The Affordable Care Act: Where Are We Now?

Presented by: Gene Hayes Jackson Lewis P.C. Memphis, TN Tennessee Statewide Payroll Conference August 14, 2014 Holiday Inn, University of Memphis The Affordable Care Act: Where Are We Now?

About the Firm Represents management exclusively in every aspect of employment, benefits, labor, and immigration law and related litigation Nearly 800 attorneys in 50+ locations nationwide Current caseload of over 6,500 litigations and approximately 550 class actions Founding member of L&E Global

Disclaimer This presentation provides general information regarding its subject and explicitly may not be construed as providing any individualized advice concerning particular circumstances. Persons needing advice concerning particular circumstances must consult counsel concerning those circumstances. Indeed, health care reform law is highly complicated and it supplements and amends an existing expansive and interconnected body of statutory and case law and regulations (e.g., ERISA, IRC, PHS, COBRA, HIPAA, etc.). The solutions to any given business’s health care reform compliance and design issues depend on too many varied factors to list, including but not limited to, the size of the employer (which depends on complex business ownership and employee counting rules), whether the employer has a fully-insured or self-funded group health plan, whether its employees work full time or part time, the importance of group health coverage to the employer’s recruitment and retention goals, whether the employer has a collectively-bargained workforce, whether the employer has leased employees, the cost of the current group health coverage and extent to which employees must pay that cost, where the employer/employees are located, whether the employer is a religious organization, what the current plan covers and whether that coverage meets minimum requirements, and many other factors. IRS Circular 230 disclosure: Any tax advice contained in this communication (including any attachments or enclosures) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication. (The foregoing disclaimer has been affixed pursuant to U.S. Treasury regulations governing tax practitioners.)

Context – How Key Parts Fit Together

Employer Provisions Already in Effect (even if “grandfathered”) Eliminate life-time dollar limits on “essential health benefits” Raise annual limits to at least the minimum permitted Can’t rescind coverage except in case of fraud Cover children to age 26 … even if married Anti-dumping restrictions No pre-ex condition exclusion for children services Health FSAs, HSAs, HRAs cannot provide tax-free reimbursement for over-the-counter drugs Standardized summary of benefit disclosure and 60-day advance notice of material change W-2 reporting of value of employer-provided coverage for employers filing 250 or more W-2s in preceding year

Employer Provisions Already in Effect (unless grandfathered) • Claims and appeals process requirements • Emergency service requirements • Preventive care without cost-sharing (women’s preventative care beginning in 2014 plan years) • OB/Gyn and pediatrician designation requirements In effect pending regulations: • Insured plans cannot discriminate in favor of HCE (compliance deadline extended pending regulations)

Refresher: Penalties for Noncompliance Penalties for noncompliance with coverage mandates (e.g, no life-time limits, non-rescission, age-26 child coverage, excessive waiting periods, etc.) IRC 4980D excise tax penalty – • $100 per day per individual affected • Capped at lesser of 10% of GHP cost for preceding year or $500,000 Penalties for noncompliance with other requirements determined under applicable IRC, ERISA, PHSA, FLSA, etc. provision 7

REMINDER: PPACA FEES Transitional Reinsurance Fee (2014) $63 Per Covered Life (4% Increase for Fully Insured Plans) ALL Plans (Self Funded and Fully-Insured) To Fund High Claimant Costs on Exchanges From 2014-2016 Payable by Insurance Company or Administrator of Self-Funded Plan Comparative Effectiveness Research Fee (Plan Years On/After October 2012) $1 Per Covered Life (Year 1) $2 (Year 2); Indexed to Medical Inflation Patient-Centered Outcomes Research Institute (PCORI) Funding until 2019 Other fees may or may not apply to your plan

What Happened Last Year? • Medicare portion of EE’s FICA tax increased to 2.35% (from 1.45%) for earnings over $200,000 • Health FSA contribution capped at $2,500 • 60-day advance notice of change to Summary of Benefits and Coverage (SBC) • Exchange notice regarding availability of exchange coverage was due October 1, 2013 Must inform employees: • About the existence of a new marketplace and contact information and description of the services provided by a marketplace; • That he/she may be eligible for premium tax credit • That he/she may lose tax-favored employer contribution if the employee purchases coverage through the exchange

ACA-in-Waiting • So far there have been 21 delays in implementation of various portion of the ACA • 2 related to small businesses: • The Small Business Health Options Program (SHOP exchange) may be available Nov. 1 (a year late) • Until January 1, 2015, small business employees (i.e., of firms with <50 employees) must take whatever coverage is offered by their employers • 2 tangentially related: • “If you like your coverage you can keep it” • State insurance commissioners don’t have to cancel non-qualifying policies until 2015.

