The Affordable Care Act:
Summary of Employer
Requirements
Washington Council Ernst & Young
Discussion Outline
►
Overview of the Affordable Care Act (ACA)
►
Employer coverage requirements
►
Employer reporting requirements
Major coverage expansion provisions
►
The ACA aims to expand coverage in 2014 through a
series of provisions:
► Individual mandate: Mandates that all Americans maintain a
minimum level of health coverage or face a tax penalty
► Insurance Exchanges: Creates state-based health insurance
Exchanges and provides federal premium tax credits and cost-sharing subsidies to assist low- and moderate-income individuals without affordable employer-sponsored insurance in obtaining health coverage
► Medicaid expansion: Expands Medicaid up to 133% of federal
poverty level
► Employer mandate: Mandates, for the first time, that employers
Overview of Supreme Court decision
►
The US Supreme Court ruled that the law’s individual
mandate is a constitutional exercise of Congress’s power
to impose taxes, effectively upholding the ACA.
►
In the Court’s analysis of the ACA’s Medicaid provisions, it
held that it would be unconstitutional for the federal
government to withhold all Medicaid funding in order to
force states to comply with the Medicaid expansion.
Key effective dates for employers
► Reporting value of health benefits on Form W-2 (due by 1/31/2013) ► State-based exchanges► Individual mandate and tax credits ► Employer mandate
► Medicaid expansion
► Other insurance market reforms ► Health insurers’ fee
► Employer reporting to the IRS (due by 1/31/2015)
► Drug manufacturers’ fee
► Increase Medicare payroll tax by 0.9% on earned income ► Impose 3.8% tax on unearned
income
► Eliminate deduction for retiree drug costs covered by Medicare Part D subsidy
► Excise tax on medical devices ► Fair Labor Standards Act notices ► Immediate health insurance
market reforms
► Medicare Part D ―donut hole‖ relief begins 2010 2011 2012 2013 2014 2017 2018 2020 ► 40% excise tax on high-cost health plans ► Medicare Part D donut hole closed
Coverage expansions take effect
► States may open
What are the main coverage requirements for
employers in 2014?
►
Large employers must offer coverage to their full-time
employees and their dependents
►
Coverage must be affordable and of a minimum value for
certain employees
Calculation of Tax Penalties
► If a large employer does not offer coverage to their full-time
employees and their dependents, employers face a penalty of:
► $2,000 x the total number of full-time employees (FTE) if at least one FTE is receiving a premium assistance tax credit
Penalty for unaffordable
coverage - IRC §4980H(b)
► If a large employer offers coverage
to their full-time employees and their dependents but the coverage is unaffordable to certain
employees or does not provide minimum value, employers face a penalty of:
► The lesser of $3,000 x the number of FTEs receiving a premium
assistance tax credit or $2,000 x the total number of FTEs
Penalty for no coverage -
IRC §4980H(a)
Who is a large employer?
► According to Treasury Notice 2011-36, any employer with 50+ full-time equivalents is
considered a large employer.
► For each calendar month of the preceding calendar year, employers must:
1. Calculate full-time employees (including seasonal): (30+ hrs/wk/month)
2. Full-time equivalents: aggregate number of hours worked by non-full-time employees (including seasonal)
÷ 120
3. Add the number of full-time employees and FTEs calculated in steps (1) and (2) for each of the 12 months
in the preceding calendar year.
4. Add the monthly totals and divide by 12. If the average exceeds 50 FTEs, determine whether the seasonal
employee exception applies (see below).
5. Seasonal employee exception: If an employer’s workforce exceeds 50 FT employees for 120 days or fewer during a calendar year, and the employees in excess of 50 who were employed during that period of no more than 120 days (four calendar months, for this purpose only) were seasonal employees, the
employer would not be an applicable large employer.
6. If the seasonal exception does not apply, the employer is an applicable large employer for the current
calendar year.
► Measured on a controlled group basis (IRC §414)
Definition of Full-time Employee
► Full-time employee: Defined as an employee who works on average
30 hours per week, per month
► In situations where an employee is hired for or promoted to a position that the employer classifies as or reasonably expects to be full-time, the employee will be eligible for the employer’s health plan after the applicable wait period.
