1. Affordable Care Act: Compliance Issues for West Virginia Boards of Education RESA 8 May 20, 2015
Jill E. Hall, Esquire
Bowles Rice LLP
600 Quarrier Street
Charleston, West Virginia

2. Review
Large employers must offer affordable coverage to substantially all full-time employees and dependents effective July 1, 2015 (first day of plan year)

3. Effect of Noncompliance
Failure to comply will result in penalties IF employees purchase coverage on the exchange AND receive a premium tax credit (eligible if income is between % of FPL)

4. Large Employers Those with at least 50 employees
For purposes of transitional relief in 2015, those with 100 employees or more

5. Offers of Coverage Employee need not accept coverage
Key is whether coverage was offered by employer
Decline coverage in writing
If employer chooses not to offer coverage, penalties may be assessed

6. Affordable Coverage
Affordable coverage means the employee’s share of the lowest cost self-only coverage does not exceed 9.5% of the employee’s household income for the taxable year
Test using safe harbors

7. Affordability Safe Harbors
Regulations allow employers to use three safe harbor methods to determine whether coverage is affordable to employees
Employer treated as offering affordable coverage if it meets one safe harbor
If meets a safe harbor, employer will not be subject to affordability penalty even if employee receives a premium tax credit

8. Affordability Safe Harbors
Affordability may be determined by comparing the employee’s contribution for the lowest cost self-only coverage against either:

9. Safe Harbors 9.5% of employee’s W-2, Box 1 wages
9.5% of employee’s rate of pay
9.5% of the federal poverty line for a single individual ($11,770 in 2015)

10. Safe Harbors Determine which will be used for reporting purposes
PEIA’s safe harbor?

11. “Substantially All” F-T Employees
95% beginning in 2016
In 2015, employers must offer coverage to at least 70% of full-time employees to avoid penalty

12. Full-Time At least 30 service hours per week (paid for 30 hours)
30 hour requirement applies in ACA context only
Eligibility under PEIA plan language is a separate inquiry

13. Employees Common law employees Not independent contractors
Not volunteers (nominal pay, services freely offered, services unlike those associated with regular position)

14. PEO or Staffing Firm Employees
If PEO or staffing firm offers coverage to your employee, that offer is treated as an offer made by you IF the fee you pay to the staffing firm is higher than the fee you would pay for an employee not offered coverage under the staffing firm’s health plan

15. Dependents Children (biological and adopted) until age 26
Not spouses except...

16. Service Hours 30 service hours per week or 130 per month
Service hours = hours actually worked AND hours for which employee is paid or entitled to be paid
Vacation, holidays, sick leave, jury duty

17. Determining Full-Time Status
Employer’s expectations on employee’s start date control
Is employee replacing a full-time employee?
Comparable positions
How job is advertised or communicated

18. Employee Classifications
Full–Time = expected to work at least 30 hours/week and not seasonal
Part–Time = expected to work less than 30 hours/week

19. Employee Classifications
Seasonal = customary annual employment is six months or less during same general season each year (e.g. lawn care)
Variable Hour = unsure how many hours employee will work from week to week

20. Look-Back Measurement Period
Measure hours worked by part-time, seasonal and variable hour employees (NOT full-time employees unless seasonal)
Determine the status of employees during a future period (stability period) based upon hours of service in a prior period (measurement period)
Separated by an administrative period

21. Counting Hours of Service
To determine hours of service:
Count actual hours worked/paid for hourly employees
Assume 8 hours for each day worked/paid for others
Equivalency methods may be used only if they do not “significantly understate” hours actually worked.

22. Counting Hours of Service
May use different counting methods for different job categories as long as consistently applied and categories are truly distinct
e.g., homebound instructors

23. Standard Measurement Period for Ongoing Employees
Ongoing employees are those who have been employed for at least one full measurement period
May 1 – April 30

24. Standard Measurement Period
Look back to determine whether employee averaged 30 service hours per week during the measurement period
Exclude periods of special unpaid leave (FMLA, military leave, jury duty) and breaks of four consecutive weeks or more when calculating average
Individualized determination

25. Administrative Period
May 1 – June 30
Calculate hours worked and make offers of coverage
Overlap with PEIA open enrollment between May 1-May 15

26. Stability Period Coverage effective July 1 – June 30
Corresponds with plan year
Coverage remains effective during entire period, regardless of hours worked
May terminate coverage if employment terminates or if premiums not paid

27. Initial Periods for New Hires
Initial Measurement Period - A period of 11 months beginning the first day of the first month following the employee’s start date
Initial Administrative Period - A period of 30 days to begin immediately after the Initial Measurement Period
Initial Stability Period – A period of 12 months to begin immediately after the Initial Administrative Period

28. Transitioning New Employees to Standard Measurement Periods
New employees will be transitioned to the standard periods applicable to ongoing employees

29. Transitioning New Employees to Standard Measurement Periods
New employees will be subject to two measurement periods that will overlap
Measure during initial measurement period AND during first standard measurement period following start date

