tick, tock goes the aca clock: getting ready for the aca reporting deadline

Today’s Learning Objectives

• Regulatory / judicial forecast• Highlights from recent guidance• Pay or Play Rule• MEC/ALE reporting

Regulatory Forecast

• Still a few “open” issues• Possibility of prior regulations be reissued and “tweaked”• Automatic enrollment (likely 2015)• Nondiscrimination rules (105(h) test)

– Self-funded plans should examine it• More Pay or Play guidance, possibly

– Guidance from September addresses M&A situations and cafeteria plan election changes

Legislative / Judicial Forecast

• Republican control has not changed the game– Growing support from Democrats for repeal / modification to “Pay or Play

Rule”– Will 30 hours become 40? Complete repeal of Pay or Play Rule? Perhaps

impose a “percentage of payroll” approach?• Supreme Court upholds Exchanges in all 50 states

– No “grand bargain” now between Republicans and Democrats to significantly change ACA

– Pay or Play Rule remains in effect• Other legal challenges speculative

– January 2015 – Supreme Court refuses to hear another ACA challenge – Pending challenge on whether payments to insurers to reimburse for out of

pocket expenses were ok

Recent / Current Guidance

• Update COBRA forms for Marketplace notification• New “orientation period” regulations

– Allows extension of 90-day waiting period by up to one month (less a day)• E.g., if start on May 3, last permitted day is June 2; if start October 1, last

permitted day is October 31

• HPID is a unique number assigned to a “controlling health plan”– Self-funded group health plans typically must obtain a HPID– Now delayed – perhaps forever?

• Also, HPID ties into a separate HIPAA “certification” requirement– Supposedly, certify by 12/31/2015 for large plans whether they comply with

various HIPAA Standard Transactions

Premium Reimbursement

• IRS / DOL / HHS continues to “emphasize” how employers cannot reimburse individual premiums

• November 2014: Agencies add that reimbursement cannot be done on an AFTER-TAX basis either (new)

– 2015 notice gave relief until 6/30/2015• Very large possible penalties ($36,500 per employee per year)

Employers and Exchanges

• Will employers “dump” sick employees into Exchanges?• November 2014 guidance tries to prevent this• Somewhat-convoluted reasoning that offering cash to high-risk

employees adds to their “cost” of coverage• Does this mean that ANY “cash in lieu” arrangement counts as the

“cost” of health plan coverage?– E.g., employer charges employee 9.5% of W-2 wages for self-only

coverage. Employer also offers $100 per month if employee chooses to not take coverage. $100 per month is not added to W-2 because run through cafeteria plan. But does it still count for affordability purposes? If so, is the employee really paying > 9.5%? Affect other items – COBRA?

2014 / 2015 Changes

• Plans cannot discriminate against provider acting within scope of license or certification under state law

• Plans must provide clinical trial coverage for certain “qualified individuals”

• New “preventive care” coverage• Also, May 2014 FAQ “clarified” that all FDA-approved tobacco

cessation products must be covered• No pre-existing condition exclusions by first day of 2014 plan year (will

eliminate need for Certificates of Creditable Coverage in 2015)• Grandfathered plans cannot prohibit adult children from enrolling in the

plan because of other coverage• Out of pocket limits now based on self-only limits (even if in family

coverage)

Cadillac Tax – Overview

• Nondeductible, 40% excise tax on certain “high cost” health plan coverage

• Goal is to raise money for federal government• Also to, in theory, reduce demand for health care by making it more

expensive• Widely disliked by both Republicans and Democrats

– Republican “repeal and replace” proposal, though, in Feb. 2015, similarly caps tax exclusion on employer plans

– Lobbying groups (with unions, insurers and large-employer members) seeking to repeal tax

Cadillac Tax

• Applies to “applicable employer-sponsored coverage”– Note: Not much guidance – only one “trial balloon” from the IRS– Applies to grandfathered or non-grandfathered plans– Statute uses general definition of “group health plan” in Code Section 5000

• Certain coverage is not taken into account– Accident, disability, workers’ comp, auto medical payments – Separate policy for eye or mouth– Independent, noncoordinated coverage– Possible that governmental plans WOULD need to include this though

Cadillac Tax

• Applies to coverage provided to an “employee”– Includes former employee, surviving spouse or other primary insured

individual• Tax is 40% of employee’s “excess benefit”

– Excess benefit is sum of employee’s “monthly excess amounts”– “Excess amount” is amount by which “aggregate cost” of coverage exceeds

1/12 of annual limitation for calendar year• Assume in first six months of 2018, aggregate cost of Ed’s coverage is

$850 / month. Last six months it is $875 / month. Assume annual limitation is $10,200 (or $850 / month). No excess amounts for first six months of 2018. Last six months excess is $25 / month. Tax is 40% of that amount per month. $25 x .4 x 6 = $60 for 2018.

