ACA and DOMA
November 2013
Peter J. Marathas, Jr.
© 2013 Proskauer. All Rights Reserved.
2
DOMA &
Windsor
© 2013 Proskauer. All Rights Reserved.
3
DOMA and the Windsor Decision
U.S. v. Windsor
• In U.S. v. Windsor, the U.S. Supreme Court held (in a 5-4 decision) that
Section 3 of DOMA is unconstitutional
• However, Section 2 of DOMA, which allows states to refuse to recognize
same-sex marriages performed under the laws of other states, was not
addressed in Windsor and remains intact
Before 2004, same-sex marriage was not permitted in any state in the U.S.
Almost 10 years later, same-sex marriage is permitted in 13 states and the
District of Columbia (2 of those state laws became effective August 1); several
other states recognize civil unions and domestic partnerships
• Windsor does not require employers in states that do not recognize
same-sex marriage to offer group health plan coverage to same-sex
spouses
© 2013 Proskauer. All Rights Reserved.
Rule of Celebration
4
DOMA and the Windsor Decision
© 2013 Proskauer. All Rights Reserved.
5
DOMA and the Windsor Decision
• Impact on Health and Other Welfare Plans:
Same-Sex Spouse (SSS) Coverage
© 2013 Proskauer. All Rights Reserved.
State Recognizes Same-Sex Marriage: SSS
Coverage Required
Fully Insured
State Does Not Recognizes Same-Sex
Marriage: SSS Coverage Not Required
6
DOMA and the Windsor Decision
© 2013 Proskauer. All Rights Reserved.
State Recognizes Same-Sex Marriage: SSS
Coverage May Be Required
Self Insured
State Does Not Recognizes Same-Sex
Marriage: SSS Coverage Not Required
7
DOMA and the Windsor Decision
© 2013 Proskauer. All Rights Reserved.
State Recognizes Same-Sex Marriage:
State Tax: No
Federal Tax: No Tax Imputation
State Does Not Recognizes Same-Sex
Marriage & SSS Coverage Offered:
State Tax: Yes
Federal Tax: No, if married in
Same-Sex Marriage
State
8
DOMA and the Windsor Decision
• Other Welfare Plans:
Health FSA
Dependent Care FSA
HRAs
COBRA
HIPAA (Portability)
HIPAA (Privacy)
© 2013 Proskauer. All Rights Reserved.
9
DOMA and the Windsor Decision
• Impact on Retirement Plans:
Spousal Benefits & Rights
QDROs
Notices
RMD’s
Beneficiaries
Rollovers
Hardship Distributions
© 2013 Proskauer. All Rights Reserved.
10
DOMA and the Windsor Decision
• Check Processes and Procedures
• Consider whether to communicate
• Amend Plans and SPDs (to the extent
necessary)
• Determine process for re-claiming
withholdings
• Confirm with TPA’s that they are conforming,
especially in multi-state jurisdictions
© 2013 Proskauer. All Rights Reserved.
11 © 2013 Proskauer. All Rights Reserved.
The Affordable
Care Act
Level Setting The Concepts & Rules
12 © 2013 Proskauer. All Rights Reserved.
Individual Mandate
• Beginning in 2014, all individuals must maintain health insurance for themselves and their dependents, with some exceptions
• Required to maintain “minimum essential coverage,” which includes
• employer coverage
• individual coverage
• grandfathered plans, and
• federal programs such as Medicare and Medicaid
• Penalty for not maintaining coverage is the greater of a flat-dollar penalty or
a % of income penalty
Per Adult Per Child (<age 18) Family Max OR % of income
2014 $95 $47.50 $285 1%
2015 $325 $162.50 $975 2%
2016 $695 $347.50 $2,085 2.5%
13
Household Income Level
(% of Federal Poverty Level)
Maximum Premium as
Percentage of Income
Less than 133% 2.0%
At least 133% but less than 150% 3.0% – 4.0%
At least 150% but less than 200% 4.0% – 6.3%
At least 200% but less than 250% 6.3% – 8.05%
At least 250% but less than 300% 8.05% – 9.5%
At least 300% but less than 400% 9.5%
14
Premium Subsidies
Medicaid Expansion
© 2013 Proskauer. All Rights Reserved. 15
16
Household
Income
Covered California (Age 32; San Jose; Monthly Subsidized Premium)
Family Size
1 2 3 4
$15,000
$20,000 $85 MEDI-CAL
$25,000 $144 $94
$30,000 $209 $187 $104
$35,000 $277 $210 $156 $114
$40,000 $317 $276 $216 $164
$45,000
$318
$346 $276 $221
$50,000 $396 $343 $280
$55,000 $435 $411 $343
$60,000 $475 $409
© 2013 Proskauer. All Rights Reserved.