30. Example
Standard Measurement Period runs from May 1– April 30 for all VHE
New VHE is hired August 25, 2015
Initial measurement period is September 1, 2015 – July 31, 2016 (11 months)
Standard measurement period is May 1, 2016 – April 30, 2017

31. Part-Time Employees
Part-time employees are measured like variable hour and seasonal employees, UNLESS...
If a part-time employee is eligible for coverage by virtue of plan eligibility requirements, an offer should be made accordingly

32. Part-Time Employees
A part-time employee who already received an offer of coverage would not be subjected to a measurement period and offered coverage for a stability period
Such a part-time employee is treated as a full-time employee
Key is whether an offer is made for the months of the reporting period

33. Rehires
If no hours of service for 26 consecutive weeks, may treat as new employee upon rehire
Rule of parity – if employment break is at least 4 consecutive weeks and greater than the number of weeks of prior employment, may treat as new employee

34. Rule of Parity Example
Employee is hired and works six weeks before separating employment
Employee is rehired after a break in employment lasting eight weeks
Employee is treated as a new employee and started on an initial measurement period

35. Continuing Employees
If break is less than 26 weeks and rule of parity does not apply, the measurement and stability periods that would have applied had the break not occurred will continue to apply upon resumption of service
If employee returns during stability period that would have applied, must offer coverage as soon as possible but no later than first day of calendar month following return to work
CAUTION – always comply with plan language

36. Change in Status from Part-Time to Full-Time for Newly Hired
If the employee was hired as a variable hour, part-time or seasonal employee, and then moved to full-time status, the employee is considered a full-time employee on the first day of the fourth month following the status change (BUT PEIA plan language trumps)
OR, if earlier, and the employee averaged 30 hours during the measurement period, on the first day of the stability period that would have applied but for the change

37. Change in Status for Ongoing Employees Changing from Part-Time to Full-Time
If employed for a full measurement period, and change occurs before the end of the stability period, no change to the treatment as full-time or not full-time until end of stability period
UNLESS PEIA plan language is more generous

38. Change in Status from Full-Time to Part-Time
General rule: if deemed full-time for a stability period, employee continues to be treated as full-time, even if he/she moves to a part-time position

39. Change in Status from Full-Time to Part-Time
Exception to general rule: employer may apply the monthly measurement method to the employee through the end of first full measurement period following the change in status (plus any associated administrative period)

40. Change in Status from Full-Time
Employer may apply monthly measurement period within three months of change in status IF employee actually averages less than 30 hours of service per week for each of the three months following the change in status AND continuous coverage was offered since at least the fourth month of employment

41. Example
Standard measurement period runs from May 1 – April 30; Administrative period from May 1 – June 30; Stability period from July 1 – June 30
Employee A is hired for a full-time position on May 10, 2015 and offered coverage
On August 15, 2017, A moves to part-time position

42. Example cont’d.
Employer offers coverage through November 30, 2017 (three full months following change in status)
Effective December 1, 2017, Employer may apply monthly measurement period and treat A as a part-time employee for the remainder of the stability period ending June 30, 2018 AND through June 30, 2019 (the end of the first full measurement period following change in status, plus the associated administrative period)

43. Notices to Employees
No official rule requires notice to employees of measurement periods
Best practice is to provide notice to all employees at time of hire
Employee letter plus resolution

44. Penalties
IF offers of coverage not extended to substantially all full-time employees, and at least one employee finds coverage on the exchange AND receives a premium tax credit, employer faces eligibility penalty

45. Eligibility Penalty
If offer coverage to less than 95% (70% in 2015) of employees AND any full-time employee receives a premium tax credit on the exchange, employer will be penalized
Penalty = number of ALL full-time employees for the month of violation, minus the first 30 (80 in 2015), multiplied by 1/12 of $2,000 (penalty adjusts for inflation each year)

46. Eligibility Penalty Example
Employer has 100 full-time employees and fails to offer coverage to 5 or more of these employees and one of these employees receives a tax credit for coverage purchased on the exchange.
Penalty for the year is $140,000 (70 full-time employees x $2,000)

47. Affordability Penalty
If coverage is offered to all full-time employees and their dependents but is inadequate or unaffordable AND an employee receives a premium tax credit for coverage purchased on the exchange, a different penalty applies

48. Affordable Coverage
Unaffordable coverage means the employee’s share of the lowest cost self-only coverage exceeds 9.5% of the employee’s household income for the taxable year
Test using safe harbors

49. Affordability Penalty
Penalty equals the number of full-time employees who receive a premium tax credit in a month times the monthly penalty amount (1/12 of $3,000)
Capped at the amount of penalty employer would have received under Eligibility Penalty

50. Affordability Penalty Example
Employer has 100 full-time employees who are offered health insurance for themselves and their dependents. The coverage is unaffordable for 7 employees and those employees receive a premium tax credit for coverage purchased on the exchange
Penalty is $21,000 for the year (7 x 3,000)

51. How will you know if you owe a penalty payment?
You will receive notice that an employee has received a premium tax credit and an opportunity to appeal
Contact for a calendar year will not occur until after the due date for employees to file individual tax returns and after the due date for employer reporting

