Pay or Play Penalty—Identifying Full-Time Employees: The Monthly Measurement Method
The Affordable Care Act (ACA) requires applicable large employers (ALEs) to offer affordable, minimum value health coverage to their full-time employees (and dependents) or pay a penalty. This employer mandate provision is also known as the “shared responsibility” or “pay or play” rules. An ALE is only liable for a penalty if one or more of its full-time employees receives a premium tax credit or cost-sharing reduction for coverage under an Exchange.
On Feb. 12, 2014, the IRS published final regulations on the employer shared responsibility rules. Under the final regulations, ALEs that have fewer than 100 full-time (and full-time equivalent) employees generally have an additional year, until 2016, to comply with the pay or play rules. ALEs with 100 or more full-time (and full-time equivalent) employees must comply starting in 2015.
The final regulations provide guidance on how ALEs should identify full-time employees for purposes of offering health plan coverage and avoiding a pay or play penalty.
The Affordable Care Act (ACA) created new disclosure tools—the summary of benefits and coverage (SBC) and uniform glossary—to help consumers compare coverage options available to them. Generally, group health plans and health insurance issuers are required to provide the SBC and uniform glossary free of charge. This disclosure requirement applies to both grandfathered and non-grandfathered plans.
On March 31, 2015, the Departments of Labor (DOL), Health and Human Services (HHS) and the Treasury (Departments) issued a Frequently Asked Question (FAQ) announcing their intention to issue final regulations on the SBC requirement in the near future. The final regulations are expected to apply for plan years beginning on or after Jan. 1, 2016 (including open enrollment periods in fall of 2015 for coverage beginning on or after Jan. 1, 2016).
However, according to this FAQ, the new template, instructions and uniform glossary will not be finalized until January 2016, and will apply for plan years beginning on or after Jan. 1, 2017 (including open enrollment periods in fall of 2016 for coverage beginning on or after Jan. 1, 2017).
Overview of the SBC Requirement
The ACA requires health plans and health insurance issuers to provide an SBC to applicants and enrollees, free of charge. The SBC is a concise document that provides simple and consistent information about health plan benefits and coverage.
The SBC requirement became effective for participants and beneficiaries who enroll or re-enroll through an open enrollment period beginning with the first open enrollment period starting on or after Sept. 23, 2012. For participants and beneficiaries who enroll other than through an open enrollment period (such as newly eligible or special enrollees), SBCs were required to be provided beginning with the first plan year starting on or after Sept. 23, 2012.
The DOL has provided a template for the SBC and Uniform Glossary documents along with instructions and sample language for completing the template, available on the DOL’s website. On April 23, 2013, the SBC template was updated for the second year of applicability to incorporate ACA changes that become effective in later years. Until further guidance is issued, these documents continue to be authorized.
On Dec. 22, 2014, the Departments released proposed regulations on the SBC requirement, which would revise the SBC template, instruction guides and uniform glossary. At that time, the Departments expected that the new requirements for the SBC and uniform glossary would apply to coverage that begins on or after Sept. 1, 2015. The draft-updated template, instructions and supplementary materials are available on the DOL’s website under the heading “Templates, Instructions, and Related Materials—Proposed (SBCs On or after 9/15/15).”
The SBC and Uniform Glossary must be provided in a culturally and linguistically appropriate manner. Translated versions of the template and glossary are available through the Centers for Consumer Information and Insurance Oversight (CCIIO) website.
To the extent a plan’s terms do not reasonably correspond to the template and instructions, the template should be completed in a manner that is as consistent with the instructions as reasonably as possible, while still accurately reflecting the plan’s terms. In addition, the DOL notes that ACA implementation will be marked by an emphasis on assisting (rather than imposing penalties on) plans and issuers that are working diligently and in good faith to understand and comply with the new law.
Thus, during the first and second years of applicability, penalties will not be imposed on plans and issuers that are working diligently and in good faith to comply with the new requirements. This enforcement relief will continue to apply until further guidance is issued.
