The purposes of ACA reporting

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2 Agenda > The purposes of ACA reporting > Affordability and minimum value > Determining applicable large employer status > Determining full-time and full-time equivalent employees > ACA reporting scenarios > ACA reporting requirements: Deadlines and electronic filing > Penalties for noncompliance of ACA reporting requirements > ACA requirements still to come > Employer-provided healthcare coverage options > ACA taxes and fees > Employer mandate: Pay-or-play rules 2

3 The purposes of ACA reporting

4 Minimum essential rule reporting - Internal Revenue Code section 6055 > Requires insurers, unions, and self-insured employers that provide minimum essential coverage (MEC) to submit annual information reports to the IRS each year identifying who is covered. > MEC includes COBRA coverage, major medical coverage provided through a retiree-only plan, and retiree-only health reimbursement arrangements (HRAs). Reporting is not required for HRAs that are integrated with employerprovided health coverage or Medicare supplemental coverage which is offered to retirees. > MEC reports provide information needed to establish that individuals enrolled in MEC do not owe the individual mandate. 4

5 Minimum essential rule reporting - Internal Revenue Code section 6055 > Employer-sponsored coverage Including COBRA and retiree coverage > Individual coverage > Medicare > Medicaid > Children s Health Insurance Program (CHIP) coverage > Some veterans health coverage > TRICARE 5

6 ALE shared responsibility reporting - Internal Revenue Code section 6056 > Requires applicable large employers (ALEs) to report to the IRS each year information on anyone who was a full-time employee (not on dependents or other beneficiaries) for one month or more, whether that person was offered health coverage, and, if so, the lowest amount an employee could pay to get coverage that meets the minimum value requirement. > Employer-shared responsibility reports provide information needed to determine whether the ALE owes tax for failing to offer affordable MEC that provides minimum value and whether fulltime employees appropriately claimed an ACA premium tax credit. > The standard for who is a full-time employee is the same as for the pay or play penalty: a common-law employee working an average of 30 hours per week or 130 hours per month. 6

7 Affordability and minimum value

8 Affordability safe harbors > W-2 safe harbor Measures employee s required contribution for single coverage against employee s W-2 wages Coverage is affordable if cost is 9.5 percent or less of W-2 income > Rate-of-pay safe harbor Affordability based on employee s rate of pay Employee s monthly contribution for single coverage is affordable if 9.5 percent (or lower) monthly wages > Federal poverty level (FPL) safe harbor Determines affordability based on FPL for single individual Coverage is affordable if the employee s contribution for single coverage is 9.5 percent of that FPL (or lower) 8

9 Minimum value coverage > Minimum value measures cost sharing (similar to metal levels for qualified health plans) > To provide minimum value, plan s share of total allowed costs of benefits provided under the plan must be at least 60 percent HRA/health savings account (HSA) amounts to be included > Determining minimum value: Minimum value calculator Design-based safe harbor checklists Appropriate certification by actuary 9

10 Determining applicable large employer status

11 Determining applicable large employer status > The first step in determining the ACA reporting responsibility of an employer is for the employer to determine whether it is an applicable large employer (ALE). 11

12 Applicable large employers > Applicable large employer (ALE): Original definition: Average 50 or more full-time/full-time equivalent (FTE) employees in prior calendar year For 2015: New medium-sized employers (defined in next slide) > Common ownership rules Controlled group rules apply (IRC section 414) All employees taken into account (including union employees) Liability and penalties apply separately to each controlled group member by tax ID number 12

13 Medium-sized employers (subset of ALEs) > Medium-sized employer transition relief was issued February 2014 and is applicable to: Groups that employ fewer than 100 full-time/fte employees on business days during 2014 Groups that meet eligibility conditions > These groups are eligible for another one-year delay of pay-or-play mandate. Groups must: Qualify for delay Request delay from IRS (not automatic) 13

