2 Challenges Facing Employers Compliance CostsHealth insurance reformsAdditional benefitsReporting RequirementsE.g individual mandateE.g. W-2 reportingEmployer shared responsibility (50 or more FTEs in preceding year)Cadillac TaxAdded fees/taxesTransitional Reinsurance (direct and indirect)PCORI (direct and indirect)Health Insurer Fee (indirect)
3 The Legal Landscape: Level Setting ACA has many parts that affect EmployersHealth Insurance ReformsIndividual MandateExchangePremium SubsidyEmployer Shared ResponsibilityTaxes and FeesMisc
4 Health Insurance Reforms Reforms Not Applicable to GF Plans (2010/2014)Nondiscrimination for fully insured plansPreventive care coverage mandatePatient ProtectionsClaims ProceduresRating RequirementsCost Sharing Limitations*Deductible limitation (small group market only)OOPRequirement to provide essential health benefits (small group market only)*Reforms applicable to All Plans (2010/2014)Lifetime/Annual Limit Prohibition*“Child” coverage to age 26RescissionsUniform Explanation of CoverageMLRWellness requirementsNo waiting periods in excess of 90 daysNo pre-existing condition exclusions
5 Health Insurance Reforms To which plans do the Health Insurance Reforms Apply?All group health plans exceptExcepted benefits“Retiree-only” plansPenalties for failing to comply:$100/per day/per affected beneficiary excise tax under 4980DSpecific performance under ERISA$100 per day penalty under PHSA (governmental plans/insurers)
6 Individual MandateBeginning in 2014, all individuals must maintain minimum essential coverage or pay a TAX (thank you Justice Roberts!!!!)What is minimum essential coverage?All “group health plans” other than excepted benefitsPolicies issued in the group marketSelf-insured plansPolicies issued in the individual marketInside ExchangeOutside the Exchange
7 Individual MandateIs minimum essential coverage the same as “minimum value”?NoDoes a plan have to comply with applicable health insurance reforms?PresumablyWill “skinny plans” qualify as minimum essential coverage?
8 Exchange All policies generally provide a “metallic” level of coverage All policies provide essential health benefits (whether you want them or not)All policies subject to certain rating requirementsSpecial/annual enrollment ONLYCannot enroll any time you want!!!!!!!Certain individuals may qualify for a premium subsidy/cost sharing reduction in ExchangeHousehold income between 100% and 400% of poverty level andNot “eligible” for employer sponsored MEC that is both affordable and provides minimum value ORNot enrolled in employer sponsored MEC (regardless of whether it is affordable or provides minimum value)
9 Exchange How do employer coverage and Exchange coverage interact? Eligibility for or enrollment in employer MEC does NOT affect eligibility for ExchangeEligibility for employer MEC can affect eligibility for SubsidyEligibility for COBRA and retiree coverage does not affect eligibilityEnrollment in employer MEC DISQUALIFIES employee/retiree from Subsidy
10 Taxes and Fees PCORI fee Responsibility entity pays FEE x average number of covered individuals for plan years ending on or after October 1, 2012 and before October 1, 2018Fee=$1 for plan years ending on or after October 1, 2012 and before October 1, 2013$2 for 2013Adjusted annually thereafterResponsibility entityPlan sponsor of self insured plansInsurer of fully-insured plansDoes not include “excepted benefit” plans
11 Taxes and Fees Transitional Reinsurance Fee Contributing entity pays FEE x average number of covered individuals for calendar yearsFee=$63 for 2014$44 for 2015Responsibility entitySelf-insured plans (other than self administered)Insurer of fully-insured plansDoes not include any plan that does not provide MINIMUM VALUE (as proposed)Would not include excepted benefit plansDoes not include “supplement” or “secondary” coverage
12 Taxes and Fees Cadillac Tax Beginning in 2018, PPACA imposes a 40 percent excise tax on:“Coverage providers:” for the sum of months in which the aggregate value of employer sponsored health coverage for the employee exceeds:1/12 of $10,200 for single coverage and $27,500 for family coverageThe higher family threshold applies to both single and family coverage offered under a multiemployer planThese amounts are to be adjusted automatically if health costs increase by more than anticipated before 2018The thresholds are increased by CPI + 1 in 2019, and by CPI thereafterAn employer may make an adjustment to reduce the cost of plans when calculating the tax if the employer’s age and gender demographics are not representative of a national averageThe annual limit for retirees between ages 55 and 64, individuals engaged in certain high-risk professions is increased to $11,850 for individual coverage and $30,950 for family coverage
14 4980 H OverviewEffective January 1, 2015 (January 1, 2016 for small applicable large employers with between 50 and 99 FTEs)Penalties are assessed for each MONTH that the following occur:Minimum essential coverage that is affordable and provides minimum value is not offered to 100% of the employer’s full-time employees (and their children); ANDA full-time employee receives a premium subsidy in the Exchange orEach Full-Time Employee who would be subsidy eligible enrolls in the coverageThe penalty you pay depends on whether you satisfy the substantially-all test or not:Sledgehammer Penalty: Failure to offer MEC to at least 95% of your full-time employees1/12 of 2000 x Total number of full-time employees (reduced by allocable share of 30)Tackhammer Penalties: MEC was offered to 95% or more of full-time employees but MEC that is affordable and provides minimum value wasn’t offered to all full-time employees (and their children)1/12 of 3000 x Total number of full-time employees who received a subsidy in the Exchange
15 Where does 4980H fit in the ACA Universe? 4980H one of MANY “components” of the ACAOther components:Health Insurance ReformsPCORI FeeTransitional ReinsuranceExchangeIndividual MandateOther tax provisions (e.g limit on heath FSA)
16 Key terms and ConceptsWho is an Applicable Large Employer (ALE) subject to the penalty?Who are full-time employees?What is minimum essential coverage offered through an eligible employer sponsored plan?When is coverage affordable ?When does coverage provide minimum value?
