This presentation discusses issues that employers who will be subject to the Affordable Care Act must prepare for, including: 1. Determining which employees must be offered coverage 2. Analyzing payroll to determine the amount that can be charged to employees 3. Creating a record to respond to potential IRS assessments of excise tax

1. Affordable Care Act
Preparing for the 2015
Tax Provisions
Ted Ginsburg, CPA, JD
February 28, 2014

2. TODAY’S DISCUSSION
• What we won‟t discuss today
• The status of the ACA today, as it affects employers
• What employers need to think about
 Should I offer insurance at all?
 How much can I charge?
 Which employees should receive insurance?
• Other issues relating to welfare plans
• The real due date
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3. WHAT WE WON’T
DISCUSS TODAY
• Are you subject to ACA?
• Provisions that don‟t take effect until after 2015 (for
example, the “Cadillac tax”)
• Provisions that an employer can‟t do anything about
(for example, the operation of the exchanges)
• Provisions that aren‟t based on the employeremployee relationship (for example, the additional
tax on medical device manufacturers)
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4. STATUS OF THE
ACA TODAY
• February 10, 2014 postponement in effective
dates/coverage levels for employer mandate to
provide health insurance coverage:
 If employer has less than 100 FTEs in 2014, employer mandate is
effective on January 1, 2016; if a fiscal year plan was in effect on
December 27, 2012, first day of the 2016 plan year
 If employer has 100 or more FTEs in 2014, employer mandate
provides that coverage must be offered to 70% of full time
employee workforce on January 1, 2015 (prior rule was 95%); if a
fiscal year plan was in effect on December 27, 2012, first day of
the 2015 plan year
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5. STATUS OF THE
ACA TODAY
• February 10, 2014 final regulations covered a wide
range of issues, primarily relating to the calculation
of FTEs and the determination of the class of full
time employees who should be offered healthcare
 More regulations are coming on certain topics (such as coverage for
employees of temporary help services)
 IRS is still designing compliance formats
• Legislative/administrative updates
 There are numerous bills before Congress that would modify portions
of the ACA; none appear to be generating sufficient support
 Postponement of employer mandate until after mid-term
Congressional elections may result in delay of voting on amendments
until the new Congress is seated
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6. THE TWO-PART TEST
If an employer is subject to ACA, potential liability for the
greater of the following two tests might apply:
• Part One: Do I offer health coverage to at
least 95% (70% for 2015) of my full-time
employees?
• Part Two: If I do offer health coverage to
my full time employees—
 Is that coverage affordable, and
 Does that coverage provide minimum coverage to
the full-time employees and their dependents?
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7. THE TWO-PART TEST
• Two different, non-deductible,
excise taxes exist depending on
which part is not satisfied
 If both parts are not satisfied,
employer pays only the greater of
the two excise taxes
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8. WHAT HAPPENS?
What happens if I fail to comply with
Part One of the two-part test?
•
If an employer:
 Fails to offer 95% (70% for 2015) of its full-time
employees (or dependents) coverage; and,
 One employee receives a subsidy (either a tax
credit or cost-sharing reduction) through the
exchange/marketplace for purchasing health
insurance; then,
 The employer might be liable for a non-deductible
$2,000 penalty per year for the total number of fulltime employees (reduced by 30)
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9. IMPORTANT
COMPLIANCE DEFINITIONS
A full-time employee for this purpose is
an employee who is employed an
average of at least 30 hours of work per
week or 130 hours of work per month
•
•
•
•
Full-time equivalent, also known as FTEs,
employees (discussed in the large employer
test) are not relevant to this discussion
Look at this monthly to determine
classification and when coverage should
begin.
Can use current year expectations or prior
year results.
Special rules apply to educational
institutions, breaks in employment, new
hires and employees who work variable
schedules.
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10. COUNTING EMPLOYEES
Safe harbors exist that allow an
employer to determine which full-time
employees must be offered coverage
•
•
Ongoing employees—look back at a „standard
measurement period‟ of between 3-12 months;
effective for next 6-12 months („stability period‟);
can use a three month „administrative period‟ to
make determinations
Seasonal employees—can exclude if employer
can say that the customary annual employment
period for that type of a worker is six months
or less
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11. IMPORTANT
COMPLIANCE DEFINITIONS
A subsidy occurs when an employee acquires
insurance through the Exchange/Marketplace
and qualifies for a reduction in his/her cost for
insurance coverage because of his/her financial
situation.
