July 7, 2016
This year is considered an important one because of the “full implementation” of the employer mandate
Although the Affordable Care Act was passed in 2010, there has been a timeline of implementation — with some components being immediately implemented, while others have been implemented over time in 2012, 2013, 2014 and 2015.
In addition, some components of the ACA were delayed or deferred. This year is considered an important one because of the “full implementation” of the employer mandate as well as a number of changes, repeals and moratoriums on other sections of the Act. Here are some of the important things to be aware of regarding the ACA during 2016:
No 1: Full implementation of the Employer Mandate
The ACA does not mandate that employers provide health care. But, if they do not, they may be subject to monetary penalties. This section is commonly known as the “Play-or-Pay” Penalty (POP) or Employer Mandate.
Internal Revenue Code section 4980H requires an Applicable Large Employer (ALE) to offer health care coverage to full-time employees (or “Full Time Equivalents” — FTE) or be liable for a substantial “assessable payment” if it fails to offer the opportunity to enroll in “minimum essential coverage under an eligible employer-sponsored plan.”
Under section 4980H, a full-time employee is one who works an average of 30 hours per week or 130 hours per calendar month. In addition, 4980H recognizes FTE employees: a “combination of employees, each of whom individually is not a full-time employee, but who, in combination, are equivalent to a full-time employee.”
In addition, a plan must meet Minimum Value standards (the plan’s share of the total allowed costs of benefits must be at least 60 percent of those costs) and be considered “affordable.”
Initially the Employer Mandate was to be implemented in 2014 but the IRS extended partial implementation in 2015 and as of 2016, the 4980H Employer Mandate requirements are being fully implemented.
The employer mandate has changed regarding the ACA in 2016. (Photo: iStock)
1. Changes to the employer mandate
There have been several changes in coverage requirements, affordability requirements, employer mandate penalty changes, and more. Here are some:
- 2015 coverage requirements: Businesses with 100 or more full time employees or full-time equivalents had to offer at least 70 percent of full time employees insurance to avoid penalties.
- 2016 changes to coverage requirements: Businesses with at least 50 full time employees or full-time equivalents must offer at least 95 percent of full time employees insurance to avoid penalties.
2. Changes to the definition of “affordability” requirements
Under section 4980H, a plan must also be affordable. Coverage is considered “affordable” for IRC Sec. 4980H purposes if the cost to the employee of self-only coverage does not exceed a specified percentage of the employee’s “household income.”
This is true irrespective of whether he or she qualifies for some other level of coverage (e.g., self plus dependents, family). Thus, although family coverage might require a larger employee premium, affordability for IRC Sec. 4980H purposes is determined based on the cost of self-only coverage. The Act defines “household income” to mean “modified adjusted gross income of the employee and any members of the employee’s family (including a spouse and dependents) who are required to file an income tax return.”
- 2015 affordability requirements: The plan is affordable if the self-only coverage health care plan costs no more than 9.5 percent of an employee’s total household income.
- 2016 affordability requirements: The threshold of affordability for the plan has been raised to 9.66 percent of the employee’s total household income.
In addition to actually calculating the numbers for each employee, the ACA offers the use of three “safe harbors” as proxies for defining affordability: Form W-2 wages, an employee’s rate-of-pay, or use of the Federal Poverty Line.
3. Employer mandate penalty changes
Employers can be penalized for not providing minimum essential coverage or for having an inadequate health plan. Employers that offer health coverage will not meet the requirements if the following occurs:
- at least one full-time employee obtains a premium credit in an exchange plan, and
- the plan does not provide minimum essential benefits; the employee’s required contribution for self-only coverage exceeds the specified percent of the employee’s household income; the employer pays for less than 60 percent of the benefits.
Neither penalty is triggered unless an employee receives a tax credit for the purchase of health insurance on a state exchange.
4. Minimum essential coverage penalty changes (4980H(a))
Minimum essential coverage penalties are found in section 4980H(a), which defines the penalty for an employer failing to meet requirements of “minimum essential coverage.” Initially the penalty was set at $2,000 per employee but this number is adjusted annually for inflation. The penalty has changed as follows:
- 2015 penalty: the 4980H(a) penalty was $2,080 x number of FTEs in excess of 80 employees
- 2016 penalty: the penalty has changed to $2,160 x number of FTEs in excess of 30 employees
5. Inadequate health care plan changes (4980H(b))
Section 4980H(b) provides for a different penalty for employers who offer minimum essential coverage that does not meet the federal requirements of Minimum Value and Affordability. This penalty will kick in if any full-time employee receives a premium tax credit to purchase insurance on exchanges because of the following reasons:
- Minimum value: the employer health coverage offered did not provide “minimum value” (the plan’s share of the total allowed costs of benefits provided under the plan is not at least 60 percent of those costs)
- Affordability: the employer health coverage offered was “unaffordable”; or the employee was not among the 95 percent (70 percent in 2015) of full-time employees offered coverage.
Under 4980H(b), the penalty incurred is the lessor of either of these two conditions:
- What the 4980H(a) penalty would have been had it been levied $2,080 in 2015/ $2,160 in 2016 multiplied by the number of each full-time employee in excess of 30 (80 in 2015)) or
- $3,120 in 2015 and $3,240 in 2016 per full-time employee who procures coverage from a health insurance exchange who receives a premium tax credit to enable him or her to purchase coverage through the health insurance exchanges.
Changes in IRS reporting requirements have occurred with the ACA. (Photo: iStock)
No. 2: Reporting requirements and penalties
The ACA requires employers and/or health insurance issuers to report to the IRS information about employer-sponsored health coverage. Reporting requirements were delayed from 2014 until the 2015 tax year to coincide with the delay in the employer play-or-pay mandate.
1. Changes in reporting dates
The IRS has offered some relief for the 2015 reporting forms, due in 2016. Penalties will not be imposed on a filer for reporting incorrect or incomplete information if the filer can show that it made good-faith efforts to comply with the information reporting requirements for 2015.
IRS Notice 2016-4 issued on December 28, 2015, announced an extension for 2015 information reporting. The notice extends the due date for these two kinds of situations:
- For furnishing to individuals the 2015 Form 1095-B, Health Coverage, and the 2015 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, from February 1, 2016, to March 31, 2016, and
- For filing with the IRS the 2015 Form 1094-B, Transmittal of Health Coverage Information Returns, the 2015 Form 1095-B, Health Coverage, the 2015 Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and the 2015 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, from February 29, 2016, to May 31, 2016, if not filing electronically, and from March 31, 2016, to June 30, 2016, if filing electronically.
2. Penalties for applicable large employer failure to report
Penalties for large employer failures to report have to do with information returns and payee statements. They are itemized as follows.
Information returns: The penalty for failure to file an information return generally is $100 for each return for which such failure occurs. The total penalty imposed for all failures during a calendar year cannot exceed $1,500,000.
For returns required to be filed after December 31, 2015, the penalty for failure to file an information return generally is increased from $100 to $250 for each return for which such failure occurs. The total penalty imposed for all failures during a calendar year after December 15, 2015 cannot exceed $3,000,000.
Payee statements: The penalty for failure to provide a correct payee statement is $100 for each statement with respect to which such failure occurs, with the total penalty for a calendar year not to exceed $1,500,000.
The penalty for failure to provide a correct payee statement is increased from $100 to $250 for each statement for which the failure occurs, with the total penalty for a calendar year not to exceed $3,000,000. The increased penalty amount applies to statements required to be provided after December 31, 2015.
Note about intentional situations: Special rules apply that increase the per-statement and total penalties if there is intentional disregard of the requirement to furnish a payee statement.
The size of eligible companies has changed for ACA. (Photo: iStock)
No. 3: Small Business Health Options Program (SHOP)
The Small Business Health Options Program was designed for small employers to be able to provide health and dental coverage to their employees and to enable these small employers to have some of the same purchasing power, range of choices, and ability to pool risk that are available to large companies. There have been four significant changes in the SHOP program for 2016.
1. Size of eligible companies
On October 7, 2015, President Obama signed into law the Protecting Affordable Coverage for Employees (PACE) Act. The PACE Act amended the definition of “small employer” so that it would continue to apply to employers with one to 50 employees, rather than changing to one to 100 employees as of 2016 as provided in the original ACA.
