Affordable Care Act Survival Kit
The Affordable Care Act (ACA) stands poised to usher in sweeping changes for many businesses. Multiple regulations and shifting timetables, however, make it difficult to measure and almost impossible to predict what those changes can mean for your business. Rehmann can help you tackle this uncertainty by diagnosing your biggest ACA challenges and working with you to develop a prescription for success. Table of Contents Addressing the Issues Raised with the Affordable Care Act............ 1 Individual Shared Responsibility and Applicable Large Employer-Shared Responsibility Defining These Important Terms.... 2 Affordability, Minimally Essential Coverage and Minimum Value Three Important Aspects of the ACA... 3 Taxes and Fees Included in the Affordable Care Act.... 4 Shared Responsibility Under the Affordable Care Act: Scenarios for Employers... 5 ACA Penalty Scenarios for Employers... 6 Large Employer Reporting Regulations... 8 Key Effective Dates for Employers... 9 Get Ready with the ACA Survival Checklist... 10
ACA Survival Kit page 1 Addressing the issues raised with the ACA The ACA, together with the Health Care and Education Reconciliation Act, represents the most significant overhaul of the U.S. healthcare system since the passage of Medicare and Medicaid in 1965. ACA is aimed at increasing the rate of health insurance coverage for Americans and reducing the overall costs of health care. It provides a number of mechanisms including mandates, subsidies and tax credits to employers and individuals to increase the coverage rate. Additional reforms aim to improve health care outcomes and streamline the delivery of health care. While the legislation has received a lot of attention, there remains much to learn about its impact to businesses large and small alike. Rehmann can help clients by providing assistance with calculations as well as helping to understand the mandate and changes to the law. Key services Among the key services Rehmann provides: Helping employers deal with the ACA s tax impact Consulting on issues impacting applicable large employers, including the measurement period Providing financial planning/consultation regarding future employee coverage costs and investigation of strategies to manage and control costs Rehmann also works with employee benefit consultants to address issues related to ACA and employee benefits: Addressing health plan design, funding/pricing changes and employee awareness/ communication requirements that result from insurance reforms and other new provisions Helping identify and tend to workforce planning implications of new eligibility and coverage provisions Affordable Care Act
ACA Survival Kit page 2 Individual Shared Responsibility and Applicable Large Employer-Shared Responsibility defining these important terms The Individual Shared Responsibility Provision Starting in 2014, the Individual Shared Responsibility provision calls for each individual to: Have Minimal Essential Coverage for each month, or Qualify for an exemption, or Make a payment when filing his or her federal income tax return. Applicable Large Employer Shared Responsibility Provision IRS Code Section 4980H defines an applicable large employer (ALE), with respect to a calendar year, as an employer that employed an average of at least 50 full-time employees on business days during the preceding calendar year. Under the terms of the ACA, an ALE is obliged to offer employees minimally essential coverage or pay an excise tax (often referred to as a penalty) to the Federal government. Affordable Care Act
ACA Survival Kit page 3 Affordability, minimally essential coverage and minimum value three important aspects of the ACA In order for an Applicable Large Employer (ALE) to avoid the shared responsibility excise taxes under the ACA, they must offer their employees health insurance coverage that is both affordable and that provides minimally essential benefits. So, what do affordable and minimally essential benefits mean? Defining Affordable: In order for an employer s health insurance offering to be deemed affordable, it must meet one of the following criteria: The cost of self-only (individual) coverage for the least expensive plan that provides minimum value may not exceed 9.5 percent of the individual federal poverty line. The monthly cost of self-only (individual) coverages for the least expensive plan that provides minimum value may not exceed 9.5 percent of the sum of each employee s hourly rate of pay times 130. The cost of self-only (individual) coverage for the least expensive plan that provides minimum value may not exceed 9.5 percent of each employee s federal taxable W-2 income. The monthly cost of self-only (individual) coverage for the least expensive plan that provides minimum value may not exceed 9.5 percent of each employee s household income. Defining Minimally Essential Benefits: Insurance offerings that qualify as minimally essential benefits, must feature: Ambulatory patient services Emergency services Hospitalization Maternity and newborn care Mental health & substance use disorder services; behavioral health treatment Prescription drugs Rehabilitative services and devices Laboratory services Preventative wellness services and chronic disease management Pediatric services, including oral and vision care About minimum value: A health plan meets this standard if it s designed to pay at least 60 percent of the total cost of medical services for a standard population. Starting in 2014, individuals offered employer-sponsored coverage that provides minimum value, and that s affordable won t be eligible for a premium tax credit. Additionally, the ACA also: 1. Ends pre-existing condition exclusions for children. 2. Allows young adults to remain covered under their parent or guardian s health insurance until age 26. 3. Bans life-time limits on coverage. Affordable Care Act
