360 Degrees of Health Care Reform:
Analysis and Strategy for Brokers
Presented by:
Scott Wham, Esq.
Michael Troy
Small Group Defined Employer
Contribution: 29 CFR 1625.10(d)(4)(ii)
(ii) As a condition of participation in a voluntary employee benefit plan. An older employee
within the protected age group may be required as a condition of participation in a voluntary
employee benefit plan to make a greater contribution than a younger employee only if the
older employee is not thereby required to bear a greater proportion of the total premium cost
(employer-paid and employee-paid) than the younger employee. Otherwise the requirement
would discriminate against the older employee by making compensation in the form of an
employer contribution available on less favorable terms than for the younger employee and
denying that compensation altogether to an older employee unwilling or unable to meet the
less favorable terms. Such discrimination is not authorized by section 4(f)(2). This principle
applies to three different contribution arrangements as follows:
(A) Employee-pay-all plans. Older employees, like younger employees, may be
required to contribute as a condition of participation up to the full premium cost for
their age.
(B) Non-contributory (“employer-pay-all”) plans. Where younger employees are not
required to contribute any portion of the total premium cost, older employees may
not be required to contribute any portion.
(C) Contributory plans. In these plans employers and participating employees
share the premium cost. The required contributions of participants may increase
with age so long as the proportion of the total premium required to be paid by the
participants does not increase with age.
Employer Mandate
Generally, IRS Code Section 4980H (“The
Employer Shared Responsibility Provisions,”
“Pay-or-Play”) requires Applicable Large
Employers with 50 or more full-time equivalent
employees (FTEs) to offer coverage to full-time
employees and dependent children up to age
26, or potentially pay penalties
Employer Mandate
Penalties
• Sledgehammer (Generally)
• If coverage is not offered to substantially all full-time employees,
and one full-time employee receives a subsidy to buy health
insurance through a gov’t sponsored Marketplace, employer will
pay:
• [$2,000 x (number of full-time employees - 30)]
• Note: Special rules for Sledgehammer apply in 2015we’ll
discuss later
• Tackhammer Penalty
• If coverage is offered but is not 1.) affordable, or 2.) does not
provide minimum value, employer will pay:
• $3,000 per full-time employee who receives a subsidy through
gov’t sponsored Marketplace
QUICK GROUND RULE!
Full-Time Employee
• An employee who averages 30 hours of service per
week, or 130 hours per month
• This is not always easy identifyMuch, MUCH more
on this later!
Employer Mandate
Four Key Questions for 2015
• 1.) Is the employer subject to the Employer Mandate?
• 2.)If so, on what date must the employer comply?
• 3.) Who must be offered coverage in order to comply with
the Employer Mandate?
• 4.) What are the potential penalties and how do we protect
against them?
Transition Relief
The final regulations provide multiple types of
transition relief
• Transition relief for employers with at least 50 FTEs but fewer
than 100
• Transition relief for employers with 100 or more FTEs
• Non-Calendar Year Plans
• Pre-2015 eligibility transition relief
• Significant percentage transition relief (all employees)
• Significant percentage transition relief (full-time employees)
• Transition relief for Dependent Coverage
FTE Calculation to determine
Applicable Large Employer status
The FTE calculation is only used to determine
whether a group is an Applicable Large
Employer
• Perform the calculation using data from the previous calendar year
• Must be performed across controlled groups
• Employers must aggregate group size across controlled groups
• EXAMPLE: A controlled group consisting of 10 commonly
owned companies where each member employs 20 FTEs
has a total FTE count of 200each member is treated as a
large employer (assessed independently for compliance)
FTE Calculation (Cont’d)
• To determine group size:
• Calculate for each calendar month in 2014, take the
yearly average
• Number of full-time employees
• Number of full-time equivalents
• Add all hours worked by non-full-time employees
in a given month (capped at 120 hours) and divide
by 120Resulting value= FTEs
• Can round to the nearest one hundredth (i.e.
30.544 FTEs for a calendar month = 30.54
FTEs)
• FOR 2014May use any six consecutive calendar months
to perform this calculation
FTE Calculation (Cont’d)
• Hours of Service (Generally):
• “..each hour for which an employee is paid, or entitled to
payment, for the performance of duties for the employer,
and each hour for which an employee is paid, or entitled
to payment by the employer for a period of time during
which no duties are performed due to vacation, holiday,
illness, incapacity (including disability), layoff, jury duty,
military duty or leave of absence.”
• Hourlyentitled to payment
• Salaryreasonable method
• may use equivalenciesi.e., any day worked = 8
hours
FTE Calculation (Cont’d)
• Seasonal Workers
• An employer is not considered to employ more than 50
full-time employees if 1.) the employer’s workforce
exceeds 50 full-time employees for 120 days or fewer
during the calendar year, and 2.) the employees in excess
of 50 employed during such 120-day period are seasonal
workers
• NOTEemployers may use 4 calendar months
instead of 120 days
• Need not be consecutive
• So what‘s a “seasonal worker?”
FTE Calculation (Cont’d)
• Seasonal Worker
• Under the final regulations, a seasonal worker means a
worker who performs labor or services on a seasonal
basis, including (but not limited to):
• Workers covered by 29 CFR 500.20(s)(1). (“Labor is performed on a
seasonal basis where, ordinarily, the employment pertains to or is of
the kind exclusively performed at certain seasons or periods of the year
and which, from its nature, may not be continuous or carried on
throughout the year. A worker who moves from one seasonal activity to
another, while employed in agriculture or performing agricultural labor,
is employed on a seasonal basis even though he may continue to be
employed during a major portion of the year.”); and
• Retail workers employed exclusively during holiday seasons.
• Reasonable Good Faith Definition of Seasonal Worker
Transition Relief: 50 to 99 FTEs
• No penalties imposed for failure to comply with
employer mandate until 2016
• Applies to calendar year and non-calendar year plans
• Must not modify plan year to begin on a later
date (after Feb 9, 2014)
• Certification of compliance required
Transition Relief: 50 to 99 FTEs
(Cont’d)
• Must Maintain Group Size
• Employers may not reduce workforce for the sole
purpose of qualifying for the transition relief
• Reductions in workforce must be for a bona fide
business reason
• Example
• A company with 101 FTEs may not lay off a full-time
employee for the sole purpose of qualifying for the
transition relief
Transition Relief: 50 to 99 FTEs
(Cont’d)
• Must Maintain Coverage
• Between Feb 9, 2014 and Dec. 31, 2015, an employer may not
eliminate or materially reduce the coverage offered to eligible
employees
• Must maintain employer contribution to employee-only
coverage that is at least:
• 95% of the dollar amount contributed on Feb 9, 2015;
or
• Same (or greater) percentage of the cost of coverage
contributed on Feb. 9, 2015
• Must continue to offer minimum-value coverage
• Must not reduce classes of eligible employees/dependents
Transition Relief: 50 to 99 FTEs
(Cont’d)
• Employers must certify to the IRS that it meets the
following conditions:
• Employs between 50 and 99 FTEs
• Did not reduce workforce/hours in order to qualify
• Maintains previously offered coverage
2015 Transition Relief for Employers
with 100+ FTEs
• NO EMPLOYER MANDATE DELAY for employers with 100+
FTEs, however, new transition relief applies:
• Sledgehammer Penalty
• Employers with 100+ employees will not be assessed
“Sledgehammer Penalties” if they offer minimum
essential coverage to at least 70% of full-time
employees (rather than 95%)
• Returns to 95% in 2016
• The maximum Sledgehammer Penalty is the number
of full-time employees minus 80 (rather than 30)
• Returns to 30 in 2016
• Many Non-Calendar Year Plans will be able to
postpone exposure until start of the 2015 plan year
Pre-2015 Eligibility Transition Relief for
Non-Calendar Year Plans
• IF:
• Employer had a plan in place on December 27, 2012
and
• Employer did not modify plan year after December
27, 2012 to begin at a later date
• THEN:
• Transition relief applies for employees who would be
eligible for coverage on the first day of the 2015 plan
year according to the eligibility terms on February 9,
2014
Pre-2015 Eligibility Transition Relief for
Non-Calendar Year Plans (Cont’d)
• No penalties will apply for months prior to the start of
the 2015 plan year if employees who are currently
eligible are offered coverage effective the first day of the
2015 plan year that is:
• Affordable, and
• Provides minimum value
• EXAMPLE:
•
George, Michael, & Wham LLC has a plan year of June 1, 2014, and
currently offers a group health plan to its full-time employees that
meets minimum value, but the plan is not affordable for some full-time
hourly employees. George, Michael, & Wham LLC will not be
penalized for the months of January to May if it makes the plan
affordable beginning on June 1, 2015.
Significant Percentage Transition
Relief: ALL EMPLOYEES
• IF:
• Non-calendar year plan in place as of December 27, 2012,
and plan year was not changed after December 27, 2012
to begin at a later date, and
• At any time during the 12 months prior to February 9,
2014:
• Covered 25% of all employees; or
• Offered coverage to at least 33% of its employees
during the most recent open enrollment period
• THEN:
• Employer will not be penalized for months in 2015 prior to
the start of plan year if affordable, minimum value
coverage is offered to full-time employees at the start of
the 2015 plan year
Significant Percentage Transition
Relief: FULL-TIME EMPLOYEES
• IF:
• Non-calendar year plan in place as of December 27, 2012,
and plan year was not changed after December 27, 2012
to begin at a later date, and
• At any time during the 12 months prior to February 9,
2014:
• Covered 33% of full-time employees; or
• Offered coverage to at least 50% of its employees
during the most recent open enrollment period
• THEN:
• Employer will not be penalized for months in 2015 prior to
the start of plan year if affordable, minimum value
coverage is offered to full-time employees at the start of
the 2015 plan year
Default Effective Date for 100+
Employers
• Calendar year plans1/1/15
• Employers without coverage1/1/15
Who must be offered Coverage?
• In order to avoid penalty liability,
Applicable Large Employers must offer
coverage to full-time employees (30+
hours of service)
• If an employee is reasonably expected to work 30+
hours per week, an employer will not be subject to
Sledgehammer Penalty if the employee is offered
coverage by the 1st day following 3 full calendar
months of employment
• Employer will not be subject to Tackhammer
Penalty if coverage is affordable and provides
minimum value
New Hire Full-Time Example
• Example:
• Full-time EE begins work on April
15themployer will not be subject to
penalty if EE is offered coverage by August
1 (May, June, July = 3 full calendar
months)
Variable Hour/Part-Time Employees
• Variable Hour Employee
• Based on the facts and circumstances at the
employee’s start date, the employer cannot
determine whether the employee is
reasonably expected to be work 30 hours per
week during an initial measurement period
• Part-Time
• Reasonably expected at start date not to be
full-time (<30 hrs per week)
• Treated the same as variable hour
employees (e.g. use look-back)
Seasonal Employees
• Seasonal Employees
• “A seasonal employee means an employee in
a position for which the customary annual
employment is six months or less.”
• An employee in this position typically
works six months or less, and
• The period of work begins each year at
about the same time
• Can extend beyond 6 months for anomaly related
to the seasone.g. an especially heavy snow
season at a ski resort
Measurement Period for Ongoing
Employees
•
Ongoing Employees Employees who have worked longer
than a Standard Measurement Period
•
Standard Measurement Period3-12 months
•
Recommend 12 month look-back for ease of administration
Administrative PeriodUp to 90 days
•
Spans between end of Standard Measurement Period and start
of Plan Yearallows employer to assess who must be classified
as full-time based on average hours worked during Standard
Measurement Period (look-back period)
Stability PeriodGreater of 6 months or length of measurement
period (12 month Standard Measurement Period= 12 month Stability
Period)
•
Period during which an employee is either classified as full-time
or part-time depending on average hours worked during
Standard Measurement Period
•
•
Measurement Period for Ongoing
Employees (EXAMPLE)
•
George, Michael, Wham LLC is an ALE with a plan year of
1/1/15.
•
•
•
Standard Measurement Period
•
Oct. 14, 2014 LOOKING BACK to Oct. 15, 2013
•
Assess whether employees averaged 30 hours per
week or more during this period
Administrative Period
•
Oct. 15, 2014  Dec. 31, 2014
•
Assess which employees must be classified as full-time
for 2015 stability
Stability Period
•
Jan. 1, 2015  Dec. 31, 2015
•
Period during which employees who averaged 30
hours per week or more during Standard
Measurement Period must be classified as full-time
Transition Relief for SMPs
• Going into 2015, employers may face time
constraints if they want to use a 12-month
SMP and a 12-month stability period
•
May use a shorter SMP and 12-month stability
period if:
• SMP is shorter than 12 months, but not less than
6 consecutive months; and
• Begins no later than July 1, 2014 and ends no
earlier than 90 days before the first day of the
plan year beginning on or after Jan. 1, 2015
Initial Measurement Period for New Part-Time,
Variable Hour, and Seasonal Employees
•
Initial Measurement Period3 and 12 consecutive months
•
Must begin on the employee’s start date or on any date up to
and including the first da of the first calendar month following
the employee’s start date (or on the first day of the first payroll
period starting on or after the employee’s start date, if later)
•
Recommend using 12 month Initial Measurement Period
•
Administrative Period up to 90 days in total
• cannot extend beyond the last day of the first calendar month
beginning on or after the one-year anniversary (13 months and a
fraction of a month)
•
Stability Period no less than 6 months up to 12 months
• Begins after Administrative Period
Initial Measurement Period for New Part-Time,
Variable Hour, and Seasonal Employees: EXAMPLE
• Andrew Ridgely began working for George, Michael, Wham LLC
on April 16th, 2015.
• George, Michael, Wham LLC uses a 12 month Initial
Measurement period beginning the first of the month
following the start date (begins May 1, 2015 and ends April
30, 2016)
• Andrew averaged 36 hours per week during the Initial
Measurement PeriodFull-time employee for
subsequent Stability Period
• In order for George, Michael, Wham LLC to avoid penalty
exposure, Andrew must be offered coverage that provides
minimum value and is affordable by June 1, 2016 effective
through May 31, 2017
Monthly Measurement Period
• Full-time employees are identified based on their
hours of service for each calendar month
• Not based on averaging hours of service over
a prior measurement period
• May cause practical difficulties for
employers with employees who have
variable scheduleslots of movement in
and out of classifications
Monthly v. Lookback for Different EE
Groups
• Generally, must use same measurement method
for all employees
• An employer, however, may apply either the monthly
measurement method or the look-back measurement
method to the following groups of employees
Each group of collectively bargained employees
covered by a separate bargaining agreement
Employees whose primary place of employment are in
different states
Salaried and hourly employees
Collectively bargained and non-collectively bargained
employees
Breaks in Service Rules
• If an employee is terminated, may be treated as a new hire upon
return if:
• Employment break period is 13 weeks or greater (26 weeks for
educational organizations); or
• Rule of Parity (Optional)
• Employment break is longer than period actually worked
(must be at least 4 consecutive weeks)
• Example:
• EE works for 6 weeks, is terminated, and then
returns 7 weeks later may be treated as a new
hire
Avoiding Penalty Liability
• Sledgehammer Penalty
• 2015
• Offer minimum essential coverage to at least 70% of fulltime employees
• If fail to meet threshold [$2,000 x (# of Full-Time
Employees – 80)] if one employee goes to
Marketplace and receives a subsidy
• Assessed Monthly: $166.67 per full-time
employee after the first 80
• 2016
• Offer minimum essential coverage to at least 95% of fulltime employees and dependent children to age 26
• If fail to meet threshold [$2,000 x (# of Full-Time
Employees – 30)] if one employee goes to
Marketplace and receives a subsidy
Avoiding Penalty Liability: Transition
Relief for Dependent Children
• Generally, the Employer Mandate requires ALEs to offer coverage
to full-time employees and their dependent children up to age 26
• NO PENALTY WILL APPLY in 2015 for plans that:
• do not offer coverage to dependents OR
• Offer dependent coverage that is not considered
minimum essential coverage; OR
• Offer coverage to some but not all dependents
• Transition relief will NOT apply if employer drops
dependent coverage; and
• Employer must take steps during the 2014-2015
plan year to extend coverage to dependents who
are not offered coverage during the 2013 or 2014
plan years
Avoiding Penalty Liability (Cont’d)
• Tackhammer Penalty Liability
• ALE must offer coverage to Full-Time Employees that
• Provides minimum value
• AV rating of 60%akin to a Bronze Level Plan in
small group/individual market
• Is affordable
• Cost for employee-only coverage does not exceed
9.5% of full-time employee’s household income
(usually, not known by employer)
• Safe Harbors for Affordability
• W-2, Rate of Pay, and Federal Poverty
Level
• If employee-only coverage is unaffordable and/or does not
provide minimum value $3,000 per full-time employee who
goes to Marketplace and receives a subsidy (capped at
Sledgehammer liability)
Affordability Safe Harbors
• W-2: The Unsafe Safe Harbor?
• Cannot reattribute contributions to 401(k) or pre-tax
contributions to benefits
• Cannot rely on prior year’s Form W-2must project current
year W-2 earnings
• Cannot impute income for periods of unpaid leave
• Rate of Pay Safe Harbor
• Hourly Employees
• Rate of Pay x 130 hours x 9.5%
• Salary Employee
• Monthly gross salary x 9.5%
• Federal Poverty Level
• Employers may use the most recently published poverty
guidelines as of the first day of the plan year; or
• May use guidelines effective 6 months prior to plan year
(provides time to prepare)
• (FPL x 9.5%) / 12 months
•
2014 FPL for Individual ($11,670 x 9.5%) /12 = $92.39/month
Special Categories of Employees:
Student Employees
• Student Employees
• No general exception for student employees
• All hours worked for an educational
organization OR an outside employer for
which the student is paid or entitled to
payment must be counted UNLESS it’s part
of a Government-Sponsored Work-Study
Program
Special Categories of Employees:
Adjunct Faculty
• Adjunct Faculty
• May use any reasonable method of crediting
hours of service
• Must not substantially understate actual
hours of service
• NEW2 ¼ hours per week for each hour of
classroom time; and
• 1 hour of service per week for each additional
hour required for meetings, office hours, etc…
Special Categories of Employees:
Volunteers
• Volunteers
• If unpaid/not entitled to paymentthen hours are not
counted
• Hours worked by a “bona fide volunteer” are not treated as
hours of service. Bona fide volunteers include:
• Any volunteer who is an employee of a government
entity or tax-exempt organization AND
• Who’s only compensation from that organization is de
minimis (reasonable expenses, reasonable gifts,
nominal fees, etc.)
Special Categories of Employees:
Commissioned Salespeople
• Commissioned Salespeople:
• Reasonable method of crediting hours (must not
substantially understate actual hours of service)
• For example, travel time could be an issue for
commissioned employeesneed to factor it in
Special Categories of Employees: Oncall Employees
• On-Call Employees:
• Reasonable method of crediting hours (must not substantially
understate actual hours of service)
• Must credit hours of service if:
• Payment is made or due for on-call hours
• Employee is required to remain on employer’s
premises during on-call hours
• Employee’s activities while on-call are subject to
substantial restrictions
Staffing Agencies/PEOs
• Staffing agency/PEO may off health insurance coverage on behalf of
an employer client if certain requirements are met:
• Offer of coverage is made by the PEO/staffing firm
• Plan is established or maintained by the PEO or staffing
firm
• The fee paid to the PEO or staffing firm is higher for
employees who enroll in the plan and lower for those
employees who choose not to enroll