• Dear Client,

    In order to assist you with the new regulations enclosed is a summary of ACA information we hope you will find helpful. There may be additional reporting due in 2016 for calendar year 2015. See below for items to consider. Your situation will determine what course of action is needed to be compliant with the ACA regulations.

    1. Have I offered health coverage as required to my employees?
    2. Does the health coverage offered to my employees meet the ACA requirements?
    3. Do you or will you have 50 or more full-time equivalent employees in 2015?
    4. What added reporting is needed since I self-insure my employee’s health coverage?
    5. Does my business qualify for the Small Business Heath Care credit?
    6. Why do I need to count employees that are not full-time?
    7. How do I determine when coverage should be offered to employees with variable hours?
    8. What is Employer Shared Responsibility?
    9. Do all the companies I own or have ownership in need to be reported as one for ACA purposes?
    10. How should I track employee hours to determine if they are full-time?
    11. Can’t I just reimburse my employee’s individual health premiums to them?
    12. When and how am I required to notify my employees about their health coverage benefit options?
    If you have any questions please give Holt & Patterson a call at 636-530-1040 for assistance.

    Summary Information

    Affordable Care Act – Health Care Reform

    Applicable Large Employer (ALE): 50 or more full-time equivalent employees. This includes for-profit, not-for-profit and government entity employers.

    Two provisions of the ACA apply only to ALEs:
    • Employer Shared Responsibility
    • Employer Information Reports for offers of minimum essential coverage

    Workforce size determines if the employer is ALE. Each calendar year add number of full-time employees and full-time equivalent employees for each individual month of the prior calendar year and divide that total by twelve. If the number is 50 or more the employer is an ALE.

    2015 Transition rule for determining workforce size: Allows employer to use any consecutive 6 months prior during 2014 rather than the full 12 months of 2014.
    Full-Time Employee: Employee who works 30 or more hours of service per week or at least 130 hours of service during the calendar month

    Full-time Equivalent: Determine number of full-time equivalent employees by:

    1. Add the number of hours of service for all non-full-time employees for each month but do not include more than 120 hours of service per employee, and
    2. Divide the total by 120
    Hours of Service: When calculating average hours include hours worked and include any hours for which payment is due. For example: include vacation, sick, paid time off hours. Hours paid to an intern would count. Bona Fide volunteer service does not count.
    Group Health Plan: Market Reforms do not apply to group health plan with fewer than two participants who are current employees on the first day of the plan year.

    Minimum Essential Coverage: No annual limits on essential health benefits and provide certain preventative care without cost sharing. Verify with your insurance broker if you have questions about your coverage meeting minimum essential coverage.
    Minimum Value: Plan designed to pay at least 60% of the total cost of medical services and the plan includes substantial coverage of inpatient hospital and physician services. Verify with your insurance broker if you have questions about your coverage meeting minimum value.

    Measurement Period: For the purpose of offering coverage to full-time employees and computing liability for Employer Shared Responsibility payment there are 2 measurement methods. (Note – do not use this method for determining if the employer is an ALE)

    1. Monthly Measurement Method: Count the employee’s hours of service for each month. Offer coverage the first day of the third month following the first full calendar month that the employee meets the 30 hour eligibility requirement (Example: employee meets 30 hours per week for the full month of January, offer coverage effective April 1st ).

    Thereafter track the employee and offer coverage (waiting period is only allowed on the initial offering). No use of stability periods.

    2. Look-Back/Stability Measurement Period: Determine full time status by looking back at a defined period (measurement) of not less than three but not more than 12 consecutive months. Employer can choose the measurement period but this determination must be made on a uniform and consistent basis for all employees in the same category.
    a) If the employee worked an average of 30 or more hours per week during the measurement period treat the employee as a full-time employee during the subsequent “stability” period.
    b) If the employee worked an average of less than 30 hours per week during the measurement period is not a full-time employee during the subsequent “stability” period.
    c) Stability period is a period of at least six consecutive calendar months and is not shorter than the measurement period.
    d) Ongoing employee lookback period is used for an employee who has been employed for at least one standard measurement period
    e) Allowed categories
    o Collective Bargain / Non-Collective Bargain
    o Salary / Hourly
    o Employees in different entities
    o Employees located in different states

    Administrative Period: Employers may need time between the measurement period and the associated stability period to determine which employees are eligible for coverage, notify and enroll those employees. Employers can make time for this by having the measurement period end before the associated stability period starts. The administrative period may last up to 90 days, however the administrative period may not reduce or lengthen the measurement period or the stability period. In other words it cannot cause a gap in coverage between prior and new stability periods. The administrative period must overlap with the prior stability period so that enrolled employees do not experience a gap in coverage

    New Hires / Initial Period: If an employee is reasonably expected to work full time and the employer offers group health coverage by their 90 day employment date (initial 3 calendar months of employment) will not be subject to the employer responsibility payment.

    If an employee has variable hours or works seasonally use the same measurement period (between 3 and 12 months) as ongoing employees as well as taking an administrative period of up to 90 days to determine if they are full-time. The combined initial period and administrative period cannot extend past the last day of the calendar month beginning on or after the employee’s one year start date anniversary.

    If employee has a change in status during the initial measurement period for example: The employee is promoted to full time you must offer coverage on the earlier of:

    • No later than the first day of the fourth month following the change
    • First Day of the first month following the end of the initial measurement period and any associated administrative period

    Affordable Coverage: Plan is considered affordable if it meets one of the three IRS safe harbors: Note the cost of dependent coverage is not considered for this calculation.

    If the employee’s required contribution does not exceed 9.5% of:
    • The employee’s household income
    o Use W2 Box 1 income and apply the self-only coverage only to lowest cost option as of the 1st day of the coverage period
    • Rate of pay
    o Generally is based on the employee rate of pay at the beginning of the coverage period
    • Federal Poverty Line for a single individual for the applicable calendar year
    o 2015 single person household poverty line is $ 11,700

    Employer Shared Responsibility:
    ALEs are subject to if:

    • Employer does not offer minimum essential coverage to at least 95% of their full time employees and their dependents (spouse does not count as dependent for this rule)
    • Coverage offered does not provide minimum value
    • Coverage is not affordable

    Play or Pay Liability: Employers are liable for payment if the above conditions occur AND at least one full-time employee receives a premium tax credit to help pay for coverage on a Marketplace. No coverage penalty and inadequate coverage penalties are explained below:

    Liability Calculation:
    • If ALE offers coverage to less than 95% of their full-time employees and their dependents the liability is:
    Number of full time employees less 30 x $ 2,000 (prorate and calculate by month if coverage was offered for some months)
    • If ALE offers coverage to 95% of their full-time employees and their dependents but the coverage is not affordable or of minimum value the liability is:
    Number of full time employees receiving a premium tax credit for that month x $ 250 (1/12th of $ 3,000)
    Note: Monthly Payment is capped at number of full time employees less 30 x 166.67
    (1/12th of $ 2,000)

    How does the employer know that it owes Employer Shared Responsibility payment? The IRS will notify them of potential liability and the employer will have an opportunity to respond before any liability is assessed. If liability is assessed the notice will instruct the employer on how to make the payment.

    Non-Deductible Penalties:

    ALE is subject to 4980(H) tax of $ 2,000 per year times the total # of full time employees (not counting the first 30) for not offering health insurance.

    ALE is subject to 4980(H) tax of $ 3,000 per year times the total # of full time employees receiving premium assistance. This amount is prorated based on the number of months involved.

    Effective 7/1/2015 for all employers – $100 per day excise tax for reimbursing after tax amounts to employees for individual health coverage
    • Waiver for fewer than 50 employees expired 6/30/15

    Reimbursing Employee Health Premiums:

    Employer reimbursement/payment plans are considered to be group health plans and subject to ACA and could be subject to $100 per day penalty if you reimburse your employees on a pre-tax basis.

    S corporations can continue to reimburse premiums for their more than 2% owners without being subject to excise tax. See further S Corp information in the next section.

    Employers may raise the compensation of their employees to assist in the purchase of individual health insurance without being subject to the group health plan requirements at all, as long as they do not condition the compensation on obtaining health insurance. However, employers that reimburse employees for the cost of individual coverage cannot escape the group health plans rules by paying the benefits as taxable compensation.

    Government programs: An arrangement under which an employer reimburses (or pays directly) some or all of Medicare Part B or Part D premiums for employees is an employer payment plan subject to the market reforms if it covers two or more active employees. Such an arrangement must be integrated with another group plan if it is to avoid the excise tax. Such a plan is integrated with another group health plan if: (1) the employer offers a group health plan (other than the employer payment plan) to the employee that does not consist solely of excepted benefits and offers coverage providing minimum value; (2) the employee participating in the employer payment plan is actually enrolled in Medicare Parts A and B; (3) the employer payment plan is available only to employees who are enrolled in Medicare Part A and Part B or Part D; and (4) the employer payment plan is limited to reimbursement of Medicare Part B or Part D premiums and excepted benefits, including Medigap premiums.

    S Corporations: The tax treatment of health insurance premium reimbursement plans for 2-percent shareholders continues to apply. This means that the premium reimbursements paid in wages are deductible by the shareholder. If an employee (including a 2-percent shareholder-employee) is covered under a reimbursement arrangement with other-than-self-only coverage (such as family coverage), and another employee is covered by that same coverage as a spouse or dependent of the first employee, the arrangement would be considered to cover only the one employee and hence not be subject to the group health plan requirements.

    However, the IRS is contemplating further guidance with respect to 2-percent employee-shareholders of S corporations. Until such guidance is issued (and in any event through the end of 2015), the excise tax will not be asserted for any failure to satisfy the market reforms by a 2-percent shareholder-employee healthcare arrangement. In addition, an S corporation with a 2-percent shareholder-employee

    Healthcare arrangement will not be required to file IRS Form 8928 (regarding failures to satisfy requirements for group health plans) solely as a result of having a 2-percent shareholder-employee healthcare arrangement.

    Small Business Health Care Tax Credit for Small Employers: For 2014 and beyond the credit is up to 50% or the employer’s premiums contribution. The credit can be claimed for any two consecutive tax years. To qualify:
    • Fewer than 25 employees
    • Employees are paid average annual wages less than $ 50,000
    • The employer paid 50% or more of the premiums
    • Insurance coverage is purchased through SHOP certified plans

    Premium Tax Credit: When does an employee receive a premium tax credit?
    • Household income between 100 and 400% of the federal poverty line and enrolls in coverage through a Marketplace
    • Are not eligible for coverage through government sponsored program like Medicaid/CHIP
    • Are not eligible for coverage offered by an employer or the employer coverage is not affordable or does not provide minimum value

    Cadillac Tax: This excise tax is set to take effect in 2018.

    Health coverage under insured and self-insured employer plans will be subject to a nondeductible 40% excise tax to the extent the value of health coverage provided to an employee exceeds the thresholds ($ 10,200 for single coverage and $27,500 for any other level of coverage).

    The employer must determine total value of coverage including major medical, HSA and FSA contributions, HRA allocations, on-site clinics, wellness programs, employee assistance programs supplied to the employee.

    The Cadillac tax will accrue on a monthly basis based on the aggregate coverage costs for an employee in a given month. HSA and FSA annual contributions would be evenly allocated to each calendar month even though the benefits and contributions are not evenly done on a monthly basis.

    Common Ownership: “Aggregate” rules may apply for businesses that have a common owner. In this case the employees of the businesses that are under common control are added together to determine if the employee is an ALE. The example given by the IRS is if an individual owns 80% or more of separate entities the employees from both entities need to be combined.

    Annual Form W-2: Employers who issue 250 or more W-2s for the preceding calendar year must report employer and employee contributions for major medical and prescription drug coverage on box 12 of the W2 form using code DD.

    Annual Form 1095-C and 1094-C: Under section 6056 Reporting ALEs must provide for each full-time employee a certification of IRS required information by January 31st. This information applies to employer sponsored plans.

    Form 1095-C includes:
    • Certification to state the full-time employee was offered minimum essential insurance coverage by calendar month
    • The months during the calendar year the coverage was available
    • Show the lowest cost monthly premium for self only coverage providing minimum value under the employer sponsored plan

    Form 1094-C: is the transmittal forms used to send Form 1095-C to the
    IRS and is due by February 28th

    Annual Form 1095-B and 1094-B: Under section 6055 Reporting all employers regardless of number of employees must provide for each full-time employee a certification of IRS required information by January 31st. This information applies to employer self-insured plans. If the employer is an ALE the information is combined on the 1095-C and 1094C forms (see above). The plan sponsor is responsible for filing the forms. In a case of multi-employer plan the representative that establishes or maintains the plan is responsible.

    Form 1095-B includes:
    • Dates and months individuals were covered
    • Indicate if SHOP coverage was provided

    Form 1094-B: is the transmittal form used to send Form 1095-B to the IRS and is due by February 28th.

    Form 8928: File Form 8928 to report the tax due on the following failures by group health plans or employers.
    • A failure to provide a level of coverage of the costs of pediatric vaccines (as defined in section 2612 of the Public Health Services Act) that is not below the coverage provided as of May 1, 1993.
    • A failure to satisfy continuation coverage requirements under section 4980B.
    • A failure to meet portability, access, renewability, and market reform requirements under sections 9801, 9802, 9803, 9811, 9812, 9813, and 9815.
    • A failure to make comparable Archer MSA contributions under section 4980E.
    • A failure to make comparable health savings account (HSA) contributions under section 4980G

    Employee Notification: Whether or not your company offers employee health insurance options, this notice is required for all employers subject to FLSA. New employee must be provided written notification within 14 days of hire. Currently there is no fine or penalty for failing to provide the notice.