ppaca update: how the affordable care act will affect employers

PPACA Update: How The Affordable Care Act Will

Affect Employers

Seth Perretta Principal, Co-Chair of the Health Practice Group

Groom Law Group

April 24, 2014

We will cover...

•  Status of the individual mandate •  Employer mandate or “pay or play” •  Brief refresher on “pay” or “play” choice •  How to determine whether you are subject to the employer mandate •  Overview of the recently issued final regula@ons •  Treatment of various types of workers •  Seasonal employees •  Short-‐term, non-‐seasonal hires

•  State of public and private exchanges

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•  Originally scheduled to take effect on January 1, 2014 •  Now scheduled to take effect on January 1, 2015 •  Generally requires that all nonexempt individuals be enrolled in “minimum essen@al coverage” or pay a tax penalty

Individual Mandate

•  Originally effec@ve for 2014, but delayed for one year •  Now scheduled to take effect on January 1, 2015 •  Addi@onal delay for: •  Qualifying sponsors of non-‐calendar year plans

•  Qualifying employers with 50-‐99 full-‐@me (FTs) and

full-‐@me equivalent (FTE) employees

•  Limited transi@on relief for the “A-‐Penalty”

“Pay or Play”

•  Two separate penal@es: •  4980H(a) or “A-‐Penalty” •  4980H(b) or “B-‐Penalty”

“Pay or Play”

•  A-‐Penalty (4980H(a)) •  Some@mes referred to as the “offering requirement”

•  General rule = An employer must offer “minimum essen@al coverage” (MEC) to 95% of its 4980H-‐defined full-‐@me employees “(and their dependents)” or risk a penalty equal to (i) $2,000, mul@plied by (ii) the number of full-‐@me employees minus 30

•  ** Certain transi@on relief through close of 2015 plan year was provided **

“Pay or Play”

Birth Child Up to Age 26

Adopted Child Up to Age 26

Step-‐children

Foster Children

All Children age 26+

4980H “Dependents”

Yes NO

Spouse

** Note: Special 2015 TransiUon Relief

“Pay or Play”

•  B-‐Penalty (4980H(b)) •  General rule = Even if an employer sa@sfies the offering requirement (i.e.,

avoids the A-‐Penalty), if the employer fails to offer affordable and minimum value coverage to a full-‐@me employee, it can risk a B-‐Penalty generally equal to $3,000 per year for that employee

“Pay or Play”

•  4980H Applies to “applicable large employers” or ALEs

•  Who is an ALE? •  An employer that employed on average at least 50 full-‐@me employees (FTs) or full-‐

@me equivalents (FTEs) during the preceding calendar year

•  Note: Special seasonal worker excep@on

•  ALSO, special transi@on rule for 2015

•  Things to keep in mind: •  ALE status is determined using IRS 80% controlled group rules

•  But once ALE status is determined, each ALE member gets its own “pay or play” decision

Subject Employers: ALEs

•  To determine ALE status, you need to take the following steps: 1.  For each calendar month last year:

•  Determine the client employer’s number of full-‐@me employees across its controlled group •  Determine the client employer’s number of full-‐@me equivalent employees

2.  Add up the number of FTs and FTEs for all 12 months of last year and divide by 12


Preceding Calendar Year Jan Feb Mar Apr May Jun July Aug Sept Oct Nov Dec Total

# Full-‐Time Employees

34 42 53 51 37 39 41 44 50 51 48 46 N/A

# FT Equivalents 12.6 12.9 10.3 10.5 14.2 12.3 9.3 10.0 10.3 13.2 12.8 13.2 N/A

Total Number 46.6 54.9 63.3 61.5 51.2 51.3 50.3 54.0 60.3 64.3 60.8 59.2 677.7

# of Full-‐Time Employees/Equivalents During the Preceding Calendar Year: 677.7 divided by 12 = 56.48


•  Full-‐Time Employee (FT)

•  Defini@on: Worked on average 120 hours during the calendar month at issue •  NOTE: This is NOT the same defini@on of FT that applies in second step of

analysis, i.e., when determining TO WHOM qualifying coverage must be provided. (That defini@on uses 30 hours/wk or 130 hours/month).


