Affordable Care Act Review

Affordable Care Act Review

More Cadillac Plan Tax Guidance from IRS

Posted in Affordable Care Act, Government Employers, Private Employers, Taxes

Even minimum value plans might be “Cadillacs,” the IRS acknowledged in Notice 2015-52. See footnote 8, page 17. That’s our main take-away from the second IRS statement of its regulatory intentions.

Code § 4980I (a/k/a/ the “Cadillac Plan tax”) was added by the ACA so that taxpayers with average group health plans would not subsidize, by tax preference, rich plans benefitting chiefly the rich. Section 4980I imposes a 40%, non-deductible, excise tax on a group health plan’s “excess benefit” beginning in 2018. The IRS has not proposed enforcement rules but has released two statements of its intentions – Notice 2015-16 early this year and Notice 2015-52 last week. Here are highlights.

The taxable “excess benefit” must be calculated employee-by-employee, month by month.

The tax will be paid annually, by the “coverage provider,” when filing Form 720, as is done with PCORI fees. The insurer of a fully-insured group health plan is a coverage provider, as is the third party administrator of a self-insured group health plan. The employer is an HSA coverage provider. For other coverage types, the coverage provider is the “person that administers the plan benefits.” IRS expects this to be an entity, usually, not an individual. The entity that processes and pays claims might be the “person that administers the plan benefits.” Or, the IRS may impose that obligation on the entity that has final authority over the decision to pay claims.

The coverage provider will rely on employer calculations, to be reported to the coverage provider and to the IRS on Forms to be developed by the IRS. Employer calculation of the cost of applicable coverage will follow rules like those for determining COBRA premiums. Although employers currently may subtract from the Form W-2 cost of coverage the amount of benefits deemed taxable to highly-compensated individuals, such amounts will be included in the § 4980I cost of coverage. IRS realizes that employers will need time after the end of the calculation period to do this work and that different sorts of coverages might justify different amounts of time. Again, comments are requested.

The IRS realizes that employer aggregation rules in this context raise issues not addressed in its employer mandate rules. IRS is requesting related comments.

Employers should monitor their plans’ proximity to Cadillac taxation so that measures may be taken to hold short.

Will § 4980H Require Judicial Amendment Too?

Posted in Affordable Care Act, Coverage Mandates, Exchanges, Government Employers, Private Employers, Taxes

Occasionally, a deep dive into a real world scenario opens our eyes to a plausible, alternate understanding of an important ACA term or rule.  Here’s one.  We’re embarrasssed to admit that our hours of study were provoked by what at first seemed to be a proverbial “stupid question.” Maybe there really aren’t any.

Absent applicable transitional relief, most of which vanishes after 2015, an ACA Applicable Large Employer that fails to offer Minimum Essential Coverage to at least 70% of its 2015 full-time employees and their dependents (95% in 2016) accrues 26 U.S.C. § 4980H(a) taxes monthly, at the rate of the number of its full-time employees for that month, less its allocable share of 80 (30 in 2016), multiplied by an “applicable payment amount.” Section 4980H(c)(1) sets that “applicable payment amount” at “1/12 of 2,000” – i.e., $166.67. As the TV pitch guys say, “But wait! There’s more!”

Section 4980H(b) imposes another employer mandate tax on ALEs that meet the MEC offer standard of § 4980H(a) but that overlook a few full-time employees, or offer coverage that is unaffordable or that provides sub-minimum value. Section 4980H(b)(1) tells us to calculate that tax monthly by multiplying the number of such employees with subsidized Exchange coverage by “1/12 of $3,000” – i.e., $250.  Here’s where the fun begins.

Section 4980H(c)(5) reads:

(5) Inflation adjustment

(A) In general

In the case of any calendar year after 2014, each of the dollar amounts in subsection (b) and paragraph (1) shall be increased by an amount equal to the product of—

(i) such dollar amount, and

(ii) the premium adjustment percentage (as defined in section 1302(c)(4) of the Patient Protection and Affordable Care Act) for the calendar year.

(B) Rounding

If the amount of any increase under subparagraph (A) is not a multiple of $10, such increase shall be rounded to the next lowest multiple of $10.

Section 1302(c)(4), a/k/a 42 U.S.C. § 18022(c)(4), tells us that the HHS Secretary will publish the “premium adjustment percentage” annually.

IRS FAQ No. 26 (2014) and all commenters (us, too) assumed that the premium adjustment percentage raises both the § 4980H(a) and the § 4980H(b) taxes. Consequently (shortcutting the analysis a bit), $2,000 has been understood to mean $2,084 under § 4980H(a) for 2015 and $3,000 has been understood to mean $3,126 under § 4980H(b) for 2015. However, we have wondered why IRS has not followed-up on the HHS premium adjustment percentage publication by updating its § 4980H guidance. See the current, relevant IRS web pages here and here.

