Benefits Resources

ACA Information Return – Penalties Doubled for Non-Compliance

The Trade Preferences Extension Act (TPEA) became law on June 29, 2015 and included a provision having absolutely nothing to do with extending trade preferences. Though this law came in quietly and didn’t gain the attention of many, yet the law has doubled per-employee penalties on applicable large employers for neglecting to file Affordable Care Act (ACA) information returns with the IRS starting in 2016, or failing to furnish employees with payee statements, as required by the ACA, regarding their health care coverage.

Some reporting requirements apply to all employers that provide self-insured health coverage to their employees, regardless of size.

In the act, Congress amended Internal Revenue Code sections 6721 and 6722 to increase the penalties associated with a failure to properly file information returns or provide payee statements. “Among other things, these increased penalties will apply to Forms W-2 and the 1099-series, as well as ACA-required employer shared responsibility and minimum essential coverage reporting forms,” reports a July 13 Benefits Brief from Groom Law Group.

Among other adjustments, as a result of the amendments:

  •  The basic penalty for failure to file or furnish a correct information return or payee statement will more than double from $100 to $250.

  •  The standard annual penalty cap will double from $1.5 million to $3 million.

  •  If the failure relates to both an information return and a payee statement, the penalties are doubled to $500 per statement with a $6 million cap.

The new penalties are effective with respect to returns and statements required to be filed after Dec. 31, 2015, which would include 2015 informational forms that must be filed with the IRS by Feb. 28, 2016 (or by March 31, 2016, if filed electronically), and payee statements due annually to covered employees by Jan. 31.

In preparation for reporting in early 2016, applicable large employers should have steps and infrastructure in place to gather information reflecting coverage being offered in plan year 2015, which can include monthly tracking of hours worked by employees.

Good-Faith Efforts

Despite the increase in penalty amounts, it appears that the current one-year transition rule is still available. The one-year transition rule provides that employers and insurers will not be subject to penalties for the first year of reporting if they made a good-faith effort to comply but filed incorrect or incomplete information. However, there is no relief for failure to timely file the required information returns with the IRS, or relief for failing to provide required statements to employees.

As a result, if an [applicable large employer] with 100 full-time employees makes no effort to comply with the regulation and reporting requirements, it will experience a minimum $50,000 fine. As for the good-faith exception, the IRS has not provided any guidance of what establishes a “good faith effort.” It’s safe to assume that when the day of reckoning arrives, they’ll be judge and jury.

Same-Sex Ruling Impact on Employers and Benefit Managers

The U.S. Supreme Court’s decision overturning same-sex marriage bans in the four remaining states that had them will shake things up for employers not offering coverage currently and ease the administrative burden on benefits managers at companies that already offer insurance coverage to spouses and partners. Approximately 77 percent of employers with employee health plans already offer same-sex partner coverage.
The ruling, overturned bans in Michigan, Kentucky, Ohio and Tennessee and changed laws for many states that did not have official bans. This could spur employers to consider dropping or increasing the cost-sharing of spousal coverage since the major concern is the liability of having to cover a substantially higher number of spouse/partners.
Following these changes, plan sponsors will need to carefully and strategically plan and design their employee benefit plans in order to balance cost, compliance and quality to maintain a comprehensive total compensation package that will still attract and retain talent. It is no surprise that compliance will continue to be a major concern and this is just one more thing to consider. As employers consider their strategy, they will need to consider state and local laws requiring domestic partner coverage.
Also Read: FMLA updated to include same-sex couples


In the wake of the Supreme Court decision, employers to be mindful of the following:
  • Employers who offer health coverage for spouses will now be required to provide coverage to same-sex spouses if they aren’t already.
    • If an employer already offered the coverage during the past open enrollment, then the spouse will need to wait until the next open enrollment.
    • If coverage was not offered before, the spouse will have until July 31 to sign up for the employer’s plan or wait until the next open enrollment.
    • Newly married couples may add their spouse following the marriage as permitted under special enrollment guidelines.
  • Employers may need to make administrative changes to cover same-sex spouses in states where they were not previously covered. For example, employers will need to modify enrollment processes and create or modify consent and eligibility forms.
  • The state income tax treatment of employer-provided benefits could change for individuals with same-sex spouses.
  • Eligibility rules for employer-provided benefits could change, which would open up eligibility to same-sex spouses in all states. In contrast, employees should check with their employer about any possible changes to their benefits or necessary administrative steps they may need to take to ensure coverage.
  • With anticipated changes to the state income tax treatment, workers with same-sex spouses covered by employer plans will no longer need to pay imputed income on those benefits.

