CHANGES AND IMPLEMENTATIONS
Full implementation of the Employer Mandate
Currently it is not mandated that employers provide health care to their employees. Moving forward, however, if they do not, they could be subject to monetary penalties. This new implementation is commonly known as the “Play-or-Pay” Penalty (POP) or, formally as the Employer Mandate.
The Internal Revenue Code, section 4980H, requires an “Applicable Large Employer”, or (ALE), to offer health care coverage to full-time employees (or “Full Time Equivalents” — FTE). If they do not offer health care coverage, they will be liable for a substantial “assessable payment” as they have failed to offer the opportunity for enrollment into a “minimum essential coverage under an eligible employer-sponsored plan.”
If you read more in depth, section 4980H also notes, a full-time employee is one who works an average of 30 hours per week or 130 hours per calendar month. In addition, 4980H recognizes FTE employees: a “combination of employees, each of whom individually is not a full-time employee, but who, in combination, are equivalent to a full-time employee.”
In addition, a plan must meet Minimum Value standards (the plan’s share of the total allowed costs of benefits must be at least 60% of those costs) and be considered “affordable.” We learned by definition last year, affordable is considered 9.5% or less of your annual income, however, in 2016 this affordability standard has changed.
Initially the Employer Mandate was to be implemented in 2014 with the first Open Enrollment, but the IRS extended partial implementation in 2015, and now full implementation in 2016.
Changes to the Employer Mandate
There are now several changes in coverage requirements, affordability requirements, and employer mandate penalty changes, such as:
- 2015 coverage requirements: Businesses with 100 or more full time employees or full-time equivalents had to offer at least 70% of full time employees insurance to avoid penalties.vs.
- 2016 changes to coverage requirements: Businesses with at least 50 full time employees or full-time equivalents must offer at least 95% of full time employees insurance to avoid penalties.
Changes to the definition of “affordability” requirements
Section 4980H states that a plan must also be affordable. Coverage is considered “affordable” for IRC Sec. 4980H purposes if the cost to the employee of self-only coverage does not exceed a specified percentage of the employee’s “household income.” (As we previously mentioned, although 2015 set the bar for a 9.5% of the household income affordability clause, in 2016–this amount has changed to 9.66% .)
This determines if the employee qualifies for some other level of coverage (e.g., self plus dependents, family). Family coverage might require a larger employee premium, affordability for IRC Sec. 4980H purposes is determined based on the cost of self-only coverage. The Act defines “household income” to mean “modified adjusted gross income of the employee and any members of the employee’s family (including a spouse and dependents) who are required to file an income tax return.”
- 2015 affordability requirements: The plan is affordable if the self-only coverage health care plan costs no more than 9.5% of an employee’s total household income.vs.
- 2016 affordability requirements: The threshold of affordability for the plan has been raised to 9.66% of the employee’s total household income.
In addition to actually calculating the numbers for each employee, the ACA offers the use of three “safe harbors” as proxies for defining affordability: W-2 changes, rate of pay, and the FPL.
Employer Mandate penalty changes
Employers can be officially penalized for not providing minimum essential coverage or for having an inadequate health plan. Employers that offer health coverage will not meet the requirements if the following occurs:
- at least one full-time employee obtains a premium credit in an exchange plan, and
- the plan does not provide minimum essential benefits; the employee’s required contribution for self-only coverage exceeds the specified percent of the employee’s household income; the employer pays for less than 60% of the benefits.
Special Note: Neither penalty is triggered unless an employee receives a tax credit for the purchase of health insurance on a state exchange.
Minimum essential coverage penalty changes (4980H(a))
Minimum essential coverage penalties are found in section 4980H(a), which defines and thoroughly explains the penalty for an employer failing to meet requirements of “minimum essential coverage.” Initially the penalty was set at $2,000 per employee but this number is adjusted annually for inflation. The penalty has changed as follows:
- 2015 penalty: the 4980H(a) penalty was $2,080 x number of FTEs in excess of 80 employeesvs.
- 2016 penalty: the penalty has changed to $2,160 x number of FTEs in excess of 30 employees
Inadequate health care plan changes (4980H(b))
Section 4980H(b) provides for a different penalty for employers who offer minimum essential coverage that does not meet the federal requirements of Minimum Value and Affordability.This penalty will kick in if any full-time employee receives a premium tax credit to purchase insurance on exchanges because of the following reasons:
- Minimum value: the employer health coverage offered did not provide “minimum value”(the plan’s share of the total allowed costs of benefits provided under the plan is not at least 60 percent of those costs)
- Affordability: the employer health coverage offered was “unaffordable”; or the employee was not among the 95% (70% in 2015) of full-time employees offered coverage.
