Healthcare Reform Advisory Services
FINAL EMPLOYER SHARED RESPONSIBILITY REGULATIONS ISSUED
The U.S. Treasury Department ("Department"), on February 10th, issued final regulations implementing the employer shared responsibility provisions of the Affordable Care Act ("ACA"). The final regulations provide transitional relief for large and mid-sized employers and address several other areas related to the employer shared responsibility provision of the ACA.
Under the ACA and Internal Revenue Code ("IRC") §4980H, an applicable large employer that, for a calendar month, fails to offer to at least 95% of its full-time employees health coverage that is both affordable and provides minimum value may be subject to a penalty if any of its full-time employees for that month purchase a qualified health plan through a state-based marketplace through the use of a premium tax credit or subsidy. An applicable large employer is defined as one that employed, during the preceding calendar year, an average of at least 50 full-time employees, including full-time equivalents.
Coverage under an employer-sponsored plan is deemed to be affordable for an employee as long as the employee's required contribution toward the cost of single only health coverage does not exceed 9.5% of their household income. To determine household income, several safe harbors exist. For example, an applicable large employer can use an employee's Form W-2, Box 1 wages as household income. Other safe harbors include hourly rates paid to employees or Federal poverty level. Coverage under an employer-sponsored plan provides minimum value as long as the plan's share of the total allowed costs of benefits provided under the plan is at least 60% of those costs. A health plan meets this standard if it is designed to pay at least 60% of the total cost of medical services for a standard population.
The employer shared responsibility provision was originally set to take effect on January 1, 2014. Last summer, the IRS issued Notice 2013-45 delaying the effective date of this provision to January 1, 2015. Please refer to our previous alert dated July 26, 2013. The release of these final regulations provides further transitional relief for certain employers.
DEFINITION OF FULL-TIME EMPLOYEE
For purposes of the employer shared responsibility provision, a full-time employee is defined in the final regulations as an employee, with respect to a calendar month, who is employed and provides an average of at least 30 hours of service per week, or 130 hours of service per month.
As noted earlier, the final regulations provide transitional relief for large and mid-sized employers. The Department has stated that this transitional relief was instituted to ensure a gradual phase-in of the employer shared responsibility provision and to assist employers that are subject to the provision.
Applicable large employers that have at least 50 but no more than 99 full-time employees, including full-time equivalents, have been granted an additional year until January 1, 2016 to comply with the employer shared responsibility provision.
In addition, applicable large employers that have 100 or more full-time employees, including full-time equivalents, are still subject to the employer shared responsibility provision on January 1, 2015; however, they will only be required to offer health coverage that is affordable and provides minimum value to at least 70% of their full-time employees during 2015. This will increase to the 95% indicated above effective for the 2016 year. The Department believes that this transitional relief will help employers that, for example, may be currently offering coverage only to those employees that work an average of 35 hours per week or more but not yet to those employees that work an average of between 30 and 34 hours of service per week.
To qualify for the transitional relief, employers must provide appropriate certification as defined in the final regulations.
TYPES OF EMPLOYEES
The final regulations also address and provide clarifications with respect to certain types of employees or occupations and whether or not these employees are considered full-time for purposes of the employer shared responsibility provision. The Department provides the following in a Fact Sheet which summarizes the final regulations:
- Bona fide volunteers of government or tax-exempt entities, such as volunteer firefighters, will not be considered full-time employees.
- Teachers and other educational employees are to be treated as full-time even if their school is closed or operating on a limited schedule (e.g. summer).
- Seasonal employees with customary annual employment of six months or less generally will not be considered full-time employees.
- Service performed by students under federal or state-sponsored work-study programs will not be counted in determining whether or not they are full-time employees.
- Until further guidance is issued, employers of adjunct faculty are to use a method of crediting hours of service for those employees that is reasonable in the circumstances and consistent with the employer shared responsibility provision. The final regulations expressly allow crediting an adjunct faculty member with 2¼ hours of service per week for each hour of teaching or classroom time as a reasonable method for this purpose.
Certain other provisions that were originally slated to take effect in 2014 that have already been delayed until 2015 still remain:
- To help accommodate employers that will be subject to the employer shared responsibility provision for the first time, employers can determine whether they had at least 100 full-time employees, including full-time equivalents, in the previous year by reference to a period of at least six consecutive months; instead of a full year.