Distribution of Electronic Documents

Written by: Jonathan Pigeon, Account Manager

As you go through your group’s renewal this year, consider the distribution of summary plan descriptions (SPDs) and other appropriate employee communications.  Furnishing documents electronically requires an ongoing program that must be monitored.  If you have the resources, this is a great way to make files easily accessible to employees who use a computer the majority of their day.  Although electronic versions are wonderful, they may not be right for your group.  Whatever you decide to do, keep in mind how you would fare in a benefit plan audit or what your exposure to possible litigation will be.


There is a recent court decision that ruled against an employer for failing to furnish employees a copy of their voluntary life insurance SPD.  The employer, at the time of the lawsuit, made their SPDs available via an intranet site.  Without going into great detail, the judge ruled that simply posting an SPD on an employer’s intranet does not satisfy ERISA’s requirements to notify employees of their rights and obligations. “Materials which are ‘required’ to be furnished to all participants … must be sent by a method or methods of delivery likely to result in full distribution,” the court concluded.”

Basic Delivery Rules of Electronic Documents:

  1. Rules automatically extend to any employee who can access electronic documents at any location where he or she works and whose access to the employer’s electronic information system is an integral part of his or her duties.
  2. Employer must receive receipt from employee that documents were received by the employee
  3. Documents must be prepared with the style, format, and content that conforms to ERISA
  4. Employee must receive a notice along with the document describing the significance of the document in question
  5. When the document is delivered, the employee must be sent a receipt or notice educating the employee that they have a right to receive a paper copy of the document.
  6. There is more to the process than what is listed here, but this is the basic thrust of the electronic delivery rules.
  7. Employers must also combine the frequency and time frame of delivery of documents into their distribution method as well.
  8. See this link for details.

The Employee Benefits Security Administration (EBSA) provides a pamphlet to remind those that need to know when and how they must furnish various employee communications.  The DOL reference tool is broken into three sections:

  1. Basic Disclosure Requirements for Pension and Welfare Benefit Plans
  2. Additional Disclosure Requirements for Welfare Benefit Plans That Are Group Health Plans
  3. Additional Disclosure Requirements for Pension Plans

The pamphlet is not an all inclusive guide as there are notices and disclosures that are not included such as disclosure requirements for the Employee Retirement Income Security Act (ERISA), Internal Revenue Code, and items under the authority of the Department of the Treasury and Internal Revenue Service (reference page 1 of the booklet).

The Unsustainable Rising Cost of Specialty Drugs

Specialty drugs currently represent about 1% of all prescriptions. However, they account for about 20% of today’s drug spend. It is predicted by industry experts that the cost will reach more than $402 billion per year by 2020, nearly four times today’s number. A recent action brief was released by the National Business Coalition on Health outlining some of the key issues and actionable items to consider for both employers and employees.

Specialty drugs are also known as biologics and generally defined by the following indicators:

• They treat complex chronic and/or life threatening conditions
• Have a high cost per unit (typically > $600 per month)
• Usually require special storage, handling, and site-of-care administration
• Involve a significant degree of patient education, monitoring, and management.

The Issue

•The average specialty prescription costs $1,776 compared to $54 for a traditional drug.
•In 2012 there were 900 specialty drugs in development in contrast to a total of 10 specialty drugs on the market in 1990.

