HEALTH CARE REFORM AND
THE AFFORDABLE CARE ACT:
WHAT'S NEXT FOR EMPLOYERS
August 1, 2013
Today’s Agenda
• Where We Are With the Delay
• The Basics of Understanding the
Healthcare Reform Decision Making
Playing Field
• Analyzing the “Play or Pay” Decision for
Employers
• Compliance for 2014; DOMA and HIPAA
2
Good News – A Delay
• IRS Notice 2013-45
• One-year Delay for Certain Provisions of
ACA
– Annual Information Reporting
– Shared Responsibility Provisions
3
Bad News – Much Not Delayed
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•
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•
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Exchange Notices by October 1, 2013
Summaries of Benefits and Coverage
Application for Advance Premium Credits
W-2 Reporting
Counting Period for Employer Mandate
Plan Design Mandates
Individual Mandate
4
PPACA – Understanding
Both Sides
• Penalty provisions – "Shared
Responsibility"
– Employer – "Play or Pay"
– Employee/Individual – "Individual Mandate"
5
Individual Mandate Overview
• Each individual must have Minimum Essential Coverage
or pay a penalty via federal income tax return
• MEC can be from:
– Employer-sponsored coverage (including COBRA and retiree medical)
– Individual market purchase (Exchange – federal, state, private – or
otherwise)
– Medicare
– Medicaid
– CHIP
– Veteran's
– TRICARE
6
Individual Mandate
• Who is exempt from individual penalty?
– No federal income tax return required (low income)
– Short coverage gap (< 3 months)
– Unaffordable premiums (>8% of household income)
– Hardship (if certified by Health Insurance
Marketplace)
– Incarceration
– American Indian
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Individual Mandate
• Minimum penalty per individual (annual amounts
shown; actual amounts determined monthly)
–
–
–
–
$95
for 2014
$325
for 2015
$695
for 2016
Children under 18 – 50% of individual
• Excess income amount (if greater)
– Household income less tax filing threshold, times percentage:
• 1% for 2013 and 2014
• 2% for 2015
• 2.5% for 2016
– Not to exceed annual national average bronze plan premium
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Insurance Exchanges
• Public Exchanges
• Private Exchanges
• Small Business Health Options Program (SHOP) for
exchange-purchased coverage
• Small Business Healthcare Tax Credit
– Credit for 2013 – 35%; 50% in 2014
– For non-profits max of 25% credit for 2013; max of 35% for
2014; can be deducted from employer portion of SS withholdings
liability
9
Insurance Exchanges
• 3 Options for ACA Exchanges
– State
– Federal
– State-Federal partnership
• 4 levels of plans
–
–
–
–
Bronze
Silver
Gold
Platinum
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Insurance Exchanges
as of 5/28/13
• 17 States plus D.C. creating own statebased exchanges
• 7 States planning for partnership
exchanges
• 27 States default to Federal exchanges
11
Tax Credits & Cost-Sharing for
Individuals
• For coverage purchased through the
Exchanges:
– Tax credits for people with incomes up to
400% of federal poverty level (FPL)
• Tax credit not available for household income
below 133% of FPL because Medicaid available
– Cost-sharing (lower deductibles & co-pays) for
people with incomes up to 250% of FPL
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Federal Poverty Level
Family
Size
100%
150%
200%
300%
400%
1
$11,170
$16,755
$22340
$33,510
$44,680
2
$15,130
$22,695
$30,260
$45,390
$60,520
3
$19,090
$28,635
$38,180
$57,270
$76,360
4
$23,050
$34,575
$46,100
$69,150
$92,200
6
$30,907
$46,455
$61,940
$92,910
$123,880
8
$38,890
$58,335
$77,780
$116,670
$155,560
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"Pay" or "Play" Overview
• Applies to "Large Employers" (no "pass" for nonprofits; controlled
group analysis applies)
• "Play" - Offer coverage to "substantially all" full-time employees
• Coverage must :
• Provide Minimum Essential Coverage (MEC)
• Meet minimum value rules
• Be affordable
• "Pay" – If offer no coverage or coverage that is not "play" level and
• Employee(s) receive Exchange coverage and
• Premium tax credit, or
• Cost-sharing reduction
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Only Large Employers Must "PLAY"
 Large Employer employed, on average, 50+ Full-time
Employees on business days in the prior calendar year
 Count All Full-time Employees (30+ hours per week)
then add FTEs (divide aggregate hours for Non-Fulltime Employees for the month by 120)
 Apply Controlled Group Rules under Code Section
414(b),(c), (m) and (o) to determine "employer"
 FTE concept only applies for determining "Large
Employer" - do not have to offer coverage to Non-Fulltime Employees; do not use FTE concept for
calculating penalties
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"Large Employer" Refinements
 Actual hours calculated on a monthly basis vs. safe harbor
method
 Fluctuating workforce – not a Large Employer
 if Exceed 50 Full-time Employees for 120 days or less
during the year
 if the Employees in excess of 50 during such 120-day period
were Seasonal Workers
 Large Employer includes "Predecessor Employers"
 Special Rules for "New" Employees – when to count
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Controlled Group Rules
 Controlled Group = 2 or more employers treated as a
single employer
 if there is sufficient common ownership, or
 a combination of joint ownership and common activity.
 "Controlled group of corporations" - a group of
commonly owned corporations (Code Section 414(b))
 "Trades or businesses under common control" - a mixed
group of corporations, partnerships, sole proprietorships,
and other business entities (Code Section 414(c))
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Controlled Group Rules
 "Affiliated service group" - certain types of entities
are linked based on joint activity or a combination of
joint activity and common ownership (Code Section
414(m))
 PPACA Proposed Regs - controlled group rules
 Used to determine Large Employer status
 Not used for "pay" or "play" – decision is at "employer
group member" level
 Subsidiary member
 Division, plant or other informal part of business is not an employer
group member
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What it Takes to "Play"
• Provide Minimum Essential Coverage to Substantially
All Full-time Employees (and dependents) which
meets rules for:
• Minimum value
• Affordability
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"Play" - Employer Group
Health Plan
• Employer-sponsored group health plan is MEC
– Can be insured or self-insured
• Must meet rules on no lifetime or annual limits
• Insured plans must provide "essential health
benefits," determined state by state
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"Play" – "Substantially All"
Definition
• Offer minimum essential coverage to at
least 95% of Full-time employees (and
their dependents) – OR – if greater – to 5
Full-time employees (and their
dependents)
• Can be deliberate exclusion from coverage
(but watch Title VII and other
discriminatory practices)
21
"Play" - Dependents
• Must offer coverage to an employee's child
(son, daughter, stepson, stepdaughter,
adopted child, child placed for adoption
and foster child) – up to age 26
• Not required to offer coverage to spouse
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"Play" - Coverage
• Each employee must have an effective
opportunity to accept coverage at least
once during the plan year
• Enrollment opportunity can be by
electronic means
• Offer of coverage is required; actual
coverage is not
– If employee declines coverage, document it
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"Play" - Minimum Value Coverage
 Employer coverage must provide “minimum
value”
 “Minimum Value” – plan (employer) must pay at
least 60% of actuarially projected cost of covered
services (safe harbors being developed)
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"Play" – Affordable Coverage
• “Affordable” – low wage employee’s share of cost
of lowest cost self-only coverage option <9.5% of
employee’s household income
• Safe harbors
– Use Form W-2 wages for that calendar year
– Use rate of pay (take hourly rate for each eligible hourly
employee, multiply by 130 and determine affordability based on
the monthly wage)
– Use Federal Poverty Level – the most recently published federal
poverty level for a single individual ($11,170 x 9.5% =$1,061.15
or $88.42 per month)
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"Pay" – $2,000 Penalty For No
Coverage
 If Employer Group Member does not meet "substantially all" level of
coverage for Full-time employees, then considered "No Coverage",
and
 If one or more of such Full-time employees enrolls in Exchange
Coverage and receives a Premium Tax Credit , then
 Assessable Payment is $2,000/year for EACH Full-time employee of
the Employer Group Member (excluding the first 30, applied pro rata
over controlled group)(calculated on a monthly basis)
 Note: if Employee is eligible for employer coverage but does not take
it, Employee is not eligible for Premium Tax Credit
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"Pay" – $3,000 Penalty for "NonAffordable" or "Less than Minimum
Value" Coverage
• Penalty different if Employer Group Member provides MEC
Group Health Plan to "substantially all" Full-time employees
(and dependents), but such coverage does not satisfy
affordability or minimum value requirements
- $3,000/year for each Full-time employee who enrolls in Exchange
coverage and receives a premium tax credit (calculated on a
monthly basis)
- Penalty cannot be greater than the $2,000 per Full-time employee
penalty if no health coverage offered
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Key to Penalties – Determine
Full-Time Employees
• Full-time = average of at least 30
hours/week; 130 hours/month
• Non-variable hour employees (salaried,
hourly regular) – assume status at hire
• Variable hour employees (seasonal,
fluctuating hours, substitutes, etc.) –
special rules for determining status
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Employee Determination
• Status determined by periods
– Measurement/lookback period – count hours
and identify full-time; new hire measurement
period
– Stability period – when coverage must be
offered to full-time employees
– Administrative period – up to 90 days
between periods to confirm data and conduct
enrollment
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Limiting Liability
• Ensure employees are not getting advance
payment of premium tax credits to which not
entitled
– Administered by HHS; appeal process for employers
– Show employer coverage is a "QHP" (Qualified Health Plan) and that
employee is eligible
• Ensure only employees who are "full-time" are
used in penalty calculations
– Administered by IRS; retrospective assessment
– Show employee does not meet "full-time" criteria – keep records!
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Limiting Liability
• Strategies for Cost Reduction
– Retiree-Only Plans
– Cost to insure vs. penalties plus employee
taxable stipend
– Use of HRAs (consider integration rules) (may
want to use for retiree only plans)
– Use of "substantially all" threshold
31
ACA for 2014
• SBCs – distribute during open enrollment
for the 2014 coverage period, must specify
whether the plan provides minimum value
• Exchange Notices – Must distribute by
October 1, 2013 and thereafter to new
employees upon hire
– Model for Employer with Coverage and Model
for Employer without Coverage
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ACA for 2014
• Application for Advance Premium Credits
– Employer is required to complete a 12 page
form, "Application for Health Coverage and
Help Paying Costs," when requested by
employee who is applying for advance
premium tax credits when purchasing
coverage on the market
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ACA for 2014
• W-2 Reporting – report the aggregate
value of health coverage on Forms W-2
• Counting Period for Mandates – Need to
determine whether subject to mandate in
2015; need to document employee hours
in 2014
• Benefit Mandates – waiting period; no
limit; wellness incentives; dependent
coverage
34
Same-Gender Spouse Coverage
• Supreme Court Ruling on June 26, 2013
struck down DOMA Section 3 which
barred same-gender married couples from
being recognized as "spouses" for all
purposes of Federal law
• Many unanswered questions
– Pre-tax or post-tax; does state of residence
control?
– HIPAA special enrollment rights?
35
HIPAA Update
• Final Omnibus Rule requires compliance
by September 23, 2013
• Privacy Notice
• Privacy and Security Policies and
Procedures
• Authorization Form
• Workforce Training
• Business Associate Agreements (transition
rule)
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YOUR
QUESTIONS
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Susan E. Stoffer, Partner
sue.stoffer@nelsonmullins.com
404.322.6374
Nelson Mullins Riley & Scarborough, LLP
DISCLAIMER REGARDING TAX ADVICE - IRS CIRCULAR 230 DISCLOSURE:
To ensure compliance with requirements imposed by the IRS, we inform you that any federal tax advice contained in this
communication (including any attachments) is not intended to be used, and cannot be used, for the purpose of (i) avoiding
penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction
or matter communicated to you.
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