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Audio (MP3) Listen in New Window Presentation (PDF) Open in new window Roadmap • Affordable Care Act at 30,00 Feet • Health Insurance Exchange Overview • Employer Mandate – Play or Pay Penalty Tax –Planning for January 1, 2015 –Transition Relief –Determining Application – Counting Full Time Equivalents –Identifying Full Time Employees – Measurement, Stability, and Administrative Periods –The Potential Penalties • Individual Mandate • Other Current/Approaching Changes –Employer Reporting –Nondiscrimination Issues –Health FSAs –Cost Sharing Limits –Notices –Health Plan Identifiers –Cadillac Tax Affordable Care Act at 30,000 Feet • A long process since early 2009 • H.R. 3590 (Patient Protection and Affordable Care Act) –906 pages • H.R. 4872 (Health Care and Education Reconciliation Act of 2010) –150 pages • When read together, they constitute the single largest overhaul of our nation's health care system • Thousands of pages of guidance • Coverage Expansions and Market Reforms (i.e., Access) –Temporary high risk pools; individual mandate, elimination of pre-existing conditions; expansion of public programs; employer penalties, credits, and subsidies; various insurance industry reforms; state exchanges; Small Business Health Insurance Options Program (SHOP) exchanges; expansion of Medicaid to 138% of the federal poverty level … and many others • Health Care Quality and Payment Incentives –Center for Innovation, numerous programs focused on quality and delivery reform; pilot programs; focus on primary care, coordination, and outcomes; VBP for numerous providers … and many others • Cost Containment and Financing of Health Care Reform –Increased taxes, thresholds or restrictions for Medicare payment; reduction in payments to certain providers, reduction of DSH, enhanced compliance enforcement … and many others Health Insurance Exchanges • A marketplace for individuals to purchase qualified health plans (QHPs) offered by insurers • Intended to help enhance competition and improve choice and purchasing power Exchanges - Open Enrollment • Coverage via Exchanges began on January 1, 2014 • Exchange design is flexible –State agency or a nonprofit organization; a state can contract with third parties to fill functions of the Exchange –Federal action in states where the state government has declined to establish an Exchange • Federally Facilitated Exchanges (FFEs) • State partnership FFEs • January 1, 2015 –Open Enrollment = November 15, 2014 to February 15, 2015 Exchanges - Eligibility and Subsidies • Eligible Individuals –Citizen, national, or non-citizen lawfully present; –Not incarcerated; and –Resides in the state that established the Exchange • Small employers (up to 50 or 100 employees) added in 2015 –Small Business Health Insurance Options Program –Large employers can be eligible in 2017 • Cost-sharing subsidies and premium tax credits are provided to assist eligible lower-income individuals to purchase QHPs through an Exchange • Subsidies in Federal Exchanges are under scrutiny –The issue: • Under Section 1311 of the ACA, the tax credit may only be available to certain individuals enrolled in Exchanges “established by the state” • IRS regulations provide that both state-based Exchanges and federally facilitated Exchanges (FFEs) trigger eligibility for the premium tax credit –Halbig v. Burwell (D.C. Circuit) • Held that the IRS regulation authorizing premium tax credits on federal Exchanges violates clear statutory language –King v. Burwell (Fourth Circuit) • Held that ambiguity in the statute makes the regulation a permissible exercise of agency discretion –U.S. Supreme Court to review King v. Burwell Exchanges - Qualified Health Plan Standards • Must be certified/accredited • Must provide an Essential Health Benefits Package –QHPs must provide essential health benefits, including items within the following categories: • Ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services, prescription drugs, rehabilitative and habilitative services and devices, laboratory services, preventive and wellness services and disease management, and pediatric services –Based on a “Benchmark” plan for each state • Must meet Actuarial Value Standards –Actuarial Value is calculated as the percentage of total average costs for covered benefits that a plan will cover –Provide either BRONZE, SILVER, GOLD, or PLATINUM level coverage. In other words, benefits that are the actuarially equivalent to 60%, 70%, 80%, or 90% (respectively) of the full actuarial benefits –Leeway of +/- 2% • Subject to Cost-Sharing Limits Employer Mandate - Overview • Play or Pay Penalty Tax • Applies to “Applicable Large Employers” Plan A • Fail to offer minimum essential health care coverage to full-time employees (and their dependents) Plan B • Fail to offer coverage that is “affordable” (employee’s cost exceeds a specified % of the employee’s household income) • Fail to offer coverage that provides “minimum value” (plan’s share of the total allowed cost of benefits is not at least 60%) Calculating Penalty