ACA update
Disclaimer
► This
material has been prepared for general informational purposes
only and is not intended to be relied upon as accounting, tax, or other
professional advice. Please
refer to your advisors for specific advice.
► The views expressed by the presenters are not necessarily those of
EY.
► This presentation is © 2015 EYGM Limited. All Rights Reserved.
EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help
build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who
team to deliver on our promises to all of our stakeholders.
In so doing, we play a critical role in building a better working world for our people, for our clients and
for our communities.
EY refers to the global organization, and may refer to one or more of the member firms, of Ernst & Young Global Limited,
each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not
provide services to clients. For more information about our organization, please visit ey.com.
Page 2
Agenda
►
The ACA today
►
Overview of employer mandate and IRS reporting
►
Financial statement implications
►
Impact of federal and state exchanges on employers
►
Risk factors
Page 3
The ACA today
Page 4
The current political landscape
Page 5
Timeline of employer key dates
By 2024, ACA is expected to have added 25M
previously uninsured Americans
2024
►
Excise tax on high-cost plans begins
(Cadillac tax)
2018
►
►
States may elect to open SHOP Exchanges to
large group market
►
2017
►
Last year for temporary reinsurance fee
►
January: Annual employer coverage
statement due to employees
►
March: Information reporting due to
IRS on employee coverage offers and
enrollment due for 2015
2016
►
Employer mandate takes effect for
employers with more than 100 FTEs
►
Open enrollment for individuals
for 2015 runs November 15, 2014
through February 15, 2015 (extended)
►
Individual mandate effective
►
Premium tax credits available
►
Medicaid expansion in some states
►
Temporary reinsurance fee begins
Page 6
►
Internal control review/
preparation for external
audits 1st quarter 2015
►
2015
Employers begin collecting data for
IRS information reporting
requirements
►
2014
Health Exchange notices will
begin to be issued
Key ACA employer milestones
States may seek innovation waivers for
alternative coverage models
Excise tax assessments issued to employers
by the IRS (where applicable)
A new environment
Risk 1
Misclassified contingent workers may
expose an employer to excise taxes
Risk 2
Internal controls must be established and
documented to avoid financial statement
liability contingencies or accruals
10,000 full-time employees + 2,000 misclassified
contingent workers = 12,000 total employees
could be subject up to a
Risk 3
US$24m excise tax
Employers need processes to
timely respond and/or appeal to
Marketplace determinations
US$3,000 per employee
excise tax assessment of up to
receiving a premium tax credit
Page 7
Risk 4
Significant technology changes
may be needed for tracking employee
population and reporting requirements
US$100/day for non-compliance
EY poll
What are your top concerns with
respect to implementing the ACA?
System design
Reporting
Exposure to the
excise tax
15%
45%
16%
Page 8
Financial statement
considerations
Not concerned
12%
12%
Overview of employer mandate and
IRS reporting
Page 9
§4980H: employer mandate excise tax
Failure to offer affordable coverage
IRC §4980H(b)
Failure to offer coverage
IRC §4980H(a)
►
If a large employer fails to offer
coverage to its full-time (FT)
employees and their dependents,
employers face a tax of:
►
►
$2,000 x the total number of FT
employees, if at least one FT
employee receives a premium tax
credit
Met if at least 95% of FT employees
are offered coverage; reduced to 70%
for 2015
►
If a large employer offers coverage to
their full-time (FT) employees and
their dependents but the coverage is
unaffordable or does not provide
minimum value, employers face a
penalty of the lesser of:
►
$3,000 x the number of FT
employees receiving a premium tax
credit, or
►
$2,000 x the total number of FT
employees
Employers who do not offer coverage may subtract the first 30 (80 in 2015) workers when calculating
their liability for taxes under IRC §4980H(a). Taxes under IRC §4980H(b) are capped at an amount not
to exceed an employer’s potential tax under IRC §4980H(a).
