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Employer-Related Provisions in the Patient Protection and Affordable Care Act Applicable to Tribal Employers

A Presentation for the National Indian Health Board 31st Annual Consumer Conference

Samuel E. Ennis, J.D. September 10, 2014

sennis@sonoskysd.com

Washington, DC Juneau, AK Anchorage, AK Albuquerque, NM San Diego, CA

Sonosky, Chambers, Sachse, Endreson & Perry, LLP

What is the Affordable Care Act?

• President Obama signed the Patient Protection and Affordable Care

Act (ACA) into law on March 23, 2010.

• The ACA facilitates access to health care coverage through a variety
• f strategies:
• Medicaid Expansion.
• Individual Mandate.
• New insurance options and requirements for employers.
• Most ACA provisions are effective as of January 1, 2014.

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How does the ACA Affect Tribes as Employers?

• Option of purchasing employee health insurance through the Federal

Employee Health Benefits Program (FEHB) or the Small Business Health Options Program (SHOP).

• Tribes considered to be “large employers” may be required to provide

employees with affordable health coverage or else pay a tax penalty.

• Tribes offering group health plans subject to the Employee Retirement

Income Security Act of 1974 (ERISA) must provide beneficiaries with benefit summaries.

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Does the ACA Apply to My Tribe’s Health Plan?

• The ACA exempts certain types of employer health plans from some otherwise-applicable

provisions:

• “Large Group Market Plans” for larger employers.
• Grandfathered plans (plans that existed on March 23, 2010 and have not substantially changed coverage,

cost-sharing, or premiums since that date).

• Employer’s self-insured health plan.
• Collectively bargained fully-insured plan (until the expiration of the CBA).
• These exemptions vary based on the type of plan, but generally include (among other things):
• No requirement to provide Essential Health Benefits.
• No requirement to provide preventive care without cost-sharing.
• Exemption from certain appeal requirements for denied claims.
• Majority of the ACA applies to ALL EMPLOYER HEALTH PLANS, regardless of Tribal status. This

includes all rights and responsibilities in this presentation (unless otherwise noted).

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Federal Employee Health Benefits Program

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What is the Federal Employee Health Benefits Program?

• The United States federal government insures its employees through the

Federal Employee Health Benefits Program (FEHB).

• Section 409 of the Indian Health Care Improvement Act (IHCIA)

authorizes Tribes operating programs under the Indian Self Determination and Education Assistance Act (ISDEAA) to offer their employees FEHB coverage. 25 U.S.C. § 1647b.

• Section 409 does not authorize Tribes to offer coverage through the

Federal Employees Dental and Vision Program (FEDVIP).

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Who is Eligible for FEHB Coverage?

• In order to participate in FEHB, the Tribal employer must offer FEHB coverage to all
• f its eligible tribal employees (certain exceptions for unionized employees). There

is no minimum enrollment percentage requirement.

• An “eligible employee” is a full-time or part-time tribal employee who is considered a common law

tribal employee by the IRS, as well as a seasonal tribal employee who works more than six months in a year. It does not include a contract employee, tribal retiree, or volunteer.

• An employees spouse (including a valid common law marriage) and children under age 26 are also

eligible (with some restrictions on foster children).

• Tribal employees are eligible for FEHB coverage regardless of whether they’re tribal

members, or even Indians.

• An Indian tribe can continue to offer its tribal members coverage under a separate

health plan.

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When Can Employees Enroll in a FEHB Plan?

• Tribal employees may enroll in FEHB when they are hired,

during the Initial Enrollment Opportunity or annual Open Season, or if they experience a qualifying life event (QLE).

• Initial Enrollment Opportunity occurs when the employer chooses to

participate in the FEHB Program.

• Annual Open Season is the annual time period when tribal employees

can enroll, change, or cancel FEHB coverage.

• QLE is a defined event allowing enrollment outside of the Annual Open

Season, such as marriage, birth of a child, divorce, or loss of other group insurance coverage.

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How Much Do FEHB Plans Cost?