Tax A • Penalty tax for not offering coverage –Penalty tax applies if: • Employer fails to offer its full-time employees (and dependents) coverage, and • At least one full-time employee has been certified to the employer as having enrolled for that month in a qualified health plan for which health coverage assistance is allowed or paid –Calculation: Applicable Payment Amount [$166.67 per month; $2,000 per year] x Number of employees minus 30-employee reduction* = Monthly Penalty For 2015, reduction amount = 80 Calculating Penalty Tax B • Penalty tax for offering minimum essential coverage that (1) is not affordable or (2) does not provide minimum value –Calculation: $250.00 per month [$3,000 per year] x Number of employees who receive premium tax credits or cost sharing assistance = Monthly Penalty –Amount is capped: Applicable payment amount X number of full-time employees, reduced by 30* * For 2015, reduction amount = 80 Employer Mandate - Applicability • A penalty is only assessable if –one or more employees obtain insurance through an Exchange, and –are certified to the employer (by the Exchange) as obtaining a premium tax credit or cost-sharing reduction • Effective Date: –Originally, taxable years beginning after 12/31/13 –Notice 2013-45 delayed Employer Mandate until 2015 –Final Regulations provided additional transition relief Employer Mandate - Transition Relief • Transition Relief Employer Size: 50-99 FTEs 2015 Plan Year: Does not apply 2016 Plan Year: Offer coverage to 95% of full-time employees (and dependents ) Employer Size: 100 or more FTEs 2015 Plan Year: Offer coverage to 70% of full-time employees (and dependents) 2016 Plan Year: Offer coverage to 95% of full-time employees (and dependents ) • For small employers in 2015, they must certify that they did not reduce workforce to stay below 100 employees and did not materially reduce benefits • For 2015, Penalty A calculation uses an 80 employee exclusion instead of 30 • For 2015, the requirement to offer dependent coverage will not apply if steps are being taken to add coverage for 2016 Planning for January 1, 2015 • Determine if you are an applicable large employer • Evaluate current employer-provided health insurance –Gather cost data –Review employee cost-sharing –Consider whether plan is affordable; what would be affordable • Evaluate employee demographics –Importance of health benefits to workforce, recruitment and morale –Full-time versus part-time workforce • Run cost-benefit analysis • Make decision(s) in time for open enrollment –“Play or Pay” –Adjustments to benefits Five Key Questions 1.Am I a large employer? • Employs an average of at least 50 full-time employees (including full-time equivalents) on business days during the preceding calendar year –30 hours of service per week (130 hours per month) • Must count full-time equivalents (120 hours per month) –Step 1: Add all hours of service in a month for employees who are not full-time (capped at 120 hours per employee) –Step 2: Divide by 120 • Determination based on 12 month average –Step 1: Calculate the number of full-time employees and full-time equivalents for each calendar month –Step 2: Add all months and divide by 12 –Step 3: 50 or greater = large employer (check for application of seasonal employer exception) • Exception for seasonal employers –Employer will not be considered to employ more than 50 full-time employees if • The workforce only exceeds 50 full-time employees for 120 days, or fewer, during the calendar year; and • The employees in excess of 50 were seasonal workers (defined by DOL) • Transition rule –For 2015, may look at any period of six consecutive months in 2014 • New employers –Determination based on the average number of employees reasonably expected • Controlled group rules apply –Retirement plan rules (with some variation) • First year as large employer = April 1 Deadline 2.Who must receive coverage? *A Separate Analysis* • Full-time employees –30 hours of service per week (130 hours per month) –Part-time employees are excluded –Substantially all employees = 95% (see transition relief) • Count hours of service –Hourly: based on hours paid or entitled to payment –Salary: (a) count hours worked and non-hours worked (e.g., PTO); (b) days-worked equivalency; (c) weeks-worked equivalency • Default rule = monthly evaluation –IRS safe harbor • IRS safe harbor for determining eligibility –Measurement Period: a look-back period (3 to 12 months) over which hours are calculated to determine employment status • Standard Measurement Period: for ongoing employees • Initial Measurement Period: for new employees –Administrative Period: a period after the end of a measurement period during which the employer can perform administrative tasks • Optional (but recommended) • Up to 90 days –Stability Period: a look-forward period for which an employee’s status is locked in, regardless of actual hours • Follows the measurement period and any applicable administrative period • Longer of 6 months or measurement period • Transition rule –For 2015, employers may pair a standard