Affordable Care Act Preparedness Guide · combined amount does not exceed the annual out-of-pocket...

Affordable Care Act Preparedness Guide

January 2018 Edition

Presented by:

The information above is a summary of laws and regulations regarding provisions relating to provisions in the Patient Protection and Affordable Care Act (PPACA). The information should not be construed as legal or tax advice. In all cases, employers should be advised to consult with their accountant or legal counsel for assistance.

Introduction

Since the Affordable Care Act (ACA) was signed into law on March 23, 2010, employers have worked in a changing environment in regards to their health insurance benefits. The ACA is the largest change in the world of health insurance since Medicare was introduced in 1966.

The implementation of the ACA has been a journey. The law itself has seen a gradual introduction into the market when it comes to implementation. There have been multiple court challenges to the law. There have been delays and changes to the law from regulators. We have experienced the implementation of most scheduled requirements and now stand at a crossroads in 2018 with certain changes ahead.

Throughout this process, we have taken the approach that slow and steady wins the race. We have wanted to interpret the law and regulations properly so that you can make the best decisions for your organization and employees. To support this approach we have offered clients numerous webinars, in-person seminars, roundtables and fact-sheets to make sure we are ready.

We want to provide you with one more toolbox item: a preparedness guide. The following ACA Preparedness Guide is designed to be a step-by-step guide to assist you with your on-going compliance obligations. All of the information in this guide has been covered since the passage of the law, but for your convenience we have put in all in one place.

There are four overall sections to this document:

1. General compliance: There are topics which still apply to the implementation of the ACA. 2. Fees and Taxes: This is an overview of the fees and taxes connected to the implementation of the

ACA. 3. Employer shared responsibility: These are topics which help you to determine your responsibilities

for offering coverage to employers. 4. IRS reporting: The newest responsibilities for employers is to report their offers of coverage to the

Internal Revenue Service. This section includes not only your responsibilities, but also scenarios for reporting.

Our goal is that this reference guide will help to clarify any questions you may have about the Affordable Care Act. Updates to this document will occur as necessary. As always, whenever you have concerns please use our Health Care Reform Tracker or contact your M3 account management team, who will be glad to find the answers to your questions.

http://www.m3ins.com/account-login/health-care-reform-tracker

Table of Contents

Introduction 1 Table of Contents 2 Section 1: Compliance Review 4

o Grandfathered Plan Status 5 o Cost—Sharing Limits 6 o Health Flexible Spending Account Contributions 8

Section 2: Fees and Taxes 9

o Reinsurance Fees 10 o PCORI Fees 12 o Cadillac Tax 15

Section 3: Employer Shared Responsibility 17

o Determine Group Size 18 o Determine Effect Date 20 o Manage to Penalties 21

o Minimum Essential Coverage 22 o Minimum Value (MV) 22 o Affordable Coverage 23

o Manage to 30 Hour Threshold 24 o Monthly Measurement Method 24 o Look Back Measurement Method 26 o Initial Measurement Periods 29 o Mid-Year Status Changes 31

Section 4: IRS Reporting Requirements 33 o Overview of Employer Reporting 34

o Forms 34 o Employer Requirements 34 o Filing Deadlines 36

o 1094-C Transmittal Form 37 o Reporting Relief 38

o IRS Codes for 1095-C 40 o Scenarios 41 o IRS Enforcement of ESR 49

Wrap-Up & Reminders 51 Resources 52 Exhibits 53

o Exhibit A: Important Definitions for Schools 53


Section 1: General ACA Compliance

Making sure you remain compliant with Affordable Care Act requirements is necessary, not just in terms of your health insurance plans, but for your business or organization as well. Keeping up-to-date with key regulations helps keep your compliance efforts current and can greatly minimize an employer’s risk of fines and/penalties.

We have identified a few key areas that employers should be focused on from a general ACA compliance perspective. Being aware of and legally compliant in these areas will set the stage for your plans to remain penalty/risk-free.

We encourage you to review these topics to ensure that you and the health plans you offer remain compliant.

Action Items:

□ If you have a health plan which still has grandfathered status, determine whether it maintain its grandfathered status for any plan year. Grandfathered plans are exempt from some of the ACA’s mandates. A grandfathered plan’s status will affect its compliance obligations from year to year.

□ If your plan will lose grandfathered status, confirm that the plan has all of the additional patient rights and benefits required by the ACA for non-grandfathered plans. This includes, for example, coverage of preventive care without cost-sharing requirements.

□ If your plan will keep grandfathered status, continue to provide the Notice of Grandfathered Status in any plan materials provided to participants and beneficiaries that describe the benefits provided under the plan (such as the plan’s summary plan description and open enrollment materials). Model language is available from the Department of Labor.

General ACA Compliance Review

Grandfathered Plan Status You should review your health insurance plan to determine if it has “grandfathered status”. Plans which have grandfathered status are plans that were already in existence when the Affordable Care Act was enacted in 2010.

Grandfathered plans don’t have to meet the new standards and requirements put into place by the ACA. If you have made changes to your plan that go beyond permitted guidelines, your plan can lose grandfathered status.

As of 2018, most plans are no longer grandfathered. If you believe you have a grandfathered plan, please verify with your Account Executive.

http://www.dol.gov/ebsa/grandfatherregmodelnotice.doc

http://www.dol.gov/ebsa/grandfatherregmodelnotice.doc

Cost Sharing Limits Cost sharing refers to co-insurance, copayments and deductibles built into the design of a health insurance plan. This does not include premiums or amounts for out-of-network medical care.

Effective for plan years beginning on or after Jan. 1, 2014, non-grandfathered health plans are subject to limits on cost-sharing for essential health benefits (EHB). The ACA’s overall annual limit (or an out-of-pocket maximum) applies for all non-grandfathered group health plans, including self-insured health plans and insured plans.

A health plan’s out-of-pocket maximum for EHB may not exceed $7,350 for self-only coverage and $14,700 for other than self-only coverage, effective for plan years beginning on or after Jan. 1, 2018.

Health plans with more than one service provider may divide the out-of-pocket maximum across multiple categories of benefits, rather than reconcile claims across multiple service providers. Thus, health plans and issuers may structure a benefit design using separate out-of-pocket maximums for EHB, provided that the combined amount does not exceed the annual out-of-pocket maximum limit for that year. For example, in 2018, a health plan’s self-only coverage may have an out-of-pocket maximum of $5,000 for major medical coverage and $2,350 for pharmaceutical coverage, for a combined out-of-pocket maximum of $7,350.

However, effective as of the 2016 plan year, the Department of Health and Human Services (HHS) clarified that the self-only annual limit on cost-sharing applies to each individual, regardless of whether the individual is enrolled in self-only coverage or family coverage. This guidance embeds an individual out-of-pocket maximum in family coverage so that an individual’s cost-sharing for essential health benefits cannot exceed the ACA’s out-of-pocket maximum for self-only coverage.

Note that the ACA’s cost-sharing limit is higher than the out-of-pocket maximum for high-deductible health plans (HDHPs). In order for a health plan to qualify as an HDHP, the plan must comply with the lower out-of-pocket maximum limit for HDHPs. In an FAQ, HHS provides guidance on how this ACA rule affects HDHPs with family deductibles that are higher than the ACA’s cost-sharing limit for self-only coverage.

According to HHS, an HDHP that has a $10,000 family deductible must apply the annual limitation on cost-sharing for self-only coverage ($7,350 in 2018) to each individual in the plan, even if this amount is below the $10,000 family deductible limit. Because the $7,350 self-only maximum limitation on cost-sharing exceeds the 2018 minimum annual deductible amount for HDHPs ($2,700), it will not cause a plan to fail to satisfy the requirements for a family HDHP.