Exchanges
Exchange Approach*
*Kaiser Family Foundation
18 © 2013 Proskauer. All Rights Reserved.
• October 1 Sign Up:*
• Federal Exchanges: “I can’t tell you, because I don’t know.” Kathleen
Sebelius
Exchanges—Implementation
• State Exchanges:* 80,000 Nationally
40,000 New York
28,000 California
*Kaiser Health News, as of 10/13/2013
Exchanges—Implementation
Employer/Insurance Mandates
Employer Mandates
• Many new reporting, disclosure and other
requirements
Recordkeeping will become extremely important
• Penalties in 2015 for not providing “affordable”
health insurance
• Penalties for not complying with reporting and
other obligations
• Taxes & Fees
Non-Discrimination Rules
90 Day Enrollment
Exchange Notice
Employer annual reporting of employee coverage
Summary of Benefits and Coverage (SBC)
W-2 reporting of employer-sponsored coverage
No Annual/Lifetime Limits
Preventive care
No evidence of insurability/pre-ex conditions
Market reforms
Wellness Incentives
Automatic Enrollment (over 200) (No Effective Date Yet)
Key Employer/Insurance
Requirements
24
Non-Discrimination
• Intended to be effective in 2010 for all non-grandfathered
fully insured plans
• IRS delayed effective date until regulations are released
• Rules Prohibit Discrimination in Favor Of Highly
Compensated Employees [HCEs]
• HCE = Top 25% highest paid
• HCE’s Determined on a Controlled Group basis
• Note: Non-discrimination rules already apply to self-
insured plans
25
Non-Discrimination
May not discriminate in terms of Eligibility or Benefits
Eligibility
Benefits
Percent
Participating Test
or “Reasonable
Classification”
No Benefit to Any
HCE Unless to ALL
Non-HCEs
26
Non-Discrimination
Penalty
$100 per day per
Affected Persons—
To Lesser of 10% of
Premium or
$500,000
Non-HCEs Affected
Persons
Play or Pay Requirements
• Effective January 1, 2015
• Play or Pay applies to applicable large employers (ALE’s)
• Company is an ALE if it has on average 50 full-time equivalents (FTE’s) in preceding year
• FTEs are Counted Across the Controlled Group
© 2013 Proskauer. All Rights Reserved.
90 Day Enrollment
• Effective 1st Day of 1st Plan Year on or After 1/1/2014
• Eligible employees must be offered coverage within 90
days
Not first day of the month after 90 days
• Special Rules—Probationary Period:
Probationary periods (cumulative hours of service
requirements) are permitted
Must be limited to 1,200 hours
Employee must be offered coverage within 90 days of end
of probationary period
Can be used only once
28
90 Day Enrollment
• Special Rules—New Variable Hour Employee
If eligibility is conditioned on working a certain number of hours
(e.g., 30 hours per week or 250 hours per quarter) or on a full-
time basis, and it’s not known if a newly hired employee will
meet the requirements, an employer may use a “reasonable
time period” to determine eligibility
Must not be designed to avoid compliance with the 90-day
waiting period limitation
29
90 Day Enrollment
• Special Rules—New Variable Hour Employee
Measurement may begin on any date between the employee’s
start date and the first day of the next calendar month, and
may not exceed 12 months
Waiting period of up to 90 days may be imposed once the
employee is determined to be eligible for coverage.
In all cases, coverage must be effective no later than 13
months from the employee’s start date, plus any time
remaining until the first day of the next calendar month
30
90 Day Enrollment
• Special Rules—New Variable Hour Employee
• Employer has up to 13 months (plus a fraction of a month)
to determine if a new variable-hour employee will work, on
average, at least 30 hours or more per week
Example:
Employee’s Date Of Hire: November 15, 2013
Initial Measurement Period: 11/15/13 – 11/14/14
Permitted Employer Administrative Period: 11/15/14 – 12/31/14
Coverage Effective Date: January 1, 2015
Time between DOH and Effective Date: 13+ months
31
Exchange Notice
• Was to be provided to all employees by October 1,
2013
• To new hires immediately or within 14 days
• Delivery may be by first-class mail or in accordance
with the DOL’s electronic disclosure requirements
Hand delivery acceptable—e.g., include in new hire packet
• DOL has acknowledged no statutory penalty under the
FLSA for failure to provide notice
• Other causes of action may be available, including
under ERISA
32
33
Employer Reporting
• Proposed Regulations Released September 10, 2013
• Reporting for purposes of Code §§6055 & 6056
• §6055: Information Reporting of Minimum
Essential Coverage (“MEC Reporting”)
• §6056: Information Reporting by Applicable Large
Employers on Health Insurance Coverage
Under Employer-Sponsored Plans
(“Shared Responsibility Reporting”)
© 2013 Proskauer. All Rights Reserved.