•  Full-‐Time Equivalent Employee (FTE) •  For each calendar month in the preceding calendar year, add up all hours worked by non-‐FTs (up to a maximum of 120 hours per employee) and divide by 120.


•  “Hour of service” includes: •  Hours Worked – Each hour for which the employee is paid, or en@tled to payment,

“for the performance of du@es;” AND

•  Paid-‐Time Off – Each hour for which the employee is paid, or en@tled to payment, for the period of @me due to vaca@on, holiday, illness, incapacity (including disability), layoff, jury duty, military duty, or leave of absence

•  Notes:

•  ALL paid leave gets counted

•  Final regs include rules for non-‐hourly and commissions-‐based employees

•  Final regula@ons include certain methods to credit hours (i.e., actual count, days-‐worked equivalency, weeks-‐worked equivalency)


•  For employers with 50-‐99 full-‐@me employees (FTs) or full-‐@me equivalent (FTEs), the en@re mandate may be delayed, if certain criteria are sa@sfied

•  For employers that can fit within the transi@on relief, they will not be subject to the A-‐Penalty or the B-‐Penalty •  BUT, numerous requirements apply in order to qualify for the delay,

so be careful!!

What Was Delayed?

•  To qualify for the 50-‐99 FT/FTE delay, what requirements apply? 1.  From 2/9/14 through 12/31/14, the employer CANNOT reduce the size of

its workforce or the overall hours of service of its employees to get below the 99-‐count threshold

•  Unless for business reasons

2.  During what is called the “coverage maintenance period,” the employer CANNOT eliminate or materially reduce the health coverage, if any, it offered as of 2/9/14

3.  The employer must cer@fy on a prescribed form that it meets these requirements

What Was Delayed?

•  What else was delayed? Nothing…

•  But a host of addi@onal transi@onal rules were provided for 2015 (which is sort of like a delay)

What Was Delayed?

•  Fiscal plan year transi@on relief

•  Shorter measurement period permined for use with 2015 stability period

•  Shorter period for determining ALE status for 2015

•  Offer of coverage for January 2015 can be @ed to first payroll period commencing in 2015

•  Offer of coverage for dependents

•  Special A-‐Penalty transi@on relief

TransiUon Rules

•  Special A-‐Penalty transiUon relief

•  What does the relief provide?

•  So long as the ALE member offers MEC to at least 70% of its full-‐@me employees (and children, as required under the transi@on relief), then no A-‐Penalty applies –

•  Through 12/31/15 for calendar year plans

•  Through close of 2015 plan year for non-‐calendar year plans

•  Also, the A-‐Penalty is reduced by the ALE’s allocable share of 80 full-‐@me employees rather than just 30

TransiUon Rules

•  Special A-‐Penalty transiUon relief

•  What does the relief provide?

•  HOWEVER, it is important to note that there is no corresponding B-‐Penalty relief!!!

•  Thus, the employer could be on the hook for the penal@es equal to $3,000 per employee for any employee that goes to the exchange and gets subsidized individual coverage

•  Most likely helpful on issue of worker misclassifica@on

TransiUon Rules

•  New rule for first-‐year ALEs

•  New monthly measurement method

•  New seasonal employee defini@on

•  Clarified treatment of short-‐term, non-‐seasonal hires

•  Modifica@ons to change in status and break in service rules

Overview of Notable Changes

•  To different categories of workers, such as:

•  Full-‐@me employees

•  Part-‐@me employees

•  Variable hour employees

•  Seasonal employees

•  Short-‐term, non-‐seasonal employees

How Does It Apply?

•  Full-‐Time Employee •  Defini@on = An employee reasonably expected to work a full-‐@me

schedule (using 30 hr/wk – 130 hr/month defini@on)

•  Generally, must offer coverage to a full-‐@me employee by the first day of the fourth full month following hire

•  Excep@ons if using “look back” method and there is a change in status

How Does It Apply?

