Health Care Reform:Understanding the Law and Compliance Requirements andAssessing What You Need To Be Doing NowFall 2013 Training Program Presented By: Karlee S. Bolaños, Esq. Joshua D. Steele, Esq. William Q. Lowe, Esq. harrisbeach.com (585) 419-8742 99 Garnsey RoadPittsford, New York 14534
Agenda • General Overview • The Employer Mandate and How To Avoid Liability • Determining Who is a Full-Time Employee • Hours of Service • The Look Back and Stability Periods • New Employees, Rehired Employees, Leaves of Absence • Calculation and Assessment of the play-or-pay penalty • Including an in-depth discussion of the Affordability Safe Harbor • Additional Issues
Exchange Notices Employers must begin to provide annual notices to employees about State and Federal Exchanges – deadline annually is Oct 1 On Sept 11, 2013, the USDOL announced there will be no penalty imposed on employers that fail to distribute to workers a notice about available coverage under state and federal government run health insurance exchanges (referred to as the "health insurance marketplace") It is still prudent to provide the notice (all employers covered by the FLSA must provide) – but I recommend customization in 2014. DOL issued model notices at: http://www.dol.gov/ebsa/healthreform/index.html - There are two versions (one for employers who do offer health plans and one for employers who do not offer health plans)
Overview: The Law and Regulations March 23, 2010: The Patient Protection and Affordable Care Act, “PPACA,” more commonly referred to as the Affordable Care Act, “ACA,” was passed Immediate changes took effect as of the first day of the plan year beginning on or after September 23, 2010 (January 1, 2011 for calendar year plans) – 6 months after enactment Employer play-or-pay mandate and the accompanying employer penalties that were initially set to take effect in 2014 have been delayed until 2015 Employers should be analyzing, planning and taking action in 2013 and 2104 in order to prepare for 2015
Key Definitions/Concepts • Large Employer = 50 or more full-time + full-time equivalent employees. • Full-time employee threshold = 30 “hours of service” per week. • Hours of service = • Hours for which an employee is paid, or entitled to payment, for the performance of duties • Hours 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, disability, layoff, jury duty, etc. • Employer = Common law definition is very broad, includes federal, state, and local governmental entities. • Employee = Common law definition, an employment relationship exists when the person for whom the services are performed has the right to control and direct the individual who performs the services.
Key Definitions/Concepts • Minimum essential coverage = Coverage that meets minimum thresholds that will be set by IRS/HHS. Factors include essential health benefits covered by the plan and cost-sharing requirements. Your health insurance provider should ensure that coverage offered constitutes minimum essential coverage. • Both employer penalties under the shared responsibility provisions (the employer mandate) are only triggered by a full-time employee receiving government subsidized coverage through the state-run exchange.
Shared Responsibility Provisions 2015 Play-or-Pay Penalties • 4980H(a) Penalty: If a large employer does not offer minimum essential coverage to 95% of its full-time employees and their dependents, it will be subject to a penalty of $2,000 for each full-time employee in excess of 30 employees per year. • (# full-time employees – 30) x $2,000 = annual penalty • 4980H(b) Penalty: A large employer that does offer “minimum essential coverage” to 95% of its full-time employees and their dependents may still face a penalty if the coverage was not “affordable” or failed to meet a “minimum value” threshold. Penalty is equal to the lesser of: (a) monthly penalty of 1/12 of $3,000 multiplied by the number of full-time employees who receive government subsidized coverage through the exchange, and (b) the 4980H(a) penalty.
Guidance on How to Avoid Liability • There are four main factors relevant to determining whether an employer will be subject to a penalty: 1. Is the employer a “large employer” 2. What employees constitute “full-time employees” 3. Are any of the currently offered plans “affordable” 4. Do the affordable plans provide the required “minimum value” • On December 28, 2012, the IRS released proposed regulations that address, and provide guidance on, the four main determining factors. • Employers must utilize the rules set forth in the proposed regulations to ensure they will avoid penalties in 2015. • If final regulations are more restrictive, employers who have complied with the proposed regulations will be provided with sufficient time to come into compliance with the final regulations.
