health care reform and the affordable care act what s next for employers august 1 2013 n.
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  2. Today’s Agenda • Where We Are With the Delay • The Basics of Understanding the Healthcare Reform Decision Making Playing Field • Analyzing the “Play or Pay” Decision for Employers • Compliance for 2014; DOMA and HIPAA

  3. Good News – A Delay • IRS Notice 2013-45 • One-year Delay for Certain Provisions of ACA • Annual Information Reporting • Shared Responsibility Provisions

  4. Bad News – Much Not Delayed • Exchange Notices by October 1, 2013 • Summaries of Benefits and Coverage • Application for Advance Premium Credits • W-2 Reporting • Counting Period for Employer Mandate • Plan Design Mandates • Individual Mandate

  5. PPACA – Understanding Both Sides • Penalty provisions – "Shared Responsibility" • Employer – "Play or Pay" • Employee/Individual – "Individual Mandate"

  6. Individual Mandate Overview • Each individual must have Minimum Essential Coverage or pay a penalty via federal income tax return • MEC can be from: • Employer-sponsored coverage (including COBRA and retiree medical) • Individual market purchase (Exchange – federal, state, private – or otherwise) • Medicare • Medicaid • CHIP • Veteran's • TRICARE

  7. Individual Mandate • Who is exempt from individual penalty? • No federal income tax return required (low income) • Short coverage gap (< 3 months) • Unaffordable premiums (>8% of household income) • Hardship (if certified by Health Insurance Marketplace) • Incarceration • American Indian

  8. Individual Mandate • Minimum penalty per individual (annual amounts shown; actual amounts determined monthly) • $95 for 2014 • $325 for 2015 • $695 for 2016 • Children under 18 – 50% of individual • Excess income amount (if greater) • Household income less tax filing threshold, times percentage: • 1% for 2013 and 2014 • 2% for 2015 • 2.5% for 2016 • Not to exceed annual national average bronze plan premium

  9. Insurance Exchanges • Public Exchanges • Private Exchanges • Small Business Health Options Program (SHOP) for exchange-purchased coverage • Small Business Healthcare Tax Credit • Credit for 2013 – 35%; 50% in 2014 • For non-profits max of 25% credit for 2013; max of 35% for 2014; can be deducted from employer portion of SS withholdings liability

  10. Insurance Exchanges • 3 Options for ACA Exchanges • State • Federal • State-Federal partnership • 4 levels of plans • Bronze • Silver • Gold • Platinum

  11. Insurance Exchangesas of 5/28/13 • 17 States plus D.C. creating own state-based exchanges • 7 States planning for partnership exchanges • 27 States default to Federal exchanges

  12. Tax Credits & Cost-Sharing for Individuals • For coverage purchased through the Exchanges: • Tax credits for people with incomes up to 400% of federal poverty level (FPL) • Tax credit not available for household income below 133% of FPL because Medicaid available • Cost-sharing (lower deductibles & co-pays) for people with incomes up to 250% of FPL

  13. Federal Poverty Level

  14. "Pay" or "Play" Overview • Applies to "Large Employers" (no "pass" for nonprofits; controlled group analysis applies) • "Play" - Offer coverage to "substantially all" full-time employees • Coverage must : • Provide Minimum Essential Coverage (MEC) • Meet minimum value rules • Be affordable • "Pay" – If offer no coverage or coverage that is not "play" level and • Employee(s) receive Exchange coverage and • Premium tax credit, or • Cost-sharing reduction

  15. Only Large Employers Must "PLAY" • Large Employer employed, on average, 50+ Full-time Employees on business days in the prior calendar year • Count All Full-time Employees (30+ hours per week) then add FTEs (divide aggregate hours for Non-Full-time Employees for the month by 120) • Apply Controlled Group Rules under Code Section 414(b),(c), (m) and (o) to determine "employer" • FTE concept only applies for determining "Large Employer" - do not have to offer coverage to Non-Full-time Employees; do not use FTE concept for calculating penalties

  16. "Large Employer" Refinements • Actual hours calculated on a monthly basis vs. safe harbor method • Fluctuating workforce – not a Large Employer • if Exceed 50 Full-time Employees for 120 days or less during the year • if the Employees in excess of 50 during such 120-day period were Seasonal Workers • Large Employer includes "Predecessor Employers" • Special Rules for "New" Employees – when to count

  17. Controlled Group Rules • Controlled Group = 2 or more employers treated as a single employer • if there is sufficient common ownership, or • a combination of joint ownership and common activity. • "Controlled group of corporations" - a group of commonly owned corporations (Code Section 414(b)) • "Trades or businesses under common control" - a mixed group of corporations, partnerships, sole proprietorships, and other business entities (Code Section 414(c))

  18. Controlled Group Rules • "Affiliated service group" - certain types of entities are linked based on joint activity or a combination of joint activity and common ownership (Code Section 414(m)) • PPACA Proposed Regs - controlled group rules • Used to determine Large Employer status • Not used for "pay" or "play" – decision is at "employer group member" level • Subsidiary member • Division, plant or other informal part of business is not an employer group member

  19. What it Takes to "Play" • Provide Minimum Essential Coverage to Substantially All Full-time Employees (and dependents) which meets rules for: • Minimum value • Affordability

