Patient Protection and Affordable Care Act _Large Employer Compliance

PATIENT PROTECTION AND

AFFORDABLE CARE ACT COMPLIANCE

FOR LARGE EMPLOYERS

Pilot Healthcare Strategies

http://www.pilothealthstrategies.com/

[email protected]

http://www.pilothealthstrategies.com/

The purpose of this presentation is to

provide a general overview of Patient

Protection and Affordable Care Act

Employer Shared Responsibility for

large employers (those employing 50 or

more full time or full time equivalents).

The application of these requirements

will vary from one employer to another

based on their specific circumstances.

For that reason, this presentation is not

intended to provide comprehensive

guidance for all situations; qualified

assistance should be consulted.

Copyright (c) 2015 Pilot Healthcare Strategies

THE SHARED RESPONSIBILITY

“EMPLOYER MANDATE” TO PROVIDE

HEALTH COVERAGE


Policy intent

The policy intent of the Employer Shared Responsibility provisions of

the Affordable Care Act is to preserve employment-based health

coverage that covers the majority of working age Americans under age

65.


Affected employers

All large employers are subject to the Employer Shared Responsibility

provisions, including for-profit, non-profit, and government entities.

Authority: Internal Revenue Service, Questions and Answers on Employer Shared Responsibility Provisions Under the

Affordable Care Act, Question No. 7


http://www.irs.gov/Affordable-Care-Act/Employers/Questions-and-Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act#Basics




What defines a large employer?

An employer that employed an average of at least 50 full-time employees

(including full-time equivalent employees) on business days during the

preceding calendar year.

Authority: 26 CFR (Code of Federal Regulations) § 54.4980H–1(a)(4)


Definition of full time employees

With respect to a calendar month, an employee who is employed an

average of at least 30 hours of service per week with an employer.

Authority: 26 CFR (Code of Federal Regulations) § 54.4980H–1(a)(21).


How to determine large employer status for purposes

of Employer Shared Responsibility requirements

Total the number of full time employees including any seasonal workers for

each calendar month in the preceding calendar year. Divide by 12 and round to

next lowest whole number. Authority: 26 CFR (Code of Federal Regulations) § 54.4980H–2(b)

NOTE: Part time employees must be included in calculation by adding the

number of hours of service for a calendar month for part time staff and dividing

by 120, rounding to the nearest one hundredth. Authority: 26 CFR (Code of Federal Regulations) § 54.4980H–2(c)

Seasonal employee exception: If the sum of an employer’s full-time

employees exceeds 50 for 120 days or less during the preceding calendar year,

and the employees in excess of 50 who were employed during that period of no

more than 120 days are seasonal workers, the employer is not considered to

employ more than 50 full time employees. Authority: 26 CFR (Code of Federal Regulations) § 54.4980H–2(b)(2)


Health coverage offer requirements

2015

Employers that employed at least 100 full-time employees (or a

combination of full-time and part-time employees that equals at

least 100) during the previous calendar year (i.e. 2014) must

offer qualifying health coverage to at least 70 percent of full time

employees and dependents. Authority: Shared Responsibility for Employers Regarding Health Coverage, Transition Relief

and Interim Guidance, (Preamble) XV(D)( 7). 8575 Federal Register, Vol. 79, No. 29, February

12, 2014.

NOTE: Employers of 50-99 employees not required to offer

coverage for health plans effective in 2015. Authority: Shared Responsibility for Employers Regarding Health Coverage, Transition

Relief and Interim Guidance (Preamble) XV.D.6. 8574 Federal Register, Vol. 79, No. 29,

February 12, 2014.


Health coverage offer requirements

2016

All employers that employed at least 50 full-time employees (or a

combination of full-time and part-time employees that equals at least 50

during the previous calendar year – i.e. 2015) must offer qualifying

health coverage to all but five percent (or, if greater, five) of full-time

employees and their dependents.

Authority: 26 CFR (Code of Federal Regulations) § 54.4980H–4(a)


Dependent coverage

• Dependents are natural children (not step children and foster children) under

age 26.

