DELAWARE TAX INSTITUTE November 20, 2015 THE AFFORDABLE CARE ACT What you need to know for 2016 Timothy J. Snyder, Esquire Y OUNG C ONAWAY S TARGATT &

DELAWARE TAX INSTITUTENovember 20, 2015

THE AFFORDABLE CARE ACTWhat you need to know for 2016

Timothy J. Snyder, EsquireYOUNG CONAWAY STARGATT & TAYLOR, LLP1000 N. King StreetWilmington, DE 19801(302) [email protected]

EMPLOYER MANDATE“SHARED RESPONSIBILITY”

Full Time Employment Status

•Play or Pay – Applicable Large Employers - 2016

–2015 – 100 or more employees–2016 - Average of at least 50 full-time employees

on business days during the preceding calendar year

•“Full-time Employees” –sum of the employer's full-time employees–plus full-time equivalent employees


•Employer–Common Law Test–Control Group; Affiliated Service Groups–Predecessor Employer–Not in existence – reasonably expected to

employ at least 50 FT employees


•Employee–Common Law Test–Not leased employees

•Hours of Service–For a month average 30 hours of service per week

in month as a full-time employee–130 hours per month is monthly equivalent–DOL Rules on counting service


•Hourly Employees – Hours worked or paid (vacation or sick time)•Non-Hourly Employees–Actual hours of service from records of hours

worked and hours for which payment is made–Days worked equivalency – 8 hours for each day of

at least 1 hour–Weeks worked equivalency – 40 hours for each

week of at least 1 hour


•Full Time Equivalent Employee–Aggregate number of hours (but no more than

120 hours of service for any employee) for all non full-time employees for month–Divide total hours by 120–Fractions considered


•Seasonal Employees–If employer workforce exceeds 50 employees–For 120 days or fewer–Seasonal employees are those in excess of 50

•Seasonal Employees not counted


•Ongoing Employee – employed for at least 1 full Standard Measurement Period•New FT Employees – –If expected to be full time, must cover after 90

days–Even if don’t expect to work full year


•New Part Time Employees–Know will definitely work less than 30 hours

per week–No coverage required–Convert to full time – cover w/in 90 days


•Variable Hour Employees–Not reasonably expected to be employed 30

hours per week–Factors:•Status of replaced employee•Hours of service of employees in the same or

comparable positions•How was job advertised or communicated•May not consider likelihood that employee may

terminate employment


•Variable Hour Employees (cont.)–Not Reasonably Expected – •Apply initial measurement period•If Average 30 hours per week – cover for next year•Even if falls below 30 hour mark


•Seasonal Employees–Must have a Season for which hired–Know will work 6 months or less–Can work 30 or more hours per week–May work greater than 6 months occasionally

(extended skiing season)–If works beyond 6 months may be full-time

employee


•Adjunct Faculty -- Credit with–2 1⁄4 hours of service for each hour of teaching

or classroom time per week•1 hour teaching plus 1 ¼ for related tasks such as

prep time and grading of exams

–1 hour of service per week for each additional hour performing duties required to be performed

•Office hours, faculty meeting, etc.

–Further Guidance – through 2015


•On Call Employees–Reasonable method to count hours–Not reasonable to provide no credit for on call

hours for which payment is made •for the employee to remain on employer premises•employee’s activities are substantially restricted


•Employees on Layover–Reasonable method to count hours–Not Reasonable –•Not to credit if employee receives compensation for

layover beyond compensation that otherwise would have been received; or•The layover hour is counted by the employer

towards the required hours of service for the employee to earn his or her regular compensation


•Employees on Layover (cont.)–No compensation for layover hours or hours

not counted towards required service –Reasonable to credit airline employee with 8

hours of service for each day that employee is required to be away from home–Must be actual hours if 8 hours substantially

understates•Facts and Circumstances


•Students – Interns, Externs and Co-ops–No special exception–General Rules •Seasonal•Part-time•Variable hour•Less than 90 days employment


•Temporary Staffing Firms–Factors to determine whether full-time•Other employees in the same position•Right to reject temporary placements•Periods during which no offer of temporary

placement made•Offered temporary placements of differing periods•Typically are offered temporary placements of 13

weeks or less

Employer Penalties

•Employer must offer Affordable Coverage to avoid penalties•Affordable Coverage – employee cost not

greater than 9.5% of household income•Employer can use Box 1 W-2 wages

Employer Penalties

•Coverage must be Minimum Value•IRS offers three potential approaches to

test whether employer-sponsored plan offers minimum value:

–Government’s minimum value calculator–Design-based safe harbors–Actuarial certification

Employer Penalties

•Employer must offer substantially all full-time employees and dependents

–Substantially all is 95% –70% for 2015

•Opportunity to enroll in minimum essential coverage•Need not cover spouses

Employer Penalties

•If 50 Employees and offer coverage to 48 – satisfy 4980H(a) (95% offered coverage)•If 2 employees not covered, and they get

coverage under the exchange and get a subsidy –

–Employer liable or penalty of $250/mo. -- $3,000 per year for each employee

Employer Penalties

•An employee’s receipt of a premium tax credit for a dependent only will not result in employer penalty.

