Challenges Facing Employers Compliance Costs –Health insurance reforms Additional benefits –Reporting Requirements E.g individual mandate E.g. W-2 reporting –Employer shared responsibility (50 or more FTEs in preceding year) –Cadillac Tax Added fees/taxes –Transitional Reinsurance (direct and indirect) –PCORI (direct and indirect) –Health Insurer Fee (indirect)
The Legal Landscape: Level Setting ACA has many parts that affect Employers –Health Insurance Reforms –Individual Mandate –Exchange Premium Subsidy –Employer Shared Responsibility –Taxes and Fees –Misc
Health Insurance Reforms Reforms Not Applicable to GF Plans (2010/2014) –Nondiscrimination for fully insured plans –Preventive care coverage mandate –Patient Protections –Claims Procedures –Rating Requirements –Cost Sharing Limitations* Deductible limitation (small group market only) OOP –Requirement to provide essential health benefits (small group market only)* Reforms applicable to All Plans (2010/2014) –Lifetime/Annual Limit Prohibition* –“Child” coverage to age 26 –Rescissions –Uniform Explanation of Coverage –MLR –Wellness requirements –No waiting periods in excess of 90 days –No pre-existing condition exclusions
Health Insurance Reforms To which plans do the Health Insurance Reforms Apply? –All group health plans except Excepted benefits “Retiree-only” plans –Penalties for failing to comply: $100/per day/per affected beneficiary excise tax under 4980D Specific performance under ERISA $100 per day penalty under PHSA (governmental plans/insurers)
Individual Mandate Beginning 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 benefits Policies issued in the group market Self-insured plans –Policies issued in the individual market Inside Exchange Outside the Exchange
Individual Mandate Is minimum essential coverage the same as “minimum value”? –No Does a plan have to comply with applicable health insurance reforms? –Presumably Will “skinny plans” qualify as minimum essential coverage?
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 requirements Special/annual enrollment ONLY –Cannot enroll any time you want!!!!!!! Certain individuals may qualify for a premium subsidy/cost sharing reduction in Exchange –Household income between 100% and 400% of poverty level and –Not “eligible” for employer sponsored MEC that is both affordable and provides minimum value OR –Not enrolled in employer sponsored MEC (regardless of whether it is affordable or provides minimum value)
Exchange How do employer coverage and Exchange coverage interact? –Eligibility for or enrollment in employer MEC does NOT affect eligibility for Exchange –Eligibility for employer MEC can affect eligibility for Subsidy Eligibility for COBRA and retiree coverage does not affect eligibility –Enrollment in employer MEC DISQUALIFIES employee/retiree from Subsidy
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, 2018 Fee= –$1 for plan years ending on or after October 1, 2012 and before October 1, 2013 –$2 for 2013 –Adjusted annually thereafter Responsibility entity –Plan sponsor of self insured plans –Insurer of fully-insured plans Does not include “excepted benefit” plans
Taxes and Fees Transitional Reinsurance Fee –Contributing entity pays FEE x average number of covered individuals for calendar years Fee= –$63 for 2014 –$44 for 2015 Responsibility entity –Self-insured plans (other than self administered) –Insurer of fully-insured plans Does not include any plan that does not provide MINIMUM VALUE (as proposed) –Would not include excepted benefit plans –Does not include “supplement” or “secondary” coverage
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 coverage –The higher family threshold applies to both single and family coverage offered under a multiemployer plan –These amounts are to be adjusted automatically if health costs increase by more than anticipated before 2018 –The thresholds are increased by CPI + 1 in 2019, and by CPI thereafter –An 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 average The 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
4980 H Overview Effective 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); AND –A full-time employee receives a premium subsidy in the Exchange or –Each Full-Time Employee who would be subsidy eligible enrolls in the coverage The 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 employees 1/12 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
Where does 4980H fit in the ACA Universe? 4980H one of MANY “components” of the ACA Other components: –Health Insurance Reforms –PCORI Fee –Transitional Reinsurance –Exchange –Individual Mandate –Other tax provisions (e.g limit on heath FSA)
Key terms and Concepts Who 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?
Applicable Large Employer Status Are you subject to the pay or play rules?
