1. A 2018 Guide for Small Employers in California
Aca compliance
A 2018 Guide for Small Employers in California
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2. ACA Compliance: The Basics
Patient Protection and Affordable Care Act
“ACA” or “Affordable Care Act”
Collectively referred to as “Health Care Reform” or “Obamacare”
Signed into law on March 23, 2010
Congress’s stated intent of the legislation:
Provide affordable, quality health care for Americans
Reduce the growth of health care spending

3. ACA Compliance: Rating Changes
Small Group Insurance Rating Structures
The ACA allows for rate variance by four factors only.
Age, family composition, geographic location, tobacco use
California, however, prohibits tobacco use as a rating factor (CA AB 1083).
Other changes implemented:
Member level rating: Each individual receiving coverage will be rated (cap of three on children under 21).
A 3:1 ratio limits rates charged to a 64 year old to be 3x the amount of those charged to 21 year olds.
Single-year age bands: rate increases happen on policy anniversaries only – not in the birthday month.
Risk adjustment factors (RAFs) are no longer used.

4. Dependent Rating Structure Change for 2018
The ACA initially called for a member-level rating structure with one rate for dependent children (through age 20) and unique rates beginning at age For new and renewing business effective 1/1/2018 and later, carriers may charge one rate for children ages 0-14 and unique rates for dependents ages 15, 16, 17, 18, 19, 20, and above.
Dependents ages 0-14 will also see increases in premiums as a result of this rating structure change, on a smaller scale than those in the age group. The increase in child rates also results in very small decreases in adult rates. The actual rate variances will differ by insurance carrier.
Under the amended rules, carriers may still only charge for the three oldest dependents under the age of 21.
While this will reduce the rate spike from age 20 to 21 in the future, it will substantially increase costs for employees with dependents turning ages in Starting in 2019, the rate increase for ages will be much more gradual (than in 2018), but the 2018 rating structure change will significantly affect employees with dependent coverage.

5. Group Size Calculation: FT + FTE
Group size is counted by FT + FTE
FT = Full Time
FTE = Full Time Equivalent
Determines whether a group is in the Small or Large group market segment
Determines ACA employer mandate and employer reporting responsibilities
Employees covered by TRICARE or the VA are not included in this calculation
Full Time
Averages 30 hours of service/week or 130+ hours of service/month
Full Time Equivalents
All PT employees’ hours of service per month are totaled and divided by 120.
If a PT employee averages hours of service, round down to 120 for this calculation.
Example: 40 FT employees + 20 PT employees all providing an average of 60 hours of service/month.
20 PT employees x 60 hours of service/month = 1,200 hours
1,200 hours total/120 hours = 10 FTEs
40 FT + 10 FTEs = Group size 50

6. Taxes & Fees
Carriers are mandated to integrate these taxes and fees into their rates.
PCORI – Patient Centered Outcomes Research Institute
Approx. $2.36/member, continues to be adjusted for inflation
Funds research into the effectiveness of medical treatment
Health Insurer Tax – Postponed until 2019
Amount varies
Amount of this tax is passed on to enrollees in their premiums.
Helps fund premium tax credits and cost-sharing subsidies for lower income individuals and families

7. Common Law Employees
Under common law rules, anyone who performs services for you is your employee if you control what will be done and how it will be done.
Changing an employee’s status from W-2 to 1099 does not change the IRS’s consideration of the employee’s status when this consideration is applied.
Temporary staffing employees may fall under this umbrella, especially for temporary employees on long assignments.
This is an important consideration for employers using PEOs.
Section 3508 workers (real estate agents & direct sellers) are an exception and are not treated as FT employees with regard to the employer mandate and associated penalties.

8. Group Waiting Period Limitation
The ACA mandates that employers may not impose a waiting period that exceeds 90 calendar days. Health plans cannot impose a waiting period; only employers may do so with a maximum of 90 days.
Many California groups elect “first of the month following 30 days of employment” or “first of the month following 60 days of employment” to comply with this waiting period mandate.
Employers may delay eligibility up to an additional month to allow for a bona-fide orientation period during which the new employee goes through training and tests to determine whether the new employee and company are a mutually good fit.
Ensure waiting periods are listed clearly and correctly in employee handbooks.

9. Husband & Wife (2-Person) Groups
Husband & Wife Groups are excluded from Small Group insurance, with the following exception:
Blue Shield of California
Spouse-only groups are accepted as long as both are not owners, and the company is not a Sole Proprietor.
Other group types are acceptable – LLC, S-Corp, C-Corp, etc. where the spouse is the only W2 employee.