•
Subsidies are of two types:
 An employee is eligible for a cost reduction subsidy if the employee‟s
household income is less than 250% of the federal poverty line (2014 maximum
income of $29,125 for a single individual and $59,625 for a family of four).
 An employee is eligible for a premium tax credit subsidy if the employee‟s
household income ranges between 100% and 400% of the federal poverty line
(2013 maximum income of $46,680 for single individuals, $95,400 for a family
of four); an employee who is eligible for Medicaid can not receive the subsidy.
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12. WHAT HAPPENS?
What happens if I fail to comply with
Part Two of the two-part test?
•
If an employer offers 95% (70% for 2015) of
its full-time employees (and dependents)
coverage but the coverage is either:


•
Unaffordable
Does not provide minimum coverage
The employer will be liable for a nondeductible penalty of $3,000 per year, times
the number of full-time employees who obtain
insurance through the exchange/marketplace
and receive a subsidy
The employer is only labile for the greater of the Part One
or Part Two excise tax.
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13. IMPORTANT
COMPLIANCE DEFINITIONS
How do we determine if the coverage is „affordable” for full
time employees? Three-part “Safe Harbor” test—allows
employer to choose how affordability is determined.
• Form W-2: An employee‟s monthly contribution for self-only coverage is
affordable if it does not exceed 9.5% of their W-2 wages for that
calendar year.
• Rate of pay: An employee‟s monthly contribution for self-only coverage
is affordable if it is no more than 9.5% of their monthly wages (hourly
rate of pay 130 hours, or, for salaried employees, their monthly
salary figure).
• Federal Poverty Line (FPL): An employee‟s monthly contribution for
self-only coverage is affordable if it does not exceed 9.5% of the FPL
for a single individual ($29,125) or $ 230 per month.
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14. DEFINITION OF
MINIMUM COVERAGE
Minimum coverage means the
insurance plan must cover 60% of the
essential health benefits
•
•
The essential health benefits include
emergency services, ambulatory services,
hospitalization, lab services, prescription drug
coverage and maternity and newborn care,
among others
Among the items not included are vision,
dental, disability, and long-term care
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15. HOW IS THE EXCISE
TAX ASSESSED
A multi-step process
•
•
•
•
Employer informs the IRS that it is providing
coverage
An employee who acquires coverage through
an exchange informs the IRS of family income
and the employer‟s identifying information
IRS receives data from the exchanges and
assesses the excise tax, sending the employer
a bill
Employer has a limited amount of time (2
months) to contest the assessment
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16. WHAT EMPLOYERS
SHOULD THINK ABOUT
Determine if you should “play or pay”
•
•
•
Review payroll records to determine which employees must
be offered coverage; assure that 70% of full-time
employees are offered coverage in 2015 and 95% in 2016
Determine if the plan provides “minimum essential
coverage”, by working with your insurance broker to obtain
the costs for bringing the program up to that level
Compare the amount that is charged to employees for
coverage to the ACA affordability guidelines; if it is too
expensive, determine the appropriate cost
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17. WHAT EMPLOYERS
SHOULD THINK ABOUT
Determine if you should “play or pay”
•
Compare the potential cost of “pay” vs. “play”
 “Pay”—cost of not offering health benefits or offering
inadequate/ expensive benefits increased by excise taxes
‒ Human Resource issues—retention and recruiting
‒ Do you increase pay so that employees can go to the
Exchange/Marketplace?
‒ Comparing Exchange/Marketplace offerings to what is currently
offered
 “Play”—cost of offering more expensive benefits and/or
charging employees less than currently imposed
‒ Redesigning plan terms to minimize cost—human resource issues
‒ Do you reduce pay to make up for increased employer cost of
insurance?
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18. WHAT EMPLOYERS
SHOULD THINK ABOUT
“Pay or Play” decision tree
•
Pay
 First test:
‒ Determine the number of full-time employees
‒ Take that number, subtract 30, and multiply by $2,000; that is
your maximum exposure to excise tax if you offer no insurance
 Second test:
‒ Determine the number of full-time employees whose income is
below the subsidy line $29,250 for 2014
‒ Multiply that number by $3,000; that is your maximum exposure
to the excise tax if you offer unaffordable or sub-minimum
coverage insurance
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19. WHAT EMPLOYERS
SHOULD THINK ABOUT
“Pay or Play” decision tree
•
Pay
 Analysis:
‒ Compare larger of result of first or second test to the after-tax cost
to the employer of providing current coverage.