Page 10
§4980H: Key definitions
►
Large employer: 50 or more full time equivalent employees (100 or
more in 2015); determined on a controlled group basis
►
►
Applicable to governmental units and tax-exempt organizations, as well as
taxable entities
Full-time employee: Employee who works on average 30 hours per
week, per month or 130 hours of service per calendar month
►
Significant complexities associated with hours counting and measurement
periods
►
Hours of service: Each hour for which an employee is paid or entitled
to payment; equivalency rules available for salaried employees
►
Affordability and minimum value: Employee’s premium share for selfonly coverage providing minimum value cannot exceed 9.5% of
employee’s “household income”; 60% actuarial value
Page 11
§6055 and §6056: information reporting rules
§6055
Purpose
Provide report to individuals and IRS
with evidence of minimum essential
coverage to administer individual
mandate
►
Information
reported
►
Due dates
Form
Page 12
Employer- and employee-specific
data such as name, address,
Taxpayer Identification Number
(TIN) for individuals covered by
minimum essential coverage
Each month during which individual
is covered
§6056
Provide report to IRS and
individuals with evidence of offer of
coverage to administer employer
mandate and premium tax credit
validation
►
►
►
Employer identifying information
Identifying information for all
full-time employees
Plan data, including employee
cost and time offered, on a
month-by-month basis
January 31, 2016 for statements to employees
March 31, 2016 for reporting to IRS
Combined §6055/6056 reporting for self-funded plans:
Form 1095-C to employees
Form 1094-C to IRS for each FEIN
Copies of all Forms 1095-Cs to IRS
IRS reporting regulations overview
►
Must provide counts of full-time employees and all employees on a month-bymonth basis, by FEIN
►
Must report detailed information about the employer-provided health care
plans for employees offered coverage on a month-by-month basis
►
Generally requires TIN reporting of all covered individuals, including
dependents
►
Reporting requirements are applied separately to each subsidiary in the
controlled group
►
For most organizations, these regulations require a great deal of analysis of
the workforce and could involve changes to IT systems to gather the
information to be reported
►
While the reporting begins with the 2015 calendar year, tracking employees
during "look-back" periods will often require analysis from the 2014 year
Page 13
Systems considerations
Time and
attendance
Payroll
1094-C
Labor
scheduling
1095-C
Consolidated
data
Contingent
worker
database
Employee
master data
Page 14
Benefits
administration
Systems considerations
Are systems set up to capture the following information, on a monthly basis:
►
For each full-time employee (and part-time employees, if offered coverage):
►
Was minimum essential coverage providing minimum value offered:
►
To the employee only
►
To the employee's spouse, and/or
►
To the employee's dependents?
►
What is the employee's share of lowest-cost monthly premium for self-only
coverage providing minimum value?
►
Was the employee's effective date of coverage was affected by a waiting
period?
►
Which affordability safe harbor was used?
►
The name, address, and tax identification number for the primary insured and
each individual enrolled in minimum essential coverage
►
Months during which the individual is treated as having minimum essential
coverage (in place of dates of coverage)
Page 15
Employee AAA
• AAA has less than 30 hours of service per week during a standard
measurement period and is therefore not offered coverage at open enrollment
for coverage in 2015. AAA subsequently begins to work more than 30 hours.
• If AAA averages more than 30 hours when measured at the end of the
standard measurement period in 2015, then AAA should be offered coverage
for the entire next stability period in 2016.
2014
1
2
3
4
5
6
7
2015
8
9
AAA and employer ongoing
(standard) measurement period
< 30 hours
10 11 12 1
2
3
4
5
6
7
2016
8
9 10 11 12 1
2
3
4
5
6
7
8
9 10 11 12
Admin.
AAA stability period
AAA and employer ongoing (standard)
measurement period > 30 hours
Key:
Page 16
OOC not required
OOC required
Admin.
AAA and employer ongoing stability period
OOC = Offer of Coverage
Employee AAA
Form 1095-C Reporting:
• 2015 -> Form 1095-C not required; 2016 -> Form 1095-C required:
Part II
Employee offer and coverage
All 12 Months
14 Offer of Coverage (enter
required code)
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
1C
15 Employee Share of
Lowest Cost Monthly
Premium, for Self-Only
Minimum Value Coverage
$150
16 Applicable Section
4980H Safe Harbor (enter
code, if applicable)
2C
1C: MEC providing MV offered to employee and at least MEC offered to dependent(s) (not spouse).
2C: Employee enrolled in coverage offered
Page 17
Oct
Nov
Dec
Employee BBB
• BBB commences work after the beginning of the standard measurement period
and is not reasonably expected to be full time for ACA purposes at the time of
hire.
