Employee Benefits Compliance

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1 Employee Benefits Compliance Pay or Play Delay, Does it Apply and Strategies to Comply Wells Fargo Insurance 2014 Issues and beyond. U.S. citizens and legal residents are required to have "minimum essential coverage. In 2014, the penalty for noncompliance is $95 per person or 1% of household income (HI). Individuals and small employers may purchase insurance from staterun exchanges beginning in Tax credits can reduce premiums and out-of-pocket limits for individuals with household incomes below 400% of Federal Poverty Level (FPL). Applicible Large Employers will pay penalties if they do not offer coverage to full time employees or if their coverage is unaffordable or does not provide value Wells Fargo Insurance Services USA, Inc. All rights reserved. For public use. 1

2 What is delayed? Employer mandate imposed on applicable large employers (employers with 50 or more full-time equivalent employees) to offer some level of group health insurance coverage to substantially all of their full-time employees (employees who work on average 30 or more hours per week) Also delays the need to identify full-time employees and the possible application of the look back measurement rules Affordability requirement: The required employee contribution toward the cost of employee-only coverage should not exceed 9.5% of the employee s household income Minimum value requirement: The employer s group health plan should have at least a 60% actuarial value 2 2 What is delayed? Information reporting requirements imposed on insurers, self-insuring employers, and certain other health insurance providers under section 6055 of the Internal Revenue Code (Code) Information reporting requirements imposed on applicable large employers relating to the health insurance that the employer offers (or does not offer) to its full-time employees under Code section Wells Fargo Insurance Services USA, Inc. All rights reserved. For public use. 2

3 What is not delayed? Opening of public health insurance exchanges and the ability of subsidies Expansion of Medicaid for all individuals with household incomes that is less than 138% of FPL Distribution of SBCs, and exchange notice Individual mandate that requires most individuals to obtain health insurance or pay a tax penalty Employees working for employers that sponsor non-calendar year plans may avoid the tax penalty for the months prior to the plan year that commences in What is not delayed? Changes applicable to all health plans: 90-day waiting period rule Elimination of pre-existing condition limitations and dollar limits on essential health benefits Expansion of wellness incentives Dependent coverage up to age 26 Changes applicable to non-grandfathered plans, such as: Limits on out-of-pocket maximums Limits on maximum deductibles Coverage for clinical trial-related services Payment of PCOR fee, temporary reinsurance fee, and industry-level fees imposed on health insurers, pharmaceutical companies, and medical device manufacturers Expiration of waivers for limited medical ( mini-med ) plans Wells Fargo Insurance Services USA, Inc. All rights reserved. For public use. 3

4 What is unclear? Transition relief from the play or pay rules for off calendar if they sponsor non-calendar year plans that extend beyond January 1, 2015 Large employers that wait until 2015 to offer to all of its full-time employees coverage under a group health plan that satisfies the affordability and minimum value requirements may face a challenging human resources issue if: A significant number of these employees obtain federally subsidized exchange coverage in 2014, and then Cut off these employees access to the federal subsidies in 2015 in an effort to control the employer s play or pay penalty exposure 6 6 What is unclear? Employers should develop a strategic process to proactively respond to coverage verification requests from employees or public exchanges to minimize the burden of appealing unwarranted play or pay penalty assessments Continue to implement look back measurement periods to identify their full-time employees (if they have variable hour or seasonal employees) as well as develop and model appropriate group health plan designs and employee contribution strategies Wells Fargo Insurance Services USA, Inc. All rights reserved. For public use. 4