► The Department of Treasury is considering a ―look-back/stability
period‖ safe harbor to allow for a measuring period for employees of unknown status to determine if they should be considered full time. The look-back period may be no longer than 12 months. The length of the proposed corresponding stability period (during which employees determined to be full time would be eligible for coverage) would have to be equal to or greater than the look-back period. May not apply to
Which employees could be eligible for
tax credits if employers offer coverage?
► Employers will face tax penalties if the coverage they offer is
unaffordable or is not of minimum value to employees with household income between 100% and 400% of the federal poverty level and they receive a tax credit for Exchange coverage.
► If an employee is enrolled in an eligible employer-sponsored plan, regardless of the cost or value of the plan, such employee will be ineligible for a premium tax credit.
► Medicaid-eligible employees will not be eligible for tax credits.
Affordability
► General rule: Employee’s share of the self-only premium for the
employer’s lowest-cost plan that provides minimum value cannot exceed 9.5% of household income or the employee may be eligible for a premium tax credit to purchase Exchange coverage
► Treasury-proposed safe harbor: No employer penalty if the
employee’s share of the self-only premium for the employer’s lowest-cost, minimum value plan does not exceed 9.5% of the employee’s current W-2 wages from the employer
► Clarifies that an employer must offer coverage to employees and dependents, but that the affordability test is based on employee contribution to self-only coverage.
Estimates for Affordability Safe Harbor
Estimates for Individual Eligibility for Medicaid or Tax Credits and Affordability Safe Harbor1 Scenario Percent of
federal poverty level
Annual income Hourly wage4
Affordability test safe harbor (9.5% of current wages)
Estimated employee premium share for self-only coverage for affordability test safe harbor5
In states that expand Medicaid under the ACA to 133% of Federal Poverty level: Minimum wage worker2 eligible
for Medicaid
~101% $11,310 $7.25 Medicaid eligible n/a
Statutory upper limit for Medicaid eligibility
133% $14,856 $9.52 $1,411 $118
Effective upper limit for Medicaid eligibility3
138% $15,415 $9.88 $1,464 $122
Upper limit for eligibility for tax credits
400% $44,680 $28.64 $4,245 $354
In states that do not expand Medicaid under the ACA: Minimum wage worker eligible
for Exchange credits if employer coverage is not
offered/affordable
~101% $11,310 $7.25 $1,074 $90
Upper limit for eligibility for tax credits
400% $44,680 $28.64 $4,245 $354
1. The chart has been updated to reflect 2012 HHS Federal Poverty Guidelines for one person ($11,170).
2. Federal minimum wage ($7.25 per hour). Note: As of January 1, 2012, minimum wage rates are higher than the federal minimum wage in the District of Columbia and 18 states (Alaska, Arizona, California, Colorado, Connecticut, Florida, Illinois, Massachusetts, Maine, Michigan, Montana, Nevada, New Mexico, Ohio, Oregon, Rhode Island, Vermont and Washington).
3. PPACA §2002 (as added by HCERA §1004(e)(2)) requires states to apply an “income disregard” of five percent of the federal poverty level in meeting the income test, resulting in an effective income threshold of 138% of FPL for Medicaid eligibility.
Minimum value
► Minimum value: A plan fails to provide minimum value if ―the plan’s
share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs.‖
► Generally understood to be a 60% actuarial value test
(percentage of medical expenses -- deductibles, co-insurance, co-payments, etc. -- paid for by the plan for a standard
population and set of allowed charges).
► Essential Health Benefits do not apply to large employer plans.
► The Secretary is authorized to issue regulations further defining the minimum value standard.
► The Departments of Treasury and Health and Human Services issued a request for comments on several approaches to determining
Minimum value
► Treasury-HHS proposal for establishing a ―standard population‖
measure: Minimum value for large employer plans will be measured against a standard population. The data used to develop this
―standard population‖ will be a large set of commercial claims data purchased by HHS that reflects typical self-insured employer plans.
► Employers are not required to provide any specific category of
benefits, but minimum value will be determined in comparison to a standard population and claims data set that is driven by the provision of four core categories of benefits:
► Hospital/ER services
► Physician/mid-level practitioner care
► Pharmacy benefits
Treasury-HHS proposed methods for
determining minimum value
► Treasury and HHS have proposed three distinct options for determining MV on a pass/fail basis. All three options are linked by the standard
population/claims data set.
