Legislative Update Suzanne Spradley, SVP, Sr. Counsel, Legal & Compliance
Agenda Employer Mandate Reporting Reporting obligations Review of reporting forms Reinsurance Contributions Plans and counting methods When and how to pay Cadillac Tax 2
Section 6056 Reporting 3
Section 6056 Reporting Applies to employers who are subject to the employer shared responsibility provisions Applicable large employers (ALE) Members of a control group that is an (ALE) Generally, section 6056 reporting is required to be filed for and furnished to each full-time employee of an ALE Information reported under section 6056 will be used by the IRS to administer the employer shared responsibility and to assist with determining eligibility for premium tax credit. 4
Forms Form 1094-C Transmittal of Employer Data Form 1095-C Employee Statement Due Dates Furnished to Employee by Jan. 1 Filed with the IRS by Feb. 28 or Mar. 31 (if filed electronically) Transition Relief for 2014 Notice 2013-45 5
Form 1094 - C Form1094-C Department of the Treasury Internal Revenue Service DRAFT AS OF Transmittal of Employer-Provided Health Insurance Offer and 24, 2014 Part I Applicable Large Employer JMembeur (ALE Mlemyber) 3 Street address (including room or suite no.) Coverage Information Returns Information about Form 1094-C and its separate instructions is at www.irs.gov/f1094c. 1 Name of ALE Member (Employer) 2 Employer identification number (EIN) CORRECTED 120115 OMB No. XXXX-XXXX 2014 4 City or town DO NOT 5 State or province 6 Country and ZIP or foreign postal code 7 Name of person to contact F8 Contact ItelephLone numbeer 9 Name of Designated Government Entity (only if applicable) 10 Employer identification number (EIN) 11 Street address (including room or suite no.) 12 City or town 13 State or province 14 Country and ZIP or foreign postal code For Official Use Only 15 Name of person to contact 16 Contact telephone number 17 Reserved..................................................... 18 Total number of Forms 1095-C submitted with this transmittal............................. Part II ALE Member Information 19 Is this the authoritative transmittal for this ALE Member? If Yes, check the box and continue. If No, see instructions................ 20 Total number of Forms 1095-C filed by and/or on behalf of ALE Member.......................... 21 Is ALE Member a member of an Aggregated ALE Group?............................... Yes No If No, do not complete Part IV. 22 Certifications of Eligibility (select all that apply): A. Qualifying Offer Method B. Qualifying Offer Method Transition Relief C. Section 4980H Transition Relief D. 98% Offer Method Under penalties of perjury, I declare that I have examined this return and accompanying documents, and to the best of my knowledge and belief, they are true, correct, and complete. Signature Title Date For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 61571A Form 1094-C (2014) 6
Form 1094 - C DRAFT AS OF ly 24, 2014 120215 Form 1094-C (2014) Page 2 Part III ALE Member Information Monthly 23 All 12 Months (a) Minimum Essential Coverage Offer Indicator Yes JuNo (b) Full-Time Employee Count for ALE Member (c) Total Employee Count for ALE Member (d) Aggregated Group Indicator (e) Section 4980H Transition Relief Indicator 24 Jan 25 Feb DO NOT FILE 26 Mar 27 Apr 28 May 29 June 30 July 31 Aug 32 Sept 33 Oct 34 Nov 35 Dec Form 1094-C (2014) 7
Form 1095-C Form 1095-C EmDployer-PRrovideAd HealtFh InsuTrance OAffer andscoveragoe 14 Offer of Coverage (enter required code) FVOID CORRECTED 6015 OMB No. XXXX-XXXX 2014 Department of the Treasury Information about Form 1095-C and its separate instructions is at www.irs.gov/f1095c. Internal Revenue Service Part I Employee Applicable 014 Large Employer Member (Employer) 1 Name of employee Ju2 Slocialysecurity numbe2r (SSN) 47 Na,me of emp2loyer 8 Employer identification number (EIN) 3 Street address (including apartment no.) 9 Street address (including room or suite no.) 10 Contact telephone number 4 City or town 5 State or province O 6 Country and NOT ZIP or foreign postal code 11 City or town FILE 12 State or province 13 Country and ZIP or foreign postal code Part II Employee Offer and CoverDage All 12 Months Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec 15 Employee Share of Lowest Cost Monthly Premium, for Self-Only Minimum Value Coverage $ $ $ $ $ $ $ $ $ $ $ $ $ 16 Applicable Section 4980H Safe Harbor (enter code, if applicable) Covered Individuals Part III If Employer provided self-insured coverage, check the box and enter the information for each covered individual. (a) Name of covered individual(s) (b) SSN (c) DOB (If SSN is not available) (d) Covered all 12 months (e) Months of Coverage Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec 17 18 19 20 21 22 For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 60705M Form 1095-C (2014) 8
6056 v. 6055 Reporting Section 6056 Reporting vs. 6055 Reporting Section 6055 Reporting by anyone that provides minimum essential coverage to individuals during a calendar year Information is used to determine the months in which an individual was covered by minimum essential coverage for purposes of the individual mandate Self-insured plans, fully-insured plans Section 6056 Reporting by a ALE member on the health care coverage offered to its full-time employees Information s use (see previous slide) 9
