Employee Benefit Plan and Tax Implications of the Patient Protection and Affordable Care Act Gregory J. Viviani
Health Care Reform • Patient Protection and Affordable Care Act (P.L. 111-148, March 23, 2010) • Health Care and Education Reconciliation Act of 2010 (P.L. 111-152, March 30, 2010) • Final Regulations issued under Code Section 4980H (the employer mandate tax on February 12, 2014. 2
Provisions Effective First Plan Year After September 23, 2010 • No Lifetime or Annual • Nondiscrimination Rules Dollar Limits • Group Health Plan • No Pre-Existing Reporting Requirements Conditions • Appeals Process • Extension of Dependent Coverage to age 26 • Required Preventive Care • Patient Protections • Rescission 3
Provisions Effective in 2012 • Medical Loss Ratio refunds – law effective in 2011. Refunds payable August 1, 2012 • Issuance of Summary of Benefits and Coverage (SBC) � Effective for open enrollment periods that begin on and after September 23, 2012. � Otherwise effective for plan years that begin after September 23, 2012 • 2012 W-2 Reporting (large employers) • Modified Preventive Care rules for contraceptives – first plan year after August 1, 2012 • Plan Fees – 2012 4
Provisions Effective in 2013 • Flexible Spending Account limit ($2,500) – 2013 calendar year • Certain employee taxes – 2013 • Required Notice of Exchanges (October 1, 2013) 5
Provisions Effective in 2014 Plan Year • Limitations on Waiting Periods • Expansions of Prohibited Discrimination Based on Health Status and New Wellness Plan Rules • No Discrimination Against Health Care Providers • Limitations on out of pocket cost sharing � Single coverage - $6,350 � Family coverage - $12,700 • Reinsurance Fees 6
Provisions Effective in 2015 and 2016 Employer Mandate tax and Related Reporting requirements • Generally delayed until 2015 • Delayed until 2016 for certain small employers � Less than 100 Full Time Equivalent Employees in 2014 � No workforce reduction in 2014 with the intention of meeting this test � Health coverage offered as of February 9, 2014 must not be eliminated or materially reduced through December 31, 2015 � Delay is through 2015 Plan Year if non-calendar year plan as of February 9, 2014 7
Other Effective Dates • Auto enrollment (effective date deferred until after 2014) 8
Fees for Exchange Reinsurance Program • Applies for the 2014, 2015 and 2016 Plan Years • Applies to Self-Insured Plans and Insured Contracts. • Paid Annually - $63.00 Per Covered Life in 2014 • The term covered life will include every person covered by the plan, including COBRA people. Retirees and Medicare Beneficiaries are also included, unless they have Medicare as the primary payor of their benefits. • The Reinsurance does not benefit the Plan that is paying the fee. It will be used to reinsure insurers who will be providing coverage through the Exchanges. • To pay the Reinsurance Fee, by November 15 of the relevant year, the self-insured plan has to file a report with HHS that will show the number of covered lives through three quarters of the year. • The self-insured plan is ultimately responsible for paying the fee. However, HHS will allow a third party administrator to do so for the plan. 9
Maximum Waiting Periods • Effective in 2014 • Maximum waiting period is 90 days • Final Regulations issued February 24, 2014 � Waiting period limit only starts to run after an employee moves into a job classification that is eligible for coverage. � Full-time and part-time employee classification are permitted for this purpose � If employee hours vary, an averaging period can be used in accordance with the employer mandate tax rules. But the total time period before eligibility cannot exceed 13 months 10
Cost Sharing Limits • Applicable in 2014 • Maximum out of pocket limit is based on all deductibles, co-pays, co-insurance and similar charges • 2014 Limitations on out of pocket cost sharing � Single coverage - $6,350 � Family coverage - $12,700 • Applies only to in network services. 11
Auto Enrollment • Law applies to all employers subject to the Fair Labor Standards Act (FLSA) who have 200 or more full-time employees. � Regulations are to address the meaning of “full-time employee”. It is unclear what standard will apply. PPACA uses an average workweek of 30 hours. � It also is unclear whether the 200 full-time employee requirement might be based on FTEs • Auto enrollment will only be required after the DOL issues regulations. • DOL has said that regulations will not be issued in time for a 2014 compliance date. No timetable for regulations has been set. 12
Auto Enrollment • Once the law applies, it will require auto enrollment for “new full- time employees”. • Continued enrollment for “current employees” will also be required. This might not be limited to full-time employees. • Employees must get notice of the auto enrollment and have an opportunity to opt out. • Full-time employee status is not clear. Anticipate that it will be tied in with the 30 hour average workweek under the PPACA (see discussion below). 13
Auto Enrollment • For employee payroll deductions, in general, plans subject to ERISA are not required to comply with state laws pertaining to payroll deductions. • If the plan is not subject to ERISA (e.g. a governmental plan or church plan), state law will apply, except to the extent necessary to implement the auto enrollment. 14
Employer Mandate Tax – Overview Generally applies in 2015 to employers with 50 or more FTEs (2016 for certain employers with less than 100 FTEs). Two ways to be taxed • Tier 1 Employer does not offer a plan that has “minimum essential coverage” to all employees and their dependents � Annual tax of $2,000 for each Full-Time Employee in excess of 30 Full-Time Employees. � Tier 2 Employer does offer a medical plan that has “minimum essential coverage” to all employees and their dependents– potential annual tax of $3,000, but only for certain Full-Time Employees s who elect to buy coverage under an Exchange. Note: Taxes are actually calculated each month. Monthly tax amounts are $166.67 and $250.00. 15
Employee Determinations Employee status will be determined under common law rules – the employer of a worker is the person who has the right to direct and control the rendition of the services. • The real life facts and circumstances pertaining to control will determine who is the employer. • Under this standard, an employee leasing agency or “professional employer organization” (PEO) might not be considered the employer. • Partners in partnerships, directors and 2% shareholders in S Corporations are not considered to be employees. • In general, expatriate employees will not have to be considered 16
Special Rules for PEOs and Staffing Firms • Applies if the worker is the common law employee of the client employer • Coverage under the staffing firm plan will count as coverage offered by the client only if the client has to pay a higher fee to the staffing firm on account of the employee’s enrollment in the staffing firm health plan 17
Employer Mandate Tax - Applicable Large Employers Applicable Large Employer Test. • Determined on a calendar year basis • Average of 50 full-time employees on business days in the preceding calendar year. � Controlled Group Rules. Apply solely for purposes of counting to 50 full-time employees. Code Section 414(b), (c), (m) and (o). This aggregates all employees within a controlled group of corporations or trades or businesses under common control. � Employees working outside of the U.S. are not counted. Thus, small U.S. operations of foreign companies may be exempt. 18
Employer Mandate Tax- Applicable Large Employers • Predecessor Employers. Rules will require counting the employees of predecessor employers. • New Employers. If employer not in existence for all of the preceding calendar year, base it on reasonable expectations for the current year. 19
Employer Mandate Tax - Applicable Large Employers Calculating 50 Full-Time Employee Equivalents (FTEs) • Note: this is the method for determining if the employer has less than 100 employees and is exempt for 2015. Count all full-time employees. Then add in part-time employees as FTEs. Part-time employees are credited as fractions of FTEs. � Calculations are done monthly. � An employee is full-time for a month if the employee has 130 or more hours. � For all part-time employees, add their total hours for the month and divide by 120. The result is the FTE equivalent that is to be added in to the full-time employee total for that month. � For employees whose hours are not counted, use 8 hours per day worked or 40 hours per week worked. 20
Employer Mandate Tax- Applicable Large Employers • Once the FTE total is determined for each month in the prior calendar year, add all months together, and divide by 12. � If the result is 50 or more, the employer is an Applicable Large Employer for the current year. � It If the result is less than 50, the employer is NOT an Applicable Large Employer for the current year. 21
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