the aca is here. are you ready? - hb solutions · final rules (cont.) • the final regulations...

The ACA Is Here.

Are You Ready?

Karlee S. Bolaños

Joshua D. Steele

William Q. Lowe

Agenda

Understanding the “Shared Responsibility” Rules:

• Brief overview/impact of the new final rules

• Determining applicable large employer status

• Determining full-time employees

• Determining what coverage must be provided

Essential Compliance Actions and Strategies for

Avoiding Liability

2

Understanding the Basic Premise

The Shared Responsibility Rules

• In a nutshell, the Shared Responsibility rules provide that

“Applicable Large Employers” with 50 or more Full-Time

(including Full-Time Equivalent) employees are subject to

a tax penalty if any full-time employee receives a premium

tax credit or cost-sharing reduction to purchase coverage

through an Exchange.

• A full-time employee is eligible for a cost sharing

subsidy if: • An employer does not “offer” Full-Time employees (and their

dependents) the opportunity to enroll; or

• An employer offers its Full-Time employees the opportunity to enroll

but coverage is “Unaffordable” or does not provide “Minimum Value”

3

History of the Employer Mandate

• On December 28, 2012, the Department of the Treasury and the

IRS released proposed regulations implementing the employer

shared responsibility provisions, which were scheduled to become

effective on January 1, 2014.

• On July 2, 2013 the Obama administration announced that

enforcement of the employer shared responsibility provisions,

along with the IRC §6055 and §6056 information reporting

requirements, would be delayed one (1) year until January 1, 2015.

• On February 10, 2014, the Department of the Treasury and the

IRS issued the highly anticipated final regulations implementing

the employer shared responsibility provisions that contain

several important changes and additional transitional relief for

some employers.

4

Summary of the Key Changes Under the

Final Rules

• An employer with 50 to 99 full-time employees does not have to comply until 2016

provided that it does not reduce the size of its workforce or overall hours of service in

order to gain this transition relief. (Must maintain any health coverage offered as of

February 9, 2014).

• Employers with 100 or more full-time employees will still need to comply beginning

in 2015.

• Employers with plan years that do not begin on January 1 will be able to begin

complying with the employer mandate at the start of their plan years in 2015 instead of

January 1, 2015.

• Employers that are subject to the employer mandate in 2015 need to offer coverage to

70 percent of full-time employees (instead of 95%). However, this increases to 95

percent for 2016 and beyond.

• For 2015 and any calendar months of 2016 that fall within the employer’s 2015 plan

year, if an employer with 100 or more full-time employees is subject to a 4980H(a)

penalty, then the penalty calculation will be made after subtracting the employer’s

allocable share of 80 fulltime employees instead of 30.

5


Final Rules (cont.)

• The final regulations provide a definition for “seasonal employees”

clarifying that seasonal employees are those in a position for which

the customary annual employment is six months or less.

• For 2015 only, employers do not need to offer coverage to

dependents of full-time employees, defined as children up to the age

of 26. This requirement applies in 2016 and beyond.

• The final regulations amend the definition of dependent to exclude

foster children and stepchildren.

• The final regulations create a “weekly rule,” under which full-time

employee status for certain calendar months is based on hours of

service over four-week periods and for certain other calendar months

on hours of service over five-week periods.

6


Final Rules (cont.)

• The final regulations clarify application of the look-back measurement

method and the monthly method of determining full-time status.

• For 2015, employers may determine whether they had 100 full-time

employees (or fulltime equivalents) in the previous year by

referencing any consecutive six-month period in 2014.

• In 2014 (preparing for 2015), plans may use a measurement period of

six months. However, the measurement period must begin no later

than July 1, 2014, and end no earlier than 90 days before the first day

of the plan year beginning on or after January 1, 2015.

• Solely for January 2015, a large employer may offer coverage on the

first day of the first payroll period that begins in January 2015 (as

opposed to the first day of the calendar month).

7

Four Essential Questions of the

Employer Mandate Analysis

• Step 1: Does the mandate apply to this business and if

so, when?

• Step 2: To whom must we offer coverage?

• Step 3: Does the insurance coverage provide minimum

value and is it affordable to employees?

• Step 4: What is my liability for not providing appropriate

coverage and how can I avoid liability?

8

Employer Mandate:

Determining Large Employer Status

• Large employer status under the ACA

• 50 or more full-time or full-time equivalent employees

• Must be determined each year based on prior year’s actual hours

worked.

• Transition Relief

• For 2015: Employers with 50-99 full-time employees will not need to

comply with the Employer Mandate.

• To be eligible for this relief the employer must:

• Employ between 50 and 99 employees during 2014.

• Take no action to reduce the size of tis workforce or the overall hours of

service of its employees to fall within relief.

