Transcript DOCUMENT TITLE (28 PT, ARIAL, ALL CAPS, BOLD)

ACMA Conference
PPACA - Understanding the Employer Mandate
Aaron Polkoski
Benefits Consultant
July 25, 2013
Copyright ©2013 by The Segal Group, Inc., parent of The Segal Company. All rights reserved.
Employer Shared Responsibility Penalty (4980H)
Beginning with the first day of the plan year in 2015*, certain large
employers may be subject to a penalty tax, called an Employer
Shared Responsibility Penalty, for failing to offer minimum
essential health care coverage to full-time employees and their
dependent children OR offering such coverage that is not affordable
and/or does not offer a minimum value.
 * On July 2, 2013, the Treasury Department announced that it is delaying until 2015, the employer shared
responsibility penalties that were to have started with the 2014 plan year. Treasury is also delaying by
one year, the detailed reporting requirements for employers and insurers that would have applied to
coverage provided during 2014. This transition relief does not currently apply to any other provisions of the
ACA, including the individual mandate.
1
Paying the Penalties
The Congressional Budget Office has projected that employers will
pay $150 BILLION in penalty payments over a 10-year period.
As a large employer, how much do you want to contribute to this
amount?
Large employers
will need to learn the
“ins and outs”
of this
(4980H) penalty tax
in order to avoid it.
2
Employer Shared Responsibility Penalty (4980H)
 4980H penalty applies to “large” employers starting on the
first day of their plan year in 2015
 “Large employer” means an employer who employed an average
of at least 50 “full-time employees” on business days during the
preceding calendar year (include FT equivalencies of part-time
employees based on 120 hours = 1 FTE for 1 month. Employees
references a common law relationship between employer and employee)
 “Full-time employee” means an employee who works on
average 30 “hours of service” or more per week (e.g., 130
hours of service or more per month)
– “Hour of Service” includes:
» Hours Worked (meaning each hour for which the employee
is paid, or entitled to payment, “for the performance of
duties”); AND
» Paid-Time Off (meaning each hour for which the employee is
paid, or entitled to payment, for the period of time due to
vacation, holiday, illness, incapacity (including disability),
layoff, jury duty, military duty, or leave of absence)
 4980H penalty not applied if employee worked <3 months
3
Employer Shared Responsibility Penalty 4980H(a)
No Coverage Penalty (also known as “Pay or
Play” or 4980H(a))
 If a “large employer” does not offer to 95% of its
“full-time employees” (and their dependent children
up to age 26) an opportunity to enroll in minimum
essential coverage (group medical plan coverage), and
at least one full-time employee enrolls in the
Exchange and receives a government subsidy to
help pay for Exchange coverage, then the large
employer is subject to a penalty.
 Penalty is $2,000/year** times EACH of an
employer’s full-time employees.
– (** adjusted for inflation)
– In calculating the penalty the first 30 full-time employees are
excluded.
– Minimum essential coverage means any employment-based group
health plan of any actuarial value, insured or self-insured, except
one that consists only of HIPAA “excepted benefits” like insured
dental and vision coverage.
4
Employer Shared Responsibility Penalty 4980H(b)
Unaffordable Coverage (also known as “Free Rider” or
“Employer Shared Responsibility” or 4980H(b)) Penalty
 If a large employer offers to at least 95% of its full-time
employees (and their dependent children) an opportunity to
enroll in minimum essential coverage, that alone will not
necessarily avoid penalties, because the coverage offered must
be both affordable and valuable to the employee
 If at least one full-time employee enrolls in the Exchange and
that employee is able to receive a government subsidy because
the employer’s coverage is considered to be either unaffordable
or of low-value, then the employer is subject to the 4980H(b)
penalty
 The penalty is $3,000/year** times each full-time employee
who is certified to receive a government subsidy
– (**adjusted for inflation)
– This 4980H(b) penalty is capped at the level of the value of the 4980H(a) penalty
 Note that this (b) penalty could be applied to any full-time employees
that you fail to offer minimum essential coverage, if they receive a
subsidy toward Exchange coverage.
