So you heard the Employer Mandate is Delayed…Myth vs. Fact: 4 ACA Responsibilities you still need to prepare for.

MYTH — I DON’T NEED TO COMMUNICATE ANYTHING TO MY EMPLOYEES

Written communication and education of the existence of an exchange, contact information for the exchange, and the services provided by an exchange for all employees is STILL REQUIRED BY LAW prior to October 1, 2013. (PPACA Sec.1512)

MYTH — THE GOVERNMENT WILL NOTIFY ME WHEN MY EMPLOYEES QUALIFY FOR A SUBSIDY. 

You will NOT be notified of who does and does not qualify for a subsidy, and you ARE subject to a tax on the subsidy starting in 2015. Plus, once an employee gets their insurance subsidized he or she INSTANTLY BECOMES A PROTECTED CLASS OF EMPLOYEE BY OSHA. OSHA’s Whistleblower Protection Program protects employees who report violations of health insurance reform to the government. Protection from discrimination means that an employer cannot retaliate by taking “adverse action” against workers, such as firing or laying off, blacklisting, demoting, denying overtime or promotion, and reducing pay or hours. (FLSA Sec. 18c)

FACT — IF MY EMPLOYEE QUALIFIES FOR A GOVERNMENT SUBSIDY, I WILL BE AUDITED IN 2015.

If your employees qualifies for government subsidies in 2014, and you enact a health care plan in 2015 to remove them from the exchange and to avoid the $3,000 penalty then YOU WILL BE AUDITED BY “APPEAL.”

Thats right, offer qualified benefits to your employee and you hadn’t offered them before, and you get audited.

MYTH — I CAN BILL 9.5% OF ALL EMPLOYEE’S FLAT MONTHLY ADJUSTED GROSS INCOME AND STILL COMPLY WITH ACA.

If ‘similarly situated employees’ are treated differently in the health plan, such as receiving the same benefits but paying different amounts due to even small differences in income, your penalties could be as high as $100 PER EMPLOYEE PER DAY. (IRC Sec. 9802(b) and Penalty is found in IRC Sec 4980D)

[hat tip to Hazen Mirtz from Enrollment First Inc, who had previously posted much of this data, and from whom I borrowed some data to validate my own research]

Affordable Care Act (ACA) Update: Notice to Employees of Marketplace (Exchange) Coverage Options

Note: This is from ADP’s Eye on Washington Series, which focuses on legislative changes and clarifications per the Affordable Care Act.  Click here to check out the Eye on Washington Series, and register to receive the newsletter: www.adp.com/regulatorynews.

Disclosure: I work for ADP.  This information is purely educational, and based on Gov’t Regulation.

Eye On Washington: Health Care Reform

Updated: May 10, 2013

Affordable Care Act (ACA) Update: Notice to Employees of Marketplace (Exchange) Coverage Options

On May 8th, the U.S. Department of Labor (DOL) issued Technical Release 2013-02 to provide guidance to employers regarding a new requirement ― created by Section 1512 of the Affordable Care Act (ACA) ― that employers provide a notice to employees of coverage options available through the Health Insurance Marketplace (aka “Exchange”) by October 1, 2013.

As background, under the ACA, individuals will be able to purchase health coverage through state or federally facilitated Health Insurance Marketplaces Individuals will be able to enroll for coverage through the Marketplace beginning October 1, 2013, with initial coverage beginning effective January 1, 2014. The Technical Release provides needed guidance to employers regarding the notice requirement and provides Model Notices.

Almost All Employers Are Subject to the Notice Requirement

In contrast to the ACA Employer Shared Responsibility provisions, which generally only apply to employers with at least 50 full-time employees and full-time equivalent employees, the Marketplace notice requirement applies to all employers that are subject to the Fair Labor Standards Act (FLSA). In general, the FLSA applies to employers with at least one worker and annual revenues of more than $500,000. For details on FLSA applicability, see www.dol.gov/elaws/esa/flsa/scope/screen24.asp.

Notice Content and Format

The Technical Release includes two model Marketplace notices: one to be used by employers offering health coverage and one to be used by employers not offering coverage.

Employers must provide the Marketplace Notice in writing to all existing employees no later than October 1, 2013, and to each new employee at the time of hire [but no later than within 14 days of an employee’s start date].The Notice can be furnished by first-class mail, or electronically in a manner that meets the requirements of the DOL’s electronic disclosure safe harbor rules.1

There can be no charge or costs to employees and such notices must include the following information:

  • A description of the services provided by the Health Insurance Marketplace and how to contact the Marketplace;
  • 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, that the employee may be eligible for a premium tax credit under Section 36B of the Internal Revenue Code (the Code) if the employee purchases a qualified health plan through the Marketplace; and
  • If the employee purchases a qualified health plan through the Marketplace, the employee may lose any employer contribution to the employer-sponsored health benefits plan, and that all or a portion of such contribution may be excludable from income for federal income tax purposes.

Notices Are Only Required for Employees

Employers must provide the applicable Marketplace Notice to Employees of Coverage Options to all employees, regardless of their plan enrollment status or whether they are part-time or full-time. However, notices are not required for dependents or other individuals who are not employees.

