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Affording the Affordable Care Act

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Shannon Cunningham

on 23 March 2015

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Transcript of Affording the Affordable Care Act

Affording the Affordable Care Act
1. 30,000 Feet: A General Overview of the ACA.

2. Million Dollar Question: What is the Impact on Employers?

3. Crystal Ball: The Known and Predicted Changes based on the ACA.
The ACA - It's Here to Stay
Pay or Play =
"Shared Employer Responsibility"
Provisions of the ACA
ACA requires that "applicable large employers" (Large Employers) offer adequate health insurance to all full-time employee and their dependents or face certain penalties.
Defining a Large Employer
“employers who employed at least 50 full-time employees, including full-time equivalent employees, on business days during the preceding calendar year.”
Full time employee

Full time equivalents (FTEs)

Preceding Calendar Year
Affordable Health Insurance
3 Safe Harbors
4980H(a) - a penalty for failing to
offer health insurance to all full-time employees & dependents.

4980H(b) - a penalty for failing to offer adequate insurance.
"A" Penalty
(1) Failure to OFFER Coverage; and
(2) Trigger
"B" Penalty
Timeline of Michigan's Exchange Journey
Small Business
Health Options Program
“Sometimes doing your best is not good enough.
Sometimes you must do what is required.” - Winston Churchill
With respect to any calendar month:

4980(a) Penalty =
(Full Time Employees - 30) * (Section 4980H(a) “applicable payment amount”)
The initial section 4980H(a) applicable payment amount for a calendar month equals 1/12th of $2,000.00, i.e. $166.67.
The initial section 4980H(b) applicable payment amount for a calendar month equals 1/12th of $3,000.00, i.e. $250.00.
With respect to any calendar month:
(1) Failure to offer ADEQUATE Coverage; and
(2) Trigger
4980(b) Penalty =
(# of Employees receiving subsidy) * (Section 4980H(b) “applicable payment amount”)
Employer Payment of Premium
Tax Credit
2014- 35%
2014 - 50%
. . . sequestration . .
Offering Insurance
Children until 26
No Spouses
Administering Health Insurance
3 periods =
Measurement Period
Administrative Period
Stability Period
Open to Employers with fewer than 100 Employees

Full implications of State/Federal roles and involvements unclear
"Qualifying arrangement"
Premiums must be paid directly to insurer or HMO
Cafeteria plan contributions do not count.

Pay a uniform percentage of at least 50% of the premium.

Credit can be claimed for more than one type of plan (e.g., major medical and dental) but each plan must meet the qualifying arrangement test separately from the others.
Minimum Essential Coverage
Minimum Value
Don't I already know what that means?
Calculation of FTEs
Total hours of service for which the employer pays wages to employees during the year/ 2080
Three ways to calculate:

(1) Actual hours of service;

(2) Days-worked equivalency; or

(3) Weeks-worked equivalency.

Essential Benefits
Health Insurance
Requirement, Penalties, and
Long-Term Care
What Employers Need to Know to Make Informed Decisions
regarding Affordable Care Act (ACA) Compliance

Outline for Today's Discussion
Exchange Options
1. Federally Facilitated Exchanges
2. State-Run Exchanges
3. State-Federal Partnerships
Section 1
30,000 Feet:
General Overview of the ACA
What is a "Large" Employer?
What is "adequate" health insurance?
Who is a full time employee?
Who is a dependent?
What are the penalties?
Full Time Equivalents (FTEs)
Step 1: Calculate Your Monthly FTEs
Step 2: Average Your Monthly FTEs over the Year
Step 3: Combine with Full Time Employees
FTEs = (Sum of Monthly Hours of Non Full Time Employees) / 120
Avg. FTEs = (Sum of FTEs for each Calendar Month) / 12
Employees = Avg. FTEs + Total # of Full Time Employees
Governor Snyder
comes out in favor
of State-Run Exchange
Late '12
Early '13
Facing mounting pressure, Governor Snyder backs
the idea of a State-Federal Exchange
Michigan awarded various Federal grants including a recent $31M award
Nov. '12
After passing the house, Senate
leaves session without approving
legislation needed to meet Federal
guideline to establish State-Federal Exchange
By default, Michigan's
exchange will be federally run
Mar '13
Early '12
1. Form W-2

