Presentation on theme: "KaufCAN.com 5 Days and Counting: Marketplace Opening and Other ACA Issues 2013 VAHU Conference September 26, 2013 John M. Peterson Kaufman & Canoles, P.C."— Presentation transcript:
kaufCAN.com 5 Days and Counting: Marketplace Opening and Other ACA Issues 2013 VAHU Conference September 26, 2013 John M. Peterson Kaufman & Canoles, P.C. email@example.com (757) 624-3003
kaufCAN.com 2 Disclosure The following disclosure is required pursuant to IRS Circular 230 and applicable state and local tax provisions, the regulations that govern the practice of tax advisors. Any advice concerning Federal, state and local tax issues contained in this written communication (and any attachments) has not been written nor is it intended by the author or Kaufman & Canoles, PC to be used, and cannot be used, for the purpose of (i) avoiding federal, state or local tax penalties that may be imposed by the Internal Revenue Service or applicable state or local tax provisions, or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein. If a formal covered opinion intended to provide such protection is desired, please contact us to discuss the issues and costs involved in preparation of such a covered opinion.
kaufCAN.com 3 ACA Key Dates March 23, 2010- PPACA June 28, 2012- Supreme Court decision November 6, 2012- election December 28, 2012- employer mandate prop. regs January 1, 2013-.9% & 3.8% “pay for” taxes began March 2013- “Exchange” becomes “Marketplace” May 8, 2013- DOL guidance on Marketplace notice July 1, 2013- original date to start tracking employees –Small employers to determine 2014 exemption –Large employers to determine 2014 “full-time” employees July 2, 2013- Employer Mandate delayed until 2015
kaufCAN.com 4 ACA Key Dates October 1, 2013- distribution of Marketplace notice to all employees, first open enrollment period begins November 1, 2013- probable start date for first 12 month “measurement period” for large employers with calendar year health plans (employee hour tracking) January 1, 2014- health insurance Marketplace opens, individual mandate begins, small employers begin tracking employee hours for determination of small employer status for 2015 January 1, 2015 or possibly first day of 2015 health plan year- large employer mandate & penalties begin
kaufCAN.com 5 What We’ll Cover 1.General Introduction to the Mandates 2.Health Insurance Marketplace 3.Employer Plan vs. Marketplace Subsidies 4.Marketplace Notice October 1, 2013 5.Marketplace Application 6.COBRA Notice Changes 7.Health Plan Compliance Issues 8.Cafeteria Plan Issues 9.Today’s Takeaways
kaufCAN.com 6 1. General Introduction to the Mandates
kaufCAN.com 7 Individual Mandate Beginning with the month of January, 2014, everyone must have “minimum essential coverage” (MEC) or be penalized for each month without coverage This mandate includes your spouse (if filing jointly) and your dependent children Coverage can be purchased from your or your spouse’s employer provided by Medicare, Medicaid or other government programs Penalty is greater of flat dollar amount or specified percentage of income in excess of income tax filing threshold: –2014 $95 or 1% of excess –2015 $325 or 2% of excess –2016 $695 or 2.5% of excess
kaufCAN.com 8 Individual Mandate Penalty for dependents under 18 is 50% of dollar amount Maximum dollar penalty for any household is 3 times the dollar amount Simple example: 2016 5 person household (2 parents, adult child 21 and 2 children under 18), household income $200,000, filing threshold $24,000 –Dollar penalty before limitation $2,780 (3 adults and 2 children @ 50% = 4 x $695) –Capped dollar penalty $2,085 ($695 x 3) –% penalty $4,400 ($176,000 x 2.5%) –Pro-rate penalty based on # of months without MEC
kaufCAN.com 9 Individual Mandate Exceptions/exemptions from individual penalty: –Premiums for lowest cost plan available from employer or marketplace exceeds 8% of household combined adjusted gross income (net of marketplace subsidies) –gap in coverage for 3 months or less –Hardship exemptions (as approved by HHS) IRS can charge interest on unpaid penalty tax but prevented by statute from collecting via tax liens and levies –Essentially can only collect from refunds
kaufCAN.com 10 Employer Mandate Large employers will become subject to nondeductible penalty taxes unless they offer adequate and affordable group health insurance to their full-time employees Originally scheduled to take effect January 1, 2014 for calendar year plans –2014 renewal date for fiscal year plans that qualified for transitional relief (coverage at 12/27/12) –Now delayed until 2015 Small employers exempt (<50 full-time & FTEs) No mandate for large employers to offer coverage to part-time employees (<30 hours/week, 130/month)
kaufCAN.com 11 Employer, Employee, Hours “Employer”- include related entities in “large” test –Apply controlled group and affiliated service group rules of IRC section 414(b), (c), (m) and (o) “Employee”- apply common law test –Exclude self-employed owners and >2% S corp shareholders –Include workers not on payroll but subject to employer direction and control (independent contractors, staffing company/PEO?) “Hours”- include hours worked and hours paid while not working (paid holiday, vacation, jury duty, etc.) –Optional 8 hours/day, 40/hours week equivalencies
kaufCAN.com 12 Determining “Small” Exemption 50 or more full-time employees + “full time equivalents” in prior calendar year = large employer for next calendar year –49 or less = exempt “small” for next year Full-time employee = 30 or more hours per week or 130 or more hours per month –52 weeks x 30 hours divided by 12 = 130/month Only for small employer determination part- time employee hours are converted to “full- time equivalents” (FTEs) Calculation made for each month in prior year then averaged to determine status for the following calendar year
kaufCAN.com 13 Small Employer Calculation Template for determining full-time employees and FTEs for a month: 1.List all employees for the month and their hours 2.Sort by hours (high to low) 3.Number of employees at 130 or more hours = “actual” full-time employees 4.Total the hours for all other employees (but don’t count more than 120 hours for any one employee) = total “part-time” hours 5.Divide total part-time hours by 120 = number of “full-time equivalents” (FTEs) (carry to first decimal point) 6.Number of “actual” full-time employees + number of FTEs = testing “number” for that month
