California Public Agency Labor and Employment Blog - Useful Information for Navigating Legal Challenges

This blog post was authored by Jessica R. Frier

It’s a myth that the Affordable Care Act (“ACA”) only applies to “large employers” (defined under the Act as those employers with 50 or more full-time employees, including full-time equivalents).  In reality, ACA consists of thousands of pages of rules and regulations affecting businesses of all sizes—including small and midsize employers.  All employers, including small employers, should start preparing now to meet ACA’s legal requirements.  Below are answers to some commonly asked questions:

I want to offer coverage.  What options do I have? – Starting in 2014, businesses with fewer than 100 employees can shop in an “Affordable Insurance Exchange”—a competitive marketplace where individuals and small businesses can buy affordable, qualified health benefit plans.  The goal is to give small businesses purchasing power similar to what large businesses have, resulting in better choices and lower prices for employee coverage.  In California, the Small Business Health Options Program (“SHOP”) will offer approximately 375,000 small businesses access to various health coverage options for their employees starting in the fall of 2013.  For more information, visit www.CoveredCA.com.    

What if I have 25 employees or less? – You may be eligible for a small business healthcare tax credit if you cover at least 50% of healthcare insurance costs for your employees, based on the single-person rate.  This credit, specifically designed for small businesses with lower income workers, applies to employers with 25 or fewer full-time equivalent employees.  The average annual wages of your employees must be less than $50,000 per person.  Businesses can claim the tax credit by filing IRS Form 8941 with their business tax returns.   The small business tax credit provides an offset of up to 35% (up to 25% for non-profits) against the cost of providing health insurance.  Starting in 2014, the small business tax credit goes up to 50% (up to 35% for non-profits) for qualifying businesses.

Do the Employer Shared Responsibility payment provisions (i.e. penalties) apply to me? –The Employer Shared Responsibility provisions apply to all large employers (50 or more full-time employees, including full-time equivalents).  Employers will need to count their employees to determine whether they qualify as a “large employer” for purposes of the penalties that may be imposed starting January 1, 2014.    

• How do I count my employees? – You will use numbers from last year to determine the number of full-time and full-time equivalent employees.  To determine the total, count the number of full-time employees for each month, add to that the number of full-time equivalent employees for each month, and divide the total by 12.  Full-time employees are those employed on average at least 30 hours per week, or 130 hours in a calendar month.  To determine the number of full-time equivalents, divide the total number of hours worked by all non-full time employees by 120.
• What if I have 50 full-time employees or more? – You may be subject to penalties if you do not offer affordable health coverage that provides minimum value to your full-time employees and their dependent children up to age 26.  A full-time employee is defined as an employee who averages at least 30 hours of service per week.  You may be subject to an affordability penalty if your employees are required to spend more than 9.5% of their pre-tax income on the healthcare coverage you offer (a plan is considered affordable if the employee’s contribution to the lowest cost self-only plan is less than 9.5% of the employee’s household income).  For more information on ACA regulations applicable to large employers and available safe harbors, please see our February Client Update: http://www.lcwlegal.com/83997.

Must I report the value of the health benefits I provide on my employee’s W-2 form? – Employers who issue 250 or more Forms W-2 must report the aggregate cost of employer-sponsored health coverage (excluding stand-alone dental and vision plans) on an employee’s Form W-2 each year, as of January 2013.  The cost of coverage generally includes both the portion of the cost paid by the employer and the portion of the cost paid by the employee, regardless of whether the employee paid for that cost through pre-tax or after-tax contributions.  The reporting requirement is intended to be informational and provide employees with greater transparency into health care costs.  The amounts reported are not taxable.  Form W-2 reporting is currently optional for smaller employers, but we expect it to be required when the IRS issues future guidance.

What parts of ACA apply to all employers, small and large? – No matter how many employees you have, the following ACA provisions apply to all employers:    