• If BBB averages more than 30 hours when measured at the end of the initial
measurement period in 2015, then BBB should be offered coverage on the first
of the month following the end of his initial administrative period.
2014
1
2
3
4
5
6
7
2015
8
9 10 11 12 1
2
3
4
5
6
7
2016
8
9 10 11 12 1
2
3
4
5
6
7
8
9 10 11 12
BBB initial measurement period > 30 hours
Ad.
BBB initial stability period
Employer ongoing (standard)
measurement period > 30 hours
Key:
Page 18
OOC not required
OOC required
Admin.
BBB and employer ongoing stability period
Employee BBB
Form 1095-C Reporting:
• 2015 -> Form 1095-C required
Part II
Employee offer and coverage
All 12 Months
14 Offer of Coverage (enter
required code)
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
1H
1H
1H
1C
1C
1C
1C
1C
1C
1C
1C
1C
$150
$150
$150
$150
$150
$150
$150
$150
$150
2C
2C
2C
2C
2C
2C
2C
2C
2C
15 Employee Share of
Lowest Cost Monthly
Premium, for Self-Only
Minimum Value Coverage
16 Applicable Section
4980H Safe Harbor (enter
code, if applicable)
2D
2D
2D
1C: Offer of coverage to employee and dependent(s) (not spouse)
2C: Employee enrolled in coverage offered
Page 19
1H: No offer of coverage
2D: Limited Non-Assessment Period
Synchronizing measurement periods
New employees hired after the begin date of the standard measurement period are first
measured at the end their initial measurement period and again at conclusion of the
standard measurement period.
The measurement at the conclusion of the standard measurement period will “synchronize”
these new employees into the ongoing measurement period. Because the stability period
for new employees is unlikely to synchronize with the standard measurement period, the
stability period cannot exceed the remainder of the standard measurement period. The
exception is when an employee is determined to be full time in the initial measurement, in
which case the employee remains full time status through the full initial stability period.
Year 1
1
2
3
4
5
6
7
Year 2
8
9 10 11 12 1
2
3
4
5
6
7
Year 3
8
9 10 11 12 1
2
3
4
5
6
7
8
9 10 11 12
BBB initial measurement period > 30 hours
Ad.
BBB stability period
Employer ongoing (standard)
measurement period > 30 hours
Key:
Page 20
OOC not
required
OOC required
Admin.
BBB and employer ongoing stability period
Financial statement implications
Page 21
Financial statement and tax implications
Financial statement implications:
►
Employer mandate excise tax is effective January 2015
►
Accounting Standards Codification (ASC) Topic 450, Contingencies,
potentially applicable; use probable and estimable concepts
►
Tax needs to be accrued for when it is incurred
►
Once aware of an exposure (potentially prior to incurring the liability),
companies should immediately disclose it as a risk factor in the public filings,
even if liability has not crystallized yet
Tax accounting implications:
►
Excise tax is not deductible for income tax purposes
►
Permanent difference in income tax provision; M-1 item on tax return
►
Disclosure, if significant, in Management Discussions & Analysis (MD&A)
and tax rate reconciliation
►
The IRS Commissioner recently stated that ACA was his top enforcement
priority
Page 22
Questions for finance/internal audit
Have finance, tax and internal audit functions considered the following:
► What are the cost implications for benefit plan and eligibility modifications? What do
your employee demographics indicate about the impact?
► Have cost projections been prepared? For 5 years out? For 10 years out?
► How will the law affect your tax liability?
► How does the law affect your business model and operations?
► Do your IT systems have the functional capability to address the requirements?
► How have you addressed workforce issues around part-time employees, seasonal
employees, independent contractors, union negotiations, etc.?
► Where should your company focus first from a risk perspective?
► Where should your company focus first from a financial and tax perspective?
► Do you have adequate staffing for what will likely be a significant administrative and
operational burden?
► What types of controls are in place to ensure your exposure to tax penalties is
minimized? Are these controls documented for your external audit?
► Have you documented that you have met the threshold to cover 70% of all full-time
employees (95% after 2015 and ongoing), on a monthly basis for each subsidiary?