kaufCAN.com 14 Small Employer Exemption Determine the average number for the prior calendar year: 1.Add the calendar year monthly totals, divide by 12 and round down to the next lowest whole number 2.If the resulting number is 49 or less the employer is “small” and exempt from the mandate for the following calendar year 3.If the resulting number is 50 or higher the employer is “large” and subject to the mandate for the following year (unless the seasonal employer exception applies)
kaufCAN.com 15 Monthly Calculation Example For the month of January 2014 employer has 72 employees: 12 salaried and hourly employees who worked 130 or more hours (“actual” full time employees) 10 hourly employees who worked between 121 and 129 hours (limit to 120 hours each = 1,200 total part-time hours for these 10) 50 hourly employees who each worked <121 hours and collectively worked 4,000 hours Total “part-time” hours = 1,200 + 4,000 = 5,200 Divide 5,200 hours by 120 = 43.3 FTEs 12 “actual” full time + 43.3 FTEs = 55.3 “number” for January 2014 NOTE: Even if this employer ends up being “large” will not be subject to penalty because < 30 full-time
kaufCAN.com 16 Seasonal Worker Exception If employer fails the <50 general test may still be exempt if: –Workforce exceeded 50 for no more than 120 days or 4 months –100% of the employees in excess of 50 for those 120 days or 4 months were seasonal workers Employer can chose any 120 days or 4 months, not required to be consecutive –Suggestion: test as many combinations as needed to demonstrate exemption “Seasonal” workers include those in agriculture, retail during holidays and “other” reasonably determined seasonal businesses (summer help in resort areas)
kaufCAN.com 17 Exempt Small Employer- Stop Here 49 or less in 2014 = exempt small employer in 2015: stop here Determine whether to offer health insurance, to whom and at what cost without regard to the employer mandate/penalty But other “patient protection” reforms will apply to coverage offered Be mindful that offering affordable coverage to lower income employees will make them ineligible for Marketplace subsidies Be mindful that non-discrimination requirements must be considered when IRS issues regulations
kaufCAN.com 18 Large Employer- Identify 2015 Full-Time Employees Large employer allowed to categorize 2015 ongoing employees based on look-back to 2014 hours Full-time employee = 30 or more hours per week (130 hours per month) Threshold strategy: determine whether it makes business sense to impose a cap on the number of hours certain employees will be permitted to work in 2014 in order to make them all part-time employees in 2015 –Virginia example- 37,000 hourly employees limited to 29 hours/week
kaufCAN.com 19 “Look Back” Full-Time Determination IRS optional “look back” methodology to determine every ongoing employee’s future status –Test the employee’s hours during a prior measurement period –Analyze the data, make the status determination and notify and enroll “full- time” employees during an optional administrative period –Based on hours of employment during the measurement period treat employees as full-time or part-time during a future stability period
kaufCAN.com 20 Sample “Look Back” Methodology 12 month measurement and stability periods for a calendar year health plan: –Measurement period 11/1/2013 to 10/31/2014 (12 months) –Administrative period 11/1/2014 to 12/31/2014 (2 months) –Stability period calendar year 2015 (12 months) Example: –During the “measurement period” employee F works an average of 32 hours/week and employee P works an average of 28 hours/week –Final calculations of average hours of F and P are made during the “administrative period” –During the following “stability period” employee F “deemed” to be a full-time employee and P “deemed” to be a part-time employee irrespective of the actual number of hours worked
kaufCAN.com 21 Final “Full-Time” Look Back After selecting the periods and running the analysis prepare a final report (with supporting payroll data) Keep report as proof of which 2014 employees are “deemed” to be full- time (and can subject the employer to penalties) in 2015 Use report to counter IRS penalty assertion in late 2016
kaufCAN.com 22 What About New Employees? If “reasonably expect” employee to work 30 or more hours/week treat as full-time and offer coverage within 90 days of hire If unable to determine whether employee will average 30 or more hours/week (“variable hour” employee) measure actual employment over a maximum 12 month period and if full-time offer coverage within one month (13 month rule)
kaufCAN.com 23 Employer Penalties To avoid all penalties identify cost of minimum qualifying coverage that needs to be offered to full-time employees –Many employers may offer both minimum qualifying coverage (to meet the mandate) and traditional more comprehensive coverage Requirements to avoid all penalties –Offer coverage to all full-time employees that provides minimum essential coverage provides minimum value is affordable
kaufCAN.com 24 Who Must Be Offered Coverage? Full-time employees and their dependent children until age 26 No requirement to ever offer spouse coverage –UPS and UVA notable employers already dropping spouses Offering must be communicated to full- time employees so they have an effective opportunity to participate –Recommendation: keep signed election forms or other acknowledgement from all full-time employees
kaufCAN.com 25 OOPS- 5% Margin of Error Statute requires offering coverage to ALL full- time employees –Missing 1 of 10,000 could = $20M penalty 5% margin of error allowed by IRS regulations Employer not subject to penalty for a particular month if less than 5% of full- time employees are not offered coverage (or 5 employees if > 5%) Could miss 500 of 10,000 but not 501 Coverage failure does not have to be inadvertent –But probably best to not purposely exclude 5% –Save 5% in case of actual administrative error
