Health Care Reform Employer Mandate Compliance Roadmap Ben Conley (312) 460-5228 bconley@seyfarth.com Seyfarth Shaw LLP April 7, 2015
Today s Roadmap Is my company subject to the mandate? When does the mandate go into effect? What are the penalties for failure to comply? Next steps for large employers 2
Is My Company Subject to the Mandate?
Mandate Applies to Large Employers Threshold for Large Employer o 100 full-time equivalent employees in prior year (2015) o 50 full-time equivalent employees in prior year (2016 and on) Full-time employees = 120 hours per month #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 4
Include Related Employers When Counting Related entities must be considered together, as one employer Related generally means: o Parent-subsidiary - 80% owned up and down chain o 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 5
When Does the Mandate Go Into Effect?
When Does the Mandate Go Into Effect? Transition Relief o What is a large employer? For 2015 only, large employer means 100 or more full-time equivalent employees (50 or more full-time equivalent employees for 2016 and beyond) o 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. o Very narrow transition relief for off-calendar year plans that might delay the effective date until the start of your plan year Permanent Relief o No penalty for first three months of the year after qualifying as a large employer 7
What are the Penalties for Failure to Comply?
Big Penalty Employer is subject to big penalty if o Employer fails to offer minimum essential coverage AND o At least one employee receives a tax credit or subsidy through an exchange Big Penalty = $2,000 x # of Full-time Employees o Subtract first 80 full-time employees when calculating the penalty for the 2015 plan year o Subtract first 30 full-time employees when calculating the penalty for plan years on or after 2016 o The penalty is assessed based on the number of full-time employees, not the number of full-time equivalents. 9
Big Penalty Minimum Essential Coverage o Group health plan o That is not excepted benefits Dental only, vision only o 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 10
Big Penalty Effective date o January 1, 2015 for employers with 100 or more employees: must cover only 70% of the workforce in 2015 increases to 95% in 2016 o Penalty still applies for the 30% (5% starting in 2016). But the applicable penalty is the small penalty (discussed below). 11
Small Penalty Employer offers health insurance coverage, but not affordable coverage that provides minimum value o Affordable Cost of coverage no more than 9.5% of household income o Minimum value Covers at least 60% of actuarial value of health costs o 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 12
Small Penalty PENALTY $2,000 x (Total # of Full-Time Employees 80*) THE LESSER OF: $3,000 x # of Full-Time Employees who receive a tax credit or subsidy and purchase coverage through an Exchange *Reduces to 30 full-time employees in 2016 13
Determining Affordability Affordable o Employee-only premium cost (regardless of what coverage employee elects) o May use: W-2 wages Rate of Pay (hourly rate for each hourly employee multiplied by 130 hours per month) Federal Poverty Line o Safe harbor selected may vary based on certain employee groups 14
Determining Minimum Value Minimum Value o Calculated in one of three ways o HHS Calculator o Safe Harbor Checklist o Actuarial Certification Three design-based safe harbors proposed to determine MV% o For plans that coverage all benefits in calculator o MV varies based on deductible, cost-sharing, OOP and HSA contributions 15
Next Steps for Large Employers
Employer Shared Responsibility Who Must Be Offered Coverage? Employers must offer coverage to full-time employees and their dependents* o Dependents does not include: spouses, stepchildren, foster children children who are not US citizens or nationals o Child is a dependent for the entire calendar month in which he or she attains age 26 *No requirement to offer dependent coverage in 2015. 17
Employer Shared Responsibility Who Must Be Offered Coverage? What is a Full-Time Employee? o Those who work, on average: 30 hours per week or 130 hours per month o Two options for determining full-time status: Monthly measurement period Look-back/stability period 18
Employer Shared Responsibility - Who Must Be Offered Coverage? Generally, must use same: (1) measurement method, and (2) length of measurement period from year to year and across the workforce May use different periods for: o Salaried and hourly employees o Employees of different entities o Employees located in different states o Collectively bargained with different collective bargaining agreements May use shorter Measurement Period in 2014 (even if using a 12-month period going forward) 19
Counting Hours of Service Hourly employees o Track actual hours Non-hourly employees o Track actual hours OR o Credit eight hours of service for each day or 40 hours of service per week 20