Model Notices

The Model Notices provided by the DOL feature general information in Part A, including the required information enumerated above. Part B advises the employee of information he or she will need to gather in order to apply for coverage through a Health Insurance Marketplace, including:

  • Employer name and Federal Employer Identification Number
  • Employer address and phone number
  • The name, phone number and email address of an employer contact who can discuss employee health coverage with Marketplace officials

The following additional information only applies to employers who offer a health benefits plan to some or all employees:

  • Information about any health coverage offered by the employer, including whether health coverage is offered to some or all employees, eligibility criteria, and availability of dependent coverage
  • Whether the employer coverage meets the minimum value standard, and whether the cost of this coverage to the employee meets the affordability tests.2

Employers are permitted to modify the Model Notices, provided that they meet the content requirements described above. For the DOL Technical Release 2013-02 and model notices:

DOL Technical Release No. 2013-02

Model Notice to Employees of Coverage Options (for employers who offer a health plan to some or all employees)

Model Notice to Employees of Coverage Options (for employers who do not offer a health plan)

Additional information for employers regarding the Affordable Care Act is available at www.healthcare.gov and www.dol.gov/ebsa/healthreform.

Reliance

The guidance contained in Technical Release 2013-02 will remain in effect until the DOL issues new regulations or other guidance. Future regulations or other guidance on these issues are expected to provide adequate time to comply with any additional or modified requirements.

Affordable Care Act (ACA) Update: Departments Release FAQ Guidance on SBC Requirement, other ACA Implementation Issues

Note: This is from ADP’s Eye on Washington Series, which focuses on legislative changes and clarifications per the Affordable Care Act.  Click here to check out the Eye on Washington Series, and register to receive the newsletter: www.adp.com/regulatorynews.

Disclosure: I work for ADP.  This information is purely educational, and based on Gov’t Regulation.

Eye On Washington: Health Care Reform

Updated: May 2, 2013

Affordable Care Act (ACA) Update: Departments Release FAQ Guidance on SBC Requirement, other ACA Implementation Issues

On April 23, 2013 and April 29, 2013, the U.S. Departments of Labor, Health and Human Services, and Treasury (the “Departments”) released the fourteenth and fifteenth installments of their “Frequently Asked Questions” (FAQs) on issues related to the Affordable Care Act (ACA). The FAQs are intended to provide guidance and clarification for employers and others as they implement the ACA’s various requirements.

Summary of Benefits and Coverage (SBC)

The Departments previously released final regulations on the ACA’s Summary of Benefits and Coverage (SBC) requirement in February 2012. Under the SBC rule, health insurance carriers and employers that sponsor group health plans are required to distribute a standardized eight-page summary of the plan’s covered services and relevant cost-sharing provisions, generally starting with the open enrollment period for the 2013 plan year. Also in February 2012, the Departments released templates, instructions, and related materials intended to assist employers and health insurance carriers in fulfilling their SBC obligations. Subsequently in 2012, the Departments also issued three sets of FAQs addressing the SBC requirement. The materials released in February 2012 were intended for use with disclosures concerning coverage beginning before January 1, 2014 (i.e., the first year the SBC rule is applied).

The April 23 FAQ contains an updated SBC template and a sample completed SBC, which are intended for use with plan or policy years beginning in 2014 (future guidance is expected to address SBCs for plan or policy years beginning in 2015). The FAQ contains relatively few changes to the SBC template for 2014. Specifically, the new SBC model template includes a statement as to whether the plan provides “minimum essential coverage” (MEC), which is the level of coverage necessary for an individual to satisfy the ACA’s “individual mandate.” The new template also includes a certification as to whether the plan meets the ACA’s “minimum value” requirement (i.e., whether the plan is designed to pay or reimburse, on average, at least 60 percent of participants’ covered medical expenses). The coverage examples and commentary contained in the last two pages of the SBC remain unchanged from prior guidance. The FAQ also includes guidance on how plans and issuers may modify the SBC to reflect the elimination of annual limits on essential health benefits.

The April 23 FAQ also provides that the Departments will not take enforcement action against a plan or insurance carrier for not amending an SBC for the MEC and minimum value disclosures with respect to plan or policy years beginning in 2014 – provided that the SBC is furnished with a cover letter or similar disclosure stating whether the plan satisfies the MEC requirement and whether the plan provides minimum value (the Departments have provided model language for these separate disclosures).

All other safe harbors and enforcement relief provided by the Departments relating to the SBC requirement remain in effect for plan years beginning prior to January 1, 2015 (e.g., relief for expatriate plans and closed blocks of business, and more permissive electronic disclosure rules). In general, the Departments will continue to assist (rather than impose penalties on) plans and insurance carriers that are working diligently and in good faith to comply with the SBC rules.

Expiration of Annual Limit Waivers

Certain employers and health insurance carriers applied for, and were granted, waivers from the ACA’s annual limit requirements.  Waivers were approved based on the plan year or policy year in effect when the initial application was submitted.  The April 29 FAQ clarifies that waiver recipients who change their plan or policy years will not extend the expiration date of their waivers, which generally expire at the end of the plan or policy year beginning in 2013.

Provider Nondiscrimination

For plan or policy years beginning in 2014, the ACA prohibits a health insurance issuer or non-grandfathered group health plan from discriminating with respect to plan participation or coverage against any healthcare provider who is acting within the scope of that provider’s license or certification under applicable state law.  Note that this does not mean that a plan or carrier must contract with a particular provider, nor does it govern provider reimbursement rates, which may be subject to quality, performance, or market standards and considerations.