kaufCAN.com 26 Minimum Essential Coverage In the large group market the minimum essential coverage (MEC) requirement means simply offering a group health plan that provides medical care –Relatively easy to qualify as MEC In the fully insured individual and small group market the policy must cover Essential Health Benefits (EHB), a much broader term encompassing 10 specific benefits
kaufCAN.com 10 Essential Health Benefits Ambulatory patient services Emergency services Hospitalization Maternity and newborn care Mental health & substance abuse Prescription drugs Rehabilitative & habilitative services Laboratory services Preventive & wellness services & chronic disease management Pediatric care, including dental & vision
kaufCAN.com 28 Underwriting Limitations No health conditions other than tobacco use No gender Maximum 3:1 age rating Age 0-20.635 Age 21-24 1.000 Age 46 1.500 Age 64 & older 3.000
kaufCAN.com 29 Minimum Actuarial Value Employer’s offering must provide at least a 60% minimum actuarial value Actuarial value (AV) is a relative measure of a plan’s “generosity” –A plan providing 60% AV would be expected to cover 60% of the cost of medical/health needs of a standard population –Employee would cover cost of remaining 40% through co-pays and deductibles –HHS and IRS provide AV calculators and safe harbors For comparison shopping 4 levels of AV: –Bronze 60% (the base level for employer mandate) –Silver 70% (the base level for Marketplace subsidies) –Gold 80% –Platinum 90%
kaufCAN.com 30 Affordability Statute: coverage is affordable if the employee’s premium for self-only coverage is no more than 9.5% of the employee’s household income IRS temporarily allowing use of employee’s W-2 Box 1 (gross wages subject to income tax) as = household income Box 1 is AFTER pre-tax 401(k) and cafeteria plan deductions Affordability is measured on cost of employee-only coverage under the lowest cost 60% minimum value (Bronze) plan offered by the employer Premium can’t reflect wellness incentives except tobacco cessation
kaufCAN.com 31 Affordability Safe Harbors 3 IRS safe harbors on affordability of employee premium for employee-only coverage: –9.5% of Box 1 wages –9.5% of lowest hourly wage x 130 hours per month –9.5% of Federal Poverty Level (FPL) Examples –Employee earns $5,000/month (Box 1), employee-only coverage affordable at $475/month –Employee paid $9.00 per hour, coverage affordable at $111.15/month ($9.00 x 130 x 9.5%) –Under current FPL of $11,490 coverage affordable at $90.96/month (probably about $92/month by 2014) Use this option as a design based safe harbor?
kaufCAN.com 32 Potential Employer Penalties “Large” employer penalty exposure: –Inadequate/Unaffordable $3,000 annual penalty: offer minimum essential coverage but less than 60% AV or unaffordable = $250 monthly penalty for each full-time employee receiving subsidized coverage from the Marketplace ( the “tack-hammer penalty”) –No coverage $2,000 annual penalty: offer no minimum essential coverage and one or more employees receive subsidy = $167 monthly penalty X number of full-time employees in excess of 30 (employer penalized on employees with coverage from employer, Medicare, Medicaid, Tricare or going without coverage, the “sledgehammer penalty”)
kaufCAN.com 33 Employer Penalties Both penalties require at least one full-time employee receive subsidized coverage from the Marketplace –Subsidized coverage available between 100% and 400% of FPL –Under 100% FPL supposedly covered by Medicaid? Penalties only apply with respect to full-time employees (part-time employees cannot generate employer penalties) The Inadequate/Unaffordable penalty cannot exceed the No Coverage penalty Penalties calculated monthly, paid annually in arrears Penalties are non-deductible (as opposed to employer provided health insurance)
kaufCAN.com 34 “No Penalty” Examples Large employer complies with intent of statute –Offers “adequate” and “affordable” coverage to all full-time employees and their dependents –Can exclude spouses Employer has <30 full-time employees but is “large” due to large part time workforce –No penalty since the “no coverage penalty” only applies to full-time employees in excess of 30
kaufCAN.com 35 “No Penalty” Examples Employer limits all hourly paid employees to <30 hours/week in 2014 but offers adequate and affordable coverage to all full-time employees in 2015 (Commonwealth of Virginia example) Employer offers no coverage but limits all employees < 400% FPL to <30 hours/week in 2014 (no full-time employee can qualify for subsidized coverage in 2015) Employer’s offers no coverage but only employs folks >400% FPL or if <400% FPL are covered by spouse, Tricare, Medicare, Medicaid or choose to remain uninsured (risky strategy)
kaufCAN.com 36 Inadequate/Unaffordable Penalty Example 100 full-time employees, employer offers adequate but unaffordable coverage 30 employees obtain coverage from spouse, Tricare, Medicare or Medicaid 30 employees >400 FPL buy coverage from employer 30 employees refuse to purchase any coverage (potentially subject to the individual mandate penalty) 10 employees under 400% FPL purchase subsidized coverage in the Marketplace Inadequate/Unaffordable Penalty: –$3,000 x 10 employees receiving subsidies = $30,000
kaufCAN.com 37 No Coverage Penalty Example Same facts as above except employer does not offer any coverage Since at least 1 employee received a subsidy penalty = $2,000 x (100 full-time employees-30) = $140,000 Strategy: large employers will generally want to offer minimum essential coverage that is unaffordable or fails minimum value rather than offering nothing
kaufCAN.com 38 Penalty Limitation Example The Inadequate/Unaffordable penalty cannot be more than the No Coverage Penalty Employer has 80 half-time and 40 full-time employees Covered by mandate (40 full-time + 40 FTEs exceeds 50) Employer offers no coverage All 40 full-time employees are under 400% FPL and purchase subsidized coverage in the Marketplace Penalty lesser of : $3,000 x 40 full-time employees receiving subsidies = $120,000 $2,000 x (40 total full-time employees-30) = $20,000 Strategy: if not offering coverage limit number of full-time employees to 30 or less (make all other employees part-time?)