14 Medium-sized employers (subset of ALEs) > Eligibility for transition relief: Employers that change plan years after Feb. 9, 2014, to begin on a later calendar date, are not eligible for the delay. Employers may not reduce workforce size or hours of service from Feb. 9, 2014, to Dec. 31, 2014, in order to qualify based on size. o Changes for bona fide business reasons permissible. Employers may not eliminate or materially reduce coverage offered as of Feb. 9, 2014, during maintenance coverage period. Employers must certify that group meets all eligibility requirements. 14

15 Employer reporting requirements Pay-or-play transition relief: > An ALE with fewer than 100 full-time employees must certify on its 2015 transmittal form that it meets the eligibility requirements. It s not automatic. 15

16 Determining full-time and full-time equivalent employees

17 Full-time (FT) employees > With respect to a calendar month, a full-time employee is: An employee who is employed on average at least 30 hours of service per week or 130 hours per month o 130 hours: 30 x 52 / 12 =

18 Full-time equivalent (FTE) employees > To determine full-time equivalency: Add hours of service in a month for part-time employees (up to 120 hours per person) Divide total hours by 120 Result = number of FTEs for the month 18

19 Counting employees 1. Add full-time employees (including seasonal) for each calendar month in prior calendar year 2. Add FTEs (including seasonal) for each calendar month in prior calendar year 3. Add full-time employees and FTEs together for each month of prior calendar year 4. Add 12 monthly totals and divide by 12 * Special rule for 2015: Employers can use six consecutive months in

20 Special rules > Seasonal employees An employer is not an ALE if: 1) the employer s workforce only exceeds 50 full-time employees for 120 days or less during the calendar year, and 2) the employees in excess of 50 employed during that period were seasonal workers > New companies Calculation based on the average number of full-time employees the employer is reasonably expected to employ on business days in the current calendar year 20

21 ACA reporting scenarios

22 ACA reporting scenarios > General principles of ACA reporting All ALEs will be required to report whether minimum value reportable coverage was offered to any employees who were full-time for at least a month during the year. Except for those employers who are not ALEs and which offer no coverage or only fully insured coverage, all employers are required to complete at least a portion of the ACA reporting, using either the Forms 1094/1095 B or C. Non- ALEs will use the B forms and ALEs will use the C forms, although the ALE can use the B forms for reporting coverage of non-employees. Depending on the funding arrangement of the coverage, it is possible that employees will receive more than one Form 1095 (e.g., one for the employer and one from the insurance carrier). 22

23 ACA reporting scenarios > Fully insured coverage offered by a single ALE > Fully insured coverage offered by a single ALE to nonunion employees and self-funded coverage offered by a multiemployer plan to union employees > Self-funded coverage offered by a single ALE > Self-funded coverage offered by a single ALE to nonunion employees and self-funded coverage offered by a multiemployer plan to union employees > Mix of fully insured and self-funded coverage offered by a single ALE 23

24 ACA reporting scenarios Fully insured vs. self-funded coverage > Fully insured coverage = Insurance carrier directly insures and pays the health claims of covered individuals under a policy Employer submits premiums directly to the insurance company Insurance company pays claims directly to health providers > Self-funded coverage = Employer is responsible for paying health claims of covered individuals from general assets Employer usually retains a third-party administrator to calculate and hold premiums and pay claims to health providers on direction of the employer Employer purchases stop-loss insurance coverage insuring the ability of the employer to pay claims above an individual and aggregate level 24

25 ACA reporting scenarios Fully insured coverage offered by single non-ale > No reporting required by the employer > Insurance carrier is responsible for reporting on any covered individuals using Forms 1094-B and 1095-B > Individuals covered under the fully insured plan will receive a Form 1095-B from the insurance carrier 25

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27 ACA reporting scenarios Self-funded coverage offered by a single non-ale > Employer reports on any covered individuals using Forms 1094-B and 1095-B > Covered individuals receive a Form 1095-B from the employer 27

