Reform Q&A

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If an employer reimburses an employee, the amount they would have contributed affects the affordability rules.  See the quoted item below from our attorneys Smith & Downey.

“On Friday, November 21, 2014, the regulators issued new regulations that have been interpreted to provide that amounts paid by employers to employees who opt-out of the employer’s health plan must be treated as additional employee contributions for purposes of the affordability component of the ACA’s employer mandate rules.

This position is a radical departure from conventional notions of “employee cost,” and therefore it is unlikely that employers with these arrangements have considered the cash-out amount available to employees who waive coverage as part of the cost calculation for employees who do not waive coverage. Nevertheless, this apparently is the position the regulators plan to take starting on January 1, 2015 when the affordability rules generally become effective. (These rules are also applicable to many arrangements where the employer makes available consideration (e.g., “benefits credits”) other than cash to employees who waive health plan coverage.)

Although the text of the regulations is truly a singular model of non-clarity, the current consensus is that the meaning of the convoluted text is best illustrated by the following example:

An employee's required contribution for individual coverage under the employer's health plan is $90 per month. 

The employer offers a cash opt-out payment of $50 per month to the employee if health plan coverage is declined.

The “cost” to the employee for purposes of determining ACA affordability is $140 (not $90).

Employers that offer payments (or credits) for opting-out of health coverage should determine – sufficiently in advance of the effective date for their plan of the ACA affordability rules – the steps they should take to respond to these regulations and avoid ACA employer mandate penalties.

Employers that maintain a “no benefits” employment category also need to pay immediate attention to this development.  (A “no benefits” practice is one where the primary distinction between an employee in one class of employee (a “benefits” category) and another (the employer’s standard employment category) is that the latter gets more salary and no benefits and the former gets less salary but also receives benefits, all other aspects of employment being equal.)  These arrangements – and arrangements where government contractor employees are paid their “fringe rate” in cash -- are particularly impacted by the new regulations.”

 

 

According to http://www.tdi.texas.gov/pubs/consumer/cb040.html, Texas small groups buy their coverages through Healthcare.gov, which is available now.  Excerpt below from the Texas Department of Insurance below.

Buying Coverage Through the Insurance Marketplace

The federal government will operate the insurance marketplace in Texas.

Businesses with 50 or fewer full-time plus full-time equivalent employees may buy coverage through the SHOP.  In 2016, employers with up to 100 full-time and full-time equivalent employees will be able to buy SHOP coverage. An employer that has SHOP coverage and hires more employees than the threshold will be able to continue coverage through SHOP.

For more information about the insurance marketplace, visit HealthCare.gov or call 1-800-706-7893.

 

There is nothing new to report on the nondiscrimination provisions.  In order to provide insured group health plan sponsors time to implement any changes required because of any regulations or other guidance, the Departments anticipate that the future guidance will not apply until plan years beginning a specified period after issuance of the regulations.

 

 

To the best of our knowledge, there is no defined penalty at this time.  Therefore, the employer should send the 720 in immediately for 2014.  Per the IRS Form 720 instructions, “Penalties and Interest  If you receive a notice about a penalty after you file this return, reply to the notice with an explanation and we will determine if you meet reasonable-cause criteria. Do not include an explanation when you file your return.”

 

 

Below speaks of Section 105 Health Care Reimbursement plans and why these pre-tax reimbursement accounts are NOT OK.

The IRS Q&A notes that pre-tax employer payment plans are considered to be group health plans subject to the PPACA market reforms, including the prohibition on annual limits for essential health benefits (EHBs) and the requirement to provide certain preventive care without cost sharing. Such reimbursement arrangements cannot be integrated with individual policies in order to meet the market reforms. Consequently, the IRS Q&A warns; “such an arrangement fails to satisfy the market reforms and may be subject to a $100/day excise tax per applicable employee (which is $36,500 per year, per employee) under section 4980D of the Internal Revenue Code.”

Employers who are considering offering these pre-tax reimbursement accounts should consult with their legal counsel, since the IRS seems to be making a point to let employers know these arrangements are NOT permissible and will result in excise taxes on the employer.

The IRS Q&A at http://www.irs.gov/uac/Newsroom/Employer-Health-Care-Arrangements is below:

Q1.  What are the consequences to the employer if the employer does not establish a health insurance plan for its own employees, but reimburses those employees for premiums they pay for health insurance (either through a qualified health plan in the Marketplace or outside the Marketplace)?

