Affordable Care Act: Taking Stock and Looking Ahead to 2017

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1 Affordable Care Act: Taking Stock and Looking Ahead to 2017 Presented by: Regina Horton Legal Counsel Keenan Tim Crawford Vice President, Marketing Keenan

2 Today s Agenda IRS Reporting Get Ready for Year Two What went right & wrong the first time around? It s 95% or Bust for 2016 Onward Do you have a plan to monitor? Affordability the Hot Topic Making sense of IRS guidance Prepare for Marketplace & IRS Notices What to do with these notices? Document ACA Compliance Prepare for possible audits now Other Odds & Ends 3

3 IRS Reporting Get Ready for Year Two 4

4 Start Preparing for 2017 Now Take stock of the lessons learned during the first year reporting. Do not wait until later in 2016 to start prepping for year two reporting. Identify problems encountered during year one. Get data issues under control. Streamline integration of data, if possible. Good faith goes away next year. Don t count on deadlines being delayed again. Penalties for not reporting timely can add up quickly. Changes to forms possible. New forms/instructions from IRS likely available in August or September

5 Get Data Issues Under Control Common problem across employers data issues! Gathering data took more time than anticipated. Data coming from multiple sources (e.g., payroll, HR, benefits) that had to be merged together for ACA purposes. Needed to evaluate if data was consistent with ACA requirements. If not, then had to adjust manually. Streamline the data collection process as much as possible. Certain data not tracked or missing. FMLA, jury duty, other breaks-in-service. Termination or rehire dates. Send data to tracking & reporting vendors regularly (e.g., every pay period) vs. in one big batch later in the year or every few months 6

6 Be Ready to Meet 2017 Deadlines Good faith relief was for first reporting due in 2016 only. Unlikely the IRS will extend good faith relief into Also unlikely the deadlines for providing Form 1095-C to employees and filing Forms 1094-C and 1095-C with the IRS will be extended again. Statements to Employees due by January 31, Reporting to IRS due by February 28, 2017, if not filing electronically, or March 31, 2017, if filing electronically. Forms and instructions should be available in August or September Major changes are not anticipated but there may be minor changes (e.g., to indicator codes). 7

7 Penalties for Not Reporting Type of Penalty Penalty per Return Calendar Year Max (if average annual gross receipts for the most recent three taxable years are more than $5 million) Calendar Year Max (if average annual gross receipts for the most recent three taxable years are $5 million or less) Failure to file/furnish $260 $3,178,500 $1,059,500 Failure to file/furnish but corrected within 30 days $50 $529,500 $185,000 Failure to file/furnish but $100 $1,589,00 $529,500 corrected by August 1 st Intentional disregard $520 No maximum No maximum Reflects inflation-adjusted amounts for returns and statements required to be filed after December 31,

8 It s 95% or Bust for 2016 Onward Do You Have a Plan? 9

9 Stay On Top of the 95% Threshold Need to be vigilant If the threshold is not met for any calendar month, then you risk being subject to the A penalty for that calendar month. If you fall below threshold one month, you can make changes to get above the threshold the next month. Utilize vendors effectively to stay on top of the 95% threshold Many tracking and reporting vendors have the ability to help you stay on top of the 95% threshold. But to be effective, you need to feed data to the vendor regularly (e.g., every pay period). 10

10 Penalties Increase Annually Employer Mandate penalties indexed to increase each calendar year after A penalty: $2,080 for 2015 $2,160 for 2016 $2,260 for 2017 B penalty: $3,120 for 2015 $3,240 for 2016 $3,390 for 2017 Adjustments for future years will be determined by the IRS at a later date. 11

11 Clarification on Hours of Service Mandated Workers Compensation or Disability An Hour of Service excludes hours an employee does not perform services but receives wage replacement benefits under a plan maintained solely to comply with state or local workers compensation or disability laws. Other Short or Long-Term Disability An Hour of Service includes hours an employee does not perform services but receives disability payments under an arrangement the employer contributed to directly or indirectly. If paid for with employee after-tax contributions, then it will be treated as an arrangement the employer did not contribute to and no Hours of Service need to be credited. If the employee used pretax dollars to pay for the arrangement, then it will give rise to Hours of Service. 12

12 New Paid Leave Laws Growing assortment of state and local paid leave laws that generally fall into one of two types: Paid sick leave for the employee Paid family leave Do employees taking a paid leave of absence under these laws need to be credited with Hours of Service? Yes. An Hour of Service includes hours paid but not worked due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. 13

13 Affordability The Hot Topic 14

14 Affordability Thresholds Indexed Affordability thresholds indexed to increase annually: Affordability Employer Mandate Affordability Safe Harbors 9.56% 9.66% 9.69% Eligibility for Premium Tax Credits 9.56% 9.66% 9.69% 15

15 Cash-in-Lieu Unconditional arrangements (i.e., no proof of other coverage): Amount offered as cash-in-lieu must be included as part of an employee s required monthly contribution for the cost of coverage. Example Employee s required monthly contribution for the lowest cost self-only coverage that provides MV is $100 per month but employees can take $150 as cash-in-lieu of benefits. For B penalty purposes, the employee s required contribution is $250 per month. Conditional arrangements (i.e., proof of other coverage required): Amount offered as cash-in-lieu excluded as part of an employee s required monthly contribution for the cost of coverage only if it is an eligible optout arrangement. 16

