Affordable Care Act
Employer Responsibility Road-map for Health Plans
Businesses had a reprieve from the Affordable Care Act
mandates in 2014, but next year they too will have to meet certain standards
for health care plans in the United States and this article provides a road-map
for compliance. Most of the information in this column was gleaned from an
August seminar sponsored by the U.S. Department of Labor. Other than one
employer representative who felt his employees, or perhaps we should call them
serfs, should be thankful to get paid at all, and not receive any work force
benefits, most of the seminar participants were working on understanding their
compliance responsibilities. To assist in that proposition, here are the crib
notes for those who want to be on the fast track for health plan readiness.
Provisions Which Have
Are Being Phased in for All Employers with Fifty or More Workers
Public Health Services Act, Section 2708 stipulates that
health plans offered by employers with fifty or more employees may have a
maximum waiting period of ninety days before an employee is added to the medical
plan.
If a self-insured plan fails to comply with the provisions
of the Public Health Services Act, highly compensated individuals could lose
the tax favored status of their benefits, which means they would have to pay
tax on their health plan benefits. If an insured group health plan fails to
comply with the provisions of section 105 H of the Public Health Services Act,
an excise tax may (most assuredly) be exacted. [1]
Though the Patient Protection and Accountable Care Act mandate
to provide medical coverage to employees applies to all firms employing fifty
or more employees, the specific benefit design mandates mostly apply to insured
plans. However, neither self-insured nor fully insured medical plans may exceed
the ninety day waiting period limit, they must cover adult children to age 26,
and pre-existing conditions clauses which prevent coverage are not allowed. Minimum
health benefits, which are part of the insurance mandates for essential
coverage, also apply to self-insured medical plans. If a self-funded plan does
not offer a medical plan that meets the minimum for essential health benefits,
an excise tax may be demanded, starting in 2015
Safe harbor provisions include foreign employees, or those
working in other countries. The PHSA and the ACA applies to employees working
within the confines of the United States and its territories.
Mandates which will
Commence in 2015
Determining the
Number of Eligible Employees
Determining full-time employee equivalents requires an
algorithm and here are the steps:
1.
Have you had fifty or more fulltime or fulltime
equivalent employees in the prior year? If you have a lot of part-time
employees or if you own multiple corporations which are part of a controlled
group, you still need to do this analysis.
2.
Determine your fulltime employees, which for
purposes of the ACA are those working at least 30 hours a week. The language “on
average” is used, but that can be a bit dicey, I suggest using a quarterly look-back.
3.
Next, determine your fulltime equivalent
employees, which is defined as anyone who has worked at least twenty hours in a
month. The ACA also allows employers to use the 130 hours per month of work definition to determine
fulltime status. Take the number of hours the employees worked in this category
and divide it by the number of employees to arrive at your sum.
4.
Determine all other employees, regardless of the
hours worked and divide that sum by 120
5.
To assess whether or not your firm is subject to
the fifty employees and greater ACA compliance mandates, add the sums of the
fulltime employees, the fulltime equivalents, and the sum for the “other
employees” criteria. If this total equals or exceeds fifty, you must comply
with the federal mandates of the Affordable Care Act. This total also
determines which provisions of the Public Health Services Act apply and the
various sections of the Internal Revenue Service Code.
How to Avoid an
Employer PHSA Shared Responsibility Penalty
The good news is that a modest health plan can still avoid
the tax penalties and here are the criteria to meet this hurdle, based on the
presentation from Tax Counsel for the Department of the Treasury, Alan
Tawshunsky[2].
The health plan must be offered to the fulltime employees,
as defined in the previous eligible employee section or the employer will have
to pay a tax penalty. The “B” penalty would only apply to employees who opted
to purchase insurance through a federal or state insurance exchange (only for
those firms with fifty or more eligible employees). To avoid the “A” penalty,
which can be up to $3,000 per employee, the health plan must meet the minimum
benefit threshold of 60% based on an actuarial formula. The acceptable health
plan benefit threshold can be determined two ways, by going to the government
Health & Human Services web site and use their calculator[3] or
by using one of these methods:
1.
W-2 Method-Determine employee compensation,
calculate the maximum insurance or health plan premium contribution made by
that employee; if it exceeds 9.5% of that employee’s compensation you probably
owe a penalty. If the proportion falls below the 9.5% level you have met the test.
The W-2 method is based on earned income reported by the employer.
2.
Look-back Method-This involves taking the
employee’s rate-of-pay at the beginning of the year, assume 130 hours of
service monthly, and make an assessment using this criteria.
3.
Federal Poverty Method-This rule stipulates that
as long as the premium contribution for which the employee is expected to make
does not exceed 9.5% of their income, the plan is deemed affordable. Please
note, this criteria differs from the insurance exchange standard which is 8% of
income. FYI, the federal poverty level for a single individual in the United
States in 2014 is $11,670 (more than that if you live in Alaska or Hawaii). For
a family of four, it is $23,850. For a family of eight, it is $40,000. Prudence
dictates that employers make a calculation for all employees earning less than
$24,000, especially if they are single, head-of-household tax filers. The
employers will have some access to tax filing status information, because the
employees have to complete a W-9 tax filing form when they make changes in
their tax filing status or when they are hired.
4.
Once you have determined if your plan meets an
acceptable level of employer responsibility you only need to pay a tax penalty
for the employees who opt out of the employer plan for the insurance exchange
model. Typically these employees will make this selection because they are
eligible for the federal tax credits, which apply to all (green card or citizen
requirements apply) individuals within 400% of the federal poverty rate.
Measurement Period
for Assessing the Eligible Employees and Determining Plan Acceptability
For employers choosing to use the “look-back” period, this
can be done annually, semi-annually, or quarterly. It is best not to use a
monthly calculation as it takes a month to assess eligibility, especially for
new employees, so administrators wouldn’t know who is eligible until the end of
the month and insurance plans require enrollment at the beginning of the month.
The government has coined a new phrase, called the stability
period, which means once the initial eligibility is determined for employees,
there is a period of time where the employees must remain on the plan, if they
remain active employees. So if an employer chooses an annual measurement
period, eligible employees will be allowed to remain on the plan for 12 months.
If an employer opts to check eligibility every three months under the
measurement period criteria, then the stability period will only be for three
months. This effectively means that an employee’s health plan inclusion status
could change every quarter.
Transition Relief for
Employers in 2015
During 2015, the employer group can use any six months in a
plan year to determine eligibility and it does not have to be six consecutive
months. This means the employer could “game the system” if it wanted to put in
the effort. Also, medical coverage must be offered to 33% of the workforce and
25% must actually be covered on the plan. In other words, an employer can’t
have a sham group health plan. This harkens back to the pre ERISA days when
employers set up fabulous pensions for themselves, to the exclusion of their
employees, resulting in the “top heavy” rules to prevent discrimination and tax
ruses.
In conclusion, the government has determined and the courts
have upheld the provision of medical insurance as a requirement and if you are
an employer with fifty or more equivalent employees, you must provide medical
insurance or a medical plan, contribute an acceptable amount toward the cost of
the program, or pay a tax penalty. However, since the cost of a group medical
plan is now $4,885 per year just for the employee, employers may elect to pay
the $2,000-$3,000 per employee penalty and avoid the employer health plan
morass. According to the Kaiser Family Foundation’s 2013 Survey of
Employer-Sponsored Health Benefits, family health plan premiums now run
$11,786.[4] This means the employer may also opt to pay a
penalty on some classes of employees who fall under the annual shared
responsibility rules, but continue to operate a health benefit plan. It is
doubtful that many employers with fifty or more employees would cancel a
medical benefits program, as this would have a negative impact on recruitment
and retention of employees.
For brevity purposes this article has not listed any of the
exemption criteria for the Accountable Care Act or Public Health Services Act
provisions, but last month’s article addressed religiously exempt plans in
detail.
This article was written by Roberta E. Winter, who is a health
policy analyst and consultant, independent journalist, and author of http://www.amazon.com/Unraveling-U-S-Health-Care-Personal/dp/1442222972#
. Though anyone may use this article, if quoting or reproducing any of the
material please make sure that correct attribution of authorship is given. The
healthpolicymaven thanks you for reading.
[1]
Internal Revenue Service Notice 2011-1 and found online at: http://www.irs.gov/pub/irs-drop/n-11-01.pdf
[2]
Alan Tawshunsky, Tax Counsel, U.S. Department of the Treasury; Affordable Care
Act: Employer Shared Responsibility, Compliance Assistance Seminar, U.S.
Department of Labor Health Benefits Education Campaign in coordination with the
Washington Office of the Insurance Commissioner, Bothell Washington, August 20,
2014
[3]Centers
for Medicare and Medicaid, Fact Sheet, May 16, 2014, and found online at: http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/Final-Master-FAQs-5-16-14.pdf
[4] Kaiser
Family Foundation 2013 Survey of Employer Sponsored Health Benefits and found
online at: http://kff.org/report-section/2013-summary-of-findings/
