Andrew Spikes, CPA
We are well into 2015, and the questions we keep hearing from clients relate to what they need to be doing for continued implementation and compliance with the Affordable Care Act (ACA). Several changes have occurred over the last year and due to transition relief, many employers have different timelines of compliance with provisions of the ACA. While it would be impossible to make a concise, exhaustive list to comply with the ACA, the following factors provide employers, both large and small, with some of the key items to consider as we move through 2015.
1. Payment or Reimbursement of Employees’ Individual Health Insurance Premiums: Violation of ACA Market Reforms.
In the past, many employers, while not sponsoring a group health insurance plan, have directly paid for or reimbursed their employees’ individual health insurance premiums. This practice, when done on either a pre-tax or post-tax basis, can now result in an employer being assessed an annual penalty of up to $36,500 for each affected individual.
There are a few exceptions to this rule, as well as recent transition relief for small employers and greater-than-2% S corporation shareholders. Most of the exceptions and transition relief are narrow and should be assessed on a case-by-case basis for each employer.
NOTE: An employer’s payment or reimbursement of health insurance under an employer-sponsored group health insurance plan does not result in such penalties, as long as the health plan is in compliance with the market reforms.
2. Small Business Health Care Tax Credit: Available Only to Employers Purchasing Coverage through Small Business Health Options Program (SHOP).
If you are an employer with less than 25 full-time equivalent employees, you may be eligible for a small business health care tax credit for up to 50% of the premiums you paid. The credit diminishes when average wages exceed $25,400 and is fully phased out when the average wages exceed $50,800. To qualify for the credit, you must also pay at least 50% of the health insurance premiums. In 2014 and later years, the employer must also purchase the health insurance coverage through SHOP in order to qualify for the credit. This additional requirement has taken many small employers by surprise with the result being that they are no longer able to claim the tax credit.
3. Employers (Large & Small): Compare Health Insurance Coverage Options and Costs.
As implementation of the ACA continues to evolve, more health insurance providers are offering plan designs with a range of costs. While you maybe content with your current health insurance plan, it does not hurt to evaluate the options that are available to you. Some employers have taken this opportunity to compare plans and have been able to significantly reduce their health insurance costs by finding a provider and plan that better suits their needs.
In addition, with the prohibition on reimbursing for individual health insurance premiums (see #1 above), many employers have been looking at other options for providing health insurance benefits to their employees. The SHOP program through the Marketplace exchange is available to employers with less than 50 full-time equivalent employees, and application can now be made online through www.healthcare.gov.
4. Applicable Large Employers Qualifying for Transition Relief in 2015: Prepare for Full Implementation of Employer Shared Responsibility Provisions in 2016.
Employers with 50 to 99 full-time equivalent employees who comply with certain requirements can wait until 2016 to comply fully with the ACA employer shared responsibility provisions. Now that we are about 9 months away from the start of 2016, it is time for these mid-size employers to begin planning for implementation.
The good news for mid-size employers is that the large employers, by already working through the steps for implementation in 2015, have paved the way for a smoother implementation in 2016. Some of the preparation steps include: determining whether you choose to pay (the penalty) or play (by offering minimum essential coverage that is affordable and meets minimum value); choosing your health insurance provider and plan; identifying your “full-time employees;” choosing your “affordability” safe harbor; establishing the procedure for open enrollment meetings; offering health insurance coverage to your “full-time employees” during open enrollment; following up with enrollment forms and any other issues that arise; and setting up payroll deductions for your employees. These are only examples of the many questions that can arise during the implementation process.
5. All Applicable Large Employers (50 or More Full-Time Equivalent Employees): Subject to the Employer Reporting Requirements for 2015.
All employers with 50 or more full-time equivalent employees are required to report certain information about each full-time employee and the offer of health insurance coverage for each calendar month of 2015. This information is compiled on Form 1095-C and then sent to each employee and the Internal Revenue Service. Although the first filing deadline is not until January 31, 2016, the information must be separately tracked and reported for each calendar month of 2015.
6. Employers (Large & Small) with Self-Insured Plans: Comply with Additional Rules.
In addition to the ACA provisions that affect employers, there are certain provisions in the law applying to employers with self-insured health insurance plan. These provisions impose an added layer of compliance:
- Reporting Requirements – An employer providing self-insured health coverage is required to report certain information about each individual covered under the health insurance policy and the months for which the individual was enrolled in coverage and entitled to receive benefits. This reporting requirement is in addition to the reporting requirement discussed in #5 above. While the information to be collected is by calendar month beginning January 2015, the first filing deadline is not until the first part of 2016.
- Patient Centered Outcomes Research Institute (PCORI) Fee – Employers with self-insured health plans are required to file Form 720 by July 31st and pay the required fee. For plan years ending December 31, 2014, the fee is $2.08 x the average number of lives covered during the policy year.
- Transitional Reinsurance Fee – For plan years 2014 through 2016, the ACA requires self-insured group health plans to pay a transitional reinsurance fee. The fee for 2015 is $44 per member (estimated). You must submit membership counts to HHS by 11/15/15 and pay the fee by 1/15/16.
- Nondiscrimination Rules – The nondiscrimination rules under Section 105(h) currently apply to self-insured plans, and an employer providing a self-insured plan can face significant penalties for violation of the rules. Generally, the nondiscrimination rules prohibit the discrimination as to plan eligibility or benefits in favor of “highly compensated individuals.”
7. Nondiscrimination Rules for Fully Insured Plans: Currently Not an Issue. Stay Tuned for Further Guidance!
Currently, the nondiscrimination rules are not in play in regard to fully insured plans. Although the ACA provided that nondiscrimination rules would apply to fully insured plans, the Internal Revenue Service later stated that it would delay enforcement of the nondiscrimination rules until it issued further guidance and gave sufficient time to comply with the guidance. The IRS has not yet issued this guidance.
8. Cadillac Tax: Looking Ahead to 2018.
It is not too early to begin the process of analyzing plan design and costs in anticipation of implementation of the “Cadillac Tax.” The “Cadillac Tax” is a nondeductible 40% excise tax on high-cost health benefits for employer-sponsored health coverage that is scheduled to take effect in 2018. Generally, the amount subject to the 40% excise tax is the cost of applicable employer-sponsored coverage above the following thresholds: $10,200 for individuals, $27,500 for families (amounts subject to health cost adjustment percentage). All applicable employer-sponsored coverage, without regard to whether the employer or employee pays for the coverage, is taken into account. The tax is imposed on health insurance providers but would likely be passed on to an employer in increased costs.
As we all know by now, the ACA is one of the most complex bodies of law that has impacted employers, both large and small. We recognize the importance of identifying the rules that can affect your organization and taking measures to ensure that your organization complies with the applicable guidance.