Transcript Document

THE KINNEY FIRM
MARK J. KINNEY
(952) 892-7022
[email protected]
Health Care Law Developments and
the Impact on Public Employers
South Central Service Cooperative
April 2, 2013
Introduction
• The 2,000-page Patient
Protection and Affordable
Care Act (ACA) was passed
on March 23, 2010
• 20,000 pages of regulations
have been issued to date
• 828 pages were issued in
one day this March
• Much is in proposed form
and much will change
• Many key issues have not
been addressed
COPYRIGHT © 2013 MARK KINNEY
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Effective Dates for Schools
• IF you offered coverage to at least one third or more of
your employees during the last open enrollment period
• THEN the “pay or play” rules described in this
presentation do not apply until the first day of your plan
year beginning in 2014
• HOWEVER you must begin measuring hours of service no
later than July 1, 2013 if your plan year begins on July 1,
2014
• BEST PRACTICE requires that you begin measuring hours
of service before July 1, 2013 so you have time to conduct
open enrollment during an administrative period
• RECOMMENDATION is to begin measuring hours of
service in April 2013
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Who Must be Offered Coverage?
• To avoid penalties, applicable large employers
(generally, with 50 or more full-time employees or
FTE equivalents) must offer coverage to:
– At least 95% of all common law employees who:
• work at an average of 30 hours per week
• during the academic year
– This may include:
• Substitute teachers
• Paraprofessionals
• Clerical and administrative personnel
• Bus drivers/cooks/custodians
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Measuring Hours of Service to
Determine Full-Time Employees
• A full-time employee means persons who work an average of 30 hours
per week
• Hour of service includes:
– Each hour for which the employee is paid, or entitled to payment;
and
– Each hour for which the employee is paid, or entitled to payment, for
vacation, holiday, sick time, disability, jury duty, military duty, or
leave of absence (up to 160 continuous hours)
• Three possible methods for non-hourly workers:
– Actual hours worked (if they can be measured) and non-worked
hours for which he or she is paid, or entitled to payment
– Days-Worked Equivalency – Credit 8 hours of service per day for
each day for which the employee would be credited with at least one
hour of service
– Weeks-Worked Equivalency – Credit 40 hours of service per week for
each week for which the employee would be credited with at least
one hour of service
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Special Rule for Educational
Institutions/Miscellaneous
• Applicable employment period is the academic year
• For purposes of determining average hours, the
measurement period must exclude summer break
• In the alternative, the educational organization may
credit hours during the break period equal to hours
worked during the academic year (but not more than
501 hours need be credited)
• IRS and HHS is considering customized guidance
across a wide range of professions, ranging from
pilots to commissioned salespersons
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Penalty Scheme for Large Employers
• The $2,000 penalty for failure to offer coverage to full-time
employees
– When an applicable large employer fails to offer minimum
essential coverage to at least 95% of all full-time employees
and at least one full time employee receives a premium tax
credit or cost-sharing reduction from an exchange, a monthly
assessable payment is determined as follows:
1/12 of $2,000 X (# Full Time Employees - 30)
• The $3,000 penalty
– When an applicable large employer offers minimum essential
coverage that is not “affordable” for some employees or does
not provide “minimum creditable coverage,” a monthly
assessable payment is determined as follows:
1/12 of $3,000 X # Full Time Employees who enroll on exchange
and receive tax credits or cost-sharing reductions
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Example: School District A in 2014
• School District A provides group health coverage for
100 of its full-time employees, which it currently
defines as employees who work 32 hours per week.
• School District A employees 15 employees who work
at least 30 hours per week but less than 32 hours.
They must be offered coverage.
• Option 1: Offer coverage to the 15 employees
– Average cost to employer: $6,000 per employee
– Cost to provide coverage: $90,000 per year
– Total cost (115 FTEs x $6,000): $690,000 per year
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Failure to Cover All Full-Time
Employees, Cont.
• Option 2: Decline coverage to the 15 employees
– Assessable payment: $2,000 x (115 FTEs - 30) =
$170,000
– Cost of coverage for 100: $600,000 (100 x $6,000)
– Total Cost: $770,000
• Option 3: Provide no coverage
– Assessable payment: $170,000.
– May not be an option under collective bargaining
agreements.
– Many will not be eligible for subsidies on the
Exchange.
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Option 4: Manage Hours
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Option 4: Manage Hours (Cont.)
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Impact of of Employer Contributions
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Impact of Employer Contributions (2)
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Safe Harbor Rules: Determining FullTime Status of Ongoing Employees
Step 1: Determine Standard Measuring Period (look-back period)
Not less than 3 months
Not more than 12 months
Step 2: Determine who is a full-time employee during the look-back period
Average at least 30 hours of service per week
Step 3: Provide coverage during a “stability period” regardless of actual hours
At least 6 months in duration
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Not shorter than look-back period
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Administrative Period
• Employers may separate the Standard Measurement
Period and the Stability Period by an Administrative
period
• Purpose of the Administrative Period is to allow time
to identify who is eligible and conduct enrollment
• Administrative Period may be up to 90 days
• The Administrative Period should fall within the end
of a Stability Period to avoid any loss of coverage
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New Employees
• If an employee is reasonably expected at his or her start
date to work full-time, an employer must offer coverage no
later than the end of the 90-day waiting period.
