The Affordable Care Act - Minnesota Government Finance Officers

Report
THE KINNEY FIRM
MARK J. KINNEY
(952) 892-7022
[email protected]
The Affordable Care Act – A Deeper Dive into
Counting and Managing Hours of Service for
Public Employers
MN GOVERNMENT FINANCE OFFICERS ASSOCIATION
July 31, 2013
Introduction
• The 2,000-page Patient Protection and Affordable
Care Act (ACA) was passed on March 23, 2010
• 20,000 pages of regulations have been issued to date
• Much guidance is in proposed form, and many key
issues have not yet been addressed
• Employer Responsibility Rules (and Penalties) have
been Delayed One Year until 2015
• Other provisions of the ACA will continue on track,
including the requirement to pay PCORI and
reinsurance taxes
COPYRIGHT © 2013 MARK KINNEY
2
JULY 31, 2013
Concerns of Public Employers
• States, cities, counties and school districts make
extensive use of the part-time workforce
• In 2015, they must offer health coverage to all
employees who work an average of 30 or more hours
per week
• There is a significant gap between past practice and
the new federal requirements
• There is a significant, unknown and unfunded
liability
• There are complex new administrative, payroll and
recordkeeping requirements
COPYRIGHT © 2013 MARK KINNEY
3
JULY 31, 2013
Concerns of Unions
• Letter from James P. Hoffa, International Brotherhood of
Teamsters, and other union Presidents to Congressional
leaders Pelosi and Reed (mid-July, 2013):
– The unintended consequences of the ACA are severe.
– Perverse incentives are already creating nightmare
scenarios.
– The law creates an incentive for employers to keep
employees’ work hours below 30 hours a week.
– You pledged that if we liked the health plans we have now,
we could keep them.
– Right now, unless you and the Obama Administration enact
an equitable fix, the ACA will shatter not only our hardearned health benefits, but destroy the foundation of the 40
hour work week that is the backbone of the American middle
class.
COPYRIGHT © 2013 MARK KINNEY
4
JULY 31, 2013
Penalty Scheme in 2015
• The $2,000 penalty
– When an applicable large employer fails to offer minimum
essential coverage to at least 95% of all full-time employees
and at least one full time employee receives a premium tax
credit or cost-sharing reduction from an exchange, a monthly
assessable payment is determined as follows:
1/12 of $2,000 X (# Full Time Employees - 30)
• The $3,000 penalty
– When an applicable large employer offers minimum essential
coverage that is not “affordable” for some employees or does
not provide “minimum creditable coverage,” a monthly
assessable payment is determined as follows:
1/12 of $3,000 X # Full Time Employees who enroll on exchange
and receive tax credits or cost-sharing reductions
COPYRIGHT © 2013 MARK KINNEY
5
JULY 31, 2013
Applicable Large Employers
• An “applicable large employer” is an employer who
employed an average of at least 50 full-time employees,
including full-time equivalent employees, on business
days during the preceding calendar year
• For this purpose,
– A full-time employee with respect to any month is an
employee who is employed on average at least 30 hours of
service per week.
– The number of full-time equivalent employees is determined
by dividing the aggregate number of hours of service of
employees who are not full-time employees for the month by
120.
– Special rules allow employers to exclude seasonal
employees if an employer’s workforce exceeds 50 full-time
employees for 120 days or fewer during a calendar year.
COPYRIGHT © 2013 MARK KINNEY
6
JULY 31, 2013
Who is the Employer?
• Controlled group rules 414(b) or (c), or an affiliated service
group under section 414(m), are used to determine who is
an “applicable large employer”
• Even if your organization is already an applicable large
employer, members of its controlled group will be subject
to the “pay or play” rules in 2015
• Liability for employer penalties assessed separately
against controlled group members
COPYRIGHT © 2013 MARK KINNEY
7
JULY 31, 2013
Joint Powers or Similar Entities
• Does your organization participate in a joint powers or similar
arrangement for:
– Police
– Fire
– General Governmental Services
– Parks and Recreation
– Sanitation
– Correctional Facilities
– Other
• Do these organizations have employees that work 30 or more
hours per week?
• Are they part of your organization’s controlled group?
