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21 st Annual IL Statewide APA Conference

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  1. 21st Annual IL Statewide APA Conference August 21, 2014 [Session]

  2. Health Care Reform Update:Employer Mandate & Reporting Requirements Jon Karelitz Jeff Arnold Seyfarth Shaw LLP Seyfarth Shaw LLP jkarelitz@seyfarth.comjarnold@seyfarth.com 21st Annual IL Statewide APA Conference – August 21-22, 2014

  3. Today’s Roadmap • Overview of Employer Mandate • Reporting Requirements • Alternative Workforce Considerations • Strategies for Containing Costs

  4. Overview of Employer Mandate

  5. Background: What Employers Are Subject to Employer Mandate? • Threshold for “Large Employer” = 50 Full-time Equivalent Employees in prior year • Full-time employees = 30 hours per week, on average • Special rules for seasonal employees • “Related entities” must be considered together, as a single employer • Parent-subsidiary - 80% owned up and down chain • Brother-sister companies - 80% owned by same 5 or fewer people

  6. Background: What Employers Are Subject to Employer Mandate? • Transition Relief for 2015: • Large employer means 100 or more full-time equivalent employees • Employers can look back to any 6 consecutive months in determining whether they are considered “large employers” • Permanent Relief • No penalty for first 3 months of the year after qualifying as a “large employer”

  7. Background: What Are the Employer Mandate Penalties? No Coverage Penalty: • Must offer “minimum essential coverage” to: • 70% of Full-Time Employees in 2015 • 95% of Full-Time Employees in 2016 and later • “Minimum Essential Coverage” • Group health plan • That is not “excepted benefits” (e.g., not dental-only or vision-only) • Could be preventive care only • Effective Date • Employer with 100+ employees: January 1, 2015 • Employer with 50-99 employees: January 1, 2016

  8. Background: What Are the Employer Mandate Penalties? • Employer is subject to “big” penalty if: • Employer fails to offer “minimum essential coverage” AND • At least one Full-Time Employee receives a tax credit or subsidy through an exchange • “Big” penalty • 2015: $2,000 x (number of Full-Time Employees – 80) • 2016 and later: $2,000 x (number of Full-Time Employees – 30) • If no “big” penalty, still subject to “small” penalty if Full-Time Employee who is not offered minimum essential coverage receives a tax credit or subsidy through an exchange • $3,000 x number of Full-Time Employees receiving tax credit or subsidy

  9. Background: What Are the Employer Mandate Penalties? Inadequate Coverage Penalty: • Employer offers health insurance coverage, but not “affordable” coverage that provides “minimum value” • Affordable – Cost of coverage no more than 9.5% of household income • Minimum value – Covers at least 60% of actuarial value of health costs • Any employee receives a tax credit or subsidy through a state-based exchange

  10. Who Must Be Offered Coverage? • Full-Time Employees • Those who work, on average: • 30 hours per week or • 130 hours per month • Full-time status determined on a monthly basis • Measurement & Stability Periods • Measurement Period (look-back) could range between 3-12 months • Stability Period must be at least as long as the look-back period and can be no shorter than 6 months • Administrative Period up to 90 days between the Measurement Period and Stability Periods • To determine who will be eligible, notify them and enroll them

  11. Who Must Be Offered Coverage? • Generally, must use same (i) measurement method, and (ii) length of measurement period from year to year and across the workforce • May use different periods for: • Salaried and hourly employees • Employees of different entities • Employees located in different states • Collectively bargained with different collective bargaining agreements • May use shorter Measurement Periodin 2014 (even if using a 12-monthperiod going forward)

  12. Counting Hours of Service • Special rules for: • Members of religious orders • Airline industry • On-call hours • Layover hours • Commission-based employees • Educational organizations • Employees • Adjunct faculty • Volunteers • Student employees • Home care workers • Real estate agents and direct sellers • Agricultural workers • Cruise ship employees

  13. Counting Hours of Service • Hourly employees: Track their actual hours • Non-hourly employees: • Track actual hours OR • Credit eight hours of service for each day or 40 hours of service per week

  14. When Must Coverage Be Offered? • New employees: Within 3 months after hire date • Variable hour employees who work sufficient hours: • No later than first day of the month following the 13th month after hire date • Could be shorter, depending on length of measurement period

  15. New Guidance on Measuring Full-Time Status of New and Seasonal Employees • New Employees • Whether expected to be full-time employee depends on facts and circumstances, including: • Whether employee replacing full-time employee • Whether comparable positions are full-time • How job was advertised/communicated to new hire or otherwise documented • Seasonal Employees* • Customary annual employment is 6 months or less • Period begins each calendar year in same part of the year • Even if extended in particular year *This definition only applies for purposes of determining who must be offered coverage, not for purposes of the large employer determination

  16. What Is a “Variable Hour” Employee? • Based on facts and circumstances at date of hire, cannot determine that employee is reasonably expected to work, on average, at least 30 hours per week (or 130 hours per month) • NOTE: Expected length of employment cannot factor into characterization (except for seasonal employees) • IRS may disagree with determination and impose penalty if every employee is labeled as “variable hour,” but many end up working full-time • Examples* • Part-time employees • Hourly employees with fluctuating schedules • Seasonal employees *These are merely examples of individuals that might be considered variable hour new hires. Facts and circumstances may limit an employer’s ability to treat these employees as variable hour new hires.

  17. Special Rule: Breaks in Service - NEW

  18. Measurement and Stability Periods Measurement Period Admin Stability Period Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. 2014 2015

  19. Overlapping Periods Starting with 2015, every year will feature a simultaneous measurement and stability period Measurement Period #2 Admin Stability Period #2 Stability Period #1 Measurement Period #3 Admin Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. 2016 2017 Stability period (following 2014 measurement period) New measurement period begins (for 2017 stability period) Optional administrative period. Overlaps with stability period

  20. When Must Variable Hour New Hires Be Offered Coverage? Employee switches to ongoing employee Measurement Period effective October 1, 2014 Measurement Period #2 Measurement Period #1 Stability Period #1 Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. 2015 2016 Variable Hour New Hire – Hire Date February 15, 2014; Measurement Period starts March 1, 2014 Measurement Period ends February 28, 2015Administrative Period from March 1 – March 31 Stability Period coverage begins April 1, 2015 (and continues through March 31, 2016)

  21. Reporting Requirements

  22. Reporting Requirements • 6055 Report • Individual Mandate • All providers of minimum essential health coverage must provide report • 6056 Report • Employer Mandate • All applicable large employers that are subject to the employer shared responsibility requirement under the Affordable Care Act • W-2 Reporting • All employers with at least 250 employees

  23. 6055 Report Who must report? • Health insurance issuers • Sponsors of self-insured health plans • Governments • Other persons that provide minimum essential coverage • What about employers in a controlled group? • What about individual plans in an Exchange? • What about coverage obtained through the Small Business Health Options Program (SHOP)?

  24. 6055 Report What must be reported? • Two reports: IRS and Individuals • IRS Report • Name, address, and employer identification number (EIN) of the employer plan sponsor • Name, address, and taxpayer identification number (TIN) of the primary insured, employee, former employee, or related person who enrolls for coverage – the “Responsible Individual” • The name and TIN of each other individual covered under the program • The months for which each covered individual was enrolled in coverage and entitled to benefits

  25. 6055 Report What must be reported? (cont’d) • Individual Report • Information reported to the IRS withrespect to that individual (may use a substitute statement) • Policy number • Name address, and contact number of reporting entity

  26. 6055 Reporting Time and Manner of Reporting • IRS Report • 1094-B transmittal form • 1095-B reporting form • Must be submitted by February 28 (or March 31 if filed electronically) of the year following the calendar year to which they relate • Individual Report • Safe harbor: First-class mail to recipient’s last known address • No electronic delivery unless individual affirmatively consents • Must furnish statements by January 31 of the year following the calendar year in which coverage was provided • May furnish with W-2

  27. 6055 Report – Form 1094-B

  28. 6055 Report – Form 1095-B

  29. 6056 Report • Employer Mandate Reporting • Who must report? • Applicable Large Employers (ALEs) • Employers who employ at least 50 full-time employees on business days during the preceding calendar year • What about employers in a controlled group?

  30. 6056 Report What must be reported? • Two reports: IRS and Individuals • IRS Report • Name, date, and EIN of the ALE member • Name and telephone number of the ALE contact person • Calendar year for which the information is reported • Number of full time employees for each month during the calendar year • Certification as to whether ALE member offered its full-time employees (and their dependents) the opportunity to enroll in MEC by calendar month • For each full-time employee, the employee’s share of the lowest cost option of self-only coverage offered under a plan, by calendar month • Name, address and TIN of each full-time employee and the months during which the employee was covered under the plan