• Not eliminate or materially reduce coverage offered as of 2/9/2014.

• Certify that it satisfies the above requirements.

• Applies to 2015 plus any calendar months of 2015 that fall within an

employer’s 2015 plan year.

9

Employer Mandate:

Determining Large Employer Status (cont.)

• Large employer status under the ACA

• Full-time employee status is based on “hours of service”

• Calculated on a monthly basis

• Hourly employees: 30 hours of service per week. 130 hours of service

per month is the equivalent of 30 hours of service per week.

• Non-hourly employees: Count hours or use daily (8 Hours)/weekly

equivalency (40 hours).

• Hours of Service

• Hours for which an employee is paid, or entitled to payment, for the

performance of duties;

• Hours for which an employee is paid, or entitled to payment, for a period

of time during which no duties are performed due to vacation, holiday,

illness, incapacity, layoff, jury duty, military duty, or leave of absence.

• Exclusions:

• Hours of service performed: as a bona fide volunteer, as part of a

Federal Work-Study Program; outside the US.

10

Employer Mandate:


• Full-time equivalent employees

• The total number of FTEs in a month is determined by:

• Calculating the aggregate number of hours of service for

non-full-time employees for that month and dividing that number by

120.

• Fractions may be taken in to account by rounding to the

nearest hundredth.


• For 2015 only, employers may refer to any consecutive 6-month

period from 2014, instead of using the entire year, when

determining their status as a large employer for 2015.

11

Employer Mandate:


• Employers Not in Existence During Prior

Calendar Year

• An employer that was not in existence during the prior calendar

year will only be a large employer for the current year if it is

reasonably expected to employ an average of at least 50 full-time

employees.

• An employer is deemed to not have been in existence in the prior

year if it was not in existence on any business day in the prior year.

12

Employer Mandate:


• Seasonal Workers Exception

• An employer with 50 or more full-time employees will not be

considered a large employer if:

• The employer’s workforce exceeds 50 full-time employees for 120

days or fewer during the year, and

• The employees in excess of 50 employed during that time are

seasonal workers.

• Employers may apply a reasonable, good faith interpretation of

the term seasonal worker.

• Includes more than just retail and agricultural workers.

13

Which Employees Must You Offer

Coverage To?

• Determining Who is a Full-Time Employee

• An employee who, with respect to any month, is employed on

average at least 30 hours of service per week.

• Definition has come under much scrutiny.

• Distinction between hours of service and hours worked.

• Regulations provide two methods for determining full-time

employee status:

• Monthly measurement method

• Look-back measurement method

14

Determining Who is a Full-Time Employee

• Calculating Hours of Service

• Hourly Employees

• Employers must calculate actual hours of service from records of

hours worked and hours for which payment is made or due.

• Non-Hourly Employees

• Actual hours of service

• Daily equivalency: 8 hours per day

• Weekly equivalency: 40 hours per week

• The use of equivalencies is prohibited if the result is to substantially

understate an employee’s hours of service in a manner that would

cause that employee not to be treated as full time.

15

Determining Who is a Full-Time Employee (cont.)

• Monthly Measurement Method

• Employees with 130 hours of service in a month will be treated as

full-time.

• Final regulations adopt “weekly rule” that permits

employers to determine full-time employee status for an individual

month based on the number of weeks in the particular month.

• Calendar months with 4 week periods

• Employees with at least 120 hours of service are full-time

• Calendar months with 5 week periods

• Employees with at least 150 hours of service are full-time

16


• Look-Back Measurement Method

• This method allows employers to determine the status of an

employee during a future period, based on the hours of service

he/she worked in a prior period.

• Applies differently depending on whether you are dealing with

ongoing employees or new employees.

• Types of employees

• Ongoing employees

• New employees (Full-Time, Variable Hour, Seasonal)

17


Key Terms

• Standard Measurement Period: A period of time of at least 3, but no more than 12,

consecutive months that a large employer selects and uses in determining whether an

ongoing employee is a full-time employee under the look-back measurement method.

• Initial Measurement Period: A period of time of at least 3, but no more than 12,

consecutive calendar months used as part of the process of determining whether

new variable hour employees are full-time employees under the look-back

measurement method.

• Stability Period: A period of time that follows, and is associated with, a standard or

initial measurement period. Employee status as full-time or part-time is determined by

the prior measurement period and remains locked in during the stability period.

• Administrative Period: An optional period of no more than 90 days beginning

immediately following the end of a measurement period and ending immediately before

the start of the associated stability period.

18


Look-Back Measurement Method: Ongoing Employees

• Employers may select a “look back” measurement period of

between 3 - 12 months.

• If an employee was employed on average at least 30 hours per week

during the measurement period, then he/she must be treated as full-

time during a corresponding stability period, regardless of the

number of hours of service actually worked in the stability period.

