affordable care act update
TRANSCRIPT
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Affordable Care Act UpdateWELCOME!
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Affordable Care Act Update
Ted Ginsburg, CPA, JDOctober 27, 2015
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• The status of the ACA today
• IRS reporting issues
• What employers need to be thinking about
What is the ACA penalty?
Should I offer insurance at all?
Strategies to avoid the penalty
• Other issues relating to welfare plans
TODAY’S DISCUSSION
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• The Affordable Care Act (“ACA”) is currently effective for employers who had 100 or more full time equivalent employees (FTEs) in 2014. Employers who have 50 or more FTEs in 2015 will be subject to the ACA on January 1, 2016
• Compliance with the ACA’s reporting requirements for 2015 is mandatory for any employer who had more than 50 FTEs in 2014.
• Several bills are currently before Congress to repeal or change certain portions of the ACA; it is doubtful that it will be entered into law during the Obama administration
• The ACA has withstood numerous court challenges, although more cases are pending, including one at the Supreme Court
• This is a regulatory work in process
STATUS OF THE ACA TODAY
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• Through the employer mandate, the ACA wants to compel private employers to provide health program benefits to full time employees that:
Are affordable
Provide basic types of coverage
• If individual employees purchase insurance through a government exchange and receive a subsidy from the government, employers could be subject to an excise tax which (in effect) reimburses the government for the subsidy
• The IRS and DOL are jointly enforcing this effort, and are implementing programs to bill employers for the excise tax
THE PURPOSE OF THE ACA
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IRS reporting is due for all employers who have 50 or more FTEs in 2015 • Impacts employers who aren’t currently subject to ACA• Employers who provide fully insured benefits are still
subject to the reporting requirements• Employers of any size who are self-insured are subject
to the reporting requirements• Reporting follows the same timeframe as W-2s
Employees receive statements by February 1, 2016 Employer return due February 28 (March 31 if electronically
filed)
REPORTING ISSUES
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Based on 2014 payroll, comprised of two parts:• Full time employees—work an average of 30 hours
week/130 hours a month; and • Part time or seasonal employees— Add total hours of work
by these people on a monthly basis and divide by 120• Employees subject to a CBA count• Calculation is made monthly, average FTE level is used
FTE–WHAT IS IT?
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For all plans (insured and self insured) Parts I and II of IRS Form 1095-C have to be completed, and employee specific forms need to be distributed. Employee specific data needed:• Employee identification data (name,
address, SSN)• For each calendar month
When was coverage offered to the employee? What was the cost of the lowest cost plan offered to
the employee? Did the employee take it What “safe harbors” were used?
REPORTING ISSUES
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For self-insured plans, additional employee-specific data is needed:• Participant identification data (name, address,
SSN/DOB for employee, spouse and children)• Which calendar months during the year was each
participant covered?
REPORTING ISSUES
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FORM 1095 - C
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For all plans (insured and self-insured), other information will be needed for Form 1094-C, including:
• What types of coverage were offered to what percentage of full time employees
• The safe harbors which were available to the employer
• Number of full time and total employees
• Controlled group status for benefit plan purposes
REPORTING ISSUES
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FORM 1094 - C
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If an employer has a certain number of FTEs based on the prior calendar year, and:
• Doesn’t offer minimum value insurance to a certain percentage of full time employees, or
• Offers insurance but it isn’t affordable and/or it isn’t adequate and
• In either case, one employee purchases insurance through an exchange and receives a subsidy, then
An excise tax may result
EXCISE TAX BASICS
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How does IRS Form 1095 impact employer taxes related to the ACA?• $250 penalty per form not provided to an employee• Provides information to the IRS as to whether the
employer should be liable for excise tax for a particular employee
FORM 1095 ANDTHE EXCISE TAX
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IRS receives data from multiple sources• The exchange informs the IRS of individuals who get a
subsidy
• Employee’s 1040s can claim a tax credit for health coverage
• Employers inform the IRS of employees coverage on IRS Forms 1094/1095
IRS bills the employer• Employer has a limited amount of time (2 months) to
contest the assessment
HOW IS THEEXCISE TAX ASSESSED?
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Part one: Do I offer health coverage to at least 70% (95% for 2016) of my full-time employees?
Part two: If I do offer health coverage to my full time employees:• Is that coverage affordable, and• Does that coverage provide minimum coverage to the
full-time employees and their dependents?
Two different, non-deductible, excise taxes exist depending on which part is not satisfied• If both parts are not satisfied, employer pays only
the greater of the two excise taxes
THE TWO-PART TESTIf an employer is subject to ACA, potential liability for the greater of the following two tests:
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What happens if I fail to comply with Part One of the two-part test?• If an employer:
Fails to offer 95% (70% for 2015) of its full-time employees (or dependents) coverage and
One employee receives a subsidy (either a tax credit or cost-sharing reduction) through the exchange/marketplace for purchasing health insurance then
The employer might be liable for a non-deductible $2,000 penalty per year for the total number of full-time employees (reduced by 80 in 2015, 30 in 2016)
WHAT HAPPENS?