Key Terms for ALE Status Full-time employee –Common 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 month –130 hours of service in a month is considered full-time –Count actual hours of service—safe harbor for determining FT for purposes of the tax not applicable to ALE status –Do not count hours for services performed outside the United States Full-time equivalent –Divide total hours of service for employees who are NOT full-time employees (not to exceed 120 hours of service) by 120 Seasonal Worker –If you exceed 50 for no more than 4 months/120 days solely because of seasonal “workers”, then not an ALE –Who is seasonal “worker”? An employee who performs work on a “seasonal basis” Based on labor regulations Not necessarily the same as “Seasonal Employee”
Applicable Large Employer Determination—Final Regulations Employers not in existence in prior calendar year –If one day, then first year is determined based on reasonable expectations for remainder of that year –Subsequent year is based on average FTEs during portion of prior year that company first came in existence New “first year” ALE transition guidance –No penalty in first year that employer is ALE if covered offered by 4/1 –Applicable only to employees to whom coverage had previously been offered Aggregation –No specific guidance on Governments Predecessor/successor –Use employment tax rules Employers in existence in 2014 may use any 6 consecutive month period to determine ALE status for 2015
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 4980H –This doesn’t mean you have to provide coverage; it simply means you have to pay the assessable penalties due under 4980H –The following rules help you determine the assessable penalties
Compliance with 4980H Overview
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 COVERAGE i.e. full-time employees have no cause of action under 4980H for coverage if not otherwise offered coverage Compliance 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.
Compliance with 4980H-Key Concepts Identifying full-time employees –Who 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 TAXES What 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?
Compliance with 4980H Identifying Full-Time Employees
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?
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 month 2 key elements: –COMMON LAW EMPLOYEE of employer –with the requisite HOURS OF SERVICE Monthly measurement –Each month Look back measurement period –New Employees »Non-Variable-Monthly »Variable/PT/Seasonal: Measurement period »Caution: Initial Measurement Period is a limited non-assessment period –Ongoing Employees »Measurement Period
Who is full-time employee? Employee who qualifies as a full-time employee Employee who qualifies as a full-time employee to whom coverage must be offered to avoid excise taxes
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?
Who is a common law employee? 20 factor IRS test Essence of Test: Do you have the right to control the manner in which the services are performed? Trouble areas: –Individuals obtained from staffing agency Rev. Rul –Temporary employees (individuals that YOU hire for short periods of time but who do not qualify as seasonal) –Section 530 Employees –Statutory Employees –“Leased Employees” as defined in Code Section 414(n) –Individuals with H2A/2B Visas-Maybe
What is an Hour of Service? HOURS OF SERVICE are defined as –Each hour for which an employee is paid or is entitled to payment for performance of services AND –Each 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): Vacation Holiday Illness/disability –Issues with disability benefits paid for solely by the employee!!! Layoff, Jury duty Military duty Leave –Paid 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?
What is an “hour of service” Hourly Employees—based on records of actual hours of service Non-Hourly –Actual hours –Days equivalency: A day credited with one hour of service is credited with 8 hours of service –Weeks equivalency: A week with one hour of service is credited with 40 hours of service Cannot 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-hourly May change method each calendar year
What is an Hour of Service? Services performed outside the U.S. are not do not count as Hours of Service for purposes of 4980H –Do 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 purpose –See Measurement Period rules applicable to domestic employees who transfer to foreign subsidiary and vice versa
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 year –If hours of service with two or more members during a month, treated as employee of member with most hours of service –If same number for each member, then members may choose whose employee he/she is. Issues arise when different subsidiaries use different measurement periods.
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, and –similar positions Any reasonable method may be used (until further guidance is issued) –Method must be consistent with 4980H –A 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
What are Hours of Service? Safe Harbors for Difficult Employees Adjunct Professors –IRS method: rule Multiply each hour teaching by 2.25 –This accounts for not only time in class but an additional 1.25 hours preparing for class Add any additional hours performing duties outside the classroom that faculty member is required to perform –Required office hours –Staff meetings –Not only method that might be considered reasonable –Is IRS rule a safe harbor? –May be relied on at least through 2015
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 OR Layover hour is counted towards required hours of service for the employee to earn his/her regular compensation –Otherwise, 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 service Not limited to airline employees –Over the road drivers –Others?
What are Hours of Service? Safe Harbors for Difficult Employees On Call Employees –Must count hours of service for: Time required to stay on premises Hours during which activities while on call are subject to substantial restrictions –The “Kill Your Weekend” rule
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 volunteer –Certain clergy –Student in a federal/state work study program
How do you identify employees who qualify as “full-time employees” in a month? 2 methods: –Monthly measurement period approach –Look back measurement period approach Each ALE member may use a different approach Each ALE member may apply a different method to each distinguishable class of employees –Special rules apply when employee switch between positions that use different methods Key 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
How do you identify employees who qualify as “full-time employees” in a month? What are the distinguishable classes of employees? –Hourly –Salaried –Union (generally) –Employees subject to different collective bargaining agreements –Employees working in different locations Variable and non-variable are NOT distinguishable classes of employees!!!!!!!