The April 29 FAQ clarifies that the Departments will not, at least in the near future, issue regulations implementing this rule and that plans and issuers should use a good faith, reasonable interpretation of the law.   

Coverage for Individuals Participating in Approved Clinical Trials

For plan or policy years beginning in 2014, the ACA prohibits non-grandfathered individual and group health plans from: (1) denying a qualified participant coverage for an approved clinical trial with respect to the treatment of cancer or another life-threatening disease or condition; (2) denying (or limiting/conditioning) coverage for routine patient costs for items and services furnished in connection with participation in the trial; and (3) discriminating against such participant due to the individual’s participation in the trial.

Generally, a qualified participant is one who is eligible to participate in an approved clinical trial according to the trial protocol with respect to the treatment of cancer or another life-threatening disease or condition; and either: (1) the referring physician is an in-network provider and has concluded that the individual’s participation in such trial would be appropriate; or (2) the participant provides medical and scientific information establishing that the individual’s participation in such trial would be appropriate.

Similar to the provider nondiscrimination rule, the Departments do not expect to issue implementing regulations in the near future.  Until further guidance is issued, group health plans and health insurance carriers are expected to implement these requirements using a good faith, reasonable interpretation of the law.

Next Steps

Employers, administrators and insurers who are beginning now to work on their SBCs for the 2014 plan year should review and use the new template, or consider whether the “cover letter” approach contained in the FAQ is advisable and available to them.  Employers should discuss the impact of this recent guidance with their legal counsel or other trusted advisor

Affordable Care Act (ACA) Update: HHS “Partially” Delays Implementation of SHOP Exchanges

Note: This is from ADP’s Eye on Washington Series, which focuses on legislative changes and clarifications per the Affordable Care Act.  Click here to check out the Eye on Washington Series, and register to receive the newsletter: www.adp.com/regulatorynews.

Disclosure: I work for ADP.  This information is purely educational, and based on Gov’t Regulation.

Eye On Washington: Health Care Reform

Updated: April 9, 2013

Affordable Care Act (ACA) Update: HHS “Partially” Delays Implementation of SHOP Exchanges

On March 11, 2013, the U.S. Department of Health and Human Services (HHS) issued a proposed rule that delays a portion of the Small Business Health Options Program, also known as the SHOP Exchange. Under the Affordable Care Act (ACA), states are required to establish health insurance Exchanges by January 1, 2014 to assist both individuals and small employers with purchasing health insurance.  States have the option of establishing their own health insurance Exchange, partnering with the federal government to run an Exchange, or opting out. If a state declines to establish an Exchange, the ACA requires the federal government to run the Exchange for the residents of that state.

According to the Henry J. Kaiser Family Foundation, as of April 1, 2013, a total of 26 states have indicated that they will not establish a state Exchange or a joint state-federal “partnership” Exchange, and will default to the federal Exchange. HHS’s proposed rule delays until 2015 the ability of a small employer that purchases insurance coverage through the federal SHOP Exchange to choose multiple health plans to offer its employees (the so-called “employee choice model”). Until 2015, the federal SHOP Exchange will, instead, assist small employers in choosing a single qualified health plan to offer their employees. (For these purposes, a “small employer” is defined as an employer that employed, on average, 100 or fewer employees on business days during the prior calendar year. Until 2016, states may reduce the 100 employee limit to 50 employees.)

State-operated SHOP Exchanges may, but are not required to, apply the same restrictions. This proposed rule is intended to provide the government with additional time to prepare for an employee choice model. It is important to note that the delay of the employee choice model in the federal SHOP Exchange does not delay application of the ACA’s Employer Shared Responsibility provisions, which are generally effective January 1, 2014. It also does not delay the requirement that a small employer obtain coverage through the SHOP Exchange in order to be eligible to receive the small business healthcare tax credit for taxable years beginning on or after January 1, 2014.

No action is required by small employers at this time – they will still be able to participate in a SHOP Exchange in 2014. However, employers that purchase health insurance through the federal SHOP Exchange will be limited to choosing one qualified health plan for their employees until 2015. The federal government expects that small employers will have the ability to choose multiple qualified health plans through the federal SHOP Exchange beginning in 2015.

Affordable Care Act (ACA) Update: Affordability Safe Harbor Methods

Note: This is from ADP’s Eye on Washington Series, which focuses on legislative changes and clarifications per the Affordable Care Act.  Click here to check out the Eye on Washington Series, and register to receive the newsletter: www.adp.com/regulatorynews.

Disclosure: I work for ADP.  This information is purely educational, and based on Gov’t Regulation.

Eye On Washington: Health Care Reform

Updated: March 19, 2013

Affordable Care Act (ACA) Update: Affordability Safe Harbor Methods

As discussed in a recent Eye on Washington, the Internal Revenue Service (IRS) published a Notice of Proposed Rulemaking entitled “Shared Responsibility for Employers Regarding Health Coverage” on January 2, 2013. This Eye on Washington is the third in a series dedicated to highlighting the most relevant provisions that employers should know in preparation for the Employer Shared Responsibility elements of the Affordable Care Act (ACA).