measurement period of less than 12 months (but at least 6 months) with a 12 month stability period –As a result, the standard measurement period can start as late as July 1, 2014 • Determining eligibility for new employees –Non-variable hour and non-seasonal full-time employees • If reasonably expected to be full-time, then employer can have up to a 3 month waiting period to offer coverage –Variable hour and seasonal employees • Employer can have an initial measurement period before offering coverage (up to 12 months) • Transition rules apply (new to ongoing employee ) 3.What is minimum essential coverage? • Coverage that constitutes a group health plan or group health insurance coverage offered by an employer to an employee that is (a) a governmental plan, or (b) any other plan or coverage offered in a state’s small or large group market • Most employer-provided group health coverage (insured or self-funded) will meet the broad definition of minimum essential coverage • Does not include certain excepted benefits (e.g., disability coverage, dental-only, vision-only, etc.) • Different than “essential health benefits” 4.What constitutes affordable coverage? • Employee’s required contribution does not exceed 9.5% of household income (9.56% for 2015) –Required contribution = Employee’s portion of the annual premium for self-only coverage (regardless of family status) –Problem: Employers can’t predict an employee’s household income • 3 safe harbors –General requirements/provisions: • Must be applied on a uniform and consistent basis • Based on employer’s lowest-cost, self-only coverage that provides minimum value • Adjustments made if employee is not full-time for entire year • 3 safe harbors –W-2 Method: 9.5% of an employee’s annual W-2 wages (Box 1) • Determination made at the end of year –Rate of Pay Method: 9.5% of employee’s projected monthly income • Determination can be made at beginning of year • Can’t reduce wages during the year • Hourly employee’s based on 130 hours per month –Federal Poverty Line Method: 9.5% of the federal poverty line for a single individual (For 2014 = $11,670) • Determination can be made at beginning of year 5.What constitutes minimum value? • Plan’s share of the total allowed costs of benefits provided under the plan is at least 60% of such costs (i.e., a Bronze Plan) • Three approaches for determining minimum value: –Minimum value calculator • Value calculation based on information about 4 categories of benefits (physician and mid-level practitioner care, hospital and emergency room services, pharmacy benefits, and laboratory and imaging services) • Based on claims data of a standard population –Design-based safe harbor checklists –Actuarial certification for “nonstandard” features Individual Mandate • Effective date: taxable years beginning after 12/31/13 • Minimum Essential Coverage –If an individual (or the spouse or dependent(s)) does not have minimum essential coverage for a month, a penalty will be assessed –coverage under (a) a government-sponsored program; (b) an eligible employer-sponsored plan; (c) a health plan offered in the individual market; (d) a grandfathered plan; or (e) other HHS-recognized health benefits coverage –Different than a QHP and essential health benefits • Shared Responsibility Payment (i.e., tax) –The amount is the greater of a flat dollar amount OR the percentage of income amount (household income less exemptions and standard deductions) • 2014 = $95 per individual or 1% • 2015 = $325 per individual or 2% • 2016 = $695 per individual or 2.5% –Flat dollar amount for individuals age 18 or younger is half of the amount otherwise applicable –Flat dollar amount is capped at 3x’s the annual flat dollar amount per year –Overall cap = national average of the annual cost of a bronze level health insurance plan –Certain individuals exempt • Low and Middle Income Subsidies –Refundable premium tax credit • Available beginning in 2014 to help pay for insurance purchased through an Exchange • Taxpayers with income between 100% and 400% of the federal poverty line will qualify (For 2014, this is $46,680 for individuals and $95,400 for a family of four at 400%) • Advanceable (through an Exchange) • Treas. Reg. §1.36B-2 –Cost sharing reductions • Lower deductibles • Lower out-of-pocket expenses What Will Employers and Employees Do? • Employers –Adopt health plans that comply with the Employer Mandate (avoid all penalties) –Adopt plans that substantially comply (avoid Penalty A only) –Stop offering health plan coverage • Pay Penalty A; keep employee compensation static • Pay Penalty A; offer additional compensation to employees • Employees –Obtain insurance from employer (if offered) –Obtain insurance through Exchange (especially if subsidy eligible) –Obtain private insurance or insurance through spouse –Forgo insurance and pay penalty Reporting - Current Guidance • Code Sections 6055 (Provider/Insurer) and 6056 (Employer) • Regulations issued March 2014 –Applies for 2015; returns filed in 2016 –Employers must furnish separate information returns to individuals with copy to