A “stupid question” put us on the trail of a plausible explanation.  We had understood “subsection (b)” in § 4980H(c)(5)(A) as referring back, in shorthand fashion, to § 4980H(b), where we see the $3,000 amount, and had taken “paragraph (1)” as a reference to § 4980H(c)(1), where we read the $2,000 amount. But maybe, by “subsection (b) and paragraph (1),” Congress referenced only § 4980H(b)(1), which is, more precisely stated, where we find the $3,000 amount.  If so, only the $3,000 amount would be subject to annual adjustment. Congress would have to amend § 4980H to provide for annual inflation adjustment of the $2,000 amount or the IRS would have to do so by administrative action, hoping for helpful judicial interpretation.

Why might Congress have done that? If § 4980H(a) taxes were cheaper than compliant group health plans, and progressively moreso, an increasing number of small employers should be expected to pay the “(a)” taxes in lieu of offering coverage, leading to rising Exchange enrollments.  Soon, there might be little or no small group market outside the ACA Exchanges, with Healthcare.gov dominating the Exchange business.

Maybe that’s what the IRS has been pondering in silence for months.  Whichever way it wanted to go, maybe the IRS was hoping to receive extreme judicial deference in the King v. Burwell opinion before acting on this.  If so, it wasn’t worth the wait. Justice Roberts’ (6-3) majority opinion began by expressly disregarding the IRS rule on subsidy eligibility, at least in part because HHS, not IRS, was tasked with issuing such rules.

We have seen no evidence, beyond the textual ambiguity, indicating that Congress consciously intended to freeze the § 4980H(a) formula while adjusting the § 4980H(b) formula annually.  When two readings are equally plausible, courts normally defer to the enforcement agency’s interpretation. The IRS is the employer mandate enforcement agency, not HHS.  So, we would appreciate IRS guidance squarely addressing this ambiguity.

Simple ACA Rules for Simple (But Not Small) Employers

Posted in Affordable Care Act, Business Organizations, Government Employers, Private Employers, Taxes

You’re an ACA “Applicable Large Employer,” but not by much. You have three executives, none of whom has any HR or benefit plan expertise. You rely on a local payroll service and your insurance agent. You hope they are on top of things, but you worry. You should worry. Generalizing greatly for simplicity’s sake, here are some icebreakers you might use to open conversations with your advisers.

50 to 100 Employee Transition Relief

If you had at least 50 but less than 100 full-time employees (on an aggregated basis, including full-time equivalents) in an average month in 2014, then you are an ACA “Applicable Large Employer” with ALE reporting obligations (Code § § 6055, 6056) and employer mandate tax exposure (Code § 4980H). However, if you properly file your Forms 1095-C and 1094-C by February 29, 2016, and check Box C on Form 1094-C, you may be granted “transitional relief” from the employer mandate taxes that accrued in 2015 if you failed to offer affordable, qualifying coverage to all your full-time employees and their dependents.

If your 2014 average month’s full-time employee number was 100 or more, you are not eligible for this relief and it’s too late to get small.

2015 Coverage Offer Reporting

The only employers exempt from this are small employers with no group health plans and small employers with only fully-insured group health plans. Small, self-insured employers report under Code § 6055. All Applicable Large Employers report under § 6056 and, if self-insured, also have obligations under Code § 6055.

By February 1, 2016, you must furnish a Form 1095-C to each person who was your ACA full-time employee in any 2015 month. By February 29, 2016, you must file all those Forms 1095-C with IRS (March 31 if filing electronically), along with a Form 1094-C cover sheet. You’re unlikely to be able to do this without IT tools that have been developed by TPAs and benefit plan consultants over the past year. Some of them are requiring that system installation, configuration, data loading and testing be completed by October 15, 2015. If you haven’t engaged one of them yet, prioritize this project. You will not appreciate how much work must be done until you start doing it.

The 2015 Forms and Instructions will be published, we hope, in September 2015. Here are the 2014 links:

Form 1094-C ;

Form 1095-C ;

Instructions.

State and Local Government Employers and Plans

The most thoroughly busted ACA myth may be the rumored exemption of state and local government employers and their group health plans. There are important ERISA exemptions for such plans but ACA employer mandate taxes and coverage offer reporting requirements are fully applicable. They are enforced independently and may be financially significant. Want to get some attention from your higher-ups? Ask from what accounts the accruing taxes and penalties are to be paid beginning in mid-2016.