17 Applicable Large Employer Status Are you subject to the pay or play rules?
18 Key Terms for ALE Status Full-time employeeCommon law employee of a controlled group member who is credited, on average, with 30 or more of hours of service during a week in a month130 hours of service in a month is considered full-timeCount actual hours of service—safe harbor for determining FT for purposes of the tax not applicable to ALE statusDo not count hours for services performed outside the United StatesFull-time equivalentDivide total hours of service for employees who are NOT full-time employees (not to exceed 120 hours of service) by 120Seasonal WorkerIf you exceed 50 for no more than 4 months/120 days solely because of seasonal “workers”, then not an ALEWho is seasonal “worker”?An employee who performs work on a “seasonal basis”Based on labor regulationsNot necessarily the same as “Seasonal Employee”
19 Applicable Large Employer Determination—Final Regulations Employers not in existence in prior calendar yearIf one day, then first year is determined based on reasonable expectations for remainder of that yearSubsequent year is based on average FTEs during portion of prior year that company first came in existenceNew “first year” ALE transition guidanceNo penalty in first year that employer is ALE if covered offered by 4/1Applicable only to employees to whom coverage had previously been offeredAggregationNo specific guidance onGovernmentsPredecessor/successorUse employment tax rulesEmployers in existence in 2014 may use any 6 consecutive month period to determine ALE status for 2015
20 Are you an ALE? NO!!!!! Stop, you are not subject to 4980H!!!!! But other aspects of ACA still apply (health coverage mandates, etc)YES!!!! Then you must comply with Section 4980HThis doesn’t mean you have to provide coverage; it simply means you have to pay the assessable penalties due under 4980HThe following rules help you determine the assessable penalties
22 Compliance with 4980H-Generally “Compliance” with 4980H is simply a matter of identifying the assessable payment an ALE owes (if any)IT IS NOT A MANDATE TO OFFER COVERAGEi.e. full-time employees have no cause of action under 4980H for coverage if not otherwise offered coverageCompliance is determined on a controlled group member by controlled group member basis!!!!!!Analysis must be done at the subsidiary level—not at the corporate level.
23 Compliance with 4980H-Key Concepts Identifying full-time employeesWho is an employee that qualifies as a full-time employee during a month?Who is a full-time employee that qualifies as a full-time employee during a month TO WHOM COVERAGE MUST BE OFFERED IN ORDER TO AVOID EXCISE TAXESWhat is an “offer” of coverage for purposes of 4980H?What is minimum essential coverage?What is affordable minimum essential coverage?When does minimum essential coverage provide minimum value?
24 Identifying Full-Time Employees Compliance with 4980HIdentifying Full-Time Employees
25 Overview General Rule: Applicable Large Employers (ALE) are generally subject to excise taxes for a month if an employee who qualifies as a full-time employee to whom coverage must be offered for that month receives a subsidy in the exchange for that month.The Big Question:Who qualifies as a full-time employee for a month for purposes of 4980H?
