The Affordable Care Act Part I Decisions That Need To Be Made Now Mark Boxer Partner, DLA Piper LLP (US)
Employer Mandate • Employer mandate – tax penalty for “large employers” that don’t offer minimum essential coverage to full - time employees (and their dependents) – applies to employers with more than 99 employees in 2015 • Employers with 50-99 employees have until 2016 to comply – conditions for relief The employer fails to offer 2 coverage to “substantially all” full -time employees (and their dependents) (the A large employer is subject to “no coverage penalty”); or penalty if at least one full-time employee receives a subsidy for exchange coverage and: Coverage is unaffordable (employee contribution must be less than 9.5% of income) or does not provide minimum value (the “inadequate coverage penalty”)
No Coverage Penalty • A large employer is subject to a penalty if at least one full-time employee receives a subsidy for exchange coverage and the 3 employer fails to offer coverage to “substantially all” full -time employees (and their dependents) • Effective dates • Substantial compliance • Dependent coverage
Inadequate Coverage Penalty A large employer is subject to a penalty if at least one full-time employee receives a 4 subsidy for exchange coverage and coverage is unaffordable or does not provide minimum value
Employer Penalties • Penalty amounts • No coverage penalty: $2,000 per year, per full-time employee in excess of 30 full-time employees (80 in 2015) 5 • Inadequate coverage penalty: $3,000 per year, per full-time employee for whom coverage is unaffordable or does not provide minimum value and who receives a subsidy to purchase coverage through an exchange • Penalty amounts are indexed: $2,000 penalty is estimated to be $2,120 in 2015 and $3,000 penalty is estimated to be $3,180 in 2015
Fiscal Year Plans • Calendar year plans – employer mandate is effective 1/1/15 If employer has 100 or more full-time employees • Non-calendar year plans (relief from 6 1/1/15) to beginning of the plan year) • Standard transition relief: beginning of the plan year within 2015 if: • Non-calendar year plan was maintained prior to 12/27/2012 • Plan year not modified after 12/27/12 to begin at a calendar date • Applies to all employees who would be eligible for coverage under the terms of the plan in effect on 2/9/2014 • Plan offers affordable care that provides minimum value as of first day of the 2015 plan year
Fiscal Year Plans • Example Employer Z has 600 employees, all of whom are full-time employees (average 30 or more hours a week) Employer Z maintained a plan with an April 1 plan year as of December 27, 2012 (Plan P). Plan P’s year was not modified after December 27, 2012, and all of 7 Employer Z’s employees are eligible for coverage under Plan P under the eligibility terms as in effect on February 9, 2014. Coverage offered prior to the 2015 plan year is not affordable. As of April 1, 2015, Plan P’s coverage is both affordable and provides minimum value. Conclusion No section 4980H assessable payment will be due with respect to any employee of Employer Z for the period before April 1, 2015. The same transition relief would apply to those 600 employees even if Employer Z also had a calendar year plan (Plan Q) and had a total of 1,000 full-time employees, 600 of whom were described above (and were not eligible for coverage under Plan Q) and 400 of whom were eligible for coverage under Plan Q as of January 1, 2015.
Fiscal Year Plans • Additional transition guidance • Significant percentage transition guidance (all employees) relief: beginning of the plan year 8 within 2015 if: • Plan maintained prior to 12/27/12 • Plan year was not modified after 12/27/12 to begin at a later calendar date and that either had: (1) as of any date in the 12 months ending on 2/9/14, at least ¼ of its employees covered under the non-calendar year plan(s), or (2) offered coverage under the plan(s) to 1/3 or more of its employees during the open enrollment period that ended most recently before 2/1/14
Fiscal Year Plans • Additional transition guidance • Significant percentage transition guidance (full-time employees) relief: beginning of the plan year within 2015 if: 9 • Plan maintained prior to 12/27/12 • Plan year was not modified after 12/27/12 to begin at a later calendar date and that either had: (1) as of any date in the 12 months ending on 2/9/14, at least 1/3 of its full- time employees covered under the non-calendar year plan(s), or (2) offered coverage under the plan(s) to 1/2 or more of its full-time employees during the open enrollment period that ended most recently before 2/1/14
Employers Subject to the Mandate Businesses subject to the mandate • How to calculate whether you 10 have 50 (or 100, for 2015) full- time equivalent employees • Controlled group rules Total number of Full-Time Total Hours Worked By = Total Number of Full-time + Employees Part-time Employees Equivalent Employees 120
Determining Full-Time Employees Who must be offered coverage – determining full-time employees • Penalty amount turns on who is considered a full-time 11 employee • How to make the calculation of full-time employee • Hours of service rules
Methods of Counting Hours • Methods of counting hours • Employees paid on an hourly basis – actual hours 12 • Employees paid on a non-hourly basis – actual hours or equivalency method • One day = 8 hours • One week = 40 hours • One month = 130 hours • Method can be changed once per year • Can use different methods for different categories of employees • No use of equivalencies if use would result in substantial understatement of hours
Special Rules for Counting Hours • Exclusions from definition of hour of service • Volunteer employees – hours worked by volunteers who do not receive compensation in exchange for the performance of services. • Student employees – hours of service performed by 13 students in positions subsidized thru federal work study programs or substantially similar state or political subdivision program • Special situations • Members of religious orders – no special rule • Adjunct faculty, commissioned salespeople and airline employees and categories of hours (layovers and on- call) – use of reasonable methods of crediting hours • Example: Adjunct teachers – 2 ¼ hours of credit for each hour of classroom time • Impact of summer vacation etc. (educational organizations) – ignore breaks or credit hours of service during the break
More Special Rules • Special situations (continued) • Layover hours for airline employees and others • Use of reasonable methods of crediting hours 14 • Layovers – count hours if employee is getting paid for layover or if layover hours are counted toward required hours to be paid regular compensation • 8 hours for each day an employee is required to stay away from home is deemed reasonable by the IRS unless that amount would understate the employee’s actual hours • On-call hours • Not reasonable not to count on-call hours that (i) are paid; (ii) where employee must remain on employer’s premises; or (iii) where the employees are restricted from using their time for their own purposes
Full-Time Employees • Determining full-time status – two different methods – monthly measurement period or 15 optional safe harbors • Look-back measurement period • Administrative period • Stability period
Tracking Eligibility Alternative Measurement Methods • New Employee – Non-Variable • Employee who is reasonably expected to work full time (average annually 30 or more hours per 16 week) as of date of hire. • No more than a 90 day waiting period • Recommend 1 st of the month after 60 days • Full-time status reassessed at the end of the First Standard Measurement Period • Variable Hourly Employee • Employee in which ER has not been able to determine in good faith whether Employee will average 30 or more hours a week per year
Eligibility – Alternative Measurement Period Methods • Monthly Measurement Method • Alternative to the look-back Measurement Period • Identifies full-time employees based on hours of service for each calendar month • For any given month an employee is or is not full-time and entitled to coverage • Employee can be offered coverage the first day of the fourth calendar month 17 after becomes eligible for coverage (must still comply with 90 day waiting period rule). • Can only be used once per period of employment • Default method if employer does not choose the look-back method • Difficulties • Workforce with fluctuating hours • Fully insured plans • Can result in gaps of coverage – employer may be subject to penalties • Special rule if go from full-time to part-time • Look-Back Measurement Method – A fixed period of 3 months to 12 consecutive months – new variable/seasonal employees • Employer can elect different look-back measurement period for different categories of employees • Employer may use payroll periods as a measurement tool • Employees hours of service are calculated within the measurement period
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