(Continued)

https://www.regtap.info/uploads/library/Embedded_MOOP_FAQ__V1_CR_050815.pdf

Action Items:

□ Review your plan’s out-of-pocket maximum to make sure it complies with the ACA’s limits 2018: $7,350 for self-only coverage and $14,700 for other than self only coverage

□ If you have an HDHP that is compatible with a health savings account (HSA), keep in mind that your plan’s out-of-pocket maximum must be lower than the ACA’s limit. For 2018, the out-of-pocket maximum limit for HDHPs is $6,650 for self-only coverage and $13,300 for family coverage.

□ If your plan uses multiple service providers to administer benefits, confirm that the plan will coordinate all claims for EHB across the plan’s service providers, or will divide the out-of-pocket maximum across the categories of benefits, with a combined limit that does not exceed the maximum.

□ Confirm that the plan applies the self-only maximum to each individual in the plan, regardless of whether the individual is enrolled in self-only coverage or family coverage.

Action Items:

□ Work with your M3 Account Team to monitor IRS guidance on the health FSA limit for 2019.

□ Confirm that your health FSA will not allow employees to make pre-tax contributions in excess of $2,650. Also, communicate the 2018 limit to employees as part of the open enrollment process.

Health Flexible Spending Account Contributions A flexible spending account (FSA) is a fund that can be used to pay for copayments, deductibles, some medications and other healthcare costs.

Effective for plan years that began on or after Jan. 1, 2013, an employee’s annual pre-tax salary reduction contributions to a health FSA must be limited to $2,500. The $2,500 limit does not apply to employer contributions to the health FSA, and does not impact contributions under other employer-provided coverage. For example, employee salary reduction contributions to an FSA for dependent care assistance or adoption care assistance are not affected by the $2,500 health FSA limit.

On Oct. 31, 2013, the Internal Revenue Service (IRS) announced that the health FSA limit remained unchanged at $2,500 for the taxable years beginning in 2014. However, on Oct. 30, 2014, the IRS increased the health FSA limit to $2,550 for taxable years beginning in 2015, in Revenue Procedure 2014-61. The health FSA limit did not change for 2016. On October 25, 2016, the IRS announced an increase in the limit to $2,600 for the tax year 2017. The IRS increased the limit in 2018 to $2,650.

http://www.irs.gov/file_source/pub/irs-drop/rp-14-61.pdf


Section 2: Fees and Taxes

The Affordable Care Act includes a number of fees and taxes which help fund certain components of the law. The key for you is to understand each of the funding mechanisms and whether/how they apply to your plan.

We want you to aware of these fees/taxes so that you can plan for and remain complaint with these provisions of the law.

We encourage you to review the following overviews of the federal fees and taxes associated with the ACA.

Fees & Taxes

Reinsurance Fees Health insurance issuers/carriers and self-funded group health plans must pay fees to a transitional reinsurance program for the first three years of the Exchanges’ operation (2014 to 2016). The fees will be used to help stabilize premiums for coverage in the individual market. Fully insured plan sponsors do not have to pay the fee directly. Reinsurance fees are no longer in effect.

PCORI Fees Patient-Centered Outcomes Research Institute (PCORI) fee is a temporary fee on both fully-insured and self-insured health care benefits that apply for the seven policy years between 2012 and 2019. The fees are intended to fund the Patient Centered Outcomes Research Institute, which is an independent, non-profit organization created under the Affordable Act to conduct research for patients and caregivers on enhancing health care outcomes. The Fees: The PCORI fee is paid annually and is due by July 31st. For policy and plan years ending after Sept. 30, 2012, and before Oct. 1, 2013, the applicable dollar amount is $1. For policy and plan years ending after Sept. 30, 2013, and before Oct.1, 2014, the applicable dollar amount is $2. For policy and plan years beginning on or after September 30, 2014, and before Oct. 1, 2015, the applicable dollar amount is $2.08. For policy and plan years beginning on or after September 30, 2015 and before October 1, 2016, the applicable dollar amount is $2.17. For policy and plan years beginning on or after September 30, 2016 and before October 1, 2017, the applicable dollar amount is $2.26. For policy for plan years beginning on or after September 30, 2017 and before October 1, 2018, the applicable dollar amount is $2.36. The amount for subsequent years is further adjusted to reflect inflation in National Health Expenditures, as determined by the Secretary of Health and Human Services. Please see attached schedule for specific due dates as it relates to the plan year. Overall rules for fees: Fees are generally imposed on either the issuer of a specified health insurance policy (fully insured plans, on the carrier) or plan sponsors (employers) of an applicable self-insured health plan. For self-insured plans maintained by two or more employers, the plan sponsor responsible for paying the fee is the entity identified as the plan sponsor by the terms of the document under which the plan is operated. If no plan sponsor is identified, the plan sponsor responsible for the fee is each employer that maintains the plan. How the fees apply to different plans:

o Fully Insured Plans: Fees are imposed on “specified health insurance” policies. “Specified health insurance” policies include any prepaid health coverage arrangement if fixed payments or premiums are received as consideration for a person’s agreement to provide or arrange for the provision of accident or health coverage to residents of the United States.

o Self‐Insured Plans: Fees are imposed on “plan sponsors”. The “plan sponsor” is the employer in the case of a plan established or maintained by a single employer and the employee organization in the case of a plan established or maintained by an employee organization. In the case of a plan established or maintained by two or more employers or jointly by one or more employers, a MEWA (Multiple Employer Welfare Arrangement) or a VEBA (Voluntary Employee Beneficiary Association), the plan sponsor is the association, committee, joint board of trustees or other similar group of representatives of the parties who wish to establish or maintain the plan.

Action Items:

□ Determine whether your health plan is subject to PCORI fees.

□ Full payment of the fee is due annually by July 31 of each year on IRS Form 720. This form may also be filed electronically. Third party reporting and payment of fees is not allowed. The number of covered lives for purposes of the fee can be determined by one of four methods:

o Actual count: Count the number of covered lives each day for the first nine months of 2016 and divide by the number of days. o Snapshot: Pick one day each quarter for the first three quarters of the year and divide by 3. o Snapshot Factor: In the case of self-only and other than self-only coverage (family, employee + one or employee + children) determine the sum of: (1) the number of participants with self-only coverage, and (2) the number of participants with other than self-only coverage multiplied by 2.35. o Form 5500: Use the counts from your Form 5500 by adding the number of participants at the beginning of the year and the number of participants at the end of the year.

Number of Covered Lives ______________ x $________ = ___________________________

o Excepted Benefits: Certain benefits are not subjected to the PCORI fee, because they are “excepted” or not-essential health benefits. Examples would include workers compensation insurance and standalone dental or vision programs.

o HRAs & FSAs: A Health Reimbursement Account (HRA) is not subject to a separate fee if the HRA is integrated with another applicable self‐insured health plan that provides major medical coverage, provided that the HRA and the other plan are established and maintained by the same plan sponsor.

However, an HRA that is integrated with a fully insured plan is treated as an “applicable self-insured health plan” and the plan sponsor (employer) would be subject to the fee on the HRA. The issuer of the fully insured plan that is integrated with the HRA would be subject to the fee on the fully insured health plan.

“Flexible Spending Accounts” (FSAs) that satisfy the requirements of an “excepted benefit” are excluded from the definition of “applicable self-insured plan” and are NOT subject to the fees. FSAs that are not excepted benefits are subject to the fees. Because it is difficult to determine the number of “covered lives” under FSAs and HRAs, the regulations allow the plan sponsor to assume one covered life for each employee with an HRA and for each employee with a health FSA that is not an excepted benefit. * EAPs, Disease Management & Wellness Programs: Employee Assistance Programs (EAPs), Disease Management Programs and Wellness Programs are excluded from the definition of “applicable self-insured plan” and the fee would not apply, but only if these programs do not provide significant benefits in the nature of medical care or treatment.