2013 Delays The IRS issued a notice (Notice 2013-45) in July of 2013 which provides a one-year enforcement delay in 2014 from: • The information reporting requirements applicable to insurers and self-insuring employers who provide minimum essential coverage under IRC §6055 • The information reporting requirements for large employers under IRC §6056 • The employer shared responsibility provisions under IRC §4980H (updated February 2014)

2013 Delays (continued) IRC §6055 Reporting Information reporting requirements for insurers and self-insuring employers that provide health insurance coverage which had initially been required beginning with the 2014 plan year is now optional for 2014 and required for 2015 • No Penalties will be applied for failure to comply with the IRC §6055 reporting rules for 2014

2013 Delays (continued) IRC §6056 Reporting • Information reporting requirements by applicable large employers with respect to whether full-time employees and their dependents are offered minimumessentialcoverage, including whether it is affordable and of minimumvalue is now optional for 2014 and required in 2015 • No penalties will be applied for failure to comply with the IRC §6056 reporting rules for 2014

Delay in Employer Mandate“Shared Responsibility” • Businesses with 100 or more employees: • Must offer coverage to at least 70% of full time employees beginning Jan. 1, 2015. • Must offer coverage to 95% of full-time employees beginning Jan. 1, 2016. • Businesses with 50-99 employees: • No requirement for 2015 • Must offer coverage to 95% of full time employees beginning Jan. 1, 2016.

Another Delay: Employer Shared Responsibility Employer Shared Responsibility Provisions(Pay or Play) • Applicable large employers (50 or more full-time employees) must offer its full-time employees (30 or more hours/week) affordableminimumvalue health coverage. • If affordable, minimum value health coverage is not offered, a sharedresponsibilitypenalty may apply if one or more of its full-time employees receives a premium subsidy.

What Has Been Delayed? Employer Shared Responsibility Provisions(Pay or Play)(cont.) • Information reporting is integral to administration of the employer-shared responsibility provisions • IRS encouraged voluntary compliance and to maintain and expand health coverage in 2014

Employer “Pay or Play” Penalties Internal Revenue Code § 4980H Employer Shared Responsibility Penalties • a/k/a “Pay or Play” penalty • Nondeductible penalty applies to employers with 50 or more fulltime employees • “Assessable penalty” - generally are assessed and collected in the same manner as taxes • Guidance so far: Notice 2011-36, Notice 2012-58, Proposed Regulations

Employers Subject to Pay or Play Penalties “Applicable Large Employer” “Large” means the employer had an average of 50 or more fulltime employees on business days in prior calendar year Employer status is determined on controlled group basis (aggregation, like for retirement plan); different EIN ≠ different employer Common-law employment principles apply when determining employment relationship Anti-abuse rules

Employers Subject to PenaltiesWho’s an Employee? • Employee/Employer relationship determined based on common law principles • Subject to the company’s will and control not only as to what but also how • Facts and circumstances, not necessarily contract language • Independent contractors are not employees (but be certain they’re independent contractors!) • Non-employee directors, sole proprietors, partners, 2-percent or more shareholders in an S corporations and leased employees (if they’re not your common law employees) are not treated as employees.

Employers Subject to PenaltiesWhat Fulltime Means • Fulltime = employed on average for 30 hours of service per week (130 hours per month) • Hourly – count actual hours • Non-hourly – count actual hours or use equivalency rules (8hrs=1day, 40hrs=1week) • Okay to use different methods for different groups • Use reasonable method for commission-only • Service includes hours paid for performance of duties, vacation, sick, jury duty, layoff, military service, holiday, incapacity (e.g., disability) • Service does not include work performed outside the US

Understand the § 4980H Penalty • Play or Pay (4980H(a)): If minimum essential coverage is not offered to “all” fulltime employees and dependents and one or more full-timer obtains subsidized Exchange coverage, employer must pay (annualized) penalty of $2,000 x (#full-timers - 30) • Play and Pay (4980H(b)): If minimum essential coverage is offered but one or more full-timer obtains subsidized Exchange coverage, employer must pay (annualized) penalty equal to lesser of – • $3,000 x #full-timers who decline employer coverage and receive subsidized Exchange coverage or • $2,000 x (#full-timers - 30)