6056 vs. 6055 Reporting Single-Combined form Reporting for ALE Members Part I Section 6056 Information Part II Section 6055 Information Reporting by ALE Members Self-Insured Parts I & II Fully-Insured Part I Reporting by non-ale Members Report only under section 6055 Use Forms 1094-B and 1095-B 10
Section 6056 - Reporting Methods Methods of Reporting General Alternative Qualifying Offers Method 98% Offers Method General Reporting Method Full reporting for all full-time employees Reporting on a month-by-month basis Lowest cost monthly premium for self-only coverage To whom was coverage offered (employee, spouse, dependents) Did coverage provide minimum value? Indicator codes will be used to report certain other information 11
Section 6056 - Information Reported Employers must report on each employee who was full-time for one month or more during the year. The report will contain the following information: The name, address, and EIN of the employer; The name and telephone number of the employer's contact person; The calendar year being reported; A month by month certification of whether the employer made an offer of coverage to each full-time employee (and dependent children up to age 26); The months during which coverage was available; The employee's required contribution to the lowest cost, self-only monthly premium, by month; The number of full-time employees in each month; The name, address, and tax identification number of the full-time employee and the months during which the employee was covered 12
Additional information reported via codes For each employee, codes for each month indicating whether coverage with MV was offered and to whom it was offered, whether it was affordable, etc.; whether the coverage offered to full-time employees and their dependents provides minimum value and whether the employee s spouse was offered coverage; the total number of employees for each calendar month; whether the employee s effective date of coverage was affected by a permissible waiting period by calendar month; whether the ALE Member is a member of a controlled group under Section 414(b), (c), (m) or (o) and if such a member, then the name and EIN of each employer member of such ALE who was a member; if the ALE Member is a contributing member to a multiemployer plan, whether with respect to a full-time employee, the employer is not subject to an assessable penalty under Section 4980H due to the employer s contributions to a multiemployer plan; if an ALE appropriately designated person is reporting on behalf of an ALE Member that is a governmental unit or any agency or instrumentality thereof, the name, address and identification number of such appropriately designated person; and if a 3rd party reports for an ALE Member with respect to its full-time employees, the name, address and identification number of the 3rd party (in addition to the same information on the ALE Member). 13
Section 6056 Alternate Reporting Methods Alternative Qualifying Offers Reporting Employer certifies that a qualifying offer was made to one or more full-time employees The qualifying offer must: Be an offer of minimum essential coverage providing minimum value at an employee cost for employee-only coverage not exceeding 9.5% of the mainland federal poverty level (about $1,100 in 2015) and Include an offer of at least minimum essential coverage to the employee s spouse and dependents, if any. 14
Section 6056 Alternate Reporting Method Qualifying Offer Reporting simplified method Employer must certify that a qualifying offer was made to one or more employees, then for those employees for whom a qualifying offer was made for all 12 calendar months the employer may do simplified reporting: Form 1094-C with employer level data Form 1095-C with indicator code for qualifying offer A copy of Form 1095-C or a statement furnished to the employee with information that the employee and his or her spouse and dependents are ineligible for premium tax credit for the calendar ear plus contact information for the ALE member. They do not have to report month-by-month information for those employees. They will still report the following information: Names, addresses, and taxpayer identification numbers (TINs); and Confirmation that the employees received a full-year qualifying offer. Full reporting for employees not covered by a qualifying offer for all 12 calendar months. 15
Section 6056 Alternate Reporting Method Qualifying Offers Reporting Transition Rule For 2015 only Full reporting will not be required for employees who do not receive a qualifying offer for all 12 calendar months if the ALE Member: Certifies that it made a qualifying offer to at least 95% of its fulltime employees and Files a Form 1094-C and Form 1095-C with a special code indicating that the employee who did not receive a qualifying offer may be entitled to the premium tax credit and the employer may provide the employee with a letter with the same information or a copy of the Form 1095-C. 16
Section 6056 Alternate Reporting Method 98% Offers Reporting ALE Members are still required to report for all full-time employees If the employer does not want to report full-time employees each month Employer may certify that it offered coverage to at least 98 percent of the full-time employees The coverage offered must be minimum essential coverage providing minimum value that is affordable The employer is then not required to fill out the number of fulltime employees per month. 17