PCORI PAYMENT SCHEDULE

Plan Year Payment Amount Due Date February 1, 2014 – January 31, 2015 $2.08 July 31, 2016 March 1, 2014 – February 28, 2015 $2.08 July 31, 2016 April 1, 2014 – March 31, 2015 $2.08 July 31, 2016 May 1, 2014 – April 30, 2015 $2.08 July 31, 2016 June 1, 2014 – May 31, 2015 $2.08 July 31, 2016 July 1, 2014 – June 30, 2015 $2.08 July 31, 2016 August 1, 2014 – July 31, 2015 $2.08 July 31, 2016 September 1, 2014 – August 31, 2015 $2.08 July 31, 2016 October 1, 2014 – September 30, 2015 $2.08 July 31, 2016 November 1, 2014 – October 31, 2015 $2.17 July 31, 2016 December 1, 2014 – November 30, 2015 $2.17 July 31, 2016 January 1, 2015 – December 31, 2015 $2.17 July 31, 2016 February 1, 2015 – January 31, 2016 $2.17 July 31, 2017 March 1, 2015 – February 28, 2016 $2.17 July 31, 2017 April 1, 2015 – March 31, 2016 $2.17 July 31, 2017 May 1, 2015 – April 30, 2016 $2.17 July 31, 2017 June 1, 2015 – May 31, 2016 $2.17 July 31, 2017 July 1, 2015 – June 30, 2016 $2.17 July 31, 2017 August 1, 2015 – July 31, 2016 $2.17 July 31, 2017 September 1, 2015 – August 31, 2016 $2.17 July 31, 2017 October 1, 2015 – September 30, 2016 $2.17 July 31, 2017 November 1, 2015 – October 31, 2016 $2.26 July 31, 2017 December 1, 2015 – November 30, 2016 $2.26 July 31, 2017 January 1, 2016 – December 31, 2016 $2.26 July 31, 2017 February 1, 2016 – January 31, 2017 $2.26 July 31, 2018 March 1, 2016 – February 28, 2017 $2.26 July 31, 2018 April 1, 2016 – March 31, 2017 $2.26 July 31, 2018 May 1, 2016 – April 30, 2017 $2.26 July 31, 2018 June 1, 2016 – May 31, 2017 $2.26 July 31, 2018 July 1, 2016 – June 30, 2017 $2.26 July 31, 2018 August 1, 2016 – July 31, 2017 $2.26 July 31, 2018 September 1, 2016 – August 31, 2017 $2.26 July 31, 2018 October 1, 2016 – September 30, 2017 $2.26 July 31, 2018 November 1, 2016 – October 31, 2017 $2.36 July 31, 2018 December 1, 2016 – November 30, 2017 $2.36 July 31, 2018 January 1, 2017 – December 31, 2017 $2.36 July 31, 2018

Cadillac Tax Section 9001 of the Affordable Care Act (ACA) imposes an excise tax on “high cost” employer-sponsored health coverage beginning with the 2020 tax year. Known as the “Cadillac Tax”, the tax is imposed if an employee is covered under any applicable employer-sponsored plan during any time during a taxable period and there is an “excess benefit” with respect to the coverage. The tax rate is scheduled to be 40% of the excess benefit. Excess benefit amounts will be determined on a monthly basis. The excess amounts are any aggregate cost amounts (employer + employee premium cost) over 1/12 of the annual limitation for the calendar year. Annual limitations are currently determined by the type of coverage provided to the employee. The type of coverage is broken down into two categories: individual coverage and any coverage other than individual. The Health Care Reconciliation Act sets the annual limitations at the following levels:

Current Fiscal Year 2020 Limits • Individual coverage: $10,200 • All other coverage: $27,500

Amounts in excess of these limits would be taxed at 40%.

The current limits were written into law in 2010, and further changes to the excise tax are entirely possible from future legislative and/or regulatory action. Exceptions will apply to retirees and employees engaged in a high risk profession (ex: those employed to repair or install electrical or telecommunication lines). The limitations for these individuals will be higher than the standard limits. Coverage providers are required to pay the tax. A “coverage provider” is defined as:

• Health Insurance Coverage (fully insured): the health insurance issuer or carrier • Other Coverage (self-funded): The plan administrator • Health Savings Account (HSA) and Medical Savings Account (MSA) contributions: The employer

The responsibility for reporting tax liability currently rests with the employer. Each employer must determine their tax liability each period based on the amount of excess benefit. The amount of excess benefit will be subject to the tax and must be reported to the federal Department of Health and Human Services (HHS) Secretary AND each coverage provider of the amount determined for the provider. For situations in which a plan covers multiple employers (many union plans), the plan sponsor (not the employer) is required to make the calculations and provide the notice. Applicable employer-sponsored coverage includes any group health plan which is excludable from the employee’s income under IRC Section 106. It does not include long-term care or any coverage provided that is not excludable from gross income. (Continued)

Action Items:

□ Monitor the overall costs of your health plan versus the Cadillac Tax limits.

□ Monitor the actions by the federal government regarding the implementation and excess limits of the Cadillac Tax.


Section 3: Employer Shared Responsibility A vital element for employers is to understand how to count their employee population to determine Employer Shared Responsibility (ESR) obligations and penalty exposure. Understanding your ESR determines your responsibilities as an employer to stay compliant with the law. Understanding your employee population and your organization’s ESR obligations are key to staying compliant with the Affordable Care Act (ACA). This includes:

• Determining your “group size” • Determining your effective date • Determining who are your full-time employees • Determining offers of coverage and affordability/value of your plan

The following section covers the elements of Employer Shared Responsibility in great detail. We encourage you to use this section to make sure you are identifying your status and identifying your full-time employees properly for purposes of the ACA to determine penalty exposure and risk.

Employer Shared Responsibility

Step 1: Determine Group Size One of the most important tenets of the Affordable Act (ACA) is understanding your “group size”. Knowing your group size is vital as that definition determines your responsibilities as an employer. For purposes of Employer Shared Responsibility there are “large” and “small” employers. The group size is how the federal government determines an employer’s requirements for “shared responsibility” or “pay or play” requirements. Large employers have the responsibility to offer health coverage to their employees or will be forced to pay a penalty. The definitions are:

• Small employers: Employ less than 50 full-time and full-time equivalent (FTEs) employees on business days during the preceding calendar year.

• Large employers: Employ 50 or more full-time and full-time equivalent employees on business days during the preceding calendar year.

To determine whether or not an employer is a large employer, the following information is taken into consideration:

� Full time employees: Full-time employees = employees who work on average 30 or more hours per week (130 service hours in a calendar month)

� Aggregate of part-time employees: Employees who are not a full-time employees must be counted in aggregate. Hours of service for all employees with less than 130 service hours must be added together and then divided by 120.

� Monthly totals: Full-time and full-time equivalent numbers must be added for each month, including fractions.

� Annual average: Monthly totals are added for a yearly total which is then divided by 12. Fractions are disregarded at this point.

� Seasonal worker exemption: Seasonal workers who work less than 120 consecutive days or 4 calendar months need not be included.

Example of how to determine group size for an employer with a mixture of full-time and variable hour employees. The employer has the following information for their employee population:

o Employer has 35 full-time employees (30+ hours per week). o Employer has 10 employees who work 25 hours per week

• 25 x 4.33 = 108.25/month; 10 x 108.25 = 1082.50/120= 9.02

o Employer has 15 seasonal employees who work 36 hours/week during June, July and August (NOT INCLUDED).

o Employer has 15 employees who work 20 hours per week for July – December – • 20 x 4.33 = 86.6/month; 15 x 86.6 = 1299/120 = 10.825

Now let’s count their employee totals to determine their group size:

Month Totals

January 35 + 9.02 = 44.02

February 35 + 9.02 = 44.02

March 35 + 9.02 = 44.02

April 35 + 9.02 = 44.02

May 35 + 9.02 = 44.02

June 35 + 9.02 = 44.02

July 35 + 9.02 + 10.825 = 54.845

August 35 + 9.02 + 10.825 = 54.845

September 35 + 9.02 + 10.825 = 54.845

October 35 + 9.02 + 10.825 = 54.845

November 35 + 9.02 + 10.825 = 54.845

December 35 + 9.02 + 10.825 = 54.845

TOTAL 593.19/12 = 49.4325 49 FTEs = Not subject

For purposes of Employer Shared Responsibility, this employer has 49 FTEs and is considered a small employer.

• Small Employers (less than 50 FT and FTEs) • Not subject to the requirements for the calendar year • Not subject to any reporting requirements

• Large Employers (100 or more FT and FTEs)

• Effective date: January 1 following calendar year with 50+ employees

Step 2: Determine Effective Date Once an employer determines their group size based upon their employment counts from the preceding calendar year, they can determine the effective date of employer shared responsibility penalties. For this purpose, there are currently two categories. However, if you were a small employer in a previous year and are a new large employer, you are required to comply by April 1 for just that first year.

Use these guidelines to determine your organization’s effective date:

Step 3: Manage to Penalties Once an employer has determined the size of its workforce and understands when Employer Shared Responsibility (ESR) penalties apply, the employer must have a general understanding of the actual penalties and the circumstances in which they would apply.

Penalty Type #1: Employer Shared Responsibility penalties for not offering coverage

o The employer does not offer Minimum Essential Coverage (MEC) or MEC is offered to less than 95% of 30+ hour employees.

Size of the Penalties

An employer will be assessed a $2,000 penalty (2015: $2,080, 2016: $2,160, 2017: $2,260, 2018: $2,320) on all FT (30+ hour) employees if at least one FT employee enrolls in Marketplace coverage and receives a subsidy. The employer is allowed to subtract the first 30 FT employees from the assessed amount.

o Example: Employer has 100 FT employees and only offers coverage to 80% of those FT employees. One FT employee enrolls in Marketplace coverage and receives a subsidy. The employer would owe a penalty on 70 FT employees (100-30 = 70)

Penalty Type #2: Employer offers coverage but it is not valuable and/or affordable for any full-time employee.

o Penalty: $3,000 (2015: $3,120, 2016: $3,240, 2017: $3,390, 2018: $3,480) – assessed on each full-time (30+ hour) employee who does not receive an offer of affordable, valuable coverage and enrolls in Marketplace coverage and receives a subsidy, OR

o $2000 assessed on all full-time employees (minus the first 30), whichever is less

In order to understand the penalties, employers need to understand what constitutes minimum essential coverage, minimum value and affordable coverage.

Minimum Essential Coverage (MEC) Minimum Essential Coverage or “MEC” is the minimum level of coverage that an individual must acquire to meet the individual responsibility requirement under the Affordable Care Act. For the purposes of an employer-sponsored plan the coverage can be:

o Group health insurance coverage for employees under: o A governmental plan, such as the Federal Employees Health Benefit Program o A plan or coverage offered in the small or large group market within a state o A grandfathered health plan offered in a group market

o A self-insured group health plan for employees o COBRA coverage o Retiree coverage

Minimum Value (MV) A health plan that is designed to pay at least 60% of the total cost of medical services for a standard population. Benefits must include substantial coverage of inpatient hospital and physician services.

Employers have several methods available to determine whether or not the plan(s) offered provide minimum value.

• Use the federal Minimum Value Calculator: cms.hhs.gov – type in minimum value calculator • Any safe harbor established by HHS and the Internal Revenue Service. • Certification by an actuary to determine MV if the plan contains non-standard features that are not

suitable for either of the methods described above. The determination of MV must be made by a member of the American Academy of Actuaries, based on an analysis performed in accordance with generally accepted actuarial principles and methodologies.

• Any plan in the small group market that meets any of the “metal” levels of coverage, which then satisfies minimum value.

https://www.cms.gov/

Affordable Coverage Employer insurance is considered affordable under the health care law if the employee’s share of the premium for the lowest priced plan available that would cover the employee only — not the employee’s family — is 9.5% (2015: 9.56%, 2016: 9.66%, 2017: 9.69%, 2018: 9.56%) or less of their household income.

However, an employer’s determination of affordable coverage for penalty purposes does not have to be based on household income. Rather, the guidance provides three safe harbors employers can use to determine affordability. Those three safe harbors are:

o W2 Safe Harbor: Employee’s portion of the contribution cannot exceed 9.5% (2015: 9.56%, 2016: 9.66%, 2017: 9.69%, 2018: 9.56%) of the employee’s W2 wages

o Cannot use previous year IRS W2 Form o Must use Box 1 of IRS W2 Form

o Rate of Pay Safe Harbor: Employee’s portion for a month cannot exceed 9.5% of the employee’s hourly rate of pay x 130 or 9.5% (2015: 9.56%, 2016: 9.66%, 2017: 9.69%, 2018: 9.56%) of monthly salary

o Cannot be used for tipped employees o Must use 130 for the hourly calculation regardless of the actual hours worked o Rate of pay at time of offer

o Federal Poverty Safe Harbor: Employee’s contribution cannot exceed 9.5% (2015: 9.56%, 2016: 9.66%, 2017: 9.69%, 2018: 9.56%) of the single federal poverty level for a calendar year divided by 12.

o $11,770 x 9.5% = 1118.15/12 = $93.18/month o 2017: $11,880 x 9.69% = 1151.17/12 = $95.93/month o 2018: $12, 060 x 9.56% = 1152.94/12 = $96.08/month

Employers must also take the following into consideration when determining affordability:

Health Reimbursement Account Amounts: Amounts made newly available under an HRA that are integrated with an eligible employer-sponsored plan for the current plan year are taken into account only in determining affordability if the employee may either:

o Use the amounts only for premiums; or o Choose to use the amounts for either premiums or cost-sharing.

o Wellness Incentives:

o General: When considering the affordability of a plan whose premium differs among wellness plan participants and non-participants, affordability should be tested using the lowest single contribution for non-participants.

o Tobacco: When considering the affordability of a plan whose premium differs among tobacco and non-tobacco users, affordability should be tested using the lowest single contribution for non-Tobacco users. This will help insulate the employer from penalty by basing affordability in the more affordable plan, allowing the employer to continue rewarding healthy behavior.

o Cash-in-lieu: Proposed regulations issued in 2017 require employers to add opt-out or cash-in-

lieu payments to the lowest cost single coverage premium contribution when determining affordability starting in 2017. The amount should only be added if the employer has an “unconditional opt out arrangement”, meaning the employee is not required to have other coverage.

Step 4: Manage to 30 Hour Threshold In order for employers to successfully gauge their penalty risk, it is imperative that full-time employees are properly identified. An employer identifies its full-time employees based on each employee’s hours of service. For purposes of the Employer Shared Responsibility provisions, an employee is a full-time employee for a calendar month if he or she averages at least 30 hours of service per week. For purposes of determining full-time employee status, 130 hours of service in a calendar month is treated as the monthly equivalent of at least 30 hours of service per week.

Hour of service: 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, 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.

An hour of service does not include any hour of service performed as a bona fide volunteer, as part of a Federal Work-Study Program (or a substantially similar program of a State or political subdivision thereof) or to the extent the compensation for services performed constitutes income from sources without the United States.

The regulations provide two methods for employer to utilize to determine FT status of employees. Monthly Measurement Method (MMM): Using the MMM, an employer would determine each employee’s status as a full-time employee by counting the employee’s hours of service for each month. If an employer chooses to use the MMM, the following should be noted:

o Employers will not be subject to a penalty with respect to any employee for the first calendar month in which the employee is first eligible under this method and the immediate subsequent two calendar months.

o Employers may choose to use 130 hours of service in the month OR payroll periods of successive one week periods which would allow employer to use four weeks (120 hours for FT) during some months and five weeks (150 hours for FT) for others.

o Periods during which an employee is not credited with hours of service are not subject to the special leave and employment break period rules. This is because determinations under the MMM are based on hours of service during that particular calendar month and are not based on averaging over a prior measurement period.

o Employers who choose to use the MMM can face an administrative burden if they have employees who work variable hours and may not want to select this method. This is because if an employee has average monthly hours that go both above and below 30, he or she may be coming on and off the plan as his or her hours change.

MMM Example (New Hire) Employee A is hired on June 1st. Under the MMM the employer’s reasonable expectations of the employee do not matter at the time of hire since measurement occurs month-by-month. The employer would simply not need to offer coverage until the first day after the two calendar months that follow the first full calendar month in which the employee meets the 30 hour eligibility requirement (aside from a waiting period). So what is really important is that first month the employee becomes eligible for coverage. It is important to remember that this rule applies only once at the time the employee becomes eligible for coverage. Subsequently, the employee would need to be tracked every month and offered coverage without the two month grace period. So if Employee A was not a 30 or more hour employee until August (after analyzing hours for the months of June and July which were under 30) coverage would not need to be offered coverage until the first day of November (meets eligibility in August – 2 month period covers September and October), with the employer using data from subsequent months to see if the employee is still eligible.

Look Back Measurement Method The Look Back Measurement Method generally involves using an employee’s average hours of service per week during a period of time to determine if an employee is a full-time employee during a subsequent period. The look back method includes these components:

o Measurement Period: 3-12 consecutive months counting hours o Stability Period: At least 6 months and cannot be shorter than measurement period. If someone

worked 30+ hours per week on average during measurement period, that person is considered full-time (“locked in”) during the stability period

o Administrative Period: Optional. Cannot exceed 90 days. Example of Look Back Measurement Method – July 1 plan year:

Example of Look Back Measurement Method – January 1 plan year:

Key items for the Look Back Measurement Method Keep these key items in mind for full and variable hour employees under the Look Back Measurement Method:

o New Full-Time employees o Must be offered valuable, affordable coverage within the first 3 months of

employment. o Reasonable Standard applied at time of hire o New full time employees must be measured by monthly measurement method until

the employee completes one full measurement period.

o New Variable Hour/Seasonal Employees o Must assign an initial measurement period between 3-12 months to each new

variable hour/seasonal employee to determine if that person works an average of 30+ hours per week

o Initial measurement period is followed by a stability period of at least 6 months and no shorter than measurement period. Initial stability period must be the same length as that of ongoing employees and cannot be more than one month longer than initial measurement period

o Initial administrative period of up to 90 days (can be split up) o The initial measurement period + initial administrative period(s) combined cannot

extend beyond the last day of the first calendar month starting on or after the one-year anniversary date of hire (13 months + fractional month)

o Once a new employee is employed for one full standard measurement period, his or her hours are analyzed under that period (Will get concurrent measurement)

o Less than 30 hours/week = locked into initial stability period that can be no longer than remainder of first full standard measurement period in which it ended

o More than 30 hours/week = locked into initial stability period that is the same length as ongoing employees

Graphics to help demonstrate this process: * New Hire: No offer (Did not average 30+ hours during initial measurement period)

New Hire: Offer (Did average 30+ hours during initial measurement period)

*Standard measurement period in example is 5/1 – 4/30, standard administrative period is 5/1 – 6/30 and the stability period is for a 7/1 plan year.

Use of Payroll Periods for Measurement Purposes When you use either the Look Back Measurement Method or the Monthly Measurement Method, can you use payroll periods instead of the first and last days of the month?

• Use of Payroll Periods • Look Back Measurement Method

Full-time status is determined by looking back at a defined period of time from 3-12 consecutive calendar months (standard measurement period).

Employers can choose the months the standard measurement period starts and ends but must be consistent with all employees in same category.

• Collectively bargained vs. non-collectively bargained • Salaried and hourly • Employees of different entities • Employees located in different states

Once the length of the measurement period is established, payroll periods of one-week, two-weeks, or bi-monthly can be used to capture hours.

Employers must use payroll periods that include either the first day of the measurement period OR the last day of the measurement period, but never both.

Example: • Employer uses May 1 – April 30 as the measurement period • Employer either excludes the entire payroll period that included May 1 and

includes the entire payroll that includes April 30 OR

• Employer includes the entire payroll period that included May 1 and excludes the entire payroll that excludes April 30

• Use of Payroll Periods • Monthly Measurement Method

Weekly Rule: Employer can measure employee hours over successive one-week periods

Full-Time status will be determined on a four-week period for some months and five-week periods for other months

Employers must use weeks of seven (7) calendar days – e.g., Sunday through Saturday

Payroll periods may be used if the period used includes either the week that includes the first day of the month OR the week that includes the last day of the month, but not both

Example:

• Employer uses Sunday through Saturday as a week in applying the weekly rule.

• In measuring for January 2016, the employer measures from Sunday December 27, 2015 – January 30, 2016 to determine an employee’s full-time status.

• The employer included the week that included the first day of the calendar month but did not include the week that included the last day of the month

Do the rules allow the use of payroll periods for the Initial Measurement Period (only used with the Look Back Measurement Method)?

• Use of Payroll Periods • Initial Measurement Periods: New Variable Hour, Seasonal, Part-time

Employer can use payroll periods for an initial measurement period Employers are allowed to use an initial measurement period of 3-12 months Employers must start measuring a new variable hour, seasonal or part-time

employee by the first of the month starting on or after hire OR if later, the start of the first payroll period starting on or after the employee start date

Example: • Employer hires new variable hour employee on May 20 • Employer can wait until the first of the following month (June 1) to start

measuring OR

• Employer can wait until the first day of the payroll period that starts on or after the date of hire.

• If the next payroll period starts on May 24, the employer can wait until June 1 to start measuring because it is the later date

• IF the next payroll period starts on June 3, then the employer can wait until June 3 to start measuring because it is the later date

Mid-Year Status Changes When using the Look Back Measurement Method there are situations in which employees have a status change which an employer must alter the insurance eligibility status of an employee. If an employer is using the Look Back Measurement Method, employees are generally considered “locked-in” to a full or part-time status during a stability period. However changes can be made under the following circumstances:

o Employee shifts from variable hour to a full-time employee during an initial measurement period.

• In this situation, an employer must make an offer of coverage to the employee within 3 months of the status change.

o During a stability period a full-time employee shifts from full-time to variable hour status.

• General Rule: As a general rule, an employee who is determined to be a 30+ hour full-time

employee during a measurement period is “locked-in” as a 30+ hour employee during a stability period.

• However: IF the employee was offered minimum value coverage by the first day of the calendar month following three full calendar months of employment, the employer is allowed to take the employee “out” of the stability period

o Employee must average less than 30 hours per week during each of the 3 full calendar months following the status change

o Starting with the first day of the fourth full calendar month following the status change, the employer is allowed to start applying the monthly measurement method to the employee

o The monthly measurement method would continue through the end of the first full measurement and administrative period that would have applied if the employee remained under the Look Back Measurement method

How is COBRA handled?

