Federal Health Care Reform Update

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1 Federal Health Care Reform Update Recent ACA Compliance Changes and Related Plan Document Issues Sponsored by: The Massachusetts Health Connector Springfield Marriott Springfield, MA May 22, 2014 Beechwood Hotel Worcester, MA May 29, 2014 Presented by: Richard A. Szczebak, Esq. Parker Brown Macaulay & Sheerin, P.C. Newton Marriott Newton, MA June 2, All Rights Reserved. Richard A. Szczebak, Esq.

2 Today s Agenda ACA Landscape and Recent Guidance ESR Overview ERISA Docs and ACA/DOL Audit compliance Questions It s 2014 and the ACA ship has sailed 2

3 The ACA s New Landscape in 2014 Establishment of state/federal/partnership insurance exchanges/marketplaces to offer approved health plans to individuals and small groups Individual mandate purchase essential health coverage or pay penalties to IRS Employers with 50+ FTE employees must offer substantially all FT employees (and dependent children) coverage that is affordable and provides minimum value or pay penalties to IRS if FT employees receive an exchange subsidy Certain individuals (incl. employees) may receive subsidies to purchase health coverage in an exchange based on income level Expanded Medicaid eligibility 3

4 New Trifecta of Recent ACA Final Employer Regulations Employer Shared Responsibility (2/10/14) Reminder: ALE Determination and ESR Penalty Assessments are determined on a calendar year basis 90 Day Waiting Period Limitation (2/20/14) Reminder: Is NOT delayed -- applies in 2014 to ALL employers Information Reporting (3/6/14) 6055 Information Reporting of Minimum Essential Coverage Information Reporting by Applicable Large Employers on Health Insurance Coverage Reminder: Reporting done on a calendar year basis 4

5 ESR Penalties Delayed One Year What Happened? Specifically, IRS waived ESR enforcement only in 2014 and only for: The 6055 information reporting requirements applicable to providers of minimum essential coverage (MEC); The 6056 information reporting requirements applicable to applicable large employers; and The obligation to pay tax penalties under the ESR provisions (4980H). Premium tax credits are still available in the Marketplaces for those who qualify beginning this year Delayed provisions will be fully effective for

6 ESR Penalties Delayed One Year What is the Practical Effect of Delay? Delayed provisions will be fully effective for 2015 Biggest effect is time to implement/prepare: Written plan documentation w/ new eligibility Safe harbor look back measurement rules Timely employee notifications re: measurement Affordability issues, if any Free look at which employees in Marketplace in 2014 Additional transition rules/exceptions created Premium tax credits are still available in the Marketplaces for those who qualify beginning this year

7 NOW is the Time to Get Your Plan and Documentation in Order Applicable Large Employer Full time and full time equivalents Full time employees 30 Hours of Service on avg. per month Measurement periods initial and on-going Stability periods initial and on-going Administrative periods Affordability Safe Harbors W-2 Rate of pay Federal poverty level 7

8 Penalty Assessments Enforced by the IRS Annual report by each employer to IRS (6056) Annual information to each FT employee Information by Exchange to IRS IRS will use as basis for penalties IRS contact will not occur until after employees file their individual tax returns for that year and after large employers file information returns identifying FT employees and coverage Proper plan docs and records are your best defense! 8

9 Defending Your FT Determinations -- Plan Docs Reflecting FT EE Eligibility ERISA Plan Document ERISA SPD XYZ COMPANY, INC. EMPLOYEE BENEFIT PLAN Plan No. 501 Amended and Restated Effective July 1, 2014 SUMMARY PLAN DESCRIPTION FOR THE BENEFIT FEATURES OF THE XYZ COMPANY, INC. EMPLOYEE BENEFIT PLAN Effective July 1,

10 Going in Eligibility Circles Just Who Exactly is an Eligible Employee? The employer s document from a vendor provides: Each Plan feature has its own eligibility requirements that are set forth in the provider contracts or other plan documents listed in Schedule A, and their respective policies, descriptions, plan materials and participant communications. The carrier s evidence of coverage provides: An employee is eligible to enroll as a subscriber under this PPO contract as long as he or she meets the rules on length of service, active employment and number of hours worked that the plan sponsor has set to determine eligibility for group health care benefits. For details, contact your plan sponsor. (Costello to Abbott:.... Who s on first? ) 10

