COMPLY &CONQUER. Employer Mandate Penalties: Ducking the Sledgehammer and Tack Hammer

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1 INSIGHT TO ACTION COMPLY &CONQUER Employer Mandate Penalties: Ducking the Sledgehammer and Tack Hammer Ed Doherty, Esq., Cammack Health Darcie Falsioni, Esq., Nixon Peabody Presented by

2 The Sledgehammer Penalty AGENDA Part 1: Background Part 2: Challenges Part 3: Solutions CLE Credit Information Review Attendance verification code will be provided during the webinar Questions & Answers 2

3 The Sledgehammer Penalty PART 1: BACKGROUND 3

4 Effective Date Effective Date Depends on Several Factors Employer Size Employers with 100+ FTEs: generally January 1, 2015 Employers with FTEs: Generally January 1, 2016 if employer qualifies for the employer size transition rule Otherwise generally January 1, 2015 Plan Year If the Plan Year of the health insurance plan is not a calendar year, then the effective date may be delayed until the first day of the Plan Year in 2015 or 2016 (as applicable), if the employer qualifies for the fiscal year transition rules 4

5 Definition of Full-Time Employee A full-time employee is defined as an employee who averages 30 hours of service for the employer per week, or 130 hours of service per month Count actual hours taking into account hours for all members of the controlled group Special exceptions for bona fide volunteers (e.g., volunteer firefighters, EMTs) and federal work study programs 5

6 The Sledgehammer Penalty Effective January 1, 2015, large employers that do not offer health coverage to substantially all of their full-time employees and their dependents, and that have at least one full-time employee receiving a subsidy from the federal government, will have to pay an annual tax of $2,000 per each full-time employee Applies to every full-time employee on the employer s headcount, including employees not receiving a government subsidy and employees who actually receive employer health insurance Disregards the first 30 employees 2015 Transition Rule: If a large employer has 100 or more full-time employees, the first 80 employees are disregarded Substantially All = 95% of full-time employees 2015 Transition Rule: 70% of full-time employees for 2015 only 6

7 The Sledgehammer Penalty Dependent = Biological and adopted children to age 26 Prior requirement to cover step and foster children eliminated Does not require coverage for a spouse Dependents must be covered until the end of the month that they turn Transition Rule: Employers won t be penalized if took steps to expand dependent coverage but the coverage was not in place by 2015 (e.g., if requested to add coverage, but carrier did not have in place on time) Penalty is calculated monthly (i.e., $2,000/12) 7

8 The Tack Hammer The penalty imposed on an employer that offers coverage that is unaffordable or does not satisfy the minimum value rule is a tax of $3,000 per year for each full-time employee who actually receives federal premium assistance for coverage Minimum Value Standard: The plan must pay at least 60% of the cost for covered benefits under the plan Affordability Standard: Employee s share of the cost for single coverage (for the employer s least expensive option providing minimum value) cannot exceed 9.5% of the employee s household income Capped at the amount employer would owe under the Sledgehammer penalty 8

9 Affordability Regulations provide three safe-harbors that can be used as proxies for household income: The Federal Poverty Line for a single individual The employee s W-2 wages (Box 1) The employee s Current Monthly Pay Rate at beginning of plan year (salary if exempt, or hourly rate X 130 hours/mo. if non-exempt) If hourly employee s salary is reduced, use of lowest rate of pay for that month is now permitted An employer may use these optional safe harbors for all its employees or any reasonable classification on a uniform and consistent basis Reasonable classifications include specified job categories, nature of compensation (hourly or salary), geographic location, and similar bona fide business criteria) 9

10 Affordability Impact of Wellness Credits Wellness program financial incentives that affect cost-sharing provisions (deductibles, coinsurance, co-pays, etc.) will count toward the Minimum Value percentage only to the extent the incentives relate to tobacco use The affordability of an employer-sponsored plan will be affected only to the extent the wellness program financial incentive is delivered in the form of a premium subsidy or surcharge related to tobacco use Premium discounts for other wellness incentives are ignored in the affordability calculation 10