Cadillac Tax

• Employer contributions to health FSA, HSA or Archer MSA generally are taken into account

• Annual limits in 2018 start at $10,200 for self-only; $27,500 for all else• Adjustments for various professions (high-risk) and multiemployer

plans• Also an inflation adjustment• Determined on month-by-month basis (first day of month)

Cadillac Tax

• Who pays it?– HSA or Archer MSA = employer– Other self funded coverage = plan administrator

• Strategies?– Difficult to strategize without formal guidance– More urgent if unionized (CBA issues)– Move costs to things other than premiums?

Same-Sex Marriage Issues

• Supreme Court requires states to recognize and provide same-sex marriages

• If company refuses to provide coverage, what happens?– If fully-insured, may have no choice– Title VII claims possible?

• Some concern over retroactive recognition of same-sex marriages– July 2014 ruling by CT Supreme Court allowed widow of same-sex spouse

to seek “consortium” benefits, by retroactively recognizing same-sex marriage

– July 2015: Wal-Mart sued over this issue– 2008 MA court decision went opposite way

• State tax issues still possible

Seven Steps to Understanding Pay or Play

• Understand general Pay or Play Rule concepts• Is the employer a “large employer”?• Will any employees receive federally-subsidized Exchange coverage?• Does the employer offer minimum essential coverage under an

employer plan?• Does the plan provide minimum value?• Is the plan’s coverage affordable and offered to all full-time

employees?• If applicable, calculate and pay the penalty

Step 1: Understand General Rules

• Today: Employer can refuse to offer coverage without any federal penalty

• January 1, 2014: Employers are not required to provide health insurance to employees, but tax applies if full-time employee receives federally-subsidized Exchange coverage

– No exclusion for governmental, church or non-profit employers– Now delayed until 2015, generally

• 2016 for employers with 50 – 99 employees• Non-calendar year plans often, but not always, receive extra few months to

comply– Employers likely must measure in 2013 / 2014 to know who is full-time as

of January 1, 2015

Possible Penalties

• No Offer Penalty: If employer does not offer minimum essential coverage:

– $2,000 (annual) tax per full-time employee, if at least one full-time employee obtains federally-subsidized Exchange coverage

– Calculated after first 30 (80) employees; 5% (30%) de minimis• Unaffordable Coverage Penalty: If employer does offer minimum

essential coverage but at least one full-time employee obtains federally-subsidized Exchange coverage:

– Tax is lesser of $3,000 per subsidized full-time employee, or $2,000 per all full-time employees

• Amounts are adjusted for inflation, but no official IRS numbers yet– Likely $2,080 and $3,120, respectively

Step 2: Is the Employer a Large Employer?

• Check if employer has at least 50 full-time (including full-time equivalent (FTE)) employees during preceding calendar year

– 6-month transitional rule for 2014• Includes common law employees, FTE part-time, FTE seasonal,

controlled group• IRS guidance defines “employee” as: “a worker who is an employee

under the common-law test” (apparently excludes independent contractors)

• For purposes of determining whether the rule applies, a “full-time” employee is an individual with 30+ “hours of service” per week

– IRS: 130 hours of service in a calendar month = 30 hours of service per week

Step 2: Is the Employer a Large Employer?