5 Are you an ALE 1. To determine applicable large employer status you need to count all FT employees employees who work 130 hours per month. You do this for each month in the proceeding calendar year i.e (12 monthly numbers). 2. Turn part time employees into a monthly equivalency Add up the hours of service in a month for employees who are not fulltime employees for that month. (Do not include more than 120 hours of service for any employee.) Divide the total hours you just got by 120. The result is the number of full-time equivalent employees for the month. Do this for each month (12 monthly numbers). 3. Add the number of full-time employees and full-time equivalents for each month of the preceding calendar year (12 monthly numbers). 4. Add the 12 monthly numbers from the above steps and divide by 12. This is the average number of full-time equivalent employees for the preceding calendar year. If it is >50 you are an ALE. 8 Are you an ALE You can use the full 12 months if that is helpful but for the 2014 calendar year, transition relief allows employers to use a period of at least six consecutive calendar months in the 2013 calendar year to determine if they employed an average of 50 full-time employees For example, an employer can designate March through August (six months) as the period to determine if they employed 50 employees or more during 2013, and leave September through December to make arrangements to offer coverage to employees if it is determined that they employed 50 or more employees during the designated sixmonth transition period. Note also that if an employer's workforce exceeds 50 full-time equivalent employees for 120 days or fewer (4 months) during the calendar year and the employees in excess of 50 during that 4 month period were seasonal workers, you will not be an applicable large employer Wells Fargo Insurance Services USA, Inc. All rights reserved. For public use. 5

6 Employer play or pay Applicable large employer Over 50 full-time equivalent employees No minimum essential coverage Offers minimum essential coverage That is unaffordable or does not provide value $2,000 annually ($ per month) per total number of full-time employees Exclude first 30 FT Employees $3,000 Annually ($250 per month) per each full-time employee that receives premium tax credit / cost-sharing reduction (Capped at penalty calculated above (i.e., as if no minimum essential coverage)) Full-time employees and equivalents Full-time is 30 or more hours per week, averaged over a month Full-time equivalents include all full-time employees, plus equivalents determined by dividing hours of less than fulltime employees in a month by 120 Full-time equivalent determination is used solely for determining whether the employer is an applicable large employer Employees eligibility for premium tax credit or costsharing reduction Income cannot exceed 400% of the Federal poverty level If eligible for minimum essential coverage from an employer Coverage must not provide minimum value (paying 60% of benefit costs) OR Coverage must be unaffordable (employee premium for self only coverage exceeds 9.5% of employee s HI) Minimum essential coverage Includes (among other programs) the following: An eligible employer-sponsored plan (a group health plan or group health insurance coverage offered by an employer that is a governmental plan or any other plan offered in a state s small or large group market) A grandfathered health plan 10 Subsidized exchange accessibility Federal Poverty Levels (2013) Household 100% 138% 150% 200% 250% 300% 400% Size 1 $ 11, $ 15, $ 17, $ 22, $ 28, $ 34, $ 45, $ 15, $ 21, $ 23, $ 31, $ 38, $ 46, $ 62, $ 19, $ 26, $ 29, $ 39, $ 48, $ 58, $ 78, $ 23, $ 32, $ 35, $ 47, $ 58, $ 70, $ 94, $ 27, $ 38, $ 41, $ 55, $ 68, $ 82, $ 110, $ 31, $ 43, $ 47, $ 63, $ 78, $ 94, $ 126, $ 35, $ 49, $ 53, $ 71, $ 89, $ 106, $ 142, Wells Fargo Insurance Services USA, Inc. Confidential. No Reprints Without Permission Wells Fargo Insurance Services USA, Inc. All rights reserved. For public use. 6

7 Insurance exchanges and individual subsidies Effect of affordability programs on individuals with HI between 133% - 400% FPL (if ER coverage is unaffordable or does not provide value) Household MAGI (as % Federal Poverty Level) Max Premium as % of MAGI Estimated Plan Actuarial Value < 133% 2% 100% 134% - 150% 3.0% - 4.0% (4% of an income at 150% FPL = $689 individual - $1,413 family of 4) 151% 200% 4.0% - 6.3% (6.3% of an income at 200% FPL = $1,447 individual - $2,967 family of 4) 201% 250% 6.3% % (8% of an income at 250% FPL = $2,312 individual - $4,739 family of 4) 251% - 300% 8.05% - 9.5% (9.5% of an income at 300% FPL = $3,274 individual - $6,711family of 4) 301% - 400% 9.5% (9.5% of an income at 400% FPL = $4,366 individual - $8,949 family of 4) 94% 87% 73% 70% 70% >400% unlimited 60% 12 Employer play or pay To whom coverage must be offered Under pay or play, an employer must offer coverage to full-time employees and their dependents Full-time employee an employee who is employed on average at least 30 hours of service per week with respect to any month or 130 hours a month Dependent - an employee's child who has not yet attained age 26 The definition of dependent does not include a spouse or, presumably, a domestic partner De-minimis rule An employer will not face a Pay or Play penalty for failing to offer FT employees coverage if it fails to offer coverage to either five full-time employees or if greater up to five percent of its FT employees Wells Fargo Insurance Services USA, Inc. All rights reserved. For public use. 7