• If it cannot be determined on the start date whether the
employee is reasonably expected to work on average at
least 30 hours per week (a “variable hour employee”),
– The employer may use a measurement period of between 3
and 12 months and an administrative period of up to 90 days.
– The measurement period and the administrative period
combined may not extend beyond the last day of the first
calendar month beginning on or after the one-year
anniversary of the employee’s start date (at most 13 months
plus a partial month).
– The stability period for such employees must be the same
length as the stability period for ongoing employees.
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VARIABLE HOUR/SEASONAL EMPLOYEE
Init Msmt Period 6 Start 9 1 2014
Admin Period
3.0
Stability Period 12
31
Yes
2012
J F M A M J
2013
2014
J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D
2015
J F M A M J
2016
2017
J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D
ONGOING EMPLOYEE
Stnd Msmt Period 12 Start
Admin Period
3.0
Stability Period 12
10 1 2014
Employee:
Anderson, John F.
Average Weekly Hours During Stnd Measurement Period:
Is Employee Entitled to Coverage During Stability Period?
29
No
2012
J F M A M J
2013
2014
J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D
2015
J F M A M J
2016
2017
J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D
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Employee:
Anderson, John F.
Average Weekly Hours During Initial Measurement Period:
Is Employee Entitled to Coverage During Stability Period?
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Contract and Collective Bargaining
Issues
• Minn. Stat. Sec. 179A.20, Subd. 3, provides as
follows: “A contract between a school board and an
exclusive representative of teachers shall contain the
teachers' compensation including fringe benefits for
the entire two-year term and shall not contain a wage
reopening clause or any other provision for the
renegotiation of the teachers' compensation.”
• No collective bargaining agreement should be
finalized in 2013 before the employer’s liability for all
employees is clear
• Contracts with other staff may include reopening
clauses
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Possible Reopener Language (other
than for Teachers contracts)
• Final regulations have not been issued under many
provisions of the Patient Protection and Affordable
Care Act (ACA). This creates considerable
uncertainty regarding the Employer’s financial
obligations. This agreement may be reopened and
all material terms of compensation, hours, and fringe
benefits (include health benefits) may be subject to
negotiation and change as reasonably necessary to
comply with the ACA and to address any increase in
cost that the ACA may require.
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Cost of Coverage on the Exchange for a Family
of Four
Federal poverty level for a family of four in 2013: $23,550
FPL %
Household Income
Premium %
Monthly Cost
133%
$31,322
2.00%
$52.20
150%
$35,325
4.00%
$117.75
200%
$47,100
6.30%
$247.28
250%
$58,875
8.05%
$394.95
300%
$70,650
9.50%
$559.31
400%
$94,200
9.50%
$745.75
Over 400%: No cap on premiums; rules prohibit pre-tax contributions
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Effect on Employees of Plan
Termination
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Modified Adjusted Gross Income
(MAGI)
• Wages, Salary
• Interest
• Dividends
• Alimony and Separate Maintenance Payments
• Life Insurance and Endowment Contracts
• Estate or Trust Interest Income
• Interest on State and Local Bonds (tax exempt interest)
• Prizes or Awards
• Reimbursement of Moving Expenses
• Unemployment Compensation
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Partially included in MAGI
• Social Security and Tier 1 Railroad Retirement
Benefits
• Annuities
• Pension benefits
• Partnership Gross Income (less deductions)
• Earned Income of U.S. Citizens Living Abroad
• Retirement contributions
• Business (Including Property, Rental, or Royalties)
Income (less deductions)
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Excluded from MAGI
• Income from Discharge of Indebtedness
• Gifts and Inheritance
• Death Benefits
• Cafeteria Plans
• Certain Fringe Benefits
• Contributions to Defined Contribution Plans
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Nondiscrimination Rules
• The ACA subjects non-grandfathered fully-insured
plans to nondiscrimination rules under Section
105(h) of the Internal Revenue Code
• This means that employers must make identical
contributions towards health insurance coverage for
all non-collectively bargained employees
• Penalty is excise tax on employer of $100 per day
• Would have been effective for plan years beginning
after September 23, 2010
• IRS guidance issued in December, 2010 delayed
effective date until further notice
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Cadillac Tax
• Effective 2018
• Employers will pay 40% excise tax on plan costs in
excess of statutory thresholds
• Thresholds are $10,200 for single coverage and
$27,500 for family
• Thresholds are indexed for inflation beginning in
2020 but the index used is lower than health care
inflation
• Plans will be forced to reduce benefits
• Consider in collective bargaining
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Notice Pursuant to Treasury Department
Circular 230, and Disclaimer
To comply with certain Internal Revenue Service ("IRS") rules, we
must inform you that any U.S. federal tax advice contained in this
presentation, including handouts or verbal explanation, is not
intended or written to be used, and cannot be used, by any person
for the purpose of avoiding any penalties that may be imposed by
the IRS. Under IRS rules governing tax advice, a taxpayer may rely
on professional advice to avoid federal tax penalties only if that
advice is provided in a tax opinion that conforms with extensive
federal requirements. We understand that you do not intend to use
or refer to anything contained in this presentation to promote,
market, or recommend any particular entity, investment plan, or
arrangement.
DISCLAIMER: This presentation is intended for general information
purposes only. It does not create an attorney-client relationship
and should not be construed as legal advice or legal opinions on
any specific facts or circumstances.
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