26 Who is a full-time employee? 4980H(c)(4): A full-time employee is, with respect to a month, an employee who is employed, on average, 30 or more hours of service per week during a month2 key elements:COMMON LAW EMPLOYEE of employerwith the requisite HOURS OF SERVICEMonthly measurementEach monthLook back measurement periodNew EmployeesNon-Variable-MonthlyVariable/PT/Seasonal: Measurement periodCaution: Initial Measurement Period is a limited non-assessment periodOngoing EmployeesMeasurement Period
27 Who is full-time employee? Employee who qualifies as a full-time employeeEmployee who qualifies as a full-time employee to whom coverage must be offered to avoid excise taxes
28 Who is a full-time employee? 3 key questions:Who is a “common law employee”?What is an “hour of service”?How do you apply the measurement methods to identify employees who qualify as a full-time employee for a month?
29 Who is a common law employee? 20 factor IRS testEssence of Test: Do you have the right to control the manner in which the services are performed?Trouble areas:Individuals obtained from staffing agencyRev. RulTemporary employees (individuals that YOU hire for short periods of time but who do not qualify as seasonal)Section 530 EmployeesStatutory Employees“Leased Employees” as defined in Code Section 414(n)Individuals with H2A/2B Visas-Maybe
30 What is an Hour of Service? HOURS OF SERVICE are defined asEach hour for which an employee is paid or is entitled to payment for performance of services ANDEach hour for which an employee is paid or is entitled to payment on account of a period for which no services are performed due to the following (i.e. Paid Leave):VacationHolidayIllness/disabilityIssues with disability benefits paid for solely by the employee!!!Layoff,Jury dutyMilitary dutyLeavePaid leave defined according to 29 C.F.R b-1(a)Is there a limit on the hours of service allocable to a paid leave?What about employees on a workers compensation leave?
31 What is an “hour of service” Hourly Employees—based on records of actual hours of serviceNon-HourlyActual hoursDays equivalency: A day credited with one hour of service is credited with 8 hours of serviceWeeks equivalency: A week with one hour of service is credited with 40 hours of serviceCannot use the equivalency method if it operates to substantially understate the hours of service (e.g. nurse that works 3, 12 hour shifts per week)May use different methods for different classifications of non-hourlyMay change method each calendar year
32 What is an Hour of Service? Services performed outside the U.S. are not do not count as Hours of Service for purposes of 4980HDo NOT treat hours of service performed outside the united states as 4980H hours of service if compensation for such services is considered income from a source “without the United States”Generally, pay for services performed outside the U.S. is considered income from sources without the U.S.Don’t confuse with income tax rules as U.S. Citizens are generally taxed on income within and without the U.S.U.S. is defined as the 50 states and D.C.Territories and possessions are NOT considered the U.S. for this purposeSee Measurement Period rules applicable to domestic employees who transfer to foreign subsidiary and vice versa
33 What is an Hour of Service? Hours of service performed for one ALE member treated as performed by any other ALE member for whom the employee provides services during the yearIf hours of service with two or more members during a month, treated as employee of member with most hours of serviceIf same number for each member, then members may choose whose employee he/she is.Issues arise when different subsidiaries use different measurement periods.
34 What are Hours of Service? Employees whose hours of service each month will be difficult to calculate are subject to special rule:commission employees,adjunct faculty,transportation employees, andsimilar positionsAny reasonable method may be used (until further guidance is issued)Method must be consistent with 4980HA method is NOT reasonable if it takes into account only a portion of the employee’s hours of service such that it re-characterizes as non-full-time an employee in a position that traditionally averages 30 hours of service or more per week
35 What are Hours of Service? Safe Harbors for Difficult Employees Adjunct ProfessorsIRS method: ruleMultiply each hour teaching by 2.25This accounts for not only time in class but an additional 1.25 hours preparing for classAdd any additional hours performing duties outside the classroom that faculty member is required to performRequired office hoursStaff meetingsNot only method that might be considered reasonableIs IRS rule a safe harbor?May be relied on at least through 2015
36 What are Hours of Service? Safe Harbors for Difficult Employees Employees subject to a layover (e.g. airline employees)Must credit layover hours IF:Employee receives compensation for the layover hour beyond the compensation received w/o regard to layover ORLayover hour is counted towards required hours of service for the employee to earn his/her regular compensationOtherwise, if neither of the above apply, it would be deemed reasonable for an employer to credit 8 hours of service for each day in an overnight stay unless that substantially understates actual hours of serviceNot limited to airline employeesOver the road driversOthers?