• If the plan documents include the special rule, coverage is lost by the first day of the fourth month following the status change and COBRA would be offered at that time

• IF the plan documents merely refer to eligibility as an hourly requirement and the employee goes below the hourly requirement, COBRA is offered at the time of the reduction in hours + the loss of coverage

• If the ESR status change rules are not included in plan documents there is a “disconnect” between eligibility requirements and employer may have a penalty exposure if ESR requirements are not followed

o COBRA based on our reduction in hours is considered an offer of coverage and therefore the penalty A risk is low

o Penalty B: Individual penalty still a risk if the employee does not have affordable/valuable coverage for the 3 months following the status change

o Voluntary Drop of Coverage By Employee

• Historically allowed by plan, not allowed by Section 125 rules • September 2014 regulations allow for employees to revoke elections IF the employee goes

below the 30 hour threshold and wants to revoke coverage to enroll in another plan OR If the employee wants to enroll in Marketplace coverage. (must amend plan to allow)

• IF the employees allowed to revoke their elections enroll in other coverage, subsidies would not be available and therefore the penalty risk would be low

• No offer of COBRA

o Non-Payment of Premium by Employee

• Employers will not be penalized for failing to offer any FT employee the opportunity to enroll in minimum essential coverage for employees whose coverage is terminated during the coverage period due to non-payment of premium. The employer must provide the appropriate amount of time for payment as allowed under COBRA rules.

o Leave of Absence (non FMLA) or lay-off

• Eligibility requirements dictate that the employee is no longer eligible for active employee coverage.

• Employers should offer COBRA • In this situation an employer would not be at risk for Penalty A because the offer of

COBRA is considered an offer of coverage. • However, if the employer does not contribute to the COBRA premium, the coverage

would most likely be unaffordable and the employer is at risk for Penalty B.


Section 4: IRS Reporting Requirements & Scenarios The newest element of the Affordable Care Act is the implementation of new IRS Reporting Requirements. This requirement for large employers (50+ FTEs) is the shared responsibility reporting requirement under Section 6056 of the ACA. In addition, employers with self-funded plans have additional reporting obligations under Section 6055 of the ACA. Starting in 2016 for 2015 offers of coverage, large employers will file reports with the IRS which identify the number of full-time/full-time equivalent employees they employed during the prior year and which employees received an offer of minimum value/affordable coverage. Employers must also provide an annual statement to their employees with the information that the employer provided to the federal government about their offer of health insurance offer. This section covers the new IRS Reporting Requirements, the codes that the IRS is using for the reporting and a number of scenarios. Our goal is to simplify this new reporting requirement for you and your organization.

IRS Reporting Requirements & Scenarios

Overview of IRS Employer Reporting Requirements Starting in 2016, the Internal Revenue Service (IRS) requires all large employers (50+ FTEs) report information about the number of full time/full-time equivalent employees they employ during the previous year and which employees received an offer of minimum value coverage. The following are the core components of the requirements:

Forms.

The IRS is very prescriptive about the forms that will be used for reporting purposes. There are two basic versions of the forms that employers should be aware of:

• B-Forms. The B-Forms are designed to report whether the employer is offering minimal essential coverage. The forms are:

o Form 1094-B: This is essentially a cover sheet used by insurance providers when they transmit their report to the IRS. The 1094-B is a brief form that takes up less than one page.

o Form 1095-B: This form is a health insurance tax form which reports the type of coverage an individual enrolled in, dependents covered in a plan which offered MEC. In most cases this form will go directly to an employee from the health insurance carrier.

• C-Forms. The C-Forms are designed to report whether the employer is meeting their responsibilities under the Employer Shared Responsibility portion of the Affordable Care Act. The forms are:

o Form 1094-C: This is essentially a cover sheet used by employers when they transmit their report to the IRS. The 1095-C is an overview of the coverage offered by the employer.

o Form 1095-C: This form is completed by all Applicable Large Employers (ALEs) who have at least 50 or more full-time/full-time equivalent employees. This form is filled out by the employer for all individuals who are offered coverage and sent to the employee and the IRS. If the employer is self-funded, the employer will also report MEC in Part III of the form.

Employer Requirements.

For purposes of the reporting requirements, employers have different requirements based upon their size (small or large) and how their health insurance plan is funded (fully insured or self-funded). The breakdown of responsibilities is as follows:

• Large Employers; Fully insured health plan. These employers have employed fifty (50) or more full-time employees/equivalents during the previous year and have a fully-insured health plan. They must:

o Employer will complete the 1094-C and 1095-C for every full-time (30+ hour) employee. Must complete Parts I & II of those forms.

o Insurance Carrier will complete a 1095-B for all covered individuals. o No entity will complete Part III of the 1095-C. o Employees will receive a 1095-C and 1095-B.

• Large Employers; Self-funded health plan. These employers have employed fifty (50) or more full-time employees/equivalents during the previous year and have a self-funded health plan. They must:

o Employer will complete the 1094-C and 1095-C for every full-time (30+ hour) employee. Must complete Parts I & II of those forms.

o Employer will complete Part III of the 1095-C for all covered individuals. o Employees will receive a 1095-C. o If the employer has lower eligibility requirements than the standard 30+ hours per week, the

employer can either fill out a 1095-C for those employees, indicating in Part II that the employee is PT using Code 1G or complete 1095-Bs for covered employees working fewer than 30 hours per week.

• Small employers (under 50 employees); fully insured. These employers have employed fewer than fifty (50) employees/equivalents during the previous year and have a fully insured health plan. They must:

o Employer has no reporting obligations. o Insurance carrier will fill out a 1095-B for every covered individual. o Employees will receive a 1095-B from the carrier.

• Small employers (under 50 employees); self-funded health plan. These employers have employed

fewer than fifty (50) employees/equivalents during the previous year and have a self-funded health plan. They must:

o Employer will need to complete a 1095-B for every covered employee and include coverage information for every covered individual.

o Employees will receive a 1095-B from the employer.

(Continued)

Filing Deadlines.

The following dates are the deadlines for filing all forms:

• January 31: Form 1095-C and 1095-B statements must be provided to employees. Employee statements can be delivered electronically based on existing requirements for W2 electronic distribution. Employer MUST obtain the consent from the employee.

• February 28: All forms must be filed with the IRS annually if mailed. • March 31: All forms must be filed with the IRS if filing electronically through the Affordable Care Act

Information Returns (AIR) system. Electronic filing is required if an employer will file more than 250 C or B forms.

Form 1094-C Transmittal Form This transmittal form will be filled out by employers as a major part of the IRS Reporting Requirements. The form is below and a summary of the key areas follows.

Employer Information: Much of the information on the form is standard information such as location of employer and contact information. The follow areas are very important for employers to fill out properly:

• Line 18 – Total number of 1095-Cs transmitted. • Line 19 – Yes/No Question. Only Check “Yes” if this 1094-C is the authoritative transmittal which is

reporting aggregated data. If “NO”, then leave the remainder of the form (lines 20-22 of Part II and all of Parts III and IV blank). If only ONE employee is reporting, this will be the authoritative transmittal. If several employers are reporting under a controlled group so that all FT employees are not reporting under one 1094-C transmittal, one of the Forms 1094-C must report aggregate employer level data and be identified as the Authoritative Transmittal.

• Line 20 – Only fill in number of total forms if this is the authoritative transmittal. • Line 21 – Aggregated group indicator (see instructions)

Certifications of Eligibility for Reporting Relief (Line 22)

Line 22 of the 1094C actually offers applicable large employers (ALEs) to certify if they are eligible for two different types of relief. Each area of relief has different requirements and different outcomes. Not all employers will qualify for an area of relief. The four areas are:

A: Qualifying Offer Method.

This method may simplify health coverage reporting on Form 1095-C for an employer that certifies that, for all months during the year in which an employee was a full-time employee for whom a Section 4980H employer shared responsibility payment could apply, the employer made a “Qualifying Offer.” To meet this eligibility an employer must:

• Offer of minimum essential coverage (MEC) providing minimum value • All months during the year that an employee was a full-time employee • Cost to employee for self only coverage is no more than 9.5% of Federal Poverty Level (FPL) • MEC also made available to spouse and dependents, if any

If Relief Type A is met: Qualifying Offer Method Employee Statements can include:

o An employer that uses the Qualifying Offer method may, rather than furnishing a copy of Form 1095-C to its full-time employees (who received a Qualifying Offer for all 12 months), instead provide a statement containing the following information:

o Employer Name, Address and EIN

o Contact name and telephone number

o A statement indicating that, for all 12 months of the year, the employee and his or her spouse and dependents, if any, received a Qualifying Offer and therefore are not eligible for a premium tax credit.