The Full-Time Employee Issue Even though part-time employees’ hours of service are counted for purposes of determining whether an employer is a "large" employer, the play-or-pay penalty only applies with respect to full-time employees. Therefore, the determination of whether an employee is full-time or part-time is critical. With respect to any month, a full-time employee is a person who is employed for an average of at least 30 hours of service per week. Remember the difference between hours of service and hours of work.
The Full-Time Employee IssueCalculating Hours of Service • Hourly Employees • Employers must calculate actual hours of service from records of hours worked and hours for which payment is made or due • Non-Hourly Employees • Actual hours of service and hours for which payment is made or due • Daily equivalency (8 hour day) • Weekly equivalency (40 hour weeks) Note: The rules prohibit the use of the daily or weekly equivalency method if the result would be to understate substantially an employee’s hours of service such that it would cause an employee not to be treated as full-time.
The New Measurement and Stability Periods • For many employees it is difficult or impossible to accurately project the number of hours he/she will work in a week/month • Presents issues when determining who must be offered coverage • Safe Harbor Rules • Allow employers to avoid liability based on inaccurate projections through the use of measurement and stability periods
The New Measurement and Stability Periods(cont.) Key Concepts • Standard Measurement Period: A period of time of at least 3, but no more than 12, consecutive months that an applicable large employer selects and uses in determining whether an ongoing employee is a full-time employee under the look-back measurement method. • Initial Measurement Period: A time period of at least 3 but not more than 12 consecutive calendar months used as part of the process of determining whether new variable hour employees are full-time employees under the look-back measurement method. • Stability Period: A period of time that follows, and is associated with, a standard or initial measurement period. Employee status as full-time or part-time is determined by the previous measurement period and remains locked in during the stability period. • Administrative Period: An optional period of no more than 90 days beginning immediately following the end of a measurement period and ending immediately before the start of the associated stability period. • Advisable to have coincide with open enrollment period
The New Measurement and Stability Periods(cont.) Types of Employees • Ongoing employees • New employees (Full-Time and Variable Hour) Categories of Employees • Employers may use measurement periods and stability periods that differ either in length or in their starting and ending dates for the following categories of employees: • Each group of collectively bargained employees covered by a separate collective bargaining agreement; • Collectively bargained employees and non-collectively bargained employees; • Salaried employees and hourly employees; • Employees located in different states
The New Measurement and Stability Periods(cont.) Generally for Ongoing Employees • Employers may select a period of time between three months and one year to use as the look-back, “standard measurement period” • If the employee was employed on average at least 30 hours per week during the look-back period then the employee must be treated as full-time during a corresponding stability period regardless of the number of hours of service the employee actually works in stability period • The duration of the stability period must be the greater of six consecutive calendar months or the length of the look-back period • The employer determines the months in which the standard measurement period starts and ends, provided that the determination must be made on a uniform and consistent basis for all employees in the same category
The New Measurement and Stability Periods(cont.) New Employees • Previous guidance made major distinctions between current and new employees - the new rules eliminate much of the distinction • For all new employees, employer must determine whether, at his/her start date, the employee is “reasonably expected” to work full time • If “reasonably expected” to work 30 hours on average, an employer must offer coverage within three months to avoid liability • If unclear, the employee will be treated as a Variable Hour or Seasonal
The New Measurement and Stability Periods(cont.) New Employees: Variable Hour and Seasonal • Variable Hour Employee: Based on the facts and circumstances at the employee’s start date, it cannot be determined whether the employee is reasonably expected to work on average at least 30 hours per week • For 2014, this also includes individuals expected to work 30 or more hours per week but whose employment is expected to be of “limited duration” • Seasonal Hour Employee: Term is not specifically defined. Employers are to use a “reasonable good faith interpretation” of the term. • Examples being agricultural workers or retail workers employed only during holiday seasons
The New Measurement and Stability Periods(cont.) • For new Variable Hour employees and Seasonal employees, an employer may determine whether a new employee is full-time by using an initial measurement period of between 3 and 12 months that begins on any date between the employee’s start date and the first day of the calendar month following the start date • The stability period for such employees must be the same length as the stability period for ongoing employees • Each Variable Hour/Seasonal employee will have his/her own initial measurement and stability periods • New variable hour employees are eventually transitioned from their initial measurement period to the employer’s general measurement period.