11 Written ERISA Plan Documentation A Familiar Topic with an Urgent New Twist 11

12 ACA Places Increased Importance on the Traditional Plan Document GHP landscape has changed significantly in the wake of the ACA New compliance obligations Regulatory agencies looking to enforce these new rules More chance of employer interaction with government regulators re their GHPs Employees will have increased access to regulators via phone and web Noticeable increase in DOL audits in early

13 Plan Documents and Recordkeeping are an Employer s Defense Against: IRS penalty assessments under ESR for months beginning in 2015 DOL audits of GHPs related to ERISA and/or ACA compliance Inquiries from employees concerning benefits and eligibility in light of the new marketplaces Inquiries from state and federal agencies; perhaps in reaction to employee initiated contact through one of the many new 800 phone numbers or web sites that will be publicized and readily available 13

14 Basic ERISA Compliance 14

15 Documents that are Not Plan Documents Many documents related to a plan s funding are created for specific purposes that and are not intended to be ERISA plan documents. Examples: policies of insurance - are issued by insurance companies as required by state insurance laws and do not provide the administrative plan information required by ERISA Section 402. administrative services agreements - used in self-insured arrangements set forth the plan of benefits and the administrator's contractual responsibilities, but do not contain the provisions required by ERISA Section

16 Non-ERISA Plans Requiring Plan Documents IRC Section 125 Cafeteria Plans IRC Section 127 Educational Assistance Plans IRC Section 129 Dependent Care Assistance Plans IRC Section 137 Adoption Assistance Plans 16

17 ERISA Reporting and Disclosure Requirements Title I of ERISA details the reporting and disclosure requirements for employee benefit plans - Plan Document Summary Plan Description (SPD) Form 5500 Annual Return/Report Summary Annual Report (SAR) Every ERISA welfare (and pension) plan must have a written plan document that satisfies ERISA Section

18 Written Plan Document ERISA Section 402 Every employee benefit plan (pension or welfare) shall be established and maintained pursuant to a written instrument, which: provides for one or more named fiduciaries to control and manage the operation and administration of the plan, and which provides procedures establishing and carrying out a funding policy for the plan allocating responsibilities for the operation and administration of the plan amending the plan and for identifying the person with authority to amend the plan and specifying the basis on which payments are made to and from the plan 18

19 Tres Amigos Plan Document Summary Plan Description Form 5500 Beware of the 100 Participant Rule: Unfunded/fully insured welfare plans with fewer than 100 participants on the 1st day of the plan year need not file a Form 5500 Consistency among these documents is KEY 19

20 SPD in General Automatically provided to each participant and beneficiary receiving plan benefits Provides participants with clear and simple description of how plan works and what benefits are provided Required to be written "in a manner calculated to be understood by the average plan participant" The information must be accurate as of 120 days prior to the date the SPD is distributed DOL Regulations set forth the content requirements for SPDs, which are numerous Can be distributed electronically if applicable DOL safe harbor is followed 20 Consistency with plan doc and 5500 is key

21 SPD Content Requirements - 1 Plan and Plan Sponsor identification plan name if different, the name by which the plan is commonly known by its participants; plan sponsor s name and address plan sponsor s EIN plan number (assigned by the plan sponsor) (i.e., 501) plan administrator s name, business address and business telephone number plan year for purposes of maintaining the plan's fiscal records agent for service of legal process, name and address 21

22 SPD Content Requirements - 2 Statement of ERISA rights COBRA summary Newborns and Mothers Health Protection Act disclosure Claim procedures Summary of plan amendment and termination provisions Qualified medical child support order (QMCSO) procedures or, a statement that participants can obtain a copy of the QMCSO procedures without charge Description of circumstances resulting in disqualification, ineligibility, or denial, loss, forfeiture, suspension, offset, reduction, or recovery of any benefits under the plan 22

23 SPD Content Requirements - 3 SPDs for GHPs must describe: cost sharing provisions (e.g., premiums, deductibles, copays, coinsurance, etc.) annual and lifetime caps on benefits and other plan limits covered preventative services coverage for existing or new drugs coverage for medical tests, devices and procedures use of and access to in- and out- of-network providers limits on the selection of primary care or specialty care providers restrictions on emergency medical care pre-authorization or utilization review procedures 23

24 SPD Content Requirements - 4 If a health insurer finances or administers a GHP, the SPD must indicate: name and address of the insurer, whether and to what extent plan benefits are guaranteed under a policy of insurance, and the nature of any administrative services (e.g., payment of claims) provided by the insurer. in the case of a welfare plan providing extensive schedules of benefits (e.g., a GHP): only a general description of such benefits is required in the SPD if reference is made to detailed schedules of benefits which are available without cost 24