Final Regulations Issued Concerning ACA’s Preventive Services Mandate

Posted in Affordable Care Act

Last week the Agencies (DOL, HHS and IRS) issued final regulations concerning ACA’s preventive services mandate. This mandate requires non-grandfathered plans to cover specific preventive services, such as immunizations, mammograms, and autism screening, without cost-sharing when dispensed by an in-network provider. While numerous preventive services were covered under this mandate, it was contraceptives for women that got the most attention because of the Hobby Lobby decision. The proposed regulations after this decision expanded the exception that was originally intended for nonprofits to closely held for-profit employers allowing certain qualifying employers with religious objections to be exempt from the contraceptive mandate or engage in an accommodation process relieving them of the obligation.

Last week’s regulations which are applicable for plan years beginning on or after September 14, 2015, finalize the proposed regulations with a few modifications. Additionally, the final regulations incorporate FAQ guidance and make minor changes to the 2010 interim final regulations.

  • The regulations expanded on the definition of closely held for-profit entity making it more flexible than tax law generally allows. In order to be considered a closely held for-profit entity, thus qualifying it for the exemption, an employer
    • must be for profit,
    • must not be publicly traded,
    • must have 50% of value of ownership interest owned by five or fewer individuals (or a substantially similar structure), and
    • object to providing contraceptive coverage because of owners’ religious beliefs.
  • The final regulations formalize the FAQ guidance which provided that a plan must cover out-of-network preventive services without cost-sharing if the plan does not have an in-network provider who can provide a required preventive service.
  • The final regulations also clarified that any service that constitutes a recommended preventive service on the first day of a plan year must be provided through the end of the plan year even if the recommendation changes. The final regulations do provide a few exceptions to this rule. Therefore a plan may drop the coverage prior to the end of the year:
    • for any service that is downgraded to a “D” rating by the appropriate entity,
    • is subject to a safety recall, or
    • is otherwise deemed by the applicable federal agency to pose a significant safety concern.

Form 1095-C Penalties More Than Doubled . . . In A Trade Bill?

Posted in Affordable Care Act, Government Employers, Private Employers, Taxes

Penalties for employer failure to file and furnish 2015 Forms 1094-C and 1095-C just went up. Section 806 of Public Law 114-27 (H.R. 1295, the “Trade Preferences Extension Act of 2015,” June 29, 2015) amended Code sections 6721 and 6722 to raise those penalties substantially. We have warned that each missing Form 1095-C could cost you $100 for non-filing and another $100 for non-delivery, subject to an annual maximum of $1,500,000 for each type of failure. As amended, $100 becomes $250 and $1,500,000 becomes $3,000,000 beginning January 1, 2016.  Your Forms are due to be furnished to employees by February 1, 2016 (January 31 being a Sunday).   The 2015 filing deadlines are February 29, 2016 (if paper) and March 31, 2016 (if electronic).

Subject to review after the GPO posts the official, amended Code sections, here’s how we think they now should read.

6721. Failure to file correct information returns

(a) Imposition of penalty

(1) In general

In the case of a failure described in paragraph (2) by any person with respect to an information return, such person shall pay a penalty of $250 for each return with respect to which such a failure occurs, but the total amount imposed on such person for all such failures during any calendar year shall not exceed $3,000,000.

(2) Failures subject to penalty

For purposes of paragraph (1), the failures described in this paragraph are—

(A) any failure to file an information return with the Secretary on or before the required filing date, and

(B) any failure to include all of the information required to be shown on the return or the inclusion of incorrect information.

(b) Reduction where correction in specified period

(1) Correction within 30 days

If any failure described in subsection (a)(2) is corrected on or before the day 30 days after the required filing date—

(A) the penalty imposed by subsection (a) shall be $50 in lieu of $250, and

(B) the total amount imposed on the person for all such failures during any calendar year which are so corrected shall not exceed $500,000.

(2) Failures corrected on or before August 1

If any failure described in subsection (a)(2) is corrected after the 30th day referred to in paragraph (1) but on or before August 1 of the calendar year in which the required filing date occurs—

(A) the penalty imposed by subsection (a) shall be $100 in lieu of $250, and

(B) the total amount imposed on the person for all such failures during the calendar year which are so corrected shall not exceed $1,500,000.

(c) Exception for de minimis failures to include all required information

(1) In general

If—

(A) an information return is filed with the Secretary,

(B) there is a failure described in subsection (a)(2)(B) (determined after the application of section 6724(a)) with respect to such return, and

(C) such failure is corrected on or before August 1 of the calendar year in which the required filing date occurs,

for purposes of this section, such return shall be treated as having been filed with all of the correct required information.