‒ If first test is significantly larger than second test, consider the cost
of offering some coverage to all full time employees (to no longer
be subject to the first test) and add the cost of the second test—if
the total is less than the first test result, then perhaps insurance
should be offered
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20. WHAT EMPLOYERS
SHOULD THINK ABOUT
“Pay or Play” decision tree
•
Play
 First step: “Minimum Coverage”. Work with your insurance broker to select plans
that meet the ACA criteria
‒ Obtain coverage quotes
 Second step: “Affordable”
‒ Select a Safe Harbor to use for determining employee pay
‒ Using the pay number, divide it by the number of payrolls and multiply it by 9.5%—that
becomes the maximum amount that can be charged to an employee for individual coverage
‒ Subtract that number from the premium assessed by the insurer to determine the
employer‟s share
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21. WHAT EMPLOYERS
SHOULD THINK ABOUT
“Pay or Play” decision tree
•
Play
 Third step: Participants. Select 70% of employees to be covered, compute the after
tax employer cost
 Analysis:
‒ Compare the answer to the third step to the answer to the second test. If the second test is
larger, „guestimate” the number of people who may go to the exchange and recompute the
second test
‒ If the third step is smaller, provide insurance; if it is larger take other factors
into consideration
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22. WHAT EMPLOYERS
SHOULD THINK ABOUT
•
Minimizing potential ACA excise taxes if we “play”
 Offering coverage that isn‟t affordable or adequate may be
preferable to not offering coverage
 Use of the 30% (for 2015)/5% rule
 Convincing employees who might be eligible for a subsidy not
to go to the exchange/marketplace
•
Minimizing program costs if we “play”
 Self-insurance may be an option for smaller employers—but
be concerned about non-discrimination rules
 Use the proper „Safe Harbor‟ compensation to set employee
contribution rates
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23. WHAT EMPLOYERS
SHOULD THINK ABOUT
Recordkeeping systems
•
Systems needed to collect and monitor data
 Large employer status is an annual determination, which
must be monitored monthly
 Which employees are eligible for insurance is an annual
determination
 The amount that employees can be charged for insurance is
an annual determination
•
Building your file if you “play”
 How can you quickly prove to the IRS that you are meeting
the two tests
 How can you quickly prove to the IRS that you offered
benefits to a sufficient number of employees
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24. OTHER ISSUES
Program documentation
• Many employers have no or inadequate plan
documents relating to their welfare plans
 Insurance policies do not satisfy ERISA requirements as
summary plan descriptions
 Additional notices will be needed due to ACA
 Potential legal (participant) and regulatory (IRS, DOL)
exposure
• Use of “wrap plans” can reduce the number of
annual IRS Form 5500 filings that are required
 A “wrap plan” is different from a summary plan description
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25. OTHER ISSUES
DOL increases scrutiny of welfare
plan compliance
•
DOL is increasing audit activity in the welfare plan area
 New audit guidelines include ACA compliance issues, which
includes documents, and detailed analyses of how coverage
was offered (differs from the IRS assessment initiative)
 Audit documentation requests give employers 10 days to
comply; rarely extended
 DOL investigate staff has significantly increased in size over
the last two years
 Over 70% of audits result in the plan sponsor paying some
type of penalty
•
This will only be heightened as ACA becomes effective
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26. WHEN IS THE
REAL DUE DATE
At least one month before open enrollment for
2015 for employers with over 100 FTEs
•
•
•
Even though benefits must be offered to only 70% of
employees (as opposed to 95% for 2016), benefits still
need to be offered
Do you have 100 FTEs
The big decisions—
 Who should you offer it to
 How much should you charge
 What programs should you offer
At least one month before open enrollment for 2016
for employers with between 50 and 100 FTEs
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27. QUESTIONS?
If you have any questions or need
additional information please contact:
Ted Ginsburg, CPA, JD
Principal
tginsburg@skodaminotti.com
(440) 449-6800
www.skodaminotti.com
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