ACA guidance for municipalities and offline agencies

July 31, 2014 (municipalities) September 4, 2014 (offline agencies)

The Affordable Care Act (ACA) requires applicable large employers [1] to offer health insurance that meets certain standards [2] to their full-time employees, [3] or pay a penalty to the federal government. [4]  That penalty is intended to offset the cost of subsidies available to individuals who lack access to employer sponsored insurance.  Additionally, the ACA requires most individuals to maintain health insurance, whether through their employer, or some other source, such as a spouse, or MassHealth. [5]

In order to implement these mandates, the federal government will soon be requiring employers and insurers to report certain information to individuals and to the federal government. [6]  These reports will require some coordination and cooperation between the GIC, the public employers for whom it administers benefits, and GIC plans.

The purpose of this communication is to give you some information we hope will be helpful as you develop your compliance plans. 

Reporting of coverage (§ 6055)

We are working with our carriers to determine whether they can meet the requirements around reporting of health coverage. [7]  Fully insured plans (AllWays Health Partners, Health New England, and Fallon plans, as well as Tufts Medicare Preferred) are directly subject to health coverage reporting requirements.  We are talking with our other plans about whether they could report health coverage on our behalf, since for self-insured plans, reporting requirements apply to the plan sponsor.  We anticipate this reporting will be broadly similar to the reporting that plans currently do under state health reform (Form 1099-HC, used in the preparation of individual state tax returns here in Massachusetts).

Reporting of offers of coverage (§ 6056)

We note that employers are responsible for reporting on which full-time employees are offered coverage, whether or not they enroll in benefits. [8]  This reporting is essentially a payroll function that neither the GIC nor the GIC’s plans can implement on behalf of public employers, for several reasons.  First, each employer needs to determine whether the reporting requirements apply at all – in other words, whether the public entity is an applicable large employer. [9]  Second, the employer must determine which employees are full time under federal rules, [10] and must report information on those employees whether or not they are eligible for or enrolled in GIC insurance.  We are aware that certain employees will be considered full-time under federal rules even though they are ineligible for GIC benefits, for example because they are not in a public pension system. [11]  The GIC does not have direct access to information on hours worked, and generally has no access to information on employees who are not enrolled in GIC benefits.

Penalties

Applicable large employers who do not offer health insurance to 95% of their full time employees are subject to substantial penalties starting in calendar year 2016. [12]  In 2015, the same penalty applies, but the standard is easier: employers who offer insurance less than 70% of their full-time employees are penalized. [13]  In addition, starting in 2015, if full time employees access subsidized insurance through an Exchange because the insurance they are offered, if any, does not provide minimum value or is not affordable, [14] their employer is subject to a separate and smaller penalty. [15]

Because GIC eligibility and federal full-time status are not identical, some public employers are potentially subject to these penalties.  The GIC encourages public employers to take steps to assess and potentially limit their exposure to penalties.  Specifically, the GIC recommends that public employers configure their payroll system in a way that will allow them to track hours consistent with federal standards, and to estimate how many full-time employees are not eligible for health insurance.  Depending on the results, employers may wish to make other changes, such as modifying rules on pension participation in a manner that more closely aligns the standards for benefitted employees with federal full time status.

Standards

From the perspective of an employer seeking to minimize federal penalties, the adequacy of health insurance is gauged according to adherence to three sets of requirements: whether the plan is minimum essential coverage, whether it provides minimum value, and whether the least expensive plan actually available to an individual employee is affordable to that employee. [16]

GIC plans constitute minimum essential coverage and meet minimum value standards.  Whether they are affordable depends on what plans are available to a particular individual (based in part on geographic restrictions), and the individual’s contribution ratio.  At current premiums, all employees living in Massachusetts whose contribution ratio is 25% or less have access to an affordable plan.  Employers with less favorable contribution ratios or significant out-of state populations should monitor affordability.