Section 4980H Transition Relief ALEs with fewer than 100 FTEs 2015 only Employers with 50 99 full-time employees, including FTEs Other conditions, including maintenance of workforce size and coverage Employers are still required to file and furnish under section 6056 Certify on form that they meet the eligibility requirement for this transition relief 18
Section 6056 Reporting Certain Employers Governmental entities A governmental entity can designate another related government entity to file on its behalf for some or all of its full-time employees Until further guidance, governmental entity may use reasonable good faith interpretation of aggregation rules under 414 to determine if they are related. The designated entity will be liable for all reporting requirements under section 6056 as well as any penalties associated with failure to file. A separate section 6056 return must be filed for each ALE member for whom the designated entity reports. Designation must be in writing an signed by both the ALE member and the designated entity containing certain information. 19
Section 6056 Reporting Certain Employers Third Parties and Multiemployer Plans May facilitate returns for ALE members Liability for section 6056 reporting is not transferred to the third party or the multiemployer plan. Liability for section 4980H provisions remain with the ALE member. If the third party or multi is a tax return preparer, the normal return preparer rules apply. 20
Additional Resources Tax Provisions IRS website: IRS.gov/ACA Draft forms available at www.irs.gov/draftforms 21
Penalties for Non-Compliance The penalty for failure to timely file a correct return to the IRS is $100 per return (up to $1,500,000 per year), and the penalty for failure to timely provide a correct written statement to an employee is $100 per statement (up to $1,500,000 per year). For 2016 reporting only (regarding 2015 data), the IRS has indicated that it will not impose penalties for incorrect or incomplete information if an employer makes a good faith effort to comply with the reporting requirements. There will be penalties for failure to file. 22
PPACA: Reinsurance Contributions 23
Overview: PPACA s Fees, Contributions and Taxes The Three Amigos of PPACA Fees & Taxes PCOR Fee Reinsurance Contributions Health Insurance Tax 24
Reinsurance Contributions: Generally Name, Purpose & Applicability Required Contribution Towards Reinsurance Payments Also called Transitional Reinsurance Fee Fund reinsurance program for state exchanges Essentially it s insurance for insurers in the individual market Funding for insurers that incur high claim costs in individual market Helps stabilize premiums for the first three years of exchanges Applies to both fully and self-insured plans Includes grandfathered and non-grandfathered, governmental, etc. 25
Who needs to file and pay reinsurance contributions? Carrier Fully Insured Self-funded Employer plan sponsor, but may contract with a TPA or ASO carrier to file/pay on the plan s behalf 26
Reinsurance Contributions: When? 3-year commitment (2014-2016) Report due Nov. 15, 2014 Payment due Jan. 15, 2015 27
Reinsurance Contributions: How much? Year Total Amount Collected 2014 $12 billion 2015 $8 billion 2016 $5 billion Total $25 billion National Per Capita Contribution Rate = Total Annual Amount Collected Divided By Estimate of Enrollees in Plans Subject to Contributions 28
Reinsurance Contributions: 2014 $63 Per covered life per year (Calculated on an annual basis, not a plan-year basis) 29
Reinsurance Contributions: 2015 and 2016 2015: $44 per covered life 2016: TBA 30
Plans Subject to PCOR Reinsurance Fee Contributions Small group major med plans & med plans that provide MV Yes No Maybe COBRA & state continuation coverage Stand-alone (nonintegrated) HRA + HSA EAP* Stand-alone dental or vision Wellness Program* Health FSA (excepted or not excepted benefits) Retiree-only coverage + VEBA (considered a selfinsured plan) Stop-loss/Reinsurance Integrated HRA + The fee does not apply to retiree only HRAs *Depends on whether these plans are offering medical care 31
HRAs As long as the HRA is integrated with the major medical plan, a separate fee is not due on the HRA. Remember! Effective Jan. 1, 2014, stand-alone HRAs are not permissible unless they are dental-, vision-, or retireeonly arrangements. 32
Self-insured, self-administered exception Self-insured plans that are self-administered are exempt from the fee in 2015 and 2016 A self-administered plan does not use a TPA for core admin functions of claims processing, adjudication, and plan enrollment A self-administered plan may lease a network for a carrier to re-price claims (for discounts), outsource admin functions to pharmacy benefits manager (PBM) or vendor for excepted benefits (dental, vision, Rx) without losing self-administered status 33
How is the fee Lives calculated for a self-insured plan? Three methods of calculating the number of covered lives: Actual count method - Calculate the sum of the lives covered for each day of the plan year and divide that sum by the number of days in the plan year. Snapshot method - Add the totals of lives covered on one date in each quarter, or an equal number of dates for each quarter, and divide the total by the number of dates on which a count was made. If the plan covers dependents, there are two sub-methods Snapshot count- count actual lives on that day Snapshot factor- # of EE s w/self-only + (# of EE s with family X 2.35) Form 5500 method - Utilize the number of participants reported on the Form 5500 for the plan year. Add the # of participants on the first day of the plan year to the # of participants on the last day and divide by 2. If the plan covers dependents, do not divide by 2. 34