Shared Responsibility applies to large employers with an average of at least 50 full-time employees, taking into account full-time equivalent employees (FTEs) employed during the preceding calendar year.

The proposed regulations modify a previously proposed safe harbor test, and introduce two new safe harbor measures, for determining affordability.  Employees are eligible for premium tax credits to help purchase coverage for themselves in a public Exchange if employer-sponsored coverage is not offered, or does not meet certain affordability or minimum value requirements. Large employers may be assessed a Shared Responsibility penalty by the IRS if employees are awarded such premium tax credits through a public Exchange (aka Marketplace).  Although employees qualify for premium tax credits based on household income, because household income is not known to the employer, these safe harbor measures have been proposed so that employers can determine whether employer-sponsored coverage qualifies as affordable.

In some cases, employees may qualify for premium tax credits because coverage offered by the employer is unaffordable based on household income; yet for the same employee, the employer may meet one of the affordability safe harbor measures described below, and consequently would not be liable for a Shared Responsibility payment.

Beginning in 2014, it will be important for employers that are subject to the ACA Shared Responsibility provisions to 1) determine whether employer-sponsored health coverage qualifies as “affordable” under the ACA under one or more of the affordability safe harbor tests, and 2) keep appropriate records of the results.

W-2 Safe Harbor Test Modified

The W-2 affordability safe harbor proposed in Notice 2011-73 is retained in modified form.  This test determines affordability based on whether an employee’s premium contribution for the lowest-cost, self-only coverage that provides minimum value exceeds 9.5% of the employee’s  wages as reported on Form W-2 Box 1 for the calendar year.

The proposed regulations did not provide for any “add backs” to Box 1 wages – for example, for 401(k) or cafeteria plan deductions that are not included in Box 1.  Thus, the safe harbor will be applied based on the employee’s unadjusted Form W-2 Box 1 amount.  In practice, this could mean that employees earning the same amount with the same healthcare premiums could have different results under this test depending on the amount of their respective pretax deductions, such as 401(k) or other retirement plan contributions and Section 125 (cafeteria plan) elections.

Adjustment for Employees Who Were Not Full Time for the Entire Year

For employees who are not full time for an entire calendar year, wages must be adjusted to reflect the period when the employee was offered coverage. In this case, Box 1 wage amounts should be adjusted by multiplying the Box 1 wages by a fraction, which is the number of calendar months during which coverage was offered, over the number of calendar months the individual was employed during the calendar year. That wage amount is compared to the employee premium for the months coverage was offered to determine if the premium exceeds 9.5% of wages during the period coverage was offered. (If coverage was offered or the individual was employed for at least one day during the calendar month, the entire calendar month is counted for purposes of this calculation.)

To qualify for this safe harbor, the employee’s required premium contribution must remain a consistent amount or percentage of all Form W-2 wages during the calendar year (or the portion of each plan year during the calendar year, for plans with non-calendar year plan years) but may be subject to a dollar limit set by the employer. An employer can apply this safe harbor at the end of the calendar year or prospectively to set the employee contribution so that the contribution does not exceed 9.5%.

Example: Employee A is employed by a large employer from May 15 through December 31, 2015. The employer offers coverage to Employee A from August 1, 2015 through December 31, 2015. The employee contribution for self-only coverage is $100 per calendar month, or $500 for Employee A’s period of employment. For 2015, Employee A’s Form W-2 Box 1 wages with respect to employment with X are $15,000. 

To apply the affordability safe harbor, the Form W-2 Box 1 wages are multiplied by 5/8 (5 calendar months of coverage offered over 8 months of employment during the calendar year). Affordability is determined by comparing the adjusted W-2 wages ($9,375, or $15,000 x 5/8) to the employee contribution for the period for which coverage was offered ($500).  Because $500 is less than 9.5% of $9,375, the coverage is affordable for 2015 ($500 is 5.33% of $9,375).

New Affordability Safe Harbor Tests

Rate of Pay Safe Harbor – The proposed regulations provide for an additional affordability safe harbor based on an employee’s rate of pay as of the first day of the coverage period (generally the first day of the plan year). 

For an hourly employee, who is eligible to participate in the health plan as of the beginning of the plan year, the employee’s required contribution for the lowest-cost, self-only coverage that provides minimum value cannot exceed 9.5% of the employee’s hourly rate of pay as of the first day of the coverage period multiplied by 130 hours.

For a salaried employee, who is eligible to participate in the health plan as of the beginning of the plan year, the employee’s required contribution for the lowest-cost, self-only coverage that provides minimum value cannot exceed 9.5% of the employee’s monthly salary amount. (For this purpose, an employer can use any reasonable method for converting payroll periods to a monthly salary.)

An employer can use this safe harbor only if the employer did not reduce an employee’s pay during the year, including by transferring the employee to another employer within the same controlled group.

Example: Employee B is employed for the full year of 2015 with an employer that offers minimum essential coverage that provides minimum value. The employee contribution for self-only coverage is $85 per calendar month. Employee B is paid $7.25 per hour for the entire year.

The employer may multiply 130 hours of service by $7.25 per hour and compare the result ($942.50) to the employee contribution per month ($85). Because $85 is less than 9.5% of Employee B’s assumed income, the coverage offered is treated as affordable for 2015 ($85 is 9.01% of $942.50).

