Affordable Care Act:The Importance of On-Going

Employer Compliance Systems

Rhonda A. O’Brien, Esq.Lashly & Baer, P.C.714 Locust Street

St. Louis, Missouri 63101Tel: 314.621.2939; 314.436.8336

Fax: 314.621.6844raobrien@lashlybaer.com

ACA Legislation Establishing Duties Related to Health Coverage

• Internal Revenue Code - All Employers

• Employee Retirement Income Security Act (ERISA) – Non-Governmental Employers Only• Public Health Services Act – All

Employers

GENERALLY EACH OF THESE LAWS IMPOSES THE SAME RESPONSIBILITIES

THE ACA APPLIES TO GOVERNMENTAL, NON-PROFIT & FOR PROFIT HOSPITALS 2

Assumptions in Presentation

• Employer (“ER”) is an applicable large employer with 100 or more full-time employees (“EEs”).

• The requirement to offer dependent coverage (children under age 26) as part of the offer of coverage applies.

• ER does not contribute to multi-employer collectively bargained plans.

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ER Duties Are Onerous & Drastic Penalties Apply

• Create Plan Design – eligibility, benefits & cost

• Define who is eligible for coverage

• Adopt systems to capture data - initial & continuing; then monitor continuously

• Communicate with employees & report to IRS

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Sledgehammer Penalty

• Applies if ER doesn’t offer minimum essential coverage (MEC) to required % of legally defined “full-time” EEs (& their dependent children).

• The cost to EEs of coverage doesn’t matter for this penalty.

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Minimum essential coverage (MEC)

• Includes most broad-based medical coverage typically provided by ERs. Does not include: accident or disability income insurance, stand-alone dental or vision, or workers' comp.

• Contrast with Minimum Value requirement: If plan covers less than 60% of the cost of medical expense, plan is not providing minimum value. HHS has created minimum value & actuarial calculators to assist in determining MEC.

• To avoid all ER mandate penalties, ERs must offer coverage that is not only MEC but provides Minimum Value and is Affordable.

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The “Offer” Requirement

• 2015: Transition Rule– Offer coverage to >70% of full-time

employees.

• 2016: Final Rule– Offer coverage to >95% of eligible

employees.

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Amount of Sledgehammer Penalty

• If ER fails to offer requisite % of full-time EEs MEC during a given month, a penalty is assessed IF 1 EE enrolls in the exchange & receives a premium tax subsidy. ER may intentionally carve out 5% (30%, 2015 plan year).

• Current annual Penalty: $2,000 per full-time EE (minus 30 employees (for 2015 only 80). It’s per EE even if just 1 full-time EE so enrolls & receives a subsidy. The per EE penalty for 2015 is $166.67 for any month, i.e., 1/12 of $2,000.

• For later years, penalty will be adjusted for inflation based on premium adjustment percentage for year, rounded down to the next lowest multiple of $10.

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Tackhammer Penalty

• May apply if coverage is not “affordable” or is not Minimum Value.

• Generally, affordability requires analysis of the EE’s pay to determine if the EE’s contribution for EE-only coverage costs more than threshold % of wages.

• Coverage is considered affordable if the EE’s required premium contribution for self-only coverage to the lowest cost plan that offers MEC does not exceed 9.5% of the EE's modified adjusted gross household income.

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Affordability

ERs who do not want to use this standard may use one of 3 affordability safe harbor methods to determine affordability:

• Form W-2 Safe Harbor: Use EE's Form W-2 wages shown in Box 1.

• Rate of Pay Safe Harbor: Multiply an EE's hourly rate by 130 to determine monthly wages, or use a salaried EE's monthly pay.

• Federal Poverty Line Safe Harbor: Use the federal poverty line for a single individual.

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Minimum Value

• Minimum Value ensures plans provide meaningful coverage at or above a threshold level.

• It is met when a plan pays on average at least 60% of the actuarial value of the total allowed cost of plan benefits. 

• This means that enrollees pay — via deductibles, coinsurance, copayments & other out-of-pocket amounts — on average no more than 40% of the total allowed cost of benefits.

• Minimum Value does not take into account the amount paid for premium.

