Employer Shared Responsibility

Version: October 18, 2013 1

Disclaimer

This training material is for informational purposes only and is not intended as tax or legal advice. Please talk with your attorney or tax professional for specific questions related to your Tribe or Tribal entity as an employer.

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This Training

• Seven sections to this training:– Overview of Tribes and Tribal Entities as

Employers under the ACA– Small Business Health Options Program (SHOP)– Small Business Tax Credit (Tax Credit)– Employer Shared Responsibility• Look Back Measurement Method• Transition Rules

– IRS Reporting and Other Requirements

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Employer Shared Responsibility Topics

• Employer Shared Responsibility Mandate• Determining Large Employer Status• IRS Assessable Payments• Avoiding Assessable Payments

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Employer Shared Responsibility Mandate

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Shared Responsibility Mandate

• The Employer Shared Responsibility mandate means that an employer will be subject to an “Assessable Payment” or “Shared Responsibility Payment” (taxes) for not offering health insurance coverage that is affordable or that does not provide minimum value to its full-time employees.

• Applies to employers with 50 or more full-time employees.

• The IRS rules are not final yet.

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Employer Shared Responsibility Mandate Delayed

Until 2015

• IRS Notice 2013-45 announced a one-year delay of implementation of the:– Employer Shared Responsibility provisions under

§ 4980H; and– Reporting requirements under §§ 6055 & 6056.

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Shared Responsibility Mandate• Tribal governments and subdivisions of Tribal

governments are not exempt.– The rules specific to governmental entities (which includes

Tribal governments and subdivisions of Tribal governments) have not been issued by the IRS.

• All Tribal entities will have to comply with these provisions to avoid Assessable Payments.– Tribal businesses, organizations and all other entities such

as casinos, retail businesses, health centers, nursing homes and non-profit organizations.

• See 26 U.S.C. § 4980H and 78 Fed. Reg. 218.

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To Avoid Assessable Payments• A large employer must offer to its full-time employees

and their dependents the opportunity to enroll in health insurance coverage:– That provides Minimum Essential Coverage under an

Eligible Employer-Sponsored Plan; – That is Affordable; and – That provides Minimum Value.

• If offered, a full-time employee would not be eligible for a premium tax credit or cost sharing reduction.

• The assessable payment is triggered by the employee’s receipt of a tax credit or cost sharing reduction.

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Determining Large Employer Status

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Determining Large Employer Status

• Many employers will know they are a large employer without having to count their full-time employees.

• For employers at or near the threshold, the number of full-time employees must be counted.

• If it is determined that the employer employed 50 or more full-time employees in a calendar year, the employer is considered a large employer for the following calendar year.

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Determining Large Employer Status(continued)

1. Calculate the number of full-time employees (including seasonal workers) for each calendar month in the prior year.

2. Calculate the number of full-time equivalent employees (including seasonal workers) for each calendar month in the prior year.• Full-time equivalent employees = Add the total

number of hours of service of part-time employees in a calendar month and divide by 120.

3. Add the number of full-time employees and full-time equivalent employees for each month of the calendar year.

4. Add up the 12 monthly numbers and divide by 12.

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Determining Large Employer Status (continued)

• The Result– If the result is less than 50, the employer is

not a large employer. – If the result is 50 or more, the employer is a

large employer. • Employer may not be considered a large employer if

the Seasonal Worker Exception applies.

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Example: Large Employer Determination

1. Tribal business calculated the number of full-time employees (including seasonal workers) it employed for each calendar month in the prior year.– Reminder:

• A full-time employee is employed an average of 30 hours of service per week (or 130 hours of service per months).

• Methods to count hours of service provided in Overview.

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Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

FT 29 28 29 28 45 45 45 45 28 28 29 29

Example: Large Employer Determination(continued)

2. Tribal business then calculated the number of full-time equivalent employees (including seasonal workers) it employed for each calendar month in the prior year.– In January, 25 part-time employees worked a total of

2,258.5 hours which was then divided by 120 for a total of 18.8 full-time equivalent employees in January. Fractions must be included.

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Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

FTE 18.8 19.2 20.3 21.5 21.1 22.5 18.9 18.2 18.6 20.4 19.5 20.5

Example: Large Employer Determination(continued)

3. Tribal business added the number of full-time employees and full-time equivalent employees for each month of the calendar year.

– Then added the numbers in the last row and divided the total by 12 for a result of 53.9 or 53 full-time employees. In this example, Tribal business is a large employer.

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Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

FT 29 28 29 28 45 45 45 45 28 28 29 29

FTE 18.8 19.2 20.3 21.5 21.1 22.5 18.9 18.2 18.6 20.4 19.5 20.5

47.8 47.2 49.3 49.5 66.1 67.5 63.9 63.2 46.6 48.4 48.5 49.5

Seasonal Worker Exception

An employer may not be considered a large employer if:– The employer’s work force only exceeds 50

full-time employees for 120 days or less during the calendar year; and– The employees in excess of 50 who were

employed during that 120 day period or less were seasonal workers.