25 Can I Wrap That For You? Plan documents come in all shapes and sizes One drafting approach commonly used today for ERISA plans is the wrap-around plan document The written wrap plan document wraps around existing plan terms and language in the underlying insurance/aso benefit contracts and incorporates that language into the written plan document The wrap SPD wraps around the applicable carrier booklets and, together, functions as the SPD for the benefit features described in the SPD 25

26 Plan Configuration Plan Configuration affects: The number of ERISA plans and the same number of form 5500 filings The minimum number of plan documents required How many 3-digit plan numbers are required Inheritance: Mature groups have a historical plan configuration Newly drafted docs follow historical Form 5500s Unless plan configuration changes are made concurrent with the new documentation 26

27 Example of a Traditional Plan Configuration Medical Plan #501 Dental Plan #502 Life Ins. Plan #503 LTD Plan #504 Flex Benefit Plan #501 [?] 27

28 Consolidated Configuration Company Employee Benefit Plan # Plan Doc Component plan of #501 HRA Plan Doc Component plan of #501 Health Coverages Life Coverages Disability Coverages 28

29 Employer Shared Responsibility (Pay or Play) (Employer Mandate) (4980H) 29

30 The Key Steps to Compliance with the ESR Determine Applicable Large Employer (ALE) each year If an ALE, determine the date any ESR penalties may first become effective Identify full-time EEs who must be offered coverage to avoid penalties Determine full-time EE contribution needed to meet affordability standards Design coverage to ensure minimum value Plan documentation reflecting FT EE eligibility 30

31 Employer Shared Responsibility (ESR) for Large Employers Employers are generally not required to offer health coverage to employees Applicable Large Employers (ALE) may be liable for penalties if any FT employee enrolls in exchange coverage and receives a subsidy Small employers (< 50 FTEs) are not subject to penalties. Delay for mid-sized (50 to 99 FTEs) ERs Full-time employee is employed on average at least 30 hours of service per week (130 hours per month) ESR penalties are NOT tax deductible by the employer Commonly owned/affiliated ERs are aggregated for ALE determination only 31

32 Employer Shared Responsibility Penalty Based on FT Employees ALE is liable for assessment if FT EE enrolls and receives exchange subsidy Penalty A -- No Offer Penalty: The ER fails to offer substantially all FT EEs enrollment in coverage through an ER sponsored plan providing minimum value; Penalty/Mo. = $ X all FT EEs, excluding the 1st 30 FT EEs (1 st 80 in 2015) (prorated among affiliated members) Penalty B -- Unaffordable/Inadequate Coverage Penalty: The ER offers substantially all FT EEs enrollment BUT coverage either is not affordable for that EE or does not provide minimum value Penalty/Mo. = $250 X each FT EE in exchange w/subsidy, but capped at no more than the no offer penalty Disaggregate affiliated entities to calculate penalties 32

33 Must Offer to Substantially All FT EEs The ER must offer substantially all FT EEs enrollment in coverage that is affordable and provides minimum value Substantially all = 95% of FT employees (and their dependent children beginning in 2016) Regardless of whether the failure to offer is inadvertent or by design For 2015 CY and non-cy plans, substantially all = 70% of FT employees (and their dependent children beginning in 2016) 33

34 Premium Subsidy for Individuals with HH Income Between 1X and 4X FPL Refundable premium tax credit paid in advance directly to QHP For individual market coverage purchased through an Exchange (400% of FPL: one = $45,960; 4 fam = $95,400) Individuals not eligible, if: Eligible for an affordable ESP based on HH income Actually enrolled in an ESP (including through a family member) even if not affordable or not providing MV Eligible for Medicare, Medicaid or other governmental plan Purchasing a low-cost catastrophic coverage exchange policy Affordable employer-sponsored plan (ESP) EE share of EE only premium 9.5% of household income The ESP provides minimum value (MV) (at least 60% AV) 34

35 ESR Applicability Size Matters 100+ FTE Employers in 2014 are in the game beginning in to 99 FTE mid sized employers in 2014 may delay until end of 2015 PY Small Employers under 50 FTEs in 2014 are not subject to ESR 35

