Healthcare Reform Update: Compliance Challenges & Opportunities for Employers

Schneider Downs 2014 Not-For-Profit Symposium

August 14, 2014

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Discussion Points

• The importance of knowing who you are

• Employer Shared Responsibility

• Current regulatory obligations

• Future obligations

• Additional compliance challenges

• Open discussion

• Please ask questions- Anytime!

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The importance of knowing who you are

Many requirements & opportunities are driven by size . . .

• Employer Shared Responsibility

• Small Business Health Options Program (SHOP) eligibility

• Small Business Health Care Tax Credit

To name a few.

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Employer Shared Responsibility

Refers to penalties that may be imposed on an applicable large employer member if—

• It fails to offer minimum essential coverage—

�To substantially all (70% for 2015; 95% thereafter) of its full-time employees and their children

�Of minimum value

�That is affordable

• And at least one full-time employee purchases coverage on the Marketplace and qualifies for a premium tax credit or cost-sharing subsidy

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Employer Shared Responsibility

Two potential monthly penalties:

• Penalty A: Failure to offer minimum essential coverage

�1/12 of $2,000 per full-time employee (minus the first 30)

• Penalty B: Offering coverage that is not affordable or does not provide minimum value

• 1/12 of $3,000 per employee who obtains marketplace coverage and is eligible for a premium tax credit or cost-sharing subsidy

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Employer Shared Responsibility

Applies to “applicable large employers”

• An employer with 50 or more (100 or more for 2015)* full-time equivalent employees

• Part time & seasonal workers included in determination

• All related companies are treated as a single employer for this purpose

• Special controlled group rules apply to tax-exempt organizations

�Primary focus is overlapping control

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Employer Shared Responsibility

*To take advantage of this transition relief, an employer with 50-99 full-time equivalent employees must certify that it did not—

• Reduce the size of its workforce or overall hours of service during the period starting February 9, 2014 and ending December 31, 2014 in order to satisfy the workforce size condition of fewer than 100 full-time employees, or

• Eliminate or materially reduce health coverage offered as of February 9, 2014 through the end of the 2015 plan year

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Employer Shared Responsibility

• A simple related companies example

• Company A employs 30 full-time equivalent employees. Company B employs 35 full-time equivalent employees. The two companies are unrelated.

�Because neither company has 50 or more full-time equivalent employees, neither is subject to the Employer Shared Responsibility provisions.

• Assume now that instead of being unrelated, Company A owns 100% of the voting stock of Company B.

�Because Company A and Company B are part of the same controlled group, their full-time equivalent employees are aggregated. As a result, the controlled group has 65 full-time equivalent employees and, accordingly, both companies are subject to Employer Shared Responsibility requirements.

It is critical to define the employer correctly

Takeaway:

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Calculating FTEs to determine applicable large employer status

Month A: # of FTEs B: (Total Hours Worked by Non-FTE’s) ÷ 120 A + BJanuary

February

March

April

May

June

July

August

September

October

November

December

Subtotal

(A + B) / 12 (round down) =

If > 100 (2015) or > 50 (2016 and beyond), you are an Applicable Large Employer

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SHOP Opportunities

• The SHOP is the portion of the Health Insurance Marketplace for small employers (online access not yet available in Ohio)

• The SHOP is available to an employer if—�The employer has 50 or fewer full-time equivalent employees on business

days during the preceding calendar year (100 or fewer in 2016)• Follows the methodology used for the Employer Shared Responsibility

• Calculator available at www.HealthCare.gov/fte-calculator

�The employer’s principal place of business within state in which coverage is offered, or offers coverage to each eligible employee through the SHOP servicing the employee’s primary worksite

�The employer has at least one common law employee (excludes business owner and spouse)

�The employer offers coverage to all full-time employees (those averaging 30 or more hours per week)

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Small Business Health Care Tax Credit

• Refers to a tax credit of up to 50% of the employer’s contribution towards premium costs for medical coverage available to certain small employers

• Tax-exempt organizations are eligible for the credit

�Refundable for the lesser of the amount of the credit or the amount of the payroll taxes of the employer for the calendar year in which the tax year begins

• Beginning in 2014, the credit is available for 2 consecutive taxable years

�Credits claimed from 2010-2013, if any, do not count against this limit

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Small Business Health Care Tax Credit

• An employer is eligible for the tax credit if the employer—

�Purchases coverage through the SHOP

�Has fewer than 25 full-time equivalent employees

• Caution! Full-time equivalent employees are calculated differently from the Employer Shared Responsibility. Take the total hours of all employees (no more than 2080 counted per employee) and divide by 2080. Round the result down to the next whole #.