► Minimum Value (MV) Calculator: Allows an employer to input in-network cost-sharing features (i.e., deductibles, co-payments, coinsurance, out-of-pocket limits) of their health plan for
different categories of benefits into an online calculator. Employers would not be able to use the MV calculator if they have ―non-standard‖ features, such as atypical quantitative or cost-sharing limits on the four core benefit categories.
► Safe-Harbor Checklist: Allows an employer to perform an ―eyeball test‖ and see if their plan design features meet one of several design-based safe harbors, such as a high-deductible health plan with an employer-provided HSA. In order to utilize this option, an employer would be required to cover all four core categories of benefits and services and could not have
non-standard features. Each safe harbor checklist would describe the cost-sharing attributes of a plan that apply to the four core categories.
Minimum Value
► Proposed Treatment of HSA and HRA employer contributions: The
Administration has proposed to credit only an ―appropriate portion‖ of the amounts contributed by an employer to an HSA or made available to an employee under an HRA in the calculation of minimum value. This
Other employer coverage requirements
► Wait periods: Prohibits plans from including wait periods longer than 90 days before enrolling eligible employees into employer coverage.
► Auto-enrollment: Employers with at least 200 employees must auto-enroll full-time employees into coverage if no election is made. Implementation delayed until regulations are issued.
► Essential Health Benefits: Essential health benefits apply to products sold in the individual and small group markets, both inside and outside state insurance Exchanges. Although large group plans are not required to offer the essential health benefits package, large group plans are
prohibited from imposing lifetime or annual limits on any essential health benefits that they do offer.
► The ACA describes EHBs as consisting of 10 benefit classes:
► Ambulatory patient services
► Emergency services
► Hospitalization
► Maternity and newborn care
► Mental health and substance use disorder services, including behavioral health treatment
► Prescription drugs
► Rehabilitative and habilitative services and devices
► Laboratory services
► Preventive services and wellness services and chronic disease management
Part-time employees
►
Large employers are not required to offer coverage to
part-time employees (those who work less than 30 hours
per week per month).
►
For large employers who offer coverage to part-time
employees:
► The Administration intends to issue guidance with respect to the application of the 90-day waiting period and other eligibility
conditions for part-time employees.
Links to guidance
►
Definition of full-time employee
Notice to current employees under FLSA §18B; to all new hires after this date (“In accordance with regulations”)
Key dates
1/31/2013 10/1/2013 1/1/2014 1/31/2015 Open enrollment in Exchanges begins Major coverage expansion takes effectMandatory reporting for large employers under IRC §6056
Mandatory reporting for health insurance issuers, government agencies, employers that sponsor self-insured plans, and other persons that provide minimum essential
coverage to an individual under IRC §6055
Applications for Exchange credits, subsidies
What new reporting requirements do
companies face under the ACA?
Provision: Employer reporting on value of health coverage Employer requirement to inform employees of coverage options Reporting of enrollment in health insurance coverage Reporting of employer offer of minimum essential coverage
Applies to: Employers who issue at least 250 W2 forms annually Employers subject to the Fair Labor Standards Act Self-insured employers, insurers Large employers
Submit to: IRS Employees IRS IRS
Summary of annual employer reporting
requirements to Treasury/IRS
Provision 9002 (amends IRC §6051) 1502 (IRC §6055) 1514 (IRC §6056)
Applies to: Employers who issue at least 250 W2 forms annually
Health insurance issuers, government agencies, employers that sponsor self-insured plans, and other persons that provide minimum essential coverage to an individual
Large employers who are subject to §4980
Due by: 1/31/2013 (first due date, 1/31 each year thereafter)
1/31/2015 (first due date, 1/31 each year thereafter) 1/31/2015 (first due date, 1/31 each year thereafter)
Data elements:
•The aggregate cost of applicable employer-sponsored coverage, except that this paragraph shall not apply to—
For employer-sponsored coverage: o Contributions to Archer
MSAs or health savings accounts; or
o Contributions to a flexible spending arrangement.