• Not the spouse of an employee.

Authority: 26 CFR (Code of Federal Regulations) § 54.4980H–1(a)(12)

Note on dependent coverage: Employers not offering dependent coverage

must have “taken steps” during plan years 2014 and 2015 to do so.

Authority: Shared Responsibility for Employers Regarding Health Coverage, Transition Relief and Interim Guidance

(Preamble) XV.D.5. 8573Federal Register, Vol. 79, No. 29, February 12, 2014.


What is offer of qualifying health coverage?

An employer-sponsored plan that provides minimum essential coverage:

• Coverage must provide minimum value: employee’s share of the total allowed costs of benefits provided under the plan is less than 40 percent of such costs.

• The employee’s required premium contribution for self only coverage does not exceed 9.56 percent of the employee’s household income.

Authority: 26 U.S. Code § 4980H; 26 CFR (Code of Federal Regulations) § 54.4980H–1(a)(12), § 54.4980H–4; IRS Rev. Proc. Notice 2014-37

• Coverage provided through Code § 125 (Cafeteria) plans, employer payment plans, health FSAs, and HRAs are employer-sponsored plans and provide minimum essential coverage unless the coverage consists solely of excepted benefits.

• Amounts newly made available for the current plan year under an HRA that is integrated with an eligible employer-sponsored plan and that an employee may use to pay premiums are counted for purposes of determining affordability of an eligible employer-sponsored plan.

Authority: Internal Revenue Service Notice 2013-54, Application of Market Reform and other Provisions of the Affordable Care Act to HRAs, Health FSAs, and Certain other Employer Healthcare Arrangements

Pending issuance of final regulations, employer group health plans that do not include coverage for physician services and hospitalization fail to provide minimum value. Employers offering such plans may not advise employees that such plans preclude eligibility for premium tax credit for exchange qualified health plan.

Authority: IRS Notice 2014-69.


Maximum waiting period/Automatic enrollment

Waiting period limit

• A group health plan shall not apply a waiting period that exceeds 90 days

for those eligible to enroll under the terms of the plan.

Authority: 26 CFR (Code of Federal Regulations) § 54.9815–2708

Automatic enrollment (for employers of more than 200)

• Section 1511 of the Affordable Care Act requires employers of more than 200 full-time

employees to automatically enroll new full-time employees in one of the employer’s health

benefits plans (subject to waiting period) and to continue the enrollment of current employees

in a health benefits plan offered by an employer. In addition, employers must provide

adequate notice and the opportunity for an employee to opt out of any coverage in which the

employee was automatically enrolled.

• Final regulations implementing the requirement have not been issued. Department of Labor

states until final regulations are issued and become applicable, employers are not required to

comply with Section 1511.

Authority: Department of Labor Technical Release No. 2012-01.


What is a plan year?

• 12 consecutive months, unless a short plan year of less than twelve consecutive

months is permitted for a valid business purpose. A plan year is permitted to begin on

any day of a year and must end on the preceding day in the immediately following year.

• Calendar year plan year: period of 12 consecutive months beginning on January 1

and ending on December 31 of the same calendar year.

Once established, a plan year is effective for the first plan year and for all subsequent plan

years, unless changed, provided that such change will only be recognized if made for a valid

business purpose. A change in the plan year is not permitted if a principal purpose of the

change in plan year is to circumvent large employer regulations.

Authority: 26 CFR (Code of Federal Regulations) § 54.4980H–1(35)


Non-calendar year plan compliance

If an employer offers a non-calendar year plan that was in effect as of December 27, 2012 and not changed, it will be compliant with mandate to offer qualifying coverage in 2015 provided:

• Those employees eligible as of February 9, 2014 are offered qualifying coverage by the first day of the 2015 plan year. (Example: if 2015 plan year coverage begins April 1, 2015, employer is considered compliant for months preceding April).

• During an open enrollment period ending before February 9, 2014: • Employer provided coverage to at least 25 percent of all employees or offered

coverage to at least one third of employees, or;

• Provided coverage to at least one third of full time employees or offered coverage to at least one half of full time staff.