2) Limitation

The number of information returns to which paragraph (1) applies for any calendar year shall not exceed the greater of—

(A) 10, or

(B) one-half of 1 percent of the total number of information returns required to be filed by the person during the calendar year.

(d) Lower limitations for such return shall be treated as having been filed with all of the correct required information.

(1) In general

If any person meets the gross receipts test of paragraph (2) with respect to any calendar year, with respect to failures during such calendar year—

(A) subsection (a)(1) shall be applied by substituting “$1,000,000” for “$3,000,000”,

(B) subsection (b)(1)(B) shall be applied by substituting “$175,000” for “$500,000”, and

(C) subsection (b)(2)(B) shall be applied by substituting “$500,000” for “$1,500,000”.

(2) Gross receipts test

(A) In general

A person meets the gross receipts test of this paragraph for any calendar year if the average annual gross receipts of such person for the most recent 3 taxable years ending before such calendar year do not exceed $5,000,000.

(B) Certain rules made applicable

For purposes of subparagraph (A), the rules of paragraphs (2) and (3) of section 448(c) shall apply.

(e) Penalty in case of intentional disregard

If 1 or more failures described in subsection (a)(2) are due to intentional disregard of the filing requirement (or the correct information reporting requirement), then, with respect to each such failure—

(1) subsections (b), (c), and (d) shall not apply,

(2) the penalty imposed under subsection (a) shall be $500, or, if greater—

(A) in the case of a return other than a return required under section 6045(a), 6041A(b), 6050H, 6050I, 6050J, 6050K, or 6050L, 10 percent of the aggregate amount of the items required to be reported correctly,

(B) in the case of a return required to be filed by section 6045(a), 6050K, or 6050L, 5 percent of the aggregate amount of the items required to be reported correctly,

(C) in the case of a return required to be filed under section 6050I(a) with respect to any transaction (or related transactions), the greater of—

(i) $25,000, or

(ii) the amount of cash (within the meaning of section 6050I(d)) received in such transaction (or related transactions) to the extent the amount of such cash does not exceed $100,000, or

(D) in the case of a return required to be filed under section 6050V, 10 percent of the value of the benefit of any contract with respect to which information is required to be included on the return, and

(3) in the case of any penalty determined under paragraph (2)—

(A) the $3,000,000 limitation under subsection (a) shall not apply, and

(B) such penalty shall not be taken into account in applying such limitation (or any similar limitation under subsection (b)) to penalties not determined under paragraph (2).

(f) Adjustment for inflation

(1) In general

For each fifth calendar year beginning after 2012, each of the dollar amounts under subsections (a), (b), (d) (other than paragraph (2)(A) thereof), and (e) shall be increased by such dollar amount multiplied by the cost-of-living adjustment determined under section 1(f)(3) determined by substituting “calendar year 2011” for “calendar year 1992” in subparagraph (B) thereof.

(2) Rounding

If any amount adjusted under paragraph (1)—

(A) is not less than $75,000 and is not a multiple of $500, such amount shall be rounded to the next lowest multiple of $500, and

(B) is not described in subparagraph (A) and is not a multiple of $10, such amount shall be rounded to the next lowest multiple of $10.

6722. Failure to furnish correct payee statements

(a) Imposition of penalty

(1) General rule

In the case of each failure described in paragraph (2) by any person with respect to a payee statement, such person shall pay a penalty of $250 for each statement with respect to which such a failure occurs, but the total amount imposed on such person for all such failures during any calendar year shall not exceed $3,000,000.

(2) Failures subject to penalty

For purposes of paragraph (1), the failures described in this paragraph are—

(A) any failure to furnish a payee statement on or before the date prescribed therefor to the person to whom such statement is required to be furnished, and

(B) any failure to include all of the information required to be shown on a payee statement or the inclusion of incorrect information.

(b) Reduction where correction in specified period

(1) Correction within 30 days

If any failure described in subsection (a)(2) is corrected on or before the day 30 days after the required filing date—

(A) the penalty imposed by subsection (a) shall be $50 in lieu of $250, and

(B) the total amount imposed on the person for all such failures during any calendar year which are so corrected shall not exceed $500,000.

(2) Failures corrected on or before August 1

If any failure described in subsection (a)(2) is corrected after the 30th day referred to in paragraph (1) but on or before August 1 of the calendar year in which the required filing date occurs—

(A) the penalty imposed by subsection (a) shall be $100 in lieu of $250, and

(B) the total amount imposed on the person for all such failures during the calendar year which are so corrected shall not exceed $1,500,000.

(c) Exception for de minimis failures

(1) In general

If—

(A) a payee statement is furnished to the person to whom such statement is required to be furnished,

(B) there is a failure described in subsection (a)(2)(B) (determined after the application of section 6724(a)) with respect to such statement, and

(C) such failure is corrected on or before August 1 of the calendar year in which the required filing date occurs,

for purposes of this section, such statement shall be treated as having been furnished with all of the correct required information.

