the affordable care act - agc

2/4/2013

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Download slides and handouts for today’s presentation at http://downloads.agc.org/product/WB187A Download slides and handouts for today’s presentation at http://downloads.agc.org/product/WB187A

PART 1: Employer Provided Health Care…Then and Now

The Affordable Care Act: The Impact of Health Care Reform on Your Construction Business

February 5, 7 & 12, 2013

Lauren B. Dunn

AssociateFoster Swift Collins and Smith PC

[email protected]

Johanna M. Novak

ShareholderFoster Swift Collins and Smith PC

[email protected]

Tamika C. Carter (Host)

Director, Construction HRAGC of America

[email protected]

Download slides and handouts for today’s presentation at http://downloads.agc.org/product/WB187A

History of Health Insurance

• 1929: Baylor University Hospital began to offer teachers,

newspaper employees, and bankers 21 days of

hospitalization per year in exchange for .50 cents per

month.

• By 1932, 670,000 Americans were covered by this type of

hospital-based insurance.



• World War II: Federal government instituted limits on the

wages that employers could pay to employees.

• Employers looked to other ways in which to attract a

skilled workforce, and decided to provide health

insurance to employees.

• 1940: 1.3 million covered

• 1945: 32 million covered

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• Tax law was changed to provide that health benefits

offered to an employee were tax deductible to the

employer and were a tax-free benefit to the employee.

• In 1965, Medicare and Medicaid were introduced.



• By 2011, 82% of Americans (253 million) had

some form of health insurance coverage.

• 18% of Americans (48 million) were uninsured.



Of those insured…

Medicaid 20%

Employer 56%

Individual Policy 6%

Medicare 18%

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Health Care Reform Law

• Patient Protection and Affordable Care Act

• PPACA

• ACA

• ObamaCare

• Signed on March 23, 2010.

• First lawsuit filed 7 minutes later.

• Over 30 lawsuits filed to date.

• Multiple legislative attempts to repeal.


Goals of Health Care Reform

• Reduce number of uninsured (to 10%)

• Reduce health care costs for everyone. How? Medical

providers understand that nearly 20% of their patients

are uninsured and likely not able to pay for services

rendered. To combat this, insured patients are charged

more.


Lifetime Limits

• Lifetime limits on the dollar value of essential health benefits are prohibited.

• There are ten types or categories of essential health benefits, including prescription drugs, hospitalization, and maternity and newborn care, among others.

• Lifetime limits on the dollar value of non-essential health benefits are permitted.

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Annual Limits• Starting January 1, 2014, there can be no annual limit on the dollar

value of essential health benefits.

• Until that date, a “restricted annual limit” on the dollar value of essential health benefits is permitted. For 2013, the “restricted annual limit” is $2 million.

• Annual limits on the dollar value of non-essential health benefits are permitted.

• Per visit limits are permitted, even on essential health benefits.


Adult Child Coverage

• The general rule is that a plan that offers coverage to dependents has to allow adult children to stay on the plan until the age of 26, even if the adult child is married and/or has other coverage available.

• Exception: A grandfathered plan only has to allow an adult child to remain enrolled if the adult child has no other coverage available. This exception expires in 2014.


Preventive Care Services

• The general rule is that plans must now provide first

dollar coverage for preventive health services, such as

physicals and immunizations. This means that co-

payments and deductibles do not apply to these services.

• Exception: Grandfathered plans are exempt from this

general rule.

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Rescissions

• Plans and insurers can no longer rescind coverage except

in cases of fraud or intentional misrepresentation of

material fact on the part of the insured person.

• A rescission is a retroactive cancellation of coverage.

• Plans are still permitted to cancel coverage back to the

last paid date.


Over-the-Counter Drugs

• Starting in 2011, health flexible spending accounts and

health reimbursement accounts became prohibited from

reimbursing the cost of OTC drugs obtained without a

prescription, except for insulin.


Flexible Spending Account Limitations• Starting with the first plan year that begins after 12-31-2012, there will be a

$2,500 limit on annual employee salary reduction contributions to health flexible spending accounts offered under cafeteria plans.