kaufCAN.com 39 Legal Issues & Planning Determination of related employers, common law employees and hours of service Exploration of opportunities to “break” a single employer or related entities apart to qualify for the small employer exemption (no later than January 1, 2014) Exploration of changes in employment practices (limit certain employees to <30 hours/week) to minimize “full-time” population in 2015 (no later than November 1, 2013 if calendar year plan) Consideration of employment law concerns over any strategies under consideration
kaufCAN.com 40 Caution in Strategizing for Penalty Mitigation ERISA Section 510- employers may not …”discharge, fine, suspend, expel or discriminate against a participant or beneficiary…for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan…” ACA Section 1558- “No employer shall discharge or in any manner discriminate against any employee with respect to…compensation, terms, conditions or other privileges of employment because the employee…” has received a premium tax credit (subsidy) or is a whistleblower
kaufCAN.com 41 Flowchart on Employer Mandate Yes You will not be subject to any Shared Responsibility penalty. 1. Do you have 50 or more full-time or equivalent employees? Yes No 2. Do you offer a health plan to all full-time employees (and their dependent children)? You will pay a penalty of $2,000 annually for every full-time EE in excess of 30 if at least one receives income- based premium assistance to purchase coverage through Marketplace. 3. Do all of your employees have household income that exceeds 400% of Federal Poverty Level Yes You will not be subject to any Shared Responsibility penalty. 4. Does the health plan offered pay less than 60% of total benefit costs or is the required employee contribution for plan > 9.5% of income? Yes No You will pay the lesser of $3,000 times the number receiving income–based assistance for Marketplace coverage; or $2,000 times the total number of full-time employees in excess of 30 You will not be subject to any Shared Responsibility penalty.
kaufCAN.com 42 Assessment and Collection Procedures HHS will notify employer when employee applies for subsidized marketplace coverage –employer will have opportunity to “contest” subsidy Effective for 2015 employers will file new annual reports with IRS that report employee full or part time status, whether offered adequate and affordable coverage, cost of coverage, etc. for each month in the year –Insurers or self-funded plans will report similar information on coverage to IRS Employees report premium subsidies on their individual tax returns (beginning with 2014 returns due by 10/15/2015)
kaufCAN.com 43 Assessment and Collection Procedures IRS will match 2015 data from HHS, employer, insurers and employees (probably late 2016) and send a proposed penalty assessment for 2015 to employer Employer will have an opportunity to dispute/clarify the facts that led to the proposed assessment Ultimately IRS will bill the employer for the penalties (separate from other tax returns) Query for accountants: will GAAP require calculation/accrual of estimated penalties long before IRS assessment?
kaufCAN.com 44 Employer Mandate by the Numbers 5%- margin of error permitted in offering coverage to all full-time employees 9.5%- maximum % of income self-only premium for coverage to be “affordable” 30- threshold hours per week to be full- time employee 30- threshold number of full-time employees before any penalty tax applies 50- threshold average number of full-time employees and “full-time equivalents” in prior calendar year to be treated as large employer subject to mandate in following year
kaufCAN.com 45 Employer Mandate by the Numbers 60%- Bronze level of coverage (employer mandate) 70%- Silver level of coverage (Marketplace subsidy) 80%- Gold level of coverage 90%- Platinum level of coverage 90- maximum days in waiting period before new employee must be offered coverage 120- divisor into total part-time hours in a month to determine “full-time equivalents” 130- threshold hours per month to be treated as full-time employee (functional counterpart to 30 hours/week) $166.67- monthly “no coverage” penalty (+COLA) $250- monthly “unaffordable coverage” penalty (+COLA)
kaufCAN.com 46 The Misunderstood One Year Delay On July 2 nd the IRS announced a one year delay in the effective date of the large employer reporting (IRC section 6056), insurer reporting (section 6055) and employer mandate/penalties (section 4980H) Reason: the IRS has to create a massive new computer system to coordinate data reported by employers, the Marketplace, insurers and individual taxpayers in order to determine large employer penalties –Large employers must report health coverage availability and affordability for all employees on a monthly basis
kaufCAN.com 47 But It’s Not Really a Year IRS was offering special 6 month transition relief for mandate determinations when effective date was 2014 –Small employer: count full-time employees and “full-time equivalents” over any 2013 6 month period instead of all of 2013 –Large employer first measurement “year” could be as short as 6 months –Result: July 1, 2013 was tracking start date IRS not likely to extend transition relief into 2014 –Small employer testing for 2015 probably begins January 1, 2014 –Large employer measurement period for determining 2015 FT employees could begin as early as November 1, 2014
kaufCAN.com 48 Delay is NOT Good News Employer mandate is NOT the main ACA issue for employers Mandate delay may cause employers to lose sight of the more important issue of designing the employer insurance offering so as to not preclude availability of government subsidies for lower income employees through the health insurance Marketplace Employer plan design decisions need to be in place before January 1 st effective date of Marketplace coverage
