Affordable Care Act Planning for CPAs Ben Conley Seyfarth Shaw LLP
Overview Background ACA & Taxes Taxes on Employers (and Tax Credits for Employers) Taxes on Individuals (and Tax Credits for Individuals) Taxes on Group Health Plans 2
Current Health Care Landscape Employer-provided coverage Individual Policy Medicare Medicaid TRICARE Population = 311 Million Uninsured 50 million people 16% of population 2014 2013 Seyfarth Seyfarth Shaw Shaw LLP LLP 3
Overview of 2014 Health Care System Exchanges Medicaid Expansion Individual Mandate Guaranteed Issue/ Community Rating 2014 2013 Seyfarth Seyfarth Shaw Shaw LLP LLP Employer Mandate 4
Projected Health Care Landscape Employer-provided coverage Individual Policy Medicare Medicaid TRICARE Population = 311 Million Uninsured 18 million people 5% of population 2014 2013 Seyfarth Seyfarth Shaw Shaw LLP LLP 5
Taxes on Employers (and Tax Credits for Employers) 6
Background: What Employers are Subject to Employer Shared Responsibility Requirements? Threshold for Large Employer = 50 Full-time Equivalent Employees in prior year* Full-time employees = 30 hours per week, on average #FULL-TIME EMPLOYEES Aggregate # hrs worked/ mth/part-time ee up to 120 Divided by 120 #Full-time equivalent employees Special rules for seasonal employees 7
Background: What Employers are Subject to Employer Shared Responsibility Requirements? Transition Relief: What is a large employer? For 2015 only, large employer means 100 or more full-time equivalent employees How do I determine large employer status? For 2015 only, employers can look back to any six consecutive months in determining whether they are considered large employers. Permanent Relief No penalty for first three months of the year after qualifying as a large employer. 8
Background: What Employers are Subject to Employer Shared Responsibility Requirements? Related entities must be considered together, as one employer Related generally means: Parent-subsidiary - 80% owned up and down chain Brother-sister companies - 80% owned by same 5 or fewer people Creating new companies in same controlled group will not allow you to get below 50 employee threshold 9
Background: What is the Employer Shared Responsibility Penalty? Employer is subject to big penalty if: Employer fails to offer minimum essential coverage AND At least one employee receives a tax credit or subsidy through an exchange Big Penalty = $2,000 x # of Full-time Employees Subtract first 80 full-time employees when calculating the penalty for the 2015 plan year Subtract first 30 full-time employees when calculating the penalty for plan years on or after 2016 The penalty is assessed based on the number of full-time employees, not the number of full-time equivalents. 10
Background: What is the Employer Shared Responsibility Penalty? Minimum Essential Coverage Group health plan That is not excepted benefits Dental only, vision only Could be preventive care only CAUTION: Mandatory enrollment in a plan that does not offer minimum value will not get employers out of No Coverage Penalty 11
Background: What is the Employer Shared Responsibility Penalty? Effective date: January 1, 2015 for employers with 100 or more employees must cover only 70% of the workforce in 2015 increases to 95% in 2016 Note: Penalty still applies for the 30% (5% starting in 2016). But the applicable penalty is the small penalty (discussed below) 12
Background: What is the Employer Shared Responsibility Penalty? Employer offers health insurance coverage, but not affordable coverage that provides minimum value Affordable Cost of coverage no more than 9.5% of household income Minimum value Covers at least 60% of actuarial value of health costs Note: No coverage to an employee (where part of the 5% leeway (30% for 2015)) would equate to coverage not offering minimum value Any employee receives a tax credit or subsidy through a state-based exchange 13
Background: What is the Employer Shared Responsibility Penalty? PENALTY $2,000 x (Total No. of Full-Time Employees 80*) THE LESSER OF: $3,000 x No. of Full-Time Employees who receive a tax credit or subsidy and purchase coverage through an Exchange 14
Background: What is the Employer Shared Responsibility Penalty? Affordable Employee-only premium cost (regardless of what coverage employee elects) May use: W-2 wages Rate of Pay (hourly rate for each hourly employee multiplied by 130 hours per month) New guidance: can use if rate of pay reduces mid-year Federal Poverty Line New guidance: can use rates published six months before start of plan year Safe harbor selected may vary based on certain employee groups. 15