(2) Limitation

The number of payee statements to which paragraph (1) applies for any calendar year shall not exceed the greater of—

(A) 10, or

(B) one-half of 1 percent of the total number of payee statements required to be filed by the person during the calendar year.

(d) Lower limitations for persons with gross receipts of not more than $5,000,000

(1) In general

If any person meets the gross receipts test of paragraph (2) with respect to any calendar year, with respect to failures during such calendar year—

(A) subsection (a)(1) shall be applied by substituting “$1,000,000” for “$3,000,000”,

(B) subsection (b)(1)(B) shall be applied by substituting “$175,000” for “$500,000”, and

(C) subsection (b)(2)(B) shall be applied by substituting “$500,000” for “$1,500,000”.

(2) Gross receipts test

A person meets the gross receipts test of this paragraph if such person meets the gross receipts test of section 6721(d)(2).

(e) Penalty in case of intentional disregard

If 1 or more failures to which subsection (a) applies are due to intentional disregard of the requirement to furnish a payee statement (or the correct information reporting requirement), then, with respect to each such failure—

(1) subsections (b), (c), and (d) shall not apply,

(2) the penalty imposed under subsection (a)(1) shall be $500, or, if greater—

(A) in the case of a payee statement other than a statement required under section 6045(b), 6041A(e) (in respect of a return required under section 6041A(b)), 6050H(d), 6050J(e), 6050K(b), or 6050L(c), 10 percent of the aggregate amount of the items required to be reported correctly, or

(B) in the case of a payee statement required under section 6045(b), 6050K(b), or 6050L(c), 5 percent of the aggregate amount of the items required to be reported correctly, and

(3) in the case of any penalty determined under paragraph (2)—

(A) the $3,000,000 limitation under subsection (a) shall not apply, and

(B) such penalty shall not be taken into account in applying such limitation to penalties not determined under paragraph (2).

(f) Adjustment for inflation

(1) In general

For each fifth calendar year beginning after 2012, each of the dollar amounts under subsections (a), (b), (d)(1), and (e) shall be increased by such dollar amount multiplied by the cost-of-living adjustment determined under section 1(f)(3) determined by substituting “calendar year 2011” for “calendar year 1992” in subparagraph (B) thereof.

(2) Rounding

If any amount adjusted under paragraph (1)—

(A) is not less than $75,000 and is not a multiple of $500, such amount shall be rounded to the next lowest multiple of $500, and

(B) is not described in subparagraph (A) and is not a multiple of $10, such amount shall be rounded to the next lowest multiple of $10.

 

FLSA Guidance Highlights Expansive ACA Retaliation Exposure

Posted in Affordable Care Act, Government Employers, Independent Contractors, Private Employers

On July 15, 2015, DOL’s Wage & Hour Division issued Administrator’s Interpretation No. 2015-01, titled, “ The Application of the Fair Labor Standards Act’s ‘Suffer or Permit’ Standard in the Identification of Employees Who Are Misclassified as Independent Contractors.” Nothing new there, right? All well-counseled employers know that the DOL takes an especially dim view of avoiding overtime by calling workers “independent contractors.” DOL’s “economic realities” test is tougher than the IRS “common law employee” test. Consequently, you may owe overtime to a worker properly excluded from your W-2 payroll. But, with apologies to Tina Turner, what’s the ACA got to do with it? The IRS, not the DOL, enforces the employer mandate of 26 U.S.C. § 4980H and the coverage offer reporting requirements of § § 6055 and 6056.

If you wondered why Congress dropped the ACA’s anti-retaliation section into the Fair Labor Standards Act (as new § 18C), wonder no more. According to OSHA’s interim final rules for the handling of such retaliation complaints, “The definitions of the terms ‘‘employer,’’ ‘‘employee,’’ and ‘‘person’’ from section 3 of the FLSA, 29 U.S.C. 203, apply to these rules and are included here.” See 78 Fed. Reg. 13,224 (February 27, 2013) and 29 CFR § 1984.101. So, to find the limits of your ACA retaliation claim exposure, don’t consult IRS “common law employee” guidance; instead, read the new DOL Administrator’s Interpretation.

Here’s the executive summary:

The ultimate inquiry under the FLSA is whether the worker is economically dependent on the employer or truly in business for him or herself. If the worker is economically dependent on the employer, then the worker is an employee. If the worker is in business for him or herself (i.e., economically independent from the employer), then the worker is an independent contractor.

Here are factors that DOL considers critical to this analysis, with associated examples.

A.  Is the Work an Integral Part of the Employer’s Business?

For a construction company that frames residential homes, carpenters are integral to the employer’s business because the company is in business to frame homes, and carpentry is an integral part of providing that service.

In contrast, the same construction company may contract with a software developer to create software that, among other things, assists the company in tracking its bids, scheduling projects and crews, and tracking material orders. The software developer is performing work that is not integral to the construction company’s business, which is indicative of an independent contractor.

B.  Does the Worker’s Managerial Skill Affect the Worker’s Opportunity for Profit or Loss?

A worker provides cleaning services for corporate clients. The worker performs assignments only as determined by a cleaning company; he does not independently schedule assignments, solicit additional work from other clients, advertise his services, or endeavor to reduce costs. The worker regularly agrees to work additional hours at any time in order to earn more. In this scenario, the worker does not exercise managerial skill that affects his profit or loss. Rather, his earnings may fluctuate based on the work available and his willingness to work more. This lack of managerial skill is indicative of an employment relationship between the worker and the cleaning company.

In contrast, a worker provides cleaning services for corporate clients, produces advertising, negotiates contracts, decides which jobs to perform and when to perform them, decides to hire helpers to assist with the work, and recruits new clients. This worker exercises managerial skill that affects his opportunity for profit and loss, which is indicative of an independent contractor.

C.  How Does the Worker’s Relative Investment Compare to the Employer’s Investment?

A worker providing cleaning services for a cleaning company is issued a Form 1099-MISC each year and signs a contract stating that she is an independent contractor. The company provides insurance, a vehicle to use, and all equipment and supplies for the worker. The company invests in advertising and finding clients. The worker occasionally brings her own preferred cleaning supplies to certain jobs. In this scenario, the relative investment of the worker as compared to the employer’s investment is indicative of an employment relationship between the worker and the cleaning company. The worker’s investment in cleaning supplies does little to further a business beyond that particular job.

A worker providing cleaning services receives referrals and sometimes works for a local cleaning company. The worker invests in a vehicle that is not suitable for personal use and uses it to travel to various worksites. The worker rents her own space to store the vehicle and materials. The worker also advertises and markets her services and hires a helper for larger jobs. She regularly (as opposed to on a job-by-job basis) purchases material and equipment to provide cleaning services and brings her own equipment (vacuum, mop, broom, etc.) and cleaning supplies to each worksite. Her level of investments is similar to the investments of the local cleaning company for whom she sometimes works. These types of investments may be indicative of an independent contractor.

D.  Does the Work Performed Require Special Skill and Initiative?

A highly skilled carpenter provides carpentry services for a construction firm; however, such skills are not exercised in an independent manner. For example, the carpenter does not make any independent judgments at the job site beyond the work that he is doing for that job; he does not determine the sequence of work, order additional materials, or think about bidding the next job, but rather is told what work to perform where. In this scenario, the carpenter, although highly-skilled technically, is not demonstrating the skill and initiative of an independent contractor (such as managerial and business skills). He is simply providing his skilled labor.

In contrast, a highly skilled carpenter who provides a specialized service for a variety of area construction companies, for example, custom, handcrafted cabinets that are made-to-order, may be demonstrating the skill and initiative of an independent contractor if the carpenter markets his services, determines when to order materials and the quantity of materials to order, and determines which orders to fill.

E.  Is the Relationship between the Worker and the Employer Permanent or Indefinite?

An editor has worked for an established publishing house for several years. Her edits are completed in accordance with the publishing house’s specifications, using its software. She only edits books provided by the publishing house. This scenario indicates a permanence to the relationship between the editor and the publishing house that is indicative of an employment relationship.

Another editor has worked intermittently with fifteen different publishing houses over the past several years. She markets her services to numerous publishing houses. She negotiates rates for each editing job and turns down work for any reason, including because she is too busy with other editing jobs. This lack of permanence with one publishing house is indicative of an independent contractor relationship.

F.  What is the Nature and Degree of the Employer’s Control?

A registered nurse who provides skilled nursing care in nursing homes is listed with Beta Nurse Registry in order to be matched with clients. The registry interviewed the nurse prior to her joining the registry, and also required the nurse to undergo a multi-day training presented by Beta. Beta sends the nurse a listing each week with potential clients and requires the nurse to fill out a form with Beta prior to contacting any clients. Beta also requires that the nurse adhere to a certain wage range and the nurse cannot provide care during any weekend hours. The nurse must inform Beta if she is hired by a client and must contact Beta if she will miss scheduled work with any client. In this scenario, the degree of control exercised by the registry is indicative of an employment relationship.