37 What are Hours of Service? Safe Harbors for Difficult Employees On Call EmployeesMust count hours of service for:Time required to stay on premisesHours during which activities while on call are subject to substantial restrictionsThe “Kill Your Weekend” rule
38 What are Hours of Service? Exclusions! Even though common law and “paid” the following will not be treated as having “hours of service” for purposes of 4980H:Bona fide volunteerCertain clergyStudent in a federal/state work study program
39 How do you identify employees who qualify as “full-time employees” in a month? 2 methods:Monthly measurement period approachLook back measurement period approachEach ALE member may use a different approachEach ALE member may apply a different method to each distinguishable class of employeesSpecial rules apply when employee switch between positions that use different methodsKey Concept: If an employee qualifies as a full-time employee for a month, qualifying coverage must be offered for that month or the ALE member could be subject to an excise tax for that month unless . . .The employee is a limited non-assessment period
40 How do you identify employees who qualify as “full-time employees” in a month? What are the distinguishable classes of employees?HourlySalariedUnion (generally)Employees subject to different collective bargaining agreementsEmployees working in different locationsVariable and non-variable are NOT distinguishable classes of employees!!!!!!!
41 Monthly Measurement Period Approach If employee has requisite Hours of Service in month, employee qualifies as a full-time employee.If employee qualifies as a full-time employee for that month and is not offered qualifying coverage for that month, then ALE member could be subject to an excise tax with respect to that full-time employee for that month if employee receives subsidy in the Exchange.Relief is provided for months that “continuous” employee is in limited non-assessment period
42 Monthly Measurement Period Approach What are the requisite hours of service?Average of 30 hours of service per week during the month130 hours of service in the monthWeekly rule:Months with 4 weeks--120 Hours of ServiceMonths with 5 weeks--150 hours of serviceDo you round up?
43 Monthly Measurement Period Approach What is a limited non-assessment period under monthly measurement period approach?First month of partial employmentFirst 3 full calendar months beginning with first full month that that employee first becomes full-time (“3 month limited non-assessment period) provided that:Employee is “otherwise eligible” during those 3 months but for a waiting period ANDCoverage is offered by the first day of 4th full calendar month following that first full month that the employee was first full-timeIf coverage through eligible employer sponsored plan is offered but it does not provide minimum value, then employee is disregarded for purposes of substantially test BUT could trigger Tackhammer TaxIf coverage also provides minimum value, then employer is treated as offering affordable, minimum value coverage during the 3 month limited non-assessment periodOnly applicable 1 time for a continuous employee (i.e. employee who has not experienced a break in service)
44 Monthly Measurement Period Approach-Example Bob is employed by ABC on June 5, 2015.Bob is does not have the requisite hours until August 2015.Bob does not have the requisite hours of service again until January 2017.Bob does not have a break in service.ABC will not be subject to an excise tax for JuneABC will not be subject to an excise tax with respect to Bob for August provided that:Bob is otherwise eligible for the Plan but for a waiting period during August, September, and October AND]Bob is offered coverage providing minimum value that will be effective November 1, 2015Presumably he would only have to be offered coverage for November 2015ABC will not be subject to an excise tax with respect to Bob for January 2016 if Bob is offered minimum value coverage for January 2016The 3 month limited non-assessment period rule applies only once to a continuous employee. Since Bob has not had a break in service, he is a continuous employee.
45 Look Back Measurement Period Approach Two different parts to the look back measurement period method:New employeesVariable/part-time/SeasonalNon-variableOngoing employees—ALL employees employed during the applicable measurement periodNO DISTINCTIONS between variable, non-variable!!!!!!!Impact of this felt during a stability period in the following situations:Full-time employee rehired as part-time employeeFull-time employee takes unpaid, personal leave of absenceFull-time employee changes from a full-time position to a part-time position
46 Look Back Measurement Period Approach 3 components to each part:Measurement PeriodNew Employees-Initial Measurement PeriodOngoing-Standard Measurement PeriodAdministrative PeriodStability Period
47 Look Back Measurement Period Approach New Employee:employee who has not been employed as a common law employee for one standard measurement period (the measurement period for ongoing employees)Employee who is rehired after 13 weeks or more with no hours of serviceTypes of New Employees (2 buckets)Non-Variable BucketOther BucketNew VariableSeasonal EmployeesPart-time
48 Look Back Measurement Period Approach-New Employees What is a non-variable employee?Facts and circumstances testOn the start date, you can make a determination that they are reasonably expected to have the requisite hours each month while employed by you.Expected length of service generally NOT relevantException for seasonal employeeWho is a variable employee?Facts and circumstancesOn start date, you cannot make a determination that they will be reasonably expected to have the requisite hours of service because their hours will fluctuate or are uncertain
49 Look Back Measurement Period Approach-New Employees Who is a seasonal employee?Employee hired into a position the typical duration of which is 6 months or less andThe start date is the same time each yearGET TO TREAT AS VARIABLE EVEN THOUGH MIGHT NOT BE NON-VARIABLE!!!!!Contrast with “Temporary”—position does not necessary start same time each yearWho is a part-time employee?On the start date, you can make a determination that they are not expected to have the requisite hours of serviceWhy does it matter?