  31. 6056 Report Simplified reporting • Qualifying Offers • Offer of minimum value coverage that provides employee-only coverage for no more than $1,100 in 2015, plus an offer of coverage to an employee’s spouse and dependents • For employees who receive qualifying offers for all 12 months of the year, employers will need to report only the names, addresses, and TINs of those employees and the fact that they received a full-year qualifying offer • For employees who receive qualifying offers for less than 12 months of the year, the IRS has indicated that there will be some sort of code to indicate the months where qualifying offers were made • 2015 Phase-in • Must make a qualifying offer to at least 95% of full-time employees

  32. 6056 Report Simplified reporting (cont’d) • 98% Offers • Option to report without separate identification of full-time employees if certain conditions are satisfied

  33. 6056 Report What must be reported? • Individual Report • Information reported to the IRS with respect to that individual (may use substitute statement) • Name, address, and EIN of the ALE member

  34. 6056 Reporting Time and Manner of Reporting • IRS Report • 1094-C transmittal form • 1095-C reporting form • Must be submitted by February 28 (March 31 if filed electronically) • Individual Report • Safe harbor: First-class mail to recipient’s last known address • No electronic delivery unless individual affirmatively consents • Must furnish statements by January 31 of the year following the calendar year in which coverage was provided • May furnish with W-2

  35. 6056 Report – Form 1094-C

  36. 6056 Report – Form 1094-C

  37. 6056 Report – Form 1094-C

  38. Combined Reporting • ALEs who sponsor a self-insured health plans will file both 6055 and 6056 • IRS will allow a single return and statement to comply with both sections

  39. Penalties • Subject to IRS penalties • Code Section 6721 (Failure to File a Correct Information Return) and Code Section 6722 (Failure to Furnish Correct Payee Statements) • Relief for 2015 reporting, but only for incorrect or incomplete information on return or statement • ALE member must make a good faith effort to comply

  40. W-2 Reporting • Required beginning for the 2013 calendar year (W-2 issued in 2014) • Optional for small employers (fewer than 250 employees) • Informational only – benefits are not taxable • Use COBRA Rate (minus 2%), Report in Box 12 • Include medical, bundled dental & vision, some employer contributions to FSA • Exclude HIPAA excepted benefits (e.g. stand-alone dental/vision), HRA, FSA salary reduction elections • Include EAPs, Wellness Programs and On-site Clinics if: (1) the benefit is subject to COBRA (or state continuation of coverage laws), and (2) the employer assesses a COBRA premium for the benefit

  41. W-2 Reporting

  42. W-2 Reporting

  43. W-2 Reporting • Report value of coverage as of December 31 (disregard retroactive changes made after the end of the year) • Post-termination reporting • Optional for COBRA coverage and retiree coverage in the year of termination • Only required for retiree coverage after the year of termination if the retiree would otherwise be entitled to a Form W-2

  44. Alternative Workforce Considerations

  45. Alternative Workforce Issues • Refresher: To avoid “big” penalty, large employers need to offer coverage to: • 70% of full-time employees in 2015 • 95% of full-time employees in 2016 • “Full-Time Employees” include only common law employees • Determined based on IRS 20-factor test • Microsoft exclusion is not sufficient to exclude a worker from “minimum essential coverage” requirement

  46. Alternative Workforce Issues • Leased Employees • Common law employee of leasing organization • No obligation for client employer to offer coverage • Staffing Firm Employees • If common law employee of client employer, client employer obligated to offer coverage to avoid penalty • Offer of coverage from staffing firm CAN be treated as offer of coverage by employer • BUT only if employer pays staffing firm higher fee for employee enrolled in health coverage • Waiting for guidance on extent of higher fee due

  47. Alternative Workforce Trends • Centralizing leased employee/staffing firm information • Gauge 70% and 95% requirement • Agreements with leasing organizations/staffing firms • Provide who is common law employer • Require leasing organization/staffing firm to offer minimum value, affordable coverage • Indemnification • Evaluating worker classification issue for other purposes • Qualified plan coverage testing must include leased employees • Employment law obligations • Minimum wage, overtime • Missed meal and rest breaks

  48. Strategies for Containing Costs

  49. Alternatives to Traditional Employer-Sponsored Coverage • Private exchange • Menu of options • Self-funded/fully-insured • Benefits outsourcing • Skinny plan • Preventive services only • Still subject to employer mandate liability • Implement “minimum value” plan option • HDHP? • Alleviates concerns regarding affordability for other plan options

  50. Alternatives to Traditional Employer-Sponsored Coverage • Income-based premium contribution requirement • Higher earners pay more • Premium for self-only coverage = 9.5% of rate of pay • “Efficient frontier” / “Premium optimization” • Make coverage “unaffordable” for employees below 250% of FPL • Cost savings outweigh associated penalties