• The duration of the stability period must be the greater of 6

consecutive calendar months or the length of the look-back period.

19


Look-Back Measurement Method: New Full-Time Employees

• For new hires, if reasonably expected to be full-time employees at the

start of employment, the employer must offer coverage by the first day

of the month immediately after the employee’s first 3 months of

employment.

• Final rules provide the following factors to use when determining if

reasonably expected to be full-time:

• Is the employee replacing a full-time employee?

• What are the hours of service for employees in similar positions?

• Was the job advertised as requiring 30 or more hours per week?

• What do internal documents (i.e., job description) say?

20


Look-Back Measurement Method: New Variable and Seasonal

• New Variable Hour Employee: Based on the known facts and

circumstances at the employee’s start date, it cannot be determined

whether the employee is reasonably expected to work an average of at

least 30 hours of service per week.

• Use factors in rules to make and document this determination.

• Seasonal Employee: An employee who is hired into a position for

which the customary annual employment is 6 months or less.

• Final rules permit treating seasonal employees in the same manner as

variable hour employees with use of measurement periods.

21


• For new Variable Hour and Seasonal employees, an employer may

determine whether a new employee is full-time by using an initial

measurement period of between 3 and 12 months that begins on any date

between the employee’s start date and the first day of the calendar month

following the start date.

• The stability period for such employees must be the same length as the

stability period for ongoing employees.

• Each Variable Hour/Seasonal employee will have his/her own initial

measurement and stability periods.


• To prepare for 2015, employers may adopt a measurement period during 2014

that is between 6 and 12 consecutive months, even if the corresponding stability

period is 12 months.

• This measurement period can begin no later than July 1, 2014 and end no

earlier than 90 days before the first day of the plan year beginning on or after

January 1, 2015.

22


• Rules for Rehires/Break in Service

• An employee who resumes providing services after

a period during which he/she was not credited with

any hours of service may be treated as a new employee if the

break in service was at least 13 consecutive weeks.

• Formerly 26 weeks under the proposed regulations.

• Educational organizations

• Break in service must be at least 26 consecutive

weeks to be deemed a new employee when services

are resumed.

23

Assessing Liability: Penalties

• 4980H(a): If a covered employer does not offer coverage to its full-

time employees and their dependents, and 1 employee receives a

premium tax credit, the penalty will be:

• (Number of full-time employees – 30) x $2,000

• 4980H(b): If a covered employer does offer coverage, but that

coverage is not affordable or does not provide minimum value, and

one employee received a premium tax credit, the penalty will be the

lesser of:

• Number of full-time employees – 30 x $2,000; or

• Number of full-time employees who receive subsidized coverage through

an exchange x $3,000

• Both penalties are calculated on a monthly basis.

24

Assessing Liability: Penalties (cont.)

• Transition Relief • Employers with 50-99 full-time employees will not need to comply with the

Employer Mandate in 2015.

• For 2015 only, an applicable large employer that offers coverage to at

least 70% of its full-time employees will not be subject to penalty.

• Employers with non-calendar year plans can begin compliance with

Employer Mandate at the start of their plan years in 2015, instead of

January 1, 2015.

• An employee receiving an offer of coverage no later than the first day of

the first payroll period that begins in January 2015, will be treated as

having been offered coverage for the month.

• For 2015 only, if a large employer is subject to the penalty under

4980H(a) (failure to offer), the penalty will be calculated by reducing the

employer’s number of full-time employees by 80 instead of 30.

• (Number of full-time employees – 80) x $2,000

25

Assessing Liability

• Dependent Coverage

• Large employers must offer coverage to full-time employees and

their dependents to avoid liability.

• Dependent is defined to mean a child who has not attained age 26.

• Considered a dependent for the month he/she turns 26.

• Foster Children and Stepchildren

• The final regulations exclude both from the definition

of dependent.


• For 2015 only, employers are not required to offer coverage to their

full-time employees’ dependents.

26

Assessing Liability (cont.)

• Affordability

• To avoid penalties under 4980H(b), a covered employer must

offer self-only coverage that is “affordable” (Family coverage does

not need to be “affordable”).

• A plan is generally not affordable if the employee’s premium

contribution exceeds 9.5% of his/her household income.

• Final rules adopt affordability safe harbors

• Form W-2: Employee premium share does not exceed 9.5% of the

amount in Box 1.

• Rate of Pay: Employee premium share does not exceed 9.5% of the

total of the employee’s hourly rate of pay multiplied by 130 hours per

month.

• Federal poverty line: Employee premium share does not exceed

9.5% of the federal poverty line for one person.

27

Assessing Liability (cont.)

• Minimum Value

• A employee may be eligible to receive a premium tax credit if the

coverage offered by his/her employer fails to provide minimum

value.