50 Look Back Measurement Period Approach-New Employees Initial Measurement Period (“IMP”)3-12 month periodBegins on any date between start date (date first credited with an hour of service) and first day of the first calendar month following employee’s start dateIf start of IMP delayed to first day of month following employment delay counted towards the administrative periodRecommendation: 11 or 12 month initial measurement period
51 Look Back Measurement Period Method-New Employees Initial Measurement Period may now utilize pay periods to determine hours of service using 2 options:Option 1: exclude the entire payroll period that includes the beginning of the year and include the entire payroll period that includes the end of the measurement period, orOption 2: Include the entire payroll period that includes the beginning of the year and exclude the entire payroll period that includes the end of the measurement period
52 Look Back Measurement Period Method-New Employees Change in Position to Non-variable during IMP:Applies to changes in positions that if originally hired into the new position, the employee would have reasonably been expected to be employed on average 30 hours of service or more per week3 month limited non-assessment period rule applies following the month in which the status change occurs, with one twistIf stability period would begin earlier, and the employee averaged requisite hours over measurement period, then must be offered qualifying coverage by first day of stability period
53 Look Back Measurement Period Approach-New Employees Administrative periodNo more than 90 CALENDAR daysAny period preceding the start date of the IMP is counted towards 90 daysCoverage must be offered no later than end of the 1st month beginning on or after the anniversary of the employee’s start date
54 Look Back Measurement Period Approach-New Employees Stability Period following IMPEmployees who average requisite hours of service over IMP qualify as full-time employee during each month of the stability period that they are employed; employees who don’t average requisite hours of service qualify as other than a full-time employee during each month of the stability periodHours of service during each month of the stability period NOT relevantEmployees who average requisite hours of service over the IMPNo shorter in duration than the IMP (but at least 6 months)IMP is a limited non-assessment period:If offered minimum value coverage by start of stability period, no excise tax with respect to the employee for months actually full-time during IMPIf only offered MEC that does not provide minimum value, then disregarded for purposes of substantially all test only BUT could trigger a Tackhammer TaxReporting on 6056 for employees who qualify as full-time in one or more months during IMPEmployees determined NOT to be full-time during IMPStability period not more than 1 month longer than the IMP
55 Look Back Measurement Period Approach-New Employees Special rules for Stability Period following IMP:Stability period following the IMP will overlap with the standard measurement period and stability period following standard measurement period will control if determined to be full-timeSpecial rule if gap between end of stability period following IMP and start of stability period following standard measurement periodE.g. employees hired in October or November after stability period beginning in October has begunTreat “as is” until start of next stability periodChange in employment status during stability period for continuing employee will NOT affect status during stability periodIf changes to a position that would not have been expected to have the requisite hours of service, then may apply the monthly measurement period beginning with the fourth full calendar month following the change in positions IF:Employee had continuously been offered minimum value coverage since 1st day of fourth full month of employment andThe employee does not average the requisite hours of service during each of the three full calendar months following the month in which the position change occurs
56 Look Back Measurement Period Approach-Ongoing Employees Standard Measurement Period (SMP)3-12 monthsPayroll period rule appliesALL ONGOING EMPLOYEES ARE IN SMPBiggest impact on full-time employees who experience the following during a stability period:Unpaid leave of absenceTerminate/rehire to part-time position (unless the period between is 13 weeks or longer)Unlike IMP, SMP is NOT a limited non-assessment periodAdministrative Period-no more than 90 calendar days
57 Look Back Measurement Period Approach-Ongoing Employees Stability Period following SMPIf employee averages requisite hours of service over SMPStability must be at least 6 months but no shorter in duration than the SMPIf employee determined NOT to be full-timeStability period same duration as SMPRecommend 12 months SMPTransition Rule for 2015/2016 (as applicable):May use a standard measurement period of 6 months or more and a stability period of 12 months for both full-time and non-full-time
58 Look Back Measurement Period Approach-Ongoing Employees Special rules for Stability Period following SMP:Change in employment status during stability period for continuing employee will NOT affect status during stability periodIf changes to a position that would not have been expected to have the requisite hours of service, then may apply the monthly measurement period beginning with the fourth full calendar month following the change in positions IF:Employee had continuously been offered minimum value coverage since 1st day of fourth full month of employment andThe employee does not average the requisite hours of service during each of the three full calendar months following the month in which the position change occurs