Name, address, tax ID number of insured and all others covered under the policy
Dates of coverage during the calendar year
Whether coverage is a qualified health plan (QHP) offered through an Exchange
For QHPs offered through an Exchange, the amount of cost-sharing subsidies or premium assistance tax credits received
For employer-sponsored coverage:
o Name, address and employer ID number of the employer maintaining the plan
o The portion of the premium paid by the employer o If the coverage is a QHP in the small group
market offered through an Exchange
Statements to individuals:
o Name and address of the person required to submit the return, including phone number of the information contact
o Information included in return with respect to the individual
Notification of non-enrollment: Not later than June 30 of each year, the Secretary of the Treasury, acting through the IRS and in consultation with the Secretary of HHS, shall send a notification to each individual who files an individual income tax return and who is not enrolled in minimum essential coverage. Such notification shall contain information on the services available through the Exchange operating in the State in which such individual resides.
Name, date and employer ID number of the employer
Certification as to whether the employer offers full-time employees and their dependents the opportunity to enroll in minimum essential coverage offered under an eligible employer-sponsored plan
o Length of any waiting period o Months during the year for which
coverage was available
o Monthly premium for the lowest-cost option under the plan
o Applicable large employer’s share of total allowed cost of benefits under the plan
The number of full-time employees for each month during the calendar year
The name, address, and TIN of each full-time employee during the calendar year and the months (if any) during which such employee (and any dependents) were covered under any such health benefits plans, and
Such other information as the Secretary may require
Statements to individuals:
o Name and address of the person required to submit the return, including phone number of the information contact o Information included in return with respect
January 31, 2013 – W2 employer reporting
on value of health coverage
► Employers who issue at least 250 forms W2 in a year must report the cost of certain group health coverage on employees’ forms W2 issued after January 1, 2013.
► Employers must begin collecting information in 2012.
January 31, 2013 – W2 employer reporting
on value of health coverage (cont’d.)
► Include in reporting:
► Major medical
► Health Flexible Spending Arrangement for the plan year in excess of employee’s
cafeteria plan salary reduction for all qualified benefits
► Hospital indemnity or specified illness (insured or self-funded), paid through salary
reduction (pre-tax) or by employer
► Domestic partner coverage included in gross income
► Include in reporting if employer charges a COBRA premium:
► Employee Assistance Plan (EAP) providing applicable employer-sponsored health
coverage
► On-site medical clinics providing applicable employer-sponsored health coverage
January 31, 2013 – W2 employer reporting
on value of health coverage (cont’d.)
►
Excluded from reporting:
► Health flexible spending arrangement
(FSA) funded solely by salary-reduction amounts
► Health savings arrangement (HSA)
contributions (employer or employee)
► Archer medical savings account
(MSA) contributions (employer or employee)
► Hospital indemnity or specified illness
(insured or self-funded) paid on an after-tax basis
► Federally recognized Indian tribal
government plans and plans of
tribally chartered corporations wholly owned by a federally recognized Indian government
► Governmental plans providing
coverage primarily for members of the military and their families
► Accident or disability income
► Long-term care
► Liability insurance
► Supplemental liability insurance
► Workers’ compensation
► Automobile medical insurance
► Credit-only insurance
► Excess reimbursement to highly
compensated individual (included in gross income)
► Payment/reimbursement of health
insurance premiums for 2%
January 31, 2015 – Reporting of employer offer
of minimum essential coverage (IRC §6056)
► Large employers subject to IRC §4980 would report to the IRS:
► Length of any waiting period
► Months during the year for which coverage was available
► Monthly premium for the lowest-cost option under the plan
► Applicable large employer’s share of total allowed cost of benefits under the plan
► The name, address, and TIN of each full-time employee during the calendar year
and the months (if any) during which such employee (and any dependents) were covered under any such health benefits plans
► Such other information as the Secretary may require.
► In addition, employers would provide statements to individuals, including
► The name and address of the person required to submit the return, including phone
number of the information contact; and
► Information included in return with respect to the individual.
January 31, 2015 – Reporting of enrollment in
health insurance coverage (IRC §6055)
► Under IRC §6055, health insurance issuers, employers that sponsor self-insured plans, government agencies, and other persons that
provide minimum essential coverage to an individual will report to the IRS:
► Name, address, tax ID number of insured and all others covered under the policy
► Dates of coverage during the calendar year
► Whether coverage is a qualified health plan (QHP) offered through an Exchange
► For QHPs offered through an Exchange, the amount of cost-sharing subsidies or premium assistance tax credits received
► For employer-sponsored coverage:
► Name, address and employer ID number of the employer maintaining the plan
► The portion of the premium paid by the employer
January 31, 2015 – Reporting of enrollment in
health insurance coverage (IRC §6055, cont’d.)