Authority: Shared Responsibility for Employers Regarding Health Coverage, Transition Relief and Interim Guidance (Preamble) XV.D.1 8570 Federal Register, Vol. 79, No. 29, February 12, 2014.


IRS REPORTING

REQUIREMENTS AND EXCISE

TAX PENALTIES I


Compliance with Employer Shared

Responsibility Mandate

• Employer compliance with Shared Responsibility Mandate determined by

reporting to IRS:

• By employers via annual information return reporting full time employees eligible for

mandatory offer of coverage and coverage offered.

• By state health benefit exchanges reporting employees who obtained advance tax

credit subsidy for an exchange plan.

• 2015 is first year reporting requirements effective.

• 2015 returns must be filed NLT February 29, 2016, or March 31, 2016 if filed

electronically.

Source: Internal Revenue Service, Questions and Answers on Reporting of Offers of Health Insurance Coverage by

Employers (Section 6056), Question 17.


http://www.irs.gov/Affordable-Care-Act/Employers/Questions-and-Answers-on-Reporting-of-Offers-of-Health-Insurance-Coverage-by-Employers-Section-6056#Methods%20of%20Reporting




Compliance with Employer Shared Responsibility

Mandate

Two measurement methods that can be used by employers

to develop IRS information return data:

• Monthly method

• Elegant method to determine f/t employees subject to mandatory offer of

qualifying coverage.

• “Look back” measurement method

• Provides more compliance flexibility for employers with significant

numbers of part time, seasonal, variable hour employees.

• Highly complex; significant administrative burden must be taken into

account.


Monthly measurement method

• Full time status determined by counting an employee’s hours of service for each calendar

month.

• Not required to offer qualifying coverage for first three calendar months, but if employee must

be offered coverage no later than the first day of the first calendar month immediately

following the three month period if the employee is still employed on that day.

Authority: 26 CFR (Code of Federal Regulations) § 54.4980H–1(a)(21)(iii), § 54.4980H–3(c)

NOTE: 130 hours of service in a calendar month is treated as the monthly equivalent of at least 30

hours of service per week, if this equivalency rule applied on a reasonable and consistent basis.

Authority: 26 CFR (Code of Federal Regulations) § 54.4980H–1(a)(21)(ii)

• Optional weekly rule: Full-time employee status for calendar months is based on hours of service

over four weekly periods and for certain other calendar months is based on hours of service over

five weekly periods. With respect to a month with four weekly periods, an employee with at least 120

hours of service is a full-time employee, and with respect to a month with five weekly periods, an

employee with at least 150 hours of service is a full-time employee

Authority: 26 CFR (Code of Federal Regulations) § 54.4980H–1(a)(21)(iii), § 54.4980H–3(c)(3)


Look back measurement method

• Used for ongoing employees

• New employees reasonably expected to be a full-time must be offered

coverage NLT first day of the month immediately following the conclusion

of the employee’s initial three full calendar months of employment.

• Full time status of an employee determined by measuring hours of

service over measurement period selected by employer of at least 3 but

not more than 12 months.

• Those employed on average at least 30 hours of service per week during

the measurement period must be treated as full-time employees for at

least 6 months and not period shorter than measurement period used.

Authority: 26 CFR (Code of Federal Regulations) § 54.4980H–3(d)


Reporting requirements Employers must file an information return with the IRS and furnish a related statement to its full-time

employees for each calendar year using Form 1095–C or another form the IRS designates, and a

transmittal form using Form 1094–C or another form the IRS designates. Information returns must

include the following information:

• Name, address, and employer identification number of the applicable large employer and contact

information

• The calendar year for which the information is reported

• A certification as to whether the employer offered to its full-time employees (and their dependents)

the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan,

by calendar month

• The months during the calendar year for which minimum essential coverage under the plan was

available

• Each full-time employee’s share of the lowest cost monthly premium (self only) for coverage

providing minimum value offered to that full-time employee under an eligible employer-sponsored

plan, by calendar month

• The number of full-time employees for each month during the calendar year

• 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 the plan

• Any other information specified in forms, instructions, or published guidance

Authority: 26 CFR (Code of Federal Regulations) 301.6056–1(d)


Reporting requirements, cont.

A separate section 6056 transmittal (Form 1094-C) must be filed with any Forms 1095-C

filed by each employer. If more than one section 6056 transmittal is being filed, one of

those transmittals must be a section 6056 authoritative transmittal reporting aggregate

employer-level data for all full-time employees in accordance with forms and instructions.

Source: Internal Revenue Service, Questions and Answers on Reporting of Offers of Health Insurance

Coverage by Employers (Section 6056), Question 12.




Alternative reporting options Certification of qualifying offer of health coverage

The employer:

• Certifies on section 6056 transmittal form (Form 1094-C) that it made a qualifying offer to one or

more full-time employees for all months during the year for which an employee was a full-time

employee and which are not within periods where offer of coverage not required (such as during first

three months of employment) minimum essential coverage providing minimum value at cost for

employee-only coverage not exceeding 9.56 percent of the mainland single federal poverty line, and

that includes an offer of minimum essential coverage to the employees’ spouses and dependents.

• Provides on Form 1095–C or other form as designated by the IRS information on each full-time

employee to whom coverage offered for all twelve months of the applicable calendar year and a

statement to each full-time employee to whom coverage was offered.

• Files information returns and furnishes employee statements with respect to all other fulltime

employees

Authority: 26 CFR (Code of Federal Regulations) 301.6056–1(j)

FOR 2015 ONLY: An employer may certify that it has made a qualifying offer as described above to at least 95 percent

of its full-time employees and to their spouses and dependents. In lieu of providing a Form 1095–C (or another form the

IRS designates) to its employees, satisfy its section 6056 furnishing requirement with respect to all of its full-time

employees by furnishing a statement to each of its fulltime employees by January 31, 2016.

Authority: Information Reporting by Applicable Large Employers on Health Insurance Coverage Offered Under

Employer- Sponsored Plans. (Preamble) X(A)(2). 13241 Federal Register Vol. 79, No. 46, March 10, 2014


Abbreviated reporting option Option to report without separate identification of full-time employees for

those offering coverage to 98 percent of full time workforce

An applicable large employer member that otherwise meets its reporting obligations not

required to identify on its section 6056 return whether a particular employee is a full-time

employee for one or more calendar months of the reporting year or report the total

number of its full-time employees for the reporting year if it certifies that it offered

minimum essential coverage providing minimum value that was affordable to at least 98

percent of the employees (and their dependents) regardless of whether the employee is a

full-time employee during a calendar month during the year).

Authority: 26 CFR (Code of Federal Regulations) 301.6056–1(j)(2)


Penalties

Failure to provide full time employees and dependents opportunity to enroll in qualifying health coverage

Triggering event:

• Employer member has received a Section 1411 Certification relative to at least one full time employee having enrolled in a state health benefit exchange plan and received premium tax credit or cost sharing reduction for a calendar month.


Penalty amount:

• For the calendar month, the penalty is equal to 1/12 of $2,000, adjusted for inflation times the number of full-time employees, less 30.

Authority: 26 CFR (Code of Federal Regulations) § 54.4980H–1(a)(41), § 54.4980H–4(e)

2015 only: Penalty amount times the number of full time employees, less 80.

Authority: Shared Responsibility for Employers Regarding Health Coverage, Transition Relief and Interim Guidance (Preamble) XV.D.7(b). 8576 Federal Register, Vol. 79, No. 29, February 12, 2014.


Penalties, cont.

Failure to offer coverage that provides minimum value or is

affordable Full time employees do not have opportunity to decline to enroll in coverage that does not provide

minimum value or requires an employee contribution for any calendar month of more than 9.56

percent of a monthly amount determined as the federal poverty line for a single individual for the

applicable calendar year, divided by 12.

Authority: 26 CFR (Code of Federal Regulations) § 54.4980H–5(b)

Triggering event:

• Employer member has received a Section 1411 Certification relative to at least one full time

employee having enrolled in a state health benefit exchange plan and received premium tax credit

or cost sharing reduction for a calendar month.


Penalty amount:

• For the calendar month, the penalty is equal to 1/12 of $3,000 adjusted for inflation times the

number of full-time employees, but not more than aggregate amount of penalty for failure to offer

coverage to full time employees and dependents.

Authority: 26 CFR (Code of Federal Regulations) § 54.4980H–1 (a)(42)


Penalties, cont.

Optional “safe harbors” to avoid penalty for failure to offer coverage that provides minimum value or is affordable to employee

(1) Form W–2 wages

(2) Rate of pay

(3) Federal poverty line

May be used only if full-time employees and dependents afforded opportunity to enroll in coverage under employer-sponsored plan that provides minimum value with respect to the self only coverage offered to the employee. An employer may choose to use one or more of these safe harbors for all of its employees or for any reasonable category of employees, provided it does so on a uniform and consistent basis for all employees in a category.

Authority: 26 CFR (Code of Federal Regulations) § 54.4980H–5(e)(2)(i)


Penalties, cont.

Form W–2 safe harbor

Can be used if employee’s required contribution for the calendar year for the employer’s

lowest cost self only coverage that provides minimum value during the entire calendar

year (excluding COBRA or other continuation coverage except with respect to an active

employee eligible for continuation coverage) does not exceed 9.5 percent of that

employee’s Form W–2 wages. If coverage was not for an entire calendar year, the Form

W–2 safe harbor is applied by adjusting the Form W–2 wages to reflect the period for

which coverage was offered.

Authority: 26 CFR (Code of Federal Regulations) § 54.4980H–5(e)(2)(ii)


Penalties, cont.

Rate of pay safe harbor

• Hourly employees: The employee’s required contribution for the calendar month for

the applicable large employer member’s lowest cost self-only coverage that provides

minimum value does not exceed 9.5 percent of an amount equal to 130 hours

multiplied by the lower of the employee’s hourly rate of pay as of the first day of the

coverage period or the employee’s lowest hourly rate of pay during the calendar month.

• Non-hourly employees: The employee’s required contribution for the calendar month

for the applicable large employer member’s lowest cost self-only coverage that

provides minimum value does not exceed 9.5 percent of the employee’s monthly

salary, as of the first day of the coverage period (instead of 130 multiplied by the hourly

rate of pay).

Authority: 26 CFR (Code of Federal Regulations) § 54.4980H–5(e)(2)(iii)


Penalties, cont.

Federal poverty line safe harbor

• Employer satisfies the federal poverty line safe harbor with respect to an employee for

a calendar month if the employee’s required contribution for the calendar month for the

lowest cost self-only coverage that provides minimum value does not exceed 9.5

percent of a monthly amount determined as the federal poverty line for the state in

which the employee is employed for a single individual for the applicable calendar year,

divided by 12.

• If coverage offered least one day during a calendar month, the entire calendar month is

counted both for purposes of determining the monthly amount for the calendar month

and for determining the employee’s share of the premium for the calendar month.

Authority: 26 CFR (Code of Federal Regulations) § 54.4980H–5(e)(2)(iv)


Evidentiary standard for penalty assessment

Whether an employee has an effective opportunity to enroll or to decline to enroll is

determined based on all the relevant facts and circumstances including:

• Adequacy of notice of the availability of the offer of coverage

• The period of time during which acceptance of the offer of coverage may be made

• Any other conditions on the offer.

Authority: 26 CFR (Code of Federal Regulations) § 54.4980H–4(b)


Caveats and cautionary notes

ERISA Section 510 liability

Large employers that reduce employees’ average weekly hours to less than 30 in order

to avoid having them counted as full time employees could potentially face legal

exposure under Section 510 of the Employee Retirement Income Security Act of 1974

(ERISA), which bars employers from firing, disciplining or discriminating against

employees for the purpose of interfering with their access to employee benefit plans.

Consult qualified legal counsel before acting.