2. Rate of Pay

3. Federal Poverty Line
**Calculations based on lowest cost option,
even if employee selects a more expensive plan**
**Based on single coverage, does not factor in dependents**
Minimum Value
Actuarial Value (AV) = % of Expected Costs a Health Insurance Plan will Cover
AV must be at least 60%
HHS has a "Minimum Value Calculator"
Who is Eligible?
Small employers that provide healthcare coverage are eligible if...
Reporting Requirements


This information was reprinted with permission from the Henry J. Kaiser Family Foundation. The Kaiser Family Foundation, a leader in health policy analysis, health journalism and communication, is dedicated to filling the need for trusted, independent information on the major health issues facing our nation and its people. The Foundation is a non-profit private operating foundation, based in Menlo Park, California.
Phase Out
Small Employers
Less than 25 FTEs for the tax year (excluding seasonal workers);

Average annual wages paid are less than $50,000.00 per FTE; and

Employer pays at least 50% of the premium cost under a "qualified arrangement"
“Hours of service” 
Section 2
The Million Dollar Question:
What is the Impact on Employers?
and which one are you. . .
Essential Benefits
Health Insurance
Insurance Regulations
Long-Term Care
Special Employment
Seasonal Workers

Educational Employers
Special Corporate Situations
Aggregation Rules
Penalty Assessment
Key Components
Am I a Large Employer?

Adequate Insurance

Large Employer
Mar '13
Minimum Essential Coverage
Further guidance is expected . . .
"Eligible employer-sponsored plan"
a group health plan or group health insurance coverage offered by an employer to the employee which is—
(A) a governmental plan, or
(B) any other plan or coverage offered in the small or large group market within a State.
Center for Consumer Information & Insurance Oversight (CCIO) at HHS
Starts at:
10 Employees, and/or
Avg. wages over $25,000 per FTE
Phase Out
An employer with 15 FTEs who pays wages averaging $35,000 will receive a credit of 13% of the amount paid by the employer for employee health insurance premiums.
Do I need to Offer this Employee Health
Special Employment
Variable Hour Employees

Short Term Workers
Additional regulations to be promulgated . . .
1/1/13 - Employers issuing greater than 250 W-2 forms annually report cost of group health coverage on employees’ W-2 forms.
Tax Year 2014:
- report info about coverage offered to full- time employees to IRS
- self-insured employers will have to provide information to the IRS about employee enrollment in health insurance coverage.
ACA / Fair Labor Standards Act
- must inform employees about the availability of exchanges.
- Deadline had been 3/31/13, new deadline not yet announced.
- New Employees will be informed on date of hire.
Insurance Offered on Exchange
Four coverage levels: Bronze, Silver, Gold and Platinum

Standardized presentation of information

Side-to-side cost comparison

Barrier to Entry
Additional Provisions
Automatic enrollment in health insurance for full-time employees of Large Employers with over 200 employees

Group health plans and insurers are prohibited from imposing a waiting period greater than 90 days for eligible employees

Grandfathered health insurance plans
Tax Credit

Private employers
Governmental employers
Collective bargaining employers
Non-collective bargaining employers
Church employers
Tax-exempt organizations
Foreign employers (with at least 50 employees performing work in the US with US source compensation)
Exception: Leased employees
Type of Employers Subject
to Penalty Provisions
January 2, 2013 – IRS published proposed regulations to clarify Employer’s Shared Responsibility

March 18, 2013 – Comments due

April 23, 2013 – IRS will issue decision on proposed regulations

January 1, 2014 – Law in effect!

For the initial year of 2014, the IRS has proposed transitional relief

Safe harbors

2013 – Decision-making time for employers
The Clock is Ticking
Pay or Play
Employer Mandate
Employer Shared Responsibilities
Section 3
Crystal Ball:
The Known and Predicted Changes
based on the ACA.
TC Ski is a popular ski resort located within Traverse City

TC Ski’s season is generally December to March 31

Off season – TC Ski has 18 employees

In season – TC Ski has 180 employees (average 50 hours per week)

TC Ski offers health insurance to year-round, full-time administrative staff – a total of 18 employees
TC Ski - Large Employer?
During 2014 - Is TC Ski a Large Employer ?

