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NEW ACA Developments and How They Impact SchoolsCASBO 2016 Conference | April 16, 2016Presented by: Shardé C. Thomas

© 2016 All rights reserved | www.lcwlegal.com 1

APRIL 13-16, 2016

NEW ACA Developments and How They Impact Schools

THESE MATERIALS HAVE BEEN PREPARED BY LIEBERT CASSIDY WHITMORETHEY HAVE NOT BEEN REVIEWED BY STATE CASBO FOR APPROVAL, SO THEREFORE ARE NOT AN OFFICIAL

STATEMENT OF CASBO

2016 CASBO ANNUAL CONFERENCE & CALFORNIA SCHOOL BUSINESS EXPO 2

Agenda

• ACA IRS Reporting

• Employer Mandate

• Transition Relief

• Affordability Determinations• Flexible Contributions

• Cash in Lieu

• Group Health Plan Mandates

• Cadillac Tax


ACA IRS REPORTING




Who Must Report?

• Health insurers and plan sponsors of self‐insured plans

• “Applicable large employers” • 50 or more full‐time employees, including FT equivalents


Reporting Deadlines Extended

• Due dates for IRS returns extended• February 29 May 31, 2016 for hard copy filing;

• March 31 June 30, 2016 for e‐file (required for more than 250 returns)

• Due date for written statement furnished to each employee extended

• January 31 March 31, 2016 (already passed)


Determining Forms to File




Reporting Penalties

• Failure to timely file correct return• $250 per return (up to $3,000,000)

• Failure to timely provide correct written statement to employee

• $250 per statement (up to $3,000,000)

• Intentional disregard of filing requirements• $500 per return (no calendar year cap)


Temporary Relief ‐ 2016

• For 2016 reporting (2015 data), IRS will not impose penalties if:

• Good Faith Effort

• Incorrect or Incomplete Info = No penalty

• BUT…Returns and Statements to Employees must be timely!


Action Items

Finalize Plan for Reporting

Create Internal Procedures

Revisit Vendor Contracts for 2017 and beyond

Calendar new IRS filing deadlines




EMPLOYER MANDATE


Large Employer Mandate

• Applicable Large Employers

• Trigger: FT employee purchases subsidized coverage in exchange

(Penalty A) Employer does not offer “minimum essential coverage” to “substantially all” FT employees & dependents; or

(Penalty B) Coverage offered is “unaffordable” or doesn’t provide “minimum value”


Avoiding Penalty A

Must Offer

• Minimum Essential Coverage to

• Substantially All

• Full‐Time Employees

• & their Dependents




Avoiding Penalty A

• “Offer”• Employees continuously covered under plan are considered to have been offered coverage each year until they dis‐enroll (“opt out”)

• Employees who opt out must be given a yearly offer of coverage


Avoiding Penalty A

• “Minimum Essential Coverage”• A group health plan!

• “Substantially All” • 95% of full‐time employees

•Dependents• Children up to age 26 (but not stepchild or foster child)

• Not spouses


Avoiding Penalty B

•Triggered by:• Failure to offer “Affordable Coverage” that Provides “Minimum Value” to Full‐Time Employees




Avoiding Penalty B

•What is “Minimum Value”?• A “Minimum Value” Plan =• An Employer Health Plan that covers at Least 60% of The Cost of the Total Allowed Benefits

•Actuarial determination

•Ask insurer/broker


Affordable Coverage

•Affordability Safe Harbors• Not measured against the coverage employee selects

• Measured against the lowest cost plan offered to employees for single, employee only coverage

• No requirement that dependent coverage be “affordable” to avoid penalties


Affordability Safe Harbors

• Increase in percentage of Affordability Safe Harbors

• 2015: increase from 9.5% to 9.56%

• 2016: increase to 9.66%

• Safe Harbor Options• Form W‐2

• Rate of Pay• Federal Poverty Line




Large Employer Mandate Penalties Increase• Penalty A

• 2015: $2,080/yr x # of FT employees less 80


• Penalty B• 2015: $3,120/yr x # of FT employees who obtain subsidized coverage through Covered California

• 2016: $3,240/yr x # of FT employees who obtain subsidized coverage through Covered California

