Health Care Reform: Recent Guidance and Next Steps for Employers - - PowerPoint PPT Presentation
Health Care Reform: Recent Guidance and Next Steps for Employers Presented by: Chase Cannon, JD, LLM Vice President ,Counsel, NFP Benefits Compliance Reminders Please place your phone on mute for the call. If you would like to ask a
Presented by: Chase Cannon, JD, LLM Vice President ,Counsel, NFP Benefits Compliance
Please place your phone on mute for the call. If you would like to ask a question, please feel free to use
We will also have a Q & A period at the end of the
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Summary of Experience Chase joined NFP in 2010. He currently works with firms, employers and brokers to help solve their employee benefits-related compliance, regulatory and legal issues. Prior to joining NFP, Chase worked as an attorney at the Internal Revenue Service (IRS), Office of Chief Counsel in Washington, D.C., where he advised IRS agents and attorney litigators and drafted taxpayer guidance, including federal income tax regulations and private letter rulings, on issues relating to health and welfare benefits plans. He also spent two years as a judicial clerk for the Honorable Stephen Swift of the United States Tax Court in Washington, D.C. Professional Affiliations and Credentials Chase holds a Bachelor of Science in political science from the University of Utah, a Juris Doctor from the University of San Diego School of Law and a Master of Laws in Taxation from Georgetown University Law Center. He is a member of the State Bar of Maryland.
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Quick Review of Existing Obligations Employer Mandate Proposed Regulations
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Health FSA Annual Limit Summary of Benefits and Coverage (SBC) Form W-2 Cost of Coverage Reporting PPACA Fees, Contributions, and Taxes Notice of Exchange Premium Variations for Employer-sponsored Wellness
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Four times SBC to Participants & Beneficiaries (Plan years after 9/23/12)
the participant or beneficiary is eligible to enroll in the coverage
enrollment
policy year
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SBC may be provided in paper format or electronically The same rules apply as how to distribute SPD’s electronically
information
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OVERALL IMPACT = 5-7% Increase in Premium Rates Both Fully and Self-insured Plans
PCOR Fee Reinsurance Contributions
Only Fully Insured Plans
Health Insurance Tax
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PCOR (aka Comparative Effectiveness Research Fee) Will fund PCOR Institute (research the effectiveness of
Applies for plan years ending after 9/30/12 until 9/30/19
Fully Insured: Insurer (pass through cost to customers) Self-insured: Plan sponsor (usually the employer) $2 times the average number of covered lives ($1 for plan
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Fund reinsurance program for state exchanges
Essentially it’s insurance for insurers in the individual market
Report due Nov. 15, 2014; Payment due Jan. 15, 2015
Runs for 3 years (2014-2016)
Fully Insured Plans: Insurer (pass through cost to customer) Self-insured plans: Plan sponsor (usually the employer) $63 per covered life per year Tax deductible
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Actual count method - Calculate the sum of the lives covered
Snapshot method - Add the totals of lives covered on one date
Form 5500 method - Utilize the number of participants reported
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Help fund cost of PPACA implementation and exchanges Each calendar year beginning after Dec. 31, 2013
Applies ONLY TO Fully Insured Plans
Self-insured plans are exempt
Exact Amount Unknown: Carriers will split target amount
Target Amounts: 2014 = $8 billion; By 2017: $13.9 billion
Not tax deductible (increases impact)
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DELAYED!!! (Originally due March 1, 2013)
In Summer/Fall, employers must distribute to current employees
Applies to employers who are subject to the FLSA DOL will produce a model notice Content requirements: Notifies of the existence of the Exchange A description of the Exchange’s services That they may be eligible for a premium tax credit or cost-
Contact information
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Employers will be able to vary premiums by as much as 30% for
Recent guidance authorizes this to increase up to 50% for
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For employers that sponsored a non-calendar year plan on Dec.
No penalty due for the period prior to the first day of the 2014
So if you have a non-calendar plan year, employer mandate
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Am I an “applicable large employer”? Who are my full-time employees to whom I must offer
Is the offer and the coverage sufficient to avoid the
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Applicable large employer is an employer that:
Employed at least 50 full-time employees
those working 30 or more hours per week
Taking into account part-time employees (full-time equivalents) During the previous year
Determination of applicable large employer relies on
Applies to all types of employers, including for profit, non-
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All part time employees are included in employer size
Aggregate number of hours of service in one month for all part-time
employees (but no more than 120 hours / employee)
Divide the aggregate number by 120 Add the full-time equivalent count to the full-time employee count Disregard all fractions
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A law firm employs 42 employees who work more than 30 hours / week.
