New Law Changes ACA Employee Count for Some Employers

The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 recently signed by the President doesn’t sound like a law that affects the ACA. Surprise!

This new law amends the section of PPACA that addresses the definition of applicable large employer (Section 4980H(c)(2)).

This provision allows employers to calculate whether they meet the employer shared responsibility requirements as an “applicable large employer” (ALE) by excluding employees enrolled in TRICARE or veteran’s coverage. Of note, employers can recalculate their current status as the effective date of this subsection applies as of January 1, 2014.

http://www.successtaxrelief.com/
http://www.successtaxrelief.com/

A review of IRS documents regarding plans that constitute MEC coverage suggests that not all Tricare or veteran’s coverage may qualify for this counting exception. More guidance will be necessary to understand which programs qualify.

Employers may want to survey whether any employees are covered by these programs. To the extent that an employer’s ALE status may change due to employees covered by these programs, legal advice may be appropriate.

Of note, this new law only affects how an employer counts employees to determine ALE status. These employees are not otherwise excluded from the employer shared responsibility requirements.

Here is the text of the law relating to this change:

SEC. 4007. Amendments to Internal Revenue Code with respect to health coverage of veterans.

(a) Exemption in determination of employer health insurance mandate.—

(1) IN GENERAL.—Section 4980H(c)(2) of the Internal Revenue Code of 1986 is amended by adding at the end the following:

“(F) EXEMPTION FOR HEALTH COVERAGE UNDER TRICARE OR THE VETERANS ADMINISTRATION.—Solely for purposes of determining whether an employer is an applicable large employer under this paragraph for any month, an individual shall not be taken into account as an employee for such month if such individual has medical coverage for such month under—

“(i) chapter 55 of title 10, United States Code, including coverage under the TRICARE program, or

“(ii) under a health care program under chapter 17 or 18 of title 38, United States Code, as determined by the Secretary of Veterans Affairs, in coordination with the Secretary of Health and Human Services and the Secretary.”.

(2) EFFECTIVE DATE.—The amendment made by this subsection shall apply to months beginning after December 31, 2013.

Seasonal Employees- Bam!

One of the more frequent compliance questions is whether employers need to offer coverage to seasonal employees under ACA. Whether and when a seasonal employee should be offered coverage is particularly important for employers subject to the employer responsibility provisions of the law.

First, it’s important to understand who qualifies as a seasonal employee. In general, a seasonal employee meets the following requirements:

  • The employee is in a position for which the customary annual employment is six (6) months or less, and
  • The period of employment should begin each calendar year in approximately the same time of the year.

The final rules reserve the option to more clearly define seasonal employee at a later time.

The rules allow that in unusual instances an employee may still be considered seasonal even if the seasonal employment extends beyond six (6) months. The rules speak to a ski instructor at a resort that has an unusually long or heavy snow season – probably in Boston!

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http://www.nyplaintiff.com

The rules allow that employers may treat seasonal employees that meet these requirements as variable hour employees. As a result, an employer may use the look-back measurement method for seasonal employees in the same manner as variable hour employees.

So, what’s the Bam! in the title mean? The Bam! is that an employee who is hired with the expectation that they will work on average 30 or more hours per week does not have to be treated as a full-time employee for health coverage purposes (and the employer responsibility requirements) if Bam!, that employee is a seasonal employee!

Bam! 

The Recipe for the “Seasonal Exception”

Confusion is a perennial state when addressing application of the rules of ACA – or so it seems. And, one of the more confusing aspects of the law is how to address seasonal employees.

Some of the confusion clears away if you know what question you’re trying to address. If you’re attempting to determine if an employer is an ALE (applicably large employer), then the relevant term is “seasonal worker.”

A seasonal worker means “a worker who performs labor or services on a seasonal basis.” IRS notice 2012-58 defines this term in more detail.

 Why is the term “seasonal worker” an important one to understand when assessing whether an employer is an ALE? Seasonal workers are taken into account when counting full-time employees and full-time equivalent employees when determining ALE status.

 The final employer responsibility rules provide a “seasonal exception” when determining ALE status. Applying the “seasonal exception” may result in an employer who might appear to be an ALE – and all that ALE status entails – instead exempt and considered to be a small employer.

 The “seasonal exception” works as follows:

If the sum of an employer’s full-time employees and FTEs exceeds 50 for 120 days or less during the preceding calendar year, and the employees in excess of 50 who were employed during that period of no more than 120 days are seasonal workers, the employer is not considered to employ more than 50 fulltime employees (including FTEs) and the employer is not an applicable large employer for the current calendar year.