11 Unions and Collective Bargaining Other Entities May Offer Coverage on Behalf of Employer An offer of coverage includes an offer of coverage made on behalf of an employer, including: An offer by another member of the same controlled group An offer made by a multi-employer or single employer Taft-Hartley plan on behalf of a contributing employer of that employee, but only if the coverage offered is affordable and provides minimum value An offer made by a MEWA to an employee on behalf of a contributing employer of that employee An offer made by a PEO or staffing firm to the client employer s employees, but only if the fee the client employer would pay to the staffing firm for an employee enrolled in health coverage under the plan is higher than the fee the client employer would pay to the staffing firm for the same employee if the employee did not enroll in health coverage under the plan 11

12 The Sledgehammer Penalty PART 2: CHALLENGES 12

13 Challenges for Health Care Employers Determining Who Is Full-Time Establishing measurement and stability periods Tracking hours New employees: full-time, not full-time, and variable hour employees 13

14 Establishing Measurement Stability Periods Hours are tracked during a Standard Measurement Period and used to determine the employee s status during the Standard Stability Period. Standard Measurement Period: period designated by the employer that lasts between 6 and 12 calendar months Standard Administrative Period: optional period of time after a Standard Measurement Period and before the next Standard Stability Period, which cannot exceed 90 days. Each Standard Administrative Period overlaps the prior Standard Stability Period Standard Stability Period: period designated by the employer that lasts between 6 and 12 months that begins after, and is no shorter than, the Standard Measurement Period 14

15 Establishing Measurement Stability Periods The standard measurement and stability periods must be the same length of time, and at least 6 but no more than 12 months Transition Rule: For an initial 12-month Standard Stability Period beginning in 2015, employer may use a one-time shorter measurement period that begins on or before July 1, 2014, lasts at least 6 months, and ends no sooner than 90 days before start of the Standard Stability Period 15

16 Establishing Measurement Stability Periods Measurement and Stability Periods Should Be Twelve Months Averages out seasonality Decreases number of new full-time employees if experiencing a spike in contingent employee use Measurement and Stability Period Written Policy Plans should adopt a written measurement and stability period 16

17 Establishing Measurement Stability Periods Stability Periods Should Coincide with Effective Dates Most employers have open enrollment in October and November with a year-long effective period of January December Measurement Period Can Coincide with Payroll Periods Measurement period can adapt year-to-year with payroll periods for greater convenience of running hours report 17

18 Tracking Hours Employers must count all actually worked by employees and all hours for which employees are due to be paid. Non-Hourly Employees Assume employees work 8-hour days or 40-hour weeks Develop reasonable method for counting hours Method for counting hours must not undercount hours If range of hours possible, credit the upper bound of range Example, per service employees: Employees paid for each time they perform a certain service, such as a home visit If the service could take between 2 and 4 hours, credit each service as 4 hours 18

19 Tracking Hours Leaves of Absence Protected Leaves of Absence: FMLA, USERRA, Jury Duty Exclude days/weeks from calculation of hours Example: Employee out for 12 weeks of FMLA, then average only 40 non-fmla weeks during the year to determine whether 30+ hours Credit employee with same average hours worked of non-protected leaves Example: Employee worked 32.3 hours per week on average for 40 weeks, credit hours for 12 FMLA weeks Non-Protected Leaves of Absence: Disability, Unpaid Leaves Credit employee with zero hours during this time If leave is beyond 13 weeks, then employer could consider return as a new hire Normal plan operations still apply! 19

20 New Employees Three Buckets: Full-Time, Part-Time, Variable Hour Full-Time = Expected to work 30+ hours per week Part-Time = Not expected to work 30+ hours per week Variable Hour = Unknown how many hours; could go either way Track new hires and whether the new hire is full-time, part-time, or variable Must know months of full-time status for health information reporting Variable hour employees could become full-time employees based on initial measurement period Temporary employees must be treated as either full-time or parttime If full-time hours at hire, then treat as full-time employee 20

21 Challenges for Health Care Employers Offering Coverage Per diem or contingent employees Union employees Employees working at multiple entities within group Temporary employees Common law employees, including affiliated doctors Affordability of Coverage Part-time contributions Contributions for newly eligible employees 21

22 Per Diem Employees Typically not offered medical benefits but well-paid Sometimes retirees who return to work Could work 30+ hours per week over the course of the year Highly variable in number of hours per month Could be working at multiple entities within the same employer group In a population of several hundred per diems, usually two or three dozen per diems working 30+ hour per week 22

23 Union Employees Receive benefits either from a multi-employer union plan or from the employer but subject to collective bargaining constraints Usually contributions are lower for union populations Can have limited coverage options depending on classification of employee Examples: No dependent coverage available Exclusion of major benefit components, such as hospitalization 23

24 Common Law Employees Employer mandate analysis applies to all employees, including those that an employer might consider independent. Some doctors or consultants working with hospitals could be employees Workers from professional employer organizations (PEO) typically are employees of the PEO Determining whether someone is an employee or not is highly dependent on the facts and circumstances of the relationship between the employer and the individual. If there is a question, employers should have a labor attorney provide an analysis as legal work product 24

25 Affordability Many employers require part-time employees to contribute more toward medical insurance. Some part-time employees could be full-time for purposes of employer mandate Higher part-time contributions could trigger penalties but only for those who are full-time employees Part-time employees working part-time hours cannot trigger penalties Expanding coverage to currently-ineligible employees should be affordable too. 25

26 Value A plan qualifying as providing minimum value is a low threshold. Even high deductible plans still meet the requirement to pay at least 60% of expected medical costs Health care employers tend to provide rich plans, equivalent to Gold or Platinum plans offered on the health insurance exchanges 26

27 The Sledgehammer Penalty PART 3: SOLUTIONS 27

28 Developing a Compliance Strategy 1. Run Measurement Analysis and Determine Scope of Problems Determine whether employer is potentially subject to sledgehammer penalty Determine whether contributions are unaffordable for any employees 2. Determine Costs of Options for Avoiding Penalties Depends on whether plans are insured, availability of different benefit options, size of affected population 3. Determine Risk Tolerance Tack hammer penalties depend on contingencies of employees purchasing health insurance on an exchange and receiving a subsidy Some employers worried about employee relations souring if employer decides to pay penalties instead of adjusting benefits 28

29 Avoiding the Sledgehammer Expand coverage to at least 95% of full-time employees. For 2015, the threshold is 70% Coverage does not have to be the same for currently-ineligible full-time employees. Offer coverage that is minimum essential coverage (MEC) Offer a different, cheaper benefit option, such as a High Deductible Health Plan (HDHP) or HMO Administrative ease, offer same benefit but different contributions 29

30 Avoiding the Sledgehammer Cheap Option: Expanding Current Options with Different Contributions Extend current medical options to all those currently ineligible working full-time hours Charge higher contributions, much like most part-time employees pay higher contributions Employer could charge the full premium and still avoid the sledgehammer penalty Leaves employer potentially liable for tack hammer penalties 30

31 Avoiding the Sledgehammer Cheaper Option: New HDHP or EPO Option Most health care employers plans are rich and expensive Even with higher employee contributions, employees actually taking the coverage could be expensive Instead, offer HDHP or cheaper EPO option to newly-eligible population Eligibility for new option must be clearly communicated to avoid suits under ERISA New option would be new benefit plan with more filing requirements unless wrapped into current plan structure 31

32 Avoiding the Sledgehammer Cheapest Option: Offering MEC MEC is any employer-sponsored group health insurance and may be less valuable than required to be valuable MEC could exclude whole categories of typical medical insurance In theory, MEC could cover only preventive medical services and clinical trials and still satisfy the requirement for employers to offer medical insurance MEC must still have the option of dependent children coverage Since offering bare MEC plans is just trying to avoid the sledgehammer, employee contributions could be 100% of the premium Employers would still face tack hammer penalties because the idea of MEC is just to avoid sledgehammer penalties and not provide value and/or be affordable 32

33 Avoiding the Sledgehammer Extend w/ Higher Contributions New HDHP/EPO MEC PRO Relatively simple to administer Cheaper than extending richer benefits Could cost employer minimally Possibly more affordable rightsizing CON Expensive Pricing a limited new benefit Communicating how to use new benefit Could be insulting to employees Bad PR 33

34 Avoiding the Sledgehammer Don t tread near 95% Possibility of triggering penalty if dangerously close to threshold Layoffs, mergers, or other drastic corporate actions can change denominator and trigger penalty Example: Hospital with 1000 full-time employees offers 950 medical insurance. Mid-year, the Hospital sells a practice that had 100 employees who were all offered medical insurance. Hospital now offers insurance to 850 of 900 full-time employees, or 94.4%. If any fulltime employee receives a subsidy, then Hospital would owe $145,000 per month, or $1,740,000 per year, because the Hospital fails to offer coverage to 95%. 34