COPYRIGHT © 2013 MARK KINNEY
8
JULY 31, 2013
Controlled Group Rules
• Applicable large employers must include
employees of employers under “common
control”
• IRS rules governing controlled groups are found
in Code §§ 414(b), (c), (m) and (o)
• The ACA requires government entities to apply
“reasonable, good faith interpretation” of
controlled group rules
COPYRIGHT © 2013 MARK KINNEY
9
JULY 31, 2013
How do Governmental Entities apply
Controlled Group Rules?
• A “parent-subsidiary” (vertical) control group exists
where a corporation, trade or business owns at least
80 percent of another business.
– Applied to governmental entities, non-binding IRS
guidance suggests that there will be a controlled group
where at least 80% of the directors, trustees or other
individual members of one entity’s governing body are
either representatives of or directly or indirectly
control, or are controlled by, the other entity.
• Without further regulatory guidance, it is not clear
exactly how the controlled group rules will apply to
governmental entities: but watch this space.
COPYRIGHT © 2013 MARK KINNEY
10
JULY 31, 2013
Who is an Employee?
• “Common Law” Standard
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.
• Regulations cite the 20-factor test in IRS Revenue
Ruling 87-41
• Workers from temporary agencies or professional
employer organizations (PEOs) MAY or MAY NOT be
employees depending on the facts. See IRS Revenue
Ruling 70-630.
COPYRIGHT © 2013 MARK KINNEY
11
JULY 31, 2013
What Hours are Counted?
• A full-time employee means persons who work an
average of 30 hours per week.
• Employers may use 130 hours of service in a
calendar month as the monthly equivalent
• For this purpose, an hour of service includes:
– Each hour for which the employee is paid, or entitled to
payment
– Each hour for which the employee is paid, or entitled to
payment, for vacation, holiday, sick time, disability, jury duty,
military duty, or leave of absence (up to 160 continuous
hours)
– hours of unpaid leave for FMLA, USERRA, and jury duty
COPYRIGHT © 2013 MARK KINNEY
12
JULY 31, 2013
Special Rule for Educational
Institutions
• Applicable employment period is the academic
year
• For purposes of determining average hours, the
measurement period must exclude employment
breaks (winter break, spring break, summer
break)
• In the alternative, the educational organization
may credit hours during the break period equal
to hours worked during the academic year (but
not more than 501 hours need be credited)
COPYRIGHT © 2013 MARK KINNEY
13
JULY 31, 2013
Measuring Hours for Employees
• Days worked equivalency method. Credit employee
with 8 hours of service for each day for which the
employee would be required to be credited with at
least one hour of service (not available for 10-hour
day schedules).
• Weeks worked equivalency method. Credit
employee with 40 hours of service for each week for
which the employee would be required to be credited
with at least one hour of service.
• Actual Hours method. Use actual hours of service
from records of hours worked and hours for which
payment is made or due. Applies to all hourly
workers.
COPYRIGHT © 2013 MARK KINNEY
14
JULY 31, 2013
Example: Tracking Hours for a City
Job Classification
Hours Crediting Method
Mayor and full-time administration
Weeks worked equivalency
(simplifies counting)
Part-time city attorney
Days worked equivalency
Municipal golf course employee
Actual hours method
COPYRIGHT © 2013 MARK KINNEY
15
JULY 31, 2013
Safe Harbor Rules: Determining FullTime Status of Ongoing Employees
Step 1: Determine Standard Measuring Period (look-back period)
Not less than 3 months
Not more than 12 months
Step 2: Determine who is a full-time employee during the look-back period
Average at least 30 hours of service per week
Step 3: Provide coverage during a “stability period” regardless of actual hours
At least 6 months in duration
COPYRIGHT © 2013 MARK KINNEY
16
Not shorter than look-back period
JULY 31, 2013
Administrative Period
• Employers may separate the Standard Measurement
Period and the Stability Period by an Administrative
period
• Purpose of the Administrative Period is to allow time
to identify who is eligible and conduct enrollment
• Administrative Period may be up to 90 days
• The Administrative Period should fall within the end
of a Stability Period to avoid any loss of coverage
COPYRIGHT © 2013 MARK KINNEY
17
JULY 31, 2013
Example: 12-Month Measuring Period
from Oct. 15, 2013 to Oct. 14, 2014
• Smith is the City Administrator. She is an exempt employee and works full time. The
City uses the “Weeks Worked Equivalency” method and credits her with 40 hours per
week.
• Jones and Ward are part-time city attorneys. The City uses the Days Worked
Equivalency method and credits them for 8 hours on every day they work an hour.
• Dunn is a part-time custodial worker. The City uses the Actual Hours Method.
2013
Smith
Jones
Ward
Dunn
Oct 15
40
40
30
25
Nov 15
40
40
40
32
40
40
20
18
COPYRIGHT © 2013 MARK KINNEY
18
40
40
20
40
40
40
30
37
Oct 14, 2014
40
30
30
10
40
30
40
30
40
40
40
40
…
…
…
…
40
30
20
15
40
40
30
27
40
40
20
35
Avg. Hrs FT
40
35
30
29
Y
Y
Y
N
JULY 31, 2013
Reducing Hours of Part Time
Employees
 Define part-time hours below 30 per week at level that can be managed

Positions with predictable hours may be scheduled for close 30 hours per
week


Example: Administrative assistant scheduled for 28 hours per week
Positions with unpredictable fluctuations in hours should be scheduled
with fewer standard hours

Example: Road crews workers with storm cleanup duties might be
scheduled for 25 or fewer hours per week.
 Use the “bottom up” method for least hardship

Start with those who are scheduled for 30 hours per week and reduce
their hours by the minimum required amount
 To the extent possible, replace lost hours by reallocating to current workers
above or below 30. Or hire workers at lower hourly rates.
 Warning: this approach can create hardship, it’s politically sensitive, it may not
be permissible under collective bargaining agreements, and it heightens the
risk of litigation.
COPYRIGHT © 2013 MARK KINNEY
19
JULY 31, 2013
Hours Reduction in the News
• Dearborn, MI Cutting hours for 700 workers down to 28 hours a week.
• Ft. Wayne, IN school district cutting hours for 3/4th of its part-time aides.
• Omaha, NE school district cutting hours for 281 part-time employees to avoid
$2.5 million in new costs, which will result in pay cuts of up to $3,300.
• Long Beach, CA cutting hours for 200 part-time workers to save $2 million
• Salt Lake City, UT school district cutting hours for 1,000 to 29 hours per week
to save $14 million.
• State of Virginia cutting hours for 7,000 government workers to 29 hours a
week.
• Kern County, CA cutting hours for 800 workers to avoid costs of $8 million a
year.
• Allegheny County, PA community college cutting hours for 400 adjunct faculty
and other employees so it wouldn't have to pay $6 million in costs.
Merline, John. “Local Governments Reeling under Obamacare Costs.”
Investors Business Daily 19 Jun 2013
COPYRIGHT © 2013 MARK KINNEY
20
JULY 31, 2013
New Employees
• If an employee is reasonably expected at his or her start
date to work full-time, an employer must offer coverage no
later than the end of the 90-day waiting period.
• If it cannot be determined on the start date whether the
employee is reasonably expected to work on average at
least 30 hours per week (a “variable hour employee”),
– The employer may use a measurement period of between 3
and 12 months and an administrative period of up to 90 days.
– The measurement period and the administrative period
combined may not extend beyond the last day of the first
calendar month beginning on or after the one-year
anniversary of the employee’s start date (at most 13 months
plus a partial month).
– The stability period for such employees must be the same
length as the stability period for ongoing employees.
COPYRIGHT © 2013 MARK KINNEY
21
JULY 31, 2013
VARIABLE HOUR/SEASONAL EMPLOYEE
Init Msmt Period 6 Start 9 1 2014
Admin Period
3.0
Stability Period 12
31
Yes
2012
J F M A M J
2013
2014
J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D
2015
J F M A M J
2016
2017
J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D
ONGOING EMPLOYEE
Stnd Msmt Period 12 Start
Admin Period
3.0
Stability Period 12
10 1 2014
Employee:
Anderson, John F.
Average Weekly Hours During Stnd Measurement Period:
Is Employee Entitled to Coverage During Stability Period?
29
No
2012
J F M A M J
2013
2014
J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D
2015
J F M A M J
2016
2017
J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D
COPYRIGHT © 2013 MARK KINNEY
22
Employee:
Anderson, John F.
Average Weekly Hours During Initial Measurement Period:
Is Employee Entitled to Coverage During Stability Period?
JULY 31, 2013
Break in Service Rules
• If employer terminates and is rehired more than 26
week later, they may be treated as a new hire
• Rule of Parity: if an employee terminates for at least
4 weeks, and period of termination exceeds original
employment, they may be treated as a new hire
• Otherwise employees who return from a break in
service who are still within a “stability period” for
coverage must be offered coverage on the first day
of hire
COPYRIGHT © 2013 MARK KINNEY
23
JULY 31, 2013
Immediate Action Items for Public
Employers
1. Make someone responsible
2. Determine applicable large employer status
3. Identify all common law employees
4. Identify all full-time employees
5. Establish measurement, administrative and
stability periods for ongoing, variable hour and
seasonal employees
6. Estimate potential exposure
7. Implement mitigation strategies as necessary
8. Maintain comprehensive records to defend against
lawsuits, IRS audits and demands for penalties
COPYRIGHT © 2013 MARK KINNEY
24
JULY 31, 2013
Example: City A in 2015
• City A provides group health coverage for 100 of its
full-time employees, which it currently defines as
employees who work 32 hours per week.
• City A has 15 employees who work at least 30 hours
per week but less than 32 hours. They must be
offered coverage.
• Option 1: Offer coverage to the 15 employees
– Average cost to employer: $6,000 per employee
– Cost to provide coverage:* $90,000 per year
– Total cost (115 FTEs x $6,000): $690,000 per year
* This assumes that all 15 accept the offer
COPYRIGHT © 2013 MARK KINNEY
25
JULY 31, 2013
More Options. . .
• Option 2: Decline coverage to the 15 employees
– Assessable payment: $2,000 x (115 full-time
employees - 30) = $170,000
– Cost of coverage for 100: $600,000 (100 x $6,000)
– Total Cost: $770,000. $80k more than Option 1.
• Option 3: Terminate Plan
– Assessable payment: $170,000.
– Employees may want to be paid the difference
– Collective bargaining agreements may prohibit
– Local communities may not support decision
COPYRIGHT © 2013 MARK KINNEY
26
JULY 31, 2013
Options continued. . .
• Option 4: Reduce hours
– Start with those at 30 and make minimum reduction
that can be managed
– Rather than hire new temporary employees, start by
allocating lost hours to employees below or above 30
hours
– Hours counting should begin in October for January
2014 enrollment; decisions should be made early to
avoid hardship later
– This approach can create hardship and is politically
sensitive
COPYRIGHT © 2013 MARK KINNEY
27
JULY 31, 2013
Options continued. . .
• Option 5: Reduce Employer Contributions
– Reduce employer contribution by $90,000 (or some
lesser amount)
– Coverage may not be “affordable” for some employees
– Employees at lower end of pay scale may drop out and
obtain coverage on the exchange
– Subsidies and tax credits on the exchange may result
in better benefit package for lower paid employees
– $3,000 penalty may be less than original contribution
COPYRIGHT © 2013 MARK KINNEY
28
JULY 31, 2013
Collective Bargaining Reopeners
• “Final regulations have not been issued under many
provisions of the Patient Protection and Affordable
Care Act (ACA). This creates considerable
uncertainty regarding the Employer’s financial
obligations. This agreement may be reopened and
all material terms of compensation, hours, and fringe
benefits (include health benefits) may be subject to
negotiation and change as reasonably necessary to
comply with the ACA and to address any increase in
cost that the ACA may require.”
• Some state laws prohibit reopening collective
bargaining agreements (e.g., Minn. Stat. Sec.
179A.20).
COPYRIGHT © 2013 MARK KINNEY
29
JULY 31, 2013
Notice Pursuant to Treasury Department
Circular 230, and Disclaimer
To comply with certain Internal Revenue Service ("IRS") rules, we
must inform you that any U.S. federal tax advice contained in this
presentation, including handouts or verbal explanation, is not
intended or written to be used, and cannot be used, by any person
for the purpose of avoiding any penalties that may be imposed by
the IRS. Under IRS rules governing tax advice, a taxpayer may rely
on professional advice to avoid federal tax penalties only if that
advice is provided in a tax opinion that conforms with extensive
federal requirements. We understand that you do not intend to use
or refer to anything contained in this presentation to promote,
market, or recommend any particular entity, investment plan, or
arrangement.
DISCLAIMER: This presentation is intended for general information
purposes only. It does not create an attorney-client relationship
and should not be construed as legal advice or legal opinions on
any specific facts or circumstances.
COPYRIGHT © 2013 MARK KINNEY
30
JULY 31, 2013

similar documents