Under 4980H(b), the penalty incurred is the lessor of either of these two conditions:
- What the 4980H(a) penalty would have been had it been levied $2,080 in 2015/ $2,160 in 2016 multiplied by the number of each full-time employee in excess of 30 (80 in 2015))or,
- $3,120 in 2015 and $3,240 in 2016 per full-time employee who procures coverage from a health insurance exchange who receives a premium tax credit to enable him or her to purchase coverage through the health insurance exchanges.
Reporting requirements and penalties
The ACA requires employers and/or health insurance issuers to report to the IRS information about employer-sponsored health coverage. Reporting requirements were delayed from 2014 until the 2015 tax year to coincide with the delay in the employer play-or-pay mandate.
Changes in reporting dates
The IRS has offered some relief for the 2015 reporting forms, due in 2016. Special Note: Penalties will not be imposed on a filer for reporting incorrect or incomplete information if the filer can show that it made good-faith efforts to comply with the information reporting requirements for 2015.
IRS Notice 2016-4 issued a memorandum on December 28, 2015, announcing an extension for 2015 information reporting. The notice extends the due date for these two kinds of situations:
- For furnishing to individuals the 2015 Form 1095-B, Health Coverage, and the 2015 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, from February 1, 2016, to March 31, 2016, and
- For filing with the IRS the 2015 Form 1094-B, Transmittal of Health Coverage Information Returns, the 2015 Form 1095-B, Health Coverage, the 2015 Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and the 2015 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, from February 29, 2016, to May 31, 2016, if not filing electronically, and from March 31, 2016, to June 30, 2016, if filing electronically.
Penalties for applicable large employer failure to report
Penalties for large employer failures to report have to do with information returns and payee statements. They are itemized as follows:
Information returns: The penalty for failure to file an information return generally is $100 for each return for which such failure occurs. The total penalty imposed for all failures during a calendar year cannot exceed $1,500,000.
For returns required to be filed after December 31, 2015, the penalty for failure to file an information return generally is increased from $100 to $250 for each return for which such failure occurs. The total penalty imposed for all failures during a calendar year after December 15, 2015 cannot exceed $3,000,000.
Payee statements: The penalty for failure to provide a correct payee statement is $100 for each statement with respect to which such failure occurs, with the total penalty for a calendar year not to exceed $1,500,000.
The penalty for failure to provide a correct payee statement is increased from $100 to $250 for each statement for which the failure occurs, with the total penalty for a calendar year not to exceed $3,000,000. The increased penalty amount applies to statements required to be provided after December 31, 2015.
Note about intentional situations: Special rules apply that increase the per-statement and total penalties if there is intentional disregard of the requirement to furnish a payee statement.
Small Business Health Options Program (SHOP)
The Small Business Health Options Program was designed for small employers to be able to provide affordable health and dental coverage to their employees. There have been four significant changes in the SHOP program for 2016.
Size of eligible companies
On October 7, 2015, President Obama signed into law the Protecting Affordable Coverage for Employees (PACE) Act. The PACE Act amended the definition of “small employer” so that it would continue to apply to employers with one to 50 employees, rather than changing to one to 100 employees as of 2016 as provided in the original ACA. Special Note: Each state can still decide whether to adopt the one-to-100 employee definition of small employer if they choose. This enables states to be able to choose to expand the participation in the SHOP marketplace from employers with one to fifty employees to employers with one to 100 employees. It should be noted that currently only four states have accepted the expansion: California, Colorado, New York, and Vermont.
Change in the SHOP marketplace MPR (minimum participation requirement)
The SHOP marketplace MPR has changed for 2016, generally making it easier for employers to use. In most states, 70% of employees must accept the offer of SHOP coverage or be enrolled in other types of coverage for the company to participate. Special Note: The following states have MRPs of 75 percent: Iowa, Nevada, New Hampshire, New Jersey, South Dakota, Tennessee, and Texas.
Beginning in 2016, the Minimum Participation Rate is calculated as follows:
- Number of employees ENROLLING in SHOP
- Number of employees OFFERED enrollment in SHOP
Participation rate must equal 70% (or 75% for the exceptions noted above).
Changes in health and dental coverage options in SHOP
Beginning in 2016, employers may offer their employees one of three options through SHOP:
- Health coverage only
- Dental coverage only
- Both health and dental coverage
Qualified employees can choose either health, dental, or both in this situation. Employers may offer health and dental coverage to employee dependents as well. Special Note: The dependents must enroll in the same plan as the employee.
DELAYS FOR 2016
Delay in Cadillac Tax until 2020
The “Cadillac tax” is a 40% excise tax on the cost of health coverage that exceeds pre-determined threshold amounts and is imposed on coverage providers high-premium health insurance plans. This cost of health coverage includes total cost by both employer and employee and is for plans costing more than $10,200 for individual and plans costing more than $27,500 for family coverage. This tax is calculated on a monthly and per-person basis, where any plan above $850 per month for single coverage and $2,292 per month for family coverage is subject to it.