IRS (similar to other information reporting) –Simplified reporting available if employer is unlikely to incur a penalty • July 24, 2014 – IRS released draft forms for employers & insurers • Draft Instructions • IRS FAQ’s • Forms and Instructions expected to be finalized by end of 2014 to facilitate voluntary reporting The Forms • Exchange –Form 1095-A: Health Insurance Marketplace Statement • Insurer –Form 1094-B: Transmittal of Health Coverage Info. Returns (To IRS) –Form 1095-B: Health Coverage (To Covered Individual and IRS) • Employer –Form 1094-C: Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Return (To IRS) –Form 1095-C: Employer Provided Health Insurance Offer and Coverage (To Employee and IRS) Section 6055 Reporting (Insurer) • Code Section 6055 (Provider/Insurer) • Treas. Reg. Sections 301.6055-1 and 301.6055-2 • Requires health insurance issuers and employers that sponsor self-insured health plans to report information concerning the type and period of coverage to the IRS and to the covered individuals. • Serves as verification that the individual has minimum essential coverage (MEC) for purposes of enforcing the ACA's individual responsibility requirements. Section 6056 Reporting (Employer) • Code Section 6056 (Employer) • Treas. Reg. Sections 301.6056-1 and 301.6056-2 • Requires large employers to provide information to the IRS about whether MEC is offered to their Full Time EEs and their dependents • Will be used by the IRS to determine/verify whether an employer owes a shared responsibility payment under Code Section 4980H and whether an employee is eligible for a premium tax credit on an Exchange • Specifies certain information that must be reported on the return and related statement and authorizes the Secretary to require additional information and determine the form of the return. • Reporting Methods: –General Reporting Method –Alternative Reporting Methods • Electronic Filing –If filing 250 or more Forms 1095-C, then must file electronically –Rule based solely on number of Form 1095-C’s • When to File / Furnish –2014 will be voluntary (file in 2015) –2015: • 1094-C and 1095-C: File by February 29, 2016 if paper filing and March 31, 2016 if electronic filing • Furnish 1094-C to employees by February 1, 2016 (normal due date is January 31, 2016) • Who Must File –Applicable Large Employer (ALE) members –Generally, 50 or more full time employees (w/ FTEs) –TPAs can prepare forms • Penalties –Code Section 6721 (failure to file correct information returns) –Code Section 6722 (failure to furnish correct payee statement) –Code Section 6724 (rules for waiver of penalties) –Additional Short Term Relief • Applies to reporting in 2016 for 2015 coverage • No penalties under 6721 or 6722 if good faith effort shown • Not applicable to timely filing issues How To Report - Employers • Forms –Form 1094-C: Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Return (To IRS) –Form 1095-C: Employer Provided Health Insurance Offer and Coverage (To Employee and IRS) • Self-Insured (Self-Funded) Plans –Form 1095-C –Complete Parts I and III regardless of whether EE is full-time –If EE is full-time, then also complete Part II –If EE is part-time all 12 months, enter 1G in Part II, Line 14 • Employer with Insured Plan –ER does not complete Part III –Insurer will complete a Form 1094-B and 1095-B • Small Employer with Self-Insured Plan (not subject to ER Mandate) –ER does not complete Form 1094-C and 1095-C –BUT, ER will complete a Form 1094-B and 1095-B • Form 1094-C –Can submit multiple Forms 1094-C • Attach applicable 1095-C’s –Must submit one authoritative Form 1094-C • Mark Part II, Line 19 • Report aggregate employer-level data for all full-time EEs –ALE members must report separately • Authoritative Form 1094-C rule does not apply for ALE member reporting –Part II • Line 22: checkbox for certification of eligibility –Part III: Summary information re employee numbers –Part IV: List names of ALE Group members • Form 1095-C • Information to be reported (from Regulations): 1.The name, address, and employer identification number of the ALE member, and the calendar year for which the information is reported; 2.The name and telephone number of the ALE member’s contact person; 3.A certification as to whether the ALE member offered to its full-time employees (and their dependents) the opportunity to enroll in MEC under an eligible employer-sponsored plan, by calendar month; 4.The number of full-time employees for each calendar month during the calendar year, by calendar month; 5.For each full-time employee, the months during the calendar year for which MEC under the plan was available; 6.For each full-time employee, the employee’s share of the lowest cost monthly premium for self-only coverage providing minimum value offered to that full-time employee under an eligible employer-sponsored plan, by calendar month; and 7.The name, address, and taxpayer identification number of each full-time employee during the calendar year and the months, if any, during which the employee was covered under an eligible employer-sponsored