Background: What is the Employer Shared Responsibility Penalty? Minimum Value Calculated in one of three ways HHS Calculator Safe Harbor Checklist Actuarial Certification Three design-based safe harbors proposed to determine MV% For plans that coverage all benefits in calculator MV varies based on deductible, cost-sharing, OOP and HSA contributions 16
Employer Tax Reporting Information will be used to determine: whether the employees obtained health coverage generally (which would satisfy their obligation under the individual mandate) whether the employees obtained health coverage through their employer (which would satisfy the employer s obligation under the employer mandate) Reporting optional for 2014 Reporting required for 2015 year due in early 2016 17
Employer Tax Reporting Minimum Essential Health Coverage Report (6055) Who must file? Employers with self-insured plan even if small employer Insurers Multiemployer plans What s on the Minimum Essential Health Coverage Report (6055)? Name/address/EIN of plan sponsor Name/address/SSN of covered employee and other covered individuals Months each individual covered by plan 18
Employer Tax Reporting Employer Shared Responsibility Report (6056) Who must file? Large employers subject to employer mandate What s on the Employer Shared Responsibility Report (6056) Name/address/EIN/contact information for employer Number of full-time employees for each month during year Name/address/SSN of covered employee and # of months covered 19
Employer Tax Reporting What s on the Employer Shared Responsibility Report (6056) (cont d)? Certification as to whether offered full-time employees (and dependents) minimum essential coverage Employee s share of self-only coverage for lowest cost option 20
Employer Tax Reporting Forms available at: http://www.irs.gov/pub/irs-dft/f1095c--dft.pdf http://www.irs.gov/pub/irs-dft/f1094c--dft.pdf http://www.irs.gov/pub/irs-dft/f1095b--dft.pdf http://www.irs.gov/pub/irs-dft/f1094b--dft.pdf 21
W-2 Reporting Optional for small employers (fewer than 250) Informational only benefits are not taxable Use COBRA Rate (minus 2%), Report in Box 12 Include medical, bundled dental & vision, some employer contributions to FSA Exclude HIPAA excepted benefits (e.g. stand-alone dental/vision), HRA, FSA salary reduction elections 22
W-2 Reporting irs.gov/uac/form-w-2-reporting-of-employer-sponsored-health-coverage 23
W-2 Reporting irs.gov/uac/form-w-2-reporting-of-employer-sponsored-health-coverage 24
Taxation of Medicare Part D Employers may no longer take a deduction for the subsidy received for providing prescription drug benefits equivalent to Medicare Part D coverage Many employers already recognized this liability in 2010 Plan sponsors may consider using an Employer Group Waiver Plan (EGWP) approach rather than participating in the CMS Retiree Drug Subsidy Program EGWP is a method of contracting with carriers who have a contract with CMS 25
Small Employer Tax Credit Small employer health care tax credit For 2013, 35% of employer contribution (25% for tax-exempt orgs) if: Employer has less than 25 FTE s Average annual wages of employees less than $50,000 per FTE Employer covers at least 50% of premium on uniform basis Small employer health care tax credit Full credit: 10 employees and average wages of $25,000 or less then phases out. Starting in 2014: Credit is 50% of employer contributions Credit only available for coverage offered through small business marketplace (SHOP) 26
Small Employer Tax Credit http://www.irs.gov/pub/irs-utl/3_simple_steps.pdf 27
Taxes on Individual (and Tax Credits for Individuals) 28
Marketplace Tax Credits Each state will have one or two exchanges: Individual Exchange + Small Business Health Operations Program Exchange (SHOP Exchange) OR Combined exchange for individuals and small businesses All individuals can purchase coverage through the exchange, regardless of: Income level Employment status 29
Marketplace Tax Credits What benefits are offered through the exchanges? Coverage Tier Actuarial Value of Benefits Catastrophic < 60% Bronze 60% Silver 70% Gold 80% Platinum 90% 30
Marketplace Tax Credits Tax credits are available to help pay for premiums for individuals between 100% and 400% of the Federal poverty level Note, in states where Medicaid is expanded, those below 133% will typically go there. Credits paid directly to qualified health plan. 31
