L O C K T O N C O M P A N I E S

Employee Benefits Compliance Update: Issues Under the ACA, ADA, GINA, etc. Presented by Ed Fensholt, JD April 2016

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IRS allows a short-term reprieve from ACA reporting deadlines!

Employees may file their tax returns without the 1095-B or -C forms for 2015

Employees don’t need to amend their returns if, when they receive these forms from their employers (and, as applicable, their insurers) information the employees supplied on their 1040s is incorrect, if they relied on other information supplied by the employer or insurer

What could the employees rely on?

Memory

Pay stubs showing deductions

Should employers CORRECT Forms 1095-C they KNOW to be incorrect? How and when?

Should the corrected form show that it’s corrected?

What if 1095-Cs are returned unopened to the employer?

Hip-Hip Reporting Delay!

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$250 per return penalty for not filing or for not correcting on or before

Oct. 1 for 1095-Cs to employees and other covered individuals

Nov. 1 for 1095-Cs to the IRS

It’s better to correct sooner than later

Penalties can be reduced as low as $50 if corrected within 30 days of the original filing deadline

Penalties are “per return.” If you correct the 1095-C before sending a copy to the IRS with the 1094-C (i.e., by May 31 or June 30 if filing electronically), then you can limit your expose to one return instead of two.

IRS Penalties for 1095-C Errors

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It’s also easier to correct a 1095-C before the forms get sent to the IRS

If 1095-Cs haven’t been filed with the IRS, simply send a new 1095-C to the employee/covered individual with “CORRECTED” written on the form

If 1095-Cs have been filed with the IRS, enter “X” in the “CORRECTED” box at the top of the form, send to the employee/covered individual, and send to the IRS with a non-authoritative 1094-C

The 1094/5-C Instructions have detailed steps for making corrections

Making Corrections

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Defenses to Penalties

Good faith

The IRS says that it will not assess penalties as long as:

1. The 1095-C was timely filed, and

2. The error was made in good faith

It’s not clear what counts as “good faith.”

We doubt the IRS would say it is good faith to fail to fix a 1095-C the employer knows or should know was erroneous

Inconsequential errors

The IRS has some discretion here when the error is “inconsequential.” In light of the IRS’s comments that taxpayers do not need 1095-Cs to file their tax returns at least raises the possibility of arguing that all errors are inconsequential before the forms are sent to the IRS.

Reasonable cause and not willful neglect

This is an historically difficult standard to meet, and “my vendor made a mistake” is rarely sufficient

Efforts to correct and prevent the error from happening again are helpful

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Hip-Hip Reporting Delay!

ACA Employer Reporting Requirement

Original Deadline New Deadline

Forms 1095-C to Employees, etc.

Forms 1095-C to full-time employees and to any other employees or primary insureds (retirees, partners, COBRA beneficiaries) with coverage under the employer’s self-insured plan

Feb. 1, 2016 (30-day extension available at the

IRS’s discretion)

March 31, 2016 (no extension available)

Forms 1094-C and 1095-C to IRS

Paper filing of Forms 1094-C and 1095-C

Feb. 29, 2016 (automatic 30-day extension available

via Form 8809)

May 31, 2016 (no extension available)

Electronic filing of Forms 1094-C and 1095-C

March 31, 2016 (automatic 30-day extension available

via Form 8809)

June 30, 2016 (no extension available)

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Employer Mandate – Counting Hours for FTE Determinations

No need to credit hours for workers’ compensation leaves of absence

No need to credit hours for payments under mandated programs under unemployment comp or disability leave laws

No need to credit hours for short- or long-term disability leave unless payments are contributed to by the employer

After-tax payment of premium by employee is not an “employer contribution” for this purpose

What about the employer paying premium, and imputing the cost as taxable income to the employee?

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ACA Reporting Wrinkles

COBRA Coverage: An inconsistent approach

Retiree Coverage: Like COBRA…

For full year of retirement, no 1095-C if coverage is insured; if self-insured, 1G on line 14, skip lines 15-16, complete Part III…

…unless the retiree is covered by Medicare Part A (free pass)

Mergers and Acquisitions: Who’s on First?

When?

Was seller or buyer subject to the employer mandate?

Stock or asset purchase?