10. Owner-Only Groups
Owner-only employers may be excluded from Small Group insurance, with the following exceptions:
Anthem Blue Cross
LLCs, S-Corps, and C-Corps are eligible. Sole Proprietors and Partnerships are ineligible.
Kaiser Permanente
The group must have two eligible owners. One of the owners must be a W-2 employee.
United Healthcare
There must be at least two eligible owners to qualify with the above carriers

11. Plan Administration: FSAs
Flexible Spending Account (FSA) Limits
Employee Health FSA Contributions are limited to a maximum of $2,650.
Employer can set lower maximums at its discretion.
Participants are permitted to carry over up to $500 of their unused FSA balances at the end of a plan year.
The Employer’s option of a FSA grace period remains in place.
Health FSA cannot have both grace period & carryover provision.
Employer Tax Savings
Contributions are tax deductible when paid to a participant to reduce an expense. As a result of salary reductions, lower adjusted employee income reduces employer matching FICA.
Employee Tax Savings
Contributions are made on a pre-tax basis. Reimbursements for eligible income are excluded from income.

12. Participation Requirements: Waivers
Employees with Individual Plans
Individual & Family Plan (IFP) policies purchased through Covered California (or elsewhere) are counted against participation requirement ratios, with the exception of:
Anthem Blue Cross
United Healthcare
Special Open Enrollment November 15 – December 15
Allows small group that cannot qualify due to participation or contribution to enroll without meeting these requirements.
All other underwriting requirements still apply.

13. Employer Mandate
50+ FTE employers are required to offer affordable insurance coverage (providing minimum value and minimum essential coverage) to “all” FT employees and their dependent children to age 26.
Groups with 50+ FTEs, called Applicable Large Employers (ALE), must comply.
“All” employees = 95% of employees (all but the greater of: 5% or 5 FT employees)
Minimum value = Plan must pay at least 60% cost of covered benefits.
Minimum Essential Coverage = The type of coverage an ALE must offer in order to comply with the ACA Employer Mandate.
Employee cost share of the least-expensive plan offered for “employee-only” coverage must not exceed 9.56% of one of the following three safe harbors picked by the employer for the 2018 year:
Rate of pay (at the beginning of the calendar year)
W-2 Box 1 income for the corresponding tax year
Federal Poverty Level
Group size determination is based on number of employees from the previous year.

14. Controlled Group / Common Ownership
Two or more companies with a common owner may be combined for the purpose of calculating group size.
Companies with unrelated businesses and separate tax IDs may be combined if the common ownership meets the criteria for a controlled group as outlined in IRC Section 414 (b) (c) (m) or (o). It is important to consult with a trusted tax advisor on these common ownership scenarios.
Controlled groups must comply with the ACA’s offer of coverage and reporting responsibilities if their combined total is 50+ FTEs. They are considered one employer.

15. IRS Employer Reporting
IRS Section 6056 requires annual information reporting to the IRS by 50+ FTE employers relating to the (fully-insured) health insurance the employer offers (or does not offer) to its FT employees and their dependent children up to age 26.
IRS Section 6055 makes the same mandate for employers with self- insured plans, even for employers with less than 50 FTE. Health plans only report on fully-insured plans, so it is up to the employer to report on self-insured plans.
Employers subject to this mandate are required to complete forms 1094 B or C and 1095 B or C for this requirement.
The IRS uses these reports to determine whether or not the employer must pay any noncompliance penalties, and also to determine an exchange-participant’s eligibility for a Premium Tax Credit (PTC).

16. Reporting Timelines: IRS Section 6055 & 6056
Who Reports?
Plan Type
Forms
Purpose
Paper Submission to IRS
Electronic Submission to IRS*
Copy to covered individuals / employees
Employers with <50 FTEs sponsoring self-insured plans
Self-Insured
1094-B
1095-B
Enforce individual mandate
On or before last day of February
On or before last day of March
(For 2017 reporting, deadline extended until April 2, 2018; since March 31, 2018, is a Saturday.)
1095-B and 1095-C only:
On or before last day of January
(For 2017 reporting, deadline extended to March 2, 2018.)
Applicable Large Employers (ALEs): Plan sponsors with 50+ FTEs
Fully-Insured
1094-C 1095-C
(Parts I & II)
Enforce employer mandate
(Parts I, II, III)
Parts I & II: Enforce employer mandate
Part III: Enforce individual mandate
*Entities filing at least 250 returns under Section 6056 are required to file electronically.

17. Noncompliance: Employer Reporting Penalties
Time of Filing
Penalty Rate
IRS Forms Due 1/1/ /31/2018
Not more than 30 days late
Per return
$50
Maximum – Gross receipts less than/equal to $5M*
$187,500
Maximum – Gross receipts over $5M*
$536,000
31 days late – August 1st
$100
$1,609,500
After August 1st
$260
$1,072,500
$3,218,500
Intentional disregard
$530
No limitation
*Based on average annual gross receipts for the most recent 3 taxable years

18. Noncompliance: Employer Mandate
One of two penalties could apply, but never both. If subject to both penalties, the lesser of the two will always apply.
Penalty A
Assessed when the 50+ FTE employer does not offer minimum essential coverage (MEC) to its FT employees and dependents
Triggers when an employee receives a premium tax credit for coverage on an exchange (Covered California Marketplace)
2018 tax year: $2,320 x all FT employees, minus first 30
Example: An employer with 80 FT EEs does not offer MEC to its FT employees and their dependents and at least of one of those 80 employees receives a premium tax credit from Covered CA for coverage
80 FT employees – 30 = 50
50 x $2,320 = $116,000 penalty

19. Noncompliance: Employer Mandate
One of two penalties could apply, but never both. If subject to both penalties, the lesser of the two will always apply.
Penalty B
Assessed when the 50+ FTE offers coverage that is not affordable by ACA standards and/or does not provide 60% minimum value
2018 tax year: $3,480 per FT employee receiving a tax credit.
Example: An employer with 80 FT employees does not offer coverage that is affordable, and 20 of those employees receive a Premium Tax Credit for coverage through the Exchange.
20 x $3,480 = $69,600 penalty
An employer may find itself at risk of penalty B if it offers affordable coverage with MV to all but 5% or 5 of its FT employees and one of those 5% or 5 FT employees receives a PTC from the exchange.

20. Summary of Benefits & Coverage (SBC)
The ACA requires health plans to provide uniform Summary of Benefits & Coverage documents to all applicants and enrollees.
The aim is to make plan benefit-displays uniform for all carriers, making it easy for consumers to compare benefits.
The format was developed by the Department of Health & Human Services (HHS).
A carrier’s Summary of Benefits does not meet the criteria for a SBC. In order to comply, the employer must provide a SBC, not just a carrier’s Summary of Benefits.
The SBC must be provided in threshold languages in areas where a minority group has attained sufficient percentage of the populace.

21. 60-Day Notice of Modification
ACA requires an employer offering group health coverage to provide a notice of plan modification to employees at least 60 days before any plan/benefit modification takes place.
This does not apply to carrier-issued renewal modifications
Section 102 of ERISA Law includes any modification to the coverage that would be considered by an average participant to be an important change, subject to this 60-day notification mandate.
Because of this requirement, renewal change submissions must be timely or the health plan could delay effective date changes for 60 days.

22. ACA Plan Designs
All plans must classify their actuarial value (percent of cost paid by the plan for covered benefits, in-network) by metal tier.
Bronze
Pays 60% of the cost for covered benefits in-network
Bronze level plans and above satisfy the “minimum value” portion of the employer mandate.
(Lower premiums, higher OOP costs)
Silver
Pays 70% of the cost for covered benefits in-network
Gold
Pays 80% of the cost for covered benefits in-network
Platinum
Pays 90% of the cost for covered benefits in-network
(Higher premiums, lower OOP costs)

23. Out of Pocket (OOP) Maximum limits
ACA caps the allowable out-of-pocket maximum, which is the maximum financial exposure a participant may experience in a health plan year.
2018 Out of Pocket Maximum Limits
$7,350 for self-only coverage
$14,700 for EE + Spouse/Domestic Partner, EE + Child(ren) or EE + Family

24. Essential Health Benefits (EHB)
The ACA mandates that all individual and small group insurers offer plans that provide EHB in these ten categories:
Ambulatory Services
Emergency Services
Hospitalization
Maternity & Newborn Care
Mental Health & Substance Abuse Services
Prescription Drugs
Rehabilitative and Habilitative Services and Devices
Laboratory Services
Preventive and Wellness Services
Pediatric Dental & Vision