Monthly Measurement Method General rule: Offer coverage any month in which employee works full-time o Initial three month eligibility buffer* o No requirement to recognize special leaves o Coverage must be offered for entire month to avoid penalty *Keep in mind that separate from these rules, the ACA generally limits waiting periods to 90 days. 21
Measurement/Stability Period Safe Harbor Measurement/stability period safe harbor consists of three components: o Measurement period Between 3 and 12 months in length o Stability period At least six months but no shorter than measurement period o Administrative period No longer than 90 days 22
Measurement/Stability Period Safe Harbor When must coverage be offered? New full-time employees: within three months of hire date* New variable hour employees who work sufficient hours: No later than start of the month following 13 month after hire date (could be shorter depending on length of measurement period) *Keep in mind that separate from these rules, the ACA generally limits waiting periods to 90 days. 23
New Guidance on Measuring Full Time Status of New and Seasonal Employees New Full-Time Employee o Whether expected to be full-time employee depends on facts and circumstances, includes: Whether employee replacing full-time employee Whether comparable positions are full-time How job was advertised/communicated to new hire or otherwise documented Seasonal Employees* o Customary annual employment is 6 months or less o Period begins each calendar year in same part of the year o Even if extended in particular year *This definition only applies for purposes of the determination of who to offer coverage, not for purposes of the large employer determination 24
What is a Variable Hour Employee? Based on facts and circumstances at date of hire Cannot determine that employee is reasonably expected to work, on average, at least 30 hours per week (or 130 hours per month) The IRS may disagree with determination and impose penalty if every employee is labeled as variable hour but many end up working full-time 25
What is a Variable Hour Employee? Examples* o Part-time employees o Hourly employees with fluctuating schedules o Seasonal employees *These are merely examples of individuals that might be considered variable hour new hires. Facts and circumstances may limit an employer s ability to treat these employees as variable hour new hires. NOTE: Expected length of employment cannot factor into characterization (except for seasonal employees) 26
Coverage for Contingent Workers Obligation to offer coverage rests with common law employer. This can cause problems in the staffing context If common law employer is: o Client employer, then Confirmed offer of coverage from staffing firm CAN be treated as offer of coverage by employer BUT only if employer pays staffing firm higher fee for employee enrolled in health coverage o Staffing agency, then Cannot assume all employees will be variable hour. Must consider a variety of factors in making the determination 27
Existing Employee Measurement/Stability Period Type Length Start Date End Date Measurement Period Administrative Period Open Enrollment 12 months November 1 October 31 2 months November 1 December 31 1 month November 18 December 19 Stability Period 12 months January 1 December 31 28
New/Variable Hour Employee Measurement/Stability Period Type Length Start Date End Date Administrative Period > 1 month Hire date First of month following hire date Measurement Period Administrative Period 12 months First of the month following date of hire 1 month End of measurement period Stability Period 12 months End of administrative period 12 months following start of measurement period 1 month following end of measurement period One year following end of administrative period 29
Measurement and Stability Periods Measurement Period Admin Stability Period Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. 2014 2015 30
Overlapping Periods Starting with 2015, every year will feature a simultaneous measurement and stability period Measurement Period #2 Admin Stability Period #2 Stability Period #1 Measurement Period #3 Admin Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. 2015 2016 2017 Stability period (following 2014 measurement period) New measurement period begins (for 2017 stability period) Optional administrative period. Overlaps with stability period 31
When Must Variable Hour New Hires be Offered Coverage? Employee switches to ongoing employee measurement period effective October 1, 2014 Measurement Period #2 Measurement Period #1 Stability Period #1 Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. 2014 2015 2016 Variable Hour New Hire Hire Date February 15, 2014; measurement period starts March 1, 2014 Measurement Period ends February 28, 2015 Administrative Period From March 1 March 31 Stability Period coverage begins April 1, 2015 (and continues through March 31, 2016) 32
Questions? bconley@seyfarth.com