Marketplace Tax Credits Credits available on a sliding scale, linked to silver level plan Income Level Premium (as % of Income) 100%-133% 2% 133%-150% 3%-4% 150%-200% 4%-6.3% 200%-250% 6.3%-8.05% 250%-300% 8.05%-9.5%% 300%-400% 9.5% 32
Marketplace Cost-Sharing Subsidies Cost-sharing subsidies are available to help pay out-ofpocket expenses (e.g., copays, coinsurance, deductibles) for individuals between 100% and 250% of the Federal Income Level Actuarial Value 100%-150% 94% 150%-200% 87% 200%-250% 73% 33
Marketplace Tax Credits Household Size 2014 Federal Poverty Guidelines 100% 133% 150% 200% 250% 300% 400% 1 $11,670 $15,521 $17,505 $23,340 $29,175 $35,010 $46,680 2 15,730 20,921 23,595 31,460 39,325 47,190 62,920 3 19,790 26,321 29,685 39,580 49,475 59,370 79,160 4 23,850 31,721 35,775 47,700 59,625 71,550 95,400 5 27,910 37,120 41,865 55,820 69,775 83,730 111,640 6 31,970 42,520 47,955 63,940 79,925 95,910 127,880 34
Individual Mandate Must obtain minimum essential coverage to avoid a penalty Penalty is greater of flat dollar amount or percentage of household income (1/2 for minors) Taxpayer responsible for obtaining coverage for spouse and/or dependents 35
Individual Mandate Flat Dollar Amount 2014 $95 1% 2015 $325 2% 2016 $695 2.5% 2017 and later Indexed to inflation Percentage of Household Income 36
Individual Mandate Limited religious exemption Incarcerated Household income below tax filing threshold Exemptions from the Individual Mandate Gap of coverage of less than 3 months Hardship situation (limited) Can t afford coverage Undocumented alien Reside outside of US Member of an Indian tribe 37
Medicare Tax on High-Earners Effective 1/1/13, current Medicare (HI) tax of 1.45% on all wages increases to: 0.9% additional HI tax for wages over $250,000 (joint); $200,000 (single) Effective 1/1/13, 3.8% additional tax on unearned income (dividends, interest, annuities, royalties, rents and capital gains) over $250,000 (joint); $200,000 (single) Plan Sponsor Considerations Employers must withhold on the additional HI tax for wages over $200,000 BUT, additional withholding applies only to employee portion of HI tax, not employer portion 38
Taxes on Group Health Plans 39
PCOR Fee Plans are subject to an annual patient-centered outcomes research fee (previously referred to as the Comparative Effectiveness Fee) Imposed for each plan year ending after September 30, 2012 The fee does not apply to plan years ending after September 30, 2019 40
PCOR Fee Amount of Fee: Year PYE during the period from 10/1/12-9/30/13 PYE after 9/30/13 PYE after 9/30/14 Amount $1 x average number of covered lives $2 x average number of covered lives Adjusted based on increases in National Health Expenditures 41
PCOR Fee Fee is imposed on the plan sponsor for self-insured plans, and insurer for fully insured plans Calculating covered lives: Actual count Snapshot count Form 5500 count 42
TRP Fee Transitional Reinsurance Program Fee Annual fee from 2014-2016 Imposed on health insurance issuers for fully-insured plans and TPAs for self-funded group health plans ltd exemption for self-administered plans Average # of Covered Lives x Contribution Rate Similar methods to count lives as PCOR Fee Amount: $63/life in 2014 $44/life in 2015 43
PCOR v. TRP How much is the fee? When does the fee apply? Who must Pay the Fee? What type of plans are exempt? PCOR Fee $1 per covered life in first year $2 per covered life in subsequent years TRP Fee $63 per covered life in first year Slightly less in subsequent years 2012-2018 2014-2016 Insured plans: Insurer Self-funded Plans: Plan sponsor Insured plans: Insurer Self-funded plans: Thirdparty administrator Excepted benefits Everything but major medical 44
Cadillac Tax Cadillac Tax Excise Tax on High-Cost Health Plans Threshold: Individual Coverage - $10,200 Family Coverage - $27,500 Thresholds indexed to inflation and adjusted for high-risk or elderly employee populations Calculating the tax 40% X amounts of coverage in excess of threshold Applies to the aggregate value of coverage (i.e., fully-loaded) Tax assessed against provider of coverage 45
Cadillac Tax Example Cost of coverage in 2018 = $13,000 for individuals and $30,000 for families. Three employees elect individual coverage, five employees elect family coverage in 2018. Tax = $8,360. 13,000-10,200 = 2,800 x 40% = $1,120. 30,000-27,500 = 2,500 x 40% = $1,000. ($1,120 x 3) + ($1,000 x 5) = $8,360 46
Cadillac Tax 47
Cadillac Tax 48
Ben Conley bconley@seyfarth.com (312) 460-5228 49