16 Cash-in-Lieu An eligible opt-out arrangement is one in which the employee s right to payment is conditioned on: 1. The employee declining to enroll in employer-sponsored coverage, and 2. The employee providing reasonable evidence that the employee and all other individuals for whom the employee reasonably expects to claim a tax deduction has or will have minimum essential coverage (other than individual coverage) during the period of coverage that the opt-out arrangement applies. Example If an employee s expected tax family consists of the employee, spouse and two children, the employee can meet this requirement by providing reasonable evidence that the employee, the spouse and the two children will have coverage under the spouse s employer-sponsored group health plan for the period to which the opt-out arrangement applies. 17

17 Flex Credit Plans Flex credits are treated as an employer contribution for purposes of affordability only if they are Health Flex Contributions. 1. Employee cannot opt to receive the amount as a taxable benefit (e.g., cash); 2. Employee can use the amount to pay for MEC; or 3. Employee can use the amount only to pay for IRC section 213 medical expenses. Example Total monthly premium for lowest cost self-only coverage that provides MV is $400 per month. Employer offers flex credits of $250 per month for the plan year that can be used for any benefit under the 125 cafeteria plan, including benefits not related to health. Because the flex credits can be used for benefits other than medical care, it is not a Health Flex Contribution. For affordability purposes, the employee s required contribution is $400 per month. 18

18 Flex Credit Plans But Compare Assume the flex credits of $250 can only be applied toward group health coverage or contributed to a health FSA. It is a Health Flex Contribution because it can be used only to pay for MEC or medical care within the meaning of IRC section 213. For affordability purposes, the employee s required contribution is $150 per month. Effective Date & Next Steps: Effective for plan years beginning on or after January 1, Employers with flex credit plans should evaluate the impact of this guidance on affordability of their lowest cost self-only coverage that provides MV. If it makes the coverage unaffordable, consider eliminating cash-out option and limiting use of flex credits for MEC or IRC section 213 medical expenses to qualify as a Health Flex Contribution. 19

19 HRA Contributions HRA contributions can make coverage affordable but: HRA must be integrated with an employer-sponsored group health plan. Only amounts made newly available for the current plan year counted. Employer s contribution must be required under the arrangement or otherwise determinable within a reasonable time before the employee must decide whether to enroll in the plan. Example: Employee s required monthly contribution for the lowest cost self-only coverage that provides MV is $250 per month. For the current plan year, XYZ makes newly available $1,200 under the HRA that employees can use for premiums or medical expenses. For affordability purposes, the employee s required contribution is $

20 Marketplace & IRS Notices Prepare to Respond 21

21 Marketplace Notices Marketplaces (i.e., the Exchanges) must send a notice to the employer certifying an employee was deemed eligible for a premium tax credit or cost-sharing subsidy. Covered California to start sending notices in fall of Will be sent to the address provided by the employee on the Marketplace application. If notice is received, employer can appeal the determination. Does not effect employer s right to appeal the notice from the IRS about potential assessment of penalties. Appeal must be filed with HHS within 90 days from the date of the notice. Two ways to file: Complete Employer Appeal Request Form, or Submit letter to HHS More info at: 22

22 Appealing Subsidy Determination Employer Appeal Request Form 23

23 Appealing Subsidy Determination What happens after submitting the Employer Appeal Request Form? HHS will send the employer confirmation that the form was received. Notice will also be sent to employee. HHS will review any documentation submitted, may request additional information and will make a decision. HHS will send appeal decision notices to the employer and employee explaining the decision. Employee may file an appeal of decision with HHS. HHS can decide to hold a hearing and employer may be called to testify. Is it worth filing an appeal? 24

24 IRS Employer Mandate Penalty Notices Enforcement of Employer Mandate will be based on information filed with the IRS from various sources. Form 1040 from employees Form 1095-C and W-2 from employers Form 1095-B from carriers Process of enforcement IRS will compare and match information on the forms from employees, employers and carriers. If information is inconsistent, the IRS will send notices informing employers that penalties may be assessed and will provide an opportunity to respond. If IRS determines a penalty is owed after response from the employer, it will then send out Notice and Demand for Payment. It is also possible the IRS may conduct in-person audits in some cases. 25

25 IRS Employer Mandate Penalty Notices Timing of enforcement Preliminary notices anticipated after November Next steps Identify who will be responsible for receiving the notices and responding. Will it be the same person for Marketplace and IRS notices? Create policy to control disclosure of employee information about receipt of premium tax credits. Decide on policy regarding Marketplace appeals. Even if you don t anticipate receiving many Marketplace notices, it is best to have a process in place for receiving and responding to the notices. Make sure to have a process in place for receiving and responding timely to notices from the IRS. 26