�Pays its employees, on average, $50,000 or less per year (total wages/# full-time equivalent employees, rounded down to nearest $1,000)

�Pays at least 50% of the premium for full-time employees

• The tax credit depends on the size of the employer: the smaller the employer, the greater the credit

�Tax credit calculator available at www.HealthCare.gov/SHOP-calculators-taxcredit/

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More on Employer Shared Responsibility

• We previously discussed how to determine whether an employer is subject to Employer Shared Responsibility. Now let’s turn to the application.

• Remember: An applicable large employer is not required to offer employer-sponsored group health plan coverage to its employees

�Rather, the failure to do so may subject the employer to the penalties previously discussed

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Penalty Example (2015)

• Company A owns 100% of the voting stock of Company B. In 2014, Company A and Company B each employed 75 full-time employees. For all of 2015, Company A offered all of its full-time employees (and their children) minimum-value, affordable, minimum essential coverage. During the same period, Company B did not offer a health plan to any of its employees.

• Company A and Company B are in the same controlled group. In the aggregate, Company A and Company B have 100 or more FTEs and, accordingly, are subject to Employer Shared Responsibility.

• Company A is not subject to any penalties under Pay or Play for 2015.

• Company B is subject to Penalty A if any FTEs obtain Marketplace coverage and qualify for a premium tax credit. In that case, Company B would be subject to the following penalty:

�75 total employees – 40 employees (80 excluded employees ÷ 2) = 35 x $2,000 penalty each = $70,000 total penalty

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Penalty Example

• Consider how the outcome would differ if Company A and Company B were treated as a single employer for penalty purposes:

�The combined company would only offer coverage to 50% of its full-time employees – below the 70% threshold under Penalty A

�The combined company would be subject to a penalty of:

• 150 total employees – 80 excluded employees = 70 x $2,000 penalty each = $140,000 total penalty

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Affordability

• Remember, penalty B can apply if the coverage offered is either not affordable, or does not provide minimum value.

• Coverage is affordable if the employee’s cost for the employee-only option of the lowest cost coverage that provides minimum value does not exceed 9.5% of household income

�Can include any tobacco-related wellness program premium incentive

�Can not include any other wellness program premium incentives

• Safe harbors – for calculation, replace household income with:

�W-2 wages (Box 1 of Form W-2 from prior year)

�Rate of pay (hourly rate x 130 or monthly rate for salaried)

�Federal Poverty Line (FPL): 100% of FPL ÷ 12

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Rate of Pay Safe Harbor Example

• Company offers the following group health plan coverage to all FTEs and their children, both of which provide minimum value:

• There is a $50 monthly surcharge for tobacco users, and an additional $50 monthly surcharge if an employee has a BMI over 30

Employee Only Coverage Family Coverage

Standard PPO Plan $150/month $350/month

Premium PPO Plan $200/month $500/month

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Rate of Pay Safe Harbor Example

• Jane is an hourly employee

�Earns $20/hour during the month of July

�Lowest-cost option that provides minimum value: $200 (employee only coverage in Standard Plan, pays BMI surcharge)

�Monthly rate of pay: $20/hour x 130 hours = $2,600

�$200 monthly premium /$2,600 monthly pay x 100 = 7.69% (less than 9.5% rule)

�Coverage is affordable for Jane

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Minimum Value

• A plan provides minimum value if the plan’s share of the total allowed cost of benefits provided is 60%

�Safe harbors are issued by the Department of Health and Human Services (HHS) or the Internal Revenue Service (IRS)

�Actuarial certification available if calculator option or safe harbors are not suitable

• Download the calculator at:

�https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/mv-calculator-final-4-11-2013.xlsm

�Or, double-click on this icon to open file:

Microsoft Excel Macro-Enabled Worksheet

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Identifying and Tracking Full-Time Employees

• A full-time employee is a common law employee of an employer who works, on average, 30 or more hours per week (130 hours in a month)

• Two available methods for identifying FTEs:

�Look-back measurement method

�Monthly measurement method

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Look-back measurement method

• Employees who average at least 30 hours per week during a measurement period are considered full-time employees for a following stability period

�With an optional intervening administrative period of up to 90 days

• Rules vary based on whether an employee is an ongoing employee or a new-hire

�Ongoing employees are those that have been employed for a full standard measurement period (3 to 12 consecutive months)

�New-hires are those that have not been employed for a full standard measurement period

• Special rules apply for rehires and certain changes of status

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Look-Back Measurement Period Example

