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The Affordable Care Act - How to Plan for the Pay or Play Mandate
 

The Affordable Care Act - How to Plan for the Pay or Play Mandate

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    The Affordable Care Act - How to Plan for the Pay or Play Mandate The Affordable Care Act - How to Plan for the Pay or Play Mandate Presentation Transcript

    • Workplace Law SeriesWorkplace Law SeriesTheTheAffordable Care ActHow to Plan for theHow to Plan for thePay or Play Mandate
    • Workplace Law SeriesWorkplace Law SeriesTheTheAffordable Care ActHow to Plan for theDavid A. Whaley, Esq.Dinsmore & Shohl LLP513 977 8554How to Plan for thePay or Play Mandate513.977.8554david.whaley@dinsmore.comwww.linkedin.com/in/davidwhaley
    • About the PresenterAbout the PresenterDavid Whaley assists non profit private and public companies in all areasDavid Whaley assists non-profit, private and public companies in all areasof employee benefits‣ Design, implementation and compliance in providing tax qualified and non-qualified deferredcompensation arrangements (e.g. 409A compliance), health and welfare arrangements andp g ( g p ) gemployee fringe benefits.‣ Extensive experience in the area of Employee Stock Ownership Plans (ESOPs)‣ Member, Ohio/Kentucky Chapter of the ESOP Association; participates with both the OhioEmployee Ownership Center and with the Emerging Leaders Committee of the NationalEmployee Ownership Center and with the Emerging Leaders Committee of the NationalESOP Association.‣ Assists non-profit employers in drafting and administering qualified and non-qualified plansincluding 403(b), 457(b) and 457(f) plans; assisting professional employer organizations(PEOs) in offering employee benefit programs to their client organizations(PEOs) in offering employee benefit programs to their client organizations‣ Represents plan sponsors before the Department of Labor, the Internal Revenue Serviceand the Pension Benefit Guaranty Corporation in connection with audits of employeebenefit plans.
    • Affordable Care ActAffordable Care ActPlanning for Employer-Level “Pay or Play”Requirement – The Employer MandateRequirement The Employer Mandate
    • Planning for Employer-Level “Pay or Play” Requirement– The Employer Mandate– The Employer MandateBut First: Understand the Implicationsof the Individual Mandate
    • The Individual “Pay or Play” MandateThe Individual Pay or Play MandateEvery individual with household income >138% of thepoverty level mustE ll i l th t ff “ i i ti l ”‣ Enroll in a plan that offers “minimum essential coverage” or‣ Pay a penaltyThe Penalty:‣ 2014: 1% of household income>threshold or $95, whichever is more‣ 2015: 2% of household income>threshold or $325, whichever is more‣ 2016 and thereafter: 2.5% of household>threshold or $695, whicheveris more.‣ Total household penalty cannot exceed 3x the individual penalty.
    • Affordable Care ActAffordable Care ActNext: Understand the Dynamics of theNext: Understand the Dynamics of thePremium and Coinsurance Tax SubsidiesEligible Individuals Can Garner If and Only Ifg yThey Enroll in an Exchange Plan
    • The Individual “Pay or Play” MandateI di id l bj t t th l d t l li ibl fThe Individual Pay or Play MandateIndividuals subject to the pay or play mandate are also eligible for apremium tax credit they can use to pay for a qualified health plan theypurchase on the state health exchange (and may also be eligible forcost-sharing subsidies)cost-sharing subsidies)Eligibility:‣ Can’t be eligible for:‣ Medicare‣ Medicaid‣ A “qualified” and “affordable” employer-sponsored health plan (moreq p y p p (on that in a moment).‣ Household income must be between 100% and 400% of the federalpoverty level
    • The Premium Tax Credit For Eligible IndividualsWho Enroll in an Exchange PlanWho Enroll in an Exchange Plan2011-2014 100% of the Federal Poverty LevelBy Family Size1 2 3 42011 $10,890 $14,710 $18,530 $22,3502012 $11,065 $14,947 $18,828 $22,7102013 $11,243 $15,187 $19,131 $23,0752014 $11,425 $15,432 $19,439 $23,447 400% of FPL single (2014 projected) = $46,000 400% of FPL family (2014 projected) = $94,000