28 ACA reporting scenarios Self-funded coverage offered by single non-ale to nonunion employees and self-funded coverage offered by a multiemployer plan to union employees > Employer is responsible for reporting on any nonunion covered individuals using Forms 1094-B and 1095-B > The plan sponsor of the multiemployer union plan reports, is responsible for reporting on any union covered individuals using Forms 1094-B and 1095-B > Nonunion individuals covered under the self-funded coverage receive a Form 1095-B from the employer > Union individuals covered under the multiemployer union plan receive a Form 1095-B from the multiemployer plan sponsor 28

29 ACA reporting scenarios Fully insured coverage offered by single ALE > Employer responsible for reporting whether or not a minimum value, affordable coverage was made to any employees who were full time for at least one month during the year using Form 1094-C and Parts I and II of Form 1095-C > The insurance carrier is responsible for reporting on any covered individuals using Forms 1094-B and 1095-B > Full-time employees receive a Form 1095-C from the employer and individuals covered under the fully insured plan receive a Form 1095-B from the insurance carrier 29

30 ACA reporting scenarios Fully insured coverage offered by single ALE to nonunion employees and self-funded coverage offered by a multiemployer plan to union employees > Employer reports whether a minimum value, affordable offer of coverage was made to any employees (including union employees) who were full time for at least one month during the year (based on the monthly measurement method or look-back measurement method) using Form 1094-C and Parts I and II of Form 1095-C > Insurance carrier reports on any nonunion covered individuals using Forms 1094-B and 1095-B > The plan sponsor of the multiemployer union plan reports on any union plan covered individuals using Forms 1094-B and 1095-B > Full-time employees will receive a Form 1095-C from the employer > Nonunion individuals covered under the fully insured plan receive a Form 1095-B from the insurance carrier, and union-covered individuals will receive a Form 1095-B from the plan sponsor of the union plan 30

31 ACA reporting scenarios Self-funded coverage offered by a single ALE > Employer reports whether or not a minimum value, affordable offer of coverage was made to any employees who were full time for at least one month during the year using Form 1094-C and Parts I and II of Form 1095-C > Employer also reports on any covered individuals using Form 1094-C and Part III of Form 1095-C Forms 1094-B and 1095-B may be used instead of the C forms for non-employees such as COBRA participants and retirees > Full-time employees and individuals covered under the self-funded plan receive a Form 1095-C from the employer; covered non-employees may receive a Form 1095-B from the employer instead 31

32 ACA reporting scenarios Self-funded coverage offered by single ALE to nonunion employees and self-funded coverage offered by a multiemployer plan to union employees > Employer reports whether or not a minimum value, affordable offer of coverage was made to any employees (including union employees) who were full time for at least one month during the year (based on the monthly measurement or look back measurement period) using Form 1094-C and Parts I and II of Form 1095-C > Employer is also responsible for reporting on any nonunion covered individuals on Form 1094-C and Part III of Form 1095-C Forms 1094-B and 1095-B may be used instead of the C forms for nonemployees such as COBRA participants and retirees 32

33 ACA reporting scenarios Self-funded coverage offered by single ALE to nonunion employees and self-funded coverage offered by a multiemployer plan to union employees (cont.) > The plan sponsor of the union coverage is responsible for reporting on any union covered individuals using Forms 1094-B and 1095-B > Full-time employees and nonunion individuals covered under the self-insured plan receive a Form 1095-C from the employer Covered non-employees may receive a Form 1095-B from the employer instead > Union individuals covered under the union plan will receive a Form 1095-B from the plan sponsor of the union plan 33

34 ACA reporting requirements: Deadlines and electronic filing

35 Employer reporting requirements Deadlines: > Returns due Feb. 28 (March 31 if filed electronically*) First return due Monday, March 1, 2016 > Employee statements due Jan. 31 First statements due Monday, Feb. 1, 2016 Electronic filing rules similar to W-2 *Electronic filing is required for all ALEs filing at least 250 returns under section 6056 during the calendar year. Only section 6056 returns are counted in applying the 250 return threshold, and each section 6056 return for a full-time employee is counted as a separate return. 35