1. Notice of Exchange – A written Notice of Exchange informing employees about the Health Insurance Marketplace and the availability of health insurance premium tax credits must be provided to all current employees by October 1, 2013, and thereafter to new employees within 14 days of hire.  Model notices are available at the following link: http://www.dol.gov/ebsa/healthreform/index.html.
2. Dependent Coverage to Age 26 – Plans that provide coverage for dependents are required to extend the offer of coverage to dependents (including adult children) up to age 26, regardless of their eligibility for other insurance coverage.  Plans must provide coverage to all eligible dependents, including those who are not enrolled in school, not dependents on their parents’ tax returns, and those who are married.  Plans are not required to provide coverage to spouses of dependents.
3. Limitations on Waiting Periods – For plan years beginning on or after January 1, 2014, group health plans and insurers—regardless of grandfathered status—are prohibited from requiring otherwise eligible participants and beneficiaries to wait more than 90 days before coverage becomes effective.
4. Summary of Benefits and Coverage – Health insurance issuers and group health plans must compile a Summary of Benefits and Coverage (SBC) that “accurately describes the benefits and coverage under the applicable plan or coverage.”  The SBC must be provided to employees upon application, at renewal, and upon request.  Health insurance issuers and group health plans may incur fines for failure to provide the SBC.  Employers therefore need to designate a person who can provide the SBC to employees within 7 days upon request.
5. Medical Loss Ratio Rebate – ACA requires health insurers to issue rebates to policyholders if less than a specified percentage of the premium dollars collected is used to provide medical care.  Employers must then allocate the rebates for the benefit of current participants, and have three options for doing so, including reducing future premiums for all participants in the plan, reducing future premiums only for those in the plan’s option that generated the rebate, or making a cash refund to those enrolled in the plan option that generated the rebate. 
6. Cap of $2,500 on Health FSA contributions – ACA imposes a $2,500 cap on healthcare flexible spending accounts.  Employees can only divert a maximum of $2,500 in pre-tax salary into these accounts to cover qualifying out-of-pocket healthcare expenses.

What Reporting Requirements Will Apply?

• Large Employer & Offering Employer Reporting Requirements – Beginning in 2015, both large employers and “offering employers” must report certain data (including the number of months employees and dependents were covered under the plan, certification of offers to enroll, and number of full-time employees) on a monthly basis to the IRS per Internal Revenue Code section 6056.  Offering employers are defined as those that require employee contributions for self-only coverage that exceed 8% of the wages they pay to the employee.  Employers required to report to the IRS must also provide written notice to each full-time employee of the information that was reported.
• Employers with Self-Insured Plans – Beginning in 2015, sponsors of self-insured plans that provide minimum essential coverage to an individual must report certain data (including the employer’s portion of the premium and dates of coverage).  The IRS may allow large employers and offering employers to coordinate this reporting with the required reporting under Internal Revenue Code section 6056.

Additional Information - Small and large employers can find additional information and resources on the U.S. Department of Health & Human Services’ webpage under the section entitled Health Insurance Basics at the following link: http://www.healthcare.gov/using-insurance/employers/index.html. 

This blog post was authored by Heather DeBlanc

On May 2, 2013, CalPERS released a new employer bulletin addressing “Employer Shared Responsibility Regarding Health Coverage.”  CalPERS Circular Letter #600-016-13 (www.calpers.ca.gov/eip-docs/employer/cir-ltrs/2013/600-016-13.pdf) summarizes existing Affordable Care Act (“ACA”) requirements and their impact on CalPERS contracting agencies.  Among other things, the Circular Letter #600-016-13 addresses the following topics:

Assessable Payment – The Circular reminds large employers (those with 50 or more full-time or full-time equivalent employees) that they will be subject to a penalty if they do not offer affordable health coverage that provides minimum value to their full-time employees and their dependent children.

Affordability – A plan is affordable if the employee’s contribution to the lowest cost self-only plan is less than 9.5% of the employee’s household income.  The Circular reminds employers that, because public agency employers often offer different employee premium contribution amounts based on bargaining group resolutions and other factors, agencies will need to assess the impact of the affordability requirement using their agency’s specific contribution levels. 

Adoption of the “Look-Back Measurement Period” Safe Harbor – If an employer does not adopt this safe harbor, the IRS will assess penalties on a monthly basis based on those employees who are considered “full-time” for any given month.  An employer who adopts this safe harbor can determine an employee’s status as a full-time employee by looking back at the employee’s average hours during a measurement period, and rely on that determination without IRS penalties during the corresponding stability period.  The periods under this safe harbor have specific legal restrictions as to their timing and length.

An Employee Qualifying As Full-Time Pursuant to a Measurement Period Is Eligible To Enroll Outside of an Enrollment Period - The Circular answers an important question by confirming that new or ongoing variable-hour employees determined to be working full-time under ACA will be eligible to enroll in a CalPERS plan, even if the employee becomes eligible outside a regular open enrollment period.  The Circular states that “CalPERS considers employees meeting health benefit eligibility requirements over the measurement period a permitting event outside of open enrollment.”

60 Day Waiting Period – The Circular reminds employers that, independent of ACA, new full-time employees, as well as variable-hour employees determined to be working full-time under ACA, are eligible for the CalPERS health benefits program in accordance with California Code of Regulations Section 599.502(b)(3).  Initial enrollment must occur within 60 days of an employee’s eligibility for health benefits.  NOTE: this is more stringent than ACA’s prohibition on waiting periods in excess of 90 days.

Additional Information - additional information and resources can be found on the CalPERS Employer web site under Health FAQs.  Employers may find further information at the following link: www.calpers.ca.gov/index.jsp?bc=/employer/faqs/health/home.xml. 