- Employers with non-calendar year plans will not be subject to the employer shared responsibility provision until their plan year starts in 2015; not on January 1, 2015.
- The policy that employers offer coverage to their full-time employees' dependents will not apply in 2015 to employers that are taking steps to arrange for such coverage to begin in 2016.
- On a one-time basis, in 2014 preparing for 2015, plans may use a measurement period of six months even with respect to a stability period - the time during which an employee with variable hours must be offered coverage - of up to 12 months.
The Department has stated that as these limited transition rules take effect, they will take into consideration whether or not it will be necessary to further extend any of them beyond 2015.
Although the enforcement of the employer shared responsibility provision for certain employers has been delayed, it is important for employers to consider the potential applicability of this provision in the future. It is estimated that 96% of employers are small businesses and have less than 50 employees thus exempting them from the employer shared responsibility provision. The Department has indicated that final regulations with respect to the employer reporting requirements associated with the employer shared responsibility provision under IRC §6055 and §6056 will be forthcoming from the Internal Revenue Service ("IRS"). In addition, the IRS has released a series of 46 questions and answers related to the employer shared responsibility which can be accessed at the following link:
A copy of the final regulations and the Department's Fact Sheet can be accessed below.
ESR Fact Sheet
EMPLOYER NOTICE TO EMPLOYEES REGARDING HEALTH INSURANCE MARKETPLACE
Section 1512 of the Patient Protection and Affordable Care Act ("Affordable Care Act") created a new Section 18B of the Fair Labor Standards Act ("FLSA") which requires employers to provide notice to employees, no later than October 1, 2013, regarding health coverage options that will be available to them through the state-based health insurance marketplaces. Although the state-based health insurance marketplaces are set to go live and begin providing coverage on January 1, 2014, open enrollment into the marketplaces begins on October 1, 2013 at which time plan options and prices will be available.
EMPLOYERS SUBJECT TO NOTICE REQUIREMENTS
The requirement to provide notice to employees applies to any employer to which the FLSA applies. This includes, generally, employers that employ one or more employees who are engaged in, or produce goods for, interstate commerce. The requirement also specifically applies to hospitals, schools, institutions of higher education and federal, state and local government agencies.
Employers to which this provision applies are required to provide a notice of coverage options to each employee regardless of full- or part-time status and plan enrollment status.
INFORMATION REQUIRED TO BE PROVIDED IN THE NOTICE
The content of the notice provided to employees must:
- Inform the employee of the existence of the marketplaces, coverage options available in the marketplace
- Notify the employee that they may be eligible for a premium tax credit if they purchase a qualified plan through a marketplace and the employer's share of the total cost of benefits provided under the employer plan is less than 60% of total costs allowed under the plan; and
Notify the employee that they may lose their employer contribution to a health plan offered by the employer if they purchase a qualified plan through a marketplace and that the all or a portion of this contribution may be excluded from income for Federal income tax purposes.
The notice is required to be provided by employers to employees, as outlined above, on or before October 1, 2013. For any employees hired beginning October 1, 2013, the employer must provide notice at the time of hiring. In addition, for 2014, employers are required to provide notice to new employees within 14 days of their start date.The notice must be provided in writing in a manner that is easily understood by the average employee.
The notice may be provided to employees via first-class mail or on an electronic basis that satisfies the Department of Labor ("DOL") electronic disclosure safe harbor.Although permitted, employers are not required to create their own notices. The DOL has provided "model notices" for (1) employers that do not offer a health plan and (2) employers that do offer a health plan to some or all employees. These "model notices" are available for use by employers provided they meet the requirements outlined above. They are available and can be obtained at the following link at the DOL's website: http://www.dol.gov/ebsa/healthreform/.
In addition, DOL Technical Release 2013-02, released on May 8, 2013, provides guidance on the notice and contains detailed information with respect to notice requirements.A copy of DOL Technical Release 2013-02 can be accessed below.
DOL Technical Release
EMPLOYER SHARED RESPONSIBILITY PROVISION
DELAYED TO 2015
The Obama Administration, on July 2nd, announced that the effective date of the Employer Shared Responsibility ("Employer Mandate") will be delayed until January 1, 2015; one year later than its original effective date of January 1, 2014.
The Internal Revenue Service ("IRS") released Notice 2013-45 on July 9th to provide formal guidance associated with the transitional relief.