Concerns arose that potentially 75% of employee health plans could be subject to the tax by 2029.
The 2016 Consolidated Appropriations Act imposed yet another delay in implementation of the Cadillac tax, which was originally scheduled to take effect in 2013. This implementation was delayed until 2018 but now is delayed until January 1, 2020.
Menu-labeling requirement delay
The Food and Drug Administration (FDA) recently released the final guidance on the new menu-labeling requirements implemented to comply with section 4205 of the Affordable Care Act. The new menu-labeling rules require chain restaurants to provide calorie information on the menu and provide, upon customer request, additional nutritional information for menu items. The rules will begin to be enforced by the FDA on May 5, 2017, one year after the date of publication of this final guidance notice in the Federal Register (81 FR 27067, May 5, 2016).
Who must comply with new menu-labeling rules
Restaurants were initially exempt under section 403(q) of the Food, Drug & Cosmetic Act, but the ACA removed this exemption. The menu-labeling rules apply to restaurants or similar retail food establishments selling foods intended for immediate consumption, or a concession stand, that are a part of a chain with 20 or more locations that do business under the same trade name and that offer substantially the same menu items for sale.
This includes vending machine chains with 20 or more locations. In addition, a restaurant or retail food establishment may voluntarily register to be subject to the menu-labeling requirements.
Specifics of the menu-labeling rules
Businesses affected will be required to include calorie information on menus for all standard menu items. In addition, written information must be available upon customer request, regarding nutritional information for standard menu items, including the amount of total calories, calories from fat, total fat, saturated fat, trans fat, cholesterol, sodium, total carbohydrates, dietary fiber, sugars, and protein. Special Note: These requirements apply only to standard menu items, and do not apply to daily specials, custom orders, alcoholic beverages on display that are not self-service, or menu items that only appear temporarily on the menu for less than sixty days per calendar year.
Repeal of automatic health care enrollment
With the passage and implementation of the Bipartisan Budget Act of 2015, enacted on November 2, 2015, the ACA automatic health care enrollment requirement as written in Section 18A of the Fair Labor Standards Act (FLSA) was repealed. Section 18A was added by the Affordable Care Act through section 1511. Automatic enrollment required that employers with more than 200 full time employees to automatically enroll employees in health coverage unless employee opted out.
This provision had been postponed since December 2010 through a Department of Labor FAQ detailing that employers were not required to comply with automatic enrollment until the implementing regulations were issued.
Medical device tax moratorium
With the passage of the Protection of Americans from Tax Hikes Act, the PATH Act, a moratorium on the Medical Device Tax has been imposed. This tax initially applied a 2.3 percent tax to devices sold after the end of 2012, however the moratorium effective during 2016 and 2017. The tax is now slated to take effect on devices sold on or after January 1, 2018, but will be under further analysis and review during this suspension period.
Health insurance tax moratorium
This tax moratorium has been imposed by the Consolidated Appropriations Act — for 2017, on the collection of the annual health insurance provider fee which has been in effect since 2013. This was a tax imposed on the health insurance providers but passed through to the consumer through premiums. Special Note: The anticipation of this tax is because this could lower premiums by 1 to 3%.
Individual tax penalties
If an individual goes without qualifying minimum essential coverage for more than a single period of up to three months in a year, he or she may owe a penalty under the Shared Responsibility payment. These have been in place since 2014 and the penalty increases annually.
- 2.5 percent of annual household income above the tax filing threshold to a cap of the national average bronze plan premium, OR;
- $695/adult and $347.50/child under 18 to a maximum penalty of $2,085 per family.
Special Note: Certain exemptions do apply in the case of hardships, certain life events, and other situations. In addition, those who have no affordable coverage because the cost of annual premiums exceeds 8% of their household income are also exempt. One needs to apply for exemption.
Premium Rate Changes for 2016
The Kaiser Family Foundation analysis of silver plans in major cities in 13 states showed the following average rate increases from 2015 to 2016:
- 4.1% – the second lowest cost silver plan before tax credits
- 1.9% – the second lowest cost silver after tax credits
- 5.1% – the lowest-cost silver plan before tax credits
- 2.9% – the lowest-cost silver plan after tax credits
Special Note: For 2016, the maximum out-of-pocket expenses for deductibles, copays, and coinsurance for in-network coverage is $6,850 for individual / $13,700 for family coverage. This is an increase over the 2015 out-of-pocket maximums of $6,600 for an individual and $13,200 for family coverage.
For more information on the changes in 2016, please contact your Total Benefit Solutions dedicated account representative! Call us today at 215-355-2121!