The law firm also has 15 part time employees who average around 15 hours / week.
The total number of part-time hours for the month of January is 900.
Divide the total number of part-time hours for the month by 120 (900 / 120 = 7.5). In this scenario we have 7.5 full-time equivalent employees.
Add the number of full-time equivalent employees to full-time employees to determine if the employer hits the 50-employee threshold. 42 + 7.5 = 49.5.
Disregard the fractions. 49.5 full-time employees (including full-time equivalents) would be rounded down to 49 total full-time employees.
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For 2014 only, employer may use any 6 month consecutive
Example: Employer measures it size by counting employees from March
through August 2013. If employer is an applicable large employer, it may then use September 2013 through December 2013 to establish a plan to avoid penalty.
For 2015 and Beyond
Use prior calendar year
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Solid Yes:
W-2 employees (including temporary, seasonal, intern, commission-
based, per diem/piece work)
Solid No (per regulations):
Sole proprietors, partners, 2-percent S corp. shareholders, and
leased employees (as defined in 414(n)(2))
Unclear:
1099, Staffed Employees, and PEOs
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Seasonal employee exemption:
if an employer’s workforce exceeds 50 full-time employees for 120
days or fewer during a calendar year, and
the employees in excess of 50 who were employed during that
period of no more than 120 days were seasonal workers, then
The employer is exempt from being an “applicable full-time
employer”
May use 4 months or 120 days (whether or not
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Common ownership rules under Code §414(b), (c), (m), or (o) apply for large employer determination.
Parent-subsidiary controlled group of corporations
One or more chains of corporations with a common parent. The common
parent owns, directly or indirectly, 80% or more of the shares or interest in the corporations
Example: Question: ABC Consulting has 5 employees. ABC Consulting
also owns 100% of GHI Construction, which has 30 employees. Are the employers subject to the employer mandate?
Answer: Yes. They collectively have 50 or more EE’s and are treated as a
single employer. Each entity would be subject to the employer mandate. ABC 5 EE’s DEF 25 EE’s GHI 30 EE’s
100% 100%
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Misclassification Issue
This is not a new issue, just manifesting itself in a new context
under the employer mandate)
1099 independent contractor vs. W-2 employees
Looks at the Relationship between the Employer and the Employee Employer has the right to control and direct the individual who
performs the services: Look not only at the result of the work but also at the details and means by which that result is accomplished.
Employment Tax Returns may be good source if you don’t know (but
that doesn’t mean they’re not misclassified)
Employers should be tracking this information already!
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The IRS has broken the “right to control” factor into three
Behavioral control
ER controls scheduling, tools, supplies, individual assignments
Financial control
If employee, cannot profit or loss; can just get paid If contractor, can profit or loss (may have unreimbursed expenses)
Type of relationship the parties have created
Employee offer letter, permanent v. temporary basis, other employee benefits?
For more information, see IRS Publication 15-A, available at: www.irs.gov/pub/irs-pdf/p15a.pdf
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Is the recipient organization or the staffing/leasing
Overall the answer is unclear Common law employee analysis (control factors) We hope future guidance will clarify
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Anti-abuse rule: IRS is aware of structures to evade application of section
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Leased employees are not treated as employees of the service recipient for purposes of the employer mandate requirement.
The term "leased employee" means any person who is not an employee
(A) such services are provided pursuant to an agreement between the
recipient and any other person (in this subsection referred to as the "leasing
(B) such person has performed such services for the recipient (or for the
recipient and related persons) on a substantially full-time basis for a period of at least 1 year, and
(C) such services are performed under primary direction or control by the
recipient.
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Determine if employees are your employees Add up number of full-time employees Add up number of full-time equivalents If sum is 50 or more
YOU ARE A WINNER!!! And you’re subject to the employer mandate
NEXT STEP:
Determine Which EEs Are FTEs to Whom You Must Offer Coverage
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Two Questions:
Is the employee actually employed by the employer? Is the employee a “full-time employee”?
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Solid Yes:
W-2 employees (including temporary, seasonal, intern, commission-
based, per diem/piece work)
Solid No (per regulations):
Leased employees (as defined in 414(n)(2)), Sole proprietors,
partners and 2-percent S corp. shareholders
Unclear:
1099, Staffed Employees, and PEOs
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A full-time employee is an employee who was employed on
Hours of service includes hours for which an employee is paid even
when no work is performed (vacation, illness, holiday, leave, military duty, jury duty).