IRS NOTICE 2013-45
IRS Notice 2013-45 provides transitional relief for 2014 for the following:
- The information reporting requirements applicable to insurers, self-insuring employers, and certain other providers of minimum essential coverage under Internal Revenue Code ("IRC") §6055,
- The information reporting requirements applicable to applicable large employers under IRC §6056, and
- The employer shared responsibility provisions under IRC §4980H (Employer Shared Responsibility Provisions).
Under IRC §4980H(a), the Employer Mandate, a provision in the Patient Protection and Affordable Care Act ("Affordable Care Act"), requires large employers (those with 50 or more full-time employees, including full-time equivalents) to offer health insurance coverage that is "affordable" and provides "minimum value" to at least 95% of their full-time employees, and their dependents, or be subject to a monetary penalty. IRC §4980H(b) imposes an assessable payment on an applicable large employer that offers minimum essential coverage to its full-time employees, and their dependents, under an eligible employer-sponsored plan but has one or more full-time employees who enroll in a qualified health plan for which a premium tax credit is allowed or paid.
IRC §6055 requires annual information reporting by health insurance issuers, self-insuring employers, government agencies and other providers of health coverage. IRC §6056 requires annual information reporting by applicable large employers related to the health coverage that the employer offers to its full-time employees. Both of these information reporting requirements are intended to assist the IRS in enforcing the Employer Mandate. The Notice states that the transition relief with respect to IRC §6055 and §6056 "will provide additional time for dialogue with stakeholders in an effort to simplify the reporting requirements consistent with effective implementation of the law. It will also provide employers, insurers, and other reporting entities additional time to develop their systems for assembling and reporting the needed data."
As a result of the transitional relief, both the information reporting and the Employer Mandate provisions will be fully effective for 2015. In preparation for this, once the information reporting rules have been issued, employers and other reporting entities are encouraged to voluntarily comply with the information reporting provisions for 2014. This transitional relief through 2014 for the information reporting and Employer Mandate provisions has no effect on the effective date or application of other Affordable Care Act provisions such as employees' access to premium tax credits; as specifically mentioned in the Notice.
OTHER AFFORDABLE CARE ACT PROVISIONS
Outlined above are the areas for which the IRS provided transitional relief. However, there are a number of other provisions contained in the Affordable Care Act for which there is currently no transitional relief. These provisions include, but are not limited to, the following:
- Individual Mandate.
- Employee access to premium tax credits. Individuals will still have the ability to enroll in a qualified health plan through a state based marketplace which will be up and running no later than January 1, 2014 for which open enrollment for these marketplaces is still expected to open on October 1, 2013.
- Waiting periods cannot exceed 90 days.
- Pre-existing conditions.
- Out-of-pocket maximums for family coverage.
- Annual dollar limits.
- Dependent coverage to age 26.
- Wellness program requirements.
- Patient-Centered Outcomes Research Fee.
Please note future healthcare reform alerts will address these specific provisions, as well as those for which transitional relief was granted.
Final regulations with respect to the Employer Mandate were released earlier this year but left many unanswered questions and areas for which additional clarification is needed. The transitional relief is intended to provide the IRS and the Federal government more time to provide further guidance. As mentioned earlier, large employers are being encouraged by the IRS to voluntarily comply with the information reporting requirements of IRC §6055 and §6056. More guidance is expected to be released by the IRS and Treasury later this summer.
In addition, eleven senior ranking House Republicans asked the Obama Administration to provide further analysis supporting its decision to "unilaterally" delay the Employer Mandate provision. The Obama Administration stated that part of the reason for the delay was a result of complaints from employer groups on the compliance burdens created by the reporting requirements under IRC §6055 and §6056. A July 9th letter from these eleven individuals stated that the Affordable Care Act "places an enormous new burden on employers that clearly contributes to the economy and job growth remaining relatively stagnant". The individuals further stated that "We agree with you that many provisions in the law cannot be implemented within the current time frame; but we strongly disagree with you that time will ever remedy these predictable consequences of the law".
Most recently, on July 23rd, a Senate Bill, Measure S.1330, was introduced by Senator Mark Begich, Democrat - Alaska. Under this Measure, large employers would have until 2016 to comply with the Employer Mandate. Senator Begich states that a delay of two years for the Employer Mandate is necessary "to give businesses time to learn about" the Affordable Care Act. This bill currently has no co-sponsors.