Year 1 Year 2 Year 3 Year 4

J M A M J J A S O N D

J M A M J J A S O N D

J M A M J J A S O N D

J M A M J J A S O N D

Measurement Admin Stability

IOct. 15

I Oct. 14/ Oct. 15

IDec. 31/ Jan. 1

I Dec. 31

Measurement Admin Stability

IOct. 15

I Oct. 14/ Oct. 15

IDec. 31/ Jan. 1

I Dec. 31

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Counting Hours

• May use different crediting methods for different classes as long as reasonable and applied consistently

• Hourly employees – must use actual hours worked

• Salaried employees – may use actual hours worked or

�Credit 8 hours for each day worked

�Credit 40 hours for each week worked

• Anti-abuse rules apply

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Counting Hours

• The following hours must be counted—

�Each hour for which the employee is paid or entitled to payment for the performance of services

�Each hour for which the employee is paid or entitled to payment for:

• Vacation

• Holiday

• Illness

• Disability

• Layoff

• Jury duty

• Leave of absence

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Counting Hours

• Special unpaid leave hours cannot affect determination

�FMLA, USERRA (military) and/or jury duty

• Exclude hours:

�For which employee receives foreign-source income

�Worked by a bona fide volunteer

�Worked as part of a work-study program

�For certain members of a religious order

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Recent Appellate Court Decisions Add Uncertainty

• On July 22, 2014, two federal Courts of Appeals—the D.C. Circuit and the Fourth Circuit—issued conflicting decisions on whether an individual who purchases insurance on a federally-facilitated Marketplace (or exchange) could qualify for premium tax credits

�D.C. Circuit said “no”

�Fourth Circuit said “yes”

• Impact on employers

�To trigger pay-or-play penalties, an individual purchasing Marketplace coverage must qualify for a premium tax credit

�If an individual purchasing Marketplace coverage on a federally-facilitated Marketplace cannot qualify for a premium tax credit, the individual also cannot trigger pay-or-play penalties for the employer.

�Employers may have dropped coverage with the expectation that employees could qualify for premium tax credits to purchase Marketplace coverage. If employees cannot qualify for the credits, it may warrant reconsideration of the position.

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Recent Appellate Court Decisions Add Uncertainty

• What should employers do?

�The issue has not been fully resolved

• Government has requested reconsideration by the full D.C. Circuit

• Plaintiffs will seek review of the Fourth Circuit opinion by the U.S. Supreme Court

�As such, take a wait-and-see approach; do not alter your current plans based on the decisions

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Current Healthcare Reform Compliance Obligations

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A Word About Grandfathered Plans . . .

• Certain provisions of the ACA do not apply to grandfathered plans

• A benefit package is grandfathered if—

�A statement of grandfathered status is included in plan materials provided to participants and beneficiaries

�The plan provides contact information for questions and answers

�The plan maintains records documentation of the plan terms as of March 23, 2010, and makes those records available for examination

�The plan covers at least one individual continuously since March 23, 2010

�No changes of a specified type are made to the terms of the plan or coverage

Takeaway:

Maintaining grandfathered status takes affirmative steps by you

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Compliance Obligations for Grandfathered and Non-Grandfathered Plans

• Summaries of Benefits and Coverage (open enrollment)

• PCORI Fees—next installment due July 31, 2014 (issuer for insured plans)

• Marketplace Notices (initially due by October 1, 2013—must still be provided to new hires within 2 weeks of start date)

• $2,500 max on health care FSAs (amendment due by end of 2014)

• No preexisting condition exclusions• Report the value of health coverage on

form W-2 (employers who issued 250 or more W-2s for previous year)

• No annual or lifetime limits on essential health benefits

• No waiting periods longer than 90 days (not 3 months!)

• Reinsurance contributions—Due annually for 2014, 2015 & 2016 (first installment of $52.50 in January 2015 & second installment of $10.50 in December 2015); Issuer for insured plans

• Coverage for children up to age 26 (other employer-provided coverage exclusion for grandfathered plans no longer applies)—Remember, age 28 for insured plans is Ohio

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Compliance Obligations for Non-Grandfathered Plans (In addition to those that apply to all plans)

• Preventive care requirements• Enhanced claims and appeals

requirements• Quality Reporting (no guidance issued

to date)• Health-contingent wellness program

maximum incentives increased from 20-30% (up to 50% for programs to prevent or decrease tobacco use); new reasonable alternative standards apply

• OOPM capped—includes co-insurance, deductibles, and co-pays

• No discrimination against healthcare providers working within scope of license

• No prohibitions against participation in clinical trials & no limitations on benefits for routine items and services related to clinical trials