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
Monthly Measurement Period Approach What are the requisite hours of service? –Average of 30 hours of service per week during the month –130 hours of service in the month –Weekly rule: Months with 4 weeks--120 Hours of Service Months with 5 weeks--150 hours of service –Do you round up?
Monthly Measurement Period Approach What is a limited non-assessment period under monthly measurement period approach? –First month of partial employment –First 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 AND Coverage is offered by the first day of 4 th full calendar month following that first full month that the employee was first full-time –If 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 Tax –If coverage also provides minimum value, then employer is treated as offering affordable, minimum value coverage during the 3 month limited non-assessment period Only applicable 1 time for a continuous employee (i.e. employee who has not experienced a break in service)
Monthly Measurement Period Approach-Example Bob is employed by ABC on June 5, Bob is does not have the requisite hours until August Bob does not have the requisite hours of service again until January Bob does not have a break in service. ABC will not be subject to an excise tax for June ABC 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, 2015 Presumably he would only have to be offered coverage for November 2015 ABC will not be subject to an excise tax with respect to Bob for January 2016 if Bob is offered minimum value coverage for January 2016 –The 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.
Look Back Measurement Period Approach Two different parts to the look back measurement period method: –New employees Variable/part-time/Seasonal Non-variable –Ongoing employees—ALL employees employed during the applicable measurement period NO DISTINCTIONS between variable, non-variable!!!!!!! Impact of this felt during a stability period in the following situations: –Full-time employee rehired as part-time employee –Full-time employee takes unpaid, personal leave of absence –Full-time employee changes from a full-time position to a part- time position
Look Back Measurement Period Approach 3 components to each part: –Measurement Period New Employees-Initial Measurement Period Ongoing-Standard Measurement Period –Administrative Period –Stability Period
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 service Types of New Employees (2 buckets) –Non-Variable Bucket –Other Bucket New Variable Seasonal Employees Part-time
Look Back Measurement Period Approach-New Employees What is a non-variable employee? –Facts and circumstances test –On 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 relevant –Exception for seasonal employee Who is a variable employee? –Facts and circumstances –On 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
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 and –The start date is the same time each year –GET TO TREAT AS VARIABLE EVEN THOUGH MIGHT NOT BE NON-VARIABLE!!!!! Contrast with “Temporary”—position does not necessary start same time each year Who 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 service –Why does it matter?
Look Back Measurement Period Approach-New Employees Initial Measurement Period (“IMP”) –3-12 month period –Begins 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 date If start of IMP delayed to first day of month following employment delay counted towards the administrative period Recommendation: 11 or 12 month initial measurement period
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, or –Option 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
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 week 3 month limited non-assessment period rule applies following the month in which the status change occurs, with one twist –If 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
Look Back Measurement Period Approach-New Employees Administrative period –No more than 90 CALENDAR days –Any period preceding the start date of the IMP is counted towards 90 days –Coverage must be offered no later than end of the 1 st month beginning on or after the anniversary of the employee’s start date
Look Back Measurement Period Approach-New Employees Stability Period following IMP –Employees 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 period Hours of service during each month of the stability period NOT relevant –Employees who average requisite hours of service over the IMP No 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 IMP –If only offered MEC that does not provide minimum value, then disregarded for purposes of substantially all test only BUT could trigger a Tackhammer Tax –Reporting on 6056 for employees who qualify as full-time in one or more months during IMP –Employees determined NOT to be full-time during IMP Stability period not more than 1 month longer than the IMP
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- time –Special rule if gap between end of stability period following IMP and start of stability period following standard measurement period E.g. employees hired in October or November after stability period beginning in October has begun Treat “as is” until start of next stability period –Change in employment status during stability period for continuing employee will NOT affect status during stability period If 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 1 st day of fourth full month of employment and –The 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
Look Back Measurement Period Approach- Ongoing Employees Standard Measurement Period (SMP) –3-12 months –Payroll period rule applies –ALL ONGOING EMPLOYEES ARE IN SMP Biggest impact on full-time employees who experience the following during a stability period: –Unpaid leave of absence –Terminate/rehire to part-time position (unless the period between is 13 weeks or longer) Unlike IMP, SMP is NOT a limited non-assessment period Administrative Period-no more than 90 calendar days
Look Back Measurement Period Approach-Ongoing Employees Stability Period following SMP –If employee averages requisite hours of service over SMP Stability must be at least 6 months but no shorter in duration than the SMP –If employee determined NOT to be full-time Stability period same duration as SMP –Recommend 12 months SMP –Transition 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
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 period If 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 1 st day of fourth full month of employment and –The 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
Breaks in Service If 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 employment See special unpaid leave rule If 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 period If 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 Period If continuous, then no available limited non-assessment period upon resumption of services if already used
Special Leaves of Absence/Employment Break Special unpaid leaves of absence include leaves subject to FMLA, USERRA and jury duty leaves Employment 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, or –Option 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
Compliance with 4980H Assessment of Penalties
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 value –No full-time employees received a Premium Subsidy in the exchange for that month Coverage under THD was not affordable but they were enrolled anyway Did not qualify based on household income Did not enroll in the Exchange
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 AND 1 employee who qualifies as a full-time employee to whom coverage must be offered receives a premium subsidy in the exchange –Reason that employee received subsidy isnt relevant!!!!!!
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 subsidy The reason they receive the subsidy isnt relevant!!!!
Assessment of Penalties: Offer No Sledgehammer Penalty if MEC coverage is offered to substantially all of the ALE member’s full-time employees Offer –Must extend to children (natural and adopted/placed for adoption) under age 26 BUT NOT SPOUSES –Effective opportunity to enroll (or decline to enroll) no less than 1 time per plan year 125 election rules not impacted Special enrollment rules not impacted –Partial Calendar Month Rule: Generally must offer coverage for whole month Special rule for mid-month terminations –COBRA premium payment rules apply Grace period Insignificant shortfall Rule
Minimum Value Minimum value (MV) is satisfied if: –The plan must pay 60% of the “allowed costs” –What are “allowed costs”? Based on EHB 3 ways to determine if plan provides minimum value— –Minimum value calculator –Array of design-based safe harbors provided by the IRS, or –Appropriate certification by an actuary that the plan provides minimum value HRA (if limited to expenses covered by plan) and HSA contributions may be taken into account in determining MV 66
Assessment of Penalties- Tackhammer Penalty Affordability Rules –Based on self-only premium for lowest cost option that provides minimum value –Safe harbor for determining affordability W-2 wages –Wages does NOT include pre-tax salary reductions –Adjustments for partial year offer of coverage –Premium must remain a constant amount or percentage of W-2 Rate 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 pay –Can apply if hourly rate or salary changes during coverage Federal Poverty Safe Harbor –Federal poverty limit for single individual (based on most recent published report at start of plan year or anytime in last 6 months)/ 12
The Affect of Addresses impact of PHSA Section 2711 (prohibition on annual dollar limits on EHBs) “Non-integrated” defined contribution accounts will violate Section 2711 unless an excepted benefit Tax free payment of major medical coverage in individual market (IM Coverage) will violate Section 2711 –Inside/outside exchange –Includes cafeteria plan salary reductions –DOES NOT APPLY TO EXCEPTED BENEFITS Some after-tax payment of IM Coverage will violate 2711
The Mystery of Minimum Essential Coverage What is it and why is it important? An Employer’s Perspective
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 MEC Coverage through an eligible employer sponsored plan could disqualify an individual and their eligible family members from receiving a subsidy in the exchange –Individuals merely eligible for affordable coverage offered through an eligible employer sponsored plan that provides minimum value will be disqualified from receiving a subsidy –Individuals enrolled in an eligible employer sponsored plan will be disqualified, even if not affordable or doesn’t provide minimum value Applicable 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.
MEC—Why is it important to employers? Provide coverage to employees that will help them satisfy their individual mandate –Also need to understand when an offer of coverage will disqualify an individual from a subsidy E.g. part-time employees Manage 4980H excise taxes
What is MEC? Defined in IRC Section 5000A MEC includes any of the following: –Government sponsored program, including but not limited to Medicare Medicaid CHIPRA Tricare and other veteran’s programs –Eligible Employer Sponsored Plan –Coverage through the individual market Inside Marketplace Outside the marketplace (other than excepted benefits) –Certain student health plans that began before December 31, 2014 –Other programs identified by HHS MEC DOES NOT INCLUDE EXCEPTED BENEFITS!!!!!!!
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 entity –Coverage offered in the small or large group market (i.e. fully insured coverage) –Self insured group health plan The plan must apparently comply with the applicable health insurance reforms!!!!!!!! Does NOT have to provide minimum value or be affordable Does 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
What are Excepted Benefits? Must fit the benefit neatly into one of the excepted benefit buckets –Always Excepted –Certain Limited Excepted Benefits –Excepted if “non-coordinated” –Supplemental
Always Excepted Accident Disability Onsite health clinics Liability insurance Medical through auto policy
Certain Limited Benefits Limited scope dental vision –Offered pursuant to a separate contract –Or, if self insured, non-integral Participants have right to elect not to receive the dental/vision If they do elect, they pay a separate premium –Proposed rules would eliminate this requirement –Does major medical also have to be offered?