52. How are penalties assessed?
Assessed monthly
If fail to offer coverage for even one day in a month, penalty will apply for entire month

53. Reporting Requirements
Reporting required in 2016 for coverage offered in 2015
Under tax code sections 6055 and 6056, employers must compile monthly, and report annually, numerous data points to the IRS and their employees
Data used to verify the individual and employer mandates

54. Reporting Report to employees by January 2016 and to IRS by March 2016
The data reported is based on what happened in 2015
Reporting forms and instructions now available but could change

55. Section 6055 Section 6055 Return
Determines whether minimum essential coverage is provided
Applies to insurers and governmental plans
Used to enforce the individual mandate which requires individuals to purchase coverage or pay penalty

56. Section 6056
Determines whether large employer (50 plus employees) owes penalty and whether employees are eligible for premium tax credits

57. Section 6056 Reporting Focuses on full-time employees
Certify whether coverage was offered each calendar month to full-time employees and dependents

58. Section 6056 Requirements met by completing Forms 1094-C and 1095-C
1094-C is aggregate transmittal form
1095-C forms are the individual statements provided to each full-time employee

59. 1094-C Information Identifying employer information
Whether you offered coverage to 70% of full-time employees and dependents in 2015
Total number of 1095-C forms issued to employees
Full-time employee counts by month
Full-time and part-time employee counts by month (use same day of each month)
Whether transition relief is available

60. Transition Relief Qualifying Offer Method
Qualifying Offer Method Transition relief
Section 4980H Transition Relief
98% Offer Method

61. Qualifying Offer
Instead of reporting information each month, employers may report employee’s name, address, SSN and indicator code for each full-time employee who receives a “qualifying offer” of coverage for all 12 months

62. Qualifying Offer
Employee-only option is affordable using the federal poverty line safe harbor and is of minimum value; and
Coverage is also offered to employee’s spouse and dependents
If qualifying offer is made, specific codes will be entered into Form 1095-C

63. Qualifying Offer
If use this method, may provide a 1095-C to employees OR a document with following information:
Employer name, address, EIN
Statement that, for all 12 months, the employee (plus spouse and dependents) received a qualifying offer and therefore not eligible for premium tax credit

64. 2015 Alternative Qualifying offer transition relief
For 2015 only, employer providing qualifying offers to 95% or more of full-time employees will have reduced reporting obligations for all employees (including those who do not receive a qualifying offer for all 12 months)

65. 2015 Alternative
For 2015 only, you may provide a document with the following information in lieu of Form 1095-C to any employee who did not receive a qualifying offer for all 12 months:
Employer name, address, EIN
Contact name and number
Statement that they may be eligible for premium tax credit

66. 4980H Transition Relief Reduction of penalty by the first 80 FTE
Offers of coverage to at least 70% of FTE
Non-calendar year plan relief (allowing you to comply beginning July 1, 2015)

67. Alternative Reporting for Nearly Universal Offers – 98%
If large employer certifies to the IRS that it offered, for all months of the calendar year, affordable coverage (using any safe harbor method) to at least 98% of full-time employees and their dependents, it is not required to report any further information to the IRS
Employer need not provide full-time employee count under this method

68. 1095-C Information One for each full-time employee
Identifying information for employee and employer
Information about health coverage offered, by month
Employee’s share of monthly premium for lowest-cost self-only coverage

69. 1095-C Information (cont’d)
Months employee enrolled in coverage
Months employer met an affordability safe harbor with respect to the employee and whether other relief applies (for example, employee not employed during the month, employee was in initial measurement period, etc.)

70. When to Report
Reporting is due annually after the end of the applicable calendar year
If reporting for at least 250 employees, must report electronically by March 31
Otherwise, by mail no later than February 28

71. Reporting to Employees
Yearly statement to employees by January 31 of the year following the calendar year for which the reporting was filed (February 1, 2016)
May be mailed with W-2

72. Penalty
Failure to file correct returns and statements = $100 per return or statement
Maximum $1.5 million per calendar year
Sliding scale for corrections within 30 days and by August 1, 2016
Good faith standard in 2016 – no penalties for incorrect or incomplete information if employer shows good faith effort to comply

73. Other Issues Employee fails to pay premiums U.S. Supreme Court case
May terminate coverage if notice is provided and employee has opportunity to correct default
U.S. Supreme Court case
If no premium tax credit, no penalty
Outcome and effects unknown at this time

74. Other Issues
Nondiscrimination rules applicable to insured plans once regulations are issued
Updated COBRA notices to address exchange coverage – may decline COBRA and elect special enrollment under exchange within 60 days
Prohibited individual policy reimbursement
$100/day/employee excise tax

75. Other Issues
Automatic enrollment is coming but still awaiting regulations
Employers with 200 full-time employees

76. Questions?

77. Disclaimer
These materials are presented with the understanding that the information provided is not legal advice.  Due to the rapidly changing nature of the law, information contained in this presentation may become outdated.  Anyone using information contained in this presentation should always research original sources of authority and update this information to ensure accuracy when dealing with a specific matter.  No person should act or rely upon the information contained in this presentation without seeking the advice of an attorney.