The New Measurement and Stability Periods(cont.) Status Changes and Rehires • A new variable hour or seasonal employee who has a change in employment status to a full-time position during the initial measurement period must be treated as a full-time employee as of: • the first day of the fourth month following the change in employment status; or • if earlier, and the employee averages more than 30 hours of service per week during the initial measurement period, the first day of the first month following the end of the initial measurement period (including any optional administrative period applicable to the initial measurement period) • Break in Service Rule: If an employee does not earn an hour of service for 26 consecutive weeks and is rehired, their status (as full-time, variable or seasonal) will be re-determined at the time of rehire
The New Measurement and Stability Periods(cont.) Unpaid Leaves of Absence The new rules created a method for averaging hours during the look back period when an employee was on unpaid leave (such as FMLA or USERRA leave) or when an employee worked for only a portion of the calendar year Average the hours of work per week during the measurement period, excluding special unpaid periods, and use that as the average for the entire measurement period
Hours of WorkSpecial Rules for Educational Institutions • The regulations address special issues presented in educational institutions by providing an averaging method for “employment break periods” that generally would result in an employee who works full-time during the active portions of the academic year being treated as a full-time employee. • Employment break period = Period of at least 4 consecutive weeks during which an employee is not credited with an hour of service (summer vacation). • Under this method, employers may either: • Exclude employment break periods and determine whether the employee had at least 30 hours of service per week during the school year; or • Calculate the employee’s average number of weekly hours of service during the school year and treat the employee as if he/she earned the same average during the summer months • Credit maximum per calendar year is 501 hours of service.
Determining Full-Time Employees: What do you need to do now? You need to determine what measurement/stability periods you would like to use. Most employers are choosing to use a 12 month measurement and stability period. Most employers are not utilizing different measurement and stability periods for different categories of employees – administrative convenience. Employer’s need to do this now so they know who will be considered “full-time” employees on January 1, 2015.
Example of 12 Month Standard Measurement Period Standard Measurement Period # 1 November 1, 2013 to October 31, 2014. Administrative Period # 1 November 1, 2014 to December 31, 2014. Stability Period # 1 January 1, 2015 to December 31, 2015. Standard Measurement Period # 2 November 1, 2014 to October 31, 2015. Administrative Period # 2 November 1, 2015 to December 31, 2015 Stability Period # 2 January 1, 2016 to December 31, 2016.
Ensuring that You “Offer” Coverage Section 4980H(a) of the ACA provides that an applicable large employer is liable for a penalty if, for any month, any full-time employee is certified as receiving a premium tax credit or subsidy and the applicable large employer fails to offer its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage The regulation clarifies that an “offer” will exist if an employee has an effective opportunity to elect to enroll (or decline to enroll) at least once per year The regulation also clarifies that certain recordkeeping requirements should be followed to demonstrate that an offer of coverage was made by the employer to the employee and the dependent
Determining “Affordability” • To avoid all penalties, a covered employer must provide self-only health plan coverage that is “affordable” (Family coverage does not need to be “affordable”). Generally, a plan is not affordable if the employee’s premium contribution exceeds 9.5% of his/her household income. • Employers may take advantage of one of three safe harbors to determine whether the plan they offer is “affordable”: • Form W-2: Employee premium share does not exceed 9.5% of the amount in Box 1 • Rate of Pay: Employee premium share does not exceed 9.5% of the total of the employee’s hourly rate of pay multiplied by 130 hours per month • Federal Poverty Line: Employee premium share does not exceed 9.5% of the federal poverty line for one person • Remember, only the premium for self-only coverage with the employer’s lowest-cost minimum value plan needs to be “affordable”