  20. "Play" - Employer Group Health Plan • Employer-sponsored group health plan is MEC • Can be insured or self-insured • Must meet rules on no lifetime or annual limits • Insured plans must provide "essential health benefits," determined state by state

  21. "Play" – "Substantially All" Definition • Offer minimum essential coverage to at least 95% of Full-time employees (and their dependents) – OR – if greater – to 5 Full-time employees (and their dependents) • Can be deliberate exclusion from coverage (but watch Title VII and other discriminatory practices)

  22. "Play" - Dependents • Must offer coverage to an employee's child (son, daughter, stepson, stepdaughter, adopted child, child placed for adoption and foster child) – up to age 26 • Not required to offer coverage to spouse

  23. "Play" - Coverage • Each employee must have an effective opportunity to accept coverage at least once during the plan year • Enrollment opportunity can be by electronic means • Offer of coverage is required; actual coverage is not • If employee declines coverage, document it

  24. "Play" - Minimum Value Coverage • Employer coverage must provide “minimum value” • “Minimum Value” – plan (employer) must pay at least 60% of actuarially projected cost of covered services (safe harbors being developed)

  25. "Play" – Affordable Coverage • “Affordable” – low wage employee’s share of cost of lowest cost self-only coverage option <9.5% of employee’s household income • Safe harbors • Use Form W-2 wages for that calendar year • Use rate of pay (take hourly rate for each eligible hourly employee, multiply by 130 and determine affordability based on the monthly wage) • Use Federal Poverty Level – the most recently published federal poverty level for a single individual ($11,170 x 9.5% =$1,061.15 or $88.42 per month)

  26. "Pay" – $2,000 Penalty For No Coverage • If Employer Group Member does not meet "substantially all" level of coverage for Full-time employees, then considered "No Coverage", and • If one or more of such Full-time employees enrolls in Exchange Coverage and receives a Premium Tax Credit , then • Assessable Payment is $2,000/year for EACH Full-time employee of the Employer Group Member (excluding the first 30, applied pro rata over controlled group)(calculated on a monthly basis) • Note: if Employee is eligible for employer coverage but does not take it, Employee is not eligible for Premium Tax Credit

  27. "Pay" – $3,000 Penalty for "Non-Affordable" or "Less than Minimum Value" Coverage • Penalty different if Employer Group Member provides MEC Group Health Plan to "substantially all" Full-time employees (and dependents), but such coverage does not satisfy affordability or minimum value requirements • $3,000/year for eachFull-time employee who enrolls in Exchange coverage and receives a premium tax credit (calculated on a monthly basis) • Penalty cannot be greater than the $2,000 per Full-time employee penalty if no health coverage offered

  28. Key to Penalties – Determine Full-Time Employees • Full-time = average of at least 30 hours/week; 130 hours/month • Non-variable hour employees (salaried, hourly regular) – assume status at hire • Variable hour employees (seasonal, fluctuating hours, substitutes, etc.) – special rules for determining status

  29. Employee Determination • Status determined by periods • Measurement/lookback period – count hours and identify full-time; new hire measurement period • Stability period – when coverage must be offered to full-time employees • Administrative period – up to 90 days between periods to confirm data and conduct enrollment

  30. Limiting Liability • Ensure employees are not getting advance payment of premium tax credits to which not entitled • Administered by HHS; appeal process for employers • Show employer coverage is a "QHP" (Qualified Health Plan) and that employee is eligible • Ensure only employees who are "full-time" are used in penalty calculations • Administered by IRS; retrospective assessment • Show employee does not meet "full-time" criteria – keep records!

  31. Limiting Liability • Strategies for Cost Reduction • Retiree-Only Plans • Cost to insure vs. penalties plus employee taxable stipend • Use of HRAs (consider integration rules) (may want to use for retiree only plans) • Use of "substantially all" threshold

  32. ACA for 2014 • SBCs – distribute during open enrollment for the 2014 coverage period, must specify whether the plan provides minimum value • Exchange Notices – Must distribute by October 1, 2013 and thereafter to new employees upon hire • Model for Employer with Coverage and Model for Employer without Coverage

  33. ACA for 2014 • Application for Advance Premium Credits • Employer is required to complete a 12 page form, "Application for Health Coverage and Help Paying Costs," when requested by employee who is applying for advance premium tax credits when purchasing coverage on the market

  34. ACA for 2014 • W-2 Reporting – report the aggregate value of health coverage on Forms W-2 • Counting Period for Mandates – Need to determine whether subject to mandate in 2015; need to document employee hours in 2014 • Benefit Mandates – waiting period; no limit; wellness incentives; dependent coverage

  35. Same-Gender Spouse Coverage • Supreme Court Ruling on June 26, 2013 struck down DOMA Section 3 which barred same-gender married couples from being recognized as "spouses" for all purposes of Federal law • Many unanswered questions • Pre-tax or post-tax; does state of residence control? • HIPAA special enrollment rights?

  36. HIPAA Update • Final Omnibus Rule requires compliance by September 23, 2013 • Privacy Notice • Privacy and Security Policies and Procedures • Authorization Form • Workforce Training • Business Associate Agreements (transition rule)


  38. Susan E. Stoffer, 404.322.6374 Nelson Mullins Riley & Scarborough, LLP DISCLAIMER REGARDING TAX ADVICE - IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the IRS, we inform you that any federal tax advice contained in this communication (including any attachments) is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter communicated to you.