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IRS Mends the Affordability Safe Harbor “Disconnect”

Employer mandate requires offer of “affordable” coverage

Statute: Employee-only coverage shouldn’t cost more than 9.5% of household income

9.56% for 2015, 9.66% for 2016

Employers don’t know what “household income” is for an employee

IRS offers three safe harbors: Don’t ask employee to pay more than 9.5% of:

W-2 pay

Rate of pay x 130 hours

Poverty level

Disconnect is mended retroactively; safe harbors now inflation-adjusted as well

So, when reporting on Line 16 of 1095-C, you may use 9.56% to determine whether a safe harbor code applies (9.66% next year)

Employer Mandate – Affordability Safe Harbors

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Employer Mandate – Affordability Issues

HRAs and flex credits might affect affordability calculations in a good way

Might be applied to reduce the amount the employee is asked to pay, for purposes of an affordability calculation

HRAs: If the benefit may be applied only to pay premium, OR to pay premium and reimburse cost sharing

Flex credits: If the credits:

Cannot be taken as cash

Can only be used to buy minimum essential coverage and to reimburse medical care expenses

Generally, this rule will apply after 2016, except for new flex credit programs

EXCEPTION: Service Contract Act and Davis-Bacon Act

At least through 2016, may continue to offer employees choice of fringe contribution as a benefit or as cash, without creating an affordability problem

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Employer Mandate – Affordability Issues

A cash opt-out amount will be added to the employee's contribution to determine if coverage is affordable (e.g., less than 9.5% of pay, adjusted for inflation)

Example: Ed is offered employee-only coverage at a monthly cost of $100. However, if Ed waives coverage, he receives $200 cash. Because the receipt of the cash opt-out credit depends on Ed waiving medical coverage, the IRS concludes that Ed’s “cost” for the medical coverage includes the cash he had to forego in order to enroll in the medical plan.

Thus, in our example, Ed’s monthly cost for employee-only coverage is deemed to be $300 (the $100 per month contribution plus the $200 opt-out ).

Rule applies for plan years beginning on or after January 1, 2017 (or maybe even later), but earlier for new cash-out incentive programs

IRS might allow a safety valve where the incentive also requires some other action, like proof of other coverage

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…And on the ACA Litigation Front...

ACA Litigation

Unlikely U.S. Supreme Court will hear any additional appeals

Dave & Busters case – reduction in scheduled work hours = ERISA retaliation?

FLSA Issues

ACA includes a non-retaliation provision (can’t retaliate against an employee for qualifying for subsidies)

What if employee qualifies for subsidies, doesn’t have an offer of employer-based coverage, and the employer then cuts his or her hours, to get the average below 30?

Would it matter if the employee had been hired and classified as a part-time employee?

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Employer Mandate – Inflation Adjustments & Transition Relief

Applicable Large Employer (ALE) determinations

50–99 delay expiring

Non-CY plan transition relief is over, except for the 50-99 crowd

Bargaining unit exception continues to apply

Exclude veterans with TRICARE or VA coverage when counting FTE/FTEqs—this applies to 2014 determinations too

Tier 1 changes

Inflation adjustment to $2,160

Minimum essential coverage must be offered to 95% of full-time employees

“Free 80” reduced to “Free 30”

Tier 2 changes

Inflation adjustment to $3,240

More to come on affordability determinations

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Cadillac Tax Delay

Delayed to 2020 (from 2018)

40 percent tax on health benefits with values exceeding $10,200 individuals; $27,500 for “other than individual coverage”

2020 estimates: $10,950/$29,450

Cadillac tax is deductible

Solves the problem of “gross up” when employer remits tax to insurers and TPAs who then pay IRS

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Auto Enrollment Repeal

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Other Potential Ugliness

Experience Gains Under Self-insured MEC Programs

Watch your step!

Break in Service Rules

13 weeks for most

26 weeks for educational organizations

IRS: Regs will provide that employees providing services to an educational organization must have a “meaningful opportunity to provide services” for the entire year, or the 26-week rule will apply

What’s Next?

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Health insurer excise tax suspended for 2017

Insurers should NOT be ratcheting up rates in 2017 to account for the tax

U.S. Supreme Court

ERISA preemption of VT all payer claims database (similar to Colorado program)?

Contraceptive mandate requirement to provide HHS or insurer/TPA opt-out form

Lower Level Federal Courts

Is Michigan’s “Health Insurance Claims Assessment Act” tax preempted?

Sun Capital trial court decision on remand: When is there an “implied” controlled group?

Implications for nondiscrimination testing?

Implications for employer mandate application?