Details of the W-2 Safe Harbor • Application of the W-2 safe harbor is determined after the end of the calendar year and on an employee-by-employee basis, taking into account the Form W-2 wages and the required employee contribution for that year • For an employee who was not a full-time employee for the entire calendar year, the Form W-2 safe harbor is applied by adjusting the employee's Form W-2 wages to reflect the period when the employee was offered coverage and then comparing those adjusted wages to the employee share of the premium during that period
Affordability: What do you need to do now? • After utilizing the selected measurement period to determine who constitutes “full-time” employees, employers must ensure that coverage offered to those employees is affordable. • Determine which “safe-harbor” works the best for your work force. • Identify employees or categories of employees that are in the “danger zone”. • Consider required changes to ensure affordability. • Increasing employer contributions for self-only coverage • Linking employer contributions to employee wages or rate of pay safe harbor • Adoption of a new less expensive plan as a safety net
Individual Mandate • This was the most controversial issue addressed by the US Supreme Court • Beginning in 2014, virtually everyone must have at least a minimum level of coverage or pay an individual tax penalty for failing to do so • The penalty will be phased in over three years, beginning in 2014 • In 2016: Penalty is the greater of $695 per individual per year, up to a maximum of $2,085 per family per year, or 2.5% of household income • Important because this will drive employees who do not receive qualifying coverage from their employer into the exchanges, thus triggering employer mandate penalties
Retaliation/Whistleblower Protections • No employer may discharge or otherwise retaliate against (including intimidating, threatening, restraining, coercing, blacklisting or disciplining) any employee with respect to their compensation, terms, conditions or privileges of employment because the employee: • Received a credit or subsidy by enrolling in coverage through an exchange • Provided, caused to be provided, or is about to provide or cause to be provided to the employer, Federal government or state attorney general information relating to any violation of, or any act or omission the employee reasonably believes to be a violation of, any provision of Title I of the Act • Testified or is about to testify in a proceeding concerning such violation • Assisted or participated, or is about to assist or participate, in such a proceeding • Objected to, or refused to participate in, any activity, policy, practice or assigned task that the employee reasonably believed to be in violation of any provision of Title I of the Act or any rule, regulation, standard or ban under Title I of the Act
Retaliation/Whistleblower Protections (cont.) Beginning in 2014, health insurance issuers will be prohibited against retaliating against persons who are not their employees with respect to those persons’ compensation, terms, conditions or other privileges of employment, including their employer-sponsored health insurance Employees will be protected from retaliation not only by his/her employer, but also by the insurance issuer that provides the employer-sponsored health insurance coverage to the employee Complaints of retaliation must be filed with OSHA within 180 days of the alleged retaliatory conduct. Respondent may file a written response within 20 days of receipt of complaint After investigation, OSHA will issue findings and preliminary orders which may be appealed first to an administrative hearing before an ALJ, then to the Administrative Review Board and finally the Court of Appeals for the circuit in which the violation allegedly occurred
Other Items Remain “Open” Although the new regulation addresses many topics, a number of related items remain unaddressed. Open items which are raised, but not answered, in the new regulations include: • Exactly what type of coverage will constitute “minimum essential coverage;” • What are the final rules on determining “minimum value;” • How the rules apply to “successor” employers; • The exact definition of a “seasonal” employee; whether special rules should be created for “short-term” employees or “high-turnover” positions; • Whether special rules should apply for temporary staffing agencies; • How exactly the play-or-pay rule applies to employers who contribute to multi-employer plans; • Reporting requirements on the employer’s health plan coverage; • How hours of service are calculated for certain industries (e.g., airline pilots and colleges that pay professors based on course credits taught, not on hours worked); and • Whether the state run exchanges will be ready in 2014.