*Will continue to increase annually


Large Employer Mandate Penalties Increase• Penalty A



• Penalty B• 2015: $3,120/yr x # of FT employees who obtain subsidized coverage through Covered California

• 2016: $3,240/yr x # of FT employees who obtain subsidized coverage through Covered California

*Will continue to increase annually


Action Items re: Employer Mandate Update Policies

• New Affordability Provision:

• “9.5%, or the applicable legal percentage for the calendar year”

Reassess Affordability

Reassess Potential Penalties




AFFORDABILITY DETERMINATION


Flex Contributions

• Flex contributions only help make premiums affordable for Employer Mandate if they qualify as “Health Flex Contributions”

• 1) Employee may NOT cash out;

• 2) Employee may use the amount to pay for minimum essential coverage; and

• 3) Employee can use the amount exclusively to pay for medical care.


Flex Contribution Example 1Liebertown USD offers employees coverage under a Section 125 cafeteria plan. An employee contributes $200 per month toward the cost of coverage. The District offers flex contributions of $600 for the plan year that can be used for:

• any benefit under the cafeteria plan, including a dependent care flexible spending account, or

• the employee may elect to receive the $600 in cash.

Is the District’s contribution a “Health Flex Contribution”?




Flex Contribution Example 2

Liebertown USD offers employees coverage under a Section 125 cafeteria plan. The employee premium for the lowest cost plan is $200 per month. The District offers flex contributions of $600 for the plan year that can only be used toward the health coverage or contributed to a health flexible spending arrangement.

Is the District’s contribution a “Health Flex Contribution”?


Transition Relief for Flex Contributions

•Plan years beginning before 1/1/17•Not available if arrangement with non‐health flex contribution:

• adopted after 12/16/15 or • if arrangement substantially increases amount of non‐health flex $$

•Can use the non‐health flex dollars toward affordability determination.


Action Items re: Flex Contributions Determine whether lowest cost plan is affordable without applying flex contributions?

If not affordable, determine whether flex contributions are “health flex contributions”?

If not affordable and not health flex contributions, must look at potential restructure.




Cash In Lieu

• Employee receives cash as incentive to opt out of health benefits

• Note: If offered outside of cafeteria plan, potential constructive receipt issue

• Employee electing nontaxable benefits (instead of cash) will be in constructive receipt of the cash he/she could have elected


Cash in Lieu

• 3 Potential Issues :(1) Can’t be applied to reduce employee’s premium

contribution for the affordability analysis (Employer Mandate);

(2) Whether it may have the effect of increasing employee contributions to the lowest cost premium (Employer Mandate);

(3) Is it a “group health plan” that must comply with the ACA group health plan mandates? (Group Health Plan Mandate)


Cash in Lieu – Issue #1

• Cash in Lieu can NOT be applied to reduce employee’s premium contribution for the affordability analysis (Employer Mandate)• Why?

• Employee is not required to use $ toward health/medical costs.

• Doesn’t satisfy health flex contribution definition.





• Cash in lieu payments have the net effect of increasing employee contributions above the premium contribution

• Example: Cactus USD requires Don to pay $200 per month for the cost of health coverage. At the same time, the District offers Kat $100 per month cash in lieu if Kat declines coverage. Therefore, the net effect of Don electing coverage costs him $300 per month because he is missing out on the $100 cash in lieu (that Kat gets) and has to provide a $200 salary reduction contribution.


Cash in Lieu – Issue #2 cont.

• Unconditional v. Conditional Opt Out• Unconditional: Opt out = get cash

• Conditional: Opt out + provide proof of group health coverage = get cash

• Treated Differently• Unconditional: Cash amount added to employee

premium contribution

• Conditional: May be ok (not added to premium); But rule pending further IRS guidance



• May not give cash to reimburse employee for coverage purchased through Covered California.

Why?

