Reform Q&A

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  1. Yes, a small group may exclude out-of-state employees but this could affect the group’s participation.  Therefore, if not allowing the out-of-state employees to enroll, the group may not meet participation and may not be quoted.  If purchasing a plan though SHOP, all full-time employees must be offered coverage, and if all the criteria are met, the group may be entitled to a tax credit.
  2. The answer to your question is yes.  If a small employer offers more than one plan to its employees, the uniform percentage requirement may be satisfied in one of two ways. The first is on a plan-by-plan basis, meaning that the employer’s premium payments for each plan must individually satisfy the uniform percentage requirement. The amounts or percentages of premiums paid toward each plan do not have to be the same, but they must each satisfy the uniform percentage requirement if each plan is tested separately. 

The other permissible method to satisfy the uniform percentage requirement is through the reference plan method. Under the reference plan method, the employer designates one of its plans as a reference plan. Then the employer determines a level of employer contributions for each employee such that, if all eligible employees enrolled in the reference plan, the contributions would satisfy the uniform percentage requirement as applies to that reference plan, and the employer allows each employee to apply the minimum amount of employer contribution determined necessary to meet the uniform percentage requirement toward the reference plan or toward coverage under any other available plan.

Example: Employer has four FTEs with average annual wages of $23,000. Employer offers two plans under a composite billing system with different tiers of coverage. Plan X is $4,000 per year for employee-only coverage and $10,000 for family coverage, and Plan Y is $7,000 per year for employee-only and $12,000 for family coverage. Employer designates Plan X as the reference plan. Employer offers to pay 50% of the premium for employee-only coverage under Plan X, which is $2,000. In the event that an employee elects family coverage under Plan X or either employee-only or family coverage under Plan Y, Employer would make the same contribution ($2,000) toward that coverage and satisfy the uniform percentage requirement.

 

1. Employee A started on 8/4.  If the 90 days waiting period goes in effect as of our renewal date, then he would be eligible as of 12/1; correct?  (BenefitMall Compliance Service Team)  Correct.

 

2. Employee B started on 9/29, would he have to wait until 1/1/15 or could he get on during the open enrollment period?  (BenefitMall Compliance Service Team)  No, he cannot wait until 1.1.15, as this would take him over 90 days.  If the waiting period is actual day 90, his effective date would be 12/27/14.

 

It depends if the group meets the transition rules stated below, then it would be the group’s renewal date.  If these rules are not met, then it would be January 1, 2015. 

Generally, the employer shared responsibility mandate is effective on January 1, 2015.  However, transition rules apply that may delay the assessment of penalties until the first day of the group’s first plan year that starts on or after January 1, 2015.  The transition rules say that if:

1) The group maintained a non-calendar year plan as of December 27, 2012; 

2) The group’s plan year was not modified after December 27, 2012 to begin at a later calendar date; 

3) At least 95% (70% if certain criteria as described above are met) of the group’s full-time employees are offered coverage no later than that first day of the plan year that starts in 2015; and 

4) The group’s employees would not be eligible for coverage under any other of your group health plans that has a calendar year plan year, penalties will not be assessed for the months prior to the first day of the plan year that starts in 2015 for: 

A.   Any employee (whenever hired) that would be eligible for coverage, as of the first day of the first plan year that begins in 2015 under the eligibility terms of the plan as in effect on February 9, 2014; and 

B.   Any other employees that are not eligible under the terms of the plan in effect on February 9, 2014 if: 

i.   the group’s non-calendar year plan covered at least one quarter of the group’s employees (full-time and part-time) as of any date in the 12 months ending on February 9, 2014 or the group’s plan offered coverage to at least one third of your employees (full-time and part-time) during the open enrollment period that ended most recently before February 9, 2014; OR 

ii.   the group’s non-calendar year plan covered at least one third of the group’s full-time employees as of any date in the 12 months ending on February 9, 2014 or the group’s plan offered coverage to one half or more of your full-time employees during the open enrollment period that ended most recently before February 9, 2014. 

Therefore, if the four criteria described above are met, for any of the group’s employees who are eligible to participate in the plan under its terms as of February 9, 2014 (whether or not they take the coverage), you will not be subject to a penalty for those employees until November 1, 2015 if they are offered affordable coverage that provides minimum value no later than November 1, 2015. 