As evidenced by this and other current events, there is still much uncertainty surrounding the Affordable Care Act and, especially, certain of its provisions. One of the more significant current events is legislation introduced that proposes to also delay the Individual Mandate until 2015. The Individual Mandate was originally seen by many to be the most pivotal provision included in Affordable Care Act. The House voted 251-174 on July 17th to delay the Individual Mandate; however, it is unlikely that the Senate will act on this proposal.
Please contact a member of WS+B's Healthcare Reform Advisory Team for further questions or assistance.
IRS Notice 2013-45
UPDATE ON REPORTING AND PAYING THE PATIENT-CENTERED OUTCOMES RESEARCH FEE
This alert is being issued as a follow up to our June 26 alert entitled "Initial Patient-Centered Outcomes Research Fee Due Date Quickly Approaching". This alert will address the reporting and remittance of the Fee that is required to be reported on a second quarter Form 720. The Form 720 will be required to be filed on an annual basis to report and pay the Fee no later than July 31 of the calendar year immediately following the last day of the policy year or plan year to which the fee applies. The initial Fee is due and payable by July 31 of 2013. The Fee is imposed, under Internal Revenue Code §4375, on issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans for all policy or plan years ending on or after October 1, 2012 and before October 1, 2019.
The Internal Revenue Service has finalized the revised Form 720, Quarterly Federal Excise Tax Return, and associated instructions. Pursuant to the final instructions, deposits are not required for this Fee. Accordingly, issuers and plan sponsors will not be required to pay the Fee electronically via EFTPS.
The final Form 720 and associated instructions are available via the below links:
IRS FORM 720 InstructionsIRS FORM 720
Initial Patient-Centered Outcomes Research Fee Due Date Quickly Approaching
This tax tip is being issued as a follow up to our November 28, 2012 tax tip entitled "Patient-
Centered Outcomes Research Institute Fee".
The Internal Revenue Service ("IRS"), on June
3rd, released an updated Federal Form 720, Quarterly Federal Excise Ta
x Return, with draft
instructions, which incorporates provisions
associated with the initial Patient-Centered
Outcomes Research Fee ("Fee"). This Fee is reportable on a second quarter Form 720 and
is due and payable by July 31st of 2013. The Fee is imposed, under Internal Revenue Code
§4375, on issuers of specified health insurance
policies and plan sponsors of applicable self-
insured health plans for all policy or plan years ending on or after October 1, 2012 and
before October 1, 2019.
The Patient-Centered Outcome Research Institute ("Institute") was established by the
Patient Protection Affordable Care Act ("ACA") signed into law by President Obama on
March 23, 2010. The Patient-Centered Outcomes Research Trust Fund ("Fund") was set up
to fund the Institute. The
Fee outlined above will be contributed to the Fund. Final
regulations with respect to the Fee were released by the IRS and published in the Federal
Register on December 6, 2012. According to these final regulations, the Institute, through
research, "will assist patients, clinicians,
purchasers and policy makers in making informed
health decisions by advancing the quality and
relevance of evidence-based medicine
through the synthesis and dissemination of comparative clinical effectiveness research
As outlined above, the Fee will be imposed on issuers of specified health insurance policies
and plan sponsors of applicable self-insured health plans for all policy or plan years ending
on or after October 1, 2012 and before October
1, 2019. The Fee is equal to $1 per "covered
life" for all policy and plan years ending on or after October 1, 2012 and then increases to $2
per "covered life" for all policy and plan year
s ending on or after October 1, 2013 through
October 1, 2014. Thereafter,
the Fee will be increased based on the average increase in the
projected per capita amount of national health
expenditures and will sunset for all policy and
plan years ending on or after October 1, 2019.
SPECIFIED HEALTH INSURANCE POLICY
A specified health insurance policy is any accident or health insurance policy issued with
respect to individuals residing in the United States.
As stated in the final regulations, a plan sponsor is an employer in the case of a plan
established or maintained by a single employer, or the employee organization in the case of
a plan established or maintained by an employee organization. In addition, an association,
committee, joint board of trustees, or other similar group of representatives of the parties
who establish or maintain the plan which was established by two or more employers, a
voluntary employees' beneficiary association or
a multiple employer welfare arrangement
would be considered the plan sponsor.
