This document summarizes key issues related to employee benefits for healthcare employers, including an overview of health care reform requirements. It discusses the play or pay rules and employer reporting requirements under the Affordable Care Act, including details on determining full-time employees, calculating penalties, and required reporting information. It also briefly outlines other ACA topics like 90-day waiting periods, PCORI and reinsurance fees, nondiscrimination rules, and executive compensation audits.

1. Employee Benefits Issues for Healthcare Employers
Kevin Selzer
July 24, 2014

2. Overview
Topics
– Health care reform
• Play or pay: final rules
• Employer reporting: final rules
• 90-day waiting period: final rules
• Other health care reform updates• Other health care reform updates
– Executive compensation issues
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3. Terminology
• PPACA, ACA, HCR, Obamacare
• Play or pay, employer mandate, employer shared
responsibility
– ALE = applicable large employer
– FTE = full-time equivalents
– MEC = minimum essential coverageMEC minimum essential coverage
– MV = Minimum Value
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4. Health Care Reform
• 2010 – first wave of reform requirements
• 2014 –
– Individual mandate – began 1/1/2014
– Exchanges (including SHOP coverage)
– *delayed* Employer mandate (play or pay)
– *delayed* Employer reporting rules
• 2015 –
– Employer mandate (play or pay)
– Employer reporting rules
2018• 2018 –
– “Cadillac tax”
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5. Health Care Reform
Key point to remember about health care reform:
• Analyze benefits/laws independentlyy p y
– Grandfather status exempts plans from only certain parts of
health care reform
– Small employer for one law, does not necessarily mean small
employer for other law
– Compliance with one law, does not necessarily mean
compliance with other laws (e.g., waiting periods and play or
pay)
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6. Play or Pay Rules
Big Picture
If in any month an FTE goes to the exchange for healthIf in any month, an FTE goes to the exchange for health
coverage and receives a premium tax credit
=
penalty if ALE doesn’t offer certain coverage for that monthp y g
– Law only applies to ALEs
– Permitted penalty exceptions for certain months
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7. Play or Pay Rules
• Other ALE Rules
– Controlled group (affiliated employers) analysis
– Transition rule for first year ALEs
N lt f fi t th th if ff b A il 1• No penalty for first three months if offer coverage by April 1
– New employers
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8. Play or Pay Rules
• Play or Pay Timeline
– 2010: statute enacted
– January 2013: proposed regulations
J l 2013– July 2013: delay on penalty enforcement, reporting requirements
– February 2014: final regulations, additional transition guidance
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9. Play or Pay Rules
• When is it effective?
– 100 FTEs (including FTE equivalents) = January 1, 2015
50 t 99 FTE (i l di FTE i l t ) J 1 2016– 50 to 99 FTEs (including FTE equivalents) = January 1, 2016 (if
satisfy transition relief conditions)
– 49 or less FTEs (including FTE equivalents) = not an ALE, not
subject to law
• Who is an FTE and FTE Equivalent for ALE purposes?
FTE (30 h k 130 h i h)– FTE (30 hours a week or 130 hours in a month)
– FTE Equivalent (count all non-FTE hours/divide by 120)
ALE M th b th l i th
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• ALE - Month by month analysis, then average