Forms

On July 24, 2014, the IRS issued draft versions of the forms that employers will use to report on health coverage that they offer to their employees. In accordance with the IRS’ normal process, these draft forms are being provided to help stakeholders, including employers, tax professionals and software providers, prepare for these new reporting provisions and to invite comments from them. We anticipate draft instructions relating to the forms will be posted to IRS.gov in August. Both the forms and instructions will be finalized later this year. The drafts can be found at the IRS’s website under the applicable form number (Form 1094 and 1095 –B or C) [17]

Other ACA Taxes & Fees:

PCORI

As you may recall, as part of the Affordable Care Act, the federal government instituted the Patient-Centered Outcomes Research Trust Fund fee on issuers of health insurance policies and plan sponsors of applicable self-insured health plans to help fund the Patient-Centered Outcomes Research Institute (PCORI).  The GIC built this fee into its rates and, for its self-insured plans, will be filing the required Form 720 and making the payment. The fully insured plans will handle the applicable fee for fully insured lives in GIC plans.

Transitional Reinsurance

The ACA requires all health insurance issuers and self-insured group health plans to make contributions under the transitional Reinsurance Program to support payments to individual market issuers that cover high-cost individuals. The first payments will be due in January 2015. The GIC and the fully insured plans are taking care of the reporting and payments for this tax.

We hope this information is helpful to you.  Please contact Andrew Stern, GIC General Counsel, at 617.727.2310 x7019 if you have further questions.

[1] An Applicable Large Employer is defined as one who employed, on average, at least 50 employees (full time plus full time equivalent part-time) on business days during the prior calendar year.  See 26 U.S.C. § 4980H(c)(2)(C).  Employers with fewer than 50 full-time employees are exempt.  Please note that the IRS has indicated government entities should apply a “reasonable good faith interpretation” of the rules on employer aggregation.  See 79 FR 8548.

[2] Coverage must meet minimum essential coverage requirements and be affordable. These are specified in the individual mandate, see note 5 and Individual Shared Responsibility Provision - Minimum Essential Coverage. Coverage is considered affordable if the employees' required premium contribution for self-only coverage in the lowest cost plan that offers MEC does not exceed 9.5 percent of the employee's modified adjusted gross household income.

[3] For the definition of full time, see 26 C.F.R. § 54.4980H-1(a)(21).

[4] See, generally, 26 U.S.C. § 4980H(a) and related regulations.

[5] See, 26 U.S. Code § 5000A.

[6] See 26 U.S.C. §§ 6055 (reporting of health coverage) and 6056 (reporting of offers of coverage to full-time employees).

[7] 26 U.S.C. §§ 6055.

[8] 26 U.S.C. §§ 6055.

[9] See note 1.

[10] See 26 C.F.R. § 54.4980H-1(a)(21).

[11] See 805 CMR §§ 1.02, “Employee” and 8.03(2)(a).

[12] See 26 U.S.C. § 4980H(a) and 26 C.F.R. § 54.4980H-4.

[13] See 79 FR 8575.

[14] Employer coverage is considered affordable - as it relates to the Advanced Premium Tax Credit (APTC) - if the employee’s share of the annual premium for self-only coverage is no greater than 9.5% of annual household income. Individuals offered employer-sponsored coverage that’s affordable and provides minimum value won’t be eligible for a premium tax credit., see 77 FR 30377; 26 CFR 1.36B-2 (eligibility for premium tax credit)

[15] See 26 U.S.C. § 4980H(b) and 26 C.F.R. § 54.4980H-5.  This penalty does not apply if the employer is penalized under § 4980H(a).

[16] See, generally, U.S. Dept. of Labor Technical Information Release 2012-01, p. 2.

[17] Reporting under §6055 includes, with respect to employees and dependents (children only) covered under the health plan: their name, address, Social Security number and a list of the specific months where they were covered at least one day along with the Name, address and EIN of plan sponsor. See. 79 FR 13228. Reporting under §6056 for each calendar month, includes, but is not limited to a report of the number of full-time employees, with corresponding names, addresses and Social Security numbers of each; whether the employer coverage offered provided minimum essential coverage, minimum value, met the 9.5% affordability test, was offered to full-time employees and their dependents, and the employee’s share of the cost for the lowest-cost employee-only coverage offered.  See, 79 FR 13236.