Federal Poverty Line (FPL) Safe Harbor – The proposed regulations added a third affordability safe harbor based on the Federal Poverty Line (FPL). (Individuals below the FPL will generally qualify for Medicaid.) For coverage to be affordable, the employee’s required contribution for the lowest-cost, self-only coverage that provides minimum value cannot exceed 9.5% of the FPL for the applicable calendar year, divided by 12. Employers can use the most recently published FPL as of the first day of the plan year and must use the FPL applicable to the State in which the employee is employed.

Example: Employee C is treated as a full-time employee for the entire calendar year 2015. Employee C is regularly credited with 35 hours of service per week but is credited with only 20 hours of service during the month of March, 2015 and only 15 hours of service during the month of August, 2015. Assume that the Federal Poverty Line for 2015 for an individual is $11,170. The employer sets the annual employee contribution for employee single-only coverage for each month in 2015 as an amount equal to 9.5% multiplied by $11,170, which is $1,061.15, and then divides by 12 for a monthly premium of $88.43.

Regardless of Employee C’s actual wages for any month, including March and August, when Employee C has lower wages because of significantly lower hours of service, the coverage under the plan is treated as affordable.

What’s Next in the Shared Responsibility Series?

Employers that are subject to the Shared Responsibility provisions will have several new administrative responsibilities, whether or not they offer qualifying health coverage. A future edition of the Eye on Washington Shared Responsibility series will focus on new employer reporting obligations. Regulations as to the new health coverage reporting requirements that will be effective in 2014 are expected to be released soon.

To Collect or Not-To Collect: Thoughts on Cash Tips and the Affordable Care Act

Should Restaurant Owners Collect All Cash Tips?

Does the Affordable Care Act change your opinion?

One provision of the Affordable Care Act that most employers seem to understand by now, is that “Qualified Benefits” must be “Affordable.”

As I write this, an employee’s portion of benefit premiums must not exceed 9.5% of gross earnings, anything over 9.5% is considered “unaffordable,” and the employer could pay a penalty for not providing affordable insurance.

Explaining the intricacies of the ACA are for a different post, some of which you can find in my previous posts (click on the “ACA – Healthcare Bill” to the right under Categories to find them).

This is an example I’d like to run by you, and see what your thoughts are:

Lets say that Bill is a Server at Generic-Fancy-Restaurant

fancy waiterNow lets assume that Wages, Credit Card Tips and a Small Amount of Claimed Cash Tips equal $50,000 a year in Reported Earnings on the Bill’s W2.

With $50,000 in income, 9.5% of that equals $4,750

And lets say the Total Cost of Benefits for an Employee at Generic-Fancy-Restaurant is $30,000 a year

the Restaurant pays 80% of that, or $24,000 a year, that leaves $6,000 for Bill the Server to pay.

Right now Bill only has to pay $4,750 or his Benefits are considered Unaffordable, and if that is the case, his employer may face penalties.

What if the Restaurant collected all cash tips every night?

They would run those tips through their payroll system so everyone’s total earnings are accounted for, and accurately reported on their W2.

By collecting all Cash Tips the employer proves that Bill makes $70,000 a year

Bill’s portion of Premiums is $6,000, and his new $70,000 in claimed-earnings recalculate so that 9.5% of his earnings is now $6,650

The employer’s benefit option is now qualified as affordable

But at what cost?  Here are a few more things to consider…

10 Possible Consequences of the ACA:

  • Bill’s ability to take home cash every night is eliminated
  • his ability to under claim earnings is eliminated because all tips will be claimed
  • his take home pay will go down because he will be paying more taxes
  • The Employer must now manage the tip collection and re-payment process
  • is this a good things because people can no longer evade their tax burden?
  • the government could potentially receive additional income and payroll tax
  • will the Bill’s of the world need 2nd Jobs to cover the loss of cash earnings
  • Will restaurants collectively not offer benefits and pay the per-full-time-employee penalty because offering benefits, collecting tips, etc. is just too much to manage
  • Will restaurants not collect tips and risk their benefits being labeled as “unaffordable,” so they do not risk losing their best servers, bartenders, etc.
  • Could some restaurants add gratuity to all tabs, regardless of size and value, and eliminate the subjectivity of tips and all hidden income potential?

It will be interesting to see how this plays out.

Affordable Care Act (ACA) Update: Which Employers Are Subject to the Shared Responsibility Provisions?

Note: This is from ADP’s Eye on Washington Series, which focuses on legislative changes and clarifications per the Affordable Care Act.  Click here to check out the Eye on Washington Series, and register to receive the newsletter: www.adp.com/regulatorynews.

Disclosure: I work for ADP.  This information is purely educational, and based on Gov’t Regulation.

Eye On Washington: Health Care Reform

Updated: February 28, 2013

Affordable Care Act (ACA) Update: Which Employers Are Subject to the Shared Responsibility Provisions?

As discussed in a recent Eye on Washington, the Internal Revenue Service (IRS) published a Notice of Proposed Rulemaking entitled “Shared Responsibility for Employers Regarding Health Coverage” on January 2, 20131, which set forth many important elements concerning the determination of full-time employee status under the Affordable Care Act. This Eye on Washington is the second in a series, which serves to highlight the most relevant provisions that employers should know in preparation for the Shared Responsibility elements of the ACA.

One of the first questions that employers must ask is whether they are an “applicable large employer,” and therefore subject to the Shared Responsibility provisions, which is an annual determination. Generally, Shared Responsibility applies to large employers with an average of at least 50 full-time employees [also taking into account full-time equivalent employees (FTEs)] employed on business days during the preceding calendar year.

The ACA provides that a “full-time employee” is an employee who is employed, on average, for at least 30 hours of service per week in any month. The number of FTEs for a given month is determined by calculating the aggregate number of hours of service (up to 120 hours of credited service per employee) for all employees (including seasonal workers) who had less than 30 hours of credited service per week in a month, and dividing the total hours of service by 120. For example, if employees who were not full-time have an aggregate of 1,260 hours of service for a calendar month, there would be 10.5 FTEs for that month. To determine whether an employer is subject to Shared Responsibility requirements, the monthly totals of full-time employees and FTEs are combined and divided by twelve. If the result is 50 or more, the employer is subject to Shared Responsibility. (Fractions are disregarded in this calculation; e.g., 49.9 FTEs for the preceding calendar year would be rounded down to 49.)

FTEs are only relevant for determining which employers are subject to Shared Responsibility. Any actual Shared Responsibility penalties will be based on the number of full-time employees only — not full-time equivalents.

1 http://www.gpo.gov/fdsys/pkg/FR-2013-01-02/pdf/2012-31269.pdf

“Controlled Groups” and Related Employers

The proposed regulation clarifies the treatment of related employers (“controlled groups”). The 50-employee threshold applies on a “controlled group” basis, which generally means that companies with 80% or more common ownership or control — or that are otherwise treated as a single employer under Internal Revenue Code section 414(b), (c), (m), or (o) — are treated as a single employer, and combined together for purposes of determining whether they employ at least 50 full-time employees, including FTEs. If the combined total meets the threshold, then each member of the controlled group is subject to the Shared Responsibility provisions, even if the individual member companies employ fewer than 50 full-time employees, including FTEs.

All employees of a controlled group are combined in determining whether the employer is an applicable large employer (has 50 or more full-time employees, including FTEs) and is, therefore, subject to Shared Responsibility requirements. However, Shared Responsibility penalties under Section 4980H are assessed on a member-by-member basis and related entities can make different decisions as to coverage offered, whether to provide coverage or pay penalties, and in establishing measurement and stability periods.

Example: For 2014, Parent A has 25 full-time employees, including FTEs. Subsidiary B has 25 full-time employees, including FTEs. Both entities are combined to determine that they meet the 50 full-time employee and FTE threshold for Section 4980H. Subsidiary B may offer qualified affordable health coverage to full-time employees, while Parent A does not. Parent A would be subject to a penalty, which is generally calculated as $2,000 times the total number of full-time employees of Parent A, minus the first 30.

However, the 30-employee reduction, when calculating Shared Responsibility payments, applies to the entire controlled group, so that the reduction must be allocated ratably among members of the controlled group based on each member’s population of full-time employees.

In the example above, Parent A would be assessed an annual penalty equal to $2,000 times 10 full-time employees (25 minus 15, the proportionate share of the 30-employee reduction).

If an employer has more than 30 employer-members, with some or all of the members receiving a ratable allocation of a fraction of one full-time employee, the proposed regulation provides that each member’s share of the 30-employee reduction will be rounded up to one full-time employee (which may result in an overall reduction to all members of the employer of more than 30 employees).

Each employer within a controlled group will be liable for (and assessed) Shared Responsibility payments separately.

New Employers

The proposed regulation provides that a new employer — not in existence during an entire preceding calendar year — is an applicable large employer for the current calendar year if it is reasonably expected to employ an average of at least 50 full-time employees (taking into account FTEs) on business days during the current calendar year and it actually employs at least 50 full-time employees (taking into account FTEs) during the calendar year.

Services Performed Outside the United States

The proposed regulation clarifies that “hours of service” do not include hours worked outside the United States, regardless of employees’ residency or citizenship status. Employers should exclude hours of service that constitute foreign-source income in determining whether the employer is subject to the Shared Responsibility provisions; as well as determining an employee’s full-time status, and in calculating any Shared Responsibility penalty. However, all hours of service for which an individual receives U.S.-source income are hours of service for purposes of Section 4980H.

What’s Next in the Shared Responsibility Series?

Employers that are subject to the Shared Responsibility provisions will have several new administrative responsibilities, whether or not they offer qualifying health coverage. The next installment of the Eye on Washington Shared Responsibility series will explain new “safe harbor” measures available to employers to determine whether health coverage offered to employees qualifies as “affordable” under the ACA, and will clarify who must be offered coverage to avoid a Shared Responsibility penalty. Additionally, regulations remain pending as to the new health coverage reporting requirements that will be effective in 2014. A future Eye on Washington will focus on new employer reporting obligations.

Affordable Care Act (ACA) Update: Employer “Shared Responsibility” Rules

Note: This is from ADP’s Eye on Washington Series, which focuses on legislative changes and clarifications per the Affordable Care Act.  Click here to check out the Eye on Washington Series, and register to receive the newsletter: www.adp.com/regulatorynews.

Disclosure: I work for ADP.  This information is purely educational, and based on Gov’t Regulation.

Eye On Washington: Health Care Reform

Updated: January 24, 2013

Affordable Care Act (ACA) Update: Employer Shared Responsibility Rules

The “Shared Responsibility” requirements included in the ACA collectively establish new administrative and recordkeeping requirements that will apply to large employers, and potential IRS assessments that will apply if such employers do not offer qualifying health coverage to all full-time employees, beginning in 2014, and their dependents, beginning in 2015.

On December 28, 2012, the IRS released proposed rules regarding the ACA Shared Responsibility provisions which affect large employers (generally those with 50 or more full-time equivalent employees).

These proposed rules address a broad array of issues that employers will need to understand in order to prepare for implementation of the ACA Shared Responsibility provisions in 2014. Many previously unknown details are provided or clarified; each of which deserves a thorough explanation. A dedicated Eye on Washington series, over the coming weeks, will explore these critical rules and their impact on employers.

How the ACA Shared Responsibility Provisions Will Apply to “Controlled Groups” and Related Organizations

The proposed regulations clarify that related employers may be required to be considered a single employer in determining whether an employer meets the 50-FTE employee threshold and is therefore subject to Shared Responsibility requirements; and, if so, how the Shared Responsibility penalty is calculated.

Full-time Employee Determination

Employers may be liable for new “Shared Responsibility” penalties based on the number of workers who qualify as full-time employees under the ACA. The proposed regulations modify prior rules and provide new alternatives for determining which employees qualify as full-time for Shared Responsibility purposes, such as:

  • How employers may use payroll periods rather than months as “measurement periods”
  • The types of unpaid leave that will require special calculations in this determination
  • Special rules for teachers and other employees of educational organizations
  • Special rules for certain other industries and employment circumstances
  • How to treat employees that terminate employment and are rehired, or resume service after an absence

Changes to Affordability Safe Harbor Tests

Employers may remain liable for penalties even if they offer health coverage to all full-time workers; for example, if employer-sponsored coverage does not meet affordability, minimum value and other requirements. The proposed regulations modify a prior safe harbor threshold for determining affordability, and add new alternative tests that employers should understand:

  • Changes to the Form W-2 Affordability Safe Harbor Tests
  • Rate of Pay Safe Harbor
  • Federal Poverty Line (FPL) Safe Harbor

Other Key Elements Covered

  • Clarification of the meaning of “dependents” who must be offered coverage in order to avoid a Shared Responsibility penalty
  • Key thresholds to meet the requirement of offering coverage to “substantially all” full-time employees
  • Transition relief for non-calendar year plans

Impact on Employers

As these and related regulations emerge, it is increasingly clear that employers will have significant new calculation, recordkeeping and reporting challenges with the Affordable Care Act. Look for subsequent Eye on Washington Shared Responsibility editions for details on these and other critical components of the Affordable Care Act that employers will need to understand over the coming months. For a link to the proposed rules, see: http://www.gpo.gov/fdsys/pkg/FR-2013-01-02/pdf/2012-31269.pdf

For IRS Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act, see:
http://www.irs.gov/uac/Newsroom/Questions-and-Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act

Reliance
Comments were requested on the regulations by March 18, and a public hearing has been scheduled for April 23, 2013. Final regulations are expected; however, employers can rely on the proposed regulations. Final regulations will be effective no earlier than the date they are published and, to the extent they are more restrictive than the proposed regulations, the final regulations will not be effective retroactively. Employers will be allowed time to comply with the final regulations.

20 Portions of the Affordable Care Act that ALL Employers Need to Understand, and Have a Plan to Manage

The Affordable Care Act, regardless of your opinion of the Bill, has unleashed a wave of administrative responsibilities on employers.  More importantly, for most companies, their traditional methods of managing benefit-administration will be insufficient. (click HERE to access the whole bill via healthcare.gov)

Listed below are 20 portions of the ACA which impact employers; it is not the only 20, but it is the biggest and most immediate portions of the bill you must prepare for now.  Beneath each section of the bill, I have posed a rhetorical question for you consider, or I have made a statement per essential tools/functionality you will need to meet the new requirement.

If you are an employer, or an administrator for a company, as you read this list, ask yourself these 3 Questions:

  • Are we ready to take on these new responsibilities with our existing administrative staff?
  • If I am asking my broker (or other outsider) to help me administer the ACA, how will they access my system of record: my payroll, my HRIS, and my Time & Attendance system to properly administer these sections?
  • Are we as an organization prepared to assume the liability of correctly executing these laws?
  1. Sec. 1001 – Employers cannot limit coverage based on the wages or salaries of full-time employees.
    1. you must be able to easily cross-report payroll and benefit data
  2. Sec. 1103 – You must be proficient in a new administrative tool so you can get answers to your questions, and your employee questions, per the ACA.
    1. you must have the time available in your benefit administrator’s day to take on a new tool and look up all answers for employees
  3. Sec. 1312 – You must understand “Consumer Choice.”
    1. Do you feel confident in your ability as an employer to answer employee questions; this includes the time it takes to get the answer and the responsibility of providing the correct answer?  Plus you must maintain proficiency in this system
  4. Sec .1333 – Provision Relating to Offering of Plans in Multiple States.
    1. Is your existing Benefit Administrator capable of taking on the responsibility for multiple state plans, the uniqueness of each states laws, and the difference in your requirements to administer the plans
  5. Sec. 1343 – Health Plans and Health Insurers with an employee group which is below the average “actuarial risk” of all employees in the state, will pay an additional charge to offset groups with an above average “actuarial risk” rating.
    1. Have you planned for this potential pass-through cost, how will you report on this to budget for the expense?
  6. Sec. 1411 – Here is a look at how eligibility is determined.
    1. This carries the possibility of a significant increase in your administrative burden as employees go through multiple “eligibility changes,” including the need to cross-report HR-demographic data with Benefit Coverage
  7. Sec.1412 – Premium Tax Credits and Cost Sharing Reductions
    1. As Cost Sharing Reductions and Tax Credits are charged or applied to the issuer of the health plan, how will you facilitate communication between the State, your Broker, the Carriers and your Employees?  How will this communication be formalized, tracked and reported?
  8. Sec.1511 – Employees must automatically be enrolled in Benefits by the Employer, unless the employee “opts out” of coverage.
    1. This, again, is your responsibility, not a Broker’s.  How will you plan for the increase in administrative work to enroll every employee in coverage unless they “opt out?”  How will you track “opt outs,” how will you communicate this employee decision to the State, your Broker and the Carriers?
  9. Sec.1513 – This section speaks to your penalty for not offering Health Coverage
    1. How will you manage this cost, and manage the administration of communicating the decision to the State?  If your competitors offer Health Coverage, how will you compete in the War for Talent when recruiting the best possible employees?
    2. click HERE to see a flowchart from Kaiser explaining the Employer Penalty
  10. Sec.1513 – This section speaks to special rules per an Employee’s eligibility.
    1. This will require you to cross report Time & Attendance Information with Benefit Information to determine employee eligibility based on hours worked, days worked a year, plus you will need to be able to forecast eligibility based on scheduling to financially budget for employee participation.  If you rely on a broker to handle this, how will they be able to reference the “look back period” to determine hours worked, and how will they access scheduling to help budget your costs?
  11. Sec.1514 – Any employer that is required to comply with the Health Bill must report Health Insurance Coverage information to the State, at an interval which is yet to be determined.  Every time you produce this report, you must communicate with the employee that the report was produced and sent.
    1. How will you manage this significant increase in documented communication with the employee?  If the report calls for Demographic Data, Hours Worked Data, Benefit Election Data and Payroll Data, how will you cross-report all of this information?  Have you allotted the time required to add this administrative burden to your existing staff?
  12. Sec.1557 – This section provides specific language guarding against discriminatory practices per Administration of the Health Care Law as defined in the Civil Rights Act of 1964.  It also expands upon the definition of discriminatory to include employee status, wages, etc.
    1. If an employee challenges your administration of Health Care as a discriminatory action, how will you report on all payroll, HR, Benefit and Time & Labor Data across your entire employee population to produce your supporting documentation?  If a Broker is responsible for Benefit Administration, how will they support your efforts in collecting information to challenge such a claim?
  13. Sec.4207 – This section defines clear rights for nursing mothers.
    1. Is your company’s Policies & Procedures, and the facility, complaint with this provision?
  14. Sec.4302 – This section allows for the State to conduct an analysis of all employees and benefit related data to conduct quality-analysis of the impact of the legislation.
    1. Again, as explained above, do you have a robust cross-departmental reporting capability to sufficiently meet the requirements of this provision?  Do you have the time needed to respond to these surveys?
  15. Sec.4304 – This section is similar to Sec.4302 above which allows a Director from the government to “conduct a national work site health policies and programs survey.”
    1. Do you have the time available, per your Administrators responsibilities, to add this additional burden to their work load?
  16. Sec.9001 – Cadillac Plans – this section speak to the penalties an employee will incur for Health Plans in excess if fixed dollar amounts
    1. Have you planned for the increased cost of the penalty?  These plans also have specific requirements for how they are administered, how they are reported, and how the plans are communicated to employees.  Have you planned to educate you Administrators on the specifics of Cadillac Plans as well allotted the time needed to administer and report on them?
  17. Sec.9002 – W2 reporting.  This section provides specific guidance per reporting Benefit Expenses on an employee’s W2.
    1. Do you have a payroll system which automatically inserts your benefit data in the W2?  If you are relying on a Broker to administer your benefits, how will they access your payroll information and properly process your Quarterly Tax Filing and your W2s?
  18. Sec.9006 – Different Health Care options now have specific language dictating how these plans are to be administered.
    1. Are you prepared to have your Administrator correctly manage HAS, FSA, CDHP, as well as Public and Private Exchange Options?  Who takes these calls?  Mercer estimates that employee’s questions around Open Enrollment alone will increase 50%, and that doesn’t take into account Life Change Events and Status Changes.  Are you staffed to handle this increase work load?
  19. Sec.9007 – Are you even aware of the changes to how proceeds, property, etc. are classified and reported as income on an employee statement?
  20. Sec.9012 – this Section speaks to the elimination of Deductions for Expenses allocable to Medicare Part D.
    1. As the bill continues to evolve, and as changes to statutory deductions are made, are you prepared to stay on top of all changes and effectively implement those changes to your system of record?

To see the history of the bill via Wikipedia, click HERE