Does it have > 50 FTEs?

Does the seasonal worker safe harbor apply?

Employer can exceed 50 FTEs for up to 120 days or 4 calendar months during a calendar year if employees in excess of 50 are seasonal workers.
TC Ski - Large Employer?
Definition of seasonal worker is subject to clarification in the proposed regulations

Currently – employers may apply a reasonable good faith interpretation of the statutory definition of seasonal worker

Seasonal worker is not limited to agricultural and retail workers
TC Ski - Large Employer?
During its 2013 in-season, TC Ski’s seasonal workers were employed during the months of January, February, March and December

TC Ski meets the seasonal worker safe harbor of up to 120 days OR 4 calendar months

TC Ski does not have to count its seasonal workers when calculating FTEs
TC Ski - Large Employer?
For 2014 ONLY, employers can also rely on the “look back” safe harbor

May “look back” to any consecutive 6 month period in 2013 to determine FTEs

TC Ski only exceeded 50 FTEs during January, February, March and December

TC Ski chooses April – September for its 6 month period
TC Ski - Large Employer?
TC Ski - Large Employer?
What about 2015?

Will seasonal worker safe harbor apply?

Will “look back” safe harbor apply?

If 2014’s snowfall is like 2013, TC Ski could extend its season into April and lose seasonal worker safe harbor
Bengal Burgers - Large Employer?
Bengal Burgers is a fast-growing restaurant chain in Grand Rapids that serves “tiger-sized” burgers and features several TV screens for patrons to watch their beloved Detroit Tigers

In the last 3 years, Bengal Burgers has expanded from 1 location to 5 locations
Bengal Burgers - Large Employer?
Each Bengal Burger location has < 50 FTEs

Each Bengal Burgers location is a subsidiary of the parent company, “Leland Enterprises.”

Bengal Burgers offer health insurance to 7 full-time management employees
Bengal Burgers - Large Employer?
Bengal Burgers - Large Employer?
Aggregation Rule – when several entities are treated as a single employer under the Tax Code, they will be treated as a single employer for “counting” under the ACA

Does Attribution apply?

Are the entities “commonly controlled?”

Organizational structure must be analyzed

Does the Aggregation or Attribution apply to Bengal Burgers?
Apply Aggregation Rule

Total full-time employees = 39

Total FTEs = 18

FT + FTEs = 53
Bengal Burgers is a Large Employer
Bengal Burgers - Large Employer?
Bengal Burgers - Large Employer
Is there a triggering event?

What is the penalty assessment?

39 (full-time) – 30 (reduction) = 9 FT

Penalty = 9 x $2000 = $18,000

30 employee reduction is shared ratably based on number of employees

How is penalty assessed?
Wolverine Clean – Affordability?
Wolverine Clean performs cleaning services of large classrooms
at U of M in Ann Arbor

Wolverine Clean has 89 FT and PT employees, including 40 FT
and 23 FTEs, for a total of 63

Wolverine Clean is a Large Employer

Wolverine Clean does not offer insurance
Wolverine Clean - Affordability?
Penalty is 40 – 30 = 10 x $2000 = $20,000

Wolverine Clean is considering offering insurance

“Affordability” safe harbors available – standard is determined by one of 3 ways
(1) W-2
(2) Rate of pay
(3) Federal poverty line
Wolverine Clean - Affordability?
Wolverine Clean - Affordability?
W-2: Cost of insurance to employee does not exceed 9.5% of W-2 box 1

Rate of pay: Cost of single monthly premium does not exceed 9.5% of hourly wage x 130

Federal poverty line: Cost of single monthly premium does not exceed 9.5% of federal poverty line for an individual
Wolverine Clean - Affordability?
Wolverine Clean can pick which of the three options work best

Weigh the cost of insurance versus the cost
of the annual penalty of $20,000

Consider deduction to employer for percentage
of cost of premium payments

Since Wolverine Clean has <100 employees, it can shop on exchange

Consider making changes to structure of workforce such as a shift to more PT employees, overall workforce reductions, or use of seasonal workforce
Possible Effects of Penalties: Part-Time Labor
Increased use of part-time labor
Pro – less penalty assessment