• Steps 2(a - c): Special rules for counting full-time employees (controlled group, predecessor and new employers)

• Controlled group rules similar to those for retirement plan purposes (use Code Section 414 definition)

– So, 100% owner usually cannot divide a 200-employee company into five 40-employee companies to avoid the Pay or Play Rule

– Penalty *not* applied on controlled group basis• Other “anti-abuse” rules also apply

– E.g., XYZ Co. and Staffing Co. “divide” employee so employee works 20 hours / week for each

Step 3: Will Employees Receive Subsidized Exchange Coverage?• Always possible for an employer (with help from insurer / TPA) to

design health plan so employer never faces Pay or Play Rule penalty– But may require plan design changes and employer must follow three

requirements– (a) Offer “Minimum Essential Coverage” under an “eligible employer-

sponsored plan” to all its full-time employees (and, perhaps, dependents) who are eligible for subsidized Exchange coverage

– (b) Ensure employer’s plan provides “Minimum Value”– (c) Ensure employee’s share of premium for self-only coverage for

employer’s lowest-cost, Minimum Value plan is “Affordable”• Steps 4 – 6 discuss each point

Step 4: Offer Minimum Essential Coverage?

• Easy test – generally, if offer major medical coverage• What does it mean for employer to “offer” coverage?

– IRS regulation: Must have opportunity to enroll (or not enroll) once per year– Appears PEO could offer on behalf of client

Step 5: Does Plan Provide Minimum Value?

• “Minimum value” definition under ACA: “plan’s share of the total allowed cost of benefits provided under the plan is less than 60 percent of such costs”

• IRS will examine typical benefits provided by other employers and use that as standard

• IRS and HHS have discussed “calculators” and “checklists” to simplify determination

– Minimum value calculator released– Available at cciio.cms.gov/resources/files/mv-calculator-final-2-20-2013.xlsm– May 3 regulation clarifies whether wellness discounts for deductibles and other

cost-sharing are considered• Yes, if discount is tobacco-related

– Preamble to May 3 regulation discusses certain design-based safe harbors– August 31, 2015: New guidance published– Previously, IRS indicated that 98% of employees in US covered by plan that was

expected to pass this test

Step 6: Is Plan Coverage Affordable?

• Employee can obtain subsidized Exchange coverage if income at least 100% of federal poverty level (“FPL”) and not more than 400% FPL (about $92,000 today for a family of four) and either:

– Poor Plan (No “Minimum Value”): Plan pays less than 60% of total benefits allowed under plan; or

– Costs Too Much: Employee’s share of premium for employee portion of “self-only” coverage for employer’s lowest-cost coverage that provides minimum value > 9.5% of employee’s “household income”

– Was 9.5% changed to 9.56% by inflation adjustment?• IRS: Employers allowed to use W-2 wages or two other “rate of pay” or

“federal poverty line” safe harbors• What about “cash in lieu of benefits”?

Step 7: Determine Who isa “Full-Time” Employee• Generally divide employees into different categories

– Ongoing Employee– New Employees– New, Full-Time Employee– New, Variable Hour Employee– New, Seasonal Employee– Part-Time Employees

Step 7: Ongoing Employees

• Employer selects Standard Measurement Period– 3-12 month period in which employer will determine whether employee has

worked on average 30 hours per week– Employer chooses when it starts and ends

• If Ongoing Employee is a full-time employee, he is “protected” and remains full-time employee during subsequent Stability Period

– Stability Period must be at least 6 consecutive calendar months• Leads to awkward results if 3-month Measurement Period selected

– Stability Period generally cannot be shorter than Standard Measurement Period

• Start of Stability Period can be delayed for up-to-90-day Administrative Period

– Allows employer to calculate employee’s hours, answer questions from employees, collect materials from employee, etc.

Step 7: New Employees Expected to be Full-Time• No Pay or Play Rule penalty if employer offers health plan coverage at

or before conclusion of employee’s initial three full calendar months of employment

Step 7: New, Variable Hour Employee

• Usually Variable Hour and Seasonal Employees treated the same• Technically, Variable Hour Employee involves New Employee with

uncertain future hours (not known if will average 30 hours / week)– Employment status change requires health plan coverage by 1st day of 4th

month after change– Effective 1/1/2015, employer must assume that although employee’s hours

of service may vary, employee will continue to be employed for entire “Initial” Measurement Period

• Employer measures full-time status using “Initial” Measurement Period (not a “Standard” Measurement Period)

– Also a period between 3 – 12 months– Employers may want shorter period (e.g., 11 months) due to special rule

(discussed later)


• For Variable Hour Employee, employer can “split” Administrative Period• Helpful to make dates “easier” (e.g., start counting as of first of month)• However, special rule: combined Initial Measurement Period and