5
Delay to 2015 for 4980H Penalties
Even though on July 2, 2013, Treasury
announced a one year delay in applying
penalties to large employers for failing to
meet 4980H (a) and (b) obligations, large
employers will still need to determine
affordability and minimum value of
coverage because this information is
needed for:
 The required Employer Notice about
coverage options in the Marketplace
 And the information is relevant to whether
participants and/or their family members
will qualify for premium assistance tax
credits (subsidies) in Health Insurance
Marketplaces starting in January 2014.
6
Affordability
 An employee is eligible for government subsidized coverage in an Exchange
(a premium assistance tax credit or “subsidy”) if:
1. the employer sponsored medical plan is unaffordable: meaning employee
premiums/contributions for the single coverage option with the lowest cost plan
are more than 9.5% of the employee’s household income
3 safe harbor methods for determining household income:
 W-2 is individual’s contribution/premium greater than 9.5% of the employee’s
compensation from Box 1 on form W-2 for the year just ended; or
 Rate of Pay (hourly rate of pay for each hourly employee who is eligible, multiplied
by 130 to determine affordability based on the monthly wage); or
 Federal Poverty Level (does self-only coverage exceed 9.5% of the most recently
published federal poverty level for a single individual)
May use different safe harbor for different categories of employees provided the
categories are reasonable. Rate of Pay may be the method that gives the employer
the most control to assure that the plan is “affordable.”
7
Minimum Value
 An employee is eligible for government subsidized coverage in an
Exchange (a premium assistance tax credit or “subsidy”) if:
2. the medical plan options do not provide at least minimum value (meaning
at least one medical plan option offered has an actuarial value of at least
60%)
Regulations include ways to determine the minimum value:
1. A minimum value (MV) calculator and methodology made available by
IRS and HHS
2. Design-based safe harbor established by HHS and IRS
3. Certification by an actuary if the plan has non-standard features not
suited to the calculator or safe harbors
4. (The final regulations also added a fourth method for use by small
employers)
 In terms of avoiding the 4980H(b) penalty, must be careful as there is NO de minimis
exception for missing the 60% threshold on minimum value.
 The following can enhance actuarial value:
Employer contributions to Health Savings Accounts (HSAs)
Current year employer contributions to Health Reimbursement Arrangements (HRAs) if
the HRA can only be used to reimburse cost sharing.
8
The 4980H Penalty Process
START
Are you a
large employer?
YES
Does the large employer
offer medical plan coverage to
at least 95% of its FT
employees (& their
dependent children)?
NO
NO
No Penalty
Does a FT employee of the
large employer get a premium
assistance subsidy?
YES
4980H(a)
Penalty
Applies
YES
4980H(b)
Penalty
YES
4980H(b)
Penalty
NO
YES
Is the medical plan coverage
offered to FT employees
affordable?
No Penalty
NO
Does a FT employee of the
large employer get a premium
assistance subsidy?
NO
YES
No Penalty
Does the medical plan
coverage offered to FT
employees provide minimum
value?
NO
Does a FT employee of the
large employer get a premium
assistance subsidy?
YES
NO
No Penalty
No Penalty
9
Reminder…
In order to avoid a 4980H(a) penalty, a
large employer must offer minimum
essential coverage to at least 95% of its
full-time employees and their children.
If an employer offers such coverage to
at least 95% of full-time employees and
their children, the employer will not be
subject to the 4980H(a) penalty but
may still be subject to the 4980H(b)
penalty if such coverage is not
affordable and/or not of minimum value.
You must keep your eye on both (a) +
(b) at the same time from now on.
10
Safe Harbor for Determining Hours of Service
The IRS safe harbor method allows a large employer the
opportunity to assess whether or not certain employees
constitute a “full-time” employee to whom coverage must be
offered or else a 4980H penalty could apply.
Large employers have the option to use a “look back”
measurement period of between 3 and 12 months to determine
whether variable-hour employees or seasonal employees are
full-time employees, without being subject to a 4980H penalty.
 Thus a key advantage of the safe harbor is that a variable
hour or seasonal employee does not have to be offered
coverage during the measurement period.