8 Stability and measurement periods Determining full-time status for ongoing employees Safe harbor is an optional look-back / measurement period as an alternative to a month-by-month method of forecasting full-time employee status for eligibility and penalty purposes Standard measurement periods from 3-12 mths; stability periods cannot be shorter than measurement period and must be at least 6 mths If you use a 12 mth stability period as required for Cafeteria Plan elections, you must use a 12 month measurement period Optional administrative period of up to 90 days between end of standard measurement period (SMP) and beginning of stability period Determining full-time status for new FT employees If reasonably expected to work full-time, employer must offer coverage before end of three calendar months of employment (90 day rule) 14 Stability and measurement periods Determining full-time status for new variable hour or seasonal employees May use an initial measurement period (IMP) of between 3 and 12 months, and stability period that is the same length of stability period for ongoing employees May apply an administrative period of up to 90 days that includes any periods between start date and date first offered coverage, other than the IMP (if employer starts initial measurement date on 1 st of the month following start date, there will be periods both before and after the initial measurement date that count as part of the administrative period) The IMP and administrative period combined cannot extend beyond the last day of the first calendar month after the one-year anniversary of the employee s start date (at most, 13 months and a fraction of a month) Stability period must not be more than one month longer than the IMP Wells Fargo Insurance Services USA, Inc. All rights reserved. For public use. 8

9 Stability and measurement periods Calendar Year Plans One example is a 12 month SMP that runs from 12/1/12 to 11/30/13 (with a month admin period during the month of December). Employer would measure hours during that SMP to determine FT status for the 1/1/14 plan year, which would be the 12-month stability period. For new seasonal and variable hour employees, employer could use a 12- month IMP starting from date of hire or first of the month following date of hire, a 1 month admin period, and a 12-month initial stability period. Employer must track new hires under the subsequent or overlapping SMP as well and give them the benefit of which ever measurement captures them as FT for the corresponding stability period. If an employee is determined PT during their IMP but FT during a subsequent SMP, the employee would be FT for the stability period associated with the SMP. If you need more administrative time or want to hold OE in November bump your SMP back an additional month or 2 (but keep your IMP and administrative period within the 13 month rule) Remember option of year 1 relief that permits a shorter SMP with a 12 month SSP (slide 20). 16 Stability and measurement periods Wells Fargo Insurance Services USA, Inc. All rights reserved. For public use. 9

10 Misc. Expanded Affordability Safe Harbor An employer can use an employee s Form W-2 wages in determining whether the self-only premium for the employer s lowest-cost plan is affordable. A rate of pay safe harbor which calculates an employee s maximum monthly contribution as 9.5% of their rate of pay based on a 130 hour month Under a Federal poverty line safe harbor coverage will be affordable if the employee s cost for self-only coverage does not exceed 9.5 percent of 100% of the federal poverty line for a single individual ($11,170) issues Cadillac plan tax A 40% excise tax is imposed on insurers (for insured coverage) and employers (for self-insured coverage) to extent that aggregate annual value of an employee s health coverage (including medical, prescription, HRA, health care FSA, and employer HSA contributions) exceeds $10,200 ($27,500 for more than employee-only coverage) Possible 1 time adjustment in 2018 (?); Annual COLA adjustment; TBD age and gender adjustment (?) Employer is responsible for calculating value of excess coverage using COBRA rules, and making reports to insurers and government Wells Fargo Insurance Services USA, Inc. All rights reserved. For public use. 10

