preparing for the aca
TRANSCRIPT
Preparing for theAffordable Care Act
Ted Ginsburg, CPA, JD
June 17, 2015
2
• The status of the ACA today
• What employers need to be thinking about
What is the ACA penalty?
Should I offer insurance at all?
Strategies to avoid the penalty
• IRS reporting issues
• Other issues relating to welfare plans
• The real due date
TODAY’S DISCUSSION
3
• 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
• 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
• IRS/DOL continually make changes
STATUS OF THE ACA TODAY
4
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
5
Based on the prior calendar year, comprised of two parts:• Full time employees—works 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 in total• Calculation is made monthly, average FTE level is used
FTE–WHAT IS IT?
6
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
7
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?
8
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:• Full-time equivalent, also known as FTEs,
employees (discussed in the large employer test) 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
9
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
10
What happens if I fail to comply with Part Two of the two-part test?
• 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 will be liable for a non-deductible penalty of $3,000 per year, times the number of full-time employees who obtain insurance through the exchange/marketplace and receive a subsidy
WHAT HAPPENS?
The employer is only liable for the greater of the Part One or Part Two excise tax.
11
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
12
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
13
The Cadillac Tax• If a plan provides benefits that exceed a certain level, a
40% excise tax is imposed on the value of those benefits• Benefits under many current CBA programs would be
subject to the tax• Applies to 2018• Paid by employers (self-insured plans) or the insurers
(who pass the cost through to employers)
ANOTHER TAX
14
A multi-step process• If an employee acquires coverage through an exchange,
the exchange informs the IRS• An employee claims a tax credit for health coverage on
the employee’s 1040• Employers inform the IRS of what employees were
covered through IRS Forms 1094/1095• IRS assesses the excise tax, sending the employer a bill• Employer has a limited amount of time (2 months) to
contest the assessment
HOW IS THE EXCISETAX ASSESSED?
15
Managing workforce levels to avoid ACA
If 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?
16
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• Use part time employees—no coverage needed for
employees under 30 hours a week• Use seasonal employees• Use subcontractors
WHAT SHOULD EMPLOYERSTHINK ABOUT?
17
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• If you stay under 50 employees, you can reimburse
employees on a pre-tax basis• 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?
18
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
THINK ABOUT?WHAT SHOULD EMPLOYERS
19
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?
20
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• Additional information/filings needed for self-insured
plans• 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
21
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.
Among employee specific data needed:• Employee identification data (name, address, SSN)• For each calendar month
What coverage was offered to the employee? What was the cost of the lowest cost plan offered to the
employee? What ‘safe harbors’ were used?
REPORTING ISSUES
22
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?• Number of full time and total employees?• Controlled group status for benefit plan purposes?
REPORTING ISSUES
23
FORM 1095 - C
24
For self-insured plans, additional employee specific data is needed:• Participant identification data (name, address,
SSN/DOB for spouses and children)• Which calendar months during the year was each
participant covered?
REPORTING ISSUES
25
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
26
DOL increases scrutiny of welfare plan compliance• DOL is increasing audit activity in the welfare plan area
DOL investigate staff has significantly increased in size over the last two years
Over 70% of audits result in the plan sponsor paying some type of penalty
• This will only be heightened as ACA becomes effective
OTHER ISSUES
27
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 Potential legal (participant) and regulatory (IRS, DOL)
exposure
• Use of “wrap plans” can reduce the number of annual IRS Form 5500 filings that are required
OTHER ISSUES
28
For IRS compliance, which is due February 1, 2016, gathering the data should begin as soon as possible
2016 planning should be completed at least one month before open enrollment • Usually occurs in the early fall, contains the following
decisions: Which employees should be eligible for insurance? How much should employees be charged for single coverage? What programs should be offered?
WHEN IS THE REALDUE DATE?
29
If you have any questions, or need additional information, please contact:
Ted Ginsburg, CPA, JD(440) 449-6800
QUESTIONS?