Things to Look Forward To

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Health insurance exchanges – notice of employee’s eligibility for premium tax credit

Sometime later this year, federal exchanges will likely start issuing notices to employers if an employee receives tax credit for exchange coverage

How does the employer demonstrate an offer of coverage?

Employers will have 90 days to dispute ruling

Something Not to Look Forward To

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Here’s the HHS form…it looks halfway reasonable…

Something Not to Look Forward To

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But the state-based exchanges (20+) are another story

Take Minnesota’s MNSure, for example

Employer offered coverage

Employee went to MNSure, applied online, checked the “I received no coverage offer from my employer” box, qualified for subsidies

MNSure sent employer a notice of intent to refer the matter to the IRS for penalties, for failing to offer coverage

Employer appealed, sent supporting data

MNSure acknowledged appeal

MNSure decided appeal: “Uh…the employee said you didn’t offer coverage. So you didn’t. You lose.”

Something Not to Look Forward To

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Health insurance exchanges – notice of employee’s eligibility for premium tax credit

IRS, not the exchange, will assess the penalty

IRS very tight lipped on mechanics of its process

THE MORE EVIDENCE THE EMPLOYER HAS OF A COVERAGE OFFER, THE BETTER OFF IT’S GOING TO BE

Something Not to Look Forward To

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Wellness Programs and the EEOC

EEOC loses another wellness case

Issue centers on health risk assessments and penalties for not participating

ADA prohibits medical inquiries unless “voluntary,” and voluntary means no “penalty”

What’s a penalty?

Does it matter? ADA includes a “bona fide benefit plan” safe harbor or free pass

Proposed EEOC rules prohibit an employer from conditioning coverage on submission to a medical inquiry

EEOC v. Flambeau (W.D. Wis.) – bona fide plan exception allows employer to condition health plan enrollment on employee completing health risk assessment (similar result to Broward County case)

EEOC final regulations on wellness incentives due later this year…what then?

For now, move forward with caution

Be careful about requiring employee/spouse/children to complete HRA in order to earn enrollment

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Wellness Programs and the EEOC – Part Deux

Genetic Information Nondiscrimination Act

Can’t collect genetic information at open enrollment, or at ANY time in exchange for an incentive

“Genetic information” includes family medical history

Response: Wellness vendors stopped asking employees for family medical history

What About Incentives to an Employee, if the Spouse Completes a Health Risk Assessment?

The spouse’s information about his/her health is “family medical history” vis-à-vis the employee

EEOC proposed regs: Employers can provide the incentive, but it’s limited, and requires an advance authorization

Cannot ask spouse for his or her family medical history, nor for the children’s

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HIPAA Compliance

HHS to initiate its second round of HIPAA audits

Round #1 was pilot audit program back in 2012

See http://www.hhs.gov/hipaa/for-professionals/compliance-enforcement/audit/index.html

HHS “wall of shame” continues to grow

IRS: if breach, ID protection is tax-free to employees

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Coming Changes to FLSA Overtime Rules

DOL to issue re-write of overtime regulations

Tentatively scheduled for July, but possibly sooner

Compliance required 60 days thereafter

New regulations would:

Raise salary threshold for exempt status to $50,440 (currently $23,660)

Indexed going forward (not the case with current rules)

HR 4773, The Protecting Workplace Advancement and Opportunity Act Would nullify any DOL guidance issued and require comprehensive economic impact study

http://edworkforce.house.gov/news/documentsingle.aspx?DocumentID=400422

Reminder: penalties can include $1,100 per violation, back pay (up to three years) and criminal penalties for willful, repeat violations.

Determine cost impact of new rules and workforce adjustments needed to

help mitigate cost impact

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Other Potential Ugliness

CMS data match program

Agency guidance on expat plans

Issues in a regulatory black hole

New 105(h) regulations

HPID

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Status quo will be maintained if a Democrat wins the White House (or loses the White House but the Republicans lose the Senate)

Big shake ups if Republicans hold the Senate and win the White House? Maybe.

Republicans generally oppose employer and individual mandates, but there doesn’t seem to be a cohesive strategy for how to pay for repeal or what to do instead. Something is bound to happen, but what?

Rubio and Cruz would repeal the ACA and give Americans a tax credit to buy individual coverage (like auto insurance), and across state lines

Trump would repeal the ACA and “replace it with something terrific”

Clinton says she’d keep the ACA, but not the Cadillac tax, and she’d control Rx prices and limit cost sharing

Bernie Sanders: “Better red than dead?”

Ed’s Election 2016 Hot Take

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