11 Case Study Employer has employees working 30+ hours per week. Employer has a tradition of offering rich employee benefits for the purpose of recruitment, retention, and maintaining a non union environment Employees pay: 13% of the premium for employee only coverage 21% for employee +1 23% for employee + family Plan Enrollment Estimated Actuarial Value % Enrolled Kaiser HMO % 43% United Healthcare HMO United Healthcare PPO % 47% 94 93% 10% 20 Case Study Current Plan Affordability Richness of the employer contribution = No liability for unaffordability penalty No employee access to subsidized coverage via the Exchange Wells Fargo Insurance Services USA, Inc. All rights reserved. For public use. 11

12 Case Study Employee Modified Adjusted Gross Household Income Distribution Not subsidy eligible Eligible for both premium subsidy & higher AV plan Eligible for MediCal 22 Case Study Employee Profile Age 22 Salary $34,528 Current Coverage Level Employee Only Projected Coverage Level Family Est. AGHI $34,528 % Est. AGHI to FPL % Employee View Gross Premium Net Premium Est. AV Group (as of 2014) $1,334 $1,048 97% Exchange $8,096 $1,207 94% Comparison $6,761 $159 3% Subsidy eligible employee based on household income Via the Exchange: Employee will pay $159 a year more for a plan with slightly lower AV value than employer plan Wells Fargo Insurance Services USA, Inc. All rights reserved. For public use. 12

13 Case Study Employee Profile Age 59 Salary $97,630 Current Coverage Level Family Projected Coverage Level Family Est. AGHI $155,232 % Est. AGHI to FPL % Employee View Gross Premium Net Premium Est. AV Group (as of 2014) $7,920 $5,859 93% Exchange $24,398 $24,398 70% Comparison $16,477 $18,539 (23)% Employee not eligible for subsidies will be forced to buy a relatively expensive Exchange plan with after tax dollars Typically, higher wage earners fare better on employer sponsored coverage 24 Case Study Employer offers high actuarial value plans; i.e. low out of pocket cost plans Premium threshold for employee only coverage = $10,200 and employee plus dependent coverage = $27,500 Trending premium at 9% each year, this employer s plans would be subject to Cadillac tax in Wells Fargo Insurance Services USA, Inc. All rights reserved. For public use. 13

14 Action plan Analyze contributions Analyze workforce Analyze plan value Assess affordability Understand the level/percent of premium you are currently providing and what you are required to provide under carrier agreements Know what percent of your workforce works 130 hours per month and plan to implement measurement/stability periods for existing employees and new hires as needed Estimate the actuarial value of current benefit options and consider adding a lower actuarial value offering consider Cadillac tax implications Assess the affordability of your current plans based on employees W-2 wages Employee communications Anticipate your employee workforce questions and be prepared to proactively address what s coming up and what they will need to do Report Track and measure results compared to financial and human resource objectives be prepared for 2015 reporting requirements 26 Questions? The material is provided for informational purposes only based on our understanding of applicable guidance in effect at the time of publication, and should not be construed as ERISA, tax, or legal advice. Customers and other interested parties must consult and rely solely upon their own independent advisors regarding their particular situation and the concepts presented here. Although care has been taken in preparing and presenting this material accurately (based on the laws and regulations, and judicial and administrative interpretations thereof, as of the date set forth above), Wells Fargo Insurance Services USA, Inc. disclaims any express or implied warranty as to the accuracy of any material contained herein and any liability with respect to it, and any responsibility to update this material for subsequent developments. To comply with IRS regulations, we are required to notify you that any advice contained in this material that concerns federal tax issues was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any matters addressed herein. Products and services are offered through Wells Fargo Insurance Services USA, Inc. and Wells Fargo Insurance Services of West Virginia, Inc., non-bank insurance agency affiliates of Wells Fargo & Company. Products and services are underwritten by unaffiliated insurance companies, except crop and flood insurance which may be underwritten by their affiliate, Rural Community Insurance Company. Some services may require additional fees and may be offered directly through third party providers. Banking and insurance decisions are made independently and do not influence each other Wells Fargo Insurance Services USA, Inc. All rights reserved Wells Fargo Insurance Services USA, Inc. All rights reserved. For public use. 14

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