Under IRS Notice 2013-54, such arrangements are described as employer payment plans. An employer payment plan, as the term is used in this notice, generally does not include an arrangement under which an employee may have an after-tax amount applied toward health coverage or take that amount in cash compensation. As explained in Notice 2013-54, these employer payment plans are considered to be group health plans subject to the market reforms, including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing.  Notice 2013-54 clarifies that such arrangements cannot be integrated with individual policies to satisfy the market reforms.  Consequently, such an arrangement fails to satisfy the market reforms and may be subject to a $100/day excise tax per applicable employee (which is $36,500 per year, per employee) under section 4980D of the Internal Revenue Code.

 

Q2. Is there transition relief available from the excise tax under § 4980D for certain employers who offered their employees’ health coverage through arrangements that would constitute an employer payment plan as described in Notice 2013-54?

Yes. On February 18, 2015, the IRS issued Notice 2015-17, which provides transition relief from the excise tax under § 4980D for failure to satisfy the market reforms in certain circumstances. The transition relief applies to employer healthcare arrangements that are (1) employer payment plans, as described in Notice 2013-54, if the plan is sponsored by an employer that is not an Applicable Large Employer (ALE) under Code § 4980H(c)(2) and §§ 54.4980H-1(a)(4) and -2 of the regulations; (2) S corporation healthcare arrangements for 2-percent shareholder-employees; (3) Medicare premium reimbursement arrangements; or (4) TRICARE-related health reimbursement arrangements (HRAs).

Notice 2015-17 provides temporary relief from the § 4980D excise tax for failure to satisfy the Affordable Care Act market reforms such as the prohibition on annual limits. Under the notice, small employers with employer payment plans get relief for 2014 and up to July 1, 2015. Small employers are employers that are not Applicable Large Employers under § 4980H (generally less than 50 full time and full time equivalent employees in prior year).

Notice 2015-17 also clarifies that S corporations may continue to report reimbursements of health insurance of 2 percent shareholders pursuant to Notice 2008-1. Until further guidance is issued, and in any event through the end of 2015, the excise tax under Code § 4980D will not be asserted for any failure to satisfy the market reforms by a 2-percent shareholder-employee healthcare arrangement.

Q3. Where can I get more information?

On Sept. 13, 2013, the IRS issued Notice 2013-54, which explains how the Affordable Care Act’s market reforms apply to certain types of group health plans, including health reimbursement arrangements (HRAs), health flexible spending arrangements (health FSAs) and certain other employer healthcare arrangements, including arrangements under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy. On February 18, 2015, the IRS issued Notice 2015-17, which reiterates the conclusion in previous guidance addressing employer payment plans, including Notice 2013-54, that employer payment plans are group health plans that will fail to comply with the market reforms that apply to group health plans under the Affordable Care Act. Notice 2015-17 also provides transition relief from the assessment of the excise tax under § 4980D for failure to satisfy market reforms in certain circumstances.

 

You are correct as long as no employee ever works 30 or more hours per week according to the stability/measurement period.  If so and the employer does not offer coverage to any of the potential 30 or more hours employees (and dependents), the employer is subject to an employer shared responsibility penalty if at least one of their 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 you 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). 

Yes, this affects the minimum value of the plan.  Since we cannot see what this plan covers, we can only assume the carrier’s requirement for the employer contribution of $500 is what qualifies this plan for the silver.  The employer should choose a plan that does not require a mandatory HSA contribution or they may be subject to the penalty if they do not contribute.  The actuarial value takes the annual employer contribution amount into account when determining the actuarial value.  

  1. 2015
  2. 2015
  3. They should be reviewing the data each month.
  4. There is no transitional relief.

For purposes of determining if the group is a large employer, the formula requires the following steps:

  1. Determine the total number of full-time employees working at least 120 hours per month (including any full-time seasonal workers) for each calendar month in the preceding calendar year;
  1. Determine the total number of full-time equivalents (including non-full-time seasonal employees) for each calendar month in the preceding calendar year;
  1. Add the number of full-time employees and full-time equivalents described in Steps 1 and 2 above for each month of the calendar year;
  1. Add up the 12 monthly numbers;
  1. Divide by 12.

If the average per month is 50 or more, you are a large employer. 

Size does not matter.  Controlled groups and affiliated services groups do not need to apply any entity aggregation rules for related employers.  Until further guidance from the IRS, two companies under common control would not be subject to this reporting requirement if each filed fewer than 250 Forms W-2 for the preceding calendar year, even if the combined total was more than 250.