What It Means For Employers

•Specialty drug costs are estimated to increase from about 17% of the average employers pharmacy cost to 40% by 2020
•50% of specialty drug spend occurs in the medical benefit and less than 25% of employers report being able to track these transactions

Education and Preparation

•Bring together a team of internal stakeholders, identify the data that needs to be collected and devise a comprehensive strategy
•Utilize resources such as the Midwest Business Group on Health Employer Toolkit on Specialty Pharmacy which has vast amounts of information, resources and best practices to assist employers in better understanding the basics and economics of specialty pharmacy, manage at-risk populations and identify means of effectively partnering with and contracting vendors.

Benefit Design Strategy and Setting Expectations

•Require medical and pharmacy drug related claim reports to be detailed and integrated
•Collaborate with service providers to ensure that they provide reporting tools that focus in on the clinical as well as the economic data across medical and pharmacy benefits
•Identify opportunities for plan design changes that can encourage and assure cost-efficient utilization by plan members
•Implement value-based benefit design that will drive consumer engagement and accountability including incentives for medication adherence and/or use of case management services
•Help manage utilization, cost, and outcomes by utilizing case management, step therapy and prior authorization
•Optimize site of administration for specialty therapies occurring in the medical benefit such as infusions, because the switch from hospital to outpatient or home setting can result in a savings of 20% to 60% per infusion

The bottom line is the increasing cost of specialty pharmacy is not sustainable for employers and must be actively managed in order to impact change. Employer-based health coalitions and community based industry groups can be a valuable resource in getting plugged into resources and becoming a more powerful voice by leveraging the purchase power of their members.

New Fiduciary Rule Proposed by DOL

The Department of Labor has issued a long-awaited redesigned fiduciary rule proposal today attempting to protect investors from biased investment advice. There is a 75-day notice and comment period so expect lots of comments, opinions and in the end maybe a final ruling.

There is quite a bit of money at stake in this matter. An analysis by the White House Council of Economic Advisers estimated that these conflicts of interest result in annual losses of about 1 percentage point for affected investors which equates to approximately $17 billion each year.

This is not the same as the 2010 proposed rule that the DOL dropped during an industry outcry.


Below are some of the points of the proposed rule:

– Necessitates a “best interest standard” across a large range of retirement advice, essentially expanding the kinds of retirement advice covered by fiduciary protections. This way, any advisor being compensated for providing advice to an individual (which assets to buy or sell, or whether to roll over a 401(k) plan balance into an IRA, for example), would be a fiduciary and be required to prioritize the interest of the client first and foremost.

– Whether the advisor considers themselves a broker, registered investment advisor, or insurance agent the advisor would be required to provide impartial advice in their client’s best interest and could not accept any payments creating conflicts of interest unless they qualify for one of the many, many exemptions.

– Creates a far-reaching new “best interest contract exemption” which still permits commissions and revenue sharing so long as they are disclosed. There is also another newly proposed “principles-based exemption” that would allow advisors to endorse certain fixed-income securities and sell them to the investor straight out of their own inventory. Upcoming comments will likely consider whether or not the consumer will read such disclosures.

– Solicits comments on a new “low-fee exemption” that would allow firms to accept payment that would otherwise be deemed conflicted when recommending the lowest-fee products in a given class of products.

– Differentiates order-taking as a non-fiduciary duty. Basically you can call a broker to execute a trade without triggering fiduciary duties as long as you do not ask for advice.

– Facilitates a carve-out to maintain access to retirement education allowing advisors and employers to continue to provide general education on retirement saving across employer-sponsored retirement plans and IRAs without triggering fiduciary duties.

Once you make it through reading the proposed rule, be sure to pick up the 250-page regulatory impact analysis  published by the DOL , FAQs, and even a fact sheet.


Wellness Research Offers Perspective

Companies tend to rank the health of their employees ahead of controlling premium costs when asked why they offer wellness programs as part of their benefits packages.

This is what a survey of 443 human resources professionals revealed. The survey was executed by the HR nonprofit association WorldatWork and funded in part by Healthmine.

Of the organizations in the sample group, 96 percent reported supporting well-being programs for employees, and three-quarters said they intend to enrich those programs over the next two years.

And most would keep up with their well-being/wellness programs even if they shifted employees to some other type of health coverage, the study reported.