► Under IRC §6055, health insurance issuers, employers that sponsor self-insured plans, government agencies, and other persons that provide minimum essential coverage to an individual also will
provides statements to individuals, including:
► The name and address of the person required to submit the return, including phone
number of the information contact
► Information included in return with respect to the individual
► Report due by January 31 each year thereafter.
► IRC §6055 also requires the Treasury Secretary – acting through the
IRS and in consultation with the Secretary of HHS – to send a
notification to each individual who files an individual income tax return and who is not enrolled in minimum essential coverage. Such
notification shall contain information on the services available through the Exchange operating in the State in which such individual resides.
Reporting and Tax Penalties
►
The IRS in April 2012 issued requests for comments on
how to facilitate compliance with IRC §§ 6055 and 6056.
► http://www.irs.ustreas.gov/pub/irs-drop/n-12-32.pdf
► http://www.irs.ustreas.gov/pub/irs-drop/n-12-33.pdf
March 1, 2013 –
Employer requirement to
inform employees of coverage options (FLSA)
► ―In accordance with regulations‖ to be issued by the Department of
Labor, employers who are subject to the Fair Labor Standards Act must provide a written notice to employees: Written notice informing employees:
► of the existence of an Exchange, including a description of the services provided by
such Exchange, and the manner in which the employee may contact the Exchange to request assistance;
► if the employer plan's share of the total allowed costs of benefits provided under the
plan is less than 60% of such costs, that the employee may be eligible for a
premium tax credit and a subsidy if the employee purchases a qualified health plan through the Exchange; and
► if the employee purchases a qualified health plan through the Exchange, the
employee may lose the employer contribution (if any) to any health benefits plan offered by the employer and that all or a portion of such contribution may be excludable from income for Federal income tax purposes.
► The statute states that employers will be required to provide this
Beginning October 1, 2013:
Individual application
for Exchange credits, subsidies
► For individuals who seek credits or subsidies for Exchange coverage because they assert that employer-sponsored coverage is
unaffordable or is not of minimum value, the employee must provide to the Exchange:
► The name, address, and date of birth for each individual who is to be covered by
the plan
► The individual’s Social Security number (if applicable) and any identifying
information with respect to the individual’s immigration status (to be determined by the Treasury Secretary in conjunction with the Secretary of Homeland Security)
► The name, address, and employer identification number (if available) of the
employer
► Whether the enrollee or individual is a full-time employee and whether the employer
provides such minimum essential coverage
► If the employer provides such minimum essential coverage, the lowest cost option
Beginning October 1, 2013:
Individual application
for Exchange credits, subsidies
► If an enrollee claims an employer's minimum essential coverage is unaffordable, the employee also must provide:
► Their taxpayer identification number
► Their tax filing status
► The number of individuals for whom a deduction is allowed under IRC §151,
including the taxpayer and the taxpayer’s spouse
► The modified gross income of the taxpayer and of all individuals for whom a
deduction is allowed under IRC §151 who are required to file a tax return
► Other information prescribed the Secretary in regulation to determine whether the
taxpayer is eligible for a credit or subsidy
► The taxable year to which the above information relates, or (if applicable) the fact
Beginning October 1, 2013:
Individual application
for Exchange credits, subsidies (cont’d.)
► Per HHS’ March 27, 2012, Final Rule on Establishment of Exchanges
and Qualified Health Plans; Exchange Standards for Employers (CMS–9989–F), the inaugural open enrollment in Exchanges runs from October 1, 2013, through March 31, 2014. In subsequent years, open enrollment will run from October 15 through December 7.
► Exchanges also must provide special enrollment periods to facilitate enrollment for special circumstances including:
► Qualified individuals who lose minimum essential coverage
► Qualified individuals gain dependents or become dependents through marriage,
birth, adoption, or placement for adoption
► Individuals who were not previously a citizen, national, or lawfully present individual
gains such status
► Individuals are determined newly eligible or newly ineligible for advance payments
Washington Council Ernst & Young Contact
►
Anne Phelps
202 467 8416