10. Play or Pay Rules
“Sledgehammer” penalty - subsection (a) penalty
• If employer does not offer minimum essential coverage
to substantially all of its FTEs, and one FTE goes to they g
exchange for health coverage and receives premium
tax credit = penalty
– $166.67 per month for each FTE of employer (minus 30, 80
for 2015)for 2015)
– Employer does not offer any coverage (MEC)
– Employer offers coverage but not to enough FTEs
• 30% margin of error in 2015, 5% margin of error after 201530% margin of error in 2015, 5% margin of error after 2015
– Affordability, Minimum Value plan design does not matter for
this penalty
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11. Play or Pay Rules
“Tackhammer” penalty – subsection (b) penalty
• If employer does not offer coverage or offers coverage
which is either unaffordable or does not providep
minimum value, and an FTE goes to the exchange for
coverage and receives a premium tax credit = penalty
– $250 for each FTE not offered coverage receiving premium tax
credit – capped at subsection (b) amount
No margin of error rule– No margin of error rule
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12. Minimum Value and Affordability
• Minimum Value = plan generally covers 60% of the cost
• Affordability = doesn’t cost more than 9.5% of
employee’s wages
– Three safe harbors (W-2, rate of pay, or federal poverty line)
• Other employee benefits impact on MV and Affordabilityp y p y
– HRA Contribution – Counts toward MV, could count towards
Affordability for premium expenses
– HSA Contribution – Count towards MV, but not Affordability
(can’t be used for premium expenses)(can t be used for premium expenses)
– Wellness Incentive – If for tobacco use, can count towards
both depending upon type
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13. Play or Pay Rules
Question:
What do employers have to do to avoid play or pay
penalty?p y
Answer:
Provide all FTEs with affordable health coverage whichProvide all FTEs with affordable health coverage which
provides minimum value.
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14. Play or Pay Rules
FTEs for penalty purposes: 30 hours a week on average
• Month to Month determination
• Two Methods:
1. Monthly method
2. Look-back method
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15. Play or Pay Rules
Monthly method:
– Will not know who FTEs are for month with certainty in advance
– Basically, you look at hours worked in prior month and
determine whether employee worked 30 or more on average
limited non assessment period no penalty if you provide– limited non-assessment period – no penalty if you provide
coverage with certain period of time EVEN THOUGH the
employee was an FTE
• Employers only get one exception per employee (special rules on rehires,
LOAs etc )LOAs, etc.)
– Who might use:
• Employers who provide coverage to all employees or who have very few
variable hour employees
• Employers who have decided to “pay”• Employers who have decided to pay
• Employers using retirement plan approach to eligibility
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16. Play or Pay Rules
Look-back method
t i d t h (3 12 th )– uses a measurement period to assess hours (3-12 months)
– measurement period results set FTE status for stability period
– Different rules for new hires versus ongoing employees
• New hires – variable hour employees entry into plan can be significantlyNew hires variable hour employees entry into plan can be significantly
delayed
– Who might use:
Emplo ers ith man ariable ho r emplo ees (especiall high t rno er)• Employers with many variable hour employees (especially high-turnover)
who want certainty on FTE status
• Employers who want to delay plan entry for new-hire variable hour
employees
• Employers tying plan eligibility to look-back methodEmployers tying plan eligibility to look back method
– Why might not want to use:
• obligation to offer coverage when not full-time (employee may not be able
to afford on part-time pay also, cafeteria plan concerns)
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to afford on part time pay also, cafeteria plan concerns)
• don’t want difficulty of administering, documenting, etc.

17. Play or Pay Rules
• Play or pay strategies being talked about …
– Skinny Plan: get out of subsection (a) penalty at risk of
subsection (b) plan
• Employers may use this as a strategy in the short term have PLAN B!• Employers may use this as a strategy in the short-term – have PLAN B!
– Variation: MV plan to high-ups, skinny-plan to low paid
• discrimination concerns under tax code
• ERISA 510 (interference with protected right) employer can’t interfere with
protected rightprotected right
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18. Reporting Rules
• Section 6055 – MEC ReportingSect o 6055 C epo t g
– Lets government know whether an individual had minimum
essential coverage so that it can assess individual penalty
– Who must report?
f• No 6055 reporting if employer does not provide health coverage
• Insured plans – insurers
• Self-funded plans – generally, the employer (exceptions for
multiemployer plans)y )
– File return with covered individual and government
• Section 6056 – FTE Reporting
– Lets government know of FTEs and employer-providedg p y p
coverage to assess play or pay (employer) penalty
– Who?
• ALEs only
File return with FTE and government
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– File return with FTE and government