 “If employer-sponsored health care was eliminated, 95 percent of responding organizations say they would keep workplace safety programs, 92 percent would continue to encourage time away from work and flexible schedules, and 90 percent would preserve their employee assistance programs. The programs with higher drop rates include: resiliency training (29 percent), disease management (29 percent), mental/behavioral health coverage (27 percent), and wellness coaching (26 percent),” the study found.

health-wellness (1)

When asked why they offer such programs, responses came in the following order of prioritization:

  • Improve employee health (85 percent)
  • Perceived value to employees (79 percent)
  • Decrease medical premiums (77 percent)
  • Improve productivity (73 percent)
  • Increase engagement (72 percent)
  • Reduce absenteeism (64 percent)

The five most common well-being benefits were, by category:

Health related

  • Immunizations (73 percent)
  • Physical fitness (70 percent)
  • Mental/behavioral coverage (69 percent)
  • Diet and nutrition (62 percent)
  • Smoking cessation (60 percent)

Work-life balance

  • Encourage use of vacation time (66 percent)
  • Flexible schedules (65 percent)
  • Community involvement (56 percent)
  • Child-care assistance (29 percent)
  • Elder-care assistance (23 percent)

Skill-building education

  • Wellness coaching (41 percent)
  • Stress management (38 percent)
  • Time management (32 percent)
  • Health workplace relationships (24 percent)
  • Behavioral modification (18 percent)

Other popular features included workplace safety coaching, financial education and counseling, EAP resource and referral and, for more than a quarter of respondents, yoga at work.

“Successful organizations are discovering that an innovative approach to well-being goes beyond the employee’s physical health,” said Rose Stanley, WorldatWork senior practice leader. Stanley added, “Today, we’re seeing more companies create flexible work schedules, introduce financial literacy tools, offer unique child-care and elder-care assistance programs and promote stress and time management skills. All of these integrated approaches encourage a more successful and productive workforce.”


The Healthcare Paradigm Shift – From the Top Down

Where We Are Going

There are innumerable alleged reasons for the out of control cost of health care ranging from over paid physicians and specialists to the simple concept of “with innovation comes cost”. According to the Centers for Medicare and Medicaid National Health Expenditure Projections 2011-2021, total health care spending in the U.S. is expected to reach $4.8 trillion in 2021, up from $2.6 trillion in 2010 and $75 billion in 1970.  By the way, that is 20% of the GDP.

Where We Have Been

Rewind a few years. When we first heard the term “The Affordable Care Act”, we couldn’t help but feel a sense of excitement and premature relief. Finally, we might get a fix for the healthcare cost issue and for those of us optimists, we had the warm and fuzzies… but for most of us it didn’t last long. Fast forward to today, where there is an overwhelming sense that the Affordable Care Act has been nothing short of unaffordable. Though the legislation did its job and rightfully made coverage available to millions who were previously unable to obtain it, employers and employees are seeing premium increases higher than ever parallel with the increase in deductibles and coinsurance percentages.

Where We Are Today

Imagine a life where the Affordable Care Act was no longer up for debate, because that is in essence where we are today. According to the Milliman Medical Index, consumers with health coverage experienced a 7.2 percent increase in their share of health care costs between 2011 and 2012. The rate of health care cost increase continues to outpace inflation significantly. We have tried pushing the financial burden into the lap of the employee and as published in Forum for Health Economics and Policy a study conducted by RAND Corporation shows that it has led to health maintenance avoidance and a troubling reduction in cancer screening and childhood immunizations. So what now?


  Consumerism Today

Let’s address the mentality of today’s consumers. When the time comes to purchase a car or replace a roof, we scour the internet and perform countless hours of research and review before coming to a decision about what to buy or who to hire. When it is time for a knee replacement, we take down the provider information our general practitioner recommends and there isn’t much research conducted beyond making sure they are in network (sometimes it doesn’t even get that far). It is likely not realized that depending on the provider and facility they choose, the bill could range from $11,000 to $69,000 for the exact same procedure. You aren’t actually buying a car here, higher price doesn’t mean better quality. See for yourself in “The Relationship Between Cost and Quality: No Free Lunch,” by the Journal of the American Medical Association or A Study of Cost Variance by Blue Cross Blue Shield. Regardless of which end of the equation is picking up the tab(employer, employee or insurance carrier), the cost variance raises question to the healthcare industry as a whole.