26 Document ACA Compliance Keep good records to show MEC offered to ACA defined FT employees and their dependents, including: Documentation showing who is/who isn t an ACA defined FT employee. Records showing the employee had an effective opportunity to enroll in coverage (e.g., enrollment materials, waiver of coverage forms, etc.). Keep track of what communications sent, to whom and when. Documentation showing the employee s cost for the lowest cost self-only coverage providing MV. Review plan documents Confirm eligibility rules match up with administration of plan and offering of coverage. Review employee handbook or ACA policy manual Document method used for determining ACA defined FT status, methods for counting hours, when the measurement, administrative and stability periods run, and the affordability safe harbors used. 27

27 Other Odds & Ends Things to Keep on Your Radar 28

28 HHS Regulations on Nondiscrimination Section 1557 of ACA prohibits discrimination on basis of race, color, national origin, sex, age or disability in certain health programs or activities that receive federal financial assistance from any federal agency. OCR released final regulations detailing how HHS applies standards of Section 1557 to health programs/activities funded or administered by HHS. Apply to Covered Entities, which include but are not limited to: Entities operating a health program or activity that receives federal financial assistance from HHS. Examples include but are not limited to hospitals, skilled nursing facilities, ambulatory surgical centers, health clinics, laboratories and physician practices receiving Medicare (excluding Part B) or Medicaid payments and health-related schools or educational organizations receiving grant awards to support health professional training programs. 29

29 HHS Regulations on Nondiscrimination Discrimination protections include: Individuals cannot be denied health care or health coverage based on their sex, including their gender identity and sex stereotyping; Categorical coverage exclusions or limitation for all health care services related to gender transition are discriminatory; Individuals must be treated consistent with their gender identity, including access to facilities; Providers may not deny or limit treatment for any health services that are ordinarily or exclusively available to individuals of one gender based on the fact that a person seeking such services identifies as belonging to another gender; Covered Entities must take reasonable steps to provide meaningful access to each individual with limited English proficiency likely to be served or encountered in its health programs and activities. and Covered Entities must take appropriate steps to ensure communications with individuals with disabilities are as effective as communications with others in its health programs and activities. 30

30 Clarification on Rescissions Final regulations: Rescission permissible if covered individual commits fraud or makes an intentional misrepresentation of material fact. Departments declined to define material fact. Retroactive cancellation of coverage is not a rescission if: (1) it is initiated by the individual (or their authorized representative) and (2) the employer, plan sponsor or issuer does not coerce or influence the decision to cancel. FAQ on ACA Implementation Part 31: A teacher working under a 10-month (August 1 May 31) contract who pays the full 12-month (August 1 July 31) premium during those 10 months, and who informs the District during summer recess that he/she will not return for the next school year, cannot have his/her coverage retroactively terminated to May 31 unless he/she committed fraud or made an intentional misrepresentation of material fact. 31

31 Hospital Indemnity/Specified Disease Proposed regulations recently issued that may result in some changes to these types of plans. Hospital Indemnity & Other Fixed Indemnity Coverage Notice requirement that coverage is supplemental to and not a substitute for major medical coverage. Must pay fixed dollar amount per day (or other time period, such as per week) without regard to the amount of expenses incurred or the type of items or services received. Specified Disease Coverage Departments soliciting comments on whether disclosures or limitations on the number of diseases or illnesses covered under a single policy are needed to ensure policies are not mistaken as comprehensive medical coverage. 32

32 Model COBRA Notice Language Recent FAQ clarifies that notice may include more information about Marketplaces, such as: Information on how to obtain enrollment assistance Availability of premium tax credits and cost-sharing subsidies Information about Exchange websites and contact information General information regarding particular products offered Other information that may help qualified beneficiaries choose between COBRA and other coverage options Can be tailored to particular groups, such as young adults aging out of dependent coverage on their parents plan. 33

33 SBC Template Revised Revised template includes additional information about cost-sharing, including more information on individual and overall out-of-pocket limits. Must be used by issuers and plan sponsors starting on the first day of the first open enrollment period that begins on or after April 1, If a plan or issuer does not use an annual open enrollment period, then the revised SBC template must be used for plan years beginning on or after April 1, More information about the SBC, including the revised template and instructions, is available at the DOL s website: 34

34 Keep the Cadillac Tax on Your Radar The Consolidated Appropriations Act of 2016 delayed the effective date of the Cadillac Tax for two years until But the tax was not eliminated or materially changed (although it s now deductible). The Tax is still looming out there. Waiting to come up with a strategy could exacerbate your tax problem when it finally becomes effective. Don t stop planning. Look at how your plans might be impacted. Do your employees know the Cadillac Tax is on the horizon? Watch Congress for changes. 35

35 Questions? Disclaimer Keenan & Associates is an insurance brokerage and consulting firm. It is not a law firm or an accounting firm. We do not give legal advice or tax advice and neither this presentation, the answers provided during the Question and Answer period, nor the documents accompanying this presentation constitutes or should be construed as legal or tax advice. You are advised to follow up with your own legal counsel and/or tax advisor to discuss how this information affects you. 36

36 Thank you for your participation! Innovative Solutions. Enduring Principles. 37