kaufCAN.com 49 Other ACA Provisions Not Delayed… The delay in the implementation of the employer mandate does NOT delay any other major upcoming ACA provisions October 1, 2013 –Employers must still provide the required notice of the opening of the health insurance Marketplace and availability of subsidies –Government sponsored ongoing media blitz to inform the public of the Marketplace opening –First Marketplace open enrollment period runs from October 1, 2013 to March 31, 2014
kaufCAN.com 50 Not Delayed… January 1, 2014 –Insurance purchased through the Marketplace begins –Lower income employees (up to 400% of Federal poverty line) begin receiving subsidies towards health insurance coverage Later of January 1, 2014 or 2014 renewal date –ACA insurance quality provisions will increase cost/premiums No rating for preexisting conditions No annual or lifetime limits on benefits No cost preventive care Maximum 90 day waiting period –Some small employers adopting early renewals 12/1/2013 to delay premium increases as long as possible (to 12/1/2014)
kaufCAN.com 52 Marketplace (Exchange) All individuals lawfully present in the US and not incarcerated can shop for and purchase health insurance through the new health insurance Marketplace –Employees will “comparison shop” Those with household income between 100% and 400% of Federal Poverty Level will be eligible for “advance premium tax credits” paid directly by the Marketplace to their selected insurer Those between 100% and 250% of FPL will also qualify for “cost-sharing reductions” (limits on deductibles and co-pays) if they purchase at least Silver coverage Collectively: Marketplace “subsidies”
kaufCAN.com 53 Advance Premium Tax Credits Overview –Individuals and households 100% to 400% FPL can potentially qualify for Advance Premium Tax Credits (APTC) 70% of US households fall under 400% FPL Paid directly by the Marketplace to selected insurer Amount reconciled on individual income tax return APTC sets employee’s premium for 2 nd lowest cost Silver plan at between 2% and 9.5% of household income –100%-133% FPL pay 2% of household income for 2 nd lowest Silver plan, government pays the balance –300%-400% FPL pay 9.5% of household income for 2 nd lowest Silver plan, government pays the balance –APTC caps individual/household share of premium at a % of household income, not a % of the actual premium
kaufCAN.com 54 Advance Premium Tax Credit Table Percentage of household income contribution towards 2 nd lowest cost Silver (70%) coverage in Marketplace: –100% to 133% FPL 2% –From 133% to 150% 3% to 4% –From 150% to 200%4% to 6.3% –From 200% to 250%6.3 % to 8.05% –From 250% to 300%8.05% to 9.5% –From 300% to 400%9.5% Example of inverse linear sliding scale –225% FPL is half way between 200%-250% band –Household income contribution half way between 6.3% and 8.05% = 7.04% Helpful online calculator: search “Kaiser Family Foundation Subsidy-Calculator”
kaufCAN.com Cost Sharing Reductions (Deductibles & Co-Pays) 100%-150% FPL 150%-200% FPL 200%-250% FPL Silver increase to 94% AV Silver increase to 87% AV Silver increase to 73% AV
kaufCAN.com 56 2013 Federal Poverty Levels/Lines (FPL) One person household –100% FPL $11,490 –133% FPL $15,282 –400% FPL $45,960 Two person household –100% FPL $15,510 –133% FPL $20,628 –400% FPL $62,040 Four person household –100% FPL $23.550 –133% FPL $31,321 –400% FPL $94,200 See K&C complete 2013 FPL/APTC table attached
kaufCAN.com 57 3. Employer Plan vs. Marketplace Subsidies
kaufCAN.com 58 “First, do no harm…” To be eligible for Marketplace subsidies employee cannot be offered “adequate” and “affordable” coverage from employer “Adequate” means at least Bronze (60% actuarial value) coverage- virtually all current offerings meet this standard “Affordable” means the employee’s share of the self-only coverage premium cannot be more than 9.5% of his income If employer offers coverage for spouse and/or dependents (even if entire premium paid by employee) then spouse and dependents are also ineligible for Marketplace subsidies Employer may be inadvertently “harming” certain lower income employees by offering coverage
kaufCAN.com 59 Illustrating the Concern July 1, 2013- employer renews group health insurance coverage for 12 months –No concern over “minimum value” or “affordability” Large employer- mandate/penalties don’t start until 2015 Small employer- never subject to mandate/penalties October 1, 2013- employer provides required Marketplace notice to all employees –Applies to both large and small employers –Advises employees of opening of Marketplace and opportunity for subsidized insurance coverage January 1, 2014 –Accompanied by government media blitz –Employees start “comparison shopping”
kaufCAN.com 60 Illustrating the Concern Joe Employee age 35 earns $30,000/year ($15/hour) and supports a family of 4 (unemployed spouse and 2 children under age 20) –Household at 127% of Federal poverty level Joe investigates Marketplace subsidy and finds the following options for his family: –Silver (70% actuarial value) family coverage Total annual premium $11,209 (est) Family share of premium 2% of income ($50/month, $600/year) Government APTC $10,609 Cost sharing reductions = 94% actuarial value –Bronze (60% actuarial value) family coverage Total annual premium $9,290 (est) Family share of premium $0 Government pays $9,290 (less than APTC) Note: subsidy calculations from the Kaiser Family Foundation Subsidy-Calculator
kaufCAN.com 61 Illustrating the Concern January 1, 2014- assume employer is NOT offering Joe adequate and affordable coverage- Joe enrolls entire family in $50/month Silver coverage in the Marketplace (with CSR 94% AV) July 1, 2015 “large” employer renews its group coverage and to avoid penalty decides to offer Bronze coverage (60% AV) with Joe’s share of the premium for self-only coverage set at $200/month –Family coverage available at $800 more per month Employer coverage now “adequate” and “affordable” –Joe’s premium for self-only coverage <9.5% of income Joe’s entire family now loses Marketplace subsidy!
