lessons learned and ways to ease the pain - gpbch€¦ · affordable care act (aca) roundtable...

Affordable Care Act

(“ACA”) Roundtable

Lessons learned and

ways to ease the pain

April 19, 2016

2 Affordable Care Act (“ACA”) Roundtable Copyright © 2016 Deloitte Development LLC. All rights reserved.

Agenda

Background on the Affordable Care Act 3

8 Employer Reporting—IRC Sections 6055 and 6056

Employer Challenges 13

17 Lessons Learned

26 Questions and Answers

Background on the

Affordable Care Act


IRC

§4980H

Employer

Mandate

IRC

§5000A

Individual

Mandate

IRC

§36B

Premium tax

credit

Two provisions: the employer mandate (IRC §4980H) and the individual

mandate (IRC §5000A)

ACA Mandates

Requirement Mandate Reporting

“Applicable Large Employers” are required to:

a) Offer “Minimum Essential Coverage” (MEC)

to 95%* of full time employees (FTE) and

dependents** or pay $2,000/FTE

b) Offer MEC to FTE’s that provides minimum

value and is “affordable” or pay $3,000/FTE

when they obtain a subsidy

IRC §6056 Form 1094-C

Form 1095-C,

Parts I and II

All individuals must have minimum essential

health coverage

Annual Tax of that by 2016 is greater than

a) $695 fixed fee/adult (1/2 for child)

b) 2.5% of household income

IRC §6055 Form 1095-C,

Parts I and III

Employer will owe tax to make up for any

credit/subsidy obtained by an individual to

fulfill coverage

Form 1095-C,

Part II


Example: $2,160 workforce-wide penalty

In 2016, XYZ Company employs 1,000 full-time employees, including 6 interns (working full

time), 30 temporary workers (working full time), and 15 part time employees (previously

working full time)

• XYZ provides a group health plan to 949 employees, but does not offer health plan to 51

employees (less than 95% of FTE)

• 30 FTE exemption

• (1,000-30)*$2,160= $2,095,200

XYZ’s Penalty = $2,095,200

Employer mandate—No offer of coverage penalty

Reporting penalties Reporting penalties

Section 6721

The penalty for failure to file an information return

generally is $250 for each return. The total penalty

imposed for all failures during a calendar year

cannot exceed $3,000,000.

Section 6722

The penalty for failure to provide a correct payee

statement is $250 for each statement, with the

total penalty for a calendar year not to exceed

$3,000,000.

A provider of minimum essential coverage that fails to comply with the information reporting

requirements may be subject to the general reporting penalty provisions under (subject to the 2015

good faith efforts exception for inaccurate or incomplete information—but not failure to file):

• Responsible individual statements to

employees/covered individuals by January 31 of

the year following the calendar year (extended to

March 31, 2016 for 2015 returns)

• Return and transmittal form filed by March 31, if

filed electronically (or February 28 if not) of the

year following the calendar year (extended to

June 30, 2016 and May 31, 2016,

respectively for 2015 returns)


Why Tax should care—even if HR is handling

Forms 1094-C/1095-C need to be filed timely/accurately (subject to good faith efforts rules

applicable to 2015 returns—but these rules do not apply to post-2015 returns) and reporting

penalties have recently increased

The tax positions taken on the returns determine your Employer Shared

Responsibility Payment

The IRS will issue a Notice of Proposed Adjustment and assess an excise tax penalty for

your Employer Shared Responsibility Payment (IRC Section 4980H)

Failure to satisfy the ACA requirements can lead to tax assessments and may represent a

significant exposure

As employers are addressing the requirements for 2015, they are beginning to realize the

process for compliance may be more complex than they imagined (and some auditors are

requesting supporting information, controls/processes details and more)

Employer Reporting—IRC

Sections 6055 and 6056


• Public Exchanges—Forms 1095-A (and Form 1094-A is the transmittal form)

• Insurers—Forms 1095-B (and Form 1094-B is the transmittal form)

• Applicable Large Employers—Form 1095-C (and Form 1094-C is the

transmittal form)

− Filing made by each legal entity Employer

− Employer with fully-insured health plan completes Parts I and II

− Employer with self-insured health plan completes Parts I, II, and III

ACA information reporting: Form 1095/1094


1094-C

• Part I—General Information

• Part II—ALE Member

Information

• Part III—ALE Monthly

Information

• Part IV—Other ALE

Members of Aggregated

Group

1095-C

• Part I—Employee

Information

• Part II—Coverage details

• Part III—Covered individual

information

Form 1094-C


Part II Line 14 Employee offer and coverage codes

Form 1095-C—Series 1 codes

• 1A—Qualifying offer: Minimum essential coverage providing minimum value offered to full-time

employee with employee contribution for self-only coverage equal to or less than 9.5% mainland

single federal poverty line and Minimum Essential Coverage offered to spouse and dependent(s).

• 1B—Minimum essential coverage providing minimum value offered to employee only.

• 1C—Minimum essential coverage providing minimum value offered to employee and at least Minimum

Essential Coverage offered to dependent(s) (not spouse).

• 1D—Minimum Essential Coverage providing Minimum Value offered to employee and at least Minimum

Essential Coverage offered to spouse (not dependent(s)).

• 1E—Minimum essential coverage providing minimum value offered to employee and at least

Minimum Essential Coverage offered to dependent(s) and spouse.

• 1F—Minimum Essential Coverage not providing Minimum Value offered to employee, or employee and

spouse or dependent(s), or employee, spouse and dependents.

• 1G—Offer of coverage to employee who was not a full-time employee for any month of the calendar

year and who enrolled in self-insured coverage for one or more months of the calendar year.

• 1H—No offer of coverage (employee not offered any health coverage or employee offered

coverage not providing Minimum Essential Coverage).

• 1I—Qualifying offer Transition Relief 2015: Employee (and spouse or dependents) received no offer

of coverage, received an offer that is not a qualifying offer, or received a qualifying offer for less than

12 months.


Part II Line 16 Safe harbor codes, other relief

Form 1095-C—Series 2 codes

• 2A—Employee not employed during the month.

• 2B—Employee not a full-time employee.

• 2C—Employee enrolled in coverage offered.

• 2D—Employee in a section 4980H(b) limited non assessment period.

• 2E—Multiemployer interim rule relief.

• 2F—Section 4980H affordability Form W-2 safe harbor.

• 2G—Section 4980H affordability federal poverty line safe harbor.

• 2H—Section 4980H affordability rate of pay safe harbor.

• 2I—Non-calendar year transition relief applies to this employee.

Employer Challenges


3rd party

medical ASO

provider

Data analytics/

data warehouse

Benefits

enrolment Payroll

and HRIS

Timekeeping

External

files

Forms 1095

Employer systems Third party systems

Real time labor eligibility

and management

12

Preparation of the required Form 1095-C will require data from a variety of sources (internal

and external) that will have to be extracted, filtered, analyzed, and then compiled to produce

a single output used for each employee filing

It requires a lot of disparate data


• Before ACA Reporting even begins,

organizations have trouble identifying

who is in their controlled group.

• The data is never as clean as you think

it is.

• Data takes longer to gather, format, and

get right than originally thought.

It’s complicated


It’s different for each group of employees

Reportable Full-Time

Employees for each Employer

Seasonal

Temporary

Severance Interns

Contractors

Part-time or

flexible work

arrangements

Leave of

absence

Contingent

workforce

Job sharing

positions

Former

Employees

Multiple

work

locations

Mid-year

transfers

Employees

in waiting

period

Lessons Learned


• Some employers and their vendors may not be using all of the relevant data.

• ACA involves the transfer of a vast amount of PII.

• ACA has a serious impact on your employees.

• Decisions about which employees to cover can reflect strongly held organizational beliefs,

but those decisions have ACA implications.

• Different interpretations exist regarding certain aspects of Series 1 and Series 2 coding.

• The ACA process can lead to discovery of other issues.

• Multi-Employer Plan information is held by unions. Although there is

Safe-Harbor relief, substantiation issues exist

• Some organizations can reasonably expect to owe penalties.

There are lots of related issues


• Union employees

• Interns

• Temporary employees

• Temporary staffing hires

• Contractors

• Part time employees

• Employees who waive coverage

• Globally mobile employees

Problem children: Certain employee populations

create more issues than others

• Identify these populations early, determine how you capture their employment

status, understand what and when benefit eligibility exists and assess how you

communicate the necessary data to your vendor.

• Also, remember Union employee are YOUR EMPLOYEES and Contractors and

Temp Agency Employees MAY be YOUR EMPLOYEES. If so, a tax surprise

may result.


• Move from FT to PT and vice versa

• Rehires

• Move from one Employer to another

• Employees who change health care coverage due to a life event

• Employees who drop coverage mid year

• Retirees who become Medicare eligible but have dependents still on your plan

Problem children: Change in status or life events

• Rules are complex dealing with each of these scenarios and different elections are

possible that may reduce your administrative burden or create increased exposure.

Understand these and be proactive in addressing them.

• Know the difference between scheduled hours and Full Time Status for ACA

purposes and be able to track it.

• Determine how historical information rather than current state will be tracked


• Joint ventures, especially of small start-ups who are not in your plan but you reimburse for

health care costs

• Mergers and acquisitions

• COBRA participants

• Retirees

• Non-employees with special privileges—Board of Director members

• Key shareholder

• Partners

Problem children: Forgotten populations

• Identify all individuals you have contact with and assess how they may have

connections from a benefits perspective. If possible assimilate the benefits and the

administrator as soon as possible. Otherwise, identify if necessary data exists and

can be provided to you in the required format..

• Understand issues with one off plans and involve ERISA counsel if necessary


More fun: it doesn’t end when the forms are printed

• Ongoing monitoring

• CorrectionsJVs

• 1094-C signer

• Auditor requests

• Employee communications

• Mailing vs. electronic delivery

• AIR system

• SSN audits

• Data cleanup

• H&W plan updates

• IRS notice responses

• Updating call center documents

• Reviewing and revising processes

• Monitoring 4890h(a) penalties

• Develop Roles and Responsibilities and monitor their effectiveness

• Develop a strategy to identify problem areas and address through design solutions that are cost

efficient and in line with corporate benefits philosophy

• Outline and understand the controls that are in place to aid your compliance efforts

• Develop corrections log

• Develop data retention in all instances but especially in M&A situations

• Align leadership with the challenges and your strategic solutions


• Associate yourself with subject matter specialists in ACA Tax Law

• Coordination—between the ACA Tax specialists, benefit design and benefits administration

personnel and data or HRIS folks

• Start the process earlier.

• Give yourself enough time to identify all of the complex issues.

• Communicate:

− With your vendors: regular touchpoints between you and your vendor are essential to

manage all the moving parts of the ACA process.

− With your employees: clear communication is essential.

• Clearly delineate the responsible party/parties in each department (e.g. benefits, HR,

payroll, tax). Everyone needs to be committed and take ownership.

• Update contracts to confirm timely and accurate information is provided for 2016, due to

higher reporting penalty risks.

• Leading practice: analysis is performed and available throughout the year in order to

manage health costs, potential taxes due and reporting requirements

General considerations to make life easier down the

road


Analysis required due to Employer Mandate based on 30 hour FTE Definition

• Eligible hours are based on hours paid not just hours worked or the FTE hours of

the position.

• Equivalencies applied when hours not tracked

• Under popular “lookback” method, determination is made based on prior work period—

“Measurement Period”

• Measurement Periods have to be the same for similar employees

• Status remains constant for FT employee during following “Stability Period” even if actual

status changes

• Reporting is at legal employer entity level

Employer mandate challenges


Auditor inquiries may include whether an employer has sufficient controls, processes and

procedures in place to accurately and properly determine:

• applicability of employer mandates and potential penalties owed

• full-time employee population

• offer of coverage to full-time employees and dependents

• affordability of lowest cost single only coverage offered (not enrolled in)

• whether the coverage offered meets minimum value requirements

• compliance with reporting requirements

Auditors may also ask about methodologies used, data sources, data validation,

documentation, use of specialists, tracking of new developments and triggers for liability

re-calculation (e.g., monthly calculations and M&A transactions)

Auditors may consider account significance (e.g. not only size, but risk considerations like

type of employees, number of entities, whether management has limited resources and

past history)

Auditor information requests

Questions and Answers


This presentation contains general information only and Deloitte is not, by means of this

presentation, rendering accounting, business, financial, investment, legal, tax, or other

professional advice or services. This presentation is not a substitute for such professional

advice or services, nor should it be used as a basis for any decision or action that may affect

your business. Before making any decision or taking any action that may affect your

business, you should consult a qualified professional advisor. Deloitte shall not be

responsible for any loss sustained by any person who relies on this presentation.

About this presentation

As used in this document, “Deloitte” means Deloitte Tax LLP, a subsidiary of Deloitte LLP. Please see

www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.

Certain services may not be available to attest clients under the rules and regulations of public accounting.

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