APPLICABLE SELF-INSURED HEALTH PLAN
An applicable self-insured health plan is one that
is generally any plan that provides accident
or health coverage and any of the coverage is
provided by other than an insurance policy.
A covered life includes any employees, their
dependents and retirees that are covered under
the health plan or all those
that are entitled to health benefits under a specified health
CALCULATION OF THE FEE
Issuers of specified health insurance policies have four methods from which to choose in
calculating the number of covered lives to which
the Fee applies. They include the following:
ACTUAL COUNT METHOD
This method entails calculating the number of
lives covered under the policy each day and
dividing the total by the number of days remaining in the policy or plan year. The draft Form
720 instructions state that, for all policy years
ending on or after October 1, 2012, the issuer
may begin counting lives as of May 14, 2012 rather than the first day of the policy year.
Under this method, issuers count the number of
covered lives as of a specific date during
the first, second or third month of each quarter and then divide the total by the number of
dates selected. Please note that the final regulations provide a change from the proposed regulations in that the dates used in the second,
third and fourth quarters of the policy or plan
year must be within three days of
the dates that were selected in
the first quarter rather than
the exact day.
There are two ways to count the average number of covered lives under the Snapshot
Method; the Snapshot Factor and
the Snapshot Count Methods.
Under the Snapshot Factor Method, the number of lives cover
ed on a date is equal to the
sum of the number of participants with self-
only coverage on that date plus the number of
participants with coverage other than self-only
coverage on the date multiplied by 2.35.
Under the Snapshot Count Method,
the number of lives covered on a date equals the actual
number of lives covered on the designated date.
MEMBER MONTHS METHOD
Under this method, an issuer may determine t
he average number of lives covered under all
policies in effect for a calendar year based
on the member months t
hat are reported on the
National Association of Insurance Commissioners ("NAIC") Supplemental Health Care
Exhibit filed for that calendar year. Under this
method, the average number of lives covered
under the policies in effect for the calendar y
ear equals the member months divided by 12.
STATE FORM METHOD
This method is similar to the Member Months
Method. This method can be used by issuers
that are not required to file a NAIC financial statement. These issuers may determine the
average number of lives covered under all policies in effect for a calendar year utilizing the
same methodology as in the Member Months Method but using a form that is filed with the
issuer's state of domicile.
In calculating the average number of covered lives, plan sponsors may utilize the Actual
Count Method or the Snapshot Method outlined
above. Alternatively, plan sponsors have a
third method available to use; the Form 5500
Method. Under this method, a plan sponsor
may determine the average number of lives covered under a plan for a plan year based on
the number of participants reported on its Federal Form 5500, Annual Return/Report of
Employee Benefit Plan, or Form 5500-SF, Short Form Annual Return/Report of Small
Employee Benefit Plan. For plans with self-only coverage, the average number of covered
lives equals the sum of the total participants covered at the beginning and the end of the plan
year, as reported on the Form 5500 or Form 5500-SF, divided by 2. For plans with coverage
other than self-only, t
he average number of lives covered under the plan for the plan year for
a plan equals the sum of total participants covered at the beginning
and the end of the plan
year, as reported on the Form 5500 or Form 5500-SF. REMITTANCE AND EXCISE TAX RETURN FILINGS
As outlined above, the Fee will be reported and paid on Form 720 for the quarter ending
June 30 and, must be filed, for calendar year
taxpayers, by July 31st following the year-
end. Part II of the draft Form 720 includes two lines for determining the amount of the fee
to be remitted. All fiscal year taxpayers must
file Form 720 by July 31st of the calendar
year immediately following the last day of the plan year. For example, plans ending on
January 31, 2013 must file Form 720 by July
31, 2014. If the Fee is the sole reason a
taxpayer files a Form 720, no other quarterly Forms 720 need to be filed for the first, third
and fourth quarters of the year. Additionally,
taxpayers need to be aware that the excise
tax fee will need to be remitted electronically using the Electronic Federal Tax Payment
System (EFTPS). As such, if not already set up for electronic filing, organizations will
need to do so at least thirty days prior to the Form 720 due date.
View copy of the IRS final regulations, the draft Form 720 and the draft Form 720
PPACA Final Regulations
DRAFT: Form 720 Quarterly Federal Excise Tax Return
DRAFT: Form 720 Instruction Quarterly Federal Excise Tax Return