ACA Survival Kit page 4 Taxes and fees included in the ACA To help pay for the significant costs to be incurred as the ACA is rolled out and implemented, the government has included a number of revenue raisers within the Act. The following are some of the more significant revenue raisers. The high income medicare tax Beginning in 2013 there is a 0.9 percent tax on taxpayers earned income for those taxpayers whose (while more complex than this) adjusted gross income, is above certain thresholds. These thresholds depend upon a taxpayer s filing status. It is important that you meet with your Rehmann tax advisor to assess the impact of this tax on your tax planning and overall tax situation. The net investment income tax Beginning in 2013 there is a 3.8 percent tax on a taxpayer s net investment income for certain taxpayers whose (while more complex than this) adjusted gross income is above certain thresholds. These thresholds depend upon a taxpayers filing status. It is important that you meet with your Rehmann tax advisor to assess the impact of this tax on your tax planning and their overall tax situation. Cadillac excise tax Beginning in 2018, a 40 percent excise tax will be imposed on the value of health insurance benefits exceeding a certain threshold. The thresholds are $10,200 for individual coverage and $27,500 for family coverage. These thresholds will be indexed annually to inflation. Fees In addition to new taxes there are also a host of new fees that will impact many. Discussions with insurance providers indicate these fees will account for a 6-8 percent increase in health insurance rates for 2014. These fees include: a) PCORI fee The Patient-Centered Outcomes Research Trust Fund fee is a fee on issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans that helps to fund the Patient- Centered Outcomes Research Institute (PCORI). The institute will assist, through research, patients, clinicians, purchasers and policy-makers, in making informed health decisions by advancing the quality and relevance of evidence-based medicine. The institute will compile and distribute comparative clinical effectiveness research findings. b) Annual fees on health insurance carriers The ACA created an annual fee on certain health insurance providers beginning in 2014. c) Exchange user fees Starting in 2014, insurers will pay 3.5 percent of the total premiums received through plans they sell on the federal exchange. This fee could change depending upon the number of people who receive coverage through the exchanges. The Federal Department of Health and Human Services believes these fees will be covering the majority of the costs related to the operation of federally-facilitated exchanges. d) Transitional reinsurance program This program is a requirement under the ACA that all health insurance issuers and self-insured group health plans make contributions under the transitional reinsurance program to support payments to individual market issuers that cover high-cost individuals. Affordable Care Act
ACA Survival Kit page 5 Shared Responsibility Under the ACA: Scenarios for Employers The scenarios on page 7 outline the ACA s shared responsibility requirements and the penalties for large employers that: A) Don t provide health insurance to their employees or B) Provide coverage that s not affordable or does not provide coverage at a minimal value. Even if you play, it s important to evaluate whether your health plan meets ACA standards. And, once the shared responsibility mandate takes effect (January 1, 2015), you should have systems in place for tracking employee hours and determining which employees are full-time employees entitled to an offer of coverage. ACA Penalty Scenarios for Employers
ACA Survival Kit page 6 Start Here Did your company average 50 or more full-time or FTE employees 1 during the preceding calendar year? NO NO PENALTY Small employers are exempt from the shared responsibility mandate. YES Do you offer minimum essential coverage 2 to substantially all of your full-time employees and their dependents? 3 NO Did at least one employee receive a premium tax credit or cost-sharing subsidy to purchase insurance through an exchange? 6 YES PENALTY Annual penalty is $2,000 for each full-time employee in excess of 30. 6 Play or Pay Penalty for not offering minimum essential coverages {Section 4980H(a)} YES NO Does your coverage provide minimum value that is, does it pay at least 60 percent of the actuarial value of benefits covered by the plan? YES Is your coverage affordable that is, do all employees pay no more than 9.5 percent of their household income 4 for the lowest-cost self-only coverage that provides minimum value? NO NO NO PENALTY Did at least one employee receive a premium tax credit or cost-sharing subsidy to purchase insurance through an exchange? 5 NO YES PENALTY Annual penalty is the lesser of (1) $3,000 for each full-time employee receiving a tax credit or subsidy, or (2) the penalty described above. Play and Pay for offering coverage that is either unaffordable or does not provide coverage at a minimal value {Section 4980H(b)} YES NO PENALTY NO PENALTY ACA Penalty Scenarios for Employers