    • The Premium Tax Credit For Eligible Individuals Who Enrollin an Exchange Planin an Exchange PlanCredit Amount‣ The difference between the premium for the exchanges’ “benchmarkplan” and the taxpayer’s “expected contribution”plan and the taxpayer s expected contribution‣ Expected contribution: a % of taxpayer’s household income‣ Percentage increases as household income increases‣ Percentage increases as household income increases‣ 2% of household income → 100% of FPL‣ 9 5% of household income → 400% of FPL‣ 9.5% of household income → 400% of FPL‣ Benchmark plan: second lowest cost plan that can cover family at“silver” level
    • Individual Subsidy LevelsIndividual Subsidy LevelsIncome Level Income for Family of Four in 2014 Premium as a Percent of IncomeIncome Level Income for Family of Four in 2014 Premium as a Percent of IncomeUp to 133% FPL $31,244.41 2% of income133-150% FPL $31,224.41 - $35,170.50 3 – 4% of income150-200% FPL $35 170 50 - $46 894 00 4 – 6 3% of income150-200% FPL $35,170.50 - $46,894.00 4 – 6.3% of income200-250% FPL $46,894.00 - $58,617.50 6.3 – 8.05% of income250-300% FPL $58,617.50 - $70,341.00 8.05 – 9.5% of income300-400% FPL $70,341.00 - $93,788.00 9.5% of income$ , $ ,Income Level Actuarial Value100-150% FPL 94%100 150% FPL 94%150-200% FPL 87%200-250% FPL 73%250-400% FPL 70%
    • The Premium Tax Credit For Eligible Individuals Who Enrollin an Exchange PlanE l F il f F $50 000 H h ld Iin an Exchange PlanExample: Family of Four; $50,000 Household Income— Purchase Benchmark PlanI % f FPL 224%‣ Income as % of FPL 224%‣ Expected family contribution $3,570‣ Premium for benchmark plan $9,000$ $ $‣ Premium tax credit $5,430 ($9,000-$3,570)‣ Premium for plan family chose $9,000‣ Actual family contribution $3,570Examples are from IRS Fact Sheet, August 12, 2011,http://www.treasury.gov/press-center/Documents/36BFactSheet.PDF
    • The Premium Tax Credit For Eligible Individuals Who Enrollin an Exchange PlanE l F il f F $50 000 H h ld I P tin an Exchange PlanExample: Family of Four; $50,000 Household Income; Parents areBetween Age 55-64Affordable Care Act permits plans to base premiums on age (maximum spread – 3-1)Affordable Care Act permits plans to base premiums on age (maximum spread 3 1)‣ Income as % of FPL 224%‣ Expected family contribution $3,570p y $ ,‣ Premium for benchmark plan $14,000‣ Premium tax credit $10,430 ($14,000-$3,570)‣ Premium for plan family chose $14,000p y $ ,‣ Actual family contribution $ 3,570
    • Affordable Care ActAffordable Care ActWhich Employers Are Exposedto The Employer Mandate Penalties?p yAn “Applicable Large Employer”
    • Which Employers Are Exposed to The Employer MandatePenalties? An “Applicable Large Employer”An Employer is an “Applicable Large Employer” for a calendar year if thel l d t l t 50 “f ll ti l ” d i th diPenalties? An Applicable Large Employeremployer employed at least 50 “full-time employees” during the precedingcalendar year‣ “Full-time employees”: working 30 or more hours per week.IRS J 2 2013 P d R l ti IRS lt ti‣ IRS January 2, 2013 Proposed Regulations: IRS proposes an alternativemeasurement – 130 hours per month‣ Seasonal Exception. The number of full-time employees excludes thosefull time seasonal employees who work for less than 120 days duringfull-time seasonal employees who work for less than 120 days duringthe year.‣ If employer’s work force is > 50 full-time + full-time equivalent employees for120 days or less during a calendar year, and if the employees > 50 who werey g y , p yemployed for not more than 120 were seasonal employees, the employer isNOT an “applicable large employer”‣ IRS January 2, 2013 Proposed Regulations : Good faith interpretation of“ l k ” i itt d“seasonal worker” is permitted
    • Which Employers Are Exposed to The Employer MandatePenalties? An “Applicable Large Employer”Treatment of partners and sole proprietors:Penalties? An Applicable Large EmployerTreatment of partners and sole proprietors:‣ IRS January 2, 2013 Proposed Regulations: sole proprietors, partners ina partnership, and 2-percent S corporation shareholders (excludinghours of service as an employee of an S corporation) are notp y p )“employees” for purposes of §4980H, the employer mandate section ofthe Internal Revenue CodeAggregation Rules Apply‣ IRS January 2, 2013 Proposed Regulations: All employees of acontrolled group under §414(b) or (c), or an affiliated service groupd §414( ) t k i t t i d t i i h th thunder §414(m), are taken into account in determining whether themembers of the controlled group or affiliated service group togetherconstitute an applicable large employer.