Consumerism Tomorrow

Until recently, conducting a price based comparison on a medical procedure was a futile effort because the comparison data just wasn’t available. Making matters more difficult are the contracts between payers and providers which sometimes require non-disclosure. Thankfully, legislators in more than 30 states have proposed or are pursuing legislation to promote price transparency, with most efforts focused around publishing average or median prices for hospital services. Likewise, companies like Castlight Health and the Healthcare Blue Book are beginning to shine some light on the once unexplored world of healthcare consumerism by putting user friendly price and quality comparison tools in the hands of employees and individuals who need it. As these kinds of tools evolve, we are faced with a few challenges to overcome. Make the tools available to the people who need them and achieve widespread usage.

Employers are going to find themselves leading the way by investing in the education people need to make informed decisions around their health care. Beyond providing all employees with the before mentioned resources, some employers are even adopting creative plan designs to encourage employees compare providers by price and quality to drive employees to high value providers. Using these strategies (i.e. value-based provider networks, referenced based pricing) will help pressure overly expensive providers to lower their prices. So, hopefully, we will all recognize the shift that occurs from the top down.

Written and by Krystal Clarkson, Director of Strategic Initiatives at P&B Live
Questions: or call 800-963-5358

Consumer Engagement in Health Care Survey

Along with positive behavior change from the participants in CDHPs comes significant premium savings and more engaged consumers. The evidence below is reason enough to take a look at these plan designs as a way to control the ever increasing costs of healthcare. However, there are also indications that some of the repercussions from these plans could be care avoidance, increased bad debt and disengagement due to the difficulty in understanding how the supplemental accounts work. As these plans evolve and change, the key will be employee/consumer communication and education.

The 2014 EBRI/Greenwald & Associates Consumer Engagement in Health Care Survey (CEHCS) finds:

-15 % of the privately insured population was enrolled in a consumer-driven health plan (CDHP)
-11% was enrolled in a high-deductible health plan (HDHP)
-74% was enrolled in more traditional coverage

26 million individuals with private insurance were enrolled in a CDHP—a health plan coupled with a health savings account (HSA) or health reimbursement arrangement (HRA), or an HSA-eligible health plan.

CDHPThe following also comes from the 2014 Employee Benefit Research Institute/Greenwald and Associates Study(click on the link to read the full survey findings):

  • The 2014 CEHCS also finds that among individuals enrolled in CDHPs, 57 percent had an HSA or HRA, while 43 percent were enrolled in HSA-eligible health plans but had not opened an account.
  • This study finds evidence that adults in a CDHP and those in an HDHP were more likely than those in a traditional plan to exhibit a number of cost-conscious behaviors. Specifically, those in a CDHP were more likely than those with traditional coverage to say that they had checked whether the plan would cover care; asked for a generic drug instead of a brand name; talked to their doctors about prescription options and costs; checked the price of a service before getting care; asked a doctor to recommend less costly prescriptions; talked to their doctors about other treatment options and costs; developed a budget to manage health care expenses; and used an online cost-tracking tool provided by the health plan.
  • There is also some evidence that adults in a CDHP were more likely than those in a traditional plan to be engaged in their choice of health plan. Specifically, those in a CDHP were more likely than those with traditional coverage to say that they had attended a meeting where health plan choices were explained; consulted with their employer’s human resources (HR) staff about health plan choices; and were more likely to have consulted with an insurance broker to understand plan choices.
  • The survey also finds that CDHP enrollees were more likely than traditional-plan enrollees to take advantage of various wellness programs, such as health-risk assessments, health-promotion programs, as well as biometric screenings. In addition, financial incentives mattered more to CDHP enrollees than to traditional-plan enrollees.

 More to come on this through P&B Live Benefit Resources.   