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A full-time employee for this purpose is an employee who is employed an average of at least 30 hours of work per week or 130 hours of work per month
• FTEs are not relevant to this discussion
• Look at this monthly to determine classification and when coverage should begin
• Can use current year expectations or prior year results
• Special rules apply to educational institutions, breaks in employment, new hires and employees who work variable schedules
IMPORTANTCOMPLIANCE DEFINITIONS
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A subsidy occurs when an employee acquires insurance through the exchange/marketplace and qualifies for a reduction in his/her cost for insurance coverage because of his/her financial situation.
• Subsidies are of two types:
An employee is eligible for a cost reduction subsidy if the employee’s household income is less than 250% of the federal poverty line (2014 maximum income of $29,125 for a single individual and $59,625 for a family of four)
An employee is eligible for a premium tax credit subsidy if the employee’s household income ranges between 100% and 400% of the federal poverty line (2013 maximum income of $46,680 for single individuals, $95,400 for a family of four); an employee who is eligible for Medicaid can not receive the subsidy
IMPORTANTCOMPLIANCE DEFINITIONS
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• If an employer offers 95% (70% for 2015) of its full-time employees coverage but the coverage is unaffordable or does not provide minimum coverage
• The employer is liable for a non-deductible penalty of $3,000 per year for each full-time employee who obtains insurance through the exchange and receives a subsidy
WHAT HAPPENS?
The employer is only liable for the greater of the Part One or Part Two excise tax.
What happens if I fail to comply with Part Two of the two-part test?
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How do we determine if the coverage is “affordable” for full-time employees? Three part “safe harbor” test—allows employer to choose how affordability is determined.
• Form W-2: An employee’s monthly contribution for self-only coverage is affordable if it does not exceed 9.5% of their W-2 wages for that calendar year
• Rate of pay: An employee’s monthly contribution for self-only coverage is affordable if it is no more than 9.5% of their monthly wages (hourly rate of pay × 130 hours, or, for salaried employees, their monthly salary figure)
• Federal Poverty Line (FPL): An employee’s monthly contribution for self-only coverage is affordable if it does not exceed 9.5% of the FPL for a single individual (approximately $93 per month)
IMPORTANTCOMPLIANCE DEFINITIONS
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Minimum coverage means the insurance plan must cover 60% of the essential health benefits:
• The essential health benefits include emergency services, ambulatory services, hospitalization, lab services, prescription drug coverage and maternity and newborn care, among others
• Among the items not included are vision, dental, disability and long-term care
DEFINITION OFMINIMUM COVERAGE
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Managing workforce levels to avoid ACAIf you keep your total FTEs under 50, you are not subject to the ACA:
• Working current employees longer hours• Use of subcontractors • Timing jobs to avoid spikes in employment• Turning down jobs that might cause FTE count to exceed 50
WHAT SHOULD EMPLOYERSTHINK ABOUT?
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If you are subject to ACA, you want to limit the number of full-time employees
• Keep current employees under 30 hours a week if you can do it without disrupting your operations
• Make current full-time employees work more hours
• Use part time employees—no coverage needed for employees under 30 hours a week
• Use seasonal employees or subcontractors
WHAT SHOULD EMPLOYERSTHINK ABOUT?
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Can I merely give my employees some money and let them buy their own insurance? • The government doesn’t like this approach at all• A pay raise will work, but is inefficient• Formalized employee reimbursement program (IRC 105)
might work for employers with over 50 employees, but it is not clear that it will
WHAT SHOULD EMPLOYERSTHINK ABOUT?
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Determine if you should “play or pay”
• Compare the potential cost of “play” vs. “pay”
Play: cost of offering more expensive benefits and/or charging employees less than currently imposed
‒ Redesigning plan terms to minimize cost—human resource issues
‒ Do you reduce pay to make up for increased employer cost of insurance?
Pay: face potential excise tax liability
WHAT SHOULD EMPLOYERSTHINK ABOUT?
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Minimizing potential ACA excise taxes if we “play”
Offering coverage that isn’t affordable or adequate may be preferable to not offering coverage
Use of the 5% rule
Convincing employees who might be eligible for a subsidy not to go to the exchange/marketplace
WHAT SHOULD EMPLOYERSTHINK ABOUT?
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BUILDING YOUR FILESystems needed to collect and monitor data
• Large employer status is an annual determination, which must be monitored monthly
• Which employees are eligible and the amount that you charge for insurance is an annual determination?
Building your file • How can you quickly prove to the IRS that you are meeting the two
tests?
• How can you quickly prove to the IRS that you offered benefits to a sufficient number of employees?
• IRS Form 1094/5 compliance
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Program documentation
• Many employers have no or inadequate plan documents relating to their welfare plans
Insurance policies do not satisfy ERISA requirements as summary plan descriptions
Additional notices will be needed due to ACA
DOL and IRS are aggressively pursuing this issue
• Use of “wrap plans” can reduce the number of annual IRS Form 5500 filings that are required
OTHER ISSUES