36 Penalties for noncompliance of ACA reporting requirements

37 Penalties for noncompliance > Recently increased substantially! The Trade Preferences Extension Act (signed into law June 29, 2015) significantly increased penalties for incorrect information returns, including those required by the ACA The IRS may impose penalties for both failing to file and filing incorrect or incomplete information returns and/or payee statements after the due dates for such forms pursuant to IRC sections 6721 and 6722 > Final ACA regulations provide that penalties will not be imposed on entities that show they made good faith efforts to comply with the reporting requirements for 2015 The IRS has indicated an untimely filed form will not meet the good faith requirement. Should the requirements regarding ACA reporting not be met due to good faith requirements, the penalties may be still be waived if the failure was due to reasonable cause 37

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39 ACA requirements still to come

40 Section 4980I: ACA Cadillac tax > The Cadillac tax is a 40 percent excise tax on any excess benefit provided to an employee > For 2018, the base dollar threshold is $10,200 for self-only coverage, and $27,500 for coverage other than self-only coverage These base limits will be subject to adjustment based upon a variety of factors. > Notice : Initiated the process of developing regulatory guidance > Notice : Continued the process of developing regulatory guidance 40

41 Upcoming requirements > Nondiscrimination rules Will apply to fully insured non-grandfathered plans Cannot discriminate in favor of highly compensated employees Effective after regulations issued > Automatic enrollment Will apply to large employers (> 200 full-time employees) Must automatically enroll/re-enroll employees in plan, provide notice, and allow them to opt out Effective after regulations issued 41

42 Employer-provided healthcare coverage options

43 Options to employer-provided coverage: Reimbursement of individually obtained coverage > Can an employer drop coverage and reimburse for individualobtained coverage in accordance with Revenue Ruling without incurring ACA mandate penalties? NO! See Notice and Q&As from the IRS and DOL > Notice , Q&A-4 permits an employer to provide additional compensation to employees to make up for lost coverage. But, if an employer increases salary to make up for lost benefits, employer FICA tax obligations will also increase. > Penalties are not tax deductible. > Penalties may be increased if more employers choose to pay them rather than provide coverage. 43

44 Suspending employer-provided coverage: Potential downside to employer > If employees choose to remain uninsured: Increased absenteeism and presenteeism may result o Work time wasted taking care of personal insurance needs Worker compensation costs may go up for what are actually nonwork-related health costs > Competitors may seek labor advantage by continuing to offer coverage 44

45 Options to employer-provided coverage: Utilizing the exchanges > Coverage through the exchange may be more expensive due to the rating requirements > Subsidies phase out rapidly and are significantly less for those at 3 to 4 times the poverty level than for those at 2 times and below > Some employees may not be eligible for subsidies at all and will bear the cost entirely on their own 45

46 ACA taxes and fees

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50 The employer mandate: Pay-or-play rules

51 Employer shared responsibility penalties > Large employers subject to pay-or-play rule > Penalties may apply if the employer: Fails to offer minimum essential coverage to 95 percent of full-time employees and dependents (percentage requirement phased in over 2 years) o 2015: must offer coverage to 70 percent of full-time employees o 2016 and beyond: offer coverage to 95 percent of full-time employees Offers coverage that is not affordable or does not provide minimum value > Penalties triggered if any full-time employee gets subsidized coverage through exchange 51

52 Employer penalties > Penalty A: employer failed to offer substantially all full-time employees and dependents opportunity to enroll in employer s plan > Penalty B: employer plan is unaffordable or not minimum value 52

53 Employer penalty amounts > Penalty A: $2,000 per full-time employee, minus the first 30 (for 2015, groups with 100 or more full-time employees can reduce their full-time employee count by 80 when calculating the penalty). > Penalty B: $3,000 for each employee who receives subsidized coverage through an exchange. Amounts shown are annual penalties. Penalties will be calculated on a monthly basis. 53.

54 Non-calendar year plan years > Penalties will not apply right away on Jan. 1, 2015, if: plan is changed to avoid penalties at renewal requirements must be met for this transitional relief > No penalties for months of 2014 plan year that fall in calendar year 2015 > Employees must be offered affordable, minimum value coverage by first day of 2015 plan year Plans will not need to make mid-year or advanced changes 54

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