If you have questions/comments or would like to speak with a benefit specialist about your health insurance options or group benefits plan. Please reach us at:

PPACA Compliance Checklist for Employers

The Patient Protection and Affordable Care Act (PPACA), also referred to as health care reform, introduced several new laws and regulations that impact businesses of all sizes. The following health care reform checklist outlines some key PPACA compliance issues employers may need to address to ensure compliance in 2015.

P&B Live is a benefits  brokerage and consulting firm specializing in the design, implementation and management of fully and self insured plans. Headquartered in Dallas, TX with clients and offices from coast to coast, we are proud to partner with organizations of all sizes to create innovative solutions that positively impact bottom line results. This material is intended for general information purposes only. It should not be construed as legal advice or legal opinions on any specific facts or circumstances. For answers to your questions write us at


Summary of Benefits Coverage Documents

All group health plans must issue a uniform plain language summary of benefits and coverage (SBC) to participants and beneficiaries (including COBRA participants) that accurately describes the benefits and coverage provided under the plan. Compliant documents should be available from your carrier or administrator (TPA).

W-2 Reporting

Employers issuing 250 or more W-2s for a prior year must report the value of the applicable employer sponsored coverage in Box 12 on each employee’s annual form W-2.

Employer Shared Responsibility

Beginning in 2015, the Patient Protection and Affordable Care Act places responsibility on applicable large employers (i.e., employers with 50 or more full-time equivalent employees) to offer group health insurance coverage to their full-time employees, or potentially pay a penalty if at least one full-time employee obtains a subsidy for coverage through a health insurance marketplace. These provisions are commonly known as Employer Shared Responsibility (ESR) or “pay-or-play” requirements.

The ESR provisions go into effect for applicable large employers with 100 or more full-time employees on January 1, 2015. Employers with 50-99 full-time employees will see enforcement on ESR provisions beginning on January 1, 2016. Employers will use their employee information in 2014 to determine whether they have enough employees to be subject to these new provisions in 2015. The process for identifying potential fines for non-compliance will begin in 2015.

Transitional Reinsurance Program Fees

Section 1341 of the Affordable Care Act and Health and Human Services (HHS) mandates an ACA Transitional Reinsurance fee that is assessed for years 2014 ($63 per enrolled life , including dependants) and 2015 ($44 per covered life, including dependents) to stabilize premiums in the individual market inside and outside of the Marketplace. The transitional reinsurance program will collect contributions from contributing entities to fund reinsurance payments to issuers of non-grandfathered reinsurance-eligible individual market plans, the administrative costs of operating the reinsurance program, and the General Fund of the U.S. Treasury for the 2014, 2015 and 2016 years. This is applicable to insurance issuers and self-insured plans. Annual enrollment and contribution submission form is available on  Below is a list of important deadlines:

  • December 5, 2015: Contributing  entity must submit annual enrollment  count
  • January 15, 2015: Remit first contribution amount (Or combined contribution amount) $52.50 per covered life (if remitting first contribution only), $63.00 if remitting combined contribution amount)
  • November 15, 2015: Remit Second Contribution, $10.50 per covered life  (if remitting second contribution amount)

Additional Medicare Tax

For individuals earning more than $200,000 and joint filers earning more than $250,000, the Medicare Part A (hospital insurance) tax has increased – from 1.45 to 2.35 percent. It goes into effect for taxable years starting after December 31, 2012. This change is to the employee portion of Medicare only; the employer portion of this tax has not changed. Employers must only match the first 1.45 percent of the Medicare tax.

Small Business Tax Credits

Your small business may qualify if you meet the following requirements:

  • Have less than 25 employees
  • Have average annual wages less than $50,000 (as adjusted for inflation beginning in 2014)
  • Contribute 50 percent or more of the aggregate single premium cost for each enrolled employee
  • Purchase coverage through the Small Business Health Options Program (SHOP)

Form 720 Quarterly Excise Tax Return (PORCI Fees),-Quarterly-Federal-Excise-Tax-Return

The Affordable Care Act created an entity known as the Patient-Centered Outcomes Research Institute (PCORI). The institute researches and compares the clinical effectiveness of different medical treatments, and it will be funded by clinical effectiveness research fees (PCORI fees).