Example: Snapshot Count Method Date for Quarter Number of Covered Lives on the date Calculation March 5, 2014 1,600 4,950 / 3 = 1,650 covered lives June 5, 2014 1,700 September 5, 2014 1,650 Total 4,950 35
Example: Form 5500 Method Plan offers self-only coverage Date for Form 5500 Reporting Number of Covered Lives on the Date Calculation Aug. 1, 2013 5,000 13,000 / 2 = 6,500 covered lives July 30, 2014 8,000 Total 13,000 Plan offers family coverage Date for Form 5500 Reporting Number of Covered Lives on the Date Calculation Aug. 1, 2013 5,000 13,000 (not divided by 2) = 13,000 covered lives July 30, 2014 8,000 Total 13,000 36
Questions on Counting Methods: Consistency Issues Must use same counting method for entire calendar year But could change from year to year Do not have to use same method for PCOR fee Same methods are available for both, but employer can use different methods for PCOR v. reinsurance contribution 37
Questions on Counting: Determining the benefit year Based on calendar year not plan year Based on January through September data (first 9 months) Exception = Form 5500 counting method Use the last filed Form 5500 prior to 11/15/2014 Must include an employee that terminates coverage in the fourth quarter of the year 38
Reinsurance Contributions: Final Thoughts The contribution is deductible to the employer plan sponsor as an ordinary and necessary business expense The contribution may be paid with ERISA plan assets and thus, passed on to participants. Records related to the reinsurance reporting and payment should be maintained for at least 10 years 39
Reinsurance Contributions: Plan of Action Evaluate plan design: does reinsurance contribution apply? Determine if there is an exception Calculate covered lives under allowable methods Choose the most favorable count Do the following at pay.gov: By Nov. 15, 2014: Register and report enrollment count By Jan. 15, 2015: Pay first installment By Q4, 2015: Pay second installment 40
Cadillac Tax 41
Cadillac Excise Tax Effective in 2018, one of the most significant revenue provisions is the 40% nondeductible excise tax on high-cost health coverage, referred to as the "Cadillac Tax. The tax is determined by an employer and allocated to the insurer, if insured, or to the party that administers the plan if self funded. Ultimately, the plan sponsor will bear the cost of the tax unless it is passed along to the employee. The Cadillac Tax applies generally to coverage under a group health plan excluding standalone vision and dental programs and those programs paid exclusively with aftertax dollars by the employee. 42
Cadillac Tax cont. The initial annual threshold amounts for the tax are $10,200 for self-only coverage $27,500 for coverage other than self-only It does include employer contributions and employee contributions made pursuant to a salary-reduction agreement to a HSA or FSA. The initial threshold amounts are subject to different adjustments: the health cost adjustment percentage (2018 only), the cost-of-living adjustment (calendar years after 2018), and the age and gender adjustment (applicable to 2018 and later). 43
Example Cadillac Tax The next slide illustrates an employer that provides a PPO with a health plan with: 1,000 employees (425 with single coverage and 575 with family coverage) 4% historic trend over the cost-of-living Current premiums that are near the national average: $6,515 single premium $18,088 family premium 44
Cadillac Tax 45000 40000 35000 30000 25000 20000 15000 10000 5000 0 2018: Single exceeds by $138 (tax = $55.20/employee) Family exceeds by $1,203 (tax = $481.20 / employee) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Single Rate 7599 8207 8863 9572 10338 11165 12058 13023 14065 15190 Tax Threshold 10200 10200 10200 10200 10200 10710 11138 11584 12047 12529 Family Rate 21097 22785 24608 26577 28703 30999 33479 36157 39050 42174 Tax (Family) 27500 27500 27500 27500 27500 28875 30030 31231 32480 33780 Single Rate Tax Threshold Family Rate Tax (Family) 45
Cadillac Tax Example Based on the previous illustration, if the employer does not alter its plan, the employer/insurer would be paying an excise tax on its health care costs: $300,000 in 2018 (1.44% of the premium) $1.8 million in 2022 (6.52% of the premium) $5.1 million in 2027 (12.28% of the premium) This calculation for this illustration includes only the medical premium and does not include any contributions potentially made to a health FSA, HRA or HSA. 46
Final Thoughts: Compliance Assessment Has your organization independently determined whether it is in compliance with the numerous regulations that have been issued by: The Internal Revenue Service The Department of Labor The Department of Health and Human Services? Is your organization prepared for an audit from one of those government agencies? Limiting your liability for noncompliance The more you do (such as doing a readiness compliance assessment), the better your argument that you exercised reasonable diligence and there was reasonable cause for any failures Avoid being accused by the IRS of willful neglect, because they will assess the full penalty amount! 47
QUESTIONS? 48