Using the safe harbor method is voluntary
Do not need to use the safe harbor if it is reasonably clear
which employees have 30 or more hours of service per week
(130 hours per month) and which have fewer hours than that
11
Taking Steps to Avoid Employer Penalties in 2015
 Are you a “large employer” with 50 or more full time equivalents?
 If so, do you offer minimum essential medical plan coverage to at least
95% of your full time employees (and dependent children), meaning
employees who work, on average, 30 hours or more per week?
 Have you assessed all possible common law employees?
 Do you need to redefine the # of hours that qualifies an employee
for coverage?
 Can you afford the additional cost to reach at least 95% in order
to avoid the $2,000 “No Coverage” penalty?
 Work with your payroll dept. to find possible common law employees and
to determine how many employees working 30 hours or more per week
are NOT offered the opportunity to enroll for medical plan
coverage?
 Can you afford to offer these employees coverage in 2015?
– If not, you’ll need to be sure these employees always work
LESS than 30 hours/week starting with the first day of your plan
year in 2015 or be prepared to pay a 4980H a or b penalty.
12
Time to Contemplate Some Tough Decisions
 As a large employer, do you plan to take steps in 2013 to AVOID THE
EMPLOYER PENALTIES starting 2015?
 If so, evaluate all employees (their job category, hours worked, benefits
eligibility) to help avoid potential financial penalties in 2015 and beyond?
 Do you need to change your business model in order to deliver services
and avoid 4980H penalties?
 Are you thinking you need to alter your philosophy of health benefits for
current retirees? For future retirees?
 How do health benefits currently fit into your bigger picture of recruitment,
retention and employee satisfaction?
 Do you need to revisit this issue with your strategic planning this year and each
year thereafter?
 How much do you need to design your health benefits strategy in concert
with what other employer plans do? Your peers?
 Future considerations?
 Maintain your employer sponsored group health plan, working to avoid penalties
 Eliminate health benefits (with or without an employee stipend) and encourage
individuals to purchase benefits through an Exchange
13
Additional Resources
 Health Reform: http://www.healthcare.gov/
 Dept. of Health & Human Services (HHS):
http://cciio.cms.gov/resources/other/index.html#sbcug
 Dept. of Treasury/Internal Revenue Service:
http://www.irs.gov/newsroom/article/0,,id=220809,00.html?portlet=6
 Dept. of Labor: http://www.dol.gov/ebsa/healthreform
 SBC Information: http://cciio.cms.gov/resources/other/index.html
 SBC Frequency Asked Questions (FAQs):
http://www.dol.gov/ebsa/faqs/faq-aca8.html
http://www.dol.gov/ebsa/faqs/faq-aca9.html
Segal’s website: http://www.segalco.com/publications-and-resources/health-care-reform/
14
Additional Resources
 Benchmark Plans: http://cciio.cms.gov/resources/data/ehb.html
 Treasury Proposed Rule (published 1-2-13) http://www.irs.gov/pub/isr-drop/n-12-58.pdf
 Treasury FAQs (issued 12-28-12) http://www.irs.gov/uac/Newsroom/Questions-andAnswers-on-Employer-Shared-Responsibility-Provisions-Under-the-Afforadable-Care-Act
 IRS Notice 2-12-58 (issued 8-31-12) http://www.irs.gov/pub/irs-drop/n-12-58.pdf
 Notice 2012-59: http://www.irs.gov/pub/irs-drop/n-12-59.pdf
 Whistleblower: https://www.federalregister.gov/articles/2013/02/27/2013-04329/proceduresfor-the-handling-of-retaliation-complaints-under-section-1558-of-the-affordable-care-act
 FAQ (4-29-13): http://www.americanbenefitscouncil.org/documents2013/hcr_faq15_aca.pdf
 FLSA Employers: http://www.dol.gov/elaws/esa/flsa/scope/screen9.asp
15
Questions?
Don’t sit back and relax….You have
steps to take to comply with PPACA!
5261645
As always, plan sponsors should rely on legal counsel for authoritative advice on the
interpretations and application of federal laws and regulations.
16