• Tribal employees may choose among any of the in-state plans offered through

FEHB, as well as among any available national plans. Plan costs will vary on a plan-by-plan and region-by-region basis.

• Employer’s required payment percentage of employee premium is statutorily set

at approximately 72-75% of the total monthly premium, as well as a per- employee administrative fee of approximately $15-20 per month.

• The tribal employer may optionally choose to contribute up to 100% of the premiums

for its employees.

• Current rates for each State and each plan are available on the OPM FEHB

website.

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Employer Shared Responsibility Payment

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What is the Employer Mandate?

• The ACA requires that “applicable large employers” either (1) provide their

employees with health insurance or (2) pay a tax penalty called the “Employer Shared Responsibility Payment” (informally called the Employer Mandate).

• Applicable large employers are those that “employed an average of at least 50

full-time employees on business days during the preceding calendar year.” 26 U.S.C. § 4980H(c)(2).

• Beginning on January 1, 2015 (or January 1, 2016 for some employers), the IRS

will levy the penalty on applicable large employers that either (1) do not offer health coverage to substantially all full-time employees and their dependents, or (2) offer coverage below a minimum level of comprehensiveness and/or affordability.

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Does the Employer Mandate Apply to Indian Tribes?

• The IRS has promulgated regulations applying the employer mandate to Indian

tribal governments and 501(c)(3) tax exempt organizations. 26 C.F.R. § 54.4980H– 1(a)(23).

• But the ACA definition of “applicable large employer” does not explicitly include

Indian Tribal employers. 26 U.S.C. § 4980H(c)(2).

• In the face of such statutory silence, courts have conducted a fact-intensive analysis to

determine whether the federal law applies to a Tribe or a certain Tribal activity.

• IRS can be expected to enforce the mandate against Tribal employers absent a

legal challenge.

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What are the Employer Mandate Penalties?

• Two kinds of Employer Mandate penalties:
• When the employer does not offer insurance to 95% of its full-time employees and their dependents.
• When the employer offers insurance that is either unaffordable for the employee or does not provide a

minimum level of coverage.

• Neither penalty applies unless an employee (1) subsequently enrolls in a QHP through the

individual Marketplace and (2) qualifies for an advance premium tax credit or a cost- sharing reduction. 26 U.S.C. § 4980H(a)(2), (b)(1)(B). This includes:

• Any premium tax credit allowed under 26 C.F.R. § 36B.
• Any cost sharing under section 1402 of the ACA, which includes cost sharing protections for Indians. 42

U.S.C. § 18071(d).

• Any advance payment of such credit or reduction under section 1412 of the ACA. 42 U.S.C. § 18082.
• Marketplaces will notify an employer that an employee has been determined eligible for

advance payments of the premium tax credit or cost-sharing reductions. 45 C.F.R. § 155.310(h).

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When Do the Penalties Begin?

• Employers with 100 or more employees are liable for the penalty beginning on

January 1, 2015.

• Employers with 50-99 employees will have a one year grace period (until

January 1, 2016) if they certify all of the following to the IRS:

• Between February 9, 2014 and December 31, 2014, any reductions in the employer’s

workforce size or hours of service were made for “bona fide business reasons,” and were not intended specifically to ensure that the employer fell within the 50-99 employee range;

• The employer will not eliminate or materially reduce whatever health coverage (if any) that it
• ffered to its full-time employees as of February 9, 2014 until the end of the 2015 plan year;

and

• The employer will not alter its plan year after February 9, 2014 to begin on a later calendar

date (for example, changing the start date of the plan year from January 1 to December 1).

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Penalty for Not Offering Coverage

• Applies when:

(1)In a given month, an employer offers health coverage to less than 95% of its full-time employees and their dependents, and (2)at least one of its full-time employees enrolls in a QHP through a Marketplace and receives an advance premium tax credit or cost sharing reduction for that month. 26 U.S.C. § 4980H(a); 26 C.F.R. § 54.4980H–4(a).

• Employers will not be penalized if they offer minimum essential coverage to an employee

who simply chooses not to accept it.

