COMPLYING WITH THE ACA: GETTING READY FOR 2016 – PART II

Roberta Casper Watson

2

Employer Mandate: General RulePenalties may apply if the employer does not offer

coverage to “substantially” all full-time employees if even one full-time employee purchases coverage through Exchange with premium tax credit

Penalties may apply if any full-time employee who was not offered coverage, or not offered coverage that was affordable or provided minimum value, if the full-time employee purchases coverage through Exchange with premium tax credit

Employer Mandate: Penalties

3

Annual penalty for failure to offer coverage to substantially all full-time employees: $2,000/full-time employee (minus first 30)

Annual penalty for failure to offer coverage that is affordable or provides minimum value: $3,000/full-time employee who receives premium tax credit

4

Employer Mandate: Affordable Coverage

Coverage is not affordable if it costs an employee more than 9.5% of his/her annual household income

Three optional safe harbors exist to assist the employer in determining affordability: ◦ Form W-2 Wages Safe Harbor, ◦ Rate of Pay Safe Harbor, and ◦ Federal Poverty Line Safe Harbor

5

Employer Mandate: Minimum Value

A plan provides minimum value if it covers at least 60% (essentially, a “bronze level” plan—see “Essential Health Benefits” slide, later in presentation) of the total allowed cost of benefits that are expected to be incurred under the plan

HHS and IRS have published methods that may be utilized to determine minimum value

Must include substantial hospital and physician coverage, per recent proposed regulations

Employer Mandate: Penalties

6

Assessment of penalties on employers

◦ Reporting requirements (discussed later) must be complied with, to notify:

The IRS as to who does and doesn’t have coverage, and

Individuals whether they have coverage

◦ Penalty tax is NOT self-assessed by employers

◦ IRS will match reports filed and will notify employer if IRS suspects it owes any penalty, at which point employer can respond

◦ If no satisfactory explanation, penalty due

Offering Coverage to Employees

Coverage must be offered to employees who average, 30 or more hours of service per week.

An hour of service is each hour for which the employee is paid, or entitled to payment.

Those reasonably expected to be full-time must be offered coverage by the first day of the fourth month following date of hire.

Part-time, seasonal, and variable-rate employees are considered full-time employees if they average 30 hours of service per week.

7

Monthly Method

An employee is considered full-time if credited with 130 or more hours of service for a particular month.

The employee must be offered coverage for months in which he/she is paid for at least 130 hours, beginning with the first day of the fourth month after full-time status is reached.

Coverage must be offered from beginning of each 130-hour month. Other than above 4-month rule to start coverage, there is no lookback feature to the monthly method.

8

Look Back Method

An employee is considered full-time if credited, on average, with 30 or more hours of service per week during a measurement period.

The employee must be offered coverage during the associated stability period following the measurement period.

Unlike hourly method (for which you must know at the beginning of a month who will reach 30 hours), the lookback method allows an employer to measure the past and provide coverage for the future, accordingly.

9

Measurement PeriodA measurement period can be 3 to 12 months.A standard measurement period applies for

ongoing employees.An initial measurement period applies for each

new hire, beginning on date of hire (except employees hired as full-time employees).

An administrative period can be scheduled at the end of the measurement period to allow the employer to process the measurement period numbers and offer coverage to full-time employees.

10

Stability Period

A stability period generally cannot be shorter than 6 months, and cannot be shorter than the length of the measurement period.

The employee who averages 130 hours during the measurement period must be offered coverage during the associated stability period following the measurement period.

A 12-month measurement period and stability period can minimize recordkeeping requirements.

11

90-day Waiting Period Limitation

The employer mandate rules require coverage by first day of fourth month following beginning of full-time employee status.

However, group health plans cannot impose waiting period in excess of 90 days.◦ If the 91st day falls on a weekend or holiday, coverage

can be effective on that day or on the next prior business day.

◦No special rule exists for short-term or high-turnover positions.

As a practical matter, first day of fourth month rule won’t work for new full-time employees.

