1. ACA: After the Shock & Awe, What Do Employers Need to Know Now? Presented by: Amy Ciepluch and Sarah Fowles Quarles & Brady LLP

2. Agenda  Lessons learned during implementation of the employer shared responsibility mandate and IRS reporting  Recent IRS guidance on various ACA provisions  Delay of Cadillac tax and legislative forecast MRA Employment Law Update

3. Employer Shared Responsibility Mandate  ESRM requires “applicable large employers” with 50+ full-time and full-time equivalent employees to “offer” “minimum essential coverage” that is “minimum value” and “affordable” to “full-time” employees, or else pay a potential “assessable payment” to the IRS. MRA Employment Law Update

4. Employer Shared Responsibility Mandate  Applicable large employer: controlled group rules apply  Lessons Learned  Many companies, particularly those that are closely held by families and managers, aren’t fully aware of controlled group status  Challenges for HR managers to request and obtain ownership information for controlled group analysis: ownership percentages, identity of owners  Controlled group analysis is complex and costly MRA Employment Law Update

5. Employer Shared Responsibility Mandate  Offering coverage  Lessons Learned  Generally must offer yearly (e.g., through open enrollment)  Temporary employees provided by staffing company can pose questions  Whose employees are they?  How can we limit risk?  Union employees eligible for union fund  How can we limit risk? MRA Employment Law Update

6. Employer Shared Responsibility Mandate  Minimum essential coverage and minimum value  Lessons Learned  Watch out for “too-good-to-be-true strategies” to meet the minimum possible requirements  “Skinny plan” example – plans that cover preventive, lab, and doctor visits but not hospital visits  IRS effectively shut down skinny plans  Trying to comply by reimbursing individual health insurance premiums can backfire MRA Employment Law Update

7. Employer Shared Responsibility Mandate  Affordability  Lessons Learned  From a compliance perspective, best price to charge for self-only coverage is 9.5% of the federal poverty level  For 2016, works out to about $93.18 (subject to annual adjustments)  A financial incentive not to elect health plan coverage gets added to the cost of coverage to determine affordability  Example: Self-only coverage is $90/month, but employer offers $200 per month in cash if employee opts out of health plan coverage. Cost of coverage for affordability purposes is $290/month (can’t use federal poverty level safe harbor)  If premiums can be lowered due to wellness program, the higher pre-wellness program premium applies for affordability purposes, unless lower premium due solely to wellness program exclusively focused on tobacco use MRA Employment Law Update

8. Employer Shared Responsibility Mandate  Full-Time Employees  Lessons Learned  Generally necessary to track hours for all employees except perhaps for those who you know work 30+ hours per week  Most employers using a “look-back” method to determine full-time status  New employees, rehired employees, and short-term employees hardest to evaluate under look-back method  Robust hours-tracking and analytical software is a must for many employers MRA Employment Law Update

9. Employer Shared Responsibility Mandate  Assessable Payments: “A Penalty” and “B Penalty” are not made alike  Lessons Learned  Sometimes the most cost-effective strategy is to do what is necessary to avoid A Penalty but pay the B Penalty as it occurs  E.g., Offer coverage that will be “affordable” for most but not necessarily all; offer coverage to 95%, and not 100% of full-time employees  Sometimes the A Penalty is tolerable  First 30 full-time employees ignored in A Penalty calculation, so employers with slightly over 30 full-time employees will not see substantial penalties MRA Employment Law Update

10. IRS Reporting  Two new types of IRS reporting hitting employers right now  Applicable large employer (“ALE”) reporting  Minimum essential coverage (“MEC”) reporting  First reports due to employees March 31; to IRS May 31 (if on paper) or June 30 (if electronically)  After 2016, reports due to employees January 31; to IRS February 28 (if on paper) or March 31 (if electronically) MRA Employment Law Update

11. IRS Reporting  ALE Reporting  Lessons Learned  Most employers engaging with third party vendors to prepare reports: payroll providers, software start-ups, and benefit consultants  Vendors typically offer varying levels of support:  One level of support requires employer to determine all coding in advance; vendor simply puts codes into correct boxes on forms and submits to IRS  Another level of support provides a software solution into which employer places hours information and certain other information and the vendor determine what coding should be  Also some “in-between” levels of support MRA Employment Law Update

12. IRS Reporting  ALE Reporting  Lessons Learned  Even with better software solutions starting to emerge, some forms still need to be hand-coded  Short-term employees  Rehired employees  Employees on leave  Terminated/retired employees  Employees with variable hours  Vendor contracts are very favorable to vendor, and employers have had little success negotiating favorable terms: it’s a vendors market right now  Employers cannot assume vendors will assume liabilities for inaccuracies on forms MRA Employment Law Update

13. IRS Reporting  ALE Reporting  Lessons Learned  Even with better software solutions starting to emerge, some forms still need to be hand-coded  Short-term employees  Rehired employees  Employees on leave  Terminated/retired employees  Employees with variable hours  Vendor contracts are very favorable to vendor, and employers have had little success negotiating favorable terms: it’s a vendors market right now  Employers cannot assume vendors will assume liabilities for inaccuracies on forms MRA Employment Law Update