59 Breaks in ServiceIf an employee has a period with no hours of service (other than a special unpaid leave) that is at least 13 full weeks (wee+7 consecutive calendar days), he has a break in service. If he/she resumes service after the break in service, he/she is treated as a “new employee”Rule of Parity: A period of at least 4 weeks that is longer than the prior period of employmentSee special unpaid leave ruleIf the employee has a period with no hours of service that is less than 13 weeks and then resumes service, he/she is treated as a “continuous employee”Impact of Break in Service Rules:Look Back Measurement Period:If continuous, employee resumes measurement periodIf resumes during a stability period and was full-time, then must be offered coverage by first day of month following start date IF employee was previously offered and accepted coverage. If coverage was offered and declined, no need to offer again during that stability period.Monthly Measurement PeriodIf continuous, then no available limited non-assessment period upon resumption of services if already used
60 Special Leaves of Absence/Employment Break Special unpaid leaves of absence include leaves subject to FMLA, USERRA and jury duty leavesEmployment Break for educational organizations (limit to 501 hours of service)When calculating average hours worked for a measurement period that includes a special leave of absence/employment break, employers have 2 options:Option 1: disregard the weeks of unpaid special leave and average the remaining weeks, orOption 2: credit employees with hours of service for special unpaid leave at the rate equal to the average weekly rate at which the employee was credited with hours of service during the weeks in the measurement period that are not special unpaid leave
61 Assessment of Penalties Compliance with 4980HAssessment of Penalties
62 Excise Tax Buckets-No Tax Bucket No excise taxes for any month that:An ALE Member offers to 100% of its employees who qualify as a full-time employee to whom qualifying coverage must be offered coverage that is affordable and provides minimum valueNo full-time employees received a Premium Subsidy in the exchange for that monthCoverage under THD was not affordable but they were enrolled anywayDid not qualify based on household incomeDid not enroll in the Exchange
63 Excise Tax Bucket-Sledgehammer Tax If ALE Member failed to offer coverage through an eligible employer sponsored plan to all but 5% (or if greater, 5) of its employees who qualify as a full-time employee to whom coverage must be offered AND1 employee who qualifies as a full-time employee to whom coverage must be offered receives a premium subsidy in the exchangeReason that employee received subsidy isnt relevant!!!!!!
64 Excise Tax Bucket-Tackhammer Bucket You are in Tackhammer Bucket for a month if you do not fit in either of the other two buckets AND 1 employee who qualifies as a full-time employee to whom QUALIFYING coverage must be offered receives a subsidyThe reason they receive the subsidy isnt relevant!!!!
65 Assessment of Penalties: Offer No Sledgehammer Penalty if MEC coverage is offered to substantially all of the ALE member’s full-time employeesOfferMust extend to children (natural and adopted/placed for adoption) under age 26 BUT NOT SPOUSESEffective opportunity to enroll (or decline to enroll) no less than 1 time per plan year125 election rules not impactedSpecial enrollment rules not impactedPartial Calendar Month Rule: Generally must offer coverage for whole monthSpecial rule for mid-month terminationsCOBRA premium payment rules applyGrace periodInsignificant shortfall Rule
66 Minimum Value 66 Minimum value (MV) is satisfied if: The plan must pay 60% of the “allowed costs”What are “allowed costs”?Based on EHB3 ways to determine if plan provides minimum value—Minimum value calculatorArray of design-based safe harbors provided by the IRS, orAppropriate certification by an actuary that the plan provides minimum valueHRA (if limited to expenses covered by plan) and HSA contributions may be taken into account in determining MV66
67 Assessment of Penalties-Tackhammer Penalty Affordability RulesBased on self-only premium for lowest cost option that provides minimum valueSafe harbor for determining affordabilityW-2 wagesWages does NOT include pre-tax salary reductionsAdjustments for partial year offer of coveragePremium must remain a constant amount or percentage of W-2Rate of Pay Safe Harbor (hourly and monthly rate determined generally prior to start of coverage period)Hourly rate of pay X 130 (for hourly employees)Monthly rate of pay (for salaried employees)This appears to be based on GROSS payCan apply if hourly rate or salary changes during coverageFederal Poverty Safe HarborFederal poverty limit for single individual (based on most recent published report at start of plan year or anytime in last 6 months)/ 12
68 The Affect ofAddresses impact of PHSA Section 2711 (prohibition on annual dollar limits on EHBs)“Non-integrated” defined contribution accounts will violate Section 2711 unless an excepted benefitTax free payment of major medical coverage in individual market (IM Coverage) will violate Section 2711Inside/outside exchangeIncludes cafeteria plan salary reductionsDOES NOT APPLY TO EXCEPTED BENEFITSSome after-tax payment of IM Coverage will violate 2711
69 The Mystery of Minimum Essential Coverage What is it and why is it important?An Employer’s Perspective
70 MEC—What role does it play in the ACA? Individuals must generally be covered by MEC during a month in order to avoid the individual mandate for that month.Coverage through an eligible employer sponsored plan is MECCoverage through an eligible employer sponsored plan could disqualify an individual and their eligible family members from receiving a subsidy in the exchangeIndividuals merely eligible for affordable coverage offered through an eligible employer sponsored plan that provides minimum value will be disqualified from receiving a subsidyIndividuals enrolled in an eligible employer sponsored plan will be disqualified, even if not affordable or doesn’t provide minimum valueApplicable large employers (ALE) must, at a minimum, offer coverage through an eligible employer sponsored plan in order to avoid the 4980H(a), AKA-Sledgehammer Tax.