 For purposes of the “seasonal exception” four (4) calendar months may be treated as the equivalent of 120 days. Notably, the four (4) calendar months and the 120 days are not required to be consecutive.

 This seasonal exception has no affect on whether – or when – a seasonal employee may be determined to be eligible for benefits.

“Grandmother What Big Teeth You Have”

I was asked today about steps employers with 50 to 99 full-time equivalent employees may take to avoid the rapidly approaching 2016 requirement that their health plans be treated as small employer plans – and all that entails. Some states are allowing existing plans to continue under the existing rules that allow these plans to be considered large employers. Such transition relief treatment is allowed based on a March 2014 letter from CMS. Plans that enjoy this relief are often called “grandmothered” plans.

Credit: Tony DiTerlizzi
Credit: Tony DiTerlizzi

 I have heard that some insurance companies are encouraging employers to use this special transition relief and also change their plan renewal and plan year to extend the relief as far as possible into 2017.  I’m reminded of the story of Little Red Riding Hood when she said, “Grandmother what big teeth you have,” speaking of course about the wolf who subsequently gobbled her up.

 Why? Because, employers who change their renewal date likely run the risk of disqualifying their plan from the previously allowed transition relief that delayed the implementation of the employer responsibility requirements. This relief postponed compliance with the pay or play penalties for employers with 50 to 99 full-time equivalents until January 2016 or their renewal in 2016. A change in plan year would lose this delay with the result that they could face these penalties in 2015!

 The moral of the story, Grandmother may really be a lot more than you bargained for.

Avoid Dollar Guzzling ACA “Cadillac Tax”

Employers have been pummeled with change after change in the five (5) years since enactment of the Affordable Care Act (ACA). With many of the Act’s changes now implemented or well under way, there remains one provision that has many employers feeling anxious.

 The provision creating this anxiety is the 40% excise tax on the cost of employer-sponsored coverage over a threshold amount that will take effect for tax years beginning after December 31, 2017. The thresholds to trigger the excise tax will be $10,200 for self-only coverage and $27,500 for other than self-only coverage.

 IRS Notice 2015-16 was published in late February addressing this impending tax. However, the notice asked more questions than it answered. The notice can be accessed from the Hot Issues page on the IRS website at http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/IMRS-Hot-Issues.

 While employers didn’t get the answers they were looking for in the notice, it can serve as a reminder to employers – and their broker advisors – that now is a good time to strategize on possible actions to mitigate or avoid this impending tax.

Employers should assess the current premiums for their plans and extrapolate where their costs may be come 2018. If their plan costs will trigger the Cadillac tax, it may be time to consider alternatives. These may include:

  • Higher deductibles
  • Higher out-of-pocket expenses
  • Lower subsidies for spouses or dependents
  • Limiting contributions to HSAs, FSAs and HRAs
  • Revisiting COBRA applicable premium calculations for self- funded plans
  • Offsetting any premium reductions on increases in payroll taxes. 

Some employers will want to “ease off the gas” by making changes in their health plans in each of the coming years. Others may be comfortable “jamming on the brakes” to avoid crashing into the excise tax in 2018. And, many will have their fingers crossed that Congress takes action and takes this tax model off the market!

Tax and Enrollment Statistics of Note

We all know about the know the Benjamin Disraeli quote about lies and statistics but, in this case, a quote from Ron DeLegge II is more appropriate. He said,   “99 percent of all statistics only tell 49 percent of the story.”

And, with the ACA, the story is an ever evolving on

www.upcounsel.com
http://www.upcounsel.com

e! That being said, I found these statistics from two very different sources to be of interest.

H&R Block issued some interesting tax facts on February 24, 2015. They reflect on how the 2015 tax season and the ACA rules are impacting taxpayers and include:

  • Average penalty for no coverage — $172
  • Average subsidy amount thatmust be paid back — $530
  • About 1/3 of exchange users gettingmore of a refund due to overestimating income — amount $365
  • A number of taxpayers are claiming an exemption with the leading reason being that the taxpayer’s income was below the filing requirement.

Details can be found at: http://newsroom.hrblock.com/hr-block-taxpayers-following-aca-rules-refunds-take-hit/.

HHS posted a “snapshot” of 2015’s Open Enrollment and Re-Enrollment. Highlights of the posting include:

  • More than half of the 4.17 million people who re-enrolled in coverage during open enrollment actively selected a plan at re-enrollment. More than one half of those selected a new plan
  • 22% of those re-enrolling were automatically re-enrolled into the same or similar plan with the same insurer
  • 53% of consumers on the marketplace are new consumers.