Con – decrease in quality of work due to use of workers with less experience and training

Con - Part-time employees unhappy to lose additional compensation – may take second job to cover loss

Con - Burden on HR of more employees; administrative cost of part-time employee
Possible Effect of Penalties – Seasonal Employees
Seasonal employers may employ more seasonal workers
Pro – Reduce penalties

Con – Must meet seasonal employer definition

Con - Limited to 120 days in season

Con – Most seasonal operations are inherently out of employer control (e.g. cherry freeze in 2012; snow season in 2013)

Con – Seasonal employers rely on seasonal revenues – want to expand season
Alternative Theory to Workforce Reductions
Competition at exchanges will increase economic activity in marketplace

Newly insured individuals will demand more medical care

Increased demand for health care workers

Trickle down effect – affects other industries and economies
Will Employers Cut Back
on Health Care Coverage
Dependent on long-standing tradition of particular industry or particular employer

Employer tax deduction on premium payments

< 100 employee employer premium tax credit through exchange

Ability to attract the “best and brightest” and to retain employees

Cut-backs in health coverage have NOT happened in Massachusetts
Factors to Consider
There will be subsequent guidance via proposed regulations

Definition of “Minimum Essential Coverage” and “Eligible Employer Sponsored Plan”

Does plan provide at least 60% of coverage?
Is plan eligible for premium tax credit?
Does Employer Shared Responsibility payment apply?

Information reporting requirements by Large Employer to IRS
Notification to employer of triggering event: It is not clear what process will be used to notify the employer that an employee is seeking coverage on the exchange (the “triggering” event)

Information to employer: It is not clear what process will be used to inform employer that employee is certified to be eligible for premium tax credit to purchase health insurance on exchange
Proposed Regulations Do Not Address All Issues
Proposed Regulations Do Not Address All Issues
Notice to Employer of Penalty Assessments
Starts in 2014 (for Large Employers)

Notice to employer: IRS will send employer invoice for 2014 penalty assessment after employer files information returns and tax returns in 2015

Dispute: Employer will receive notice and opportunity to dispute penalty prior to final IRS invoicing
Best Practices for Employers - 2014
Prepare for 2014 – Be proactive!

Biggest year of change for employers is 2014

Determination of Large Employer status is a multi-step process that can be complicated and have huge monetary implications affecting your bottom line

Consider stability of industry when forecasting for 2014

Analysis must be done on an annual basis

Budget for 2015 in 2013

Ever-changing landscape of the law – consult your employment attorney
Beyond 2014
The ACA will continue to evolve over the next 5 years

Certain regulations are phased in after 2014

Certain “safe harbors” will be phased out after 2014, e.g. 6 month “look back” period for determining number of FTEs

Each year will bring additional changes
a. Large Employer b. Small Employer
Triggered by one or more FULL-TIME employees receiving an applicable PREMIUM TAX CREDIT or COST-SHARING REDUCTION

Applies only to INDIVIDUAL, not DEPENDENTS

A Large Employer cannot be liable under both Section 4980H(a) and Section 4980H(b) for the same calendar month
Penalties, and
Small Business Health
Insurance Tax Credit
2018: Cadillac Tax – A 35% tax on employer provided plans that exceed $10,200 for single coverage and $27,500 for family coverage

These thresholds may be adjusted upwards if health care costs rise more than expected prior to 2018

Higher thresholds for retired persons not eligible for Medicare, and for employees engaged in high-risk professions
2017: Businesses with >100 employees may begin purchasing coverage in the Small Business Health Options Program (“SHOP”) exchange and receive tax credit of up to 50% of the employer’s contribution toward employee’s health insurance premium (before 2017, only businesses with <100 employees qualify)
Thank You for Attending!
By: Janis L. Adams, Kate E. Flewelling & Robert C. Stone, Attorneys
Janis L. Adams, Attorney

Kate E. Flewelling, Attorney

Robert C. Stone, Attorney

Full transcript