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Seasonal Worker• Seasonal worker = “…a worker who performs labor or

services on a seasonal basis as defined by the Secretary of Labor, including (but not limited to) workers covered by 29 CFR 500.20(s)(1), and retail workers employed exclusively during holiday seasons.” 78 Fed. Reg. 242

• Until further guidance is issued, an employer may use a good faith interpretation of seasonal worker under DOL Regulations 29 CFR 500.20(s)(1).

• Per IRS guidance:– The 120-period may be applied using four calendar months (whether

or not consecutive) or a period of 120 days (whether or not consecutive).

– Not limited to agricultural or retail workers.

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Example: Seasonal Worker ExceptionTribal business hired seasonal workers in summer months for 120 days or less. It applied the seasonal worker exception and determined that:•Its workforce only exceeded 50 full-time employees for 120 days or less during the calendar year (last row); AND •The employees in excess of 50 who were employed during the 120 period were seasonal workers (second row), i.e. 18 full-time seasonal workers employed May through August.•Tribal business is not a large employer.

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Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

FT 29 28 29 28 45 45 45 45 28 28 29 29

FTE 18.8 19.2 20.3 21.5 21.1 22.5 18.9 18.2 18.6 20.4 19.5 20.5

47.8 47.2 49.3 49.5 66.1 67.5 63.9 63.2 46.6 48.4 48.5 49.5

Companies with a Common Owner• Parent corporations and subsidiaries• To determine large employer status, total the

number of all full-time employees (including full-time equivalent employees) working at all companies.

• If the total number of employees is at least 50 full-time employees, then each separate company is considered a large employer.– Even if each separate company employs less than 50 full-

time employees

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New Employers

• An employer that did not exist in the entire preceding year is considered a large employer if it is reasonably expected to employ an average of at least 50 full-time employees (taking into account full-time equivalent employees) on business days during the current calendar year.

• The rules are not final as to new employers.

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IRS Assessable Payments

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How Assessable Payments CanBe Incurred

If a large employer: (1) Does not offer coverage to at least 95% of its

full-time employees (and their dependents), OR(2) Offers coverage to at least 95% of its full-time

employees (and their dependents) but the coverage is not affordable or does not provide minimum value

AND at least one full-time employee receives a premium tax credit or cost sharing reduction in the Individual Marketplace.

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Employees with Access to Coverage

Employees with access to an eligible-employer sponsored plan that is affordable and that provides minimum value cannot obtain a premium tax credit or cost sharing reduction in an Individual Marketplace.

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First Type of Assessable Paymentunder 4980H (a)

• An employer may incur a liability for:– not offering or offering less than 95% of its full-time

employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan; and

– at least one full-time employee receives a premium tax credit or cost sharing reduction in the Individual Marketplace.

• This is an employer that does not offer health insurance coverage or does not offer coverage to at least 95% of its full-time employees.

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First Type of Payment (cont’d)

• Assessable Payment: $2,000 per employee x (number of full-time employees – 30) ÷ 12 (assessed monthly). This is approximately $166.67 per employee, per month. – Example: An employer with 80 full-time

employees would owe an assessable payment of $8,333.33 per month [i.e., $2,000 x (80 – 30) ÷ 12 = $8,333.33].

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Second Type Assessable Paymentunder 4980H (b)

• An employer may incur a liability for:– offering at least 95% of its full-time employees (and their

dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan that is not affordable or does not provide minimum value (MV); and

– one or more full-time employees receives a premium tax credit or cost sharing reduction in the Individual Marketplace.

• This employer makes the offer as required but the coverage is either unaffordable or does not provide MV.

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Second Type of Payment (cont’d)• Assessable Payment: $3,000 x (each full-time

employee that receives a premium tax credit or cost sharing reduction) ÷ 12 (assessed monthly). This is $250.00 per employee, per month. – Example: If 5 employees receive a premium tax

credit, then the employer would owe an assessable payment of $1,250 per month [i.e., $3,000 x 5 ÷ 12 = $1,250].

– Cap: Cannot exceed the assessable payment for not offering coverage (first type).

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Avoiding Assessable Payments

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Offer of Coverage• A large employer must:– Make an offer of coverage to at least 95% of its full-

time employees and their dependents. • 95% is a margin of error applied at the end of the tax

year. An employer must offer coverage to all but 5%, or, if greater, five of its full-time employees.

– Provide the “effective” opportunity to enroll or decline to enroll no less than once during the plan year.

– Offer must be made within three months of hire.• A group health plan may not apply any waiting period

that exceeds 90 days.30

Dependents

• Offer of coverage to dependents: –Dependents includes children under 26

years of age, but does not include spouses.– Employer does not have to pay for

dependent coverage.

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Eligible Employer-Sponsored Plan • The ACA requires individuals to have minimum

essential coverage (MEC) by January 1, 2014.• A person can meet the individual responsibility

mandate through coverage under an eligible employer-sponsored plan which includes:– A group health plan or group health insurance that is a

governmental plan (such as FEHBP),– Any other plan or coverage offered in the small or large

group market, or– A grandfathered plan in the group market.