For any other of the group’s employees that were not eligible to participate under the terms of the plan in effect on February 9, 2014, you can avoid liability for a penalty for those non-eligible employees until November 1, 2015 if they are offered affordable, minimum value coverage on November 1, 2015 and: 

1.  The group’s plan covered at least one quarter of all the group’s full-time and part-time employees as of any date in the 12 months ending on February 9, 2014 or offered coverage under the group’s non-calendar year plan to at least one third of the group’s full-time and part-time employees during the open enrollment period for your November 1, 2013 renewal; OR 

2.  The group’s plan covered at least one third of the group’s full-time employees as of any date in the 12 months ending on February 9, 2014 or offered coverage to one half or more of the group’s full-time employees during the open enrollment period for your November 1, 2013 renewal. 

 

Answer to question one –

Generally, there are three types of controlled groups:

  1. parent-subsidiary groups (one business owns 80 percent or more of another business or businesses); 
  2. brother-sister groups (five or fewer common owners; the common owners must own at least 80 percent of each business; and the combined identical ownership must be 50 percent or more); and 
  3. combined ownership groups (each organization is a member of either a parent-subsidiary or brother-sister group and at least one corporation is: the common parent of a parent-subsidiary and a member of a brother-sister group). 

Accordingly, any of the organizations that are “controlled groups” are treated as a single employer under PPACA.  Thus, an employer cannot simply divide its organization into separate organizations to avoid the Employer Mandate under PPACA. 

Answer to question two – 

The employer will be subject to the employer mandate penalty, if the third company is considered part of the controlled group.  

If the employer doesn’t offer coverage to their full-time employees (and their dependents), the employer is subject to an employer shared responsibility penalty if at least one of your full-time employees purchases coverage at a Marketplace exchange with premium tax credits. Employees eligible for a premium tax credit are those whose household income is between 100% (133% in states that expanded Medicaid) and 400% of the federal poverty level and who are not eligible for employer-sponsored coverage that is affordable and meets minimum value. The monthly penalty the employer would have to pay would be 1/12 of $2,000 (this amount will be adjusted annually for inflation) multiplied by the number of full-time employees you have for that month (minus the first 30). 

Under a transition rule for 2015, the monthly penalty calculation would be 1/12 of $2,000 multiplied by the number of full-time employees you have for that month minus the first 80 (instead of the first 30).  

Note: The employer mandate has been delayed until January 1, 2015 for employers with 100 or more full-time employees and until January 1, 2016 for large employers with between 50 and 99 full-time employees who met certain criteria.

Yes, they can still do that.

Fully insured plans that provide a more generous premium subsidy levels to highly compensated employees may violate PPACA non-discrimination rules.  Fortunately, the IRS has announced employers are not required to comply with the non-discrimination provisions until guidance or regulations are issued.  Until such time, employers are well advised to consult with an attorney and/or their health insurance carrier for clarification regarding the practice of providing different premium subsidy for differing groups of employees. 

You should also be concerned with giving highly compensated employees special perks.  Certain welfare plans (including self-insured medical and group term life insurance plans) will create taxable income for those employees if they receive a disproportionate amount of tax-advantaged benefits and could cause a company plan to fail its nondiscrimination testing. 

It is not necessary to give equal benefits to all employees.  Just remember to base benefit eligibility on tenure, full- or part-time status, exempt/nonexempt status, job group or even department.  Do your due diligence to ensure your benefits are not discriminatory.

Employers of a small group must contribute at least 50% of the premium to be considered for a tax credit.

 

Yes, if the group has at least 50 full-time employees and offers coverage to at least 95% (70% for the 2015 plan year if certain criteria are met) of your full-time employees, the group is still subject to a penalty if:

1. A full-time employee’s contribution for employee-only coverage exceeds 9.5% of the employee’s household income* or the plan’s value is less than 60%; and 

2. The employee’s household income is less than 400% of the federal poverty level; and 

3. The employee waives your coverage and purchases coverage at a Marketplace exchange with premium tax credits. 

The penalty will be calculated separately for each month in which the above applies. The amount of the penalty for a given month equals the number of full-time employees who receive a premium tax credit for that month multiplied by 1/12 of $3,000 (this amount will be adjusted annually for inflation). 

*Recognizing that the rate of pay safe harbors cannot be used for employees who are compensated solely on the basis of commissions, the final regulations indicate that you should use the two other affordability safe harbor methods, Form W-2 wages and federal poverty line, for determining affordability for your employees whose compensation is not based on a rate of pay.

 

To the best of our knowledge, this has not been established as to whom would be responsible.  It will, perhaps, be based on the definition of a common law employee.

The common law employee test depends on applying a series of factors to the particular facts and circumstances of individual cases, which in many instances are ambiguous.  This is the antithesis of a bright-line test.  When applied to distinguish between an employee and an independent contractor, the best that can be said of this multi-factor test is that it is ‘‘workable.’’ But when used to determine whether a staffing firm, PEO, or client organization is the employer to the exclusion of the others, the test can be subjective in the extreme.  It should surprise no one that a long-standing practical rule has emerged for making common law employee determinations in three-party settings: Staffing firms for decades have assumed responsibility as employers for myriad employment, labor, and benefits law obligations — it has become a hallmark of the staffing business.  That assumption has been left undisturbed presumably because it has worked.  In the case of temporary workers, the application of the common law standard is straightforward.  The same is generally true in the case of longer-term contract assignments.  This leaves a handful of other arrangements, including payrolling, in which staffing firms have reflexively been presumed to be the common law employer for tax and benefits purposes.

Some staffing firms and their clients are now concerned that the same common law standard they have relied upon for decades under other prior law may be construed differently for Code §4980H purposes.  This is a problem for staffing firms and their clients, to be sure, but it is also a problem for the IRS field agents and others who are tasked with day-to-day enforcement of provisions of the tax code that depend on correctly ascertaining common law employee status.   Particularly in cases where the facts are ambiguous, the agency approach that we outlined above dispenses with the need to apply this test.  

We cannot predict whether the common law test will be applied strictly, or whether the regulators will adopt a more practical ‘‘no harm, no foul’’ approach.   We urge the latter, of course, based on our conviction that there is nothing wrong with the status quo ante that needs to be fixed, and that the solution described above would protect staffing firms and their clients in a manner fully consistent with the legal and policy objectives of the ACA.

 

The answer to the different contribution amounts is no.  If a small employer offers more than one plan to its employees, the uniform percentage requirement may be satisfied in one of two ways. The first is on a plan-by-plan basis, meaning that the employer’s premium payments for each plan must individually satisfy the uniform percentage requirement.  The amounts or percentages of premiums paid toward each plan do not have to be the same, but they must each satisfy the uniform percentage requirement if each plan is tested separately. 

The other permissible method to satisfy the uniform percentage requirement is through the reference plan method.  Under the reference plan method, the employer designates one of its plans as a reference plan.  Then the employer determines a level of employer contributions for each employee such that, if all eligible employees enrolled in the reference plan, the contributions would satisfy the uniform percentage requirement as applies to that reference plan, and the employer allows each employee to apply the minimum amount of employer contribution determined necessary to meet the uniform percentage requirement toward the reference plan or toward coverage under any other available plan.

Example: Employer has four FTEs with average annual wages of $23,000.  Employer offers two plans under a composite billing system with different tiers of coverage.  Plan X is $4,000 per year for employee-only coverage and $10,000 for family coverage, and Plan Y is $7,000 per year for employee-only and $12,000 for family coverage.  Employer designates Plan X as the reference plan.  Employer offers to pay 50% of the premium for employee-only coverage under Plan X, which is $2,000.  In the event that an employee elects family coverage under Plan X or either employee-only or family coverage under Plan Y, Employer would make the same contribution ($2,000) toward that coverage and satisfy the uniform percentage requirement.

 

The answer to your question is yes.

For ongoing employees, the standard measurement period must be at least 3 but not more than 12 consecutive months. The stability period for employees that are determined to be full-time must be the greater of six consecutive calendar months or the length of the standard measurement period. If an employee did not work full time, the stability period cannot be longer than the standard measurement period.