35 Avoiding the Tack Hammer Adjusting unaffordable contributions Instituting salary/earnings bands Base contributions as percentage of pay Dividing contributions between employees working full-time and those regular part-time employees Offering new, cheaper benefit with lower contributions Lower single contributions, increase family contributions 35

36 Avoiding the Tack Hammer Adjusting staffing policies Establish policy of part-time and/or per diem workers not allowed to work more than 30 hours per week Requires management control Constantly monitoring hours worked by department Convert employees working full-time into full-time positions Logic: If employees are actually working full-time then the department apparently needs a full-time employee More benefits and rights to full-time employees could be expensive 36

37 Doing Nothing Many health care employers already offer rich benefits to most of their full-time staff If the sledgehammer penalty is not a threat, then it may make more sense to keep the benefits policy as it is and accept occasional penalty Offering affordable coverage usually more expensive than the penalty Risk of triggering tack hammer penalty may be low Tack hammer penalty requires a full-time employee to purchase insurance on an exchange and receive a subsidy Subsidies only available to households with income below 400% of Federal Poverty Level Employees may be covered under spouse s, parents plan Penalty is not a violation or crime, it is an excise tax. 37

38 New Blog Coming Soon Additional information sent in November Healthcare Reform Webinar, April Will include link in after this webinar 38

39 Comply & Conquer: The Series Cammack Health LLC's complimentary webinar series for executives in healthcare features industry leaders including TIAA-CREF, Cammack Health, Nixon Peabody LLP, and Cammack Retirement Group. Our short on-point webinar sessions feature a straightforward, practical approach to compliance to help plan sponsors turn insight to action. The Tax Man Asketh: Health Information Reporting to Employees and the IRS Ed Doherty, Esq., Cammack Health and Darcie Falsioni, Esq., Nixon Peabody Thursday, November 20, 2014, 2-2:30 pm Collective Bargaining for Healthcare Organizations in the Age of the ACA Michael Lindsay, Esq., Nixon Peabody and Erin O'Connor, Esq., Cammack Health Thursday, December 18, 2014, 2-2:30 What Every Healthcare Organization Needs to Know About Retirement Fiduciary Compliance Steven Kronheim, TIAA-CREF, Mike Webb, AIF, CEBS, Cammack Retirement Group, and Eric Paley, Esq., Nixon Peabody Thursday, January 15, 2015, 2-2:30 39

40 Comply & Conquer: The Series, continued Avoiding Dangerous Fiduciary Compliance Mistakes for Health and Welfare Benefit Plans Ed Doherty, Esq., Cammack Health and Darcie Falsioni, Esq., Nixon Peabody Thursday, February 19, 2015, 2-2:30 Building Compliant Outcome-Based Wellness Incentive Programs Mary Clark, JD, Cammack Health and Darcie Falsioni, Esq., Nixon Peabody Thursday, March 19, 2015, 2-2:30 Structuring Wellness Incentives to Avoid Discrimination Claims Erin O'Connor, Esq., Cammack Health and Darcie Falsioni, Esq., Nixon Peabody Thursday, April 16, 2015, 2-2:30 Go to to register Link will be provided in sent following this webinar 40

41 CLE Credit Information Complete and return your Certificate of Attendance and evaluation form to Lois Bowers, or fax , within 48 hours When we receive your attendance verification form, we will issue you a certificate of completion within 30 days All attendees will receive a link to the presentation slides after this presentation today Attendee verification code: NPCLE

42 CLE Credit Information CLE/HRCI documents are downloadable from the file share links below Uniform Certificate of Attendance Continuing Education Evaluation Form Submit these completed forms within 48 hours of attending this webinar All links above will be sent to you after this presentation 42

43 Thank You! We look forward to your feedback on future webinars Registration link to all Comply & Conquer sessions will be provided in sent following this webinar Questions are welcome Reach out to our presenters; Edward Doherty, Esq., Cammack Health Telephone: Darcie Falsioni, Esq., Nixon Peabody Telephone: