The View From 10,000 Feet and From The Trenches In California – How Healthcare Reform Impacts You

12014 ACC-SoCal In-House Counsel Conference #IHCC14

The View From 10,000 Feet and From The Trenches In California – How Healthcare Reform Impacts You

January 29, 2014Anaheim, California

Sponsored by Ogletree, Deakins, Nash, Smoak & Stewart P.C.

Moderator: Jeffrey B. Compangano, Esq.

Panelist(s): Timothy J. Stanton, Esq.

#IHCC12

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#IHCC142014 ACC-SoCal In-House Counsel Conference

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Overview

Health Care Reform, 2014 and Beyond– Employer Mandate – our starting point

– Exchanges and Related Issues

– New IRS Reporting in 2015

– Waiting Periods

– Continuing Legal Challenges

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Overview (cont.)

Other Hot Health Benefit Issues– Health FSA Carryovers – as soon as now

– Same-sex Marriage – Impact of Windsor

– New Wellness Opportunities, Challenges in 2014

– HIPAA reminder

Summary & Key Takeaways

Open Forum

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Shared Responsibility . . . .

What Now?

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Sharing is Mandatory

Affordable Care Act adopted two mandates as part of its emphasis on “shared responsibility” – The individual mandate – secure “minimum essential

coverage” or pay a fine; and

– The employer mandate – provide “minimum essential coverage” that is affordable and that offers minimum value or pay a fine

Individual mandate effective January 1, 2014 (or maybe March 31, 2014?)

Employer mandate effective (for now) January 1, 2015

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Individual Mandate

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Individual Mandate (cont.)

Who’s covered?– All taxpayers (with some exceptions – religious,

“stealth immigrants,” incarcerated, low income, hardship)

– One short gap (> 3 months) each year is permitted

– Coverage for one day = coverage for a month

What’s required?– Maintain MEC each month for taxpayer and federal

tax dependents

What is MEC?– Employer plans (incl. COBRA), individual insurance,

government programs (Medicare, etc.)

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Individual Mandate (cont.)

Penalty equal to greater of—– 2014: $95 per adult/$47.50 per child (max of

$285/family) or 1% of household income

– 2015: $325 per adult/$162.50 per child (max of $975/family) of 2% of household income

– 2016: $695 per adult/$347.50 per child (max of $2,085/family) of 2.5% of household income

Penalty collected through individual income tax returns

No penalty for nonpayment but IRS will withhold from future refunds

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Employer Mandate

Applicable large employers must offer minimum essential coverage that is both affordable and that provides minimum value to substantially all of their full-time employees and dependents

If an ALE does not offer such coverage and if one or more FT employee becomes eligible for a premium tax credit, an assessable payment will be due

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Employer Mandate:

Key Concepts and Issues

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Who’s Covered?

The employer mandate applies to Applicable Large Employers– ALE = 50+ FTEs on average during the

preceding calendar year

– Tip: ALE status for 2015 is based on 2014 data

Key considerations—– Who’s the “Employer”?

– Who’s the “Employee”?

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Who’s Who?

Who’s the “Employer”?– For most benefit plan purposes, business entities that

are related by common ownership are treated as if they are a single entity

Who’s an “Employee”?– Yes: W-2 employees (including temporary, seasonal,

intern, commission-based, per diem/piece work, misclassified)

– No: “Leased employees”, Sole proprietors, partners and 2-percent S corp. shareholders

– Maybe so: non-414(n)(2) leased employees, staffing company workers, PEO workers

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Coping with ALE Status

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Who’s Who Under the Mandate?

FT status is key driver under the Mandate

Note: FT status for ALE determination ≠ FT status under Employer Mandate

Note also: FTEs are not relevant here

There are essentially three (3) types of employees for purposes of the mandate:– Variable hour - test

– Seasonal - test

– Everyone else – offer coverage

Accurate identification of FT employees is critical to managing exposure

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An Employee in Full

FT status = reasonably expected to work 30 hours/week or 130 hours/month

IRS approach allows designation of a look-back to measure working hours

Assess hours of service on a monthly and ongoing basis– Hourly – count hours

– Non-Hourly – use approved “equivalencies” Actual hours of service Use a days-worked equivalency of 8 hours / day Weeks-worked equivalency of 40 hours / week Equivalencies can’t be used if they substantially understate work

hours and result in non-FT status

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General Rules – Variable Hour/Seasonal Employees

For ongoing employees (Standard Periods)– Measurement Period: 3-12 consecutive months

– Stability Period: Same as measurement period, but at least 6 mos.

– Admin Period: Up to 90 days

For new employees (Initial Periods)– Measurement Period: 3-12 consecutive months

– Stability Period: 6 months or standard measurement period length

– Admin Period: From end of initial measurement period until last day of the next month thereafter (no more than 60 days)

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Seasonal Employees

Different from “seasonal worker” used for determining ALE status

Through 2014, use “reasonable, good faith” interpretation– Employment must (arguably) be tied to a “season”

– Period of employment must be limited – 6, 7, or 9 months?

After 2014, anticipate a time limit such as six (6) months during the year– Actual working hours not taken into consideration

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Responses to

Employer Mandate

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Points to Ponder

Business reorganization

Schedule management

Terminate coverage

New tiers of coverage

Intelligent implementation

Focus on the lower end of the wage scale

“Magic” solutions

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Business Reorganization

Try to break up the controlled group to avoid coverage as ALEs?

May be appropriate with some business structures

But: loss of control would accompany group break-up

Probably still need to assess CG status if you don’t know– Affects other benefit plans

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Schedule Management

Many employers considering reduction of working hours below 30 and restructuring of many positions to “part-time” to reduce exposure to Employer Mandate

Concerns:– ERISA Section 510 – interference with right to

coverage?

– Title VII – Adverse impact?

– Nondiscrimination?

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Schedule Management (cont.)

Reducing hours below 30 for those who already have coverage (i.e., a take-away)?

Reducing hours below 30 for those who reasonably expect to have coverage in 2014 based on historical work schedule?

Eliminating full-time position and replacing it with two part-time positions?– Where are the qualified PT employees going to

come from?

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ERISA Section 510

Precludes affecting the employer-employee relationship to the employee’s detriment if motive is to interfere with attainment of a right or benefit under ERISA or an ERISA plan– Federal cause of action, make whole relief

and back pay available, plus attorneys fees

– Claims available to plan participants and those with an expectation of coverage

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Title VII

Title VII of the Civil Rights Act of 1964 prohibits discrimination on the basis of race, color, religion, sex, or national origin– Other federal and state laws expand the scope of

coverage to include pregnancy, disability, etc.

– Extends to terms and conditions of employment, including employee benefits

Concern lies in impact of changes to plan eligibility on protected classes– Schedule management could disproportionately

burden employees in protected classes

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Nondiscrimination Rules

ACA adopted nondiscrimination rule “similar to” Section 105(h), effective January 1, 2011 for non-GF plans under PHSA 2716– But not excepted benefits or retiree-only plans

IRS guidance in 2010– Unclear

– Sought further comments

– Penalties different than under Section 105(h)

Enforcement suspended until further notice

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Terminate Your Plan

Consider the cost of paying the “big” penalty relative to the cost of compliance– Employees go to the exchange

– Buy coverage after tax

– Reduce your health care cost

– Pay non-deductible penalty

– Payment to make employees whole?

Third-party alternatives?

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New Tiers of Coverage

Adopt new tiers of coverage?– May work but new (and old) nondiscrimination rules

may frustrate attempts to offer “bare bones” coverage to lower-level employees

– Can adversely impact employees in concert with Individual Mandate

– Remember “soft” costs of creating a coverage class system

“Skinny” plan – MEC but not MV– Doesn’t automatically block access to tax credits

– Watch for nondiscrimination rules

– Change to MV affordable plan in 2015 will box out employees who got tax credit in 2014

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Intelligent Implementation

Analyze the workforce and take full advantage of the rules

Determine who works 30/130 hours in any month – summer, project, temporary, holiday help?

Use 5% margin effectively

Impose 90-day waiting period

Use maximum measurement and stability periods for variable hour and seasonal employees

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Intelligent Implementation (cont.)

Application for exchange coverage with a tax credit requires lack of affordable MV employer coverage

Exchanges will verify with employer

Avoid wrong answers to exchanges – could deprive employee of valuable subsidies

Don’t take action against employee after contact from exchange or risk retaliation claim

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Targeting the PTC-Eligibles

Focus on ≤ 400% FPL, particularly ≤ 250%

Offer one low cost coverage option

Communicate cost of Exchange coverage– Loss of tax-exempt employer contributions

– Loss of pre-tax employee contributions

Communicate value of Employer Coverage

Consider replacing vacant positions in this group with part-time workers

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On Being An Informed Consumer

Expect to encounter many promoters of ACA-related products and solutions

Reimbursement-based “solutions”– Stand-alone HRAs – dead

– Excepted benefits – not workable

Self-funding?– Availability of affordable stop-loss coverage?

– Be aware of new administrative burdens

Be skeptical of “magic” solutions to the ACA

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Marketplace Issues

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Health Insurance Marketplaces – aka “Exchanges”

Federally supervised, but state-based, marketplaces for “qualified” insurance plans

Initially designed to let individuals, small employers shop more easily on basis of price, quality

States can open them up to employers with 100 or more employees – in 2017

Disastrous initial rollout, likely technical fixes – lasting harm?

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Your Interaction with Exchanges?

Exchanges likely to seek information from employers to verify premium tax credit eligibility – could start in 2013

If Exchange determines an employee is full-time and eligible for premium tax credit, employer gets chance to appeal

Incentive for employers – avoid later tax penalties (separate IRS appeal regime)

What is your process for responding to notices and handling appeals?

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Exchange Interactions (cont.)

Employer can contest finding of PTC eligibility but no access to information submitted by individual

If eligibility reversed, individual (and family members) get a re-appeal right

Possibility of conflicting determinations for multi-state employers

Possibility of conflict with IRS determination regarding assessable payments

Allow special enrollment in employer plan if tax credit denied?

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Exchange Notice Issues

Employers subject to the FLSA required to provide notice regarding availability of exchange coverage

Prescribed content – use model notice but customize

– Is MEC available?

– Does plan offer minimum value?

– Is coverage affordable?

Distribute by October 1, 2013 or within 14 days of hire

Electronic notices – not as easy as it could be

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Notice Issues (cont.)

Model DOL COBRA notices updated:– Remove obsolete language

– Provide info about exchanges as alternative

Content requirements for summaries of benefits and coverage (SBC) updated:– Is coverage affordable?

– Does coverage offer minimum value?

Key: What is the message to employees?

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Private Exchanges

Platform for employer to pay and let employee select from a range of products

Active or pre-Medicare retirees, multi- or single-insurer

Employer may step into secondary role in design & administration

Players include: AonHewitt, Mercer, Gallagher, Towers Watson/Extend Health

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New Tax

Reporting Requirements

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New Reporting Obligation #1

Code Section 6055 – Minimum Essential Coverage – Due for 2015

Used to enforce Individual Mandate and establish eligibility for tax credits

Includes detailed info about each employee and related enrollees– Proposed regs eliminate some detail and require

reporting by months (vs. days) of coverage

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Who Must Report?

