ACA: After the Shock & Awe,
What Do Employers Need to
Know Now?
Presented by:
Amy Ciepluch and Sarah Fowles
Quarles & Brady LLP
Agenda
 Lessons learned during implementation of
the employer shared responsibility mandate
and IRS reporting
 Recent IRS guidance on various ACA
provisions
 Delay of Cadillac tax and legislative forecast
MRA Employment Law Update
Employer Shared Responsibility
Mandate
 ESRM requires “applicable large employers”
with 50+ full-time and full-time equivalent
employees to “offer” “minimum essential
coverage” that is “minimum value” and
“affordable” to “full-time” employees, or else
pay a potential “assessable payment” to the
IRS.
MRA Employment Law Update
Employer Shared Responsibility
Mandate
 Applicable large employer: controlled group
rules apply
 Lessons Learned
 Many companies, particularly those that are closely
held by families and managers, aren’t fully aware of
controlled group status
 Challenges for HR managers to request and obtain
ownership information for controlled group analysis:
ownership percentages, identity of owners
 Controlled group analysis is complex and costly
MRA Employment Law Update
Employer Shared Responsibility
Mandate
 Offering coverage
 Lessons Learned
 Generally must offer yearly (e.g., through open
enrollment)
 Temporary employees provided by staffing company
can pose questions
 Whose employees are they?
 How can we limit risk?
 Union employees eligible for union fund
 How can we limit risk?
MRA Employment Law Update
Employer Shared Responsibility
Mandate
 Minimum essential coverage and minimum
value
 Lessons Learned
 Watch out for “too-good-to-be-true strategies” to
meet the minimum possible requirements
 “Skinny plan” example – plans that cover preventive, lab,
and doctor visits but not hospital visits
 IRS effectively shut down skinny plans
 Trying to comply by reimbursing individual health
insurance premiums can backfire
MRA Employment Law Update
Employer Shared Responsibility
Mandate
 Affordability
 Lessons Learned
 From a compliance perspective, best price to charge for self-only
coverage is 9.5% of the federal poverty level
 For 2016, works out to about $93.18 (subject to annual
adjustments)
 A financial incentive not to elect health plan coverage gets added
to the cost of coverage to determine affordability
 Example: Self-only coverage is $90/month, but employer offers
$200 per month in cash if employee opts out of health plan
coverage. Cost of coverage for affordability purposes is
$290/month (can’t use federal poverty level safe harbor)
 If premiums can be lowered due to wellness program, the higher
pre-wellness program premium applies for affordability
purposes, unless lower premium due solely to wellness program
exclusively focused on tobacco use
MRA Employment Law Update
Employer Shared Responsibility
Mandate
 Full-Time Employees
 Lessons Learned
 Generally necessary to track hours for all employees
except perhaps for those who you know work 30+
hours per week
 Most employers using a “look-back” method to
determine full-time status
 New employees, rehired employees, and short-term
employees hardest to evaluate under look-back
method
 Robust hours-tracking and analytical software is a must for
many employers
MRA Employment Law Update
Employer Shared Responsibility
Mandate
 Assessable Payments: “A Penalty” and “B
Penalty” are not made alike
 Lessons Learned
 Sometimes the most cost-effective strategy is to do what is
necessary to avoid A Penalty but pay the B Penalty as it
occurs
 E.g., Offer coverage that will be “affordable” for most but
not necessarily all; offer coverage to 95%, and not 100% of
full-time employees
 Sometimes the A Penalty is tolerable
 First 30 full-time employees ignored in A Penalty calculation,
so employers with slightly over 30 full-time employees will
not see substantial penalties
MRA Employment Law Update
IRS Reporting
 Two new types of IRS reporting hitting
employers right now
 Applicable large employer (“ALE”) reporting
 Minimum essential coverage (“MEC”) reporting
 First reports due to employees March 31; to IRS
May 31 (if on paper) or June 30 (if electronically)
 After 2016, reports due to employees January 31; to
IRS February 28 (if on paper) or March 31 (if
electronically)
MRA Employment Law Update
IRS Reporting
 ALE Reporting
 Lessons Learned
 Most employers engaging with third party vendors to
prepare reports: payroll providers, software start-ups, and
benefit consultants
 Vendors typically offer varying levels of support:
 One level of support requires employer to determine all
coding in advance; vendor simply puts codes into correct
boxes on forms and submits to IRS
 Another level of support provides a software solution into
which employer places hours information and certain other
information and the vendor determine what coding should
be
 Also some “in-between” levels of support
MRA Employment Law Update
IRS Reporting
 ALE Reporting
 Lessons Learned
 Even with better software solutions starting to emerge,
some forms still need to be hand-coded
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Short-term employees
Rehired employees
Employees on leave
Terminated/retired employees
Employees with variable hours
 Vendor contracts are very favorable to vendor, and
employers have had little success negotiating favorable
terms: it’s a vendors market right now
 Employers cannot assume vendors will assume liabilities for
inaccuracies on forms
MRA Employment Law Update
IRS Reporting
 ALE Reporting
 Lessons Learned
 Even with better software solutions starting to emerge,
some forms still need to be hand-coded

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Short-term employees
Rehired employees
Employees on leave
Terminated/retired employees
Employees with variable hours
 Vendor contracts are very favorable to vendor, and
employers have had little success negotiating favorable
terms: it’s a vendors market right now
 Employers cannot assume vendors will assume liabilities for
inaccuracies on forms
MRA Employment Law Update
IRS Reporting
 ALE Reporting
 Lessons Learned
 Even with better software solutions starting to emerge,
some forms still need to be hand-coded





Short-term employees
Rehired employees
Employees on leave
Terminated/retired employees
Employees with variable hours
 Vendor contracts are very favorable to vendor, and
employers have had little success negotiating favorable
terms: it’s a vendors market right now
 Employers cannot assume vendors will assume liabilities for
inaccuracies on forms
MRA Employment Law Update
IRS Reporting
 MEC Reporting
 Lessons Learned
 Self-funded employers typically combine ALE and MEC
reporting on one form
 Necessary to obtain dependent’s Social Security
Numbers to report their minimum essential coverage
 If employer is unable to obtain dependent SSN at first
must try, try again
MRA Employment Law Update
Recent ACA Guidance
 IRS Notice 2015-87, December 16, 2015
 26 answers to frequently asked questions
 Request for comments on issues impacting pay
or play affordability and hours counting during
leave, among other issues
MRA Employment Law Update
Recent ACA Guidance:
Notable Items and Clarifications
 Pay or Play hours counting during leave
 Guidance on how to determine whether
individual on leave is a full time employee
 Only credit hours if individual remains an
employee
 Credit hours if employee is receiving short term
or long term disability benefits (unless employee
paid entire cost of coverage)
 Do not credit hours if employee is receiving
worker’s compensation benefits
MRA Employment Law Update
Recent ACA Guidance:
Notable Items and Clarifications
 Pay or Play hours counting during leave (con’t)
 No limit on number of hours credited (e.g., for 401(k)
plan purposes, only have to credit 501 hours per year
during a year long leave) – as long as individual remains
an employee, must continue to credit hours
 Lessons Learned
 Employers may want to reconsider practice of leaving
employees receiving LTD on as employees
 Unless health coverage continues at active employee
rate, likely exposure to affordability penalty
 Consider impact on “no offer” penalty analysis (e.g., if
not offering coverage to employee receiving STD or LTD
pay, likely have to include them in no offer count)
MRA Employment Law Update
Recent ACA Guidance:
Notable Items and Clarifications
 Integrated health reimbursement accounts
 Integrated HRA funds can only be used to reimburse
expenses of individuals actually enrolled in
employer’s medical plan at the time HRA funds were
allocated
 If employer contributes to an HRA for active
employees who are enrolled in medical but allows
employee to use funds for reimbursement of
expenses of spouse or children who are not enrolled,
HRA may violate the ACA’s prohibition on annual
limits and preventive care mandate
MRA Employment Law Update
Recent ACA Guidance
 Integrated HRAs (cont):
 An HRA can also be integrated with another
employer’s plan, so if spouse or children were
enrolled in spouse’s employer plan, HRA could be
used for their expenses
 Retiree-only HRAs are exempt
 Lessons Learned
 Be very careful with any HRA for active employees
 Active employee HRAs should generally only be offered to
employees and their dependents enrolled in major medical
MRA Employment Law Update
Recent ACA Guidance
 Adjustment to the 9.5% pay or play affordability
threshold
 Prior to the new guidance, the affordability safe
harbors were based on 9.5% (of W-2 wages, the
federal poverty level or the rate of pay) and were not
adjusted along with the affordability rate used to
determine subsidy eligibility
 The safe harbor rate will now be adjusted along with
the subsidy rate and 9.66% for 2016 (and
retroactively, 9.56% for 2015)
 Lesson Learned
 Revisit your affordability calculation if you’re still using
9.5%
MRA Employment Law Update
Odds and Ends – Additional Items
from IRS Guidance
 Notice 2015-87 contained substantial guidance
on the medical FSA $500 carryover, including on
the effect of the carryover on medical FSA
COBRA
 Notice 2015-87 provides pay or play affordability
guidance on how employer payments for fringe
benefits made pursuant to the Service Contract
Act or Davis-Bacon Act are taken into account
for purposes of determining affordability of
health plan coverage
MRA Employment Law Update
Odds and Ends – Cadillac Tax
 The IRS has extended the effective date of the socalled Cadillac tax (excise tax on high-cost health
coverage) to 2020
 Repeal has support from both sides of the isle
 Employee unions, an important ally for democrats,
oppose the excise tax
 Both Hillary Clinton and Bernie Sanders have come out in
favor of Cadillac tax repeal
 Lesson Learned
 Employers can probably hold off on significant Cadillac
tax planning until 2017 or 2018 (after the election dust
has settled)
MRA Employment Law Update
Odds and Ends – Telemedicine
 Employers are increasingly offering telemedicine (medical
care via phone or internet) as a way to control costs and
provide more accessible health care solutions
 Telemedicine can present numerous legal issues
 If offered to employees who are not enrolled in major medical, it
would violate the ACA’s preventive care mandate
 If offered to employees enrolled in high-deductible health plan,
could impact eligibility to make HSA contributions
 Unclear how COBRA applies
 Lessons Learned
 Compliance issues with telemedicine are complex enough that legal
review is likely worthwhile
 Providers and vendors do not always identify these issues
MRA Employment Law Update
Questions?
Sarah Fowles
Quarles & Brady LLP
411 E. Wisconsin Avenue
Milwaukee, WI 53202
[email protected]
414.277.1287
Amy Ciepluch
Quarles & Brady LLP
411 E. Wisconsin Avenue
Milwaukee, WI 53202
[email protected]
414.277.5585
Thank You!
MRA Employment Law Update