36 50 to 99 Mid Size Delay to 2016 Subject to 4 Requirements Limited Workforce Size must employ on average from 50 to 99 full-time employees (including equivalents) on business days in 2014 No Reduction in Workforce or Overall Hours from 2/9/14 thru 12/31/14, except for bona fide business reasons, to fall under 100 No Elimination/Material Reduction in Health Coverage Offered -- as of 2/9/14 thru end of 2015 plan year ER contribution for EE only coverage must be 95% or more of ER dollar contribution in effect on 2/9/14, or same or higher % of cost Must provide MV after any changes to coverage after 2/9/14 Eligibility terms cannot be narrowed or reduced from 2/9/14 Certify to IRS satisfaction of the 3 requirements above as part of 6056 ALE information filing 36

37 ESR Revised Penalty Effective Dates Plan Year 2016 for mid sized firms meeting applicable requirements January 1, 2015 for large calendar year plans First day of 2015 plan year for large non-calendar year plans in place as of 12/27/12, IF the following Significant Percentage tests are met: Enrollment Test: at least 25% of ALL employees (full-time and parttime) OR at least 33% of FT employees only who were enrolled in the plan on any date in the 12 months ending on 2/9/14 OR Offer Test: the plan was offered to at least 33% of ALL employees (full-time and part-time) OR to at least 50% of FT employees only during the most recent open enrollment period prior to 2/9/14 AND Full-time employees are offered affordable, adequate coverage no later than the first day of the 2015 plan year 37

38 Identifying Applicable Large Employers ALE employs during the preceding calendar year an average of 50+: full-time (FT) employees PLUS full-time equivalent (FTE) employees COMBINED Annual calculation is an average of the monthly determinations for the year # of FTE employees is determined by adding the hours of all non-ft employees for each month (but not more than 120 for any EE) and dividing by 120 Commonly owned companies are aggregated to determine ALE status only Sole proprietors, partners, leased EEs and 2% or more S corp shareholders are NOT considered EEs. Seasonal workers ARE considered EEs, however 38

39 Calculating Full-Time and Full-Time Equivalent Employees each Month of Prior CY Count up the number of FT employees with 130+ hours of service for the month and combine with the FTEs calculated below for the month. KEEP any decimal rounded to hundredths place. Aggregate PT hours and divide by 120 to determine number of FT EQUIVALENTS (FTE) for the month. Then add to the FT number above for the month 39

40 Calculating FT and FT Equivalent Employees for Preceding Cal Year Jan Apr May Aug Sept Dec Total Feb Mar Jun July Oct Nov ALE = 50.0 or more Divide the sum of the 12 monthly totals by 12 and DROP any decimal. 40

41 2014 Transition Rule for ALE Determinations for 2015 For ALE determinations made in 2014 for the 2015 calendar year, Employers may use: a period of at least 6 consecutive calendar months in 2014 as chosen by the employer rather than the entire 2014 calendar year For Example: an employer could use: -- the period from May through October, 2014 to determine its ALE status, and -- if the employer is an ALE, the period from November through December, 2014 to make any needed adjustments to its plan in order to comply with ESR 41

42 28 Ways to Determine ALE Status in 2014 for

43 28 Ways to Determine ALE Status in 2014 for 2015, pt 2 43

44 Identifying Full-Time Employees: FT Defined Full-time employee means an employee who averages at least 30 hours of service per week for a calendar month 130 hours of service in a calendar month is the equivalent of at least 30 hours of service per week (1560 hours of service annually) Full-time employee FT equivalent (FTE) employee used to determine employer size Tracking FT employees each month will likely require complex counting and recordkeeping Non-FT employees not counted for coverage or penalty purposes 44

45 Identifying Full-Time Employees: Hours of Service An employee s hours of service include time paid for: vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence Hours worked outside the US are disregarded Special rules where Hours of Service may not count for certain employees Student Employees federal work study, unpaid interns Volunteer Employees unpaid volunteers generally and bona fide volunteers for a government entity or tax exempt organization receiving only reasonable expense reimbursement, benefits and nominal fees Members of religious orders who have taken a vow of poverty 45

46 Identifying Full-Time Employees: Counting Hours of Service Hourly employees: actual hours of service must be tracked Non-hourly employees - use one of three methods: Track actual hours of service 8 hours of service/day if at least one hour worked that day 40 hours of service/week if at least one hour worked that week Equivalency method must reflect actual hours worked Adjunct faculty 2.25 hours of service per classroom hour for teaching, prep time and grading plus required time outside the classroom each week for office hours, etc. On-call hours Credit for paid on call hours where EE is required to remain on premises or where activities are substantially restricted 46