• Plan’s share of the total allowed costs of benefits provided is less

than 60%.

• Several options available for determining minimum value

• Minimum Value Calculator

• http://cciio.cms.gov/resources/regulations/index.html

• HHS / IRS Safe Harbors

• Actuarial Certification

• Only for plans with nonstandard features

• Meets requirements of any “metal level”

• Only for plans in the small group market

28

http://cciio.cms.gov/resources/regulations/index.html

Essential Compliance Actions

• Exchange Notices

• Employers must provide annual notices to employees regarding

State and Federal Exchanges by October 1.

• September 2013: USDOL announced there would be no penalty for

failure to distribute notices.

• DOL model notices available at:

http://www.dol.gov./ebsa/healthreform/index.html

• Two versions (one for employers who offer health plans, and one for

employers who do not offer health plans)

• Revised DOL Model COBRA Notice

• www.dol.gov/ebsa/COBRA.html

29

http://www.dol.gov./ebsa/healthreform/index.html

http://www.dol.gov/ebsa/COBRA.html

Essential Compliance Actions (cont.)

• Large Employer Information Reporting

• Proposed regulations were issued on September 9, 2013.

Final regulations were issued in March of 2014.

• Large employers must file §6056 returns for 2015 with the IRS by

February 28, 2016 (March 31 if filed electronically). Employers

must also provide all full-time employees with a §6056 employee

statement on or before January 31 of each year.

• §6056 returns require a significant amount of information for

each employee. While the final regulations provide several

“streamlined” methods, the reporting will be burdensome for

large employers.

30


• Large Employer Information Reporting FAQs

• Will the IRS provide a model form?

• What information must be reported?

• Why are large employers required to report

this information?

31


• PCORI Fees

• §4376 of the IRC imposes as temporary annual fee on the

sponsor of an applicable self-insured health plan for plan years

ending on/after October 1, 2012 and before October 1, 2019.

• Calculated based on the number of “covered lives” under a plan.

• $2 per covered life for plan/policy years ending between October 1,

2013 and October 1, 2014.

• Payment is due on July 31 of the year following the last day of the

policy/plan year.

32


• Transitional Reinsurance Program Fees

• Temporary annual fee paid by insurers and plan administrators for

calendar years 2014, 2015, and 2016.

• Designed to help stabilize premiums for coverage on the

individual market

• Will allow for “reinsurance” payments to be given to insurers who

cover high-risk populations.

• Calculated based on the number of “covered lives” under a plan.

• 2014: $63 per covered life.

• 2015: $44 per covered life.

• 2016: Will be determined at a future date.

• Employers must provide HHS with enrollment count by November

15, 2014

• Payment is due 30 days later.

33


• PCORI and Transitional Reinsurance Fees FAQs

• Who makes the payment? Self-Insured v. Fully

Insured Plans?

• Who counts as “covered lives”? Retirees? COBRA?

• Can the fee be paid from plan assets?

• How are special arrangements such as HSAs, HRAs,

FSAs, and EAPs treated?

• May the fees be passed on to plan participants?

34


• Analyze Use of HRAs and FSAs

• Joint guidance from IRS and DOL

• HRAs

• Stand-alone HRAs are no longer permissible.

• Employer-sponsored HRAs cannot be integrated with individual

market coverage.

• Permissible to integrate with a group heath plan that is not sponsored

by the employer if the arrangement satisfies the requirements under

either the “Minimum Value Not Required” or the “Minimum Value

Required” integration methods.

35


• Analyze Use of HRAs and FSAs

• FSAs

• Market reforms will not apply to an employer-sponsored FSA if it

qualifies as excepted benefits.

• Only FSAs offered through a Section 125 plan are exempt from the

prohibition on annual and lifetime limits.

36


• Conduct Detailed Workforce Assessment

• Review timekeeping and recordkeeping practices to ensure hours

of service are accurately recorded.

• Establish consistent process for classifying newly hired

employees as full-time or variable hour employees.

• Particularly for employers that rely on variable hour, part-time, and/or

per diem employees.

• Review for employee misclassification

• Hot button issue outside of ACA

• If using independent contractors, insure duties meet IRS/DOL

Independent Contractor Tests.

37

Strategies For Avoiding Liability

• Closely Monitoring New Hires

• Consider offering Single-only Coverage at 100% to Avoid

Affordability Issue

• Determine cost of not offering coverage

• Non-economic factors?

• Consider benefits of offering coverage to everyone to avoid “A”

penalty only

• Analyzing the benefits and draw backs of different measurement

periods

• Analyze current plans for MEB and MV requirements

• Temporary Employees

38

the aca is here. are you ready? - hb solutions · final rules (cont.) • the final regulations...

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