130 hours of service per month is the monthly equivalent of 30
hours of service / week.
An hour of service for one applicable large employer member is
treated as an hour of service for all members.
Count only hours worked in the U.S.
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30- hour threshold is the same
“Applicable large employer”- discussed previously For purposes of determining whether pay or play penalties apply,
there are some differences:
Applicable large employer Pay or play penalties Part-time employees are counted as full-time equivalents Penalty is not assessed on full-time equivalents who do not average 30 hours/week
Test to determine is retrospective (looks at employee’s work history in preceding calendar year) Looks at employee’s hours
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Human Resources Considerations
Exception reports Accounting v. Payroll tracking methods HR professionals have been having conversations about for years Employer mandate is bringing this to the surface.
FLSA Considerations
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Employees whose schedules you know (or should know)
Hourly Non-hourly/Salaried Part-time, full-time as defined in your handbook and benefits Seasonal (maybe) Temporary (maybe)
Employees that no one knows (even the IRS)
Airline pilots, adjunct professors, commissioned salespeople
Employees whose schedules you might not or truly don’t know
Seasonal and temporary Variable hour
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Look at employees’ hours of service on a monthly and ongoing
1.
2.
a)
b)
c)
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Special compared to other workplaces because they
Paid leave- included in hours of service Unpaid Leave- disregard when averaging hours of service
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Employer mandate would not apply to full-time employees
If coverage offer is not made, penalty includes 90 day period If coverage offer is made, penalty does not include 90 day period
Issues regarding short-term employment exceeding three
The IRS is seeking comments on this issue.
Concern of abuse. Inefficiency of offering coverage to employees whose employment is
not expected to last more than 4 or 5 months for example.
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Pilots, Adjunct faculty, Commission based employees Some workers are compensated in a manner that is not tied to
Airline pilots are limited by law in the number of hours that they are
permitted to fly.
Adjunct faculty members are paid based on credit hours taught.
Educational organizations typically do not track hours worked outside of
credit?
Salespeople that are only compensated on a commission basis.
Employers may not track hours worked.
Until further guidance is issued, employers must use a
For example, it would be unreasonable to not count travel time for a
salesperson paid on a commission basis; or to not include class preparation time for adjunct faculty
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New full-time employee
Start date “Reasonably expected” to be employed on average of 30 hours of
service per week
Offer of coverage no later than initial three calendar months of
employment to avoid pay or play penalty
“Reasonably expected”
(1) Whether the employee is replacing an employee who is a full-
time employee
(2) Whether the hours of service of ongoing employees in the same
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Seasonal employees- maybe “Labor is performed on a seasonal basis where, ordinarily,
New definition- expanded. Until further guidance,
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For ongoing employees Standard Measurement Period: 3-12 consecutive months Stability Period: Same as measurement period, but at least 6
Admin Period: Up to 90 days For new (variable hour) employees Initial Measurement Period: 3-12 consecutive months Stability Period: 6 months or standard measurement period
Admin Period: Up to 90 days
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2013
31, 2013
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New Employees: Measurement starts on date of hire Date of hire = March 1, 2014
2014
31, 2014
2015
July 1 – Nov. 30, 2014
31, 2014
2015
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PENALTY A applies if the employer: (1) Fails to offer its full-time employees and their dependents
Amount of Penalty A: $2,000 x total number of FTEs (minus 30)
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PENALTY B applies if the employer: (2) Offers its full-time employees and their dependents the
Amount of Penalty B: $3,000 x total number of FTEs receiving tax credit
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Dependents Minimum Essential Coverage Minimum Value Affordability Offer
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Dependents: Limited to employee’s children who are under the
May rely on employee’s representation concerning identity
Does NOT include employee’s spouse Incorporates definition in §152(f)(1) Daughter/son Stepchildren Adopted children Foster children
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Minimum Essential Coverage Coverage under an eligible employer-sponsored plan which
Defined very broadly and includes virtually any employer-
Incorporates definition found in IRS Code Section 5000A(f) Expect more regulations on health reimbursement and
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Minimum Value: A plan fails to provide minimum value if the
Employee does not have to pay more than 40% of the costs
Large group plans = 80% Small group plans = 70% HDHP = ? On November 26, 2012, HHS issued proposed regulations on
