first day of the 2015 plan year if: No later than the first day of the 2015 plan year, the employer offers affordable coverage that provides at least minimum value to at least 70% of full-time employees (and dependents); and The employees would not have been eligible for coverage under any calendar year group health plan maintained by the employer as of February 9,2014; and The Plan meets either of the following two significant percentage tests: 1- All Employees Test: As of the end of the most recent open enrollment period prior to February 10, 2014, either: Copyright 2014 LGAA, Inc. This document is not intended or provided as legal advice. 3
o o The non-calendar year plan (and any other non-calendar year plans of the employer with the same plan year) was offered to at least 1/3 of the employer s employees (full-time and part-time), OR The non-calendar year plan actually covered at least 1/4 of the employer s employees (total full-time and part-time), as of any date in the twelve months ending on February 10, 2014 (the employer can select the date). 2- Full-Time Employees Test: As of the end of the most recent open enrollment period prior to February 10, 2014, either: o The non-calendar year plan (and any other non-calendar year plans of the employer with the same plan year) was offered to at least 1/3 of the employer s full-time employees [defined as working at least 30 hours? Or as 35 or 40 hours, if the ER had a higher threshold as of Feb. 9, 2014?], OR o The non-calendar year plan actually covered at least 1/4 of the employer s full-time employees, as of any date in the twelve months ending on February 10, 2014 (the employer can select the date). Copyright 2014 LGAA, Inc. This document is not intended or provided as legal advice. 4
Background Information on Penalties, Affordability and Minimum Value Two Types of Potential Penalties There are two possible penalties under the Employer Shared Responsibility provisions: the IRC section 4980H(a) penalty and the 4980H(b) penalty. Neither penalty applies unless at least one fulltime employee purchases health insurance in a Health Insurance Marketplace (originally called an Exchange) and qualifies for a subsidy (a cost-sharing reduction and/or a premium tax credit). An employer can be subject to only one penalty, not to both of them. Additionally, the 4980H(b) penalty is capped at the amount of the 4980H(a) penalty. The two types of penalties are: IRC 4980H(a) penalty - the $2,000 annual penalty. An employer who does not offer minimum essential coverage (MEC) to at least 95% of its full-time employees and their dependents may be subject to a penalty. The penalty is calculated monthly. The annual penalty is the sum of 12 months of penalties. The monthly penalty is $166.67 per month times the total number of eligible full-time employees, minus the first 30 employees. For 2015 only, the final regulations decrease the offering percentage from 95% to 70% and increase the offset to 80 employees rather than 30. For purposes of this penalty, the coverage is only required to be minimum essential coverage, and it is not required to be affordable or provide minimum value. An employer who provides coverage to less than 95% (70% in 2015) of its full-time employees (and dependents) must include in the penalty count those full-time employees for whom the employer is providing MEC, so the employer will pay both the penalty and its share of the cost of benefits. The penalty does not apply to those full-time employees who are in their waiting periods, or who are in their measurement periods if they are measured by the look back measurement method, nor does it apply to part-time employees. The penalty will apply only if at least one full-time employee buys health insurance in a Marketplace and qualifies for a subsidy. IRC 4980H(b) penalty - the $3,000 annual penalty. If an employer does offer MEC to substantially all its full-time employees and their dependents, but the coverage is not affordable or does not provide minimum value, the employer will be subject to a monthly penalty equal to $250 for each affected full-time employee who buys health insurance in a Marketplace and qualifies for a subsidy. The annual penalty is the sum of the 12 months of penalties. This penalty cannot exceed the amount that would apply under 4980H(a) if the employer were a non-offering employer. Affordability and Minimum Value The proposed regulations include three safe harbors for the affordability test as it applies to employers: coverage is affordable if an employee s cost for self-only coverage (under the lowestcost option available from the employer) is not more than 9.5% of one of the following amounts: The employee s W-2 income from the employer (Box 1) for the taxable year 130 multiplied by the employee s hourly rate as of the first day of the plan year (or a lower rate if the hourly rate is reduced during the year), or the employee s monthly salary as of the first day of the plan year (not multiplied by 130) The Federal Poverty Line (FPL) amount for an individual (this is $11,670 in 2014) Copyright 2014 LGAA, Inc. This document is not intended or provided as legal advice. 5
Coverage meets minimum value if the plan pays on average at least 60% of the cost of allowed benefits under the plan. This means that participants do not pay more in co-payments, coinsurance, deductibles and other out-of-pocket amounts than 40% of the total allowed costs. Balance billing by out-of-network providers is not included in the calculation of minimum value. The minimum value calculation is made based on expected cost of claims of a specified risk pool. It is not made on a participant-by-participant basis. Copyright 2014 LGAA, Inc. This document is not intended or provided as legal advice. 6