14. IRS Reporting  ALE Reporting  Lessons Learned  Even with better software solutions starting to emerge, some forms still need to be hand-coded  Short-term employees  Rehired employees  Employees on leave  Terminated/retired employees  Employees with variable hours  Vendor contracts are very favorable to vendor, and employers have had little success negotiating favorable terms: it’s a vendors market right now  Employers cannot assume vendors will assume liabilities for inaccuracies on forms MRA Employment Law Update

15. IRS Reporting  MEC Reporting  Lessons Learned  Self-funded employers typically combine ALE and MEC reporting on one form  Necessary to obtain dependent’s Social Security Numbers to report their minimum essential coverage  If employer is unable to obtain dependent SSN at first must try, try again MRA Employment Law Update

16. Recent ACA Guidance  IRS Notice 2015-87, December 16, 2015  26 answers to frequently asked questions  Request for comments on issues impacting pay or play affordability and hours counting during leave, among other issues MRA Employment Law Update

17. Recent ACA Guidance: Notable Items and Clarifications  Pay or Play hours counting during leave  Guidance on how to determine whether individual on leave is a full time employee  Only credit hours if individual remains an employee  Credit hours if employee is receiving short term or long term disability benefits (unless employee paid entire cost of coverage)  Do not credit hours if employee is receiving worker’s compensation benefits MRA Employment Law Update

18. Recent ACA Guidance: Notable Items and Clarifications  Pay or Play hours counting during leave (con’t)  No limit on number of hours credited (e.g., for 401(k) plan purposes, only have to credit 501 hours per year during a year long leave) – as long as individual remains an employee, must continue to credit hours  Lessons Learned  Employers may want to reconsider practice of leaving employees receiving LTD on as employees  Unless health coverage continues at active employee rate, likely exposure to affordability penalty  Consider impact on “no offer” penalty analysis (e.g., if not offering coverage to employee receiving STD or LTD pay, likely have to include them in no offer count) MRA Employment Law Update

19. Recent ACA Guidance: Notable Items and Clarifications  Integrated health reimbursement accounts  Integrated HRA funds can only be used to reimburse expenses of individuals actually enrolled in employer’s medical plan at the time HRA funds were allocated  If employer contributes to an HRA for active employees who are enrolled in medical but allows employee to use funds for reimbursement of expenses of spouse or children who are not enrolled, HRA may violate the ACA’s prohibition on annual limits and preventive care mandate MRA Employment Law Update

20. Recent ACA Guidance  Integrated HRAs (cont):  An HRA can also be integrated with another employer’s plan, so if spouse or children were enrolled in spouse’s employer plan, HRA could be used for their expenses  Retiree-only HRAs are exempt  Lessons Learned  Be very careful with any HRA for active employees  Active employee HRAs should generally only be offered to employees and their dependents enrolled in major medical MRA Employment Law Update

21. Recent ACA Guidance  Adjustment to the 9.5% pay or play affordability threshold  Prior to the new guidance, the affordability safe harbors were based on 9.5% (of W-2 wages, the federal poverty level or the rate of pay) and were not adjusted along with the affordability rate used to determine subsidy eligibility  The safe harbor rate will now be adjusted along with the subsidy rate and 9.66% for 2016 (and retroactively, 9.56% for 2015)  Lesson Learned  Revisit your affordability calculation if you’re still using 9.5% MRA Employment Law Update

22. Odds and Ends – Additional Items from IRS Guidance  Notice 2015-87 contained substantial guidance on the medical FSA $500 carryover, including on the effect of the carryover on medical FSA COBRA  Notice 2015-87 provides pay or play affordability guidance on how employer payments for fringe benefits made pursuant to the Service Contract Act or Davis-Bacon Act are taken into account for purposes of determining affordability of health plan coverage MRA Employment Law Update

23. Odds and Ends – Cadillac Tax  The IRS has extended the effective date of the so- called Cadillac tax (excise tax on high-cost health coverage) to 2020  Repeal has support from both sides of the isle  Employee unions, an important ally for democrats, oppose the excise tax  Both Hillary Clinton and Bernie Sanders have come out in favor of Cadillac tax repeal  Lesson Learned  Employers can probably hold off on significant Cadillac tax planning until 2017 or 2018 (after the election dust has settled) MRA Employment Law Update

24. Odds and Ends – Telemedicine  Employers are increasingly offering telemedicine (medical care via phone or internet) as a way to control costs and provide more accessible health care solutions  Telemedicine can present numerous legal issues  If offered to employees who are not enrolled in major medical, it would violate the ACA’s preventive care mandate  If offered to employees enrolled in high-deductible health plan, could impact eligibility to make HSA contributions  Unclear how COBRA applies  Lessons Learned  Compliance issues with telemedicine are complex enough that legal review is likely worthwhile  Providers and vendors do not always identify these issues MRA Employment Law Update

25. Questions? MRA Employment Law Update Amy Ciepluch Quarles & Brady LLP 411 E. Wisconsin Avenue Milwaukee, WI 53202 amy.ciepluch@quarles.com 414.277.5585 Sarah Fowles Quarles & Brady LLP 411 E. Wisconsin Avenue Milwaukee, WI 53202 sarah.fowles@quarles.com 414.277.1287 Thank You!