Overview of the FAQ Guidance
In the FAQ issued on March 31, 2015, the Departments stated that they intend to issue final regulations in the near future. These regulations would finalize proposed changes in the proposed regulations from Dec. 22, 2014, which were proposed to apply beginning Sept. 1, 2015.
However, the FAQ notes that the final rules are expected to apply in connection with:
- Coverage that would renew or begin on the first day of the first plan year (or policy year, in the individual market) that begins on or after Jan. 1, 2016; or
- Open enrollment periods that occur in the fall of 2015 for coverage beginning on or after Jan. 1, 2016.
Despite this effective date, the new template, instructions and uniform glossary are not expected to be finalized until January 2016. According to the Departments, this delay is necessary to allow for consumer testing and offer an opportunity for the public to provide further input before finalizing revisions to the SBC template and associated documents.
The revised template and associated documents will apply to:
- Coverage that would renew or begin on the first day of the first plan year (or policy year, in the individual market) that begins on or after Jan. 1, 2017; or
- Open enrollment periods that occur in the fall of 2016 for coverage beginning on or after Jan. 1, 2017.
Impact on Employers
This FAQ guidance leaves a lot of uncertainty for employers with regard to their SBC documents. The changes included in the final regulations may require health plans to update their SBC documents before the new template is released.
The forthcoming final regulations may address this issue. In some cases, the Departments have provided temporary enforcement safe harbors when guidance is not issued sufficiently in advance of an effective date. However, at this time, no safe harbors or other relief has been provided on this issue.
The health care law contains tax provisions that affect employers. The size and structure of a workforce-small, or large- helps determine which part of the law apply to which employers. The number of employees an employer has during the current year determines whether it is an applicable large employer (defined below) for the following year.
- Applicable large employers are generally those with 50 or more full-time employees or full-time equivalent employees
- Employees with fewer than 50 full-time or full-time equivalent employees are not applicable large employers.
- Calculating the number of employees is especially important for employers that have close to 50 employees or whose force fluctuates during the year.
Fewer than 50
- Employers with fewer than 50 employees can purchase insurance through the Small Business Health Options Program
- Self-Insured Employers: All employers, regardless of size, that provide self-insured health coverage must file an annual return for individuals they cover and provide a statement to responsible individuals (generally the person who enrolls one or more individuals).
- The first information reporting returns are due to be filed (and furnished) in 2016 for the year 2015. The rule is optional for 2014.
Credits and Payments
- Employers may be eligible for the small business health care tax credit if they:
- cover at least 50 percent of employees’ premium costs
- have fewer than 25 full-time equivalent employees with average annual wages of less than $50,000 and
- purchase their coverage through the Small Business Health Options Program
- Employers with fewer than 50 full-time employees of full-time equivalent employees are not subject tot he employer shared responsibility provisions.
50 or More
- Employers with exactly 50 employees can purchase insurance through the Small Business Health Options Program
- Applicable large employers must file an annual return (and provide a statement to each full-time employee) reporting whether they offered health insurance, and if so, what insurance they offered their employees.
- The first information reporting returns are due to be filed (and furnished) in 2016 for the year 2016. This rule is optional for 2014.
- Applicable large employers will be subject to the employer shared responsibility provisions beginning in 2015
- In general, an applicable large employer will be subject to a payment if the employer does not offer “affordable” coverage that provides “minimum value” to its full-time employees (and their dependents) and one or more full-time employee(s) gets a premium tax credit.
Find out more about the tax provisions of the Affordable Care Act at IRS.gov/aca
IRS Invites Comments on Cadillac Tax Implementation
On Feb. 23, 2015, the Internal Revenue Service (IRS) issued Notice 2015-16 to describe potential approaches for a number of issues related to the Affordable Care Act’s (ACA) so-called Cadillac tax. The IRS is seeking comments as it begins developing guidance for the implementation of the Cadillac tax. Public comments may be submitted to the IRS until May 15, 2015.