B: Reserved: Not Applicable

C: Reserved: Not Applicable

Relief Type D: 98% Offer Method.

This method may simplify health coverage reporting on Form 1094-C for an employer that certifies that it offered, for all months of the calendar year, affordable health coverage providing minimum value to at least 98% of its employees and their dependents for whom it is filing a Form 1095-C employee statement.

• “Affordable” is based on the employer mandate final regulations safe harbors. For this purpose, any 4980H affordability safe harbor applies

• Upon an IRS request, the employer may later be required to identify whether specific employees were full-time, by month

IRS Codes for Form 1095-C: Line 14

Code Description

1A Qualifying Offer: MEC + MV offered to FT employee, Federal Poverty Level utilized to determine affordability and MEC offered to spouse and dependents

1B MEC + MV offered to employee only

1C MEC + MV offered to employee; MEC offered to dependents (not spouse)

1D MEC + MV offered to employee; MEC offered to spouse (not dependents)

1E MEC + MV offered to employee; MEC offered to spouse and dependents

1F MEC (no MV) offered to employee; employee + spouse or dependents; employee + spouse and dependents

1G Offer of coverage to non-FT employee for any month of the calendar year and who enrolled in self-insured coverage for one or more months of the calendar year

1H No offer of coverage (not offered or employee offered coverage that is not MEC

1I MEC + MV offered to employee; MEC conditionally offered to spouse; MEC not offered to dependents

1J MEC + MV offered to employee; MEC offered to dependents; MEC conditionally offered to spouse

Line 15: Input $ amount of employee’s share of lowest cost single coverage ONLY if 1B, 1C, 1D or 1E is used on line 14.

IRS Codes for Form 1095-C: Line 16

Code Description 2A Employee not employed during the month. Only use if the employee was not employed on

ANY DAY of the calendar month. Do NOT use for the month in which the employee terminates.

2B Employee not a FT employee. Use if employee was not a FT employee for the month and did NOT enroll in MEC if offered. Also use if employee is FT and whose offer of coverage ended before the last day of the month due to termination of employment.

2C Employee enrolled in coverage offered. Enter this code regardless of whether any other codes (other than 2E apply) might apply. Do not use for COBRA coverage. (Use 2A)

2D Employee in a Limited Non-Assessment Period. If the employee is in an Initial Measurement Period, enter 2D rather than 2B (not FT employee). If multi-employer interim relief applies, enter 2E and not 2D.

2E Multiemployer interim rule relief – use this code for any month in which the multiemployer arrangement interim guidance applies for that employee regardless of if any other Series 2 code applies.

2F W-2 Affordability Safe Harbor applies 2G Federal Poverty Level Safe Harbor applies 2H Rate of Pay Safe Harbor applies

Notes:

Line 15 is BLANK. You will only fill in Line 15 if Code 1B, 1C, 1D or 1E is used.

Reporting Scenario #1

Situation:

Employer offers health plan coverage to all employees who are scheduled to work 20 hours per week. The plan provides “Minimum Value”, therefore is considered Minimum Essential Coverage and is provided by a local health plan carrier. Employer has over 100 employees based on the preceding calendar year.

Affordability:

Employer charges $50/month for the lowest cost single coverage option. Therefore, Employer is able to utilize the Federal Poverty Level (FPL) safe harbor for affordability.

Employee Example:

Amy One is a full-time employee of Employer. She is eligible for coverage every day in 2016 and was enrolled in coverage every day in 2016. Her 1095-C will look as follows:

Notes: Line 16 is only left blank if the coverage offered was not affordable. Employers should use the affordability safe harbor codes (2F, 2G or 2H) when an employee waives coverage and the offer was affordable.


Situation:


Affordability:


Employee Example:

Bob Two is a full-time employee of Employer and he was offered coverage for all of 2016. Bob waives coverage for all of 2016. His 1095-C will look as follows:

Notes: Doug is coded as a 1H (no offer), 2A (not employed) for Jan-Mar. He started work with Employer in April, but he was in a waiting period so coded as 1H (no offer), 2D (limited non-assessment period). He is offered coverage effective June 1 (1A) and enrolls (2C) for the remainder of the year. No dollar amount is needed on Line 15 due to code 1A.


Situation:


Affordability:


Employee Example:

Doug Three is hired as a new full-time employee on April 15, 2016. His waiting period runs from April 15-May 30. He enrolls in coverage from June – December 2016. His 1095-C will look as follows:

Notes: Claudine is hired as a Variable Hour Employee and is therefore in a limited non-assessment period (she is in her Initial Measurement Period) from January – July and is coded for those months as 1H (no offer), 2D (limited non-assessment period). She is offered coverage and enrolls effective August 1 – 1A, 2C. No dollar amount is needed on line 15 due to 1H and 1A.


Situation:


Affordability:


Employee Example:

Claudine Four starts with Employer on January 10, 2016 as a variable hour employee. She is promoted to full-time status on August 1, 2016 and is offered insurance on August 1. She enrolls in coverage effective August 1. Her 1095-C will look as follows:

Notes: Zach was offered coverage from Jan – June, but did not enroll in coverage. Because the employer does not use the Federal Poverty Line (FPL) to determine affordability, 1E is used rather than 1A. The use of 1E requires the employer to put the dollar amount of the lowest cost single coverage on Line 15. Even though Zach enrolls in family coverage in July, the $300 amount is used for the entire year. Zach waived coverage from Jan – June so Line 16 is blank because the offer was not affordable. When he enrolls in July, Line 16 will be coded with a 2C.


Situation:

Employer charges more than the FPL x 9.5% ($93.18/month) for the lowest cost single coverage. Employer offers Minimum Essential Coverage (MEC) with Minimum Value (MV) to employee, spouse and dependents. The cost for single coverage is $300 per month and family coverage is $500 per month.

Employee Example:

Zack Five is a full-time employee of Employer. Employer offers Zack coverage. The plan operates on a July 1 renewal date. Zach does not take coverage from July 1, 2015-June 30, 2016. However, in July of 2016 Zach decides he needs coverage and enrolls in family coverage. His 1095-C will look as follows:

Notes: The 2016 Instructions simplify the reporting for offers of COBRA coverage in the case of terminated employees. An offer of COBRA coverage made to a former employee upon termination of employment is no longer reported as an offer of coverage on Line 14. Instead, series-1 code 1H (No offer of coverage) must be entered for any month for which the offer of COBRA continuation coverage applies. Also the instructions provide that series-2 code 2A is to be used for any month in which a terminated employee is enrolled in COBRA, not code 2C.


Situation:


Affordability:


Employee Example:

Remember Amy One from Scenario #1? What if Amy decided to terminate her employment as of June 12, 2016 to go work for another employer? Amy is offered COBRA. Her 1095-C will look as follows:

Notes: For a reduction in hours, the offer is reported even if not enrolled in COBRA. So, for months June-December, the code 1E is reported. On line 15, the lowest cost self-only COBRA rate is reported; were COBRA elected, code 2A would be used. On line 16, the months without COBRA coverage would be blank because the COBRA offer is not affordable.


Situation:


Affordability:


Employee Example:

What if instead of terminating, Amy One had a reduction of hours and loses her eligibility status on June 12, 2016? The reduction is a COBRA qualifying event, but Amy is offered COBRA, but elects to enroll in her spouse’s plan and ultimately declines COBRA coverage. Her 1095-C will look as follows:

Notes: Emily is not considered a full-time employee within the ACA’s definition, nor did she average 30 hours a week during her measurement period. However, the employer’s eligibility starts at 20 hours and above. As a result, Line 14 is coded with code 1G (Offer to non-FT employee). Lines 15 and 16 are left blank. This coding would look the same for any employees who elect coverage and fall between 20-30 hours as non-ACA full-time employees. A 1095-C could be provided only if the employer has self-funded coverage.