47 Identifying Full-Time Employees: Newly Hired Employees There are 4 categories of new employees: FT, PT, Variable Hour and Seasonal 4 Categories of new employees are divided into 2 groups: New FT employees and New variable hour / seasonal / part-time employees Variable hour -- on start date, employer unable to determine if EE reasonably expected to be employed on average 30 or more hours of service per week Seasonal -- is customary annual recurring employment of 6 months or less (holding a visa is not relevant) Part Time EE hired with reasonable expectation of working less than 30 hours per week 47

48 Identifying Full-Time Employees: New FT Employees New FT Employee: on start date, EE reasonably expected to be employed on average 30 or more hours of service per week Employer must offer coverage to a new FT employee to be effective within 90 days of eligibility Facts and circumstances that show reasonable expectation include: whether replacing someone who was or was not FT the extent same or comparable positions are FT whether job was advertised or in job description or offer letter as requiring 30 or more hours of service per week 48

49 Identifying Full-Time Employees: Monthly Measurement Method Based on hours worked each month Under the monthly measurement method, employees can pass in and out of full time status and the requirement to be offered coverage If insured, employer would need to coordinate with carrier on issues with this method New rules allow calculation based on optional weekly rule, using successive one week periods applied consistently (a/k/a the weekly rule) Under this method there aren t any stability periods where person may no longer be FT, but must deal with monthly enrollments 49

50 3 Month Exception to Penalty Assessment Applies to Look Back and Monthly Measurement methods ER will not be subject to penalty assessment for not offering coverage no later than the first day following the end of the employee s first 3 full calendar months of employment if the EE is still employed on that day. Applies only once per period of employment of an employee This is not the same time period as the 90-day limit on waiting periods for coverage under the ACA market reform rules 50

51 Employee Eligibility for the Monthly Measurement Method Simple statement of required hours of service and any waiting period, without more, is likely a default election of the MMM Example: The following individuals are Benefit Eligible Employees for medical and dental coverage under the Plan: Full-time Employees credited with at least 30 hours of service per week on average (at least 130 hours of service per month). Benefits commence as of the first day of the month following 30 days of employment with the Plan Sponsor. 51

52 Employee Eligibility for the Look Back Measurement Method Will be more complicated than simple statement of required hours of service and any waiting period Likely elements of eligibility provision: Hours of service and any waiting period PLUS Reduction to 30 hours if planned for a future date Identification and length of look back period for ongoing employees and commencement date Identification and length of look back period for new, non-ft employees (variable, seasonal, PT) and commencement date Break in service rules Safety valve provision for future ACA changes that impact plan eligibility provisions 52

53 Identifying Full-Time Employees: Optional Safe Harbor Determination Method Look back Measurement Period for counting hours of service Stability Period during which coverage is provided based on FT status in Measurement Period (regardless of actual status during the Stability Period) Administrative period to allow time for enrollment and disenrollment between MP and SP Safe harbor requirements differ for: Ongoing vs. new employees As to new employees, those expected to work FT vs. Variable hour, seasonal and PT employees 53

54 Identifying Full-Time Employees: Ongoing EE Measurement Periods Ongoing Employee = employed for at least one Standard Measurement Period (SMP) Standard Measurement Period (SMP): the look back period not less than 3 months nor more than 12 months in length Can be adjusted for weekly, bi-weekly or semi-monthly payroll periods Standard Stability Period (SSP): the greater of 6 calendar months or the length of the SMP, following the SMP and any AP, where the employee has the status attained during the SMP Administrative Period (AP): optional period between the SMP and SSP not exceeding 90 days 54

55 Transitional Measurement Period for 2014 Only Employers that plan to use a 12 month Standard Stability Period (SSP) starting in 2015 may use a transitional measurement period (TMP) in The TMP: May be shorter than 12 months but cannot be less than 6 months Must begin no later than July 1, 2014 and Must end no earlier than 90 days before the first day of the plan year beginning in

