ACA Tax Reporting and Cadillac Tax Update for the Blissfully Ignorant Employer

Key Compliance Issues for Governmental Employers

Tuesday, November 10, 2015

Presented by:

Mark Holloway, JD, LLM, CEBSSenior Vice PresidentCompliance Services, Lockton Benefit Group

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ACA Big Picture

ACA Information Reporting

Cadillac Tax

Other issues for 2016

Agenda

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What’s New with ACA in 2016. . .

Employer Mandate End of transition relief from the employer mandate ACA tax reporting required for CY 2015, in early 2016 For employers with 50+ FT/FTEq in 2014

ACA Litigation Unlikely U.S. Supreme Court will hear any additional appeals Dave & Busters case – reduction in scheduled work hours =

ERISA retaliation?

Legislative Changes PACE law allows states to leave definition of small group

legislation at 50 of fewer employees Auto enrollment repealed

ACA Information Reporting

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ACA Employer Reporting—Who?

Which employers are required to report*?

Employers providing self-insured coverage Must report on anyone who had that coverage for

even a single day

Employers subject to the employer mandate Must report on coverage offers made to full-time

employees Also must report coverage offers to dependents of

full-time employees These offers can disqualify the dependents from receiving

the tax credit

Options for employer compliance: Outsourcing—Limited capacity quickly drying up In-house—may involve internal systems (PeopleSoft)

or third-party solutions developed to handle this compliance reporting More on that in a moment

* Reporting applies on EIN-by-EIN basis; transmittal form

requires information on companies in controlled

group

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ACA Reporting

IRS

Exchange

Data Hub

HHS

Form 1094-B Transmittal of Forms 1095-B

Insurer

Form 1094-C Transmittal of Forms 1095-C

Form 8962

Employee Receiving Tax Credit

Annual Filing (Form 1095-A?)

Employer

Form 1095-C

Form 1095-A

Form 1095-B

Monthly Report

Focusing on reporting by employers subject to employer mandate

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ACA Reporting – The Tax Forms

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Employer Reporting - Summary

Form Used by...

1095-B Insurers, to report coverage provided to primary insureds and their dependents; form is supplied to the covered primary insured, copy to IRS

Non-ALEs providing self-insured coverage; optionally, ALEs providing self-insured coverage to non-employees (retirees, partners, outside directors, COBRA beneficiaries, contractors, etc.)

1094-B Insurers, non-ALEs and ALEs (as applicable) to transmit the individual Forms 1095-B to IRS

1095-CParts I and III

ALEs* to report self-insured coverage provided to any primary insured (full-time or part-time employees, partners, outside directors, COBRA beneficiaries, independent contractors, etc.) for at least a day, and their dependents; form is supplied to the primary insured, copy to IRS

1095-C Parts I , II and maybe III

ALEs* to demonstrate adequate coverage offers to individual full-time employees (Tier 2 compliance)

If the full-time employee is covered under insured coverage, or not covered under any coverage, he or she receives just Parts I and II from the employer

If covered under self-insured coverage, he or she receives Parts I, II and III

Copy supplied to IRS

1094-C ALEs* to transmit the individual forms 1095-C to the IRS, and demonstrate Tier 1 compliance

* Without regard to the 50-99 exemption for 2015

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The Forms, Submission Process, Due Dates & Extensions

When: To full-time employees and other covered primary insureds: February 1, 2016 May apply for a discretionary 30-day waiver by sending letter to IRS; Lockton has a model letter Consider the employee relations issues related to extensions

To IRS: February 29 (paper forms), March 31 (e-filing) May obtain automatic 30-day extension on Form 8809; may apply for second, discretionary

extension on separate Form 8809 May submit Form 8809 via IRS FIRE system

Extensions must be requested BEFORE the applicable due date…you can’t be late, and then file for an extension to excuse your tardiness

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Issues and Concerns with the Forms/Data Collection

Multiemployer, collectively bargained plans (where employer contributes to trust fund for union employees) For 2015, simplified reporting if union plan offers MV, affordable

coverage No need to determine if union employee actually enrolls in coverage Unclear if rule will be extended to 2016 and beyond

Governmental employers Controlled group determination: Good faith determination, for

now, as to entities in the controlled group Transmittal form, 1094-C, requires controlled group information

Transmittal of ACA Forms to IRS Governmental unit can delegate responsibility for transmission of forms

to another governmental entity (“Designated Governmental Entity” -DGE)

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ACA Reporting: Trouble Ahead

The time needed to complete and file this form will vary depending on individual circumstances. The estimated average time is:

Form 1094-C 4 hoursForm 1095-C 12 minutes

of mid-sized employers indicated that they do not have an in-house or outsourced solution in place to track hours and submit the required reports

90%

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Vendors and the DIY Option

Three main categories of vendors…

Comprehensive: The vendor and employer work to establish a direct data feed from the employer’s payroll and benefits system…vendor’s process takes the data, applies logic to it and generates appropriate codes in the appropriate boxes on the appropriate forms, and generates, mails to employees and files with the IRS the appropriate forms.

Forms with Partial Employer Input: There’s a data feed – might be handled via a schema or spreadsheets supplied to and returned by the employer – but the employer’s data must include employer-determined codesfor the appropriate boxes. Form generation, filing and mailing to employees are additional options.

Forms Only, Complete Employer Input: Basically, simple software that allows the employer to populate the form, print, mail and file. Some variations on this will have the vendor converting the employer’s file to the IRS-approved format and e-filing with the IRS…

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Vendors and the DIY Option

Three main categories of vendors…and the DIY option…

DIY: Employer takes the forms, and a pen, and has at it…prints and files on paper Employers filing 250 or more returns with the IRS

must file electronically unless they obtain a waiver of the e-filing requirement

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Data You May Not Be Capturing

Employee Offer of Coverage Code for each month in plan year (Part II, Row 14, 1095-C)

Employee share of the lowest monthly premium (minimum value where applicable) (Part II, Row 15, 1095-C)

Employee Applicable 4980H Safe Harbor Code by Month (Part II, Row 16, 1095-C)

Social Security Numbers for dependents enrolled on your medical benefits plan (Part III, 1095-C)

Name of person to contact and contact number at Applicable Large Employer Member (Part I, Rows 15-16, 1094-C)

Total count of 1095-C documents submitted with 1094-C transmittal (Part I, Row 18, 1094-C)

Full-time employee count by month (Part III, Rows 23-35, Column B, 1094-C)

Total employee count by month (Part III, Rows 23-35, Column C, 1094-C)

Aggregated group information when applicable (Part IV, 1094-C)

Place to document employee Notice of Subsidy form, with aggregated data for reconciliation or defense (when required)

COBRA Participant information

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ACA Vendor Technology Options – Pricing Experience

ACA Support - Existing HR/ Payroll or Ben Admin system•Data capture capabilities; eligibility tracking, etc.•As low as $0; pricing increase as levels of compliance support increase

Forms/ IRS Reporting – Manual Coding•Desktop or Cloud based, some data feeds, employer responsibilities•Starting at $500 for entire set up; additional costs for forms printing and submission to IRS

Forms/ IRS Reporting – Code Mapping•Data aggregation and code determination using logic•$3,000 to upwards of $15,000. Forms $1.00-$300

Compliance and Forms/ IRS Reporting•Stand-alone or in conjunction with existing HR/Payroll or Ben Admin Technology•Starting at $0.35 PEPM up to $1.50 PEPM; implementation $5,000 and up

Compliance, Forms/ IRS Reporting, Strategic Analysis, Consulting Services – Total Outsourcing of ACA Compliance•Stand-alone or in conjunction existing platforms•As low as $3.00 PEPM – upwards of $8.00 PEPM/ Implementation $10k – 75k

Cadillac Tax

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What is the Cadillac Tax?

Beginning in 2018, a 40 percent non-deductible excise tax on health benefits with values exceeding $10,200 individuals; $27,500 for “other than individual coverage” (indexed) Multiemployer (union) plans can use $27,500 for single

and family coverage

Is it really a 40% tax? For insurers, the tax will be built into premium rates;

premium payments are taxable income to insurer Net tax effect = 60% tax

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Overview

Policy argument that unlimited, tax-free nature of healthcare results in inefficiencies and increased costs

Cadillac tax is intended to slow growth of health costs and be a revenue raiser that helps offset the $1 trillion cost of the ACA.

We need to tax benefits like the ones that the executivesat Goldman Sachs have, the $40,000 policies. -White House, 2009

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Congress’s Estimate of Plans Impacted (2010)

As time marches on, more plans will be subject to the tax:

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A Real Life Example – CT Employer/Projected Tax 2018 PE/PY

$3,841 (EE only)$8,328 (Family)

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Lockton’s Clients (national - 2015)

Percentage of all clients triggering the Cadillac Tax

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Cadillac Tax – IRS Guidance

IRS has issued two RFIs February 2015 – structural issues, definitions July 2015 – procedural and payment issues

IRS proposed regulations later this year or in early 2016

H.R., 2050, “Middle Class Health Benefits Tax Repeal Act of 2015” Bill would repeal the Cadillac tax (145 co-sponsors in House); companion bill

introduced in Senate But where does Congress get the $85+ billion?

http://www.fightthe40.com/

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What’s Included in the Cadillac Tax?

Major medical coverage IRS: “How do employers develop COBRA rates?”

HSA contributions Employer and pretax employee But not after-tax employee contributions

Health FSA benefits

HRA allocations

Executive physicals

On-site clinics Exception for clinics providing minimal care IRS asked for comments on this

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How Would the Tax Work?

Example AAn employee chooses family coverage under an insured employer-sponsored plan.

The employer reports $1,000 as taxable to the

insurer, which remits the 40 percent tax

($400) to the Internal Revenue Service.

Total value of employee’s healthcare coverage $28,500

Threshold for family coverage in 2018 -$27,500

Amount subject to the excise tax $1,000

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How Would the Tax Work?

Example BAn employee elects family coverage under an insured employer plan with an HRA. The employee also contributes to a health FSA.

The employer reportsthe taxable amounts:

$1,695 to the major medical insurer

($2,000 x $25,000/$29,500)

$136 to the administrator of the HRA

($2,000 x $2,000/$29,500)

$169 to the administratorof the spending account($2,000 x $2,500/$29,500)

The insurers and the administrator calculate and

remit the taxes. If the employer administers the FSA and HRA, the employer has to calculate

and remit the taxes.

Value of employee’s healthcare coverage $25,000

Value of employee’s HRA $2,000

Employee contribution to the flexible spending arrangement +$2,500

Total value of employee’s healthcare coverage $29,500

Proposal’s threshold for family coverage in 2013 -$27,500

Amount subject to the excise tax $2,000

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Implications/Issues

PRE-65 RETIREE MEDICAL: EMPLOYERS CONTINUE TO EXIT

ACTIVE EMPLOYEES:

Raise deductibles and copaysEliminate Health FSAs and Pretax HSA

ContributionsOn-site clinic impact?

REVIEW YOUR CBAS FOR UNION EMPLOYEES

LEGISLATIVE FIX NEEDED

Where does Congress get the money?

Other Issues

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On the Horizon- ACA

Self-funded plans owe Transitional Reinsurance Fee ($44) Must complete filing at pay.gov by Nov. 15, 2015

Cash opt out and affordability

Issues in a regulatory black hole New 105(h) regulations Auto enrollment rules

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On the Horizon- Other

HIPAA audits, round #2 Focus will include employer plans and their business associates

EEOC final regulations on wellness incentives

Transit vouchers Effective 1-1-16, cash reimbursement of transit expenses is not

allowed if the employer is able to purchase transit vouchers without incurring substantial costs (the so-called “readily available test’). Where a transit system offers terminal-restricted debit cards for no

substantial additional fees, the employer must purchase the vouchers and distribute them to its employees

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Looking for More to Read?

Alerts on late breaking news http://www.lockton.com/insights/channel/alert/ category/employee-benefits

Health reform blog http://www.locktonhealthreformblog.com

H E A L T H R E F O R M

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Any Questions?Mark C. Holloway, JDSenior Vice PresidentLockton Benefit Group444 W. 47th Street, Suite 900Kansas City, MO 64112 816.960.9567 816.783.9567mholloway@lockton.comwww.lockton.com

H E A L T H R E F O R M

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