ACA Survival Kit page 7 Notes 1. Your company is a large employer subject to the shared responsibility mandate if it had an average of 50 or more full-time employees (excluding certain temporary or seasonal employees that worked fewer than 120 consecutive days) during the preceding calendar year. (There are special regulations relative to employers that use seasonal employees). A full-time employee is one who averages 30 or more hours of service per week or works at least 130 hours in a calendar month. Even if you had fewer than 50 full-time employees, you re considered a large employer if you had a combination of full-time employees and fulltime equivalent (FTE) employees totaling 50 or more. To calculate your number of FTEs in a given calendar month, take the total number of hours worked by part-time employees during that month and divide by 120. Under proposed regulations, for purposes of large employer status, certain related or commonly owned businesses are treated as a single employer, but they re treated separately for purposes of evaluating coverage and calculating penalties. 2. Most employer-sponsored plans including self-insured plans provide minimum essential coverage, so long as they cover basic preventive services and impose no annual or lifetime dollar caps on benefits. A plan that covers dental or vision only, or covers only a specified illness or disease, does not provide minimum essential coverage. 4. Because it s difficult to determine employees household income, the proposed regulations provide three optional safe harbors. Coverage is deemed affordable if: a. An employee s cost of self-only coverage doesn t exceed 9.5 percent of his or her federal taxable W-2 wages for the year; b. An employee s monthly self-only premium contribution is no more than 9.5 percent of his or her monthly wages (monthly salary or hourly pay rate x 130); or c. An employee s annual cost of self-only coverage doesn t exceed 9.5 percent of the federal poverty line for an individual ($11,490 in 2013). 5. Premium tax credits and cost-sharing subsidies are available to help individuals who meet certain income requirements and don t have access to affordable employer-provided insurance purchase coverage through a health insurance exchange. 6. For purposes of calculating penalties, you only need to count full-time employees, not FTEs. For example, if you have 40 full-time employees and 15 FTEs, you re a large employer. But the penalty, if applicable, would be (40 30) x $2,000 = $20,000. 3. Proposed regulations define substantially all as at least 95 percent of full-time employees (or all but five employees, even if fewer than 95 percent are covered). Dependents means children, stepchildren, and foster children under age 26. It does not include spouses. ACA Penalty Scenarios for Employers
ACA Survival Kit page 8 Large Employer Reporting Regulations The ACA requires Applicable Large Employers to report certain information to both the IRS and employees regarding various facets of the health insurance coverage offered by the employer. These regulations are set to take effect in 2015 and the associated reporting will begin in 2016. (The IRS s regulations are available in Section 6056 of the Internal Revenue Code.) The reported information will assist the IRS in determining the employer s compliance with the employer-shared responsibility (AKA Play or Pay and/or Play and Pay ) regulations. The reporting is also set to assist employees in their compliance with the ACA and ability to receive premium credits. Required information: 1. Employer name, FEIN and contact information 2. An indication as to whether the employer offered minimally essential coverage to its eligible full-time employees and their dependents 3. The number of full-time employees the employer had for each month 4. The months during the calendar year for which coverage was available for each employee 5. Each full-time employee s share of the lowest-cost monthly premium for self-only coverage 6. Contact information for each full-time employee 7. The months the employee was covered under an eligible employer-sponsored plan ACA Reporting Regulations
ACA Survival Kit page 9 Open enrollment in Exchanges began (10/1/2013) Increase Medicare payroll tax by 0.9 percent on earned income Impose 3.8 percent tax on unearned income PCORI fee (filing & paying) 2013 Employers generally must be in compliance with coverage requirements (1/1/14) * Delayed to 1/1/15 Employer information reporting to the IRS on employee coverage (due by 1/31/15) 2015 States may open Exchanges to large group market 2017 2014 2016 2018 Employers generally must be in compliance with coverage requirements (1/1/14) * Delayed to 1/1/15 Individual mandate and premium tax credits Potential Medicaid expansion Other insurance market reforms Temporary reinsurance fee begins Temporary reinsurance fee ends 40 percent excise tax on high-cost health plans Provisions not effective until regulations issued Employer coverage notices under Fair Labor Standards Act Non-discrimination rules Automatic enrollment of employees Key Effective Dates for Employers
ACA Survival Kit page 10 Get ready with the ACA Survival Checklist On January 1, 2014, the individual mandate goes into effect, along with refundable and advanceable tax credits to individuals and families, small business tax credit expansion and more. Implementing ACA s sweeping changes will require careful attention to upcoming deadlines and the work required to meet them. Even for those dedicated individuals administering the new program, there are still questions and matters to work out. Prepare for what s next in whatever shape it takes by working with a team that has the depth and experience to successfully tackle the issues you re likely to face. Get our exclusive Checklist Rehmann s exclusive ACA Survival Checklist outlines important questions to ask your CPA, attorney and healthcare benefits provider. A Rehmann advisor can meet with you to review the checklist. I also welcome you to contact me today to learn more about how Rehmann can help your organization address changes spurred by the ACA. Don McAnelly, CPA/ABV, CGMA Principal, Saginaw don.mcanelly@rehmann.com rehmann.com 866.799.9580 Any advice in this communication is not intended or written by Rehmann to be used, and cannot be used by a client or any other person or entity for the purpose of: (I) avoiding penalties that may be imposed on any taxpayer or; (II) promoting, marketing, or recommending to another party any matters addressed herein. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.