Relationship with state exchange marketplace Section 18B of the Fair Labor Standards Act (as added by section 1512 of the Affordable Care Act) requires employers provide each employee at the time of hiring a written notice that:

• Informs the employee of the existence of the state exchange including a description of the services provided how to contact the exchange to request assistance;

• If the employer plan's share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs, advises the employee may be eligible for a premium tax credit for the purchase of a qualified health plan through the exchange; and

• If the employee purchases a qualified health plan through the exchange, the employee may lose the employer contribution (if any) to any health benefits plan offered by the employer and that all or a portion of such contribution may be excludable from income for Federal income tax purposes.

Authority: Department of Labor, Technical Release No. 2013-02



Relationship with state exchange marketplace

Employers prohibited from:

• Reimbursing employees to cover individual policy premiums. If an employer uses an arrangement that provides cash reimbursement for the purchase of an individual market policy, the employer’s payment arrangement is considered part of a plan, fund, or other arrangement established or maintained for the purpose of providing medical care to employees, without regard to whether the employer treats the money as pre-tax or post-tax to the employee.

• Establishing health reimbursement account (HRAs) that enable employees to purchase coverage and access advance premium tax credits for individual plans sold in the state health benefit exchange marketplace. HRAs are group (not individual) health plans and therefore employees participating in them are ineligible for the credits or cost-sharing reductions.

• Offering cash to an employee in poor health in order to steer the employee away from a large employer’s group health plan to, for example, an exchange plan. Such arrangements violate Health Insurance Portability and Accountability Act (HIPAA) provisions barring discrimination based on one or more health factors.

Authority: Department of Labor, FAQs about Affordable Care Act Implementation (Part XXII) Compliance of Premium Reimbursement Arrangements. November 6, 2014.


http://www.dol.gov/ebsa/faqs/faq-aca22.html

http://www.dol.gov/ebsa/faqs/faq-aca22.html


Workplace wellness programs Group health plans may include wellness programs to promote health and prevent disease.

They cannot discriminate against participants based on a health factor and must be offered to

similarly situated individuals.

Two primary types of wellness programs:

• Participatory wellness programs such as those that reimburse employees for the cost of

membership in a fitness center; reward to employees for attending a monthly, no-cost health

education seminar; or that provides a reward to employees who complete a health risk

assessment without requiring them to take further action.

• Health-contingent wellness programs which generally require individuals to meet a specific

standard related to their health to obtain a reward such as specified cholesterol level or

weight. Permissible rewards under a health-contingent wellness program offered in

connection with a group health plan range from 20 percent to 30 percent of the cost of

coverage and a maximum of 50 percent for wellness programs designed to prevent or

reduce tobacco use.

Authority: Incentives for Nondiscriminatory Wellness Programs in Group Health Plans. 33158 Federal

Register Vol. 78, No. 106, June 3, 2013.



• Recent litigation by Equal Employment Opportunity Commission (EEOC) alleges some

wellness programs are being implemented as compulsory for employees and penalize

employees who decline to participate and thus violate the Americans With Disabilities

Act and other federal employment discrimination laws. See EEOC v. Honeywell

International, Inc. Case No. 14-CV-4517, 2014 U.S. Dist. LEXIS 157945, (D. Minn. Nov.

6, 2014)

• The EEOC plans to promulgate rules in February 2015 addressing aspects of wellness

programs that may be subject to the ADA's nondiscrimination provisions.


http://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201410&RIN=3046-AB01

Planning ahead: Excise tax on high value plans

• Beginning in 2018, employer sponsored plans costing in excess of $10,200 for self-only

coverage and $27,500 for other than self-only coverage are subject to a 40 percent

excise tax.

• These amounts are adjustable upward by the percentage the Blue Cross/Blue Shield

standard benefit option under the Federal Employees Health Benefits Plan for plan

year 2018 exceeds 55 percent the 2010 cost of the plan.

Authority: Section 9001, Patient Protection and Affordable Care Act of 2010.


Documents

Patient Protection and Affordable Care Act _Large Employer Compliance