    • Which Employers Are Exposed to The Employer MandatePenalties? An “Applicable Large Employer”CPenalties? An Applicable Large EmployerPart-Time Employees Count‣ But Only Determine If an Employer Constitutes an Applicable LargeEmployerTo convert part-time employees into the equivalent numberof full-time employees:F h th di id th t t l b f thl h k d b‣ For each month, divide the total number of monthly hours worked bythe part-time employees by 120. Add that to the number of full-timeemployees. If a monthly number includes a fraction, preserve thefraction. Add the monthly numbers of full-time employees and full-timeact o dd t e o t y u be s o u t e e p oyees a d u t eequivalent employees to produce an annual total; if the annual totalincludes a fraction, disregard the fraction.
    • Which Employers Are Exposed to The Employer MandatePenalties? An “Applicable Large Employer”Determining the Number of Hours An Employee WorkedPenalties? An Applicable Large Employerg p y‣ IRS January 2, 2013 Proposed Regulations:‣ The Proposed Regulations contain rules for determining the number of hours ofservice for both applicable large employer determinations and for the “look-back measurement method” that employers may use to determine exposure toback measurement method that employers may use to determine exposure tothe two “assessable payments” to which “applicable large employers” aresubject‣ Hourly employees: the only acceptable method is the actual hours method.y p y y p‣ Non-hourly employees: actual hours, or days-worked equivalency, or weeks-worked equivalency‣ The Proposed Regulations contain averaging methods for employment breakp g g g p yperiods for employees of educational institutions.‣ Proposed Regulations: Employees compensated on a commission basis,adjunct faculty, transportation employees, and analogous employmentpositions: reasonable good faith methodpositions: reasonable good faith method.
    • Affordable Care ActAffordable Care ActThe Two EmployerPay or Play Mandate Penaltiesy y
    • The Two Employer Pay or Play Mandate PenaltiesPenalty #1: Penalty on the applicable large employer thatThe Two Employer Pay or Play Mandate Penaltiesy y pp g p ydoes not offer group health benefit plan coverage to allof its full time employeesPenalty #2: Penalty on the applicable large employer thatoffers coverage – but the coverage is‣ Not affordable --The employee’s share of the premium > 9.5% ofhousehold incomeOR‣ The plan’s share of covered health benefit costs (the “actuarial value”)does not offer minimum value – it is less than 60%
    • The Two Employer Pay or Play Mandate PenaltiesApplicable Large Employers face these two different penalties only if atThe Two Employer Pay or Play Mandate Penaltiespp g p y p yleast one bona fide full time employee (> 30 hours per week) iseligible for the new premium tax credit‣ One of the two penalties is calculated by reference to the number ofbona fide full time employees – so, being able to identify who theyare will be important‣ IRS January 2, 2013 Proposed Regulations: For any calendary p g ymonth, an applicable large employer member [each entity that is amember of a controlled group which, in the aggregate, constitutes an“applicable larger employer] may be liable for an assessablet d §4980H( ) (f il t ff t f ll tipayment under §4980H(a) (failure to offer coverage to full-timeemployees) or under §4980H(b) (failure to offer affordable coveragethat provides minimum value), but cannot be liable under both§4980H(a) and §4980H(b) for the same calendar month§4980H(a) and §4980H(b) for the same calendar month.
    • Affordable Care ActAffordable Care ActThe Employer Mandate and Autop yEnrollment Apply to Bona Fide Full TimeEmployees: Identifying Who They AreEmployees: Identifying Who They Are(The 90-Day Limit on Waiting Periods Applies Not Only to FullTime Employees But Also to All Other Eligible Participants)Time Employees But Also to All Other Eligible Participants)
    • Determining Who is a Full-Time EmployeeIRS January 2 2013 Proposed Regulations: MeasurementDetermining Who is a Full Time EmployeeIRS January 2, 2013 Proposed Regulations: Measurement,Administrative and Stability Periods to Determine Status as a Full TimeEmployee for Purposes of the Employer Mandate‣ Basic Rules: Ongoing Employees:‣ Basic Rules: Ongoing Employees:‣ Standard measurement period: 3 months to 12 months. determinestatus during measurement period. That status then applies duringthe —‣ Subsequent stability period, regardless of employee’s # of hoursduring the stability period. At least 6 calendar months; no shorterthan measurement period.‣ Administrative period. Up to 90 days; overlaps prior stability period.(Example: 12 month measurement period begins on 10/15; stabilityperiod is the following calendar year; administrative period runs from10/15 to January 110/15 to January 1.
    • Determining Who is a Full-Time EmployeeDetermining Who is a Full Time EmployeeIRS January 2, 2013 Proposed Regulations: Measurement,Administrative and Stability Periods to Determine Status asa Full Time Employee for Purposes of the EmployerMandate‣ Basic Rules: New Employee Reasonably Expected to Work 30+ Hours‣ Basic Rules: New Employee Reasonably Expected to Work 30+ HoursPer Week as of Start Date and Not a Seasonal Employee :‣ Employer must offer coverage at or before the end of thisemployee’s initial three full calendar months of employmentemployee s initial three full calendar months of employment.