Fully-insured plan (any size): carrier

Self-funded plan (any size): employer– Each member of a controlled group has a

reporting obligation

– Can nominate a single filer but cannot outsource liability

– Vendor can file for the employer

For multiemployer plans, plan reports

Issue for foreign employers?– No FEIN

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New Reporting Obligation #2

Code Section 6056 – ALE Reporting – Due for 2015

Used to enforce Employer Mandate and inform individuals

Only applies to “Applicable Large Employers”– 50 or more FTEs on average during business

days in the prior year

No 6056 reporting for health insurance issuers or non-ALEs

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What is Reported?

Includes detailed information required– Somewhat simplified by proposed regulations

Certifications—– Was MEC made available to FT employees and

dependents?

– Was coverage “minimum value”?

– Headcount by month

– Name/address/TIN for each FT employee

– Months of coverage for FT employees

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Who Must Report?

Each ALE must report, even if a member of controlled group– Can nominate a single filer but cannot outsource

liability

– Vendor can file for the employer

For MEPs—– Two reports: eligible FT employees and

ineligible FT employees

– MEP administrator can report globally, but liability remains with participating employers

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Individual Statements

Provide in conjunction with forms submitted to IRS

Specified content tracking Forms 1095-B and 1095-C

Provide to primary enrollee (6055) or each FT employee (6056)

Paper notices are permitted

Electronic distribution requires consent

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Reporting Process

6055 – Form 1095-B

6056 – Form 1095-C

Both reports due by 2/28 (3/31 for electronic)– Electronic filing required for large filers

Individual statements due by 1/31

No special timing allowance for FY plans

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Consequences?

Same penalties as for information returns generally– $100 per return/statement; $1.5 million annual

cap

– Applies to report and statement

Reasonable cause exception for both

Reductions possible for quick fixes

IRS may review 6056 reports for accuracy

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Reporting Recap

Not required to do anything in 2014

– Exchange notices for 2014 are informational only

– 6055/6056 reporting goes live January 1, 2015

But: well advised to use 2014 as a time to develop and

test reporting process to capture required information

Exchange notices for 2014 will give a hint about exposure

for 2015

– Use that data for planning a response to the Employer

Mandate

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ACA Plan

Compliance Issues for 2014

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Waiting Periods

Beginning January 1, 2014, the maximum permissible eligibility waiting period for health plans will be 90 days (not three months!)– Calendar days, not business days

– Entry must occur by 90th day to comply

Note that some states (e.g., CA – 60 days) may impose shorter waiting periods for insured plans

Keep waiting period in mind in 2015 for dealing with temps and turnover

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ACA Requirements for 2014

Pre-existing condition exclusions are prohibited

Coverage for adult children through age 26 even if they have access to coverage through their own employer.

Annual and lifetime limits on “essential health benefits” cannot be imposed.

Cost-sharing provisions for many group health plans cannot exceed certain limits.

Certain fees associated with insurance market reforms will be effective

Wellness rules change – more to come

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Summary & Key Takeaways

Plan now for compliance with Employer Mandate in 2015 but don’t forget other ACA requirements applicable in 2014

Be alert to new developments – ACA is a work in progress

Consider technical and “PR” implications of Windsor and make appropriate plan updates to cover the population you intend to cover

Consider new opportunities for cafeteria plans and wellness programs

Revisit HIPAA compliance program and update as needed

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Open Forum

542014 ACC-SoCal In-House Counsel Conference #IHCC14

THANK YOU!!

The View From 10,000 Feet and From The Trenches In California – How Healthcare Reform Impacts You

Sponsored by Ogletree, Deakins, Nash, Smoak & Stewart P.C.

Moderator: Jeffrey B. Compangano, Esq.Panelist(s): Timothy J. Stanton, Esq.

#IHCC12

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11th Annual In-House Counsel ConferenceJanuary 29, 2014 (Los Angeles, CA)

#IHCC1455

www.acc.com/chapters/socal/

The View From 10,000 Feet and From The Trenches In California – How Healthcare Reform Impacts You

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