Health Care Reform Update January 20, 2014 Kirk A. Pelikan Michael Best & Friedrich, LLP (414) 271-6560 (Ext. 12529) [email protected]
© Michael Best & Friedrich LLP 2014. All Rights Reserved.
The Patient Protection and Affordable Care Act Requires insurance carriers and plan sponsors to adopt particular provisions and minimum health plan features Requires most individuals to have health coverage or pay for failing to do so Requires employers with 50 or more employees or full time equivalents to offer minimum essential benefits or pay a shared responsibility payment Establishes insurance exchanges to serve as marketplaces for individuals and employers where subsidies toward coverage may be obtained
Lay of the Land Since June 2014 Pay or Play delayed until January 2015 Agencies are arguing with private employers and religious institutions about contraceptive coverage Exchange Notices have been released Exchange program has experienced “difficulties” SHOP Program more defined Reporting requirements clarified Subsidy glitch has started to be litigated Individual mandate delayed for some
Today’s Topics Pay-or-Play rules and penalties Special rules for seasonal and variable hour employees Delay until 2015
Exchanges and the SHOP Program What will insurance rates be? o How has the individual mandate problems affected this?
What should employers look out for in 2014/5?
“Pay or Play” – Definition of Large Employer If an employer employed an average of 50 employees on business days during preceding calendar year, it must offer “minimum essential coverage” to full-time employees “Employee” is defined as someone working 30+ hours per week (130 hours per month) Also includes full-time equivalent (FTE) for part-time employees in counting 50 employees. FTEs are determined by taking the aggregate amount of hours they worked in a month divided by 120 Certain seasonal employees can be excluded in determining if you are a large or small employer Controlled group rules apply
Large Employer Example 30 full-time employees working 30+ hours per week. Plus 30 part-time employees working 24 hours per week (96 hours per month) 30 employees x 96 hours = 2,880 2,880 / 120 = 24 “FTE”s Total of 54 FTEs = This is a large employer and penalties apply if coverage is not provided
Seasonal Employees and Large Employer Status Seasonal Employee Rule #1 An employer with 50 or more full-time employees can avoid large employer status if: The employer’s workforce exceeds 50 of more full-time employees for 120 days or fewer during the calendar year; and The employees in excess of 50 employed during such 120day period were seasonal workers. Reasonable definitions of seasonal employee will currently be respected by the agencies Most commonly came up in the agricultural and retail industries
Common Control ***WARNING: Like much in the IRC, this will look like English, I assure you it is not.*** Aggregation rules for business under common control There are a bunch of ways this occurs and this list is not exclusive, but some of the common ways common control is found include: Parent-Subsidiary: 80% or more of the ownership interest of each of the organizations is owned by one or more other organizations Brother-Sister: Five or fewer individuals own, in the aggregate, (1) 80% or more of the ownership interest in each business entity; and (2) more than 50% of the ownership interest in each entity (considering ownership only to the extent it is identical with respect to each entity being considered)
So you’re a large employer, what does that mean? Large employers are subject to the mandate and must either (1) offer minimum essential coverage to a minimum amount of the full-time workforce; or (2) may have to pay the government a non-deductible penalty for failing to comply.
“Pay or Play” – Employer Does Not Offer Coverage A large employer is viewed as not offering minimum essential coverage when: Employer offers coverage less than 95% of its full-time employees; or Plan does not comply with grandfathered or new requirements applicable to health plans regarding minimum essential coverage; or Annual enrollment opportunity Dependent coverage
“Pay or Play” – Employer Does Not Offer Coverage Penalty of $2,000 per full-time employee per year (calculated on a monthly basis) if any employee obtains subsidy by going to the Exchange. When calculating the penalty, subtract the first 30 full-time employees
Full-time employee: 30 hrs. / week or 130 hrs. / mo. Based upon hours paid, not worked For hourly employees, equivalencies can be used unless they substantially understate hours of service
Although the employer must consider part-time employees as fulltime equivalents to determine whether it is a large employer, the penalty does not take part-time employees into account Seasonal employees, if a full-time employee, must be included in the full-time employees to whom coverage is offered
Full-Time Status for Variable Hour Employees
The measurement period permits a determination of the average hours of service At least 3 mos.; not more than 12 mos.
The administrative period addresses adding the employee to the coverage No more than 90 days
The stability period is that time during which the employee’s status is held, regardless of the hours of service performed during that period At least 6 mos.; no less than the measurement period
Status switches during this period will not affect the employee’s coverage Also may be used for seasonal employees where the hour expectation is unpredictable
“Pay or Play” – Employer Offers Coverage Penalties also apply to employers who offer coverage to their full-time employees, but the plan does not minimum value and affordability requirements. Plan must coverage at least 60% of the total allowed cost of benefits (minimum value). Premium cannot exceed 9.5% of the employee’s household income (affordability).
Also requires that the employee goes to the Exchange and obtains a premium tax subsidy.