12

90-Day Waiting Period Limitation

Limit applies to Grandfathered and Non-Grandfathered group health plans

Other eligibility criteria (not based on passage of time) allowed as long as not designed to avoid 90-day cap. For example, a cumulative service requirement for up to 1,200 hours of service would be allowed if not a subterfuge.

13

Interaction Between Waiting Periods and Orientation Periods

Waiting periods may not exceed 90 days.An exception is allowed to this rule for a bona

fide orientation period that is reasonable and employment-based.

The orientation period may not exceed 1 month.

Employers subject to the employer mandate will still need to comply with the first day of fourth month rule of employer mandate.

14

Offering Coverage to Rehired Employees

Employees rehired within 13 weeks continue to have their hours measured during the same measurement period in which they terminated if it has not ended

Employees hired after 13 weeks may be treated as new employees

15

16

Who Must Comply With The Employer Mandate?

Employers with 50 or more full-time employees and “full-time equivalent employees”

Employees of all controlled group and affiliated service group members are included

Status as an Applicable Large Employer is determined based on the prior calendar year

Status as an Applicable Large Employer is fixed for the entire calendar year

Special rule for employers who hire seasonal employees

17

Counting Employees

Applicable Large Employer status is determined by adding:◦ Full-time employees, and ◦ Full-time equivalents

The common law standard must be applied to identify employees who must be counted

Employers should carefully review employees to ensure that no one has been misclassified

Calculating full-time equivalents

18

Effective Date for Employer Mandate

January 1, 2015, for employers with 100 or more full-time employees and full-time equivalents

Certain non-calendar years plans may delay compliance until the first day of the plan year after January 1, 2015

Employers should examine their non-calendar plans to determine if they can delay compliance

19

Transition Relief For Employers With At Least 50, But No More Than 99 Employees

Employers with at least 50, but no more than 99, full-time employees (including full-time equivalent employees) in 2014 may delay compliance until 2016

Certain requirements must be met to be eligible for this transition relief

Additional transition relief for non-calendar year plans

20

Reporting Requirements

Employers must report data that the IRS will need to enforce the employer mandate (IRC 6056). Such reports will include:◦ Reports to the IRS showing which employees have or

were offered coverage, among other things◦ Reports to the employees as to whether they have or

were or offered coverage, among other thingsEmployers must file for 2015 even if not subject to the

employer mandate until 2016 Filing was optional for 2014, but encouraged

21

Reporting Requirements

Each controlled group member with full time employees must report separately for each month with respect to its own common law employees

◦One entity within the controlled group may do all filings

Insurers, employers with self-funded plans, and certain governmental plan sponsors must also report as to the coverage they provide to employees and their dependents (IRC 6055)

Electronic filing is required if 250 or more returns of any type are filed

22

Reporting Requirements

The Section 6056 Return may be filed using Form 1094-C (a transmittal form) and 1095-C (an employee statement)

◦A substitute form is allowed, containing all the same information and meeting specified requirements

◦Such a substitute form can facilitate a single combined filing under Sections 6055 and 6056 for those employers required to file under both sections who wish to use the combined form

6055 reporting is done using Forms 1095-B and 1094-B

W-2 Reporting

• Value of health coverage to be reported on W-2• This does NOT mean health benefits taxable –

nothing changed as to deductibility and excludability

• Employees will know more about value of coverage

• Set up for computing Cadillac Tax after 2017

23

24

Documenting Compliance

Employers need to demonstrate their compliance with the employer mandate (e.g., documenting Applicable Large Employer status, eligibility for transition relief, offers of coverage to employees, etc.)

Plan documents, summary plan descriptions, and other employee communications need to be updated to reflect changes in plan design

25

Employer MandateAction Steps for Employers

Determine and document status as an Applicable Large Employer

Determine and document plan’s ability to meet the affordability and minimum value tests

Identify and offer coverage to all full-time employees who must be offered coverage

Establish procedures to collect information needed for the annual filings

Update plan documents, summary plan descriptions, open-enrollment materials, etc.