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Future Healthcare Reform Compliance Obligations

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Reporting on minimum essential coverage—Code Section 6055

• Designed to inform IRS whether individuals were covered by minimum essential coverage in preceding tax year (and in what months)

• IRC § 5000A requires individual to be enrolled in MEC or pay a tax

• Individuals will be provided with written statements enabling covered individuals to establish that they were covered by MEC

• First applies in 2015 (with reporting in early 2016)

�If paper, 2/28/2016 or 3/1/2016 (since 2/28 is a Sunday)

�If electronic, 3/31/2016

�Required reporting to employees due 1/31/2016 or 2/1/2016 (since 1/31 is a Sunday)

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6055 Requirements

• The reporting obligation is imposed on—

�For insured plans—the insurance issuer

�For self-funded plans—generally the employer

• Information to be reported

�Name, address, and EIN of the insurer/self-insured plan sponsor

�Name, address and EIN of the employer sponsoring the plan (when insurer is reporting) and whether the plan is enrolled through the SHOP program

�Name, address and TIN of each insured or employee

�Name and TIN of each individual covered under the plan

�For each covered individual, the months for which the individual was covered for at least one day

�any other information required by the form and instructions

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Applicable Large Employer Reporting—Code Section 6056 Requirements

• Designed to assist IRS in determining whether (and what) Employer Shared Responsibility penalties apply

• Individuals will be provided with written statements detailing employer and employee-specific information

• Generally, each employer reports for its full-time employees

• First applies in 2015 (with reporting in early 2016)

�If paper, 2/28/2016 or 3/1/2016 (since 2/28 is a Sunday)

�If electronic, 3/31/2016

�Required reporting to employees due 1/31/2016 or 2/1/2016 (since 1/31 is a Sunday)

• Caution! Employer Shared Responsibility transition relief for employers with 50-99 full-time equivalent employees does not excuse reporting.

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6056 Requirements

• Information reported includes—

�Name, address and EIN of the employer

�Name and telephone number of contact person

�Calendar year for which report is provided

�Certification whether employer offered to its full-time employees (and their dependents) MEC under an employer-sponsored group health plan, by calendar month

�# of FTEs for each month of the year

• Simplified reporting for full-time employees receiving a qualifying offer for the entire year

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6056 Requirements

• Additionally, for each full-time employee, report—

�Months during the year MEC was available to the employee

�Employee’s contribution to lowest cost self-only option providing minimum value, by calendar month

�Employee’s name, address and TIN and months during which employee was covered under the plan

• Any other information required by the forms

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6056 Requirements

• Employer does not have to identify or specify number of FTEs if it certifies it made a qualifying offer to at least 98% of all its employees (includes part-time employees)

• IRS will grant temporary relief from penalties if filed information is incorrect or incomplete

�However, no relief for employers who do not make a good faith effort to comply with the reporting requirements

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Reporting Requirements

• On July 24, 2014, the IRS released draft forms 1094-B & C, and 1095-B &C

• Draft instructions have not been issued

• The IRS has requested comments on the forms and expects to finalize them later this year

• Do not use these forms!

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Other Future Healthcare Reform Obligations• Coordination of OOPMs—2015 plan year

• Nondiscrimination requirements for insured plans�Rules “similar” to those applicable to self-insured plans under Code Section

105(h) will apply

�Delayed pending rulemaking

• Cadillac Tax�40% excise tax on high-cost coverage

�Effective January 1, 2018

�No guidance issued yet

• Health Plan Identifier Number (HPID)�Plans with annual receipts exceeding $5,000,000—November 5, 2014

�Plans with annual receipts of $5,000,000 or less—November 5, 2015

• Automatic enrollment (employers with more than 200 full-time employees)�Delayed pending rulemaking

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Other Common Compliance Challenges

•Wrap plan documents�Insurance certificates/booklets often times do not satisfy SPD requirements�Helps to consolidate redundant information in a single document�For larger plans, file a single 5500 rather than several 5500s

• Cafeteria plan documents�If you permit employees to pay premiums on a pre-tax basis, you must have

a cafeteria plan document in place

• HIPAA Privacy & Security�If, as the plan sponsor/employer, you have access to PHI, you must comply

with HIPAA privacy�If the PHI is maintained, transmitted and/or received electronically, you must

comply with HIPAA security

• COBRA�New forms issued in early May 2014

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Questions?

Edward C. RedderFindley Davies, Inc.

65 East State Street, Suite 2550Columbus, OH 43215

Office: (614) 453-4654Cell: (614) 779-1673

E-mail: eredder@findleydavies.com