aca and doma - bolton & company...3 doma and the windsor decision u.s. v. windsor •in u.s. v....

ACA and DOMA

November 2013

Peter J. Marathas, Jr.

[email protected]

© 2013 Proskauer. All Rights Reserved.

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DOMA &

Windsor


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DOMA and the Windsor Decision

U.S. v. Windsor

• In U.S. v. Windsor, the U.S. Supreme Court held (in a 5-4 decision) that

Section 3 of DOMA is unconstitutional

• However, Section 2 of DOMA, which allows states to refuse to recognize

same-sex marriages performed under the laws of other states, was not

addressed in Windsor and remains intact

Before 2004, same-sex marriage was not permitted in any state in the U.S.

Almost 10 years later, same-sex marriage is permitted in 13 states and the

District of Columbia (2 of those state laws became effective August 1); several

other states recognize civil unions and domestic partnerships

• Windsor does not require employers in states that do not recognize

same-sex marriage to offer group health plan coverage to same-sex

spouses


Rule of Celebration

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• Impact on Health and Other Welfare Plans:

Same-Sex Spouse (SSS) Coverage


State Recognizes Same-Sex Marriage: SSS

Coverage Required

Fully Insured

State Does Not Recognizes Same-Sex

Marriage: SSS Coverage Not Required

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State Recognizes Same-Sex Marriage: SSS

Coverage May Be Required

Self Insured


Marriage: SSS Coverage Not Required

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State Recognizes Same-Sex Marriage:

State Tax: No

Federal Tax: No Tax Imputation


Marriage & SSS Coverage Offered:

State Tax: Yes

Federal Tax: No, if married in

Same-Sex Marriage

State

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• Other Welfare Plans:

Health FSA

Dependent Care FSA

HRAs

COBRA

HIPAA (Portability)

HIPAA (Privacy)


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• Impact on Retirement Plans:

Spousal Benefits & Rights

QDROs

Notices

RMD’s

Beneficiaries

Rollovers

Hardship Distributions


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• Check Processes and Procedures

• Consider whether to communicate

• Amend Plans and SPDs (to the extent

necessary)

• Determine process for re-claiming

withholdings

• Confirm with TPA’s that they are conforming,

especially in multi-state jurisdictions


11 © 2013 Proskauer. All Rights Reserved.

The Affordable

Care Act

Level Setting The Concepts & Rules


Individual Mandate

• Beginning in 2014, all individuals must maintain health insurance for themselves and their dependents, with some exceptions

• Required to maintain “minimum essential coverage,” which includes

• employer coverage

• individual coverage

• grandfathered plans, and

• federal programs such as Medicare and Medicaid

• Penalty for not maintaining coverage is the greater of a flat-dollar penalty or

a % of income penalty

Per Adult Per Child (<age 18) Family Max OR % of income

2014 $95 $47.50 $285 1%

2015 $325 $162.50 $975 2%

2016 $695 $347.50 $2,085 2.5%

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Household Income Level

(% of Federal Poverty Level)

Maximum Premium as

Percentage of Income

Less than 133% 2.0%

At least 133% but less than 150% 3.0% – 4.0%




At least 300% but less than 400% 9.5%

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Premium Subsidies

Medicaid Expansion

© 2013 Proskauer. All Rights Reserved. 15

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Household

Income

Covered California (Age 32; San Jose; Monthly Subsidized Premium)

Family Size

1 2 3 4

$15,000

$20,000 $85 MEDI-CAL

$25,000 $144 $94

$30,000 $209 $187 $104

$35,000 $277 $210 $156 $114

$40,000 $317 $276 $216 $164

$45,000

$318

$346 $276 $221

$50,000 $396 $343 $280

$55,000 $435 $411 $343

$60,000 $475 $409


Exchanges

Exchange Approach*

*Kaiser Family Foundation


• October 1 Sign Up:*

• Federal Exchanges: “I can’t tell you, because I don’t know.” Kathleen

Sebelius

Exchanges—Implementation

• State Exchanges:* 80,000 Nationally

40,000 New York

28,000 California

*Kaiser Health News, as of 10/13/2013

Exchanges—Implementation

Employer/Insurance Mandates

Employer Mandates

• Many new reporting, disclosure and other

requirements

Recordkeeping will become extremely important

• Penalties in 2015 for not providing “affordable”

health insurance

• Penalties for not complying with reporting and

other obligations

• Taxes & Fees

Non-Discrimination Rules

90 Day Enrollment

Exchange Notice

Employer annual reporting of employee coverage

Summary of Benefits and Coverage (SBC)

W-2 reporting of employer-sponsored coverage

No Annual/Lifetime Limits

Preventive care

No evidence of insurability/pre-ex conditions

Market reforms

Wellness Incentives

Automatic Enrollment (over 200) (No Effective Date Yet)

Key Employer/Insurance

Requirements

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Non-Discrimination

• Intended to be effective in 2010 for all non-grandfathered

fully insured plans

• IRS delayed effective date until regulations are released

• Rules Prohibit Discrimination in Favor Of Highly

Compensated Employees [HCEs]

• HCE = Top 25% highest paid

• HCE’s Determined on a Controlled Group basis

• Note: Non-discrimination rules already apply to self-

insured plans

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Non-Discrimination

May not discriminate in terms of Eligibility or Benefits

Eligibility

Benefits

Percent

Participating Test

or “Reasonable

Classification”

No Benefit to Any

HCE Unless to ALL

Non-HCEs

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Non-Discrimination

Penalty

$100 per day per

Affected Persons—

To Lesser of 10% of

Premium or

$500,000

Non-HCEs Affected

Persons

Play or Pay Requirements

• Effective January 1, 2015

• Play or Pay applies to applicable large employers (ALE’s)

• Company is an ALE if it has on average 50 full-time equivalents (FTE’s) in preceding year

• FTEs are Counted Across the Controlled Group


90 Day Enrollment

• Effective 1st Day of 1st Plan Year on or After 1/1/2014

• Eligible employees must be offered coverage within 90

days

Not first day of the month after 90 days

• Special Rules—Probationary Period:

Probationary periods (cumulative hours of service

requirements) are permitted

Must be limited to 1,200 hours

Employee must be offered coverage within 90 days of end

of probationary period

Can be used only once

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90 Day Enrollment

• Special Rules—New Variable Hour Employee

If eligibility is conditioned on working a certain number of hours

(e.g., 30 hours per week or 250 hours per quarter) or on a full-

time basis, and it’s not known if a newly hired employee will

meet the requirements, an employer may use a “reasonable

time period” to determine eligibility

Must not be designed to avoid compliance with the 90-day

waiting period limitation

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90 Day Enrollment


Measurement may begin on any date between the employee’s

start date and the first day of the next calendar month, and

may not exceed 12 months

Waiting period of up to 90 days may be imposed once the

employee is determined to be eligible for coverage.

In all cases, coverage must be effective no later than 13

months from the employee’s start date, plus any time

remaining until the first day of the next calendar month

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90 Day Enrollment


• Employer has up to 13 months (plus a fraction of a month)

to determine if a new variable-hour employee will work, on

average, at least 30 hours or more per week

Example:

Employee’s Date Of Hire: November 15, 2013

Initial Measurement Period: 11/15/13 – 11/14/14

Permitted Employer Administrative Period: 11/15/14 – 12/31/14

Coverage Effective Date: January 1, 2015

Time between DOH and Effective Date: 13+ months

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Exchange Notice

• Was to be provided to all employees by October 1,

2013

• To new hires immediately or within 14 days

• Delivery may be by first-class mail or in accordance

with the DOL’s electronic disclosure requirements

Hand delivery acceptable—e.g., include in new hire packet

• DOL has acknowledged no statutory penalty under the

FLSA for failure to provide notice

• Other causes of action may be available, including

under ERISA

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Employer Reporting

• Proposed Regulations Released September 10, 2013

• Reporting for purposes of Code §§6055 & 6056

• §6055: Information Reporting of Minimum

Essential Coverage (“MEC Reporting”)

• §6056: Information Reporting by Applicable Large

Employers on Health Insurance Coverage

Under Employer-Sponsored Plans

(“Shared Responsibility Reporting”)


Average of 50 FTE/month in prior year

FTE = each full-time employee (30 hours

per week) that month + (all part-time

hours that month (up to 120 per ee) / 120)

Repeat for each month, sum, divide by 12

Reduction for Seasonal Employees (120

days / 4 month standard)

Common law employee rules apply

All hours count—no exceptions for temps,

students, interns, etc.

Counting is done on a controlled group

basis

Play or Pay—Level Setting the Rules

• Applies to Applicable Large Employers (ALE)—Delayed to 2015

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Are You An

ALE?

Play or Pay Penalties


Insurance Not Offered to at least 95% of full-time employees and children

At least one full-time employee obtains subsidized coverage on exchange

$2,000 X each full-time employee (reduced by first 30)

Penalty assessed monthly; on EIN basis

No

Insurance



Affordable Insurance Not Offered to all full-time employees and children

At least one full-time employee obtains subsidized coverage on exchange

$3,000 X each full-time employee who obtains subsidized coverage on exchange

Penalty assessed monthly; on EIN basis

No

Affordable

Insurance



Offered to all full-time employees and children

Lowest Cost Plan, Individual Coverage Does not Exceed 9.5% of “household income”

Plan reimburses at least 60% actuarially (bronze plan)

Affordable

Insurance

Affordable Insurance

• Cost of single coverage for employer’s lowest cost plan

(60% plan) exceeds 9.5% of “household income”

November 5, 2013 Title of Presentation | FileSite Number 38

Household

Income

IRS has provided Three Safe Harbors

W-2 Wages (box 1)

Rate of Pay

Federal Poverty Level Calculation

Affordable Insurance

• Rate of Pay Safe Harbor

• Rule permits employer to assume employee works 130 hours per

month

130 hour threshold must be used regardless of actual hours

worked

Hourly Rate of Pay Maximum Monthly Contribution

$10 $123.50

$20 $247.00

$30 $370.50

• Contribution cannot exceed 9.5% of hourly rate of pay multiplied

by 130 hours per month (use monthly salary for salaried EEs)

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Rate of Pay Monthly Premium Annual Premium

Individual Coverage; Employer’s Lowest Cost Plan

$15,000 $118 $1,416

$20,000 $158 $1,896

$25,000 $197 $2,364

$30,000 $237 $2,844

$35,000 $277 $3,324

$40,000 $316 $3,792

$45,000 $356 $4,272

$50,000 $395 $4,740

$55,000 $435 $5,220

$60,000 $475 $5,700

Some Rules


Full Time Employees (30 hours

per week/130 hours per month)

Common law employees

All Hours Count

No Special Relief for Temporary

Employees

Some Rules


Seasonal Employees Seasonal Employees are treated as

variable-hour employees

Employers are not held to the 4

month/120 day limit for seasonal

employees (i.e., an employee

working in excess of 4 months may

be considered “seasonal” for

measurement/stability periods)

Some Rules


Hours of service = hours worked

and hours paid but for which no

work was performed (e.g., PTO,

FMLA, deployment leaves,

disability, etc.)

Salaried workers use actual

hours, or 8 hours/day or 40 hours

per week standard

Some Rules


Adjunct Faculty

Commissioned Salespeople

Truck Drivers

Employers May Use A Reasonable

Methodology but must account for

all hours worked, including prep

time, etc.

Variable Hour Employees



Responses

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Responses: Offering Skinny Plans


Skinny Plan Approach—

Coverage is either not affordable or does not reimburse at 60%

value (or both)

The Play—keeps employer out of the “no offer of coverage” penalty

structure

Coupled with Communication Strategy to Drive Employees to No

Penalty Inducing Coverage (no penalty for enrolling employees)

Penalty is then $3,000 per Employee Who Doesn’t Enroll and

Receives Subsidized Exchange Coverage Instead

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Responses: Offering Skinny Plans


No Penalty Inducing Coverage

Medicaid

Parent’s Plan

Spouse’s Plan

Catastrophic Plan

Push to:

Word of Caution

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• Employees Determined on “Common Law” Basis

• Employers with “independent contractors” or large

contingent of foreign employees who travel to U.S.

could trip into “No Coverage Penalty” even when

offering coverage to “95% of full time employees”

• Government may (will) disagree with “independent

contractor” designation

• “Substantial presence” test may indicate US taxpayer

“Defined Contribution” Model

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• Employer Funds HRA or FSA or Premium Reimbursement Account

• Employees encouraged to purchase exchange insurance

• Employer then pays “No Insurance Penalty” if employee receives

subsidy as well

• IRS Guidance Clarifies:

• HRAs/FSAs/Premium Reimbursement Accounts Not Linked to An

Employer Plan Do Not Meet Annual Limit or Preventive Care

Requirements

• Strategy Does Not Work

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Response—Shifting to Part-Time


• Businesses across the country are reconfiguring labor

market

• July Jobs Report—

• Of 144 million Americans employed in June, only

116 million were working full-time

• Looking on the bright side: 58.7% of the civilian

adult population of 245 million was working last

month

• But only 47% had a full-time job

• Reuters: 3 out of every 4 new jobs this year are part-time

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Some Responses


• Administration Response:

• Increased part-time jobs are

“anecdotal”—K. Sebelius

• “No data to indicate businesses are

not hiring full-time employees

because of the 30-hour mark.”—J.

Carney

Anecdotes

• Teamsters President James Hoffa: Obamacare will

"destroy the foundation of the 40 hour work week that is the

backbone of the American middle class.“

• "It IS happening…Wait a year. You'll see tremendous

impact as workers have their hours reduced and their

incomes reduced. The facts are already starting to show

up. [The Obama Administration’s] statistics, I think, are a

little behind the time.“ Joseph Hansen, president of the

United Food and Commercial Workers union, which has 1.2

million members.

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Anecdotes


Potential Responses

• Senators Susan Collins (R-ME) and Joe Donnelly (D-

IN) introduced: Forty Hours is Full-Time Act of 2013

Bill will likely go nowhere

• Employees may actively choose part-time employment

in retail and other industries

Employer offering affordable coverage prohibits subsidized

coverage on exchange

Affordable is not affordable to employee

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Rate of

Pay

Affordable

Employer

Coverage

(Individual Only—

Bronze Plan)

Subsidized Coverage (Western State—Urban Location)

Family Size

1 2 3 4

$15,000 $118

$20,000 $158 $85 MEDI-CAL

$25,000 $197 $144 $94

$30,000 $237 $209 $187 $104

$35,000 $277 $277 $210 $156 $114

$40,000 $316 $317 $276 $216 $164

$45,000 $356

$318

$346 $276 $221

$50,000 $395 $396 $343 $280

$55,000 $435 $435 $411 $343

$60,000 $475 $475 $409

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Other Responses


—Hits Reset on Retirees

• About 110,000 Medicare Eligible Retirees

Getting the re-Boot

• Extend Health hired to facilitate move to

exchange coverage

• IBM to provide annual cash to purchase

insurance

• Effective 1/1/2014

• Will other large employers follow suit?

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Other Responses


—Ships Off Spouses • Affects approximately 15,000 of 33,000 currently

covered spouses

• Nonunionized only

• “Change is consistent with the way many large

employers are responding to the costs associated

with the Health Care Reform legislation”

• FAQ Threatens termination and repayment of

benefits for those who cheat

• Predicts that “35% of companies” plan to do the

same

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Government Response


• September 11: IRS Announces it will immediately start

auditing the top 200 managers at both IBM and UPS

• Ok, I made that one up…but you believed it

aca and doma - bolton & company...3 doma and the windsor decision u.s. v. windsor •in u.s. v....

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