• An employer subject to this penalty must pay an amount equal to the total number of the

employer’s full-time employees for month at issue, subtracted by thirty, and then multiplied by 1/12 of $2,000 (about $166). 26 U.S.C. § 4980H(c)(2)(D).

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Penalty for Inadequate Level of Coverage

• Applies when an employer offers coverage to at least 95% of employees and dependents,

but an employee still receives a tax credit or cost sharing in the Marketplace because (26 U.S.C. § 4980H(b)(1); 26 C.F.R. § 54.4980H–5(a)):

(1)The offered coverage was unaffordable, meaning that the employee’s required contribution to the plan exceeded 9.5 percent of the employee’s family household income for the taxable year. 26 U.S.C. § 36B(c)(2)(C)(i). (2)The offered coverage did not provide minimum value to the employee, meaning that it failed to cover at least 60% of the costs of the total benefits provided under the plan. 26 U.S.C. § 36B(c)(2)(C)(ii).

• Penalty is calculated by taking the total number of inadequately-covered employees in a

given month and multiplying that amount by 1/12 of $3,000 ($250). 26 U.S.C. § 4980H(b)(1).

• Penalties under this provision cannot exceed what would have been assessed if employer had to pay the

inadequate offering of coverage for same employees. 26 U.S.C. § 4980H(b)(2).

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2015 Plan Year Exemptions from Employer Mandate

• Employers need not offer coverage to dependents (defined as natural or

adopted children only) if the employer can demonstrate that it has taken steps during its 2014-2015 plan years towards ensuring dependent coverage starting in the 2016 plan year.

• Employers need only offer the coverage to 70% of their total employees,

rather than 95%, in order to satisfy the first employer mandate penalty.

• First employer mandate penalty will be calculated for a culpable employer

with 100 or more employees by subtracting eighty employees, rather than thirty.

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Safe Harbors for Second Employer Mandate Penalty

• The following safe harbors apply to the second employer mandate penalty

(26 C.F.R. §§ 54.4980H–5(e)(2)):

• W-2 Safe Harbor. No penalty for any employee whose share of premium costs does not exceed

9.5% of the amount of wages the employee reports in Box 1 of his or her W-2 tax forms. Plan must provide minimum value and employee contribution must remain the same.

• Rate-of-Pay Safe Harbor. Employers will multiply each employee’s hourly rate of pay by 130, or

take the employee’s monthly salary, to find the “monthly wage amount.” A plan is affordable if the employee’s share of the premiums for self-only coverage does not exceed 9.5% of the monthly wage amount. Employers cannot reduce the employee’s wages during the tax year.

• Federal Poverty Level Safe Harbor. Plan is affordable for any month in which employee’s share of

the premiums for the calendar month for the lowest cost self-only coverage does not exceed 9.5%

• f the federal poverty line in the employee’s state of residence for a single individual for the

applicable calendar year, divided by twelve.

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Presenter

Sam Ennis is an associate in the San Diego office of Sonosky, Chambers, Sachse, Endreson & Perry, LLP, which specializes in representing tribal interests throughout the United States. Mr. Ennis works in all areas of the firm's practice, with a focus on health law and tribal self-

• governance. Mr. Ennis is a member of the National Indian Health Board Medicare & Medicaid

Policy Committee and has worked in conjunction with the Centers for Medicare and Medicaid Services Tribal Technical Advisory Group. He also serves as a consultant to the National Indian Health Board with regard to training on and implementation of the Affordable Care Act and IHCIA .

• Mr. Ennis graduated with honors from the University of Virginia, and then from the UCLA

School of Law, where he was Chief Comments Editor of the UCLA Law Review, interned at the United States Commission on Civil Rights, and participated in the UCLA Tribal Legal Development Clinic. He has authored numerous published articles on various aspects of Federal Indian law.

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Sonosky, Chambers, Sachse, Endreson & Perry, LLP 750 B. St., Suite 2520, San Diego, CA 92101, 619-546-5585, sennis@sonoskysd.com