Section 4375 of the ACA imposes the PCORI fees on each specified health insurance policy. For insured plans, the insurance carrier is responsible for paying the PCORI fees, and, in many cases, the carriers are passing along the cost to the employers.

Section 4376 of the ACA imposes the PCORI fees on the plan sponsor of an applicable self-insured health plan. These include plans maintained by employers for the benefit of their employees, which provide accident or health coverage where any portion of the coverage is provided other than through an insurance policy. For self-insured plans, the plan sponsor is responsible for paying the PCORI fees.

The filing and payment of fees must be completed and paid by July 31 of the calendar year immediately following the end of the plan year.

Employer Shared Responsibility (Play or Pay)

Enforcement of ESR provisions begins January 1, 2015 for employers with 100 or more full-time employees and January 1, 2016 for employers with 50-99 full-time employees.

  • If an applicable large employer with 100 or more full-time employees does not offer minimum essential coverage(MEC) to at least 70 percent of its full-time employees and their dependents in 2015, and at least one full-time employee receives a premium subsidy through a health insurance exchange, the employer may be assessed an annual penalty of $2,000 per full-time employee above the first 30 full-time employees.
  • If an applicable large employer with 100 or more full-time employees does offer MEC to at least 70 percent of its full-time employees and their dependents in 2015, but at least one of the full-time employees obtains a premium subsidy through a health insurance exchange, the employer may be subject to a penalty of $3,000 for each non-covered full-time employee who receives a subsidy. However, the penalty cannot exceed the penalty that would be assessed for not offering any health coverage.
  • If an applicable large employer with 100 or more full-time employees offers health coverage in 2015 that provides MEC but it is determined to be either: 1) unaffordable or 2) doesn’t meet the minimum value and at least one full-time employee whose coverage was deemed to be unaffordable or lacked minimum value receives a subsidy through a health insurance exchange, then the employer may be fined $3,000 for each employee in that circumstance receiving a subsidy. The penalty cannot exceed the penalty that would be assessed for not offering any health coverage.

 Calculating FTEs

The FTE calculation is based on both full- and part-time employees. Whether an employer is subject to the ESR provision is based upon the number of employees in the previous calendar year, therefore applicable employers should currently track employees hours of service to help them make these determinations.

For the purposes of this provision, full-time employees are defined as working an average of 30 hours per week, or 130 hours per calendar month.

Hours worked by part-time employees (those working less than 30 hours per week) are included by, on a monthly basis, dividing their total number of monthly hours worked by 120. For example, a company with 40 full time employees also has 20 part time employees who each work 24hrs per week, or 96hrs per month. These part time employees would count as 16 full time employees:

20 employees x 96hrs = 1920, 1920 / 120 = 16

This employer would be considered to have 56 full time equivalent employees

Minimum Essential Coverage (MEC)

Health-insurance coverage that meets the minimum benefits standard of the small- or large-group market within the state is considered to offer minimum essential coverage (MEC). Must abide by all PPACA guidelines such as:

• No lifetime maximum limitations
• No pre-existing condition limitations
• Offers coverage for dependents up to age 26
• Offers a PPACA-compliant benefit set, including preventive care covered at 100%

Minimum value (MV)

A health-insurance plan that has an actuarial value that covers at least 60 percent of the cost of medical expenses is considered to provide minimum value.


Determine if health benefit required employee contribution to the plan meets PPACA’s affordability guidelines. Assuming a plan with minimum essential and minimum value coverage is offered, the employer must determine if its contributions to health plan costs are in compliance with PPACA’s affordability rules.

 Affordability: The rules require that the employee does not pay more than 9.5% of their household income towards the cost of their employer’s health plan.

Household Income: In 2011 the IRS issued safe harbor options for the challenging task of assessing the “household income” of an employee:

Form W-2 safe harbor; an employer can determine affordability by referring to an employee’s wages. Wages for this purpose would be the amount required to be reported in box 1 of Form W-2.

Rate of Pay safe harbor; Benefits are affordable if monthly contributions for self-only coverage for the lowest cost plan are equal to or lower than 9.5% of employee’s hourly rate of pay on the first day of the plan year, multiplied by 130.

Cost of Health Plan: The IRS recently issued guidance that the ‘cost of an employer’s health plan’ is based on the cost of Employee Only coverage.

If an employer fails to provide affordable coverage and one or more employees apply for and receive a subsidy to purchase coverage from the exchange the employer is subject to a $3,000 penalty for each employee that receive the subsidy.

Individuals enrolling in the exchange must have total household income of less than 400% of the Federal Poverty Level (FPL) in order to be eligible for a subsidy. In 2014, 400% of the federal poverty level is approximately $95,000 for a family of four.


Federal Poverty Guidelines 2014 – for Continental U.S.
Persons in Household 2014 Federal Poverty Level (100% FPL) Medicaid Eligibility* (138% of FPL) Cost Sharing Reduction and Premium cap guideline (150% FPL) Cost Sharing Reduction subsidy threshold (250%
Premium subsidy threshold (400% of FPL)
1 $11,670 $16,105 $17,505 $29,175 $46,680
2 $15,730 $21,707 $23,595 $39,325 $62,920
3 $19,790 $27,310 $29,685 $49,475 $79,160
4 $23,850 $32,913 $35,775 $59,625 $95,400
5 $27,910 $38,516 $41,865 $69,775 $111,640
6 $31,970 $44,119 $47,955 $79,925 $127,880
7 $36,030 $49,721 $54,045 $90,075 $144,120
8 $40,090 $55,324 $60,135 $100,225 $160,360
*Medicaid eligibility is different in states that did not expand Medicaid. Federal Poverty Guidelines are different in Hawaii and Alaska.

On-going Eligibility Reporting Requirements

Beginning in 2014, PPACA requires that large employers track each

employee’s status as a full-time employee or part-time. They will be required to report each employee’s status to the IRS and keep as part of their tax records the status of each employee.

• Hours worked
• Hours for which an employee is paid but does not work (vacation, holi    days, paid sick days, jury duty,                   military duty or all paid periods of leave of absence
• Periods of unpaid leave under FMLA.

Hours of service must be tracked on an actual hours basis for hourly employees. The rules provide optional days-worked and weeks-worked tracking categories. These are designed to facilitate tracking wages of salaried employees.

Employers may also use weekly, bi-weekly or semi-monthly payroll periods rather than months as the basis for their elected measurement (aka “look back”) period; again, to facilitate easier compliance with the PPACA’s eligibility tracking rules.


This material is intended for general information purposes only. It should not be construed as legal advice or legal opinions on any specific facts or circumstances. For answers to your questions call;

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3 New Health Account Rules from the IRS

health accountsThe Internal Revenue Service is trying to explain just how cafeteria plans and health reimbursement arrangements affect whether a worker is getting access to “affordable” health coverage. The IRS rules could affect whether your employee has a legal right to shun employer coverage, seek subsidized coverage from a Patient Protection and Affordable Care Act, and expose you (the employer) to the risk of having to pay thousands of dollars in fines.

The IRS has given its thoughts about how employer contributions to cafeteria plans and HRAs affect official PPACA health benefits affordability this month (November 7th, 2014)  in a new batch of final PPACA coverage mandate penalty regulations. The IRS based the final regulations on draft regulations released in January.

PPACA calls for many individuals to have minimum essential coverage or pay a “shared responsibility” penalty. The law also requires what it defines as large employers to offer full-time workers access to affordable health coverage with minimum value. If a large employer fails to offer full-time employees affordable coverage with minimum value, and the employees get subsidized coverage through a PPACA public exchange, the employer may have to pay significant penalties — and go through a complicated process to calculate the penalty payment amount.

PPACA established the MEC rules by adding Section 5000A to the Internal Revenue Code. Another PPACA-related IRC addition, IRC Section 36B, determines when exchange plan users can qualify for the PPACA premium assistance subