Ted Ginsburg, CPA, JD from Skoda Minotti's Employee Benefits group provides an update on the Affordable Care Act (ACA) for employers who were not subject to it in 2015, but are facing IRS filing requirements moving forward.

1. Preparing for the
Affordable Care Act
Ted Ginsburg, CPA, JD
June 17, 2015

2. 2
• The status of the ACA today
• What employers need to be thinking about
 What is the ACA penalty?
 Should I offer insurance at all?
 Strategies to avoid the penalty
• IRS reporting issues
• Other issues relating to welfare plans
• The real due date
TODAY’S DISCUSSION

3. 3
• The Affordable Care Act (“ACA”) is currently effective for
employers who had 100 or more full time equivalent
employees (FTEs) in 2014. Employers who have 50 or more
FTEs in 2015 will be subject to the ACA on January 1, 2016
• Several bills are currently before Congress to repeal or change
certain portions of the ACA; it is doubtful that it will be entered
into law during the Obama administration
• The ACA has withstood numerous court challenges, although
more cases are pending, including one at the Supreme Court
• IRS/DOL continually make changes
STATUS OF THE ACA TODAY

4. 4
If an employer has a certain number of FTEs based on the
prior calendar year, and:
• Doesn’t offer minimum value insurance to a certain percentage
of full time employees, or
• Offers insurance but it isn’t affordable and/or it isn’t adequate
and
• In either case, one employee purchases insurance through an
exchange and receives a subsidy, then
An excise tax may result
EXCISE TAX BASICS

5. 5
Based on the prior calendar year, comprised of
two parts:
• Full time employees—works an average of 30 hours
week/130 hours a month; and
• Part time or seasonal employees— Add total hours of
work by these people on a monthly basis and divide by
120
• Employees subject to a CBA count in total
• Calculation is made monthly, average FTE level is used
FTE–WHAT IS IT?

6. 6
Part one: Do I offer health coverage to at least
70% (95% for 2016) of my full-time employees?
Part two: If I do offer health coverage to my full
time employees:
• Is that coverage affordable, and
• Does that coverage provide minimum coverage to the
full-time employees and their dependents?
Two different, non-deductible, excise taxes exist
depending on which part is not satisfied:
• If both parts are not satisfied, employer pays only
the greater of the two excise taxes
THE TWO-PART TEST
If an employer is subject to ACA, potential liability for the greater
of the following two tests

7. 7
What happens if I fail to comply with
Part One of the two-part test?
• If an employer:
 Fails to offer 95% (70% for 2015) of its
full-time employees (or dependents)
coverage and
 One employee receives a subsidy (either
a tax credit or cost-sharing reduction)
through the exchange/marketplace for
purchasing health insurance then
 The employer might be liable for a non-
deductible $2,000 penalty per year for the
total number of full-time employees
(reduced by 80 in 2015, 30 in 2016)
WHAT HAPPENS?

8. 8
A full-time employee for this purpose is
an employee who is employed an
average of at least 30 hours of work per
week or 130 hours of work per month:
• Full-time equivalent, also known as FTEs,
employees (discussed in the large employer
test) are not relevant to this discussion
• Look at this monthly to determine
classification and when coverage should
begin
• Can use current year expectations or prior
year results
• Special rules apply to educational
institutions, breaks in employment, new
hires and employees who work variable
schedules
IMPORTANT
COMPLIANCE DEFINITIONS

9. 9
A subsidy occurs when an employee acquires
insurance through the exchange/marketplace
and qualifies for a reduction in his/her cost for
insurance coverage because of his/her financial
situation.
• Subsidies are of two types:
 An employee is eligible for a cost reduction subsidy if the employee’s
household income is less than 250% of the federal poverty line (2014 maximum
income of $29,125 for a single individual and $59,625 for a family of four).
 An employee is eligible for a premium tax credit subsidy if the employee’s
household income ranges between 100% and 400% of the federal poverty line
(2013 maximum income of $46,680 for single individuals, $95,400 for a family
of four); an employee who is eligible for Medicaid can not receive the subsidy.
IMPORTANT
COMPLIANCE DEFINITIONS

10. 10
What happens if I fail to comply
with Part Two of the two-part test?
• If an employer offers 95% (70% for 2015)
of its full-time employees coverage but
the coverage is unaffordable or does not
provide minimum coverage
• The employer will be liable for a non-deductible
penalty of $3,000 per year, times the number of
full-time employees who obtain insurance
through the exchange/marketplace and receive
a subsidy
WHAT HAPPENS?
The employer is only liable for the greater of
the Part One or Part Two excise tax.

11. 11
How do we determine if the coverage is ‘affordable” for full-time
employees? Three part “safe harbor” test—allows employer to
choose how affordability is determined.
Form W-2: An employee’s monthly contribution for self-only coverage is affordable
if it does not exceed 9.5% of their W-2 wages for that calendar year
Rate of pay: An employee’s monthly contribution for self-only coverage is
affordable if it is no more than 9.5% of their monthly wages (hourly rate of pay ×
130 hours, or, for salaried employees, their monthly salary figure)
Federal Poverty Line (FPL): An employee’s monthly contribution for self-only
coverage is affordable if it does not exceed 9.5% of the FPL for a single individual
(approximately $93 per month)
IMPORTANT
COMPLIANCE DEFINITIONS

12. 12
Minimum coverage means the
insurance plan must cover 60% of
the essential health benefits:
• The essential health benefits include
emergency services, ambulatory services,
hospitalization, lab services, prescription
drug coverage and maternity and newborn
care, among others
• Among the items not included are vision,
dental, disability, and long-term care
DEFINITION OF
MINIMUM COVERAGE

13. 13
The Cadillac Tax
• If a plan provides benefits that exceed a certain level, a
40% excise tax is imposed on the value of those benefits
• Benefits under many current CBA programs would be
subject to the tax
• Applies to 2018
• Paid by employers (self-insured plans) or the insurers
(who pass the cost through to employers)
ANOTHER TAX

14. 14
A multi-step process
• If an employee acquires coverage through an exchange,
the exchange informs the IRS
• An employee claims a tax credit for health coverage on
the employee’s 1040
• Employers inform the IRS of what employees were
covered through IRS Forms 1094/1095
• IRS assesses the excise tax, sending the employer a bill
• Employer has a limited amount of time (2 months) to
contest the assessment
HOW IS THE EXCISE
TAX ASSESSED?

15. 15
Managing workforce levels to avoid ACA
If you keep your total FTEs under 50, you are not subject to
the ACA:
 Working current employees longer hours
 Use of subcontractors
 Timing jobs to avoid spikes in employment
 Turning down jobs that might cause FTE count to exceed 50
WHAT SHOULD EMPLOYERS
THINK ABOUT?

16. 16
If you are subject to ACA, you want to limit the number
of full time employees
• Keep current employees under 30 hours a week if you
can do it without disrupting your operations
• Use part time employees—no coverage needed for
employees under 30 hours a week
• Use seasonal employees
• Use subcontractors
WHAT SHOULD EMPLOYERS
THINK ABOUT?

17. 17
Can I merely give my employees some money and let
them buy their own insurance?
• The government doesn’t like this approach at all
• A pay raise will work, but is inefficient
• If you stay under 50 employees, you can reimburse
employees on a pre-tax basis
• Formalized employee reimbursement program (IRC 105)
might work for employers with over 50 employees, but it
is not clear that it will
WHAT SHOULD EMPLOYERS
THINK ABOUT?

18. 18
Determine if you should “play or pay”
• Compare the potential cost of “play” vs. “pay”
 Play: cost of offering more expensive benefits and/or charging
employees less than currently imposed
‒ Redesigning plan terms to minimize cost—human resource issues
‒ Do you reduce pay to make up for increased employer cost of
insurance?
 Pay: face potential excise tax liability
THINK ABOUT?
WHAT SHOULD EMPLOYERS

19. 19
Minimizing potential ACA excise taxes if we “play”
 Offering coverage that isn’t affordable or adequate
may be preferable to not offering coverage
 Use of the 5% rule
 Convincing employees who might
be eligible for a subsidy not to go to the
exchange/marketplace
WHAT SHOULD EMPLOYERS
THINK ABOUT?

20. 20
IRS reporting is due for all employers who have 50 or
more FTEs in 2015
• Impacts employers who aren’t currently subject to ACA
• Employers who provide fully insured benefits are still
subject to the reporting requirements
• Additional information/filings needed for self-insured
plans
• Reporting follows the same timeframe as W-2s
 Employees receive statements by February 1, 2016
 Employer return due February 28 (March 31 if electronically
filed)
REPORTING ISSUES

21. 21
For all plans (insured and self insured) Parts I and II of
IRS Form 1095-C have to be completed, and employee
specific forms need to be distributed.
Among employee specific data needed:
• Employee identification data (name, address, SSN)
• For each calendar month
 What coverage was offered to the employee?
 What was the cost of the lowest cost plan offered to the
employee?
 What ‘safe harbors’ were used?
REPORTING ISSUES

22. 22
For all plans (insured and self-insured), other
information will be needed for Form 1094-C, including:
• What types of coverage were offered to what
percentage of full time employees?
• Number of full time and total employees?
• Controlled group status for benefit plan purposes?
REPORTING ISSUES

23. 23
FORM 1095 - C

24. 24
For self-insured plans, additional employee specific
data is needed:
• Participant identification data (name, address,
SSN/DOB for spouses and children)
• Which calendar months during the year was each
participant covered?
REPORTING ISSUES

25. 25
BUILDING YOUR FILE
Systems needed to collect and monitor data
 Large employer status is an annual determination, which must be
monitored monthly
 Which employees are eligible and the amount that you charge for
insurance is an annual determination?
• Building your file
 How can you quickly prove to the IRS that you are meeting the two
tests?
 How can you quickly prove to the IRS that you offered benefits to a
sufficient number of employees?
 IRS Form 1094/5 compliance

26. 26
DOL increases scrutiny of welfare plan compliance
• DOL is increasing audit activity in the welfare plan area
 DOL investigate staff has significantly increased in size over
the last two years
 Over 70% of audits result in the plan sponsor paying some
type of penalty
• This will only be heightened as ACA becomes effective
OTHER ISSUES

27. 27
Program documentation
• Many employers have no or inadequate plan
documents relating to their welfare plans
 Insurance policies do not satisfy ERISA requirements as
summary plan descriptions
 Additional notices will be needed due to ACA
 Potential legal (participant) and regulatory (IRS, DOL)
exposure
• Use of “wrap plans” can reduce the number of
annual IRS Form 5500 filings that are required
OTHER ISSUES

28. 28
For IRS compliance, which is due February 1, 2016,
gathering the data should begin as soon as possible
2016 planning should be completed at least one month
before open enrollment
• Usually occurs in the early fall, contains the following
decisions:
 Which employees should be eligible for insurance?
 How much should employees be charged for single coverage?
 What programs should be offered?
WHEN IS THE REAL
DUE DATE?

29. 29
If you have any questions, or need additional
information, please contact:
Ted Ginsburg, CPA, JD
(440) 449-6800
tginsburg@skodaminotti.com
QUESTIONS?