“Pay or Play” – Employer Offers Coverage Where the employee receives a premium tax credit, the employer must pay a penalty Penalty is the LESSER of: (1) $3,000 x number of full-time employees who received the premium tax credit (i.e., elected coverage in the exchange); or (2) $2,000 x total number of fulltime employees employed by the employer (less the first 30 employees). When calculating the penalty under (1), do not subtract the first 30 full-time employees. Although the employer used part-time employees as full-time equivalents to determine whether it was a large employer, the penalty does not factor in part-time employees.
“Pay or Play” – Employer Offers Coverage Which employees are eligible for the premium tax credit? Employee whose household income falls between 100% and 400% of Federal Poverty Level (FPL); and Whose required contribution to participate in the employer’s plan is greater than 9.5% of employee’s income; and Who obtains coverage through the exchange and not through the employer’s plan.
“Pay or Play” – HHS Poverty Guidelines Family Size
4X Poverty Line
Reminders Although the size of the employer is determined on a controlled group basis, the Play-or-Pay penalty is applied on an entity-by-entity basis; thus each entity can choose to not offer coverage to 5% of its own full-time employees. Offer of coverage to employees must also be made to dependents (children), but not spouses. In determining 30 hours/week threshold count hours paid, not hours worked (may include STD benefits). Waiting periods may not be greater than 90 days, unless measuring the time of a variable hour employee.
Insurance Exchanges Premium Subsidy Glitch: Section 1311 of PPACA provides that those with incomes below 400% of the federal poverty level will be eligible for taxpayer funded subsidies at the state exchanges. Section 1311 “instructs” state governments to set up an exchange. If a state refuses, section 1321 provides that the federal government will establish an exchange for the state. Yet according to the express language of PPACA, the credit is available only to people who are enrolled in "an exchange established by the state under [section] 1311." This section makes no mention of people enrolled in federal exchanges being entitled to a tax credit. The IRS has issued a proposed regulation that extends tax credits for those eligible people if they are enrolled in a health plan "established under section 1311 or 1321" [emphasis mine]. DC federal court judge agrees, case will be appealed.
Small Employers: SHOP Program SHOP Program became functional on January 1, 2014; however, electronic enrollment in the program will not be available until January 1, 2015. Permits small employers (50 or fewer employees, calculated in the same manner as FTEs) to obtain coverage on the Exchanges. Controlled group rules still apply. Will be available employers with 100 or fewer employees in 2016.
SHOP Program & Premium Tax Subsidy Premium tax subsidy available to small employers with 25 or fewer employees Employer must offer coverage to all of its full-time employees Employer must coverage at least 50% of the cost of coverage Average wages of the full time employees may not exceed $50,000/yr.
What will insurance rates be? Because of a wide variety of factors, insurance rates are anticipated to increase again for 2015. Latest development on the individual mandate may kick this higher into 2015.
In 2013, many insured programs are contemplating issuing new coverage effective December 1 rather than January 1. Option will not be available into 2015. Many medium sized employers will be contemplating self-funding health benefits.
Additional Reminders/Future Issues Employers with more than 200 full-time employees are to automatically enroll newly eligible employees, but this requirement is suspended until further guidance is issued as to family members and other issues. HHS says it understands that adverse selection will occur due to no exclusions for pre-existing conditions and that it will decide later on ways to deal with this. Employers may not permit employees who decline coverage to participate in an HRA.
What will All Employers do in 2014/5? Consider whether or not to drop coverage or adopt major changes, such as a move to self-funding Try to offer coverage, but will struggle due to cost Consider a more robust wellness program Differential of 30% of coverage cost based on health factors Another 20% based on tobacco use
Consider shifting more costs to employees Work on employee counts with greater scrutiny
What will Large Employers also do in 2014/5?
Opt for more part-time employees (< 30 hrs./wk.) Lease employees; lease employees at < 30 hrs./wk. Subsidize coverage for lower paid workers Not subsidize coverage for lower paid workers Consider adding administrative staff because benefits are more complicated Make staffing modifications outside of “lull periods” in the business to avoid ERISA s. 510 application
What will Small Employers also do in 2014? Probably not hire more employees so as to avoid becoming a large employer, but instead utilize part-time or leased employees. Consider governmental assistance with health care o Through Small employer Health Options Program (SHOP) o Through tax credits (only beneficial to very small employers)
What SHOULD Employers do in 2014?
Do your homework; listen for developments and trends. Get with your consultants early and often. Don’t believe there is an answer for every question. Decide on Plan A, but have Plan B available. Look for innovative approaches.
Circular 230 Notice Any Federal tax advice contained herein is not to be used for, and the recipient cannot use such advice for, the purpose of avoiding any penalties asserted under the Internal Revenue Code. If the foregoing contains Federal tax advice, and if the foregoing is distributed to a person other than the addressee, each additional and subsequent reader hereof is notified that such advice was written to support the promotion or marketing of the transaction or matter addressed herein. In that event, each such reader should seek advice from an independent tax advisor with respect to the transaction or matter addressed herein based on such reader’s particular circumstances.
Health Care Reform Update Kirk A. Pelikan [email protected]
100 East Wisconsin Avenue, Suite 3300 Milwaukee, WI 53202-4108 Phone 414.271.6560 Fax 414.277.0656 www.michaelbest.com