Proposed or final regulations have not yet been issued on the ACA’s Cadillac tax provision. This notice is intended to invite comment as guidelines are assembled, and taxpayers should not rely on the information provided in Notice 2015-16.
Cadillac Tax Overview
The Cadillac tax will go into effect beginning in 2018. This provision imposes a 40 percent excise tax on high-cost group health coverage. The Cadillac tax is intended to encourage companies to choose lower-cost health plans for their employees.
The Cadillac tax provision is found in Internal Revenue Code Section 4980I. This provision taxes the amount of an employee’s “excess benefit.” The excess benefit is the amount by which the monthly cost of an employee’s employer-sponsored health coverage exceeds the annual limitation.
For 2018, the statutory dollar limits are:
- $10,200 per employee for self-only coverage; and
- $27,500 per employee for other-than-self-only coverage.
The tax amount for each employee’s coverage will be calculated by the employer and paid by the coverage provider.
The Cadillac tax applies to “applicable employer-sponsored coverage” (both insured and self-insured). Applicable employer-sponsored coverage is coverage under any group health plan made available to the employee by the employer, which is excludable from the employee’s gross income under Code Section 106.
Applicable coverage also includes health flexible spending accounts (FSAs), health savings accounts (HSAs), on-site medical clinics, retiree coverage, multiemployer plans and coverage only for a specified disease or illness and hospital indemnity or other fixed indemnity insurance (if paid on a pretax basis or if a Section 162(l) deduction is allowed).
DOL Issues Final Rule to Expand FMLA Protections for Same-sex Spouses
The Department of Labor (DOL) has issued a final rule that will expand rights under the Family and Medical Leave Act (FMLA) for same-sex spouses. Under the final rule, eligible employees in legal same-sex marriages will be able to take FMLA leave in order to care for their spouses or family members, regardless of where they live.
The DOL’s new guidance is effective March 27, 2015, and it replaces guidance regarding FMLA protections for same-sex spouses that was issued following the U.S. Supreme Court’s decision in United States v. Windsor.
The final rule changes the definition of “spouse” under the FMLA as follows:
- Adopts a “place of celebration” rule (which is based on where the marriage was entered into), instead of the “state ofresidence” rule that applied under prior DOL guidance; and
- Expressly includes same-sex marriages in addition to common law marriages, and encompasses same-sex marriages entered into abroad that could have been entered into in at least one state.
This change will impact FMLA leave in several ways. Specifically, the definitional change means that eligible employees, regardless of where they live, will be able to:
- Take FMLA leave to care for their same-sex spouses with serious health conditions;
- Take qualifying exigency leave due to their same-sex spouses’ covered military service; or
- Take military caregiver leave for their same-sex spouses.
In connection with the final rule, the DOL also issued a set of frequently asked questions (FAQs) to help employers and employees understand the changes to the FMLA’s definition of “spouse.”
To comply with the final rule, employers should review and update their FMLA policies and procedures as necessary. Employers should also train employees who are involved in the leave management process on the expanded eligibility rules for same-sex spouses under the FMLA.
DOJ to Allow Claims Based on Gender Identity Discrimination
On Dec. 18, 2014, the U.S. Department of Justice (DOJ) announced a reversal of its position regarding whether discrimination based on sex incudes discrimination based on an individual’s gender identity and transgender status.
The DOJ has now taken the position that discrimination based on sex includes discrimination based on an individual’s gender identity and transgender status.
Although the DOJ’s authority to file discrimination lawsuits is limited to government employers, this announcement solidifies the federal government’s position on gender identity rights.
Title VII of the Civil Rights Act prohibits employers from discriminating on the basis of race, color, religion, sex or national origin when making employment decisions. In 2006, the DOJ took the position that discrimination based on sex excluded discrimination based on an individual’s gender identity or transgender status. The DOJ has now reversed this position.
Gender identity is an individual’s internal sense of being male or female. An individual’s internal identification may or may not correspond to the individual’s biological gender. Transgender individuals are people with a gender identity that is different from the sex assigned to them at birth.