Employer Penalties

•Coverage must be Minimum Value•IRS offers three potential approaches to

test whether employer-sponsored plan offers minimum value:

–Government’s minimum value calculator–Design-based safe harbors–Actuarial certification

Employer Penalties

• Large Employer–F/T Employees In Exchange – subsidy/credit–Does not offer Affordable Coverage (“AC); with –Minimum Value (“MV”)

• Employer Provides Health Insurance?– No – 1/12 x $2,000 x (#F/T – 30)– Yes – Lesser of:

•1/12 x $2,000 x (#FT ees minus 30); or•1/12 x $3,000 x #FT ees w/credit/subsidy in Exchange

CADILLAC TAX

Cadillac Tax

•40% excise tax on high cost group health coverage•Begins in 2018•Monthly tax on cost of coverage to the

extent it exceeds the monthly limitation (the “Excess Benefit”)•Paid by the coverage provider–Insurer–Self funded plan sponsor

Cadillac Tax•Employer sponsored coverage–Includes sole proprietors

•Annual limits beginning in 2018 – –Individual coverage -- $10,200–Family coverage -- $27,900

•Higher limits --retiree w/o Medicare and high risk job

–Individual coverage -- $11,850–Family coverage -- $30,950

Cadillac Tax

Cadillac Tax•Kaiser Family Foundation 2015 Employer

Health Benefits Surveyhttp://kff.org/health-costs/report/2015-employer-health-benefits-survey/

http://kff.org/health-costs/report/2015-employer-health-benefits-survey/



Cadillac Tax•2015 Average annual cost of all types of

plans–Family Coverage -- $17,545

•Assume medical trend rate is 10% from 2015 to 2018 –

–$23,653 vs. limit of $27,900•If actual cost is $22,000 with 10% trend

rate–$29,660 vs. limit of $27,900

REIMBURSEMENTARRANGEMENTS

Reimbursement Arrangements•Employer Payment Plan–an employer reimburses an employee for

premium expenses incurred for an individual health insurance policy; or –directly pays a premium for an individual health

insurance policy covering the employee•1961 IRS Rev. Rul. -- reimbursement of

premiums or directly pay for employee’s individual health insurance is excluded from taxable income

Reimbursement Arrangements

•Considered a group health plan subject to ACA•Does not meet market reforms•Employer subject to $100 per day per

individual affected

Reimbursement Arrangements•Applies to reimbursements or direct

payments–individual health insurance policies; –Medicare Part B–Medicare Part D

•Does not apply to arrangements that benefit retirees only

Reimbursement Arrangements•Employer increases in employee’s

compensation–Does not require the additional money to be

used for health coverage–Not an employer payment plan or a group

health plan

Reimbursement Arrangements•So little employer involvement not an ERISA

plan•A payroll practice – Exempt from ACA–withholding from employee's pay –after-tax basis – pay premiums for individual health insurance

directly to an insurance company at the employees’ request

Reimbursement Arrangements•Providing information about –the Marketplace–Premium tax credit

•Not an endorsement of a particular policy, form, or issuer of health insurance •Would not create a group health plan

Reimbursement Arrangements•Payroll Practice:–No contributions are made by the employer –Only after-tax salary reductions directed

employees;–Voluntary Participation;–Employer may not endorse program;

Reimbursement Arrangements•Payroll Practice (cont.)•The sole functions of the employer, –permit the insurer to publicize the program to employees, –to collect premiums through payroll deductions –remit the premiums to the insurer; and

• The employer receives no consideration in connection with the program

• Can receive reasonable compensation for administrative services actually rendered in connection with payroll deductions.

Reimbursement Arrangements•Medicare Premium Reimbursement

Arrangements:–Generally offers a minimum value group health plan

that does not consist solely of excepted benefits–Employees being reimbursed are enrolled in

Medicare Parts A and B–Only available to employees who are enrolled in

Medicare Part A and Part B or Part D–Only reimburses premiums for Medicare Part B or

Part D and excepted benefits, such as Medigap coverage

Reimbursement Arrangements•Medicare secondary payer rules penalties

Reimbursement Arrangements•HRAs •If not integrated with a group health plan,

will be subject to $100 per day penalty–Can cover retirees only (lose eligibility for

subsidy)–Can cover excepted benefits–Cannot be used to purchase individual

coverage

Documents

DELAWARE TAX INSTITUTE November 20, 2015 THE AFFORDABLE CARE ACT What you need to know for 2016 Timothy J. Snyder, Esquire Y OUNG C ONAWAY S TARGATT &