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Tackhammer Penalty

ERs liable for penalty pay $3,000 (annually) for each EE who:

• Is required to contribute more than threshold % (9.5%) of W-2 income towards ER plan AND;

• Instead of enrolling in ER plan, purchases coverage in the Exchange & receives a subsidy.

For later years, the penalty amount is adjusted for inflation based on the premium adjustment percentage for the calendar year, rounded down to the next lowest multiple of $10.

Penalty Exposure

Exposure to the sledgehammer penalty or tackhammer penalty is greatest for companies where:• EE’s schedules vary• Distinction between full-time & part-time

EEs is unclear• Wages are low• Frequent workforce turnover

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Penalty Payment

• ERs will not be required to include the penalty payments with any tax return they file.

• Penalties are paid upon notice & demand by IRS.

• After the ER has responded to an initial IRS contact, the IRS will send a notice & demand for payment if it determines a penalty is owed.

• The notice will instruct the ER on how to make the payment.

• The excise tax penalties are nondeductible.

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Reporting to IRS & Employees

• Form 1094-B. (generally used by Insurer) Aggregate level data

• Form 1095-B. (generally used by Insurer) EE specific return also provided to EE (reports MEC)

• Form 1094-C. Aggregate ER level data• Form 1095-C. EE specific return also provided

to EE

Group Type Required FormInsurer Responsible

Required FormER Responsible

Fully Insured ER plan

Form 1095-B and 1094-B

Form 1095-C Sections I, III and Form 1094C

Self funded ER plan N/A Form 1095-C all sections and Form 1094-C

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Reporting to IRS & Employees

• Form 1094-C. Aggregate ER level data. ER uses form to transmit 1095-C to IRS.

• Form 1095-C. Used to report to EEs (& IRS).

• Form 1094-B. Used by insurance company to report MEC, Aggregate level data. Used form to transmit 1095-B to IRS.

• Form 1095-B (generally used by Insurer) EE specific return also provided to EE & IRS (reports MEC). ER does not receive copies.

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Reporting to IRS & Employees

• First forms are due to EEs on or before January 31, 2016 (same schedule as W-2s). Forms are due to IRS by February 28 (March 31 if filed electronically).

• Electronic filing required if ER files 250 or more information returns

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Reporting to IRS & Employees

Reporting includes but is not limited to:– Whether the ER offers MEC to full-time EEs &

dependents; – Number of full-time EEs each month; – For each full-time EE, the months coverage

was available; – EEs’ share of the premium for the lowest cost

plan that meets the ACA requirements; – Identifying information for each full-time EE &

the months each was covered under ER’s plan; &

– Conditional offers to spouses

Penalties for Reporting & Disclosure Violations

30 day extensions are available. No penalties for good faith effort to comply with 2015 reporting & disclosure made in 2016. Otherwise, penalty relief is subject to a reasonable cause standard.

Reason for Penalty Standard Penalty Maximum Penalty

Filed or provided late, but within 30 days

$50.00 per report $500,000

Filed or provided late, but by 8/1

$100.00 per report $1,500,000

Filed or provided late, but after 8/1 or not at all

$250.00 per report $3,000,000

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On-Going Work to Avoid Penalties

• Must track employee hours & other data using federal definitions & methodologies.

• Must decide on method to determine full-time employees & track hours on others to determine when & if eligible for an offer of coverage.

• Elect measurement, administrative, & stability periods.

• Must be able to make month by month determinations.

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On-Going Work to Avoid Penalties

• Must coverage be expanded to avoid Sledgehammer penalty? Must benefits be redesigned for MEC or EE share of premium be reduced?

• Definition of EE - individual who is an EE under the common law standard.

• Misclassification of true EEs as independent contractors may cause ER to violate ACA & become subject to penalties.

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On-Going Work to Avoid Penalties

• Must track for eligibility using ACA classifications, definitions & methodologies.

• Using traditional EE classifications will not work for compliant tracking & reporting.

• Must coordinate with health plan insurers, third party administrators & payroll services

• Must determine whether outside vendors or additional software is needed.

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On-Going Work to Avoid Penalties

• Payroll must be accurately recorded in benefits tracking system in order to determine affordability.

