Strategies to Navigate the “Play or Pay” Tax Presented By: Arthur Tacchino, JD © 2011, National Association of Health Underwriters

“Play or Pay” Penalty Tax Employer Shared Responsibility Tax

© 2011, National Association of Health Underwriters Play or Pay Tax Effective beginning in 2014 Tax will be applicable to those employers that: –Fail to offer healthcare coverage (Not Offering Employer) –Offer minimum essential coverage that is “unaffordable” (Offering Employer)

© 2011, National Association of Health Underwriters Who is Subject to this Tax? Applicable Large Employers –50 or more full-time equivalent employees in preceding year Full-time = works more than 30 hours a week Equivalent employees = Non-full-timers hours/120 each month Add # of full-timers to equivalent employees = # of FTEs –If employer was not in existence in previous year then # of EE’s is based on expected EE’s this year

© 2011, National Association of Health Underwriters Calculating FTEs Monthly calculation: average monthly FTEs at the end of the year Example: 45 full-time employees 15 part-time employees: working 15 hours a week Total of 900 hours for the month/ 120 (statutorily given) 7.5 equivalent employees + 45 full-timers =52.5 full-time equivalent employees for the month

© 2011, National Association of Health Underwriters Tax on Employers “Not Offering” Coverage Applicable large employers will pay a tax for any month that: –The employer fails to offer at least 95% of its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage; and –At least one full-time EE has been certified as having received subsidized coverage through an Exchange Tax is equal to $ per month or $2,000 per year

© 2011, National Association of Health Underwriters Calculating the Tax :Not Offering Coverage ABC Inc. drops coverage in 2014 They have 100 full-time employees (*not full-time equivalent employees) At least 1 full-time employee (only takes 1) goes to exchange, is eligible for subsidy and enrolls in qualified health plan with subsidy Tax is triggered – employer is notified Tax calculated on a monthly basis

© 2011, National Association of Health Underwriters FT – 30 (employee reduction) = 70 FT 70 FT * $ = $11,667 monthly penalty amount owed Assuming the same number of full-time employees throughout the year this would roughly be $140,000 (NOT DEDUCTIBLE)

© 2011, National Association of Health Underwriters Tax on “Offering Employers” An “applicable large employer” will pay a penalty tax for any month that: –The employer offers to at least 95% of its full-time (and their dependents) employees the opportunity in minimum essential coverage under an eligible employer-sponsored plan for that month; and –At least one full-time employee of the employer has been certified to have received subsidized coverage through an Exchange The tax is equal to $250 per employee receiving subsidized coverage through the exchange per month

© 2011, National Association of Health Underwriters “Offering employers” General Rule: If employer-sponsored coverage is available; you are NOT eligible to cost-sharing subsidy through exchange Exception to Rule: You will be eligible if employer-sponsored coverage is “unaffordable” Coverage will be “unaffordable” if: –Employer’s plan share of costs is less than 60% OR –Employees required contribution for lowest cost Employee-Only coverage is more than 9.5% of the household income (W-2 Safe Harbor allows employer to rely on W-2 reported compensation)

© 2011, National Association of Health Underwriters Calculating the Tax: Offering Employer ABC co. offers coverage in 2014: Required employee contribution for lowest-cost employee only coverage is $4,000 Rick is full-time and makes $35,000 (i.e. employer plan is more than 9.5% of his wages) Rick goes to exchange and receives affordability waiver after proving employer plan is unaffordable Rick is eligible for subsidy based on household income, and enrolls in qualified health plan $250 x 1 full-time employee = $250 monthly penalty for employer

© 2011, National Association of Health Underwriters Measurement Periods Ongoing employee, New Employee, Variable Hourly employee 3 to 12 month length Tracking the hours worked by these employees Determines whether they are “full-time” and thus qualify during tax calculation

© 2011, National Association of Health Underwriters Administrative Period Employer chooses 0 to 3 month period Total length of measurement and admin period cannot exceed 13 months Time during which employer averages hours worked by employees

© 2011, National Association of Health Underwriters Stability Period The longer of 6 months or the length of the measurement period During this timeframe, any employee that averaged 30 or more hours worked a week during measurement period is considered full-time, regardless of how many hours they are working in the actual timeframe

© 2011, National Association of Health Underwriters Notes on Play or Pay Tax Penalty tax is not deductible Transitional relief granted to plans that start on fiscal year basis rather than calendar year If a “dependent” of a full-time employee receives subsidized coverage through an exchange the tax is NOT triggered FTE Calculations drop the fraction – 49.8 is really 49 FTEs Aggregation rules apply when determining if employer is an “applicable large employer”, but not for penalty assessment

© 2011, National Association of Health Underwriters Full-time employees that are not “offered” coverage b/c they are in their 90 day waiting period do not count for penalty assessment Full-time employees (and their dependents) – means covering children up to age 26 – does not means covers spouse

© 2011, National Association of Health Underwriters “Applicable large employers” will be required to submit information reports – effective 2015 for 2014 plan year information Affordability Safe Harbors (9.5% of W-2 wages) –W-2 Safe Harbor –Rate of Pay Safe Harbor –Federal Poverty Line Safe Harbor

© 2011, National Association of Health Underwriters Strategies Continue offering coverage Decreasing Employer Contributions Stay under 50 FTE’s Drop Coverage –Employee turnover, increased salaries, payroll taxes, morale, productivity Sift full-timers to part-time status

© 2011, National Association of Health Underwriters What will employers do?

© 2011, National Association of Health Underwriters Q&A