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Eligible Employer-Sponsored Plan: Grandfathered Plan

• A plan in effect on March 23, 2010, date of the ACA.• Plan does not have to comply with most of the new

requirements imposed on other plans.– Except that it must not have annual limits, no rescission if an insured

gets ill, and must be offered to dependents up to age 26.

• It can lose its grandfathered status with changes to co-insurance, co-payments, deductibles, or employer contribution.

• A plan is able to make some changes due to inflation and can still maintain its status.

• Requirements for grandfathered plans were issued in 2010 and are available at 75 Fed. Reg. 34538.

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What is Minimum Value?

• Minimum value = a plan has to cover at least 60% of the total allowed cost of benefits that are expected to be incurred under the plan.

• Per recent proposed rules, there are four methods an employer may use to determine minimum value. See 78 Fed. Reg. 25909.

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Minimum ValueFour methods an employer may use to determine MV:•The MV calculator made available by HHS and the IRS provided at: http://www.cciio.cms.gov/resources/regulations/index.html#pm.•One of the safe harbors established by HHS and IRS. •An actuarial certification if an eligible employer-sponsored plan has nonstandard features that are not compatible with the MV calculator and may materially affect the MV percentage. •As to plans in the small group market, conformance with the requirements for a level of metal coverage (bronze, silver, gold or platinum) defined at 45 CFR 156.140(b).

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What is Considered Unaffordable?• An employer’s insurance plan is deemed unaffordable if

the “employee only” contribution towards the premium is more than 9.5% of the employee’s household income.

– “Employee only” does not include dependent coverage.

– 9.5% does not include the employer’s contribution.– Household income is based on the modified adjusted

gross income (MAGI) of the employee and any members of the employee’s family (including a spouse and dependents) who are required to file a return.

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Affordability Safe Harbors• Since an employer may be unable to ascertain an employee’s

household income, an employer may rely on an affordability safe harbor to avoid the second type of assessable payment: – W-2 Safe Harbor– Rate of Pay Safe Harbor– Federal Poverty Line Safe Harbor

• An employer may only use a safe harbor if it offers its full-time employees and their dependents the opportunity to enroll in – minimum essential coverage under an eligible employer-sponsored

plan that provides minimum value as to the “employee only” coverage offered to the employee

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W-2 Safe Harbor• The “employee only” portion of the premium

is deemed affordable if the employer’s lowest cost plan does not exceed 9.5% of the employee’s W-2 wages.

• Application of this safe harbor is determined at the end of the calendar year.

• Per Guidance: An employer could deduct 9.5%, or lower percentage, from an employee’s W-2 wages each pay period.

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Rate of Pay Safe Harbor• The employee only portion of the premium is deemed

affordable if it does not exceed 9.5% of:– For hourly employees, the employee’s hourly rate of pay as

of the first day of the coverage period multiplied by 130 hours for hourly employees.• Example: Employee earns $12.00 per hour. Multiply $12.00 x 130

hours = $1,560 x 9.5% = $148.20. Employee only coverage cannot exceed $148.20 per month.

– For non-hourly employees, the employee’s monthly salary• Example: Employee earns $3,000 per month. Multiple $3,000 x 9.5%

= $285.00. Employee only coverage cannot exceed $285.00 per month.

– Limitation on use of safe harbor: Employee’s wages cannot be reduced during calendar year.

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Federal Poverty Level Safe Harbor

• The “employee only” portion of the premium is deemed affordable if it does not exceed 9.5% of:– The Federal poverty line (for the State in which

the employee is employed) for a single individual for the applicable calendar year, divided by 12.

• Employer would use the monthly FPL amount as a limit on the employee only contribution.

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2013 Federal Poverty GuidelinesSingle Individual

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States AnnualIncome

9.5% Divided by 12 (employee only

contribution max)

48 Contiguous States and D.C.

$11,490 $1,091.55 $90.96

Alaska $14,350 $1,363.25 $113.60

Hawaii $13,230 $1,256.85 $104.74

How will the Employer Find Out About a Potential Assessable Payment?

• Per IRS Guidance, the IRS will notify the employer of the potential liability and provide the employer with an opportunity to address any liability before it is assessed against the employer and before any notice and demand for payment is made.

• IRS will contact the employer after:– The employee files his/her tax return claiming the

tax credit for the previous year.– The employer files its 6056 Return.

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Recommendations• Determine whether you will be considered a large

employer in 2014. • If you will be considered a large employer: – Keep apprised of regulations regarding transitional rules in

2014 in preparation for 2015 and other guidance.– Talk with your attorney or tax advisor regarding

compliance.

• Learn more about the large employer requirements at: ://business.usa.gov/healthcare.

• Determine your responsibility at: http://tribalhealthcare.org/tribal-employers/determine-your-responsibility/. 43

Section Review• Why is this important for Tribes?• Who is subject to the Shared Responsibility

Mandate?• Are part-time employees counted to

determine large employer status?• Describe one type of assessable payment?• Explain what an employer needs to do to

avoid an Assessable Payment.

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Questions

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