kaufCAN.com 62 Small (Exempt) Employer Strategies Don’t offer “affordable” coverage to any “lower income” employees after January 1, 2014 Enables those employees to enjoy Marketplace subsidies Strategies: Only offer coverage to 40 hour full-time employees and reduce lower income to 39 hours Offer only high priced coverage to ensure self-only premium is “unaffordable” for lower income Caution: cafeteria plan testing may be adversely impacted
kaufCAN.com 63 Small (Exempt) Employer Strategies In comparing “value” of employer subsidy to the Marketplace subsidy remember that the employer subsidy is more valuable Employer subsidy is tax free to the employee Employee’s share of Marketplace premium is after tax (non-deductible) Can still offer “higher income” employees insurance in 2014 Nondiscrimination regulations not yet issued IRS says regulations not effective until 2015 at the earliest We’ll likely be discussing non-discrimination rules next year- stay tuned Possible long term result: small employers may stop offering group insurance and push all employees to the Marketplace?
kaufCAN.com 64 Large Employer Strategies Don’t offer “affordable” coverage to “lower income” part-time employees after January 1, 2014 Part-time = less than 30 hours/week in prior “measurement period” Enables those employees to enjoy Marketplace subsidies and will never expose employer to penalties Consider not offering “lower income” full-time employees adequate and affordable self-only coverage 1/1/14 Allows lower income employees to receive Marketplace subsidies until 2015 renewal But employer not likely to continue this practice when employer mandate starts in 2015
kaufCAN.com 65 Large Employer Strategies Consider dropping spouse coverage No ACA requirement to ever offer spouse coverage Enables lower income employee’s spouse to obtain subsidized Marketplace coverage UPS and UVA notable examples Must offer dependent coverage in 2015 to avoid penalty
kaufCAN.com 66 4. Marketplace Notice October 1, 2013
kaufCAN.com 67 Marketplace Notice ACA amended section 18B of the Fair Labor Standards Act to require employers to notify employees of the opening of the health insurance Marketplace Three central concepts: –What the Marketplace is –Employee “may” be able to obtain subsidized coverage at a lower price in the Marketplace –But employee will lose employer tax free subsidy by doing so Intent: every employed person in the country will be notified
kaufCAN.com 68 Marketplace Notice Per ACA Marketplace Notice originally scheduled for March 1, 2013, DOL delayed to October 1, 2013 –Coincides with the opening of the initial enrollment period for the Marketplace (10/1/2013 to 3/31/2014) Future years Marketplace open enrollment probably October 15-December 7) –Will be accompanied by $650M government media blitz
kaufCAN.com 69 Which employers & employees? All employers subject to FLSA must provide notice –FLSA generally applies to all employers of all sizes Includes governments If you believe you’re exempt from FLSA, get legal confirmation –Exemption from ACA employer mandate does not exempt employer from Notice requirement All employees must receive notice –No exclusion of part-time employees –But, no separate notice required to employee’s spouse or dependents
kaufCAN.com 70 Notice Options The Department of Labor has provided two model notices, one for employers who offer insurance and one for those who do not The required content is in the model notices Employers should feel free to modify these notices to their circumstances
kaufCAN.com 71 Notice Content- Part A What is the Health Insurance Marketplace?
kaufCAN.com 72 Notice Content- Part A Can I save money on health insurance premiums if I buy through the marketplace?
kaufCAN.com 73 Notice Content- Part A Does my employer health coverage affect availability of Marketplace subsidies (premium tax credits and cost sharing reductions)?
kaufCAN.com 74 Notice Content- Part A Who do I contact (at the employer) for more information?
kaufCAN.com 75 Notice Content- Part B Information about employer’s coverage Corresponds to Boxes 3-12 of Appendix A of the “Application for Health Coverage & Help Paying Costs”
kaufCAN.com 76 Notice Content- Part B Does employer offer coverage and to whom?
kaufCAN.com 77 Notice Content- Part B Does employer offer dependent coverage? Does employer’s coverage meet minimum value (Bronze 60%)? Is cost “intended” to be affordable?
kaufCAN.com 78 Notice Content- 3rd Page Corresponds to Boxes 14-15 of the Appendix A to the “Marketplace Employer Coverage Tool” Technically optional but probably advisable
kaufCAN.com 79 Notice Content- 3rd Page In addition to addressing current eligibility and affordability, the notice asks what changes the employer intends to make with its renewal “if plan year will end “soon” (undefined)
kaufCAN.com 80 Notice Deadlines & Rules All current employees receive notice by Tuesday October 1, 2013 Future employees within 14 days of the employee’s start date –Best practice recommendation: date of hire Must be free of charge Must be in “writing” Must be written in manner calculated to be understood by the average employee
kaufCAN.com 81 Delivery Methods Hand delivery First class mail Electronically (email) –For employees who regularly use email at work, or who have affirmatively consented to receiving electronic notices (see notice in materials) –Must take reasonable steps to assure employees actually receive electronic notice (examples: ask employees to confirm receipt and monitor “notice of undelivered mail” feature) Best practice recommendation: obtain and retain proof of delivery of the Marketplace notice
kaufCAN.com 82 Electronic Notice Consent Disclosures Related to Consent to Electronic Notice –Identifies types of documents to which consent applies –Explains how to withdraw consent –Explains how to update electronic address –States that employee may obtain a paper copy on request –Identifies hardware/software needed for electronic notice –Sample consent attached
kaufCAN.com 83 Non-Compliance Penalty No specific DOL penalty for non- compliance (DOL FAQ 9/12/13) No direct link to IRS “global” ACA non-compliance $100 per day per person penalty But fiduciary responsibility to comply with all legal requirements so just do it!