A minimum value calculator made available by HHS and
Actuarial certification Safe harbor checklist
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Affordability: Coverage for an employee under a plan is
Household income: The modified adjusted gross income of
Difficulty for Employers Resulted in THREE SAFE HARBORS
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Safe Harbors: Do not apply to determining the penalty amount Do not affect employee’s eligibility for premium tax credit Are optional for the employer May choose to use any/all of the safe harbors for any
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Under the Form W-2 safe harbor test:
Look at employee’s W-2 wages from
his/her job with employer only (not family income)
Look at employee’s single coverage
cost under the employer’s lowest cost plan
And if cost of employer’s cheapest single coverage plan is less
than 9.5% of employee’s income, the employee has access to affordable coverage
Employee-by-employee basis Look at end of calendar year wages Ex: Look at 2014 Form W-2 wages and compare to 2014
premiums
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Employer satisfies rate of pay safe harbor if:
Employee’s contribution for the month for the employer’s
Ex: ER offers coverage to EE and his dependents. The
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Employer satisfies rate of pay safe harbor if: Salaried employees use monthly salary May use any reasonable method for converting payroll
Ex: ER offers EE + dependents coverage. EE begins
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Federal Poverty Line Safe Harbor
Employer satisfies this safe harbor if the employee’s required
contribution for the month (for the employer’s lowest cost of self- coverage that provides minimum value) does not exceed 9.5% of the federal poverty line for a single individual for a calendar year, divided by 12.
Applicable federal poverty line is the line for the state in which
the employee is employed.
If coverage offered during at least one day of the month, the
entire calendar month is counted.
Ex: Assume federal poverty line for an individual is $11,170.
ER determines the monthly employee contribution for employee-only coverage for the year is an amount equal to 9.5% multiplied by $11,170 or $1,061.15. $1,061.15 is then divided by 12. Thus, safe harbor satisfied if employee contribution is less than $88.43 regardless of the employee’s wages.
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EE must have meaningful opportunity to accept/decline
Cannot render employee ineligible for tax credit by providing
Nonpayment or late payments
ER is not required to provide coverage for period where
95% of full-time employees = “substantially all”
For “small” employer: 5 employees if greater than 5%
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No aggregation in determining liability of an applicable large
The determination of whether an employer is subject to
Computed and assessed separately for each applicable
In calculating liability under Section 4980H(a), employer is
Allocate employees ratably among commonly-owned
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Transition Rule through 2014 Employer will not be treated as failing to offer the opportunity
(i) the employer is required to make a contribution to a
(ii) coverage under the multiemployer plan is offered to the
(iii) the coverage offered to the full-time employee is
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Start Here
Does the employer have at least 50 full- time equivalent employees? Penalties do not apply to small employers.
No Yes Employees working at least 30 hours per week + total part-time hours / 120 70
The penalty = $2000 annually x # of full-time workers (- 30)
Did at least one employee receive a premium tax credit/subsidy in the Exchange?
Does the employer
coverage to its workers?
Yes No Yes Yes
The employer must pay a penalty
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Does ER plan pay for 60%
health care expenses?
Employees will qualify for a premium tax credit in the Exchange
Does the employer
affordable coverage to its workers? Employees will qualify for premium tax credit in the Exchange.
The employer must pay a penalty
No No Yes Yes Yes The penalty = $3000 x # of employees receiving premium tax credit (capped at total from above) No Penalty 72
How and when does an employer get assessed a penalty? Reporting Cycle 2015: Two Months to Remember
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Informational Reporting Due
Report to IRS ER name, date and EIN Whether ER offers coverage to all FTEs/dependents Number of FTEs for each month Name, address and TIN of each FTE covered during year Months during which coverage was available to FTEs Monthly premium for lowest cost option(s) ER’s share of the total allowed costs of benefits (minimum value) Any waiting periods Report to Covered Employees Summary of above (with respect to that individual)
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IRS Contacts Employers Employer May Respond IRS Sends Notice of Payment
Process may take 3-6 months
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As an applicable large employer: How will you defend your January 2015 Report? How will you respond to an April 2015 IRS Inquiry? Boils down to this:
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Planning for employer mandate Evaluate plan cost and design: Affordable and Qualified? Develop definition of eligible employee (and dependents) Evaluate employee population Consider tax consequences Consider employee compensation and retention Assess total rewards strategy
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