• The limit applies to employee contributions only, and not to any employer contributions.

• Employer contributions will be disregarded when determining whether the $2,500 limit has been exceeded.

• The $2,500 limit will be indexed for cost-of-living adjustments after December 31, 2013.

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Flexible Spending Account Limitations• The $2,500 limit applies on a per-employee basis.

• A husband and wife can both contribute up to $2,500 to their own FSA, even if they work for the same employer and participate in the same FSA plan.

• Unused contributions that carry over into a grace period do not count against the limit.• Use-it-or-lose-it rule being reconsidered by IRS.

• Plan documents must be amended by 12-31-2014 to incorporate this new limit.


Small Business Tax Credit

• Small employers are eligible for a tax credit of up to 35% of the

cost of health insurance premiums. This credit increases to 50% in

2014 for policies purchased through the Exchange.

• A small employer: (a) has no more than 25 full-time equivalents for

the tax year, and (b) pays average annual wages to employees that

do not exceed $50,000.


Summary of Benefits and Coverage

• Starting with open enrollment periods and plan years

beginning on or after September 23, 2012, employers

and insurers must distribute a document to plan

participants describing their health plan benefits and

coverage.

• See www.dol.gov/ebsa for a template.

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Form W-2 Reporting

• Starting with the 2012 tax year, an employer that is

required to file 250 or more W-2s has to add information

to the W-2 regarding the aggregate cost of employer-

sponsored health coverage.

• http://www.irs.gov/uac/Form-W-2-Reporting-of-

Employer-Sponsored-Health-Coverage


Tax Deductions for Medical Expenses

• Previously, unreimbursed medical expenses had to add

up to at least 7.5% of the taxpayer’s adjusted gross

income before they could be itemized and deducted.

This threshold increased to 10% in 2013.


Increase in Medicare Tax• Beginning in 2013, individuals who earn more than $200,000 (or $250,000 for a

married couple filing a joint return) will have to pay a 0.9% higher Medicare tax

rate on wages over these thresholds. Wages below $200,000 for an individual

will continue to be subject to a combined 2.9% tax rate (1.45% paid by

employee and 1.45% paid by employer) and wages above $200,000 will be

subject to a combined tax of 3.8% (2.35% paid by the employee and 1.45% paid

by the employer).

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Pre-existing Conditions

• Effective 1-1-2014, no plan may contain a pre-existing

condition exclusion for any enrollee. Pre-existing

condition exclusions were previously eliminated for

minors.


Waiting Periods• Starting in 2014, plans will have to restrict waiting periods to no longer than 90

days.

• A waiting period is defined as the period of time that must pass before coverage

for an employee or dependent who is otherwise eligible to enroll under the

terms of the plan can become effective.

• The 90-day period begins to run on the first date in which the employee or

dependent would otherwise be eligible for coverage.


Waiting Periods• Facts. Employer X's group health plan limits eligibility for coverage to full-time

employees. Coverage becomes effective on the first day of the calendar month following

the date the employee becomes eligible. Employee B begins working full time for

Employer X on April 11. Prior to this date, B worked part time for X. B enrolls in the plan

and coverage is effective May 1.

• Conclusion. In this example, the period from April 11 through April 30 is a waiting

period. The period while B was working part time is not part of the waiting period

because B was not in a class of employees eligible for coverage under the terms of the

plan while working part time.

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Additional IRS Reporting• Beginning in 2014, employers with 50 or more full-time equivalents (meaning,

employers who are subject to the Employer Mandate) will be required to report

to the IRS whether they offer full-time employees and their dependents the

opportunity to enroll in an employer-sponsored health plan and provide details

regarding the coverage offered.

• The IRS will develop a form for an employer to use for this reporting. The first

report will be due after completion of the 2014 tax year.


Automatic Enrollment

• An employer with more than 200 full-time employees

will have to automatically enroll new full-time employees

into one of the employer's health benefit plans and

automatically continue the enrollment of current

employees in a health benefit plan offered by the

employee.

• No effective date set!