Another registered nurse who provides skilled nursing care in nursing homes is listed with Jones Nurse Registry in order to be matched with clients. The registry sends the nurse a listing each week with potential clients. The nurse is free to call as many or as few potential clients as she wishes and to work for as many or as few as she wishes; the nurse also negotiates her own wage rate and schedule with the client. In this scenario, the degree of control exercised by the registry is not indicative of an employment relationship.

Think twice before replacing the “contractor” or “temp” who identified you as his non-offering, full-time “employer” so that he could obtain subsidized insurance through Healthcare.gov.

Reader Poll: Who “Owns” ACA Compliance In Your Organization?

Posted in Affordable Care Act

Curly, Larry and Moe stand at attention, addressed by their commanding officer, who calls for a suicide mission “volunteer” to “step forward.”  Moe and Larry step back, thus “volunteering” Curly.  Within your organization, is a single executive responsible for overall ACA compliance?  If so, what is that executive’s title?  Did he or she volunteer, genuinely, for that duty?  Does your budget account for ACA taxes and penalties that may be imposed in 2016?

We have related suspicions based on anecdotal reports but the sample size is too small and too narrow for generalization.  This blog has over a thousand regular readers, widely distributed.  To respond to our anonymous, five-question survey on these points, please click the link below.  If responses are adequate, we’ll publish the results here.  If responses are overwhelming, we’ll take just the first thousand.

Click http://www.cvent.com/d/zrq40g.

 

Update: Only 30 readers responded to our survey – about a 2% response rate. Several contacted us to explain that they would not respond because they did not know the answer to any question asked. Here are the results from this very small sample.

Within my organization, a single executive has overall responsibility for ACA compliance.

True                                         23        (77%)

False                                        7          (23%)

 

If “True,” the responsible executive’s title is –

HR                                          14        (47%)

No response                           7         (23%)

Other                                       4         (13%)

Payroll and Benefits             3         (10%)

CEO / President                    1          (3%)

CFO                                          1          (3%)

 

The executive with ACA compliance responsibility assumed that responsibility voluntarily, without being tasked.

True                                         18        (60%)

False                                        11        (37%)

No response                            1         ( 3%)

 

Our calendar year 2015 budget accounts for ACA taxes and penalties that may be assessed in 2016.

False                                        22        (73%)

True                                         8         ( 7%)

 

Our 2015/2016 fiscal year budget accounts for ACA taxes and penalties that may be assessed in 2016.

False                                        19        (63%)

True                                         11        (37%)

Budgeting for Employer Mandate Tax Assessments

Posted in Affordable Care Act, Exchanges, Government Employers, Private Employers, Taxes

For October 1 fiscal year employers, it’s budget season. Calendar year employers aren’t far behind. Those doubting their employer mandate compliance need to accrue reserves for non-deductible assessments that the IRS may impose in the coming year. We can help you determine your maximum exposure but we can’t tell you that you have exposure, regardless of your compliance status. Sounds crazy, right? Here’s why.

Your compliance, or not, with Code § 4980H does not alone determine your employer mandate tax assessment. At least one of your full-time employees must buy subsidized insurance through an ACA Exchange for at least one 2015 coverage month in order to trigger an employer mandate tax assessment in 2016.  The vast majority of those purchases have been made, but very few employers, in states with state-based Exchanges, have received any notice that their employees were among the purchasers.  The part of Healthcare.gov that sends those notices and resolves employer appeals still has not been built, by all published accounts.

CMS announced October 23, 2014 that paper notices would be used for 2015. Have you seen such a notice? Didn’t think so.

Of course, you could poll your full-time employees. But you shouldn’t. Knowing who had triggered potential employer mandate taxes could expose you to claims of retaliation, should you later need to discipline or fire them.

If you had received subsidy certification notices, you might have found that former employees were certified as current employees, that part-time employees were certified as full-time employees and that employees offered affordable coverage were certified as having been offered no coverage. You would have had the right to appeal those errors.  And maybe you will. We’re not holding our breath.

Increasingly, it’s looking like your first notice of employees’ 2015 subsidy certifications will be an IRS tax assessment notice in 2016.

 

Healthcare.gov Subsidies Trigger Employer Mandate Tax Assessments.

Posted in Affordable Care Act, Business Organizations, Coverage Mandates, Employee Leasing, Exchanges, Independent Contractors, Taxes

This morning, the Supreme Court of the United States, by a 6-3 margin, removed the last legal obstacle to employer mandate tax enforcement. Because the HHS had authority under Code § 36B to subsidize insurance plans bought through Healthcare.gov (according to an IRS rule), those subsidies properly will trigger Code § 4980H employer mandate tax assessments by the IRS starting in early 2016.   If you are accruing liabilities, you need to determine how you’ll pay those assessments and how you might minimize them. You’ll probably need outside help to do both.

We predicted this opinion but we’re not celebrating. We’re especially concerned for state agencies, local governments, smaller large employers and employers that rely on employees leased in full-time status for less than one year. Here’s a simplified comparison of potential § 4980H(a) assessments based on the same payroll numbers for 2014 (ALE in 2015, assessed in 2016) and 2015 (ALE in 2016, assessed in 2017).

200 Full-time W-2 Employees, all offered coverage (90.1%)

20 Full-time Leased Employees, none offered coverage (9.9%)

2016 § 4980H(a) assessment:         $0                     (70% offer transitional relief)

2017 § 4980H(a) assessment:         $360,000+     (95% offer required)

Should this employer fail to file and deliver its required 2015 Forms 1094-C and 1095-C in early 2016, a $44,000 penalty could be assessed for that default, even though no employer mandate tax was owed for 2015.

Many more traps have been laid and few are sufficiently wary.  As Justice Roberts understated it in his majority opinion, “[The ACA] does not reflect the type of care and deliberation that one might expect of such significant legislation.”  Boy, howdy.  Get help.

Update (in response to inquiries):  Some had speculated that the Court might delay the effective date of its decision if it invalidated Healthcare.gov subsidies.  This decision in favor of the subsidies, and therefore in favor of the employer mandate, is effective retroactively.  The mandate was effective for most “Applicable Large Employers” (on a controlled group basis) beginning January 1, 2015.

Update: We’re getting questions and comments that reflect fundamental misconceptions about the employer mandate. We’ll correct two here and save others for a separate article.

State and local government employers are covered, and most will be “large” due to aggregation rules. The IRS “controlled group” and “affiliated service group” rules don’t fit government employers exactly, but similar aggregation principles will apply.

It’s too late to “get small” for 2015. You are “large” or not in 2015 based on your 2014 employment levels (assuming that you existed in 2014). Your exposure to 2016 § 4980H assessments is based on your “Applicable Large Employer” status in 2015 (which is based, in turn, on your 2014 employment) but your “assessable payment amounts” will be based on 2015 employment levels.

Few Surprises in Final SBC Regs

Posted in Affordable Care Act

Last week the Departments of Labor, Health and Human Services and Treasury (“Departments”) issued final regulations that included additional rules relating to the summary of benefits and coverage (SBC). The June 2015 regulations (“Final Regulations”) finalize the proposed rules which were issued in December 2014.

The Final Regulations provide promises of an updated SBC template and related materials prior to January 2016. The revised template will apply to coverage that would renew or begin on the first day of the plan year beginning on or after January 1, 2017, including open enrollment periods occurring in the Fall of 2016. The 2015 regulations also indicate that the Departments will address issues and concerns regarding the revised template at some point in the future. Until the updated SBC template and related documents are finalized and applicable, plans and insurers will be able to continue to rely on the April 2013 temporary enforcement safe harbor which basically stated that the Departments would not take enforcement action against a plan or insurer that was unable to update its SBCs to address minimum essential coverage (“MEC”) and minimum value (“MV”), if the SBCs had a cover letter or other disclosure containing required MEC and MV statements.

The Final Regulations adopt the clarifications found in the proposed regulations regarding when and how health insurers must provide SBCs to plans (or plan sponsors) upon the plan’s application for coverage.

The Final Regulations also explain what happens if a plan sponsor is still negotiating coverage terms after an application for coverage has been filed and the required SBC information changes. The Final Regulations provide that the plan or insurer need not provide an updated SBC (unless an updated SBC is requested) until the first day of coverage at which point the SBC must reflect the final coverage terms.

Also, the Final Regulations incorporate the safe harbor previously adopted in FAQ guidance with regard to electronic delivery of SBCs. Under the safe harbor, SBCs may be provided electronically as part of an individuals’ online enrollment or online renewal of coverage. However, these participants or beneficiaries must have the option to receive a paper copy upon request.

The Final Regulations also addressed the enforcement/penalties associated with SBC failures. A group health plan or insurer that willfully fails to provide information required under the SBC rules is subject to penalties. The Final Regulations provide that the DOL will use the same process and procedures for assessing civil fines for a failure to provide SBCs as they currently use for a failure to file Form 5500s. In addition, the Final Regulations state that the IRS will enforce the SBC rules using procedures consistent with Internal Revenue Code 4980D.

Generally the Final Regulations contain few changes from the 2014 proposed regulations. However, we have not yet seen the end of the changes as it is possible, if not likely, that the updated SBC template and related materials issued later this year may contain more extensive changes to address concerns regarding SBC compliance.