Employer’s guide to the Shared Responsibility (Excise Tax ) Penalty under the ACA:

1. Employer’s guide to the Shared Responsibility (Excise Tax ) Penalty under the ACA: What Employers are at Risk ?

2. What employers are subject to the Affordable Care Act? • Employers that meet the definition of “an applicable large employer.”

3. First layer: Are you an “Applicable Large Employer?”

4. Are you an Applicable Large Employer? • An applicable large employer is one (including predecessors) that has • 50 or more • full-time or • “full-time equivalent” • Employees • in the preceding calendar year • or reasonably expects to have that many in the current year, if the employer has not existed in previous calendar years. • IRC Section 414(b),(c),(m) or (o)—the Aggregation Rule for Employers — applies.

5. Who is an employee for purposes of the “applicable large employer” test?

6. Full-Time Employees and “Full-Time Equivalents”

7. An employee who in any month works an average of 30 hours or more each week is considered 1 full-time employee.

8. What about seasonally full-time employees? If the employer’s workforce consists of 50 or more “seasonal workers” for 120 days or less during the calendar year, then it is not considered an “applicable large employer.” A seasonal worker is defined by the Secretary of Labor and includes retail workers employed exclusively during holiday seasons.

9. What is a “full-time equivalent employee” for purposes of determining whether the employer is an “applicable large employer”? A “full-time equivalent employee” (FTE) is a fictitious employee who is identified by an adding the total number of non-full time employees monthly hours together and dividing the total number of hours by 120. The result is the number of FTEs for the month.

10. Only employers that average 50 or more FT and FTE employees for a calendar year are subject to the tax. The average is based on calendar months, not days.

11. Calculate the number of full-time employees and FTE’s for each month, add the monthly totals,and divide by 12. The employer is an “applicable large employer” for the previous calendar year if the AVERAGE monthly number of full-time employees and FTEs for the calendar year is 50 or more.

12. So you are an applicable large employer…when do you owe the tax? • The applicable large employer shared responsibility excise tax under the ACA is triggered by one of two types of actions: • “NO OFFER” OF INSURANCE to any full-time employee OR • “UNAFFORDABLE” INSURANCE OFFERED • and • A full-time employee buys health insurance on a state exchange with premium assistance.

13. Who are full-time employees for purposes of calculating the tax? • For purposes of calculating the tax, a different full-time employee calculation is made that does not include FTEs. • For purposes of the tax calculation, full-time employees who work at least 30 hours of service per week are considered. For this purpose, proposed regulations are expected to provide (as stated in Notice 2011-36) that 130 hours of service in a calendar month would be treated as the monthly equivalent of 30 hours of service per week. • What is a part-time employee? • An employee that is not considered a full-time employee or a seasonal employee.

14. How are service hours calculated? Awaiting final guidance in the form of regulations. In interim guidance, the Service has suggested the following methods be used: 1) For hourly employees, actual hours of service from records of hours worked or hours for which payment is due (i.e., vacation, holiday, etc.) 2) For non-hourly employees: • Actual hours of service from records of hours worked or hours for which payment is due (i.e., vacation, holiday, etc.) • Using a days-worked equivalency method where employee is credited with an eight hour day for each day worked • Using a weeks-worked equivalency where each employee is credited with forty hours of service per week for each week worked.

15. When is there “No Offer”? • i. The applicable large employer • ii. does not offer to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer sponsored plan, and • iii. one or more of its full-time employees buys health insurance on an exchange with premium assistance, then it • iv. pays a non-deductible tax equal to the number of full-time employees for each month that it fails to offer such coverage: $167 x (# full-time employees - 30). • Annualized the tax is $2000 x (# full-time employees - 30).

16. What is an eligible employer-sponsored plan? • It is any employer-sponsored plan, but may not consist solely of “excepted benefits” under. Excepted benefits include: • 1) Coverage only for accident, or disability income insurance, or any combination thereof • 2) Coverage issued as a supplement to liability insurance • 3) Liability insurance, including general liability insurance and automobile liability insurance • 4) Workers' compensation or similar insurance • 5) Automobile medical payment insurance • 6) Credit-only insurance • 7) Coverage for on-site medical clinics • 8) Other similar insurance coverage, specified in regulations, under which benefits for medical care are secondary or incidental to other insurance benefits

17. When is the offer “Unaffordable”? • i. The applicable large employer • ii. offers its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsor plan that is either: • a. unaffordable relative to an employee’s household income, or • b. does not provided minimum value, and • iii. one or more of its full-time employees buys health insurance on an exchange with premium assistance, then it • iv. pays a non-deductible tax for equal to the number of full-time employees that receive premium assistance for each month equal to: $250 x (# of full-time employees receiving premium assistance) or the “NO OFFER” penalty, whichever is less. • Annualized the tax is $3,000 per employee receiving premium assistance.

19. What benefits do you offer under your employer-sponsored plan? • If the employer offers minimum essential coverage, are they still liable for the excise tax? • Yes, if the employer has one or more full-time employees certified to the employer by the state exchange as having qualified for a premium tax credit or cost-sharing reductionand the health insurance is not affordable or the plan does not provide minimum value.

20. What is premium assistance? Who is eligible? • Louisiana will not establish a State exchange and it has rejected the Medicaid expansion. There is some question whether premium assistance will be available to any Louisiana employee since the Internal Revenue Code only allows premium assistance under Section 36B to those enrolled “through an Exchange established by the State under 1311 of the” ACA. • The IRS has indicated that premium assistance will be available either as a tax credit or cost reduction to those who are enrolled in the Federal Exchange, but this is an unsettled area. • Any employee of the employer with a household income at or between 100% and 400% of the poverty level is eligible for subsidized coverage if the employee was offered no coverage or the coverage was unaffordable or lacked minimum value.

21. How does an employee qualify for a premium tax credit or cost sharing reduction when the employer offers a minimum essential coverage plan? • The employee will only qualify if: • 1) The employee has a household income between 100% and 400% of the poverty level AND • 2) Either the coverage offered is not “affordable” or such coverage fails to provide “minimum value.” • So assuming Louisiana employees are eligible for premium assistance and you offer a plan, only if you have employees with a household income of between 100% to 400% of the poverty level are you at risk for the tax and then, only if your plan is “unaffordable” or does not provide “minimum value.”

22. How do employers assess whether coverage is affordable? • The coverage is deemed unaffordable if the employee’s required contribution, which is the monthly premium payment to the employer-sponsored plan for self-only coverage, exceeds 9.5% of household income. The IRS provides a safe-harbor that the employer can use, instead of household income,the employee’s wages reported on Box 1 of the employee’s W-2 to determine whether the self-only coverage is affordable. • Coverage thus is affordable if it is below 9.5% of the employee’s W-2 wage for self-only coverage.

23. When does coverage provide minimum value? • When it pays at least 60% total costs for the plan benefits, without regard to employee premium contributions, based on an actuarial standard. Employee premium contributions include the employee’s portion of the premium, co-pays, co-insurance, and deductibles. • We are awaiting guidance on how minimum value is determined and on minimum value safe harbors that the IRS may offer employers.

24. When is the determination of full-time status for purpose of the tax made? • Monthly. A monthly review of full-time status, the IRS recognizes, is burdensome. It has proposed two safe-harbor approaches — one for on-going employees and one for newly-hired employees— that do not require monthly review.

25. ON-GOING EMPLOYEE SAFE HARBOR • 1. STANDARD MEASUREMENT PERIOD: The employee will be measured for a preceding period selected by the employer of not less than 3 months and not more than 12 months to determine whether the employee averaged at least 30 hours per week (130 hours per month). The start and end date is flexible. This period must be uniform as to all employees within the same category. For example, the same period for all hourly employees. This period determines how the employee will be classified for the future “stability period” with no penalty even if the actual hours would otherwise change the status. • 2. STANDARD ADMINISTRATIVE PERIOD: this period can be no longer than 90 days and may be used by the employer to make eligibility determinations. 90 days is the longest waiting period permissible for eligibility to participate under the plan according to the ACA. This period may not be used to reduce or lengthen the measurement or stability periods, and it must overlap with the prior stability period to avoid coverage gaps. • 3. STANDARD STABILITY PERIOD: This is the period in which employees are treated as identified during the measurement period with no tax risk even if hours change. For employees identified in the measurement period as full-time, this period must be NO SHORTER than the longer of: (6) calendar months or the standard measurement period. For employees identified as part-time in the measurement period, the standard stability period can be no longer than the standard measurement period.

26. NEW EMPLOYEES • 1. Is the new employee, at his or her start date, reasonably expected to work full-time throughout the measurement period? If the employee is offered coverage on or before the end of the initial three calendar months of employment, then the employee is not liable for taxes for failure to offer coverage for the period prior to the offer. • 2. Is the new employee a variable hour or seasonal employee? Does the employer only offer coverage to full-time employees and the employer does not reasonably expect that the employee will work full-time throughout the measurement period? If the answer to both of these questions is yes, the following SAFE HARBOR applies.

27. SAFE HARBOR FOR VARIABLE HOUR AND SEASONAL EMPLOYEES • 1. INITIAL MEASUREMENT PERIOD: The hours completed by a new employee will be measured for a period selected by the employer of not less than 3 months and not more than 12 months to determine whether the employee averaged at least 30 hours per week (130 hours per month). • 2. STANDARD ADMINISTRATIVE PERIOD: this period can be no longer than 90 days and may be used by the employer to make eligibility determinations. 90 days is the longest waiting period permissible for eligibility to participate under the plan according to the ACA. • 3. STANDARD STABILITY PERIOD: For employees determined to be full-time during the initial measurement period, this is the period must be the same as for on-going employees and begins after the initial measurement period. For employees determined not to be full-time during the initial measurement period, the stability period for this employee cannot be more than one month longer that the initial measurement period, and must not exceed the remainder of the standard measurement period (plus any associated administrative period) in which the initial measurement period ends.