Certain Limited Benefits Certain Health FSAs –Other major medical coverage is available from same employer i.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 BENEFIT –Maximum Reimbursement limit is satisfied Maximum 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 $500 –i.e. the employee cannot receive more than $500 in employer credits without regard to whether the employee makes a salary reduction election –Health FSA that is NOT an excepted benefit cannot survive per Notice
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.
Certain Limited Benefits Long term care, if offered pursuant to a separate insurance contract EAPs (proposed rule) –Does not provide significant benefits in the nature of medical care Comments requested on 10 visit limit –Participants cannot be required to exhaust benefits EAP benefits before receiving care under major medical plan –Cannot be limited to participants enrolled in major medical coverage –No premiums or cost sharing –Cannot be financed by another group health plan i.e. don’t use plan assets (e.g. participant contributions) to pay for the EAP
Certain Limited Benefits Limited wrap around coverage (proposed) –Limited benefits HRA like coverage around a non-grandfathered individual market policy that does not consist solely of excepted benefits (IM Policy) Limited reimbursement –Non-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 Policy –NOT PREMIUMS!!!!!! Cannot offer benefits only under a coordination provision –Plan 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 Plan Employers still subject to 4980H penalties if primary plan is not affordable and full-time employee receives subsidy in the exchange –Cost of coverage of wrap cannot exceed 15% of cost of Primary Plan –Neither primary plan or wrap around can violate applicable non-discrimination rules –Wrap around cannot impose pre-ex limitations/exclusions
Non-coordinated Separate insurance contract/policy –Can’t be self insured Limited benefits –Specified disease –Hospital or fixed “indemnity” Per day or other period benefit –See proposed HHS rules for policies issued in individual market –Pays without regard to what employer’s major medical plan pays –Does not coordinate with exclusion under employer’s major medical plan
Supplemental Separate insurance contract/ policy –Cant be self insured Limited benefits –Medicare supplemental –Tricare Supplemental –Supplemental to Group Health Plan coverage Must 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
What Benefits MUST be offered? Health Insurance Reforms –Recommended 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 benefits –What is an essential health benefit? –Can you impose visit and treatment limits? Yes, but other compliance considerations apply.
What Benefits MUST be offered? Other federal law considerations: –Mental Health/Substance Abuse Parity Does 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 benefit –Not applicable to recommended preventive treatment services –Newborn’s and Mother’s Health Protection Act and Women’s Health and Cancer Rights Act Doesn’t require you to offer coverage but if you do, subject to certain requirements –Pregnancy Discrimination Act Only required to treat pregnancy as any other illness –ADAAA MAY require you to offer a benefit for certain disabilities (e.g. hearing aids) –ADEA Must provide benefits provided to younger workers to older workers –Equal cost/equal benefit rule
Compliance Considerations Key health insurance reforms –Coverage for children up to age 26 (if you cover dependent children) Don’t forget QMCSO Under ERISA –Provider non-discrimination Doesn’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 provider –Annual/lifetime dollar limits on EHB Can 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
Other Compliance Considerations Other federal law compliance considerations –MHPAEA Service/visit limits on all MH/SA benefits must satisfy MHPAEA requirements Dollar limits on MH/SA benefits that are NOT EHBs must satisfy MHPAEA requirements –ADAAA/ADEA/PDA-beware of unique limitations on “disabilities”, pregnancy, and older workers –COBRA!!!!!! Don’t forget that these are group health plans –ERISA reporting, disclosure and reporting rules –Tax nondiscrimination rules
Other considerations For ALEs, if you want to avoid 4980H excise taxes –To avoid (a), then must also include coverage for dependent children –To avoid a (b) with respect to a full-time employee, then it must also be affordable and provide minimum value For all employers, if it doesn’t provide minimum value or isnt affordable then, YOU MUST OFFER THEM THE OPPORTUNITY TO DECLINE COVERAGE –Note 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 value Purely “supplemental” or secondary coverage is exempt (e.g. self insured HRA integrated with fully insured major medical plan)
Specific Designs—are they MEC? Preventive Care Only Plan—Yes –Does not provide MV Retiree HRA-Yes –Not subject to health insurance reforms –Does not provide MV Plan that provides one or more major medical benefits subject to strict visit limits---Yes –Pay special attention to MHPAEA rules Wellness Plans:?????? Stand alone dental or vision-NO