Administrative Period may not extend beyond last day of first calendar month beginning on or after one-year anniversary of employee’s start date

– Totals, at most, 13 months and a fraction of a month– Prevents employer from having 12-month Measurement Period and 90-day

Administrative Period


• If Variable Hour Employee not treated as full-time during Initial Measurement Period, employer can treat employee as not “full-time” for a “Limited” Stability Period

• Limited Stability Period:– Must not be longer than one month longer than the Initial Measurement

Period – Must not exceed remainder of Standard Measurement Period (and any

associated Administrative Period) in which Initial Measurement Period ends– Appears to be designed to allow employee to “re-qualify” quickly for full-

time status

MEC Reporting: Overview

• “Minimum essential coverage” (“MEC”) is coverage that most U.S. citizens must have in order to avoid tax under Affordable Care Act (“ACA”)

• Penalty taxes for not having MEC (or an exception) generally start at 1% of income but rise thereafter

• Government desired method to verify that individuals really had MEC• So, new rule requires that any person providing MEC to another

person must report that to the federal government• Originally supposed to have applied in 2014

– Delayed July 2013• Now first report due in early 2016, relating to 2015 coverage

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ALE Reporting: Overview

• “Employer shared responsibility” rules (aka “Pay or Play Rule”) requires “large” employers to offer “good enough” health plan coverage or risk tax penalty

– “Large” generally means having 50 or more full-time and full-time-equivalent employees

• Again, government needed method to verify• New rules require employer to report to federal government whether it

offered this “affordable”, “minimum value” health plan coverage• Also was delayed from 2014 to 2015

– So, first report due early 2016, relating to 2015 coverage– Note: Pay or Play Rule delayed to 2016, generally, for employers with 50-

99 employees– But, NO delay for these employers from ALE reporting

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Current Guidance

• Statute and regulations• Final 2014 forms and instructions

– No need to have completed; optional for employers• Draft instructions for 2015 (from early August 2015)• Draft forms for 2015• Unclear when final forms and instructions will be released

– Creates some practical timing issues for employers• FAQs

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Due Dates

• Similar to Form W-2– January 31 of following year for furnishing statements to individuals– February 28 for filing transmittals with IRS (but have until March 31 if filed

electronically)– All reporting done based on calendar year, even if plan itself operates on a

non-calendar year (e.g., July 1 – June 30 plan year)• For 2016, delay of one day (because January 31 and February 28 are

Sundays)• In order to report by early 2016, need to be tracking data here in 2015

– Need to report how many “full-time” employees have in 2015– If using “look-back measurement method”, status of an employee as “full-

time” is often based on 2014 hours

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Who is Responsible?

• MEC Report:– If fully-insured, health insurers responsible– If self-insured, plan sponsor responsible– Plan sponsor generally the employer / board of trustees (multiemployer

plan)– Note: Typical controlled group rules do not apply – each employer reports

on their own (even if part of controlled group)– But, guidance indicates that one member can assist another member (but

no automatic transfer of IRS-related liability)• ALE Report:

– Plan sponsor responsible– Similarly, one controlled group member can assist another

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What Coverage is Reported (MEC)?

• In general, major medical coverage of an employer– Are additional categories unrelated to employer coverage (e.g., Medicaid

and Exchange coverage)• MEC generally must be a “group health plan”

– Can be grandfathered or non-grandfathered; self-funded or fully-insured• Excepted benefits are NOT MEC

– E.g., most dental, vision, health FSAs, EAPs avoid this reporting rule• Health reimbursement arrangements exempt if they simply

“supplement” the major medical coverage– What if employee elects COBRA for HRA but not major medical?