Details can be found at: http://www.hhs.gov/healthcare/facts/blog/2015/02/open-enrollment-2015-re-enrollment.html .

Et tu, Special Enrollment?

Brokers may have to cancel a much needed spring break due to today’s CMS announcement of a new – one time – special enrollment period that will begin March 15, 2015 and end April 30, 2015. The special enrollment will give people an opportunity to enroll in coverage so they don’t face another tax penalty next year for not having coverage this year.

In order to qualify for the exemption you must:

  • Attest that you had to pay a penalty for not having coverage in 2014
  • Not currently be enrolled in an exchange plan
  • Claim that you just found out you would have to pay a penalty for not having coverage when you filed your tax return.

There are no estimates at this time of how many people will benefit from this special enrollment. One must wonder whether previous enrollment efforts that minimized the penalties that individuals could face for not having coverage contributed to the need for this “tax avoidance” special enrollment.

Some individuals were willing to risk a $95 penalty for not having coverage. Perhaps the penalty for not having coverage in 2015 which jumps to the greater of 2% of household income or $325 per adult will stimulate action.

50 Shades of Employer Responsibility

Depending on which article or newsletter you see, the number of full-time and full-time equivalent employees that subjects an employer to the ACA’s employer responsibility requirements is either 50 or more than 50. Hmm, it can’t be both! So, this answer is correct?

Credit: Courtney Keating E+ Getty Images
Credit: Courtney Keating E+ Getty Images

The answer is 50! Here is the answer straight from the IRS:

To be subject to the Employer Shared Responsibility provisions for a calendar year, an employer must have employed during the previous calendar year at least 50 full-time employees or a combination of full-time and part-time employees that equals at least 50.

Source: http://www.irs.gov/Affordable-Care-Act/Employers/Questions-and-Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act

First Compliance Step, Are You Big or Small?

Whenever you’re speaking with an employer about health insurance and the Affordable Care Act (ACA) , the first thing you need to establish is whether the employer is a large or small employer according to the ACA. Depending on whether an employer has 50 or more full-time equivalent employees (FTEs), the response you make to any questions may be very different.

Employers that have 50 or more FTEs are considered “applicable large employers” for ACA purposes. That’s the threshold for the Act’s employer responsibility requirements.

While you’re at it, if an employer mentions the term FTEs always ascertain their meaning in using the term. Some employers use this acronym to mean “full-time employees.” Not knowing how the term is being used, could affect the accuracy of your response.

http://www.job2fit.com/
http://www.job2fit.com/

After all, an employer with 35 full-time employees can easily have a total of 50 or more full-time and  FTEs (full-time equivalents) if they have any part-time employees.

Accountants and Other Strangers

http://www.ktpadvisors.com/
http://www.ktpadvisors.com/

We’ve been seeing a lot of media stories on tax filing and the Affordable Care Act. This is the first year when individuals will have to address whether they have coverage – or not – when they file their taxes.

This tax change, like any change, causes conflict and opportunity. The conflict will arise when people file their taxes and discover that the penalty for not having coverage may be greater than they expected.

The penalty for not having coverage for 2014 is the GREATER of 1% of your household income or $95 per adult. Many people have the mistaken impression that the penalty is only $95, regardless.

Here is an example from the IRS on how the penalty works.

Single individual with $40,000 income

Jim, an unmarried individual with no dependents, does not have minimum essential coverage for any month during 2014 and does not qualify for an exemption. For 2014, Jim’s household income is $40,000 and his filing threshold is $10,150.

  • To determine his payment using the income formula, subtract $10,150 (filing threshold) from $40,000 (2014 household income). The result is $29,850. One percent of $29,850 equals $298.50.
  • Jim’s flat dollar amount is $95.

Jim’s annual national average premium for bronze level coverage for 2014 is $2,448. Because $298.50 is greater than $95 and is less than $2,448, Jim’s shared responsibility payment for 2014 is $298.50, or $24.87 for each month he is uninsured (1/12 of $298.50 equals $24.87).

Jim will make his shared responsibility payment for the months he was uninsured when he files his 2014 income tax return, which is due in April 2015.

 For more from the IRS on the individual penalty click here: http://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/ACA-Individual-Shared-Responsibility-Provision-Calculating-the-Payment.

 Imagine Jim’s surprise if he thought his penalty was only going to be $95 when it will really be $298.50! He may want to take action to avoid an even larger penalty next year when the fee is the greater of 2% of household income or $325 per adult.

 And, that’s where the opportunity comes in. Jim is likely to ask his tax preparer about obtaining coverage and what it all means.

 Wouldn’t it be a good idea for brokers to make the acquaintance of tax preparers to help with Jim’s questions?

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