Average of 50 FTE/month in prior year
FTE = each full-time employee (30 hours
per week) that month + (all part-time
hours that month (up to 120 per ee) / 120)
Repeat for each month, sum, divide by 12
Reduction for Seasonal Employees (120
days / 4 month standard)
Common law employee rules apply
All hours count—no exceptions for temps,
students, interns, etc.
Counting is done on a controlled group
basis
Play or Pay—Level Setting the Rules
• Applies to Applicable Large Employers (ALE)—Delayed to 2015
34
Are You An
ALE?
Play or Pay Penalties
© 2013 Proskauer. All Rights Reserved.
Insurance Not Offered to at least 95% of full-time employees and children
At least one full-time employee obtains subsidized coverage on exchange
$2,000 X each full-time employee (reduced by first 30)
Penalty assessed monthly; on EIN basis
No
Insurance
Play or Pay Penalties
© 2013 Proskauer. All Rights Reserved.
Affordable Insurance Not Offered to all full-time employees and children
At least one full-time employee obtains subsidized coverage on exchange
$3,000 X each full-time employee who obtains subsidized coverage on exchange
Penalty assessed monthly; on EIN basis
No
Affordable
Insurance
Play or Pay Penalties
© 2013 Proskauer. All Rights Reserved.
Offered to all full-time employees and children
Lowest Cost Plan, Individual Coverage Does not Exceed 9.5% of “household income”
Plan reimburses at least 60% actuarially (bronze plan)
Affordable
Insurance
Affordable Insurance
• Cost of single coverage for employer’s lowest cost plan
(60% plan) exceeds 9.5% of “household income”
November 5, 2013 Title of Presentation | FileSite Number 38
Household
Income
IRS has provided Three Safe Harbors
W-2 Wages (box 1)
Rate of Pay
Federal Poverty Level Calculation
Affordable Insurance
• Rate of Pay Safe Harbor
• Rule permits employer to assume employee works 130 hours per
month
130 hour threshold must be used regardless of actual hours
worked
Hourly Rate of Pay Maximum Monthly Contribution
$10 $123.50
$20 $247.00
$30 $370.50
• Contribution cannot exceed 9.5% of hourly rate of pay multiplied
by 130 hours per month (use monthly salary for salaried EEs)
39
40
Rate of Pay Monthly Premium Annual Premium
Individual Coverage; Employer’s Lowest Cost Plan
$15,000 $118 $1,416
$20,000 $158 $1,896
$25,000 $197 $2,364
$30,000 $237 $2,844
$35,000 $277 $3,324
$40,000 $316 $3,792
$45,000 $356 $4,272
$50,000 $395 $4,740
$55,000 $435 $5,220
$60,000 $475 $5,700
Some Rules
© 2013 Proskauer. All Rights Reserved.
Full Time Employees (30 hours
per week/130 hours per month)
Common law employees
All Hours Count
No Special Relief for Temporary
Employees
Some Rules
© 2013 Proskauer. All Rights Reserved.
Seasonal Employees Seasonal Employees are treated as
variable-hour employees
Employers are not held to the 4
month/120 day limit for seasonal
employees (i.e., an employee
working in excess of 4 months may
be considered “seasonal” for
measurement/stability periods)
Some Rules
© 2013 Proskauer. All Rights Reserved.
Hours of service = hours worked
and hours paid but for which no
work was performed (e.g., PTO,
FMLA, deployment leaves,
disability, etc.)
Salaried workers use actual
hours, or 8 hours/day or 40 hours
per week standard
Some Rules
© 2013 Proskauer. All Rights Reserved.
Adjunct Faculty
Commissioned Salespeople
Truck Drivers
Employers May Use A Reasonable
Methodology but must account for
all hours worked, including prep
time, etc.
Variable Hour Employees
November 5, 2013 Title of Presentation | FileSite Number 45
November 5, 2013 Title of Presentation | FileSite Number 46
Responses
47
Responses: Offering Skinny Plans
© 2013 Proskauer. All Rights Reserved.
Skinny Plan Approach—
Coverage is either not affordable or does not reimburse at 60%
value (or both)
The Play—keeps employer out of the “no offer of coverage” penalty
structure
Coupled with Communication Strategy to Drive Employees to No
Penalty Inducing Coverage (no penalty for enrolling employees)
Penalty is then $3,000 per Employee Who Doesn’t Enroll and
Receives Subsidized Exchange Coverage Instead
48
Responses: Offering Skinny Plans
© 2013 Proskauer. All Rights Reserved.
No Penalty Inducing Coverage
Medicaid
Parent’s Plan
Spouse’s Plan
Catastrophic Plan
Push to:
Word of Caution
49
• Employees Determined on “Common Law” Basis
• Employers with “independent contractors” or large
contingent of foreign employees who travel to U.S.
could trip into “No Coverage Penalty” even when
offering coverage to “95% of full time employees”
• Government may (will) disagree with “independent
contractor” designation
• “Substantial presence” test may indicate US taxpayer
“Defined Contribution” Model
50
• Employer Funds HRA or FSA or Premium Reimbursement Account
• Employees encouraged to purchase exchange insurance
• Employer then pays “No Insurance Penalty” if employee receives
subsidy as well
• IRS Guidance Clarifies:
• HRAs/FSAs/Premium Reimbursement Accounts Not Linked to An
Employer Plan Do Not Meet Annual Limit or Preventive Care
Requirements
• Strategy Does Not Work
51
Response—Shifting to Part-Time
© 2013 Proskauer. All Rights Reserved.
• Businesses across the country are reconfiguring labor
market
• July Jobs Report—
• Of 144 million Americans employed in June, only
116 million were working full-time
• Looking on the bright side: 58.7% of the civilian
adult population of 245 million was working last
month
• But only 47% had a full-time job
• Reuters: 3 out of every 4 new jobs this year are part-time
52
Some Responses
© 2013 Proskauer. All Rights Reserved.
• Administration Response:
• Increased part-time jobs are
“anecdotal”—K. Sebelius
• “No data to indicate businesses are
not hiring full-time employees
because of the 30-hour mark.”—J.
Carney
Anecdotes
• Teamsters President James Hoffa: Obamacare will
"destroy the foundation of the 40 hour work week that is the
backbone of the American middle class.“
• "It IS happening…Wait a year. You'll see tremendous
impact as workers have their hours reduced and their
incomes reduced. The facts are already starting to show
up. [The Obama Administration’s] statistics, I think, are a
little behind the time.“ Joseph Hansen, president of the
United Food and Commercial Workers union, which has 1.2
million members.
53
54
Anecdotes
© 2013 Proskauer. All Rights Reserved.
Potential Responses
• Senators Susan Collins (R-ME) and Joe Donnelly (D-
IN) introduced: Forty Hours is Full-Time Act of 2013
Bill will likely go nowhere
• Employees may actively choose part-time employment
in retail and other industries
Employer offering affordable coverage prohibits subsidized
coverage on exchange
Affordable is not affordable to employee
55
56
Rate of
Pay
Affordable
Employer
Coverage
(Individual Only—
Bronze Plan)
Subsidized Coverage (Western State—Urban Location)
Family Size
1 2 3 4
$15,000 $118
$20,000 $158 $85 MEDI-CAL
$25,000 $197 $144 $94
$30,000 $237 $209 $187 $104
$35,000 $277 $277 $210 $156 $114
$40,000 $316 $317 $276 $216 $164
$45,000 $356
$318
$346 $276 $221
$50,000 $395 $396 $343 $280
$55,000 $435 $435 $411 $343
$60,000 $475 $475 $409
57
Other Responses
© 2013 Proskauer. All Rights Reserved.
—Hits Reset on Retirees
• About 110,000 Medicare Eligible Retirees
Getting the re-Boot
• Extend Health hired to facilitate move to
exchange coverage
• IBM to provide annual cash to purchase
insurance
• Effective 1/1/2014
• Will other large employers follow suit?
58
Other Responses
© 2013 Proskauer. All Rights Reserved.
—Ships Off Spouses • Affects approximately 15,000 of 33,000 currently
covered spouses
• Nonunionized only
• “Change is consistent with the way many large
employers are responding to the costs associated
with the Health Care Reform legislation”
• FAQ Threatens termination and repayment of
benefits for those who cheat
• Predicts that “35% of companies” plan to do the
same
59
Government Response
© 2013 Proskauer. All Rights Reserved.
• September 11: IRS Announces it will immediately start
auditing the top 200 managers at both IBM and UPS
• Ok, I made that one up…but you believed it
Top Related