plan. • Form 1094-C and 1095-C • Offer Methods (Other than General Method) –Qualifying Offer Method • See Instructions, p. 4 • If eligible, ER can furnish a statement to EE rather than 1095-C • Must offer coverage to EE, spouse, and dependent(s) –Qualifying Offer Method Transition Relief (for 2015) • See Instructions, p. 4 & 5 –Section 4980H Transition Relief (for 2015) • Pertains to 4980H transition (100 FTEs v. 50 FTE; 70% v. 95%) –98% Offer Method • See Instructions, p. 5 • Certifying that offer made (affordable and MV coverage) to 98% of EEs and their dependents • Form 1095-C • Part II Codes (Line 14) –1A. Qualifying Offer: MEC providing minimum value offered to full-time employee with employee contribution for self-only coverage equal to or less than 9.5% mainland single federal poverty line and at least MEC offered to spouse and dependent(s). –1B. MEC providing minimum value offered to employee only. –1C. MEC providing minimum value offered to employee and at least MEC offered to dependent(s) (not spouse). –1D. MEC providing minimum value offered to employee and at least MEC offered to spouse (not dependent(s)). –1E. MEC providing minimum value offered to employee and at least MEC offered to dependent(s) and spouse. –1F. MEC NOT providing minimum value offered to employee, or employee and spouse or dependent(s), or employee, spouse and dependents. –1G. Offer of coverage to employee who was not a full-time employee for any month of the calendar year and who enrolled in self-insured coverage for one or more months of the calendar year. Enter code 1G in the “All 12 Months” box and do not complete the monthly boxes. –1H. No offer of coverage (employee not offered any health coverage or employee offered coverage that is not MEC). –1I. Qualified Offer Transition Relief 2015: Employee (and spouse or dependents) received no offer of coverage, received an offer that is not a qualified offer, or received a qualified offer for less than 12 months. • Form 1095-C • Part II, Line 15 –Complete line 15 only if the coverage offered to the employee provided minimum value and code 1B, 1C, 1D, or 1E is entered on line 14 either in the “All 12 Months” box or in any of the monthly boxes. • Part II, Line 16 –Codes 2A to 2I. –See Instructions, p. 7, for list of Codes. • Part III –For employer provided self-insured coverage –Only complete if applicable Health FSA Changes • Certain plan amendments must be adopted on or before December 31, 2014 • Maximum Amount: Effective for plan years on or after January 1, 2013, the maximum annual employee contribution limit permissible under a Health FSA is $2,500 (to be indexed in 2015) • Carryover: Health FSAs can be amended to provide for a carryover of up to $500 in unused FSA contributions to subsequent plan years. –Optional feature –Cannot be used in conjunction with a grace period feature Cost Sharing Limits • The ACA includes an overall annual limit (or an out-of-pocket maximum) for all health plans • Effective for plan years beginning on or after January 1, 2015, a health plan’s out-of-pocket maximum may not exceed: –$6,600 for self-only coverage; and –$13,200 for family coverage • Health plans with multiple service providers may divide the out-of-pocket maximum across multiple categories of benefits (rather than reconcile claims across service providers) • Be wary of HSA limits Notices • Updated Model COBRA Notices –In May 2014, the DOL issued updated model COBRA Notices –Updates make it clear to COBRA eligible workers that they may choose to instead purchase coverage through the Health Insurance Marketplace –Potentially identifies a more affordable option to former employees • Written Notice of an Exchange –Employers subject to FLSA required to provide notice to new hires within 14 days of start date –Requirement applied regardless of number of employees, employee eligibility, and whether or not the employer offers health insurance HIPAA Health Plan Identifier (HIPD) • What and Why? –Ten digit code to be used to identify health plans in standard electronic transactions –Intended to simplify and improve the routing of health care transactions and administration of health plan benefits • Who? –All health plans, including self-insured health plans • Controlling health plans (CHPs) • Subhealth plans (SHPs) • When? –Online application process –Original due date to obtain was November 5, 2014 –Requirement has been indefinitely delayed Cadillac Tax • Cadillac Tax: 40% nondeductible excise tax –Plan years beginning after 12/31/17 –Tax applies to the excess over certain limits • Self-only coverage: $10,200 • All other (family) coverage: $27,500 • Subject to adjustments –Paid by insurer, plan administrator, or employer Resources • Federal government: –www.healthcare.gov –www.dol.gov/ebsa/healthreform • National Conference of State Legislatures: www.ncsl.org • Kaiser Family Foundation: www.kff.org • Hall Render: www.hallrender.com Calvin R. Chambers, CPA, Esq. Hall, Render, Killian, Heath & Lyman, P.C. One American Square, Suite 2000 Indianapolis, IN 46282 317.977.1459 cchambers@hallrender.com