However, each state can still decide whether to adopt the one-to-100 employee definition of small employer if they choose. This enables states to be able to choose to expand the participation in the SHOP marketplace from employers with one to fifty employees to employers with one to 100 employees. It should be noted that currently only four states have accepted the expansion: California, Colorado, New York, and Vermont.
2. Change in the SHOP marketplace Minimum Participation Requirement (MPR)
The SHOP marketplace MPR has changed for 2016, generally making it easier for employers to use the SHOP program. In most states, 70 percent of employees must accept the offer of SHOP coverage or be enrolled in other types of coverage for the company to participate.
However, it should be noted that the following states have MRPs of 75 percent: Iowa, Nevada, New Hampshire, New Jersey, South Dakota, Tennessee, and Texas.
The 2016 changes to the MPR requirement have made it easier for employees to enroll in SHOP Marketplace coverage. In 2015, employees were not counted toward the MPR if they had coverage through another job, another person’s job, or a government program such as TRICARE or Medicare.
In 2016, employees with non-SHOP coverage will be counted toward the MPR. Beginning in 2016, the Minimum Participation Rate is calculated as follows:
- Number of employees ENROLLING in SHOP
- Number of employees OFFERED enrollment in SHOP
Participation rate must equal 70 percent (or 75 percent for the exceptions noted above).
3. Changes in health and dental coverage options in SHOP
Beginning in 2016, employers may offer their employees one of three options through SHOP:
- Health coverage only
- Dental coverage only
- Both health and dental coverage
Qualified employees can choose either health, dental, or both in this situation. Employers may offer health and dental coverage to employee dependents as well. The dependents must enroll in the same plan as the employee.
The Affordable Care Act’s so-called Cadillac tax has been delayed. (Photo: iStock)
No. 4: Delay in Cadillac tax until 2020
The “Cadillac tax” is a 40 percent excise tax on the cost of health coverage that exceeds pre-determined threshold amounts and is imposed on coverage providers high-premium health insurance plans.
This cost of health coverage includes total cost by both employer and employee and is for plans costing more than $10,200 for individual and plans costing more than $27,500 for family coverage. This tax is calculated on a monthly and per-person basis, where any plan above $850 per month for single coverage and $2,292 per month for family coverage is subject to it.
Stephen Tackney, Deputy Associate Chief Counsel (Employee Benefits) with the IRS Office of Associate Chief Counsel (Tax-Exempt and Government Entities) addressed the 28th Annual Insurance Tax Seminar of the Federal Bar Association Washington D.C. on Thursday, June 2, 2016 and shared news the that IRS is contemplating issuing another request for comments on issues regarding the Cadillac Tax. Tackney stated that there were still issues with the excise tax and that the IRS may not have enough feedback to promulgate proposed regulations.
Concerns arose that potentially 75 percent of employee health plans could be subject to the tax by 2029.
The 2016 Consolidated Appropriations Act imposed yet another delay in implementation of the Cadillac tax, which was originally scheduled to take effect in 2013. This implementation was delayed until 2018 but now is delayed until January 1, 2020.
In addition to the delay, the Cadillac tax payments will be tax-deductible, assuming the provisions ever take effect. At this point, the tax is “down, but not out,” and some sentiment still exists to keep it, since it was part of the original funding plan for the Affordable Care Act.
Chains such as The Shake Shack saw the menu-labeling requirements in the ACA delayed. (Photo: iStock)
No. 5: Menu-labeling requirements delay
The Food and Drug Administration (FDA) recently released the final guidance on the new menu-labeling requirements implemented to comply with section 4205 of the Affordable Care Act. The new menu-labeling rules require chain restaurants to provide calorie information on the menu and provide, upon customer request, additional nutritional information for menu items. The rules will begin to be enforced by the FDA on May 5, 2017, one year after the date of publication of this final guidance notice in the Federal Register (81 FR 27067, May 5, 2016).
On December 18, 2015, the Consolidated Appropriations Act, 2016 delayed enforcement of the menu-label final rule until the later of December 1, 2016, or the date that is one year after the date on which the FDA publishes a final guidance on the subject
1. Who must comply with the new menu-labeling rules
Restaurants were initially exempt under section 403(q) of the Food, Drug & Cosmetic Act, but the ACA removed this exemption. The menu-labeling rules apply to restaurants or similar retail food establishments selling foods intended for immediate consumption, or a concession stand, that are a part of a chain with 20 or more locations that do business under the same trade name and that offer substantially the same menu items for sale.
This includes vending machine chains with 20 or more locations. In addition, a restaurant or retail food establishment may voluntarily register to be subject to the menu-labeling requirements.
2. Specifics of the menu-labeling rules
Businesses affected will be required to include calorie information on menus for all standard menu items. In addition, written information must be available upon customer request, regarding nutritional information for standard menu items, including the amount of total calories, calories from fat, total fat, saturated fat, trans fat, cholesterol, sodium, total carbohydrates, dietary fiber, sugars, and protein.
These requirements apply only to standard menu items, and do not apply to daily specials, custom orders, alcoholic beverages on display that are not self-service, or menu items that only appear temporarily on the menu for less than sixty days per calendar year.
The rules include alcoholic beverages, other than those falling under the same above exceptions. In the case of the exception for alcoholic beverages on display that are not self-service, essentially this will not include mixed drinks if the bottles are on display and the drinks are not on the menu.
3. Calculation of calories and other nutritional information
A business must rely on a “reasonable basis” for determining the calorie and other nutritional information for standard menu items. This can include a variety of methods including the use of databases, cookbooks and other reasonable references.
The ACA automatic health care enrollment requirement was repealed. (Photo: iStock)
No. 6: Repeal of automatic health care enrollment
With the passage and implementation of the Bipartisan Budget Act of 2015, enacted on November 2, 2015, the ACA automatic health care enrollment requirement as written in Section 18A of the Fair Labor Standards Act (FLSA) was repealed.
Section 18A was added by the Affordable Care Act through section 1511. Automatic enrollment required that employers with more than 200 full time employees to automatically enroll employees in health coverage unless employee opted out.
This provision had been postponed since December 2010 through a Department of Labor FAQ detailing that employers were not required to comply with automatic enrollment until the implementing regulations were issued.
This provision remained in doubt because of ensuing confusion over the interpretation of the statutory language and the likelihood of being an administrative burden for employers
No. 7: Medical device tax moratorium
With the passage of the Protection of Americans from Tax Hikes Act, the PATH Act, a moratorium on the Medical Device Tax has been imposed. This tax initially applied a 2.3 percent tax to devices sold after the end of 2012, however the moratorium effective during 2016 and 2017.
The tax is now slated to take effect on devices sold on or after January 1, 2018, but will be under further analysis and review during this suspension period.
No. 8: Health insurance tax moratorium
This tax moratorium has been imposed by the Consolidated Appropriations Act — for 2017, on the collection of the annual health insurance provider fee which has been in effect since 2013.
This was a tax imposed on the health insurance providers but passed through to the consumer through premiums. It is anticipated that this could lower premiums by 1 to 3 percent.
Tax penalties for individuals have changed for the ACA. (Photo: iStock)
No. 9: Individual tax penalties
If an individual goes without qualifying minimum essential coverage for more than a single period of up to three months in a year, he or she may owe a penalty under the Shared Responsibility payment. These have been in place since 2014 and the penalty increases annually. In 2016, it is the higher of these amounts:
- 2.5 percent of annual household income above the tax filing threshold to a cap of the national average bronze plan premium, OR;
- $695/adult and $347.50/child under 18 to a maximum penalty of $2,085 per family.
Certain exemptions do apply in the case of hardships, certain life events, and other situations. In addition, those who have no affordable coverage because the cost of annual premiums exceeds 8 percent of their household income are also exempt. One needs to apply for exemption.
No. 10 Premium rate changes for 2016
The Kaiser Family Foundation analysis of silver plans in major cities in 13 states showed the following average rate increases from 2015 to 2016:
- 4.1 percent – the second lowest cost silver plan before tax credits
- 1.9 percent – the second lowest cost silver after tax credits
- 5.1 percent – the lowest-cost silver plan before tax credits
- 2.9 percent – the lowest-cost silver plan after tax credits
For 2016, the maximum out-of-pocket expenses for deductibles, copays, and coinsurance for in-network coverage is $6,850 for individual / $13,700 for family coverage. This is an increase over the 2015 out-of-pocket maximums of $6,600 for an individual and $13,200 for family coverage.