• Potential violation of ACA Group Health Plan Mandates




Action Items re: Cash in Lieu

Require Proof of Group Health Coverage as a condition to receive cash in lieu (update Policies/Contracts)

Labor Negotiations: ACA Re‐opener since regulations will be issued to address cash in lieu

Be on the lookout for new guidance & regulations


Health Reimbursement Arrangement (HRA)

• Employer contributions to HRA mayreduce employee’s required premium contribution for the Employer Mandate

• Only to the extent the employer’s contribution is required under the HRA

• Example: If the School District contributes a required $1,200 per year under an HRA, the employee’s required contribution will be reduced by $100 per month (1/12 of $1,200)


ACA GROUP HEALTH PLAN MANDATES




Group Health Plan Mandates

• All group health plans must comply with ACA Group Health Plan Mandates:

• Must include preventative care services

• No exclusions for pre‐existing conditions

• Coverage for children up to age 26

• No annual or lifetime dollar limits on essential health benefits.


Is the Arrangement a Group Health Plan?• Group Health Plans Must Comply

• HRAs (Health Reimbursement Arrangements)

• Health FSAs (that are not excepted benefits)

• Employer Payment Plans

• Don’t Need to Comply• Excepted Benefits

• Retiree Only Plan

• Less than two employee participants


Employer Payment Plan = Group Health Plan• One “for which [the employee] pays the premium directly to the insurers” and “the employer pays a part of such premiums upon proof that the insurance is in force and is being paid for by the employees.”

Revenue Ruling 61‐146




Meeting Group Health Plan Mandates• Not a group health plan = No penalties

• Group health plan = Ask:

Can the structure of the arrangement by itself, satisfy ACA Group Health Plan Mandates?

If yes = no penalties

If no = Ask: Can it be integrated with an ACA compliant group health plan?


Cafeteria Plan

• No integration = Failure to meet ACA group health plan mandates

• Employer’s cafeteria plan contributions cannot directly reimburse an employee for coverage purchased through Covered California (no integration w/ exchange coverage)

• Covered California plan is not group health plan


Penalties

• PHSA: $100 per day for each individual subject to arrangement’s failure to comply




Action Items – Complying with ACA Group Health Plan Mandates Identify arrangement (Health FSA; HSA;

HRA; cash in lieu; employer payment plan)

Determine whether arrangement is a group health plan

Does it comply with ACA on its own?

Is it integrated with a compliant group health plan?

Require Proof of Group Health Coverage for Opt Out


CADILLAC TAX


Cadillac Tax Postponed

• The Cadillac Tax has been postponed until 2020• A high plan cost excise tax

• Initially scheduled for 2018

• Applies to all plans

• Applies to many types of group health plans made available to an employee by an employer.




Excise Tax ‐ Penalties

• 40% on Excess Benefit over Threshold

• Threshold: $10,200 for individual coverage and $27,500 for family coverage for 2018.

•Multi‐employer plans: higher limit

• Individual = $850/month; Family = $2,291.67

•Other adjustments• Health cost; Age and gender; Cost of living


Questions?

Shardé C. ThomasAssociate | Los Angeles Office

310.981.2000 | [email protected]

www.lcwlegal.com/Sharde‐Thomas

2016 CASBO Annual Conference & California School Business Expo ©Liebert Cassidy Whitmore

NEW ACA Developments and How They Impact Schools

Employer Action Item Checklist for ACA

ACA IRS Reporting

Finalize Plan for Reporting Create Internal Procedures Revisit Vendor Contracts for 2017 and beyond Calendar new IRS filing deadlines

Employer Mandate

Update Policies/Procedures with flexible language for affordability percentage Reassess affordability based on increased percentage under Safe Harbor Reassess potential penalty exposure for budgeting/exposure

Flex Contributions

Reassess affordability if you offer flex contributions: Determine whether lowest cost plan is affordable without applying

flex contributions? If not affordable, determine whether flex contributions are “health flex

contributions”? If not affordable and not health flex contributions, must look at

potential restructure.

Cash in Lieu

Require proof of group health coverage as a condition for employee to receive cash in lieu (update Policies/Contracts, which may be negotiable)

Labor negotiations: include ACA re-opener (broad enough to cover potential penalties for employer offering cash in lieu)

Be on the lookout for new guidance/regulations

ACA Group Health Plan Mandates

Identify arrangement (Health FSA; HSA; HRA; cash in lieu; employer payment plan) Determine whether arrangement is a group health plan Does it comply with ACA on its own? Is it an excepted benefit? Is it integrated with a compliant group health plan? Require Proof of Group Health Coverage for Opt Out

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