Page 23
Examples of types of internal controls
►
►
►
►
►
►
Tax memorandum documenting full-time employee
determination, methods/processes for lookback periods,
rehires, leaves of absence, system controls
System to document offer and waiver of coverage
Calculation to demonstrate 95% of full-time employees
offered coverage (70% in 2015)
Overtime approval/scheduling controls
IT systems controls to “flag” workers approaching 30
hours per week
Contingent worker controls – policies and operations
Page 24
Impact of federal and state exchanges
on employers
Page 25
Step
1
Employer provides all employees with
information about employer-provided plan
and Exchange coverage, including:
3
Exchange verifies information and makes
preliminary eligibility determination regarding the
advanced payment of the PTC (during
open enrollment)
Step
Step
State Exchanges and premium tax credit
process
4
5
Exchange notifies employer that employee was
certified for advance payment of the PTC
6
7
8
Employer files required employee and IRS 1094
and 1095C reports (March 2016)
► Availability
of the health care Exchanges
and the Premium Tax Credit (PTC)
► Whether
the health care plan meets the
minimum value requirement
► Name,
Step
Employee provides Exchange with information
to determine eligibility for advance payment
of the PTC; employer-specific information
includes (beginning November 2014 open
enrollment):
Step
2
cost of the health care plan
address and EIN of the employer
► Whether
individual is a full-time employee
and whether employer offers health
care coverage
► Employee’s
► Information
regarding household income
(from the IRS) and family size
Page 26
Step
cost of the lowest cost employerprovided health care option
Step
Step
► Employee’s
Employer’s right to appeal determination of
employee’s eligibility (within 90 days from the
date the Exchange notice is sent)
IRS evaluates employer reporting and employee
individual income tax returns to determine
PTC eligibility
IRS determines two possible outcomes:
► 4980H(b) excise tax penalty assessed to
employer
► Clawback from employee on erroneously
issued PTCs
Sample premium tax credit employer notice
Page 27
Risk factors
Page 28
Risk factors
►
The following represent factors often leading to higher risk for increased costs
and/or assessment of penalties under ACA:
►
►
►
►
►
►
►
►
►
►
►
►
Page 29
Use of a significant amount of labor from independent contractors
Large number of employees with variable work schedules
Large number of rehired employees
Large number of part-time employees or seasonal workers
Significant number of “low-income” employees (less than $45,960 individual and
$94,200 family in 2013)
Generous benefits
Younger workforce
Large percentage of workforce that opts-out of employer-sponsored plan
High acquisition activity
Use of long-term contracts in business
Entering into multi-year union contracts
Industries: restaurant, retail, hospitality, healthcare, higher education, media &
entertainment, etc.
Contingent workforce challenges
►
►
The “common law employer” is responsible for providing health care
coverage to full-time employees
Heavy use of independent contractors may lead to significant ACArelated risks if common law employees are misclassified as
independent contractors:
►
►
►
►
►
Facts and circumstances determination based on IRS 20-factor test
Misclassification of employees as independent contractors may lead to
IRC Section 4980H(a) penalty
Many professional employer organizations/staffing agencies may not
see themselves as the employee’s common law employer
Contract terms will not always alleviate common law employer
responsibility
Other consequences of misclassification (e.g., payroll tax issues,
retirement plan coverage issues)
Page 30
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About EY
EY is a global leader in assurance, tax, transaction and advisory
services. The insights and quality services we deliver help build trust
and confidence in the capital markets and in economies the world
over. We develop outstanding leaders who team to deliver on our
promises to all of our stakeholders. In so doing, we play a critical role
in building a better working world for our people, for our clients and
for our communities.
EY refers to the global organization, and may refer to one
or more, of the member firms of Ernst & Young Global Limited, each
of which is a separate legal entity. Ernst & Young
Global Limited, a UK company limited by guarantee, does not
provide services to clients. For more information about our
organization, please visit ey.com.
Ernst & Young LLP is a client-serving member firm of
Ernst & Young Global Limited operating in the US.
© 2015 Ernst & Young LLP.
All Rights Reserved.
1503-1420958
ED None
This material has been prepared for general informational purposes
only and is not intended to be relied upon as accounting, tax, or other
professional advice. Please refer to your advisors for specific advice.
ey.com