Effect on Employers
Employers can expect to see more individuals file claims based on gender identity discrimination and increased federal support for employee protections against discrimination based on gender identity and sexual orientation.
Employers should review their employment policies to ensure that they are compliant with federal, state and local anti-discrimination regulations.
New Guidance and Relief for Employer Payment of Individual Premiums
Under the ACA, employer payment plans do not comply with several provisions that took effect beginning in 2014. Violations of these rules can result in excise taxes of $100 per day for each employee.
An employer payment plan is an arrangement where an employer reimburses or pays premiums for an employee’s individual health insurance.
The Departments of Labor (DOL), Health and Human Services (HHS) and the Treasury have released several pieces of guidance clarifying the rules regarding these arrangements. The IRS issued Notice 2015-17 on Feb. 18, 2015, providing further clarification.
Specifically, this notice provides information on several related issues:
- Reiterates that employer payment plans are group health plans that will fail to comply with the ACA’s market reforms applicable to group health plans;
- Clarifies that increases in employee compensation do not constitute an employer payment plan, as long as the increases are not conditioned on the purchase of individual health coverage;
- Provides transition relief from the excise tax for employer payment plans sponsored by small employers (those not subject to the ACA’s employer shared responsibility rules) and to S corporation health care arrangements for 2-percent shareholder-employees;
- Addresses whether employers may reimburse employees for Medicare or TRICARE premiums for active employees under the ACA; and
- States that employer payments for individual premiums can be excludable from an employee’s income under the tax code but will still violate the ACA’s market reforms.
Employers should review their benefit and compensation plans and policies to ensure they are not in violation of current guidance regarding employer payment plans.
The Affordable Care Act (ACA) prohibits health plans from imposing lifetime and annual limits on the dollar value of essential health benefits. This mandate became effective for plan years beginning on or after Sept. 23, 2010. However, “restricted annual limits” were permitted for essential health benefits for plan years beginning before Jan. 1, 2014.
On June 28, 2010, the Departments of Health and Human Services, Labor and the Treasury issued interim final rules regarding the ACA’s prohibition on lifetime and annual limits.
The interim final rules included a transition rule for re-enrolling individuals who previously met a plan’s lifetime limit. Eligible individuals who lost plan coverage as a result of a lifetime limit must have received an enrollment notice and an opportunity to re-enroll in the plan.
The notice and enrollment opportunity must have been provided no later than the first day of the first plan year beginning on or after Sept. 23, 2010. Anyone who was eligible for the enrollment opportunity must have been treated as a special enrollee eligible to enroll in all of the benefit packages available to similarly situated individuals upon initial enrollment.
Restricted Annual Limits
The interim final rules established a three-year phased approach for restricted annual limits. Annual limits could not be less than the following amounts for plan years beginning before Jan. 1, 2014:
- $750,000 for plan years beginning on or after Sept. 23, 2010, but before Sept. 23, 2011;
- $1.25 million for plan years beginning on or after Sept. 23, 2011, but before Sept. 23, 2012; and
- $2 million for plan years beginning on or after Sept. 23, 2012, but before Jan. 1, 2014.
These were minimums for plan years; plans were permitted to use higher annual limits or impose no limits. The limits applied on an individual-by-individual basis, so that any annual limit on benefits applied to families could not cause an individual to be denied the minimum annual benefit for the plan year.
In addition, the interim final rules allowed HHS to develop a temporary waiver program for plans that could demonstrate that complying with the restrictions would result in:
- A significant decrease in access to benefits; or
- A significant increase in premiums.
HHS granted a number of waivers and then closed the waiver program to new applications effective Sept. 22, 2011. Waivers and/or extensions received before that date could be effective until plan years beginning on or after Jan. 1, 2014, when all annual limits for essential health benefits are prohibited.
Waiver recipients were required to provide an annual notice informing each participant that the plan or policy did not meet the restricted annual limits for essential benefits because it received a waiver of that requirement, as well as annual updates to HHS regarding plan information and benefits.