56 Using Optional Transitional Measurement Period in 2014 ONLY Assumption: Employer will use a 12-month standard stability period for its April 1 fiscal year health plan beginning on April 1, To determine ongoing employees as of Jan. 1, 2015, employer elects to use the TMP in 2014 and counts as full-time all employees who worked an average of at least 130 hours per month during the period July 1, 2014 to Dec. 31, 2014 Trans. Measurement Period 7/1/ /31/ Cal Months Admin Period 1/1/15 3/31/15 4/1 Plan Year Standard Stability Period 4/1/2015 3/31/2016 1/1/2014 1/1/2015 1/1/2016 1/1/2017 Employees hired on or before 7/1/14 Example: On Dec. 31, 2014, employer looks back and identifies employees employed on or before July 1, 2014 who worked at least 780 hours during the 6 month period. Assuming employee is still employed on Jan. 1, 2015, employer must offer coverage or pay penalties during the 12-month stability period as long as they remain employed. Employers offering coverage can take an administrative period up to 90 days to enroll the employee. 56

57 Determining Full-Time Ongoing Employees as of Jan. 1, 2016 (yr. 2) Assumption: Employer uses 12-month calendar year standard measurement period for its April 1 fiscal year health plan. To determine ongoing employees as of Jan. 1, 2016, employer counts as full-time all employees who worked an average of at least 130 hours per month during the 2015 calendar year (Jan. 1, 2015 to Dec. 31, 2015) Employees hired on or before 1/1/ Calendar Year 3 Cal Months Standard Measurement Period 1/1/ /31/2015 Admin Period 1/1/16 3/31/16 4/1 Plan Year Standard Stability Period 4/1/2016 3/31/2017 1/1/2015 1/1/2016 1/1/2017 1/1/2018 Example: On Dec. 31, 2015, employer looks back and identifies employees employed on or before Jan. 1, 2015 who worked at least 1560 hours during calendar year Assuming employee is still employed on Jan. 1, 2016, employer must offer coverage or pay penalties during the 12-month stability period as long as they remain employed. Employers offering coverage can take an administrative period up to 90 days to enroll the employee. 57

58 Identifying Full-Time Employees: Variation of Period Length MP, SP and AP must generally be uniform lengths for all employees but may vary for the following categories: Salaried employees vs. hourly employees Employees whose primary places of employment are in different states Collectively bargained employees vs. non-collectively bargained employees Each group of collectively bargained employees covered by a separate CBA ER can change its SMP and SSP each year, but cannot change for a given year once the SMP has begun 58

59 Identifying Full-Time Employees: New Variable Hour Employees New Variable Hour Employee: on start date, employer unable to determine if EE reasonably expected to be employed on average 30 or more hours of service per week Beginning 1/1/2015, employer must assume the new variable hour employee will be employed for the entire measurement period Initial Measurement Period (IMP): period not less than 3 months nor more than 12 months in length that starts no later than the first of the month following the employee s start date Initial Stability Period (ISP): must be the same length as the SSP for ongoing employees Combined IMP and AP cannot exceed 13 months plus a fraction of a month 59

60 New Variable Hour Employees Assumption: Employer uses 12-month initial measurement period for variable hour employees employed on or after Jan. 1, Variable-hour employees are those whom the employer cannot reasonably determine on their start date will average at least 30 hours of service per week over the course of the initial measurement period. Hired 3/15/2015 Initial Admin Period 3/15/16 4/30/16 1/1/2015 1/1/2016 1/1/2017 1/1/2018 Initial Measurement Period 3/15/2015 3/14/2016 Initial Stability Period 5/1/2016 4/30/2017 Example: Employee starts work 3/15/2015. On 3/14/16, employer look backs to see if employee worked at least 1560 hours over the 12-month period. If so, employer must offer coverage or pay penalties during the 12-month initial stability period as long as they remain employed. Employers offering coverage can take an administrative period up to a combined 13 months (and a fraction of a month) to enroll the employee. 60

61 Transition from New Variable Employee to Ongoing Employee Status Once employed for an entire SMP, employers must test new variable hour employees for FT status under the SMP for ongoing EEs This creates some overlap of measurement periods for the new EE. The IMP and the SMP will likely be tested at the same time during some months If as a result of this testing the new EE meets FT status under the SMP for ongoing EEs: The ER must treat the new EE as FT as of the start of the SSP for ongoing EEs Even if the initial stability period ISP that applies to the new EE has not yet expired 61