Understand the PenaltyMeaning of Fulltime Employee • Control group and common law employer concepts apply • Works at least 30 hours per week with respect to a given month (non-fulltime employees do not trigger penalty) • Since monthly determination is administratively burdensome, IRS offers safe harbor “measurement/stability” method • Count hours during a look-back measurement period of 3-12 months to determine fulltime/non-fulltime status; • Treat as fulltime/non-fulltime for stability period, depending on status determined under measurement period

Understand the PenaltyWhat’s “Subsidized Exchange Coverage” • Remember, a fulltime employee must obtain subsidized Exchange coverage (§ 36B) to trigger a penalty • No subsidy unless – • Household income between 100% and 400% federal poverty line (currently, $11,170 for a single person) • Not offered: affordable, minimum value, minimum essential coverage • Buys Exchange coverage and receives premium subsidy • Circuit courts now disagree about what coverage is subsidized (state vs. federal)

What is MinimumEssential Coverage? • To avoid penalties, large employer must offer “Minimum Essential Coverage”: • An eligible employer health plan • Plan provides minimum value • Plan is affordable • “Offering Coverage” means Employee must have effective opportunity to accept coverage at least once per year

Understand the PenaltyMeaning of Affordable Coverage • Employer coverage meets affordability test if the employee is required to pay no more than 9.5% of household income for self-only coverage Affordability Safe Harbors: • Employee’s W-2 reported wages • Based on monthly rate of pay (cost does not exceed 9.5% of monthly pay) • Coverage does not exceed 9.5% of Federal poverty level for single individual

Understand the PenaltyWhat is Minimum Value? To avoid penalties, employer plan must provide minimum value: The plan’s share of the total allowed costs of benefits provided under the plan must be at least 60% of the Actuarial Value of those costs “Actuarial Value” is a general summary measure of health plan generosity

Understand the PenaltyMeaning of Dependent • An employee’s child under age 26 • Child for federal tax purposes (§ 152(f)(1)) – son, daughter, stepchild, adopted child, child placed for adoption, foster child • May rely on employee’s representation • An employee’s spouse is not a dependent • No penalty possible if ER offers coverage to all full-time employees and their children, pays full cost of employee coverage but does not subsidize dependent coverage at all

Deciding Whether to Pay or Play • How important is health coverage to recruitment and retention of employees? • What’s common in industry/geographic area? • What does your company currently offer? • How important is health coverage to other business considerations (e.g., union avoidance, public relations)? • If unionized, what does the collective bargaining agreement say? • If status quo, how much would it cost to avoid estimated penalties compared with the cost of paying estimated penalties?

REMINDER:What Has Not Been Delayed? Many provisions of the Act required to be implemented in 2014 are not subject to delayed enforcement: • Provision of Exchange Notices • 90-day maximum waiting period • No pre-existing condition exclusions for anyone • Payment of reinsurance and PCORI fees • W-2 reporting • Reporting minimum waiting period essential coverage (including minimum value and affordability on SBC) • Implementation of insurance exchanges • Individual mandate • Employees’ access to premium subsidies • Any other provisions unless noted in IRS Notice 2013-45

On the Horizon DOL proposed regulations in May 2014 to bring COBRA forms up to date with ACA mandates regarding election of coverage (use of current model forms demonstrates good faith attempt to comply) Two bills are pending that would change the definition of full-time to 40 hours. Neither seems likely to pass Congressional elections Nov. 4, 2014 -- possibility of change of control of Senate

Staying up-to-date • Jackson Lewis Health Care Reform Resource Center http://www.jacksonlewis.com/healthcare/index.php • Jackson Lewis Benefits Law Advisor Blog http://www.benefitslawadvisor.com/ • Jackson Lewis e-mail updates http://jlmarketing.jacksonlewis.com/reaction/RSGenPage.asp?RSID=k5_c7IHYHsVmAKIhyttfRpWKlZt0NCGFtjTqbXpTSKk IRS website: http://www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions Kaiser Family Foundation Compliance Timeline: http://healthreform.kff.org/timeline.aspx

Questions?

Thank You! Workplace law. In five time zones and 54 major locations coast to coast.

The Affordable Care Act: Where Are We Now?