This post was authored by Heather DeBlanc

The Affordable Care Act (ACA) will require large employers (i.e. those with over 50 full time equivalent employees) to offer "substantially all" of their full-time employees (and their dependents) the opportunity to enroll in affordable health coverage.  A full-time employee is one who averages 30 hours or more of service per week in any given month.  Employers who fail to comply, risk incurring penalties anytime a full-time employee obtains subsidized coverage through California’s Health Benefit Exchange.

The ACA provides for an optional Look Back Measurement Method Safe Harbor, which allows employers to determine whether an employee is full-time or part-time for purposes of the "assessable payment" (the "penalty").  The benefit of this safe harbor is that it allows an employer to average an employee’s hours of service over a longer period of time called a “measurement period” (e.g. up to one year).  Without the safe harbor, the Internal Revenue Service (“IRS”) will make the penalty determination on a monthly basis.  Large Employers with numerous seasonal employees who average over 30 hours of service per week in any given month will also benefit from this safe harbor. 

According to this safe harbor, employers are required to establish a standard measurement period and stability period for ongoing employees.  The safe harbor also requires that an employer establish an initial measurement period and stability period for new variable hour employees.  The IRS will consider employees who average 30 hours or more of service per week over a measurement period to be full-time during the associated stability period.  Likewise, the IRS will consider employees who average less than 30 hours of service per week over a measurement period not to be full-time during the associated stability period. 

Employers may also establish optional administrative periods.  The administrative period allows an employer time to evaluate which employees qualified as full-time during a measurement period, determine who will be offered coverage during the stability period and address any administrative plan requirements for enrollment. 

There are specific legal restrictions regarding the timing and length of the periods an employer may establish under this safe harbor. 

Employers with calendar year plans who intend to adopt this safe harbor for determining full-time status will need to start tracking (or "measuring") employee hours of service by July 1, 2013, at the latest, assuming they do not adopt an administrative period.  Employers with calendar year plans who plan to adopt an administrative period of 30 days will need to start measuring employees' hours of service on June 1, 2013. 

Employers should start planning now by assessing their current workforce and potential penalties, determining the best plan of action and taking steps to implement any safe harbors they wish to use to minimize penalties. 

This guest post was authored by Heather DeBlanc

The Patient Protection and Affordable Care Act requires employers to report the cost of employer-provided group health plan coverage on the 2012 Forms W-2 provided to employees this January 2013.  Employers who issued fewer than 250 Forms W-2 in January 2012, do not need to comply with this requirement this January 2013, and should wait until further guidance is issued.  Employers need only report coverage for individuals to whom they are required to issue a Form W-2. 

The aggregate cost of applicable employer sponsored coverage must be reported in Box 12 using the code “DD.”  This means that employers must report all coverage amounts paid by both the employer and the employee regardless of whether the employee’s contributions are made on a pre-tax basis.

Applicable employer sponsored coverage includes the following:

• Major medical coverage;
• Dental and vision coverage that is combined with major medical coverage;
• Employer contributions to a health FSA, including flex credits that the employee elects to apply to the health FSA;
• On-Site Medical clinics and employee assistance programs (if a COBRA premium is charged for continued coverage for either);
• Prescription drug coverage;

The following does not fall within the definition of applicable employer sponsored coverage and, therefore, does not need to be reported:

• Employee FSA contributions through salary reductions;
• Health reimbursement arrangement (HRA) coverage;
• Health savings account (HSA) and Archer Medical Savings Account contributions;
• Coverage only for accident or disability income insurance;
• Liability insurance;
• Worker’s compensation;
• Automobile medical payment insurance;
• Coverage for independent, non-coordinated benefits for specific illness or disease;
• Long term care;
• Self-insured group health plans that are not subject to COBRA;
• Coverage provided under a governmental plan that provides coverage primarily for military members and their families.

An employer can use three methods to determine the reportable cost:

1. COBRA Applicable Coverage Method:  The cost equals the COBRA applicable premium for the period.
   
   
2. Premium Charged Method:  This method only applies to employers with an insured group health plan.  The employer uses the premium charged by the insurer for that employee’s coverage for each period as the reportable cost for that period.
   
   
3. Modified COBRA Premium Method:  This method only applies where the employer subsidizes the cost of COBRA.  The employer may report a reasonable good faith estimate of the full cost. 

Importantly, employers must determine the reportable cost under a plan on a calendar year basis. 

The information reported is provided to the IRS for informational purposes only and will not cause the otherwise excludable medical coverage to become taxable.

An employer using a third party administrator should immediately coordinate with that third party administrator to make sure these requirements are being implemented.  Penalties for failure to properly report the cost of employer sponsored health coverage on Forms W-2 may range from $30 to $100 per Form W-2 depending on when a correct Form W-2 is submitted.