    • Determining Who is a Full-Time EmployeeIRS January 2, 2013 Proposed Regulations: Measurement, Administrative andStability Periods to Determine Status as a Full Time Employee for Purposes ofDetermining Who is a Full Time EmployeeStability Periods to Determine Status as a Full Time Employee for Purposes ofthe Employer Mandate‣ Basic Rules: New “Variable Hour Employee” or New “Seasonal Employee”‣ Definition: can’t determine as of start date whether employee is reasonably‣ Definition: can t determine as of start date whether employee is reasonablyexpected to work on average at least 30 hours per week over the initialmeasurement period‣ Example: new employee hired during holiday season – expected to work 30+hours during that season but not sure thereafterhours during that season but not sure thereafter‣ Special Rule for 2014 only for new employees who, although they will initiallyperform at least an average of 30 hours of service per week, are reasonablyexpected to be employed for a limited duration:‣ For 2014 only: employers can take into account take the likelihood of‣ For 2014, only: employers can take into account take the likelihood ofcontinued employment to determine whether a new employee is or is not avariable hour employee.‣ NB: the Proposed Regulations specifically decline to allow employers to taketurnover into account in determining whether a new employee is or is not aturnover into account in determining whether a new employee is or is not avariable hour employee:
    • Determining Who is a Full-Time EmployeeIRS January 2 2013 Proposed Regulations: MeasurementDetermining Who is a Full Time EmployeeIRS January 2, 2013 Proposed Regulations: Measurement,Administrative and Stability Periods to Determine Status as a Full TimeEmployee for Purposes of the Employer Mandate‣ Basic Rules: Initial Measurement and Administrative Periods for NewVariable Hour Employee and New Seasonal Employee‣ Initial measurement period: a period that begins on any date betweenthe employee’s start date and the first day of the first calendar monththe employee s start date and the first day of the first calendar monthfollowing the employee’s start date and is between three and 12 monthslong (at the election of the employer).‣ Initial administrative period: not longer than 90 daysInitial administrative period: not longer than 90 days‣ Initial measurement period plus initial administrative period can’t extendbeyond last day of first calendar month following first anniversary ofemployment start date
    • Determining Who is a Full-Time EmployeeIRS January 2 2013 Proposed Regulations: MeasurementDetermining Who is a Full Time EmployeeIRS January 2, 2013 Proposed Regulations: Measurement,Administrative and Stability Periods to Determine Status as a Full TimeEmployee for Purposes of the Employer MandateB i R l I iti l St bilit P i d f N V i bl H E l‣ Basic Rules: Initial Stability Period for New Variable Hour Employee‣ Initial Stability period: same as for similarly situated ongoing employee.‣ Perform on average 30 hours of service per week during the initialmeasurement period: stability period must be at least six consecutivep y pcalendar months but no shorter than the duration of the initialmeasurement period).‣ Fail to perform on average 30 hours of service per week during the initialmeasurement period: stability period during which this employee will notmeasurement period: stability period during which this employee will notbe treated as a full-time employee cannot be more than one monthlonger than the initial measurement period and cannot exceed theremainder of the standard measurement period + administrative periodin which the initial measurement period ends.in which the initial measurement period ends.
    • Determining Who is a Full-Time EmployeeIRS January 2, 2013 Proposed Regulations: Measurement,Determining Who is a Full Time Employeey p gAdministrative and Stability Periods to Determine Status as a Full TimeEmployee for Purposes of the Employer Mandate‣ Basic Rules: Subsequent Measurement and Stability Periods for New Variableq yHour Employee‣ When a new variable hour employee completes an entire standardmeasurement period, then the new variable hour employee must be tested forthat standard measurement period as an ongoing employee.that standard measurement period as an ongoing employee.‣ Result: New variable hour employee fails to qualify as a full-timeemployee during the initial measurement period but qualifies as a full-timeemployee during the overlapping (or immediately following) standardmeasurement period => employer must treat the variable hour employeemeasurement period => employer must treat the variable hour employeeas a full-time employee for the entire stability period that corresponds tothe standard measurement period (i.e., just like an ongoing employee) --and must do so even if that stability period starts before the end of thestability period associated with the employee’s initial measurement periodstability period associated with the employee s initial measurement period
    • Affordable Care ActAffordable Care ActRemember:The 90-Day Limit on Waiting Periodsy gApplies to All Eligible Participants
    • Remember: The 90-Day Limit on Waiting Periods Appliesto All Eligible ParticipantsIRS Notice 2012-59:to All Eligible ParticipantsIRS Notice 2012 59:‣ What is a “waiting period”? The period of time that must pass beforecoverage for an employee or dependent who is otherwise eligible to enrollunder the terms of the plan is effective.“Otherwise eligible to enroll”: the employee has met the plan’ssubstantive eligibility conditions, such as being in an eligible jobclassification.C diti f li ibilit th t t b d l l th f ti‣ Conditions for eligibility that are not based solely on the passage of timeare permitted (e.g., employee must work full time or work a specifiednumber of hours in a work period to earn coverage in an eligibility period.The condition must not be designed to avoid compliance with theThe condition must not be designed to avoid compliance with the90-day waiting period limitation.Eligibility conditions that are based solely on the lapse of a timeperiod are permissible for no more than 90 days.