• Fully-insured plans will be required to comply with non-

discrimination rules similar to those non-discrimination rules

currently applicable to self-insured plans.

• The effective date of this provision was originally to be the first

plan year beginning on or after 9-23-2010. This effective date was

delayed. No compliance with this provision is required until some

time after regulations are issued.

Nondiscrimination Issues

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Cadillac Tax• Starting in 2018, the Cadillac Tax will tax the amount, if any, by which the cost of

employer-sponsored health coverage exceeds a certain threshold amount. This

excess will be subject to a 40% excise tax. The threshold is $10,200 for self-only

coverage and $27,500 for coverage other than self-only coverage.

• For insured coverage, the insurer will be responsible for paying the tax. For self-

funded coverage, either the employer or plan administrator will be responsible

for paying the tax.


Individual Mandate• If an individual fails to obtain minimum essential coverage beginning in 2014,

then a penalty will be imposed equal to the greater of (i) $95 or (ii) 1% of the

excess of the taxpayer's household income over the taxpayer's filing threshold

in 2014. These amounts increase up to the greater of (i) $325 or (ii) 2% of the

excess of the taxpayer's household income over the taxpayer's filing threshold

in 2015, and then (i) $695 or (ii) 2.5% of the excess of the taxpayer's household

income over the filing threshold in 2016.


Individual Mandate – Minimum Essential

Coverage

• What is minimum essential coverage?

• Medicare

• Medicaid

• CHIP (Children’s Health Insurance Program)

• TRICARE (for military service members and retirees and their families)

• Employer-provided health coverage

• Veteran’s health coverage

• An individual health policy

• Health care as a peace corps volunteer

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Individual Mandate - Exemptions• Religious conscience objectors (opposed to accepting benefits from a

health insurer for religious reasons)

• Members of health care sharing ministries

• Not a citizen or national of the United States

• Not lawfully present in the United States

• Incarcerated because of conviction of a crime

• Member of an Indian tribe

• Unable to afford coverage because they would have to pay more than 8% of their family income towards premiums

• A person with household income below the income tax filing threshold (generally, $9,500 for an individual or $19,000 for a married couple in 2011)

• A person experiencing a gap in coverage of generally less than 3 months


Individual Mandate

• An estimated 6 million people will have to pay this

penalty, which would allow the federal government to

take in $7 billion in penalties for 2016 alone.


Health Insurance Exchange

• The exchange will be an online marketplace where

residents and small businesses (100 or fewer employees)

can go to easily compare different insurance policies and

easily purchase insurance policies.

• 5 minutes or less!

• Ready by 2014.

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The Exchange

• Plans offered by the Exchange must pay for the specified percentage of costs as follows:

• Bronze: 60 percent

• Silver: 70 percent

• Gold: 80 percent

• Platinum: 90 percent• Each benefit category must, at a minimum, provide

an "essential health benefits package." Package includes the following categories: (i) ambulatory and emergency, (ii) hospitalization, (iii) maternity and newborn care, (iv) mental health and substance disorders, etc.


• Provided to lower the amount of premium that the

individual or family must pay for their coverage

purchased through the Exchange.

• Only individuals or families with income from 100%

to 400% of the federal poverty level will be eligible

for the credit.

• Single: $11,170 - $44,680

• Family of 4: $23,050 - $92,200

Premium Assistance Tax Credit


• Limits the policy’s maximum out-of-pocket costs, and

may also reduce deductibles, co-insurance, or co-

payments for which the individual would otherwise be

responsible.

• Income must range from 100% - 400% of the federal

poverty level.

Cost-Sharing Subsidy

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Employee Notice of Exchange

• Employers must provide notice to employees of the existence of

state health insurance exchanges and of federal premium

assistance tax credits. The Department of Health and Human

Services is developing a model Notice of Exchange for employers

to use.

• The effective date for this provision was originally March 1, 2013,

but is now delayed until further notice.


Benefits of Purchasing from Exchange

• Individuals: Tax credits to help pay for premiums and

cost-sharing assistance to help with co-payments and

deductibles.