• Determinations are not intuitive. Tracking must be comprehensive & in appropriate software.

• Technology provides on-going day-to-day information & an audit trail to demonstrate effort to comply should the business be audited.

• The Feds will audit for compliance.

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Variable Hour Employees

Coverage Adequacy - Affordability

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High Cost Plan Tax – “Cadillac Plan” Tax

• Nondeductible excise tax, effective for 2018 plan years

• The tax is 40% of the cost of health coverage that exceeds a predetermined threshold based upon the sum of the costs for all included coverage.

• In insured plans - insurer pays & in self-funded plans - ER pays.

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“Cadillac Plan” TaxApplies to the coverages such as:• Insured & self-funded group health plans• Wellness programs that are group health plans• Health Flexible Spending Accounts (FSA)• Health Savings Accounts (HSAs) ER pre-tax contributions

only• Health Reimbursement Accounts (HRAs)• Archer Medical Savings Accounts (MSAs) ER pre-tax

contributions only• On-site medical clinics providing more than de minimis

care• Executive Physical Programs that are not subject to tax• Pre-tax coverage for a specified disease or illness • Hospital indemnity or other fixed indemnity insurance• Retiree coverage

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“Cadillac Plan” Tax

The following benefits are not subject to the “Cadillac Plan” Tax:• Insured dental & vision plans• Fixed indemnity, hospital indemnity, dread

disease & similar plans paid for by the EE on an after tax basis

• Long term care• Accident & disability benefits• Workers Comp• Auto insuranceNote: The tax does apply to FSAs. For this reason, it has been suggested that ERs will consider dropping this benefit. 28

“Cadillac Plan” Tax

The threshold for 2018 is $10,200 for self-only & $27,500 for family coverage.

EXAMPLEFor self-only coverage a $12,000 individual plan would pay an excise tax of $720 per covered EE. $12,000-$10,200 = $1,800 above the threshold. $1,800 x 40% = $720.

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Hospital Reimbursement for Emergency Services of Out-Of-Network Providers -

PHSA §2719A

Plans that offer emergency room coverage must:

• Provide access to same without requiring prior authorization.

• Not require the provider to be in-network.

• Not impose any administrative requirements/benefit limitations for out-of-network ER that are more restrictive than those applied in-network.

• Not impose copayment or coinsurance requirements for out-of-network ER greater than cost-sharing applied to in-network.

• May apply a deductible that is generally applicable to out-of-network benefits to out-of-network ER.

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Reimbursement for Emergency Services of Out-Of-Network Providers

• Out-of-network providers may bill patients for the difference (the balance) between the providers’ charges & the amount collected from the plan unless prohibited by state law.

• Plans are not required to cover balance billing amounts. • Plans must pay out-of-network providers a reasonable

rate, which is defined to be the greatest of the following:

– the amount negotiated with in-network providers for ER (the median if more than one rate);

– the amount calculated using the same method the plan uses for out-of-network services (such as the UCR) but substituting the in-network cost-sharing provisions for the out-of-network;

– the amount that Medicare would pay. 31

Reimbursement of Out-Of-Network Emergency Services

• The minimum payment standards were developed to protect patients from being penalized for obtaining out-of-network ER services.

• Plans & issuers are not required to satisfy the payment minimums:

– If plan is contractually responsible for any amounts balance billed by an out-of-network ER services provider, or

– If a state law prohibits balance billing

• In these situations

– Patients must receive adequate & prominent notice of their lack of financial responsibility

– The plan may not impose any copayment or coinsurance requirement that is higher than that applied if the services were provided in network.

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Employee Communication

• Identifying Plan Documents and required communications

• Keeping plan documents in compliance with law &/or best practices ERISA- plan document, wrap plan document; plan

summary Policies; summaries; statements, undocumented

practices

• Acting in accordance with the applicable plan documents

• Summary of Benefits & Coverage

Disclaimer

This slideshow provides general information only.

It is not legal advice and should not be used or relied upon as legal advice for specific situations.

You must consult your own legal counsel before taking any action or making any decisions concerning the matters presented herein. 34