    • Remember: The 90-Day Limit on Waiting Periods Appliesto All Eligible Participantsto All Eligible ParticipantsIRS Notice 2012-59:‣ An employer may use a measurement period permitted in Notice 2012-58(and now incorporated in IRS January 2 2013 Proposed Regulations) to(and now incorporated in IRS January 2, 2013 Proposed Regulations) todetermine when an employee satisfies the plan’s full time eligibilitycondition and will not violate the 90 day limit on waiting periods ifcoverage is made effective no later than 13 months from the employeesd l if h l d i h fi d f l dstart date, plus if the employees start date is not the first day of a calendarmonth, the time remaining until the first day of the next calendar month.‣ Result:‣ Result:If the measurement period for a variable hour employee is 12 months,the administrative period can’t exceed one month...
    • Remember: The 90-Day Limit on Waiting Periods Appliesto All Eligible Participantsto All Eligible ParticipantsIRS Notice 2012-59:‣ If a plan wishes to cover part-time employees, but only after they completeIf a plan wishes to cover part time employees, but only after they completea specified number of hours of service, how many hours of service maythe plan require without violating the 90 day limit on waiting periods?‣ Notice 2012-59: a cumulative hours of service condition with respect toppart-time employees is permissible as long as that condition does notrequire more than 1,200 hours.
    • Affordable Care ActAffordable Care ActPlanning for the Employer-LevelPlanning for the Employer Level“Pay or Play” Requirement Penalty#1 - Offer Coverage to all Bona Fide FullTime Employees
    • Planning for the Employer-Level “Pay or Play” RequirementPenalty #1 - Offer Coverage to all 30+ Hour Full TimeEmployeesWhat Triggers This First Penalty?EmployeesWhat Triggers This First Penalty?‣ Do not offer group health benefit plan coverage to bona fide full-timeemployees (and their dependents) AND at least one of those full timeemployees enrolls in an exchange plan AND receives the premium taxemployees enrolls in an exchange plan AND receives the premium taxsubsidy (i.e., family income < 400% of FPL)‣ NB: Must offer coverage not only to full-time employees but also to theirdependentsWho is a “Dependent”?‣ IRS January 2, 2013 Proposed Regulations: “dependent” means “child,”as defined in IRC §152(f)(1) who is under age 26as defined in IRC §152(f)(1) who is under age 26‣ That definition includes adopted children and stepchildren—they do nothave to qualify as tax dependents.‣ Spousal carve-outs ARE permittedSpousal carve outs ARE permitted
    • Planning for the Employer-Level “Pay or Play” RequirementPenalty #1 - Offer Coverage to all 30+ Hour Full TimeEmployeesEmployeesHow Much is This First Penalty?How Much is This First Penalty?‣ In 2014, the annual penalty is equal to: the total number of full-timeemployees minus 30, multiplied by $2,000.‣ After 2014, the penalty payment amount will be indexed by a premiumadjustment percentage for the calendar year.
    • Planning Options to Deal With Penalty#1 - Fail to Offer Group Health Plan CoverageH M Additi l E l M t th E l#1 Fail to Offer Group Health Plan CoverageHow Many Additional Employees Must the EmployerOffer Coverage?‣ IRS January 2, 2013 Prop. Reg. §54.4980H-5(a)Creates an ExceptionIRS January 2, 2013 Prop. Reg. §54.4980H 5(a)Creates an Exception‣ Employer will be treated as offering coverage to its full-timeemployees (and their dependents) for a calendar month if, for thatmonth, it offers coverage to all but five percent or, if greater, five of its, g p , g ,full-time employees (provided that an employee is treated as havingbeen offered coverage only if the employer also offered coverage tothat employees dependents).”‣ Applies to a failure to offer coverage to the specified number orpercentage of employees (and their dependents), regardless ofwhether the failure to offer was inadvertent.
    • Planning Options to Deal With Penalty#1 - Fail to Offer Group Health Plan Coverage#1 Fail to Offer Group Health Plan CoverageHow Many Additional Employees Must the EmployerOffer Coverage?‣ Does the employer currently exclude employees who constitute bona fideemployees under the ACA’s employer pay or play mandate provisions (30hours per week or 130 hours per month)?‣ If the answer is yes, how big is the affected population?‣ Industries likely to be affected: food service, retail, construction‣ Staffing services: who will treat the long service staffer as the‣ Staffing services: who will treat the long-service staffer as theemployee?