Employer Payment Plans

Employer may get tax deduction for reimbursing all or part of employee premium for individual health insurance◦Employee will not have taxable income◦Rev. Rul. 61-146◦This rule is still true DOL Technical Release 2013-03 IRS Notice 2013-54

26

Employer Payment Plans

However, such plans now violate ACA:◦Prohibition on annual caps◦Requirement that preventive care be provided

without costTransition Rule for small employers allows

employer payment plans to continue through June 30, 2015◦ IRS Notice 2015-17

27

Individual Mandate American citizens and legal residents of the 50 States and

District of Columbia generally must purchase “minimum essential coverage”

Exceptions◦ Religious objectors or members of religious

organizations that share medical expenses◦ Individuals residing outside the 50 States and D.C.◦ Incarcerated individuals ◦ Those in United States illegally ◦Members of Indian tribes◦ Individuals with income below tax return filing

threshold◦ Those who cannot find affordable coverage (8% of

household income after subsidies)

28

Individual Mandate Permissible sources for “minimum essential coverage”

◦Most individuals will get coverage from employers complying with employer responsibility requirement

◦Medicare, Medicaid, CHIP, VA coverage, Tricare, and other public programs

◦ Individual coverage, after 2014 likely purchased through Exchange

◦ State high-risk pools as allowed by regulations ◦ States could contract directly to cover certain

individuals between 133% and 200% of poverty level◦ Programs recognized as such by HHS, for transition

purposes or otherwise, even if they do not otherwise meet the requirements

29

Individual Mandate

Low Income Tax Credit after 2013◦Help with purchase through Exchanges for those with

incomes up to 400% of federal poverty level Only if not eligible for Medicaid Only available for use in Exchange and multi-state

plans◦ Refundable if recipient has no tax liability◦Generally paid directly to insurer

Individual can make payments personally and submit to IRS for reimbursement at end of year

◦ Same individuals get reductions in cost sharing

30

Individual Mandate Penalties for failure to obtain coverage

◦ In 2016 or later, 2.51% of household income or, if greater, “applicable dollar amount” 1% of household income in 2014 and 2% in 2015 Household income includes non-taxable income

◦ “Applicable dollar amount” $95 in 2014 $325 in 2015 $695 in 2016 Indexed thereafter Half such amount for children under age 18 Imposed for all family members, but capped at three times

applicable dollar amount for family Also capped at average “bronze level” premium

31

Individual Mandate Penalties for failure to obtain coverage, cont.

◦ Reported and paid on federal income tax return◦ Individual responsible for insuring self and any

dependents Individual and spouse jointly liable for penalty if joint

return is filed◦ Penalties computed monthly

Exceptions for brief periods of non-coverage◦ No criminal penalties or liens on property

Enrollment deadline extended to March 31, 2014, due to difficulties with Website◦ Can be longer if a person tried to enroll before the

deadline, but was unable to do so because of problems with the Website.

32

Minimum Essential Coverage

• Basic requirement for coverage• Does not include “excepted benefits,” such as:

◦Stand alone dental◦Stand alone vision◦ Long-term care◦Health FSAs◦Single-disease policies◦Hospital indemnity

Individuals under age 30 may have catastrophic plans with lesser benefits

33

Essential Health Benefits

Extensive regulations provide rules for issuers to design plans measured against templates.

Compliant policies will cover percentage of costs of typical policy◦Bronze policy must cover 60%◦Silver policy must cover 70%◦Gold policy must cover 80%◦Platinum policy must cover 90%

34

35

Contact Information

Roberta Casper Watson, Esq.rcwatson@wagnerlawgroup.com

101 E. Kennedy Blvd., Ste. 2140Tampa, FL 33602

P: (813) 603-2960 F: (617) 357-5250

Boston Office (Main)99 Summer St., 13th Floor

Boston, MA 02110P: (617) 357-5200 F: (617) 357-5250

South Florida Office 7108 Fairway Dr., Ste. 125

Palm Beach Gardens, FL 33418P: (561) 293-3590 F: (561) 293-3591

San Francisco Office315 Montgomery St., Ste. 904

San Francisco, CA 94104P: (415) 625-0002 F: (415) 358-8300

St. Louis Office100 S. 4th St., Ste. 550St. Louis, MO 63102

P: (314) 236-0065 F: (314) 236-5743