Situation:


Affordability:


Employee Example:

Recall from the original scenario, that Employer offers health plan coverage to all employees who are scheduled to work 20 hours per week. Emily Employee works 25 hours per week as a classroom aid, and elects coverage for herself and is covered for the entire calendar year. Her 1095-C will look as follows:


IRS Enforcement of ESR

IRS intends to begin ESR penalty process The Internal Revenue Service (IRS) recently revised its “Questions and Answers on Employer Shared Responsibility Provisions under the Affordable Care Act”. The revisions are specifically focused on employer shared responsibility (ESR) penalties. In the FAQs, the IRS outlines the process they will utilize to notify employers of ESR penalties. The IRS plans to issue letters informing applicable large employers (ALEs) of potential liability for ESR payments in late 2017. This group of penalty letters will be in reference to any potential liabilities for the 2015 calendar year. It is important for large employers to understand the penalty notification and appeal process as we anticipate the IRS to issue the letters in the near future. Here is an overview of the process that employers should expect: Step One: Employer receives Letter 226J from the IRS The IRS will inform ALEs who they believe are responsible for a penalty payment via Letter 226J. The basis for the penalty demand is based on the IRS determination that for at least one month in 2015 one or more of the large employer’s full-time employees was enrolled in Marketplace coverage, received a premium tax credit (PTC) and the large employer did not qualify for an affordability safe harbor or any other relief. i

The letter will contain a payment summary table, a response form (Form 14764), employee premium tax credit list (Form 14765), and full instructions on how to proceed from the IRS. Step Two: Response to IRS Letter 226J Employers who receive Letter 226J will have 30 days to respond to the IRS, based on the date of the letter. Employers should complete Form 14764, edit Form 14765 with proper 1095 1 and 2 codes if the codes indicated are incorrect, provide any supporting documentation and mail the response to the IRS. Step Three: IRS Response to Forms 14764/14765 The IRS will acknowledge the employer response to Letter 226J and provide a letter (Letter 227 – not available yet) with further action required, if any. If the employer disagrees with the information provided in Letter 227, the employer may request a pre -assessment conference with the IRS Office of Appeals. Any requests should be made in writing generally within 30 days of the date of Letter 227.

https://www.irs.gov/affordable-care-act/employers/questions-and-answers-on-employer-shared-responsibility-provisions-under-the-affordable-care-act#Making

https://www.irs.gov/affordable-care-act/employers/questions-and-answers-on-employer-shared-responsibility-provisions-under-the-affordable-care-act#Making

https://www.irs.gov/pub/notices/ltr226j.pdf

https://www.irs.gov/pub/irs-pdf/f14764.pdf

https://www.irs.gov/pub/irs-pdf/f14765.pdf


Response necessary: It should be noted that employers who do not respond to either Letter 226J OR Letter 227, the IRS will assess the amount of payment and issue a notice and demand for payment via Notice CP220J. The employer will need to make its payment following the included instructions. i Please keep in mind that employers with 50-99 employees were eligible for transition relief in 2015 as long as the employer certified on the 2015 1094C. Also, transition relief may apply to employers with 100+ employees who sponsored non -calendar year plans.

Key Takeaway: With this notice, the Internal Revenue Service appears ready to assess employer shared responsibility payments to large employers. These payments will apply to large employers who did not offer coverage to enough full-time employees and/or did not offer affordable coverage to eligible full-time employees. Since the implementation of the Affordable Care Act, employers have been encouraged to pay attention to the rules and document all required processes in order to have proof to appeal any IRS assessments. It is imperative that you continue to rely on your tax partner/vendor who have assisted you in the reporting process. And, as always, your M3 team will be available to provide you with necessary compliance support.


Wrap-Up & Reminders Throughout the implementation of the Affordable Care Act (ACA, we’ve taken a very measured approach to the law here at M3 Insurance. Our goal has been simple: interpret the law and its many regulations so that you can make the decision for your organization and employees. We hope this Preparedness Guide helps your attempt to comply with the law. The implementation of the ACA has been consistent in one sense: it has provided us with consistent change. Legislation, regulations and implementation surrounding the law has been a moving target for employers of all size and at M3 Insurance we are ready to keep you aware of where the ACA takes us next. Moving forward, we encourage you to participate in our monthly webinars, join an in-person seminar, follow our blog, read our newsletters and emails and utilize our M3 Health Care Reform Tracker. Staying apprised of the latest changes and having the right interpretation of the law puts you and your organization in the best position to stay compliant and competitive. If you have any questions or concerns, we always encourage M3 clients to contact their Account Management Team so they can identify the right resources to meet your unique needs.


Resources

Centers for Medicare & Medicaid Services (CMS): https://www.cms.gov/

Department of Labor Model Notice for Grandfathered Health

Plans: https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/affordable-care-act/for-

employers-and-advisers/grandfathered-health-plans-model-notice.doc

Federal Glossary of ACA-related terms: https://www.healthcare.gov/glossary/

HHS FAQ on Cost Sharing

Limits: https://www.regtap.info/uploads/library/Embedded_MOOP_FAQ__V1_CR_050815.pdf

Internal Revenue Service limits on Flexible Spending Accounts: https://www.irs.gov/pub/irs-drop/rp-14-61.pdf

IRS instructions for Forms 1094-C and 1095-C: https://www.irs.gov/pub/irs-pdf/i109495c.pdf

IRS Form 1094-C: https://www.irs.gov/pub/irs-pdf/f1094c.pdf

IRS Form 1095-C: https://www.irs.gov/pub/irs-pdf/f1095c.pdf

IRS Overview Brochure on 1094-C and 1095-C: https://www.irs.gov/pub/irs-pdf/p5196.pdf

M3’s Health Care Reform Tracker: http://m3ins.com/account-login/health-care-reform-tracker

https://www.cms.gov/

https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/affordable-care-act/for-employers-and-advisers/grandfathered-health-plans-model-notice.doc

https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/affordable-care-act/for-employers-and-advisers/grandfathered-health-plans-model-notice.doc

https://www.healthcare.gov/glossary/

https://www.regtap.info/uploads/library/Embedded_MOOP_FAQ__V1_CR_050815.pdf

https://www.irs.gov/pub/irs-drop/rp-14-61.pdf

https://www.irs.gov/pub/irs-pdf/i109495c.pdf

https://www.irs.gov/pub/irs-pdf/f1094c.pdf

https://www.irs.gov/pub/irs-pdf/f1095c.pdf

https://www.irs.gov/pub/irs-pdf/p5196.pdf

http://m3ins.com/account-login/health-care-reform-tracker


Exhibit A: Important Definitions for Schools

o Adjunct Faculty: “Reasonable” method to determine hours OR allow a credit of 2.25 hours for each hour of teaching or classroom time.

o Educational Employees: Teachers and other educational employees will not be treated as part-time for the year because the school is closed or operating on a limited summer break. A break in employment of 4 consecutive weeks or more cannot be counted against the educational employee.

o Seasonal Employees: Employees in positions for which the customary annual employment is six months or less will generally not be considered full-time employees

o Student Work Study: Services provided under work study programs will not be counted in determining full-time work status

o Substitute Teachers: At this point, must be treated as any other employee

o Volunteers: Hours contributed by volunteers for a government or tax exempt entity do not have to be counted

Affordable Care Act Preparedness Guide · combined amount does not exceed the annual out-of-pocket...

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Transcript of Affordable Care Act Preparedness Guide · combined amount does not exceed the annual out-of-pocket...