    • Planning for the Employer-Level “Pay or Play” RequirementPenalty #1 - Offer Coverage to all 30+ Hour Full TimeEmployeesEmployeesWhat Triggers This Penalty?‣ Do not offer group health benefit plan coverage to all bona fide full-timeemployees AND at least one of those full time employees enrolls in anemployees AND at least one of those full time employees enrolls in anexchange plan AND receives the premium tax subsidy (i.e., family income< 400% of FPL)How Much is This First Penalty?How Much is This First Penalty?‣ In 2014, the annual penalty is equal to: the total number of full-timeemployees minus 30, multiplied by $2,000.‣ After 2014, the penalty payment amount will be indexed by a premiumadjustment percentage for the calendar year.
    • Planning Options to Deal With Penalty#1 - Fail to Offer Group Health Plan CoverageHow Many Additional Employees Must the Employer#1 Fail to Offer Group Health Plan CoverageHow Many Additional Employees Must the EmployerOffer Coverage?‣ Does the employer currently exclude employees who constitute bona fideemployees under the ACA’s employer pay or play mandate provisionsemployees under the ACAs employer pay or play mandate provisions‣ Current full-time employee definition(30 hours per week or 130 hoursper month)‣ Waiting Period cannot exceed 90 days‣ Waiting Period cannot exceed 90 days‣ If the answer is yes, how big is the affected population?‣ Industries likely to be affected: food service, retail, construction‣ Staffing services: who will treat the long-service staffer as the‣ Staffing services: who will treat the long-service staffer as theemployee?
    • Affordable Care ActAffordable Care ActPlanning for the Employer-LevelPlanning for the Employer Level“Pay or Play” Requirement Penalty#2- Fail to Offer a Plan That is Affordableand Which Offers Minimum Value
    • Planning for the Employer-Level “Pay or Play” Requirement Penalty#2 - Fail to Offer a Plan That is Affordable and Which Offers Minimum Value#2 Fail to Offer a Plan That is Affordable and Which Offers Minimum ValueWhat Does it Take to Fall Prey to This Penalty?‣ Employee’s share of the premium is not affordable: at least 9.5% ofhousehold incomehousehold incomeOR‣ plan’s share of covered health benefit costs (plan-paid benefits ÷ sum ofplan-paid benefits plus copayments/deductibles) does not offer minimumplan paid benefits plus copayments/deductibles) does not offer minimumvalue – it is less than 60%AND‣ At least one bona fide full time employee enrolls in an exchange planAt least one bona fide full time employee enrolls in an exchange planAND receives the premium tax subsidy
    • Planning for the Employer-Level “Pay or Play” Requirement Penalty#2 - Fail to Offer a Plan That is Affordable and Which Offers Minimum Value#2 Fail to Offer a Plan That is Affordable and Which Offers Minimum ValueHow Much is This Penalty?I 2014 th l lt i l t‣ In 2014, the annual penalty is equal to:‣ the number of full-time employees who receive the tax subsidy whenenrolling in an exchange plan, multiplied by $3,000.But in any event not more than (total # of FTEs – 30) x $2,000‣ After 2014, the penalty payment amount will be indexed by a premiumadjustment percentage for the calendar year.
    • Affordable Care ActAffordable Care ActPlanning for the Employer-LevelPlanning for the Employer Level“Pay or Play” Requirement Penalty#2 - The “60%” Minimum Value Requirement
    • Planning for the Employer-Level “Pay or Play” Requirement Penalty#2 - The “60%” Minimum Value RequirementIRS N ti 2012 31 F ibl h i th t l#2 The 60% Minimum Value RequirementIRS Notice 2012-31: Four possible choices that employer-sponsored plans may use to determine actuarial value:‣ Choices #1 #2: Use a “Calculator.”‣ Input plan design features; calculator returns the plan’s actuarial value‣ The calculator will use standard populations and claims data.Employers will NOT use their own plans’ claims data.‣ NB: good for plans covering younger (or healthier) populations.Not so good for plans‣ Choice #3: Design-Based Safe Harbor ChecklistPlan design satisfies checklist features → plan deemed to provideminimum value‣ Choice #4: Actuarial Certification-Must Use Standard Population& Claims Data& Claims Data
    • Planning for the Employer-Level “Pay or Play” Requirement Penalty#2 - The “60%” Minimum Value Requirement#2 The 60% Minimum Value RequirementShould Employers Worry About Satisfying This Requirement?‣ Probably not:‣ 98 percent of individuals currently covered by employer-sponsored plansare enrolled in plans that have an actuarial value of at least 60 percentusing methods and assumptions similar to those described in Notice2012 31 *2012-31.*Actuarial Value and Employer-Sponsored Insurance, ASPE Research Brief,U S Department of Health and Human Services (November 2011)U.S. Department of Health and Human Services (November 2011)http://aspe.hhs.gov/health/reports/2011/AV-ESI/rb.shtml.
    • Planning for the Employer-Level “Pay or Play” Requirement Penalty#2 - The “60%” Minimum Value Requirement#2 The 60% Minimum Value RequirementEmployers Should Keep In Mind Typical Correlations AmongDeductibles, Actuarial Value and Premium Cost
    • Affordable Care ActAffordable Care ActPlanning for the Employer-LevelPlanning for the Employer Level“Pay or Play” Requirement Penalty#2 - The “9.5%” Premium AffordabilityRequirement
    • Planning for the Employer-Level “Pay or Play” Requirement Penalty#2 - The “9 5%” Premium Affordability Requirement#2 The 9.5% Premium Affordability RequirementThe Affordable Plan Requirement: Premium Must NotThe Affordable Plan Requirement: Premium Must NotExceed 9.5% of Household Income‣ Result: the safe harbor is not retrospective – no “lookback-stabilityperiod”period‣ To guarantee access to the safe harbor in its current form: must reviseplan to say that the employee’s premium obligation for the plan year willnot exceed 9.5% of W-2 wages
    • Planning for the Employer-Level “Pay or Play” Requirement Penalty#2 - The “9 5%” Premium Affordability Requirement#2 The 9.5% Premium Affordability RequirementThe Affordable Plan Requirement: Premium Must NotThe Affordable Plan Requirement: Premium Must NotExceed 9.5% of Household Income‣ IRS January 2, 2013 Proposed Regulations Create Three Safe Harbors‣ First Safe Harbor: Form W 2 Wage Safe Harbor‣ First Safe Harbor: Form W-2 Wage Safe Harbor.‣ At the end of the calendar year, determine whether 9.5% of the employee’sactual Form W-2 wages for the year was less than the employee’s cost of thelowest self-only coverage.‣ To guarantee compliance: structure plans to express the employee premiumobligation as a percentage of Form W-2 wages.‣ Box 1 wages must be used -- Preamble rejects requests to add back income-excluded §125, 401(k) and 403(b) deferrals.§ , ( ) ( )‣ Good news: the Proposed Regulations contain an adjustment to Form W-2wages if the employee was not a full-time employee for the entire calendaryear: can pro-rate W-2 wages to include a fraction equal to the fraction of theyear for which the employee was eligible for coverageyear for which the employee was eligible for coverage
    • Planning for the Employer-Level “Pay or Play” Requirement Penalty#2 - The “9 5%” Premium Affordability Requirement#2 The 9.5% Premium Affordability RequirementThe Affordable Plan Requirement: Premium Must Not Exceedq9.5% of Household Income‣ Second Safe Harbor: Rate of Pay Safe Harbor‣ (1) Take the hourly rate of pay for each hourly employee who is eligible to participate in(1) Take the hourly rate of pay for each hourly employee who is eligible to participate inthe health plan as of the beginning of the plan year, (2) multiply that rate by 130 hoursper month, and (3) determine affordability based on the resulting monthly wageamount.‣ Employees monthly contribution amount is affordable if it is equal to or lower than 9 5‣ Employee s monthly contribution amount is affordable if it is equal to or lower than 9.5percent of the computed monthly wages (i.e., the employees applicable hourly rate ofpay x 130 hours).‣ Salaried employees: monthly salary is used instead of hourly salary multiplied by 130.‣ Employer may use this safe harbor only if, with respect to the employees for whom theemployer applies the safe harbor, employer does not reduce the hourly wages of hourlyemployees or the monthly wages of salaried employees during the year.‣ Importance of this safe harbor: it fixes the amount of the employee’s obligation,Importance of this safe harbor: it fixes the amount of the employee s obligation,regardless of whether the employee works or is on an unpaid leave.
    • Planning for the Employer-Level “Pay or Play” Requirement Penalty#2 - The “9 5%” Premium Affordability Requirement#2 The 9.5% Premium Affordability RequirementThe Affordable Plan Requirement: Premium Must NotThe Affordable Plan Requirement: Premium Must NotExceed 9.5% of Household Income‣ Third Safe Harbor: Federal Poverty Line Safe Harbor‣ Employer provided coverage offered to an employee is affordable ifthe employees cost for coverage does not exceed 9.5 percent of theFPL for a single individual.‣ Remember: for households with families, the amount that isconsidered to be below the poverty line is higher, so using theamount for a single individual ensures that the employee contributionfor affordable coverage is minimizedfor affordable coverage is minimized.‣ Employers may use the most recently published poverty guidelinesas of the first day of the plan year of the applicable large employermembers health planmember s health plan.