kaufCAN.com 84 Employer Notice Strategies Designate and educate the person in your company who is charged with ACA responsibilities (and will be designated as the contact person in the notice) Recognize that employees are terribly confused Develop a communications strategy to control the message Consider offering individual or group meetings to deliver the message, answer questions and try to clear up confusion
kaufCAN.com 85 Model Notice Deficiencies Individual mandate Subsidy eligibility Relationship between employer offering and subsidy eligibility Impact on family members Repeated warnings about possible changes in law and employer offering in 2015 Special language for non- calendar year plans
kaufCAN.com 86 Notice FAQs Since there’s no specific DOL penalty should I even bother with the Notice? –Absolutely YES Should I prepare different Notices for different employee groups? –No, it’s better to expand the Notice to address all circumstances rather than deal with providing the correct Notice to each employee
kaufCAN.com 87 Notice FAQs Do I have to provide the Notice in Spanish to my Spanish speaking employees? –Only in Manassas and Manassas Park City in Virginia (same as SBC) Can I provide the Notice on October 1 st and hold employee educational meetings at a later date? –Absolutely, the open enrollment period runs to 3/31/2014 and the insurance isn’t effective until 1/1/2014 at the earliest
kaufCAN.com 89 Who Will Use This Application? Employees and/or their families, whether or not they currently have insurance Short form available for single employees Immigration status is not affected by completion of the Application Online option at HealthCare.gov; address for mailed Applications on page 7 of Application
kaufCAN.com 90 What Will Employees Need to Complete the Application? Social Security Numbers or immigration documents Income information (paystubs, W-2 forms) Policy numbers from current health insurance Knowledge of employer health insurance options
kaufCAN.com 91 Content of Application: Questions You Might Receive Step 1: Personal Information Step 2: Family Information (includes person-by-person reporting of salary and other forms of income); if an employee will apply for more than 2 individuals, he should copy “Step 2” and repeat as often as necessary Step 3: American Indian/Alaska Native Questionnaire (see Appendix B, also)
kaufCAN.com 92 Application Content, continued Step 4: Information on current health coverage, regardless of source Step 5: Rights, responsibilities, and signature Step 6: Mailing information Appendix A: “Health Coverage from Jobs,” includes “Employer Coverage Tool” (see upcoming slide)
kaufCAN.com 93 Application Content, Continued Appendix B: American Indian/Alaska Native Questions Appendix C: Assistance (gives an “Authorized Representative” authority to discuss the Application)
kaufCAN.com 94 Focus on Appendix A The first page of Appendix A is submitted with the Application Note that your employees will likely give you page 2 of Appendix A (the “Employer Coverage Tool”) to fill out so they can complete this Appendix A The “Employer Coverage Tool” does NOT have to be submitted with the Application
kaufCAN.com 95 Appendix A, Continued Boxes 3-12 are Part B of the Marketplace Notice Boxes 14-15 are the 3rd page of the Marketplace Notice Let’s have a look at all of Appendix A…
kaufCAN.com 99 COBRA Notice Has Changed Slightly COBRA continuation coverage and related Notices are still required but Marketplace will often be a better/cheaper alternative Department of Labor has updated model notice to put the Marketplace option in front of terminated employees 5 meaningful changes
kaufCAN.com 105 7. Health Plan Compliance Issues
kaufCAN.com 106 DOL Audit Focus After decades of inattention the Department of Labor (DOL) has launched an initiative to audit welfare benefit plans (specifically health benefit plans) While the audit focus is on compliance with the Patient Protection and Affordable Care Act (ACA) the DOL is also reviewing preexisting requirements Commentators indicate DOL is finding major non-compliance and assessing significant penalties
kaufCAN.com 107 ERISA Applies Employee Retirement Income Security Act (ERISA) –September 1974 (almost 40 years ago) –Amended many times adding more requirements ERISA applies to all “employee benefit plans” –Pension Benefit Plans 401k, profit sharing, defined benefit, some 403b, etc. –Welfare Benefit Plans Group health, life, disability, long term care, etc. Can be insured, self funded or unfunded Sometimes difficult to determine when an employee benefit constitutes a “plan”
kaufCAN.com 108 Pension Benefit Plans “Pension” plans highly regulated and scrutinized –All pension benefit plans file information returns (5500s) with both IRS and DOL –IRS audits for tax compliance (guarding against excessive use as tax shelters for highly compensated) –DOL audits for “fairness” to employees and in response to employee complaints –Pension plans have 3 rd party providers to help keep plans in compliance Attorneys and CPAs Third party administrators (TPA) “Bundled” investment & recordkeeping platforms –Note: pension plan financial advisers generally steer clear of providing compliance advice
kaufCAN.com 109 Welfare Benefit Plans “Welfare” plans heretofore largely ignored –Only “large” plans file 5500s Over 100 participants if fully insured Minimal information provided –IRS doesn’t care (welfare plans not seen as tax shelters) –DOL hasn’t paid any attention More focused on pension plans Generally no employee rights being violated No prior specific funding for a welfare plan audit initiative –Generally no professional 3 rd party compliance assistance Insurance companies and benefit advisors provide compliance suggestions but generally disclaim direct compliance responsibility
kaufCAN.com 110 General ERISA Requirements Plan document Summary Plan Description (SPD) Summary of Material Modifications (SMM) Summary of Material Reductions in Covered Services Annual Report (Form 5500) Summary Annual Report (SAR) Claims Notices/Explanation of Benefits
kaufCAN.com 111 Plan Document Basic ERISA requirement: all employee benefit plans must have a written plan document Insurance contract is NOT an ERISA plan document Usually ERISA welfare plan document “wraps” around the insurance contract (contract is an attachment) Our guess 99% of small businesses do NOT have ERISA welfare plan documents