19. Reporting Rules
• Required information for 6056
– Name, Address, EIN of ALE
– Name and telephone number for ALE contact person
C tifi ti h th ff d MEC t FTE ( d d d t )– Certification on whether offered MEC to FTEs (and dependents)
– Months during calendar year in which it was available
– Employee cost of employee-only coverage providing minimum
valuevalue
– Number of FTEs ALE had for each month of year
– Name, Address, and SSN of each FTE and months in which
employee was covered.
– Other information
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20. Reporting Rules
• Alternative reporting methods
• Penalties
– Typical “reasonable cause” exception
– Temporary “good faith efforts” exception
• failure to file not good faith effort
– Two-tiered penalty structure
• To individual/employee generally $100 a person• To individual/employee – generally $100 a person
• To IRS – generally $100 per return
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21. 90-Day Waiting Period
Prohibition on waiting periods exceeding 90 days
• Generally, employees otherwise eligible for coverage
must be covered (or able to be covered) on 91st day
following hire
– Exceptions:
• Orientation period permitted (not automatic!)
C l ti h f i ( t 1 600 h f i )• Cumulative hours of service (up to 1,600 hours of service)
• Satisfaction of hours over a period of time condition (30 hours a
week)
– Warning: play or pay coordination
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22. Health Care Reform Fees
• PCORI Fee - paid by insurers of insured plans and plan
sponsors of self-funded plans
– even if insured major-medical, be sure to examine other self-
funded benefits (including HRA)
– $2 per covered person
different methods of determining number– different methods of determining number
– tax deductible,
– not a plan expense (cannot pay out of plan assets)
– payable once a year on the second quarter Form 720 – duepayable once a year on the second quarter Form 720 due
July 31!
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23. Health Care Reform Fees
• Reinsurance Fee
– paid by insurers of insured plans and employers providing self-
f d d lfunded plans
• controversy over purpose
– $63 per person for 2014, $44 per person 2014
– enrollment data provided to HHS by Nov 15thenrollment data provided to HHS by Nov. 15 ,
• first installment will be invoiced by HHS by Dec. 15th (due within 30 days of
invoice)
• second installment will be invoices in fourth quarter of next year
– tax deductible– tax deductible
– permissible plan expense
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24. Other Health Care Reform
• Pre-existing exclusions – not permitted for the plan year
beginning on or after 1/1/2014
– Means no more HIPAA certificates of creditable coverage after
12/31/201412/31/2014
• HRAs (not a new requirement)
– Have to be:
• Integrated with major medical• Integrated with major medical,
• Retiree-only plans, or
• fund an excepted benefit
• Wellness Programs
– Plans trying to incent certain healthy behavior
– Reward limit
• 30% for non-tobacco programs
• 50% for tobacco programs (remember interaction with play or pay)
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50% for tobacco programs (remember interaction with play or pay)

25. Other Health Care Reform
• Routine Patient Costs
– Not required to cover cost of clinical trial, but routine costs
hi h ld b d if th t t ’t li i l t i lwhich would be covered if the context wasn’t a clinical trial
– Carriers and TPAs are struggling with how to apply and pay for
thesethese.
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26. Other Health Care Reform
• Nondiscrimination rules
– Code Section 105(h) applies to self-funded plans
– Insured plans covered by HCR law
2010 ff ti d t b t di i f l ti• 2010 effective date, but pending issuance of regulations
• When?
• Cadillac Tax
– Bi-partisan disapproval
– Some advance planning
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27. Other Health Care Reform
• Individual Health Insurance (coverage on exchange and
outside exchange)
– What role can employers serve?
N ti 2013 54 ( l t l )– Notice 2013-54 (employer payment plans)
• No pre-tax funding
• After-tax funding may be substantially limited too
– Potential state law concerns too
• Exchange notice
– reminder that still have to provide to new employees.
– applies regardless of employer size regardless of whether
coverage offered.
– No specific penalties – ERISA fiduciary?
Consider providing annually to ongoing employees
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– Consider providing annually to ongoing employees

28. Other Health and Welfare Issues
• Health FSA carryovers
– $500 can now be carried over to next year
– Cannot use carryover WITH grace period (choose one)
– HSA eligibility issues
• Same-sex marriage
– Where federal law requires spousal benefits – place of
l b ti lcelebration rule governs
• Retirement plans
• Cafeteria plans
– State insurance laws impact insured benefits (preempted fromp (p p
ERISA)
– State laws may have some impact on litigation risk where
coverage of same-sex spouses not required
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29. Executive Compensation
• 409A Audits
– IRS selected 50 employers
– Looking at:
• Deferral elections
• Distribution elections• Distribution elections
• Arrangements covered by 409A
• Deferred compensation plans• Deferred compensation plans
• Employment agreements
• Separation agreements
• Severance policies and plans
• Loan arrangementsLoan arrangements
• Incentive plans (bonus plans, equity plans, long-term incentive plans)
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30. Thank You!
Kevin Selzer
(303) 295-8094
kaselzer@hollandhart.com
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