    • Planning for the Employer-Level “Pay or Play” Requirement Penalty#2 - The “9 5%” Premium Affordability Requirement#2 The 9.5% Premium Affordability RequirementWhich Premium? Single? Or Family?Which Premium? Single? Or Family?‣ IRS January 2, 2013: use the lowest cost for self-only coverage‣ Employers like this‣ Plan satisfies affordability requirement – no penalty.‣ Employees with dependents must pay difference between (1)cost of family coverage and (2) 9.5% of household incomeN dit if l l t t t E h‣ No credit if employee elects to go to Exchange‣ NB: This rule appears in these Proposed Regulations’ definitions of thethree affordability safe harborsDoes it apply only if the employer elects to use one of the three safe‣ Does it apply only if the employer elects to use one of the three safeharbors?‣ How do health-contingency wellness program rewards/penaltiesaffect determination of the cost of coverage?affect determination of the cost of coverage?
    • Affordable Care ActAffordable Care ActPlanning for the Fully Insured PlanNondiscrimination Requirementq
    • Planning for the Fully InsuredPlan Nondiscrimination RequirementPlan Nondiscrimination Requirement§2716 of the Act (Incorporated in IRC §9815): Prohibits Discrimination in§2716 of the Act (Incorporated in IRC §9815): Prohibits Discrimination inEligibility or Benefits in Fully Insured Plans Using Rules “Similar” to Those thatAlready Apply to Self-Insured PlansOriginal Effective Date: Plan years beginning after September 23, 2010g y g g p ,Effective Date delayed until issuance of comprehensive guidance (IRS Notice2011-1)Highly compensated employee:Highly compensated employee:‣ Expansive definition, when compared to that used in retirement plans:‣ The five highest paid officers‣ A 10% or more shareholder‣ An individual who is among the highest paid 25% of all employees
    • Affordable Care ActAffordable Care ActEmployer Decision Points
    • Planning for the Employer-Level“Pay or Play” RequirementPay or Play RequirementEmployer Decision PointsEmployer Decision Points‣ Employ 50 or more full-time equivalents? If the answer is, yes:‣ Do you have more than 30 Bona Fide Full-Time Employees? If theianswer is, yes:‣ How many Bona Fide Full-Time Employees are not eligible under thePlan or are not eligible within 90-days of employment?‣ Do you charge more than 9.5% of W-2 Wages for Single Coveragefor a Bona Fide Full-Time Employee? If yes, for how many of suchpeople does the cost exceed 9.5% of W-2 Wages and by how muchdoes the cost exceed 9 5% of W 2 Wages?does the cost exceed 9.5% of W-2 Wages?These answers define the scope of the issue in redesigning yourprogram to comply with the “Pay or Play” Mandate
    • Affordable Care ActAffordable Care ActLimitations on Cost Sharing
    • Limitations on Cost SharingLimitations on Cost SharingDeductibles and Co-Insurance ≡ Cost Sharing‣ Where does this requirement appear in the Act? Act §1201, which adds§2707 to the PHSA and which incorporates the standards in Act§1302(c)(1) and (2)→ Incorporated into IRC §9815‣ Effective Date: Plan years beginning on or after January 1, 2014‣ Applies to non-grandfathered employer-sponsored plans and all plansoffered on the exchangesoffered on the exchanges
    • Limitations on Cost SharingLimitations on Cost SharingWhat are the limits?‣ Plans sponsored by employers who employ 100 or fewer employees (plansin the “small group market” (Act §1304):‣ Maximum aggregate cost-sharing obligation: HSA limits ($6 050‣ Maximum aggregate cost-sharing obligation: HSA limits ($6,050single/$12,100 family for 2012; $6,250 single/$12,500 family for2013)(Act §1302(c)(1))‣ Maximum deductible: $2,000 single/$4,000 family (Act §1302(c)(2))$ , g $ , y ( § ( )( ))‣ Plans sponsored by employers who employ 101 or more employees (plans inthe “large group market” (Act §1304):‣ Maximum aggregate cost-sharing obligation: HSA limits ($6 050‣ Maximum aggregate cost sharing obligation: HSA limits ($6,050single/$12,100 family for 2012; $6,250 single/$12,500 family for 2013)(Act §1302(c)(1))‣ Maximum deductible: no limit (Act §1302(c)(2) only applies to health( § ( )( ) y ppplans offered in the “small group market”)
    • Workplace Law SeriesWorkplace Law Series{Firstname/MI/Lastname}{Office/State}Questions?{first.last@dinsmore.com}