Issues of Concern Status Changes – Obtaining employee contributions from employees that transition from full-time to part-time positions. Cadillac Plan Tax – Starting in 2018, employers will be subject to an excise tax on their sponsored health insurance coverage if the value of that coverage exceeds $10,200 for individual coverage and $27,500 for family coverage. The tax is equal to 40% of the aggregate value of coverage in excess of these threshold amounts. Increased Taxes– PCORI and Transitional Reinsurance Program fees will equal approximately $65.00 per year per covered life. Stand-Alone HRAs – Currently, HRAs that are not linked/integrated with a health insurance plan will violate PPACA’s prohibition on annual/lifetime limits.
More Issues of Concern Recording Hours of Service– Positions that are currently paid with stipend, “straight 8’s,” or other daily/weekly equivalent. Employers should seriously consider adopting more accurate time-recording measures. Shared Services – Employees that perform services for multiple employers or employees that are employed by one entity but assigned to another entity can pose a problem. The employer liable for penalties may not be in a position to take action to protect itself. Non-Discrimination Rules – Still awaiting final rules, but employers will not be able to discriminate in favor of highly compensated individuals with respect to eligibility or benefits. There is some concern that municipalities and districts could fail the final non-discrimination tests due to the level of benefits received by highly compensated individuals.
And Still More Issues of Concern • Employing Retirees or Multiple Part-Timers – Employers that hire former full-time employees to serve in part-time positions may have to provide insurance, or risk penalty, due to impact of stability periods. • Budget Issues – PPACA will place more pressure on already strained finances • Administrative costs associated with monitoring compliance • Risk of penalties and uncertainty, especially if enforcement activities suffer expected time delay • Affordability requirements will handicap employers’ ability to allay continued increase in insurance costs by requiring larger employee contributions • Short-term Employees– After 2014, employers will not be allowed to take into account the fact that an employee will only be employed for a short and definite duration when determining full-time status. An employee who is working full-time for a 4-month period would need to be offered coverage for the final month.
You Guessed It… More Issues of Concern • Substitute Employees: • If they are variable hour employees, are they averaging 30 hours of service per week during measurement periods? • Long-term substitutes will not be considered “variable hour” employees, which means they must be offered coverage within 90 days of the start of their employment. • Employees Holding Multiple “Part-Time” Positions: • Multiple part-time positions can equal “full-time” under PPACA. • Stipend positions where hours are not currently recorded (coaches). • Affordability: • For lower wage employees, affordability will be a major concern. For example, someone that makes $10/hour for 130 hours per month, their monthly contribution cannot exceed $123.50.
Things You Should Already Be Considering Determining “large employer” status Play-or-pay? (Asses workforce/cost/impact) Analyzing plans for actuarial value/the 60 - 40 requirement Analyzing W-2s for 9.5% affordability requirement Considering single versus family costs Determining whether current employees constitute “full-time” employees under PPACA Analyzing the benefits and draw backs of different measurement periods If playing – determine measurement periods, administrative periods, utilizing different periods for different classes of employees Review record systems for tracking ability Determine how hours will be calculated for non-hourly employees Evaluate PTO policies Determine affordability safe-harbor Determine if your current coverage satisfies MEB and MV requirements Non-discrimination rules Notices Flexibility in handbooks for non-union employers Review CBAs Prepare plan amendments
Questions to Ask Payroll and Health Brokers What steps have you taken to support compliance with PPACA Do you have a standard report that can be run monthly to assist with determining eligibility for health insurance under PPACA for the first measurement period (coverage offered 1/1/2015) If not, are you developing such a report? Will there be a beta test? Do you need clients to test the report for you? Would you develop the report if parameters and logic were provided? Would there be a cost associated with this? Are you offering any type of training for system usage/report running to comply with PPACA? Are you able to analyze our workforce data and determine the optional measurement period? How can our payroll system assist with monitoring hours during measurement periods? Will software be able to provide warnings or alerts for employees that are trending towards 30 hours or have exceeded 30 hours? Will your software be able to facilitate compliance with the ACA mandate related to affordable coverage (for example, a premium cap, rate tiers, etc.) and run related reports? Will your software have the ability to generate canned reports and to pull hours of service specific to customized dates (not payroll cycles) What is the frequency of when reports can be produced while capture current data (i.e. lag time for recent data)?
Thank you for attending. Questions?