• Businesses: Small Business Tax Credit will increase to

50% of the cost of premiums starting in 2014 for

purchases made through an Exchange.


Employer Mandate

• Starting in 2014, an employer with at least 50 full-time

equivalent employees (i.e., a large employer) must offer

affordable health coverage of a minimum value to full-

time employees and their dependents or be subject to a

penalty.

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Identifying Your Employees• Temporary Staffing Agencies:

• “Treasury Department and the IRS recognize that the application of Section 4980H may be particularly

challenging for temporary staffing agencies because of the distinctive nature of their employees’ work

schedules.”

• Challenges in applying the look-back measurement method.

• Often cannot determine whether an employee is reasonably expected to work at least 30 hours per

week during initial measurement period.

• It is anticipated that many new employees of temporary staffing agencies will be variable hour

employees.

• A new employee’s period of employment at 30 or more hours per week may be of limited

duration.

• There is uncertainty regarding the “likelihood and duration of assignments and as to whether an

individual will accept any given assignment and will continue in it.”


Identifying Your Employees• Commenters have suggested that employees of temporary staffing agencies should be “deemed” to

be variable hour employees.

• The Treasury Department and IRS, while agreeing that many employees of staffing agencies will be

variable hour employees, do not anticipate that all staffing agency employees will be variable hour

employees.

• Also concerned “that such a conclusion or presumption could lead employers to purport to use

temporary staffing agencies . . . In situations in which the employer “client” is the individual’s

common law employer and the staffing agency is inserted solely in an attempt to avoid the

application of section 4980H.”

• Comments are invited regarding “whether, and, if so, how a safe harbor or presumption should or

could be developed with respect to the variable hour employee classification of the common law

employees of employees of temporary staffing agencies.”


Identifying Your Employees• Example from Proposed Regulations:

• Employer E provides temporary workers to numerous clients. These clients are unrelated to Employer E and to each other.

Employer E is the common law employer of the temporary workers based on all the facts and circumstances. Employer E offers

health coverage only to full-time employees (including temporary workers who are full-time employees) and their dependents.

Employer E uses a 12-month initial measurement period for new variable hour employees and new seasonal employees that begins

on the start date, and applies an administrative period from the end of the initial measurement period through the end of the first

calendar month beginning after the end of the initial measurement period. Employer E hires Employee T on January 1, 2015.

Employer E anticipates that it will assign Employee T to provide services for various clients. As of the beginning of the initial

measurement period, Employer E reasonably expects that, over the initial measurement period, Employee T will be offered short-

term assignments with several different clients. Employer T also anticipates that there will be gaps between the assignments and

that the assignments will differ in the average number of hours per week that Employee T will work. Employer E is uncertain how

many assignments Employee T will be offered, the number of assignments that Employee T will accept, the duration of the

assignments, etc. Therefore, it is unclear whether Employee T will be employed on average at least 30 hours of service per week.

Employer E may treat Employee T as a variable hour employee.

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Identifying Your Employees• What does this mean for construction companies that use temporary employees who are employed by staffing

agencies?

• An employer should count only its common-law employees.

• “An employment relationship exists when the person for whom the services are performed has the right to

control and direct the individual who performs the services, not only as to the result to be accomplished by

the work but also as to the details and means by which that result is accomplished. Under the common law

standard, an employment relationship exists if an employee is subject to the will and control of the employer

not only as to what shall be done but how it shall be done. In this connection, it is not necessary that the

employer actually direct or control the manner in which the services are performed; it is sufficient if the

employer has the right to do so.”

• Facts and circumstances test.

• If the temporary employee is a common-law employee of a staffing agency, employer is generally not

required to provide coverage.


Identifying Your Employees

• Leased employees:

• Not considered employees if meet the definition of leased

employees in Internal Revenue Code Section 414(n).

• Proposed regulations do not further elaborate on the

definition or treatment of leased employees.



� Code Section 414(n) provides that leased employee means

any person who is not an employee of the recipient and who

provides services to the recipient if:

• Such services are provided pursuant to an agreement between the recipient

and any other person;

• Such person has performed such services for the recipient on a substantially

full-time basis for a period of at least one (1) year; and

• Such services are performed under the primary direction or control by the

recipient.

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Identifying Your Employees• How is substantially full-time defined?

• A person has performed services on a substantially full-time basis for a period of

at least one year if:

• (1) during any consecutive 12-month period such person has performed

1,500 hours of service in a consecutive 12-month period; or

• (2) during any consecutive 12-month period such person performs services

for the recipient for a number of hours that is at least equal to 75% of the

average number of hours that are customarily performed by an employee of

that recipient in the particular position.


Identifying Your Employees• How does Code Section 414(n) relate to the “common-law employee” rules?

• IRS Notice 84-11 provides: “The provisions of section 414(n) operate

independently of the ‘common law employee’ rules. Thus, if an

individual is considered an employee of the recipient under the common

law rules, such individual is an employee of the recipient for all purposes

and without regard to the provisions of section 414(n).”

• Facts and circumstances test under the common-law rules.



• Union workforce:

• Preamble to Proposed Regulations addresses the

application of section 4980H to large employers that

participate in a multiemployer plan.

• What is a multiemployer plan?

• A multiemployer plan is a plan that is maintained pursuant

to a collective bargaining agreement, and has a joint board

of trustees that represents the employees and employers.

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• An employer that contributes to a multiemployer plan may not be in a position

to know how many hours any individual employee worked.

• Many CBAs governing multiemployer plans provide that contributions to the fund be

based upon requirements other than hours worked.

• Employees covered by a multiemployer plan often work for several different

employers.

• Comments are requested on how section 4980H should apply to employers that

participate in multiemployer plans.


Identifying Your Employees• Transition Relief

• “An applicable large employer member will not be treated as failing to offer the opportunity to enroll in

minimum essential coverage to a full-time employee (and the employee’s dependents) for purposes of

section 4980H(a), and will not be subject to a penalty under section 4980H(b) with respect to a full-time

employee if:

• (i) the employer is required to make a contribution to a multiemployer plan with respect to the full-time employee

pursuant to a collective bargaining agreement or an appropriate related participation agreement,

• (ii) coverage under the multiemployer plan is offered to the full-time employee (and the employee’s dependents), and

• (iii) the coverage offered to the full-time employee is affordable and provides minimum value.”

• The multiemployer plan must separately comply with the 90-day limitation on waiting periods.

• This relief applies through 2014 for contributions that are made by large employers participating in a

multiemployer plan.


For purposes of the 50-employee threshold,

employees of employers with common

owners may need to be combined when

determining if the employer is a large

employer.


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Restaurant• 20 full-time• 0 part-time

Copy Shop• 15 full-time• 0 part-time

Dry Cleaning Service

• 30 full-time• 0 part-time

Example – Parent Company Owns 100% of 3

Small Businesses


Questions?

Lauren B. Dunn

AssociateFoster Swift Collins and Smith PC

[email protected](517) 371-8100

Johanna M. Novak

ShareholderFoster Swift Collins and Smith PC


Tamika C. Carter (Host)

Director, Construction HRAGC of America


THE HEALTH CARE REFORM LAW’S EMPLOYER MANDATE - EFFECTIVE JANUARY 1, 2014

The Employer Mandate requires large employers to offer affordable health coverage of a minimum value to full-time employees and their dependents or pay a penalty.

IS THE EMPLOYER A LARGE EMPLOYER?

A large employer is one that had an average of 50 full-time

equivalents during the preceding calendar year.

DOES THE LARGE EMPLOYER OFFER HEALTH COVERAGE TO ITS FULL-TIME EMPLOYEES AND THEIR DEPENDENTS?A full-time employee is one who is employed on average at least 30

hours per week.

DID AT LEAST 1 FULL-TIME EMPLOYEE PURCHASE HEALTH COVERAGE IN AN INSURANCE EXCHANGE AND QUALIFY FOR A PREMIUM TAX CREDIT OR

COST SHARING SUBSIDY IN THE INSURANCE EXCHANGE?

DID AT LEAST 1 FULL-TIME EMPLOYEE PURCHASE HEALTH COVERAGE IN AN INSURANCE EXCHANGE AND QUALIFY FOR A PREMIUM TAX CREDIT OR

COST SHARING SUBSIDY IN THE INSURANCE EXCHANGE?

THE EMPLOYER MUST PAY A PENALTY.

The penalty is $2,000 per year multiplied by the number of full-time employees, excluding the first 30 full-time

employees.

THE EMPLOYER MUST PAY A PENALTY.

$3,000/yr x (the number of full-time employees who purchased health coverage

through an insurance exchange and qualified for a premium tax credit or cost-sharing subsidy for

such purchase.)*

YES

YES

YES

NO

NO

NO

NO

YES

YES

DOES ANY FULL-TIME EMPLOYEE HAVE TO PAY

MORE THAN 9.5% OF THE EMPLOYEE’S FAMILY INCOME FOR THE HEALTH COVERAGE?

DOES THE HEALTH COVERAGE PROVIDE AT LEAST A

MINIMUM VALUE?Coverage that pays for at least 60% of covered medical costs provides

minimum value.

START

YES

NO

* The maximum amount of this penalty cannot exceed the penalty that would be calculated if the employer offered no health coverage to

full-time employees and their dependents.

NO PENALTIES APPLY. The employer is not a

large employer and thus not required to provide health coverage to full-

time employees and their dependents.

NO PENALTIES APPLY.The employer offers

affordable health coverage of a minimum value to

full-time employees and their dependents.

NO PENALTY

NO

THE HEALTH CARE REFORM LAW’S INDIVIDUAL MANDATE - EFFECTIVE JANUARY 1, 2014

The Individual Mandate requires most individuals to maintain health insurance coverage or pay a penalty.

FOSTERSWIFT.COM

The information contained herein is for general purposes and should not be construed as legal advice. To ensure compliance with IRS rules, we must inform you that any U.S. tax advice contained herein is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties under the tax laws, or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed in this communication.

L A N S I N G | FA R M I N G TO N H I L L S | G R A N D R A P I D S | D E T R O I T | M A R Q U E T T E | H O L L A N D517.371.8100 248.539.9900 616.726.2200 248.785.4725 906.226.5501 616.796.2500

STARTAre you:• An individual with a religious conscience exemption (generally

meaningyouareopposedtoacceptingbenefitsfromhealthcoverage for religious reasons)

• A member of a health care sharing ministry• Not a citizen or national of the United States• Not lawfully present in the United States• Incarcerated because you were convicted of a crime• A member of an Indian tribe• Unable to afford health coverage because you would have to pay

more than 8% of family income to purchase such coverage• Someonewithhouseholdincomebelowtheincometaxfiling

threshold (generally $9,500 for an individual or $19,000 for a married couple in 2011)

• Experiencing a gap in coverage of generally less than 3 months

Did you have health coverage, during the entire year, through any of the following sources?• Medicare• Medicaid• CHIP (Children’s Health Insurance Program)• TRICARE (for military sevice members, retirees and their families)• Employer-provided health coverage• Veteran’s health coverage• An individual health policy• A grandfathered health plan• Health care as a peace corps volunteer

YOU HAVE TO PAY A PENALTY

FOR BEING WITHOUT

HEALTH CARE COVERAGE.

2014The penalty is the greater of $95 per adult and $47.50 per child in your household (up to $285) or 1% of your household income that exceeds your tax filing threshold.

2015The penalty is the greater of $325 per adult and $162.50 per child in your household (up to $975) or 2% of your household income that exceeds your tax filing threshold.

2016 and BeyondThe penalty is the greater of $695 per adult and $347.50 per child in your household (up to $2,085) or 2.5% of your household income that exceeds your tax filing threshold.

NO

NO

YES

YES

YOU DO NOT HAVE TO PAY A

PENALTY.

YOU DO NOT HAVE TO PAY A PENALTY FOR

BEING WITHOUT HEALTH CARE COVERAGE.

the affordable care act - agc

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