kaufCAN.com 112 Summary Plan Description 2 nd basic ERISA requirement: all employee benefit plans must have a Summary Plan Description –Purpose: put technical language in Plan Document into “layman’s” terms –Primary method of communicating plan benefits to employees Insurance “booklet” is usually NOT an ERISA compliant SPD –Usually lacks several important required items When plan terms amended must provide SMM
kaufCAN.com 113 Form 5500 & SAR Proper identification of all welfare benefit plans –Review employee handbook –Review payroll deductions Which “benefits” are “plans”? Which “plans” require 5500s? –Over 100 participants at beginning of year Do any require CPA audits? SAR distribution within 60 days of filing 5500
kaufCAN.com 114 Combining Welfare Plans Employers with multiple welfare benefit plans may consider combining into one –Primary benefit is single Form 5500 filing and SAR –Does not require all insurance contracts be on the same year Requires creation of a “mega wrap” plan document and SPD
kaufCAN.com 115 Potential Penalties No specific penalty for initial failure to provide but $110/day penalty paid to requesting participant if not provided upon request: –SPD –SMM –SAR Late filing of Annual Report Form 5500 –DOL $300/day to $30,000 maximum per filing –IRS $25/day to $15,000 maximum per filing –Delinquent Filer Voluntary Compliance Program much less
kaufCAN.com 116 Potential Penalties $100 per day per participant excise tax penalty for failure to provide –Initial COBRA notice –COBRA election notice –Special Enrollment Notice –Certificate of Creditable Coverage –General Notice of Preexisting Condition Exclusion –Individual Notice of Period of Preexisting Condition Exclusion –WHCRA Notices –NMHPA Notice –CHIPRA Notice –HIPAA Wellness notice –Michelle’s Law notice –PPACA Grandfather notice –Summary of Benefits and Coverage
kaufCAN.com 117 Sample DOL Audit Letter See Sample DOL audit letter and list of documents to be provided “within 10 business days”
kaufCAN.com 118 DOL Self Compliance Tools On March 1, 2013 DOL released two new “Self-Compliance Tools” for group health plans Basically extensive checklists employers and their benefit advisors can use to self-audit for compliance with HIPAA through ACA
kaufCAN.com 119 DOL Self-Compliance Tool #1 Health Insurance Portability and Accountability Act of 1996 (HIPAA) –Limits on Preexisting Conditions Exclusion –Certificates of Creditable Coverage –Special Enrollment Provisions –HIPAA Nondiscrimination Provisions –Wellness Program Provisions –HMO Affiliation Period Provisions –MEWA Guaranteed Renewability Provisions Mental Health Parity and Addiction Equity Act (MHPAEA)
kaufCAN.com 120 DOL Self-Compliance Tool #1 Newborns’ and Mothers’ Health Protection Act (NMHPA) Women’s Health and Cancer Rights Act (WHCRA) Genetic Information Nondiscrimination Act (GINA) Michelle’s Law
kaufCAN.com 121 DOL Self-Compliance Tool #2 ACA Patient Protection and Affordable Care Act (ACA) –Grandfather Status –Dependent Coverage to Age 26 –Anti-Rescission Provisions –Restrictions on Lifetime and Annual Limits –Preexisting Provisions Under Age 19 –Summary of Benefits & Coverage (SBC) –Patient Protection Choice of Primary Care Physician Emergency Services –No Cost Preventive Services Contraception controversy –Claims & Appeals Internal External
kaufCAN.com 122 Missing from DOL Self-Compliance Tools ERISA requirements Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) –Continuation coverage and related notices
kaufCAN.com 123 Steps to Take Now Identify and empower a “compliance officer” Identify all welfare benefit plans subject to ERISA Complete the DOL Self-Compliance Tools Create a compliance binder for each welfare plan –ERISA compliant plan document –ERISA compliant SPD –Insurance contract –Contracts with service providers –Sample of enrollment form/open enrollment documents –Samples of all required notices –Logs or other proof of delivery of documents and notices –Copies of 5500s and SARs
kaufCAN.com 124 Outside Help Needed? Help identify all welfare benefit plans subject to ERISA Provide ERISA compliant plan documents and SPDs for individual plans Provide “mega wrap” plan document to consolidate welfare plans into one Form 5500 filing Confirm proper filing of all required 5500s and assist in correcting any prior noncompliance (DFVC) Confirm maintenance of logs/records of proper distribution of required notices to participants
kaufCAN.com 126 Cafeteria Plan Types Basic: convert employee contributions/premiums from after-tax to pre-tax deductions –AKA “Premium Only Plan” Complex: also include flexible spending account and/or dependent care reimbursement account Either type requires a written plan document, SPD and election forms
kaufCAN.com 127 Cafeteria Plan Issues Is there a plan document and is it up to date? $2,500 annual limit on employee elective contributions to FSA (2013) Optional amendment for fiscal year plans to allow a one-time change in an employees health plan election (revocation or commencement of coverage) with respect to Marketplace opening
kaufCAN.com 129 Today’s Takeaways Only a few days until Marketplace coverage Notice must be distributed, are you now able to prepare? If “large” employer with calendar year plan are you prepared to start tracking all employees’ hours on or about 11/1/2013?
kaufCAN.com 130 Today’s Takeaways Should “small” employer consider early insurance renewal 12/1/2013 (to delay cost increases from expanded benefits until 12/1/2014)? Should non-calendar cafeteria plan be amended by 12/31 to add Marketplace opportunity as a qualifying change event (to allow mid-year election changes)?
kaufCAN.com 131 Today’s Takeaways Should you change current health insurance offering 1/1/2014 to allow lower income employees to enjoy Marketplace subsidies (small employers forever, large employers until mandate begins in 2015)? If “small” are you prepared to start tracking employee hours 1/1/2014 to confirm “small” status for 2015?
kaufCAN.com 132 Questions? John M. Peterson JMPeterson@kaufcan.com (757) 624-3003 150 West Main Street Suite 2100 Norfolk, VA 23510