•  Part-‐Time Employee •  New defini@on included in the final regula@ons

•  Part-‐@me = A new employee who is reasonably expected at the employee’s start date not to be a full-‐@me employee

•  Generally treated just like a variable hour employee

How Does It Apply?

•  Variable Hour Employee •  Defini@on = An employee not reasonably expected to work a full-‐@me

schedule (using 30 hr/wk–130 hr/month defini@on) •  Final regs: Facts and circumstances test, but factors to consider include:

•  Whether the employee is replacing an employee who was or was not a full-‐@me employee

•  The extent to which employees in the same or comparable posi@ons are or are not full-‐@me employees

•  Whether job was adver@sed, or otherwise communicated to the new hire or otherwise documented as full-‐@me

•  Consider crea@ng wrinen job descrip@ons for variable hour employees that explicitly set out the hours expecta@on

How Does It Apply?

•  Variable Hour Employee •  How 4980H applies to these employees depends on whether the employer plans to

use the “look-‐back” measurement method or the new monthly measurement method

•  If using the “look-‐back” measurement method: Can apply-‐up to a 12 month measurement period for determining full-‐@me status

•  If using new monthly measurement method: Must have offered coverage in advance for any calendar month in which the variable hour employee works a full-‐@me schedule (subject to once per-‐employment-‐term 3-‐month non-‐assessment period)

How Does It Apply?

•  Seasonal Employee •  Proposed regula@ons permined employers to use a good faith

interpreta@on for determining who is a “seasonal employee” •  An employee is permined under the final regula@ons to apply a

measurement period of up to 12 months with respect to seasonal employees (subject to “slice and dice” rules) •  The prac@cal effect of this is that no 4980H penal@es are likely to apply (since a seasonal

employee should not be employed at the close of the 12-‐month period at which @me the coverage requirement could take effect)

•  The final regula@ons provide an express defini@on: •  Seasonal employee = an employee in a posi@on that is performed at a recurring @me each

year and customarily lasts no longer than 6 months •  Note: In limited instances, actual employment could in theory extend beyond without

jeopardizing status as a seasonal worker

How Does It Apply?

•  Short-‐Term, Non-‐Seasonal Employee •  Short-‐term hires are NOT necessarily seasonal employees

•  In fact, many short-‐term hires will NOT qualify as seasonal employees •  Why? Because the posi@on (i) customarily lasts in excess of 6 months, or (ii) is not recurring based

on a specific @me of the year

•  The proposed regula@ons included a limited transi@on rule for 2014 that permined employers in certain instances to treat short-‐term hires like seasonal employees and apply a measurement period of up to 12 months

•  The final regula@ons do NOT include a similar transi@on rule •  And specifically state that an employer CANNOT take turnover or expected short-‐term nature of

employment into considera@on in determining whether “full-‐@me”

•  THEREFORE, an employer that employs a short-‐term hire that is expected to work a “full-‐@me” schedule and is not a seasonal employee generally must be offered 4980H-‐compliant coverage by the first day of the fourth month aqer hire (or else the employer could be subject to penal@es)

How Does It Apply?

•  Troubled rollout of federal and many state exchanges

•  Extended enrollment window through 3/31/14

•  By end of March: Total of 6 million enrolled

•  Percola@ng: •  Errors in enrollment and “adver@sing” of plans

•  Issues with processing premium tax credits and/or cost-‐sharing subsidies

State of Exchanges – Public

•  Growing number of providers offering private exchanges – insured or self-‐funded coverage

•  Agency guidance makes it very difficult for employers to par@cipate in public exchanges u@lizing individual insurance if the employer wants to provide a tax-‐preferred premium subsidy to the employee

•  Generally, the employer will need to sponsor insured or self-‐funded group health plans

•  Many employers are considering use of self-‐funded coverage with the private exchange because economics (e.g., the “COI” with insured coverage is too great)

•  Be careful! – Arrangements can raise ERISA concerns

State of Exchanges – Private

Questions

[email protected]

1-800-253-8562

** This webinar will be posted to the G&A website by Friday

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ppaca update: how the affordable care act will affect employers

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