Good morning.Today’s webinar on PPACA 2013 Complex Issues & Advanced Topics I will feature Michael Gomes, Senior Vice President of BenefitMall.Mr. Gomes brings more than 30 years of experience in planning, developing, and executing national sales initiatives, including expertise in the area of Government Relations and Legislative Affairs.He joined BenefitMall almost 15 years ago, and has been accountable for managing all of their more than 60 offices nationwide. Mr. Gomes’s career has included a number of senior executive roles for health care carriers as well as the head of the Life and health Divisions for the New Jersey Department of Insurance.Over the past three years since the inception of PPACA, he has led numerous training programs, public speaking engagements, and court testimony associated with health care reform and implementation of public exchanges.
Welcome everyone. My name is Michael Gomes, Senior Vice President of BenefitMall. Headquartered in Dallas, Texas, BenefitMall is the fastest growing provider of integrated payroll and employee benefit products and services. The company offers thousands of healthcare plans from more than 125 leading insurance carriers. These plans are sold through 20,000 independent registered brokers in the US, producing more than $1 billion in annual insurance premiums. We are the largest Employee Benefits General Agency in the nation as well as the 2nd largest privately held payroll company.Today’s webcast, “PPACA 2013 Complex Issues & Advanced Topics II” will be the second of a two part series covering various complex issues and advanced topics related to PPACA. These presentations are being created to provide useful information to our valued distribution partners and their clientswho we are proud to provide our portfolio of benefits and payroll products.
Adding to our last months webinar where we began our discussion around the concept of the “pay or play” provision, today we are going to focus on 3 specific topics:Applicability of the Employer Mandate.Controlled Group Rules, andDetermining Affordability and Minimum Value.
Our first topic today is the applicability of the employer mandate.Beginning on January 1, 2014, applicable large employers must offer at least affordable, minimum value coverage to full-time employees (and their dependents) or potentially face tax penalties.This is commonly referred to the “pay or play” provision.This provision to applicable large employers with 50 or more full time employees and their equivalents.On the next slide, we are going to focus on the four stops that must be followed to determine applicable large employer status.
READ EACH STEP:Full-time employees are employees (including seasonal employees) who provide an average of 30 hours of service per week.If the average monthly number of full-time employees plus full-time equivalent employees for the preceding calendar year is 50 or more, then the employer is subject to the requirements of the employer mandate.Therefore, an employer that does not employ any full-time employees but employs 100 half-time employees would be subject to the employer mandate.
One of the more confusing components of the provision is around seasonal employees – especially those that are employed for no more than 120 days (or four months) during a calendar year. It is important to note that the four calendar months do NOT need to be consecutive.Until further guidance is issued, employers may use a reasonable, good faith interpretation of a seasonal worker, but the IRS emphasizes that the category of seasonal worker is not limited to agricultural or retail workers.
Our second topic today is a discussion of controlled group rules.
To figure out whether an employer is an applicable large employer and subject to the employer mandate, all employees of companies within the same controlled group must be aggregated.However, for purposes of determining liability for, and the amount of, an assessable payment, each member of a controlled group is evaluated separately.To determine common ownership, the Affordable Care Act uses the controlled group rules set forth in section 414(b) and 414(c) of the Internal Revenue Code. There are three types of controlled group relationships: (1) parent-subsidiary, (2) brother-sister, and (3) a combination of parent-subsidiary and brother-sister.
The parent-subsidiary controlled group rule states that when one or more chains of corporations are connected through stock ownership with a common parent corporation, and READ SUB BULLETS . . . . Lets see a real application of how this may look in the following example:In this example, Corporation A is the common parent of a parent-subsidiary group consisting of Corporations A, B, and C.Corporation D is not a member of the group because Corporation A’s ownership is less than 80%.Lets adjust the assumptions using the same facts as above except Corporation C also owns 80% of the profits interest in Partnership E. In this new example:Corporation A is the common parent of a parent-subsidiary group consisting of Corporations A, B, and C, as well as Partnership E.Corporation D is not a member of the group because Corporation A’s ownership is less than 80%.
The next set of rules apply to what are called “Brother-Sister” controlled groups. READ SLIDE . . . . IN our next example, let’s assume that:The threshold requirement of two or more corporations is met and there are five or fewer common owners.Next we must determine whether there is the requisite (1) controlling interest, and (2) effective control.To do that, lets look at the chart on the next slide . . .
First, we have look at the issue of controlling interest:We review the combined ownership totals of the common owners.The common owners must own more than an 80% interest in all members of the controlled group. In this example, the requirement is met because the shareholders own 100% of each corporation.Then, we look at the issue of effective control. We review the interest each shareholder has in each company compared to the other shareholders.Although the four shareholders together own more than 80% of the stock of each corporation, they do not own more than 50% of the stock of each corporation. In this example, we must take into account only the identical ownership in each corporation as demonstrated above.Accordingly, the effective control requirement is not met because the total identical ownership is only 40%.
The last example of Controlled Groups are “combined controlled groups” which is a combination of parent-subsidiary and brother-sister groups.A combined control group is (READ FIRST 3 BULLETS) . . . . In our example, Partnership Y, Corporation Z, and Corporation X are each members of the combined group of trades or businesses under common control because:Partnership Y, Corporation Z, and Corporation X are each members of either a parent-subsidiary or a brother-sister group, andY partnership is:The common parent of the parent-subsidiary consisting of Corporation Z and Corporation X, andA member of a brother-sister group consisting of Partnership Y and Corporation Z.
Our last topic today is a discussion of determining affordability and minimum value.
READ SLIDEThe regulations clarify that an employer is subject to penalty on the basis of obtaining coverage through an exchange and receiving a federal premium subsidy because the employer did not offer coverage if it offers coverage to less than 95 percent (or, if greater, five) of its full-time employees. The employer mandate also requires employers to offer coverage to dependents of employees, defined as children up to age 26. Spouses are not included in the definition of dependent. For 2014, there will be a transition relief period with regards to dependent coverage. We discussed this in our last webinar and have blogged extensively on this as well.In 2014, as long as an employer takes steps to fulfill the requirement to offer coverage to dependents of full-time employees, it will not be liable for a penalty solely based on not offering coverage to dependents.Under both “prongs” of the employer mandate, the penalties are triggered by a full-time employee receiving a premium tax credit subsidy to purchase health coverage through an exchange.
The issue of affordability, like many other provisions, is complicated and subject to additional regulations regardless if an individual believes the coverage s affordable or not based on their own circumstances. Under the legislation:Coverage will be deemed affordable if the employee’s required contribution for self-only coverage does not exceed 9.5% of the employee’s household income for the taxable year. However, most employers will not have access to the employees household income so the rule created 3 safe harbor provisions:Form W-2 Safe Harbor – Coverage meets the affordability standard if the employee premium share does not exceed 9.5 percent of the employee’s salary reported in Box 1 of Form W-2. This determination is made at the end of the calendar year on an employee-by-employee basis. The federal government also provides guidance on how to apply this safe harbor in the case of an employee who was not a full-time employee for the entire year. Rate of Pay Safe Harbor – Coverage meets the affordability standard if the employee premium share does not exceed the total of the hourly rate of pay multiplied by 130 hours per month.Federal Poverty Line Safe Harbor – Coverage meets the affordability standard if employee premium share does not exceed 9.5 percent of the federal poverty line for any employee. The calculation can be done using the most recently published federal poverty guidelines as of the first day of the plan year.A second test is that of Minimum Value. Under this test:The Internal Revenue Service and Department of Health and Human Services have released a minimum value calculator.Employers are able to input various information into the calculator, which will determine whether the plan covers at least 60% of the total allowed cost of benefits that are expected to be incurred under the plan.
Employees and individuals have an opportunity to shop for coverage to gain access to the subsidies as outlined in the legislation.These exchanges are marketplaces where individuals and small businesses with up to 100 employees can shop around for plans that best suit their needs and budget.States can choose to include larger employers in the future. However, because of adverse selection issues large employer access to exchanges is in question.A recent regulatory proposal provided transitional relief that would allow SHOP exchanges to only offer one health insurance option until 2015.As originally proposed, the SHOP exchanges were required to offer employers the option of offering employees all QHPs at a level of coverage chosen by the employer.Except for this transitional relief, all exchanges must be ready for enrollment by October 1, 2013 and fully operational by January 1, 2014.Health insurance exchanges come in three types:Fully state-basedStates planning to operate a fully state-based exchange were required to submit a blueprint to the Department of Health and Human Services in December 2012.17 states plus the District of Columbia plan to operate their own state-based exchanges.Federally-facilitated26 states have defaulted to a federally-facilitated exchange. State-federal hybridStates planning to enter a partnership had until February 15, 2013, to submit a blueprint.7 states plan to run state-federal partnership exchanges.States not ready to operate a fully state-based exchange may gradually transition into one over the upcoming years.There will be state-by-state variations in levels of exchange regulation.Some states will be more hands-off and allow an open market.Others may have stricter standards and only allow certain plans to get on its exchange.Moreover, states may determine the role of agents and brokers in their exchanges.Enrollment in qualified health plansAssisting qualified individuals in applying for financial assistance SubsidiesTo make coverage more affordable to the individual, the federal government will offer subsidies to low- and moderate-income individuals.As discussed earlier, individuals whose employer-sponsored coverage is unaffordable or does not provide minimum value may also be eligible for subsidies.Consumers will be able to apply for these subsidies, as well as Medicaid and CHIP, through the exchanges.
Lastly is the topic is automatic enrollment.The Department of Labor has delayed rulemaking on automatic enrollment and in Technical Release 2012-01, the department stated its intent to complete this rulemaking by 2014. Once the rules are released for comment, we will communicate via a legislative alert and blog postings.
PPACA Complex Issues and Advance Topics II
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PART 2 • April 20, 2013Michael Gomes, Senior Vice PresidentGovernment Relations
Applicability of the Employer Mandate• Pay or play• Applies to “applicable large employers” with 50 or more full-timeemployees (including full-time equivalent employees)• To determine “applicable large employer” status, an employer mustfollow the four steps on the next slide
STEP 1: Count the number of “full-time” employees (including seasonalemployees) who work on average 30 hours per week per month.STEP 2: Calculate the number of full-time equivalent employees byaggregating the number of hours worked by all non-full-time employees (includingseasonal employees) and dividing by 120.STEP 3: Add the number of “full-time” employees and full-time equivalentscalculated in steps (1) and (2) for each of the 12 months in the precedingcalendar year, andSTEP 4: Add the monthly totals and divide by 12. If the average exceeds 50full-time equivalents, the employer must also determine whether the seasonalemployee exception applies.
Seasonal Employee ExemptionThe seasonal employee exemption exists for employers whose workforceexceeds 50 full-time employees for no more than 120 days or four calendarmonths during a calendar year. That is if the employees in excess of 50employed during that period were seasonal employees. The four calendarmonths do not need to be consecutive.
Controlled Group Rules• Aggregation of employees when multiple employers are commonly owned• Sections 414(b) and 414(c) of the Internal Revenue Code• Types of controlled group relationships:o Parent-subsidiaryo Brother-sistero Combination
Parent-Subsidiary Controlled Groups• One or more chains of corporations are connected through stock ownership with acommon parent corporation, ando 80% of the stock of each corporation (except the common parent) is owned by one ormore corporations in the group, ando The parent corporation owns 80% of at least one other corporationEXAMPLE:• Corporation A owns:o 90% of Corporation B’s stock,o 80% of Corporation C’s stock, ando 65% of Corporation D’s stock• Unrelated persons own the remaining percentages of the stock not owned byCorporation A
• A group of two or more corporations, in which five or fewer common ownersown directly or indirectly a controlling interest of each group and haveeffective controlo Controlling interest: 80% or more of the stock of each corporation, but only ifsuch common owners own stock in each corporationo Effective control: More than 50% of the stock of each corporation, but only to theextent such stock ownership is identical with respect to such corporationBrother-Sister Controlled Groups
• Three or more organizations that are organized as follows:o Each organization is a member of either a parent-subsidiary or brother-sister group, ando At least one corporation is the common parent of a parent-subsidiary, and isalso a member of a brother-sister groupEXAMPLE:• A is an individual owning:o 80% in Partnership Y, ando 90% in Corporation Z• Partnership Y owns 85% of Corporation XCombined Controlled Groups
• An applicable large employer may be subject to a tax/penalty if anemployee obtains coverage through a state health benefits exchange andreceives a federal premium subsidy because:o The employer does not offer its full-time employees (and their dependents) anopportunity to enroll in coverage, oro The coverage is unaffordable or does not provide the requisite level of minimumvalueDetermining Affordability and Minimum Value
Affordability• 9.5% of employee’s household income:o Form W-2 safe harboro Rate of pay safe harboro Federal poverty line safe harborMinimum Value Calculator• Released by IRS and HHS• Determines if plan covers at least 60% of total allowed costsDetermining Affordability and Minimum Value
• (Fully state-based) 17 states plus DC• (Federally-facilitated) 26 states• (State-federal hybrid) 7 states• Varying levels of regulation• Subsidieso Low- and moderate-income consumerso Coverage is unaffordable or does notprovide minimum valueo Exchanges will determine eligibility forpremium tax creditsExchangesSource: National Conference of State Legislatures, FederalHealth Reform: State Legislative Tracking Database;Politico.com; Commonwealth Fund analysis.
• The Department of Labor has delayedrulemaking on automatic enrollment.• In Technical Release 2012-01, thedepartment stated its intent to complete thisrulemaking by 2014.Automatic Enrollment
For additional Health Care Reformupdates, please monitor:• www.benefitmall.com• www.healthcareexchange.com• www.compupay.com