• Health savings accounts (“HSAs”) are not group health plans and no reporting required for them

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How is MEC Report Made?• Forms 1094-B, 1095-B and 1095-C, Part III• If file 250 or more returns during calendar year, must file electronically

– Others can choose to do so• Electronic furnishing of statements to individuals possible BUT:

– Individual must affirmatively agree and be allowed to withdraw agreement– State various details, such as hardware and software requirements– Need to obtain consent even from employees

• More stringent than other rules (e.g., many ERISA-required documents)

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How is MEC Report Made? Observations

• For fully-insured plans, appears to always be insurer’s responsibility to complete MEC-related forms

– Regardless of whether employer is ALE or non-ALE; whether covering active or non-employees; whether M’E or non-M’E

– Easiest category for employers• For self-funded plans, first determine your ALE or non-ALE status

– Having ALE status triggers Form 1095-C (return) and Form 1094-C (transmittal) requirements

– Why? Because the “C Forms” have the dual purpose of (1) reporting that MEC was provided; and (2) informing IRS that you complied (or did not comply) with Pay or Play Rule (ALE reporting)

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How is MEC Report Made?

• Transmittal form is a single form filed with IRS

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• “Responsible Individual” is generally policyholder (if fully-insured) or employee through whom coverage was selected

• Most employers will have “responsible individual’s” SSN• Line 8: Code “A” for SHOP coverage; Code “B” for “employer-

sponsored” coverage; Code “E” for M’E coverage

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• If insurer enters Codes “A” or “B” on line 8 (prior slide), insurer completes Part II

• If employer happens to be filling out Form 1095-B (rare event?) employer enters Code “B” on line 8 but does NOT complete Part II if coverage is self-funded

– Instead, skip Part II and go to Part III

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• Most of this should be relatively clear– Presumably address is headquarters address or similar

• Note that need to include telephone number “an individual seeking additional information may call to speak to a person”

– Could a TPA or other vendor provide this service?– Any requirements for how it is staffed? Hours of operation?

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• Note detail – covered person by covered person, month-by-month• Social Security numbers for each covered person

– Is a process where date of birth can be used after a few documented attempts to obtain the SSN

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ALE Reporting Details

• ALE member is generally an employer with 50+ full-time or full-time equivalent employees in prior year

– “Convert” part-time and seasonal employees into full-time equivalents– Special rule – not an ALE if go over the limit only due to seasonal

employees• Compliance with Pay or Play Rule depends on size of employer, in

general:– < 50 = no issues– 50-99 = Pay or Play generally delayed by one year (2016), but NOT ALE /

MEC reporting– 100 or more = generally comply in 2015

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How is ALE Report Made?

• Form 1094-C (transmittal)

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• Note that one transmittal must be “authoritative”• Note that “controlled group” test must be run• Special certification rules can apply

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• Part III: Note total employee count• Instructions provide transitional relief “indicators”

– E.g., for 50-99 size employers

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• Details of “controlled group” must be listed– Note that rules can be complicated

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• 1095-C is the return• Again, note contact telephone number

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• Complete for all full-time employees (even if full-time for short period such as one month)

• Various “codes” for each line; e.g., for Line 14:– Code “1A” = Affordable, minimum value, full-time E’ee– E.g., Code “1H” = No offer of coverage

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• Line 16 Codes include:– 2A = Employee not employed in that month– 2C = Employee enrolled in minimum essential coverage– 2E = Multiemployer plan relief

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• This part is a bit odd – really relates to MEC reporting– Employer notes who had coverage (full-time or not)– Similar to Form 1095-B

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Strategy: Identify Your Scenarios and Plan in Advance• One strategy to help ensure compliance is to plan out the possible

scenarios you could face• Companies could face a variety of scenarios, depending on:

– When coverage is offered (e.g., 1st day of coverage; after 90 days)– To whom coverage is offered (e.g., part-time; full-time)– Unique situations (e.g., multiemployer coverage)

• If you know you will face them in January 2016, plan for them now• Especially if completing forms yourself• If using software vendor, still many want to plan scenarios to compare

with software vendor’s results (“garbage in, garbage out”)

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Scenario #1

• Generous Co. offers good health plan coverage to all employees who are scheduled to work 20 hours per week. The plan provides “minimum value”, is “minimum essential coverage” and is self-funded. Generous Co. has 500 total employees and is a “large” (100+ employer). The coverage is affordable for most employees, using the 9.5% of federal poverty level limit

• Amy is a full-time employee of Generous Co. (40 hours per week). She is eligible for coverage every day in 2015 and took the coverage every day. Amy has no spouse or children. What would Amy’s 1095-C look like?

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Scenario #2

• Bob is also a full-time employee of Generous Co. Like Amy, he was offered and took coverage for all of 2015, although he had family coverage for each day of 2015.

• What does Bob’s 1095-C look like?

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Scenario #3

• Cathy is similar to Amy and Bob – she is full-time and works for Generous Co. However, Cathy waived coverage from Generous Co.

• How will Cathy be reported?

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Scenario #4

• Doug is hired as a new full-time employee on April 15, 2015. His waiting period runs from April 15 – May 30. He is enrolled June –December 2015.

• How is Doug reported on the 1095-C?

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Scenario #5

• Ed has been a full-time employee for a number of years. He terminates employment on July 15, 2015. Ed is offered COBRA (there was no gross misconduct). Ed elects COBRA and pays for one month of coverage (August 2015). Ed then stops paying and the COBRA coverage is terminated.

• How should Ed be reported?

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Scenario #6

• Claudine starts with Generous Co. on January 10, 2015 as a variable hour employee. She becomes a full-time employee on August 1, 2015, at which point she is eligible for health plan coverage. She takes the offer of coverage and is covered as of August 1, 2015.

• How should Claudine be reported?

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Scenario #7

• Jeremy was a full-time employee through October 31, 2015. He then switches to part-time status as of October 31, 2015. He loses health plan coverage as a result of the change, but he does not elect COBRA.

• How should Jeremy be reported?

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Scenario #8

• Ned is not a “full-time” employee from an ACA perspective, as he has traditionally only worked 25 hours per week. But Generous Co. offers him coverage anyways. Ned takes that coverage January – December 2015.

• On August 8, 2015 Ned adds a new spouse, Sally, to the plan. Sally is covered for the remainder of the year.

• How are Ned and Sally reported?

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Scenario #9

• OK Co. is not as generous as Generous Co. For example, it does not subsidize the cost of health plan coverage as much and it therefore cannot always use code 1A in Form 1095-C (which is based on the federal poverty level safe harbor definition of “affordable” health plan coverage)

• Zack is a full-time employee of OK Co., working 30 hours per week. He receives an offer of self-funded health plan coverage. The cost is $300 per month for self-only coverage. Family coverage costs $500 per month. Zack makes $10 per hour, which roughly works out to $300 per week and $1,200 per month.

• The plan operates on a July 1 renewal. Zack did not take coverage from July 1, 2014 – June 30, 2015 because it was too expensive. But Zack decides that he needs coverage and so signs up for it effective July 1, 2015. The offer was for single or family coverage.

• How is Zack reported?

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Scenario #10• Rock Co. has a fully-insured health plan through Anthem. Rock Co.

offers coverage to eligible employees. It uses the W-2 method for determining whether coverage is affordable. (Thus, it cannot ever use Code 1A in line 14, which is based on the federal poverty level.) Rock Co. has 200 full-time employees

• Rock Co. offers “good” coverage to Tess and her family, a full-time employee, who takes single coverage for all of 2015 ($200 / month)

• How is Tess reported? What does Anthem / Rock Co. provide?• Because the plan is fully-insured and Tess is a full-time employee:

– Rock Co. will complete 1095-C Parts I and II– No one completes 1095-C Part III– Anthem completes 1095-B

• Note: If Tess was a part-time employee who did not take coverage:– Rock Co. would not complete 1095-C with respect to Tess– Anthem would not complete 1095-B with respect to Tess

• 1095-C issued for: (a) full-time employees OR (b) any covered employee

Strategies for Reporting

• This is a lot to track!• Examine internal resources, software, budget• Prepare a “spreadsheet” of all information to be tracked

– Verify who has it– Verify the “flow” of information and who will coordinate

• Verify if collect SSNs– Consider adding to this year’s open enrollment materials?

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Strategies for Reporting

• Time is likely of the essence– So, even though forms are still draft, likely need to move ahead

• Verify communication issues– E.g., who will take phone calls?

• Verify “controlled group” status– Will one member assist others?

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Thank You!

© 2015 Quarles & Brady LLP - This document provides information of a general nature. None of the information contained herein is intended as legal advice or opinion relative to specific matters, facts, situations or issues. Additional facts and information or future developments may affect the subjects addressed in this document. You should consult with a lawyer about your particular circumstances before acting on any of this information because it may not be applicable to you or your situation.

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tick, tock goes the aca clock: getting ready for the aca reporting deadline

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