1. AFFORDABLE CARE ACT REQUIREMENTS
(HEALTH CARE REFORM)
Affordable Care Act Session One
June 2014

2. Agenda Implications of change to small group definition Cadillac tax
Determining Affordability
Employer Safe Harbors
In-depth employer pay or play strategies
To MEC or not to MEC
Go ahead and pay some (b)
Q&A

3. Definition of Small Group

4. Small Group Market ACA Definition of Small Employer Changing
Through 2015, states are allowed to define small group for purposes of insurance rating
Most states today define small group as 50 or less
Definition of calculating the 50 varies from state to state
Beginning in 2016, small group for purposes of insurance rating will be 100 or less full-time equivalents (FTEs)
Required to use the 4980H definition for calculating FTEs
HHS has given states the right to delay this transition beyond 2016
Different states are handling this differently
This DOES NOT change the definition of Applicable Large Employer (ALE) for purposes of the pay or play rules – that stays at 50 FTEs
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5. Small Employer for Underwriting, Rating & SHOP
11/15/2012
Definition of Small Employer
Small Employer for Underwriting, Rating & SHOP
Applicable Large Employer for Shared Responsibility (Pay or Play) Rules
Size
Counting Method
2015 50
State Law Based
50 FTE
4980(H) Method
2016
50 or 100?? Depends on State
4980(H) Method or State Method

6. Cadillac Tax

7. Cadillac Tax Planning for the Cadillac Tax
Beginning % excise tax on health coverage cost that exceeds “threshold amounts”
Threshold amounts, prior to adjustments
$10,200/yr for self-only coverage
$27,500/yr for coverage other than self-only
The actual amount of the tax will vary based on adjustments to the threshold amounts.
A possible health cost adjustment percentage for 2018 based on medical cost trends
An annual cost-of-living adjustment
An age and gender demographic adjustment
Don’t expect to see regulations until 2015 or 2016
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8. Cadillac Tax Defining Applicable Coverage
Health coverage including Medical and Rx
Health Flexible Spending Accounts (FSA’s)
Health Savings Accounts (HSA’s)
Not sure if employee pre-tax contributions will be included yet
On-Site Medical Clinics
Health Reimbursement Accounts (pending confirmation)
Employee Assistance Plans (EAP’s) with counseling benefits
Wellness Programs?
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9. Cadillac Tax Planning for the Cadillac Tax – Example
250 employee group
Current 2015 Rates
Single = $650
Family = $1750
Participating Employees
2015 Monthly Rate
Annual Trend
Approx Monthly Rate
2018 Annual Plan Cost Per Person
Excess Over S-$10,200 F-$27,500
Tax Per Covered Employee Per Year
Tax Per Covered Employee Per Month
Single
150
$650.00
10.0%
$865.15
$10,381.80
$181.80
$72.72
$6.06
Family
100
$1,750.00
$2,329.25
$27,951.00
$451.00
$180.40
$15.03
Total Annual Tax
$28,948.00
Total 2018 Annual Health Insurance Premiums
$4,352,370.00
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10. Employer Shared Responsibility Rules

11. Employer Shared Responsibility Rules
4980H Review
4980H(a) Assessable Payment (Penalty)
Employer fails to offer minimum essential coverage (MEC) to “substantially all” (70% in 2015, 95% after that) full-time employees & at least one employee purchases individual coverage through public Marketplace and receives a subsidy
$166.67/mo. (indexed) times number of full-time employees not counting first 30 (not counting first 80 in 2015 only)
4980H(b) Assessable Payment (Penalty)
Employer offers MEC to substantially all full-time employees but coverage is “unaffordable” or not “minimum value”
$250/mo (indexed) for each full-time employee who purchases individual coverage through Marketplace & receives a subsidy
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12. Affordability ACA “Affordability”
There are two different types of affordable
For an individuals’ subsidy eligibility, coverage is “affordable” if the employee’s required contribution for single coverage does not exceed 9.56% of the employee’s household modified adjusted gross income.
For the employer safe harbors, coverage is affordable if the employee’s required contribution for single coverage is less than 9.5% (not 9.56%) of one of the three employer safe harbors.
Affordable and Not Affordable at the Same Time!
An individual can qualify for a subsidy because the employee contribution is deemed unaffordable using household income, but if the employer can show that the coverage is affordable using one of the three safe harbor methods the employer will not be liable for a 4980H(b) payment
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13. Affordability ACA “Affordability” Example
Employer’s lowest rate of pay for hourly employees is $10 per hour. Using the rate of pay safe harbor the employer decides to set employee contribution for single coverage at $123.00
130 hours X $10/hr = $1300
$1300 X .095 = $123.50
One full-time employees earns $1300 per month but has a $300/mo. alimony payment.
Alimony payments are an “above the line” deduction that reduces an individual’s AGI.
This individual's monthly AGI = $1000 & the contribution for single coverage ($123.50) equals 12.35% of household income.
This employee would qualify for a subsidy when purchasing individual health insurance through a public Exchange, but the employer would face no 4980H(b) liability due to meeting the rate of pay safe harbor
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14. Affordability Determining Employee Contributions for Affordability
Wellness Incentives
Affordability is determined assuming the individual fails to satisfy any wellness requirements, UNLESS the incentive is tobacco-related
Examples
Employee contribution is $200 and potential wellness incentive (not tobacco-related) reduces cost to $150
“Affordable” is based on the $200 even for employees only paying $150 due to the wellness credit
Employee contribution is $200 and potential wellness incentive (tobacco-related) reduces cost to $130
“Affordable” is based on $130
Combined (based both on tobacco and other factors) wellness incentives must be analyzed on a case-by-case basis
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15. Affordability Determining Employee Contributions for Affordability
HSAs
Employer contributions to a health savings account (HSA) do not affect affordability.
HRAs
If HRA is restricted only to cost-sharing (i.e. use against the deductible), it counts toward determining minimum value but is not considered when determining the employee contribution cost
If the HRA contributions are available to pay for plan premium, the cost would need to be considered when determining whether the coverage is affordable.
Flex Credits
Although guidance is not as clear, it appears that flex credits that can be taken as cash must be considered employee contributions for purposes of calculating affordability.
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16. Affordability Determining Employee Contributions for Affordability
Opt-Out Credits and Incentives
If the credit is available to any employee who waives coverage, the opt-out incentive should be used in calculating affordability for all eligible employees.
For example, employee contribution = $75/mo. but there is an opt-out credit of $50/mo. If coverage is waived, the employee contribution for affordability purposes is $125.
If the opt-out credit is limited only to employees who show proof of other group insurance, then the credit would only be considered for those employees who actually opt-out with proof of coverage.
In this scenario there is little or no 4980H(b) risk to the employer because the opt-out would only be provided to employees who have other group coverage, making them ineligible for subsidies through a public Exchange.
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17. Employer Affordability Safe Harbors
If minimum value coverage is affordable under one of the three IRS employer safe harbors, the employer will not be liable for a 4980H(b) payment even if an employee qualifies for a subsidy
Note that the use of the employer safe harbor does not affect an individual's possible eligibility for subsidies.  
Employer may apply the safe harbors for any reasonable category of employees on a uniform basis for that category
Reasonable categories include specified job categories, nature of compensation (hourly or salary), geographic location, and similar bona fide business criteria.
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18. Employer Affordability Safe Harbors
Rate of Pay Safe Harbor
To determine rate of pay safe harbor for hourly employees, the employer assumes 130 hours per month times an hourly employee’s rate of pay, regardless of number of hours actually worked.
Contribution is affordable if it is equal to or lower than 9.5% of this computed monthly wage estimate
For a non-hourly employee, the coverage is treated as affordable if the employee’s required contribution does not exceed 9.5% of the employee’s monthly salary as of the first day of the coverage period
If the monthly salary is reduced during the month(including due to a reduction in work hours) the safe harbor does not apply to that month for that individual.
NOTE – this safe harbor cannot be used for tipped employees or for employees who are compensated solely on the basis of commissions.
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19. Employer Affordability Safe Harbors
Federal Poverty Line Safe Harbor
Coverage offered to an employee is affordable if the employee’s cost for self-only coverage does not exceed 9.5% of the federal poverty line (FPL) for a single individual ($93.18/month for 2015 based on mainland FPL). 
The term “federal poverty line” means the poverty guidelines in effect within six months before the first day of the plan year.
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20. Employer Affordability Safe Harbors
W-2 Wage Safe Harbor
This safe harbor is determined after the end of the calendar year
Compare employee's annual W-2 wages (Box 1) and the employee contribution for the full calendar year
When setting contributions the employer must base affordability off an estimate of the employees wages for the year
Actual affordability is then determined at the end of the year by comparing the employee's wages with the amount the employee was required to pay for the year   
Note – the wage safe harbor does not protect an employer if an employees wages are lower than expected
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21. 4980H Strategies

22. 4980H Strategies 4980H Strategy Issues
Many 4980H mitigation strategies may run afoul of non-discrimination rules
Skinny plan only offered to a group of employees
Longer waiting periods for certain employees
Other considerations
As industry moves more employers to self-funding, 105(h) is often not carefully considered
Even employers with fully-insured plans must understand that some strategies may only work short-term if the IRS ever issues the fully-insured non-discrimination rules
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23. 4980H Strategies 4980H Strategy Issues
Employer Confusion About Aspects of the Rules
Offer coverage to “substantially all” full-time employees
Employers tend to think the 4980H rules tell them how they have to define eligibility
How they should be thinking…2 step process:
Figure out which employees will be considered full-time based on how the employer chooses to define full-time (monthly or look-back measurement)
Decide how you want to structure plan eligibly to make sure offers are made to enough full-time employees to avoid (a) liability
But this does not have to be offering coverage to ALL full-time employees
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24. 4980H Strategies 4980H(a) Strategy Thoughts for Discussion
Solve for (a) first
You must be able to answer the question “Has the employer set their eligibility rules so that there will never be more than 5% of full-time employees not offered coverage in a given month?”
To MEC or not to MEC
Skinny plan option to avoid (a) payments on subset of employees (e.g. self-funded preventive only)
These employees still eligible for subsidies and employer at risk for (b) payment
Difficult to estimate (b) risk in this case
Antidotal evidence is that fewer employees purchase subsidized coverage than feared
105(h) non-discrimination risk now – fully-insured discrimination risk in the future?
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25. 4980H Strategies 4980H(a) Strategy Thoughts for Discussion
Allow a single member employer of an aggregated group of companies to fail (a) on their own
Remember the (a) payment applies on a member (EIN) by member basis
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26. 4980H Strategies 4980H(b) Strategy Thoughts for Discussion
There are times when it is better to go ahead and pay some (b)
Employers are often making bad choices simply in an attempt to avoid the (b) payment. In some cases it is a much better decision to do nothing and face the possibility of small (b) payments
Thing to keep in mind when assessing this risk
A (b) payment of $250 per month is levied on an employer only for a full-time employee who purchases individual health insurance through the marketplace and qualifies for subsidy.
In states that have expanded Medicaid, subsidies are only available for individuals with household incomes between 138% - 400% of FPL.
The employer risk is higher in states that have not expanded Medicaid because subsidies are available for employees with incomes down to 100% of FPL
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27. 4980H Strategies 4980H(b) Strategy Thoughts for Discussion
Case Study 1
Large financial services firm with over 1000 full-time employees
Employer contribution for single coverage was over $400 per month
Employed as many as short-term interns who worked over 30 hours/wk for 3-6 months at a time
Interns were not eligible for health plan
Placements were made at various times during the year so the interns could not be treated as seasonal
Most interns were college students or grad students
Firm did not want to use measurement period since most other employees were clearly full-time or part-time
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28. 4980H Strategies 4980H(b) Strategy Thoughts for Discussion
Case Study 2
Employer with approximately 500 full-time employees
Employer contribution toward single coverage was already over $400 per month
Estimated the plan was unaffordable for approximately 25 low wage full-time workers
Very few of these workers currently participated in the plan
Employer was considering two strategies
Raising employer contribution for single coverage $30 per month on all employees
Setting a 2-tier employer contribution rate that was higher for lower wage workers
Employer was afraid that by doing this it would create significant new enrollments among this subgroup of employees
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29. 4980H Strategies 4980H(b) Strategy Thoughts for Discussion
Case Study 3
A Visiting Nurse Association employer with about 260 full-time employees
They employed a large number of “per diem” nurses who were not offered coverage
Many of these nurses worked over 30 hours per week for extended periods of time
Refer to XYZ Client ACA 4980H Analysis document for additional details
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30. Q&A