Union employees in a multi-employer union plan count in determining if an employer issued at least 250 W-2s in the prior calendar year, BUT the employer is not required to report the cost of health care that was provided through the multi-employer union plan.

An employer is also not required to issue a Form W-2 solely to report the value of the health care coverage for retirees or other employees or former employees to whom the employer would not otherwise provide a Form W-2.

Question: ”I would like to ask you with regards to health insurance for employees.  So, our company has been giving insurance allowance to the employees due to the very small number of employees at the company.  And, recently we heard from IRS this statement below.

“As of January 1, 2014, the IRS and the U.S. Department of Labor prohibited reimbursements by employers to employees for their individual health insurance policies because of the Affordable Care Act.  Their reasoning is that employers who make such payments to employees are putting themselves in the position of acting as insurance companies, which have strict new rules about coverage and benefits.  The penalty for making these reimbursements is $100 per day per employee.  This created so many problems for employers that the IRS has postponed enforcement until July 1, 2015.”

So, now we would like to know if this applicable to companies with employees less than 25/50 or how does this work? ” is provided below:

Any small employer, defined generally as an employer with less than 50 full-time employees, will not be subject to the penalty for conducting an employee reimbursement plan either for 2014 or for the period January 1 through June 30th, 2015. However, the employer will become subject to the penalty beginning July 1, 2015.

Also in the Notice, the IRS explains that an employer covered by this exemption is not required to file Form 8928, regarding failures to satisfy requirements for group health plans, including market reforms, with their 2014 tax return.

According to the IRS http://www.irs.gov/pub/irs-drop/n-15-17.pdf

Question 1 (Transition Relief for Small Employers from the Code § 4980D Excise Tax ): Small employers have in the past often offered their employees’ health coverage through arrangements that would constitute an employer payment plan as described in Notice 2013-54. If an employer offered coverage through such an arrangement, will the employer owe an excise tax under Code § 4980D?

Answer 1: In general, yes; however, this notice provides limited transition relief for coverage sponsored by an employer that is not an ALE under §§54.4980H-1(a)(4) and -2.

Notice 2013-54 concludes that the arrangements constituting employer payment plans as described in that notice fail to comply with the market reforms and may subject employers to the excise tax under Code § 4980D. At the same time, the Departments understand that some employers that had been offering health coverage through an employer payment plan may need additional time to obtain group health coverage or adopt a suitable alternative.

The SHOP Marketplace addresses many of the concerns of small employers. However, because the market is still transitioning and the transition by eligible employers to SHOP Marketplace coverage or other alternatives will take time to implement, this guidance provides that the excise tax under Code § 4980D will not be asserted for any failure to satisfy the market reforms by employer payment plans that pay, or reimburse employees for individual health policy premiums or Medicare part B or Part D premiums (1) for 2014 for employers that are not ALEs for 2014, and (2) for January 1 through June 30, 2015 for employers that are not ALEs for 2015.  After June 30, 2015, such employers may be liable for the Code § 4980D excise tax.

For purposes of this Q&A-1, an ALE generally is, with respect to a calendar year, an employer that employed an average of at least 50 full-time employees (including full-time equivalent employees) on business days during the preceding calendar year. See 3

Code § 4980H(c)(2) and §§ 54.4980H-1(a)(4) and -2. For determining whether an entity was an ALE for 2014 and for 2015, an employer may determine its status as an applicable large employer by reference to a period of at least six consecutive calendar months, as chosen by the employer, during the 2013 calendar year for determining ALE status for 2014 and during the 2014 calendar year for determining ALE status for 2015, as applicable (rather than by reference to the entire 2013 calendar year and the entire 2014 calendar year, as applicable). See section IX.E of the preamble to the proposed regulations under § 4980H (78 FR 218, 238) (Jan. 2, 2013) and section XV.D.3 of the preamble to the final regulations under § 4980H (79 FR 8544, 8573) (Feb. 12, 2014).

Employers eligible for the relief described in this Q&A-1 that have employer payment plans are not required to file IRS Form 8928 (regarding failures to satisfy requirements for group health plans under chapter 100 of the Code, including the market reforms) solely as a result of having such arrangements for the period for which the employer is eligible for the relief. This relief does not extend to stand-alone HRAs or other arrangements to reimburse employees for medical expenses other than insurance premiums.