71 MEC—Why is it important to employers? Provide coverage to employees that will help them satisfy their individual mandateAlso need to understand when an offer of coverage will disqualify an individual from a subsidyE.g. part-time employeesManage 4980H excise taxes
72 What is MEC? MEC DOES NOT INCLUDE EXCEPTED BENEFITS!!!!!!! Defined in IRC Section 5000AMEC includes any of the following:Government sponsored program, including but not limited toMedicareMedicaidCHIPRATricare and other veteran’s programsEligible Employer Sponsored PlanCoverage through the individual marketInside MarketplaceOutside the marketplace (other than excepted benefits)Certain student health plans that began before December 31, 2014Other programs identified by HHSMEC DOES NOT INCLUDE EXCEPTED BENEFITS!!!!!!!
73 What is an eligible employer sponsored plan? Group health insurance coverage offered by an employer to employees (including former employees) that is:A plan sponsored by a state or local governmental entityCoverage offered in the small or large group market (i.e. fully insured coverage)Self insured group health planThe plan must apparently comply with the applicable health insurance reforms!!!!!!!!Does NOT have to provide minimum value or be affordableDoes not include the following, even if otherwise a “group health plan”:Plans in the individual market, even if a “group health plan”!!!!!See Notice /Plans providing excepted benefits
74 What are Excepted Benefits? Must fit the benefit neatly into one of the excepted benefit bucketsAlways ExceptedCertain Limited Excepted BenefitsExcepted if “non-coordinated”Supplemental
75 Always Excepted Accident Disability Onsite health clinics Liability insuranceMedical through auto policy
76 Certain Limited Benefits Limited scope dental visionOffered pursuant to a separate contractOr, if self insured, non-integralParticipants have right to elect not to receive the dental/visionIf they do elect, they pay a separate premiumProposed rules would eliminate this requirementDoes major medical also have to be offered?
77 Certain Limited Benefits Certain Health FSAsOther major medical coverage is available from same employeri.e. if employer does not offer major medical coverage to the same group/class of employees to whom it offers a Health FSA, THEN THE FSA IS NOT AN EXCEPTED BENEFITMaximum Reimbursement limit is satisfiedMaximum reimbursement does not exceed two times the employee’s salary reduction or, if greater,The maximum reimbursement does not exceed the employee’s salary reduction plus $500i.e. the employee cannot receive more than $500 in employer credits without regard to whether the employee makes a salary reduction electionHealth FSA that is NOT an excepted benefit cannot survive per Notice
78 Certain Limited Benefits Health FSA examples:Employer A offers major medical coverage to full-time employees but not part-time employees. Employer offers a health FSA to part-time employees to offset expenses incurred by part-time employees not otherwise covered by Marketplace (or other insurance) coverage. The Health FSA is NOT an excepted benefit with respect to part-time employees.Same example as above except that the employer has agreed to contribute up to $750 of wellness credits into the Health FSAs of full-time employees. The $750 will be contributed to the Health FSA of full-time employees who earn the credits EVEN IF THEY DON’T MAKE A SALARY REDUCTION. The health FSA is NOT an excepted benefit with respect to full-time employees.
79 Certain Limited Benefits Long term care, if offered pursuant to a separate insurance contractEAPs (proposed rule)Does not provide significant benefits in the nature of medical careComments requested on 10 visit limitParticipants cannot be required to exhaust benefits EAP benefits before receiving care under major medical planCannot be limited to participants enrolled in major medical coverageNo premiums or cost sharingCannot be financed by another group health plani.e. don’t use plan assets (e.g. participant contributions) to pay for the EAP
80 Certain Limited Benefits Limited wrap around coverage (proposed)Limited benefitsHRA like coverage around a non-grandfathered individual market policy that does not consist solely of excepted benefits (IM Policy)Limited reimbursementNon-essential health benefits or expenses for out of network providers (or both)If either of the above are offered, may reimburse cost sharing under IM PolicyNOT PREMIUMS!!!!!!Cannot offer benefits only under a coordination provisionPlan sponsor must offer coverage through an eligible employer sponsored plan that provides minimum value and is affordable for the majority of eligible employees (Primary Plan)Limited to employees eligible for Primary PlanEmployers still subject to 4980H penalties if primary plan is not affordable and full-time employee receives subsidy in the exchangeCost of coverage of wrap cannot exceed 15% of cost of Primary PlanNeither primary plan or wrap around can violate applicable non-discrimination rulesWrap around cannot impose pre-ex limitations/exclusions
81 Non-coordinated Separate insurance contract/policy Can’t be self insuredLimited benefitsSpecified diseaseHospital or fixed “indemnity”Per day or other period benefitSee proposed HHS rules for policies issued in individual marketPays without regard to what employer’s major medical plan paysDoes not coordinate with exclusion under employer’s major medical plan
82 Supplemental Separate insurance contract/ policy Cant be self insured Limited benefitsMedicare supplementalTricare SupplementalSupplemental to Group Health Plan coverageMust be designed to fill gaps in primary coverage such as co-insurance/deductibles (i.e. covers expenses covered by the primary plan but for a financial limitation)See safe harbor in DOL Safe Harbor , IRS Notice , CMS Program Memo, 08-01
83 What Benefits MUST be offered? Health Insurance ReformsRecommended preventive treatment services!!!!!What about essential health benefits?If self-insured, then do NOT have to provide essential health benefits.But if you do, then cannot impose annual or lifetime dollar limit on essential health benefitsWhat is an essential health benefit?Can you impose visit and treatment limits? Yes, but other compliance considerations apply.
84 What Benefits MUST be offered? Other federal law considerations:Mental Health/Substance Abuse ParityDoes not require you to provide benefits for a mental health/substance abuse condition but if you do provide benefits for a condition, you must provide benefits for that condition in ALL of the specified categories identified by the MHPAEA in which medical/surgical offered!!!Then MHPAEA’s parity rules (e.g. the non-quantitative limitation rules) may dictate the extent to which you provide a benefitNot applicable to recommended preventive treatment servicesNewborn’s and Mother’s Health Protection Act and Women’s Health and Cancer Rights ActDoesn’t require you to offer coverage but if you do, subject to certain requirementsPregnancy Discrimination ActOnly required to treat pregnancy as any other illnessADAAAMAY require you to offer a benefit for certain disabilities (e.g. hearing aids)ADEAMust provide benefits provided to younger workers to older workersEqual cost/equal benefit rule
85 Compliance Considerations Key health insurance reformsCoverage for children up to age 26 (if you cover dependent children)Don’t forget QMCSO Under ERISAProvider non-discriminationDoesn’t require an offer of coverage; simply prohibits you from denying a covered service based solely on the fact the service was provided by a specific type of licensed providerAnnual/lifetime dollar limits on EHBCan you impose service/visit limits? Yes (but see MHPAEA)Do the EHBs you provide have to be substantially equal to those provided by the benchmark plan? Not in my view!!!!!!!OOP maximums
86 Other Compliance Considerations Other federal law compliance considerationsMHPAEAService/visit limits on all MH/SA benefits must satisfy MHPAEA requirementsDollar limits on MH/SA benefits that are NOT EHBs must satisfy MHPAEA requirementsADAAA/ADEA/PDA-beware of unique limitations on “disabilities”, pregnancy, and older workersCOBRA!!!!!!Don’t forget that these are group health plansERISA reporting, disclosure and reporting rulesTax nondiscrimination rules
87 Other considerations For ALEs, if you want to avoid 4980H excise taxes To avoid (a), then must also include coverage for dependent childrenTo avoid a (b) with respect to a full-time employee, then it must also be affordable and provide minimum valueFor all employers, if it doesn’t provide minimum value or isnt affordable then, YOU MUST OFFER THEM THE OPPORTUNITY TO DECLINE COVERAGENote also 4980H requirement to allow opportunity to enroll at least once per “plan year”MEC will generally be subject to PCORI and Transitional Reinsurance subject to the following exceptions:Transitional Reinsurance:MEC must also provide minimum valuePurely “supplemental” or secondary coverage is exempt (e.g. self insured HRA integrated with fully insured major medical plan)
88 Specific Designs—are they MEC? Preventive Care Only Plan—YesDoes not provide MVRetiree HRA-YesNot subject to health insurance reformsPlan that provides one or more major medical benefits subject to strict visit limits---YesPay special attention to MHPAEA rulesWellness Plans:??????Stand alone dental or vision-NO