62 Transition from New Variable Employee to Ongoing Status (yr. 3) Assumption: Employer uses a 12-month initial measurement period for new variable hour employees employed on or after Jan. 1, Employer also uses a 12-month calendar year standard measurement period for its April 1 fiscal year health plan. To determine ongoing employees as of April. 1, 2017, employer counts as full-time all employees who worked an average of at least 130 hours per month during the 2016 calendar year (Jan to Dec. 1, 2016). Hired 3/15/2015 Standard Measurement Period 1/1/ /31/2016 Std Admin Period 1/1/17 3/31/17 Standard Stability Period 4/1/2017 3/31/2018 1/1/2015 1/1/2016 1/1/2017 1/1/2018 Initial Measurement Period 3/15/2015 3/14/2016 Initial Admin Period 3/15/16 4/30/16 Initial Stability Period 5/1/2016 4/30/2017 Example: EE starts work 3/15/2015. On 3/14/16, ER looks back and determines new EE worked at least 1560 hours over the 12-month IMP. ER must offer coverage or pay penalties during the 12-month initial stability period ending 4/30/17 as long as EE remains employed. EE enrolls eff. 5/1/16. Employer tests EE s hours of service again at the close of SMP ending 12/31/16 and determines employee worked at least 1560 hours during that SMP. ER must offer coverage from 4/1/17 through 3/31/18. 62

63 Rehired Employees (or Those Resuming Service after a Break) A re-hire may be treated as a new employee if: There are 13 consecutive weeks with no hours of service (26 weeks still for educational institutions) Optional Rule of Parity: Break in service is at least 4 weeks long and is longer then the preceding period of service If not treated as a rehire then a continuing employee pre-break measurement/stability periods continue as if no break in service 63

64 Affordability Demonstrating Affordable Health Coverage If coverage is not affordable and one or more EEs qualifies for premium tax credit in HIX, ER will incur an unaffordable / inadequate coverage penalty of $3000 ($250/mo for each FT EE receiving a tax credit) EE contribution for health coverage must not exceed 9.5% of HH income OR one of 3 safe harbor options If using a safe harbor option, FT EE contribution for single coverage only may be used If more than one health option is available, ER may use the least expensive option providing adequate coverage (60% AV) 64

65 Affordability Demonstrating Affordable Health Coverage FT EE contribution for single coverage of ER s least expensive GHP option 9.5% FT EE s actual Household (HH) income - OR - One of the three IRS Safe Harbor proxies for FT EE s HH income: Rate of Pay W-2 FPL Used by the Exchange for purposes of awarding the APTC Can be used by the employer to avoid IRS assessment even if APTC is awarded 65

66 IRS Affordability Safe Harbors Optional SHs can be used for all EEs or for any reasonable category of EEs Form W-2 SH Form W-2, Box 1 income for months during which the EE was eligible for coverage Applied after year end and on EE by EE basis Adjusted if EE not employed the entire year Rate of Pay SH Salaried EE s monthly salary, OR hourly EE s rate of pay X 130 hrs for months during which the EE was eligible for coverage Only available if ER did not reduce EE wages during year Federal Poverty Line SH FPL for a single individual. For 10/1/2013, FPL = $11,490 May use most recent FPL guidelines as of 1 st day of PY 66

67 Affordability Maximum FT EE Contribution at 30 Hours Assumption: FT Employee is paid $13 per hour, works 1560 hours per year, and defers $100 per month of his pay pre-tax into a 401(k) plan and cafeteria plan options. Form W-2 Safe Harbor Rate of Pay Safe Harbor 9.5% x ($19,080 /12) $ mo. 9.5% x ($13 x 130) $ mo. FPL Safe Harbor 9.5% x ($11,490 / 12) $90.96 mo. Example: So long as the EE s share of the monthly premium does not exceed the SH level chosen by the ER, the coverage will be deemed affordable and the ER will not be subject to an unaffordable coverage penalty for that month. Eligibility for exchange subsidies still to be based on affordability of ER coverage relative to employee s HH income. 67

68 Design Coverage to Ensure Minimum Value -- How is it Determined? MV is at least 60% AV (+ or 2%) AV = percentage of total average costs for covered benefits that a plan will cover Regs provide 3 approaches to determine if an employer sponsored plan = MV: AV and MV calculators Design Based Safe Harbor Checklists Actuarial Certification HSA contributions and HRA amounts will be included in MV determination 4 core categories of benefits contribute most to AV: physician/mid-level practitioner care, hospital and ER, RX and lab/imaging svcs. 68

69 Helping Clients Navigate ESR Start NOW Break it down into manageable steps Begin any ALE determination process Consider whether to follow the 2014 transition rule permitting a period not less than 6 months Assess WHEN ESR applies either 1 st plan year in 2015 or 2016 depending on size and applicable rules Over 99 FTEs solidly in the game for 2015 but CY plans may delay compliance until 2015 renewal Mid-sized employers should determine if they can take advantage of the relief delaying ESR until 2016 Employees must be enrolled within 90 days of eligibility beginning in

70 Helping Clients Navigate ESR Client should decide between monthly measurement method vs. look back measurement method No decision means default to MMM Put policies and procedures into place for the appropriate method and any tracking of employees hours of service Be wary of proposed solutions that begin with: Just do this.... Rather, the solution will be customized to your specific client 30 hours of svc. / 90 day wait limitation and variable hour compliance WILL require amendments to GHP documents and enrollment materials in 2014/2015 Proper plan docs and records are the BEST/only defense 70

71 90-Day Maximum Waiting Period 90-day maximum applies to plan years beginning on or after 1/1/2014 for employer plans of all size employers prohibits requiring otherwise eligible participants and beneficiaries to wait more than 90 days before coverage is effective 90 days means 90 calendar days, including weekends and holidays. 90 days 3 months Waiting period = the period of time that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the plan can become effective Being eligible for coverage = having met the plan s substantive eligibility provisions Conditions for eligibility are OK, UNLESS designed to avoid compliance with the 90-day waiting period 71

72 Special Rule for Those Already in a Waiting Period Come the 2014 PY If an individual is in a waiting period for coverage before the date the 90 day wait period limitation applies, then the waiting period can no longer exceed 90 days with respect to that individual beginning on the first day of the 2014 plan year that the 90 day wait period limitation applies 72

73 Special Rule for Those Already in a Waiting Period Come the 2014 PY Example: Coverage scheduled to begin 6/1/14 (104 days from start date) Individual begins work as FT employee 2/17/14 Wait period is 1st of month following 90 days, or 6/1/14 ER Plan year is 5/1/14 Result: Coverage must begin by 5/18/14 (90 days from start date) ( =90) for someone who became eligible on 2/17/14 The 5/1/14 PY/effective date of the 90 day wait requirement occurs during the waiting period Based on the special rule, 1st of the month following 90 days (6/1/14) is 14 days too long and may not exceed 90 days -- even though the waiting period began before the 90 day wait rule became applicable to the plan on 5/1 73

74 Section 6055 and 6056 Information Reporting Requirements 74

75 Information Reporting Requirements reporting is intended to support IRS enforcement of the individual mandate Applies to insurers, self-insured ERs and governmental entities Reporting on each individual and family members to whom minimum essential coverage (MEC) is provided Those declining offered coverage are not reported A summary statement must also be provided to each individual 75

76 Information Reporting Requirements This reporting intended to support IRS enforcement of the ESR provisions Applies to large (ALE) employers subject to ESR Reports GHP coverage provided to FT Ees Those declining offered coverage are included in the report A summary statement must also be provided to each individual Statement used to determine eligibility for the individual premium tax credit 76

77 Combined 6055 and 6056 Information Reporting Final regs permit employers to report under 6055 and 6056 using a single combined form Self-insured employers report 6055 and 6056 on combined form Insured employers use combined form but only complete 6056 section The insurer independently reports 6055 info on a separate form Draft forms are being prepared by the IRS Exact detail required will not be known until draft forms released 77

78 Information Reporting Requirements The final rule requires reporting of the following information: the name, address, and EIN of the ALE member, and the calendar year for which the information is reported the name and telephone number of the ALE member's contact person by calendar month, certification as to whether the ALE member offered to its full-time employees (and their dependents) the opportunity to enroll in MEC under an eligible employer-sponsored plan the number of full-time employees for each calendar month during the calendar year for each full-time employee, the months during the calendar year for which MEC under the plan was available for each full-time employee, the employee's share of the lowest cost monthly premium for self-only coverage providing minimum value, by calendar month the name, address, and taxpayer identification number of each full-time employee during the calendar year and the months, if any, during which the employee was covered under an eligible employer sponsored plan 78

79 More on 6055 and 6056 Information Reporting Both reporting requirements are effective for coverage provided on or after 1/1/15 First information returns to be filed with the IRS and provided to individuals in early 2016 for the 2015 calendar year Employee statements for 2015 must be provided by 1/31/16 Reporting to IRS for 2015 due by 2/28/16, or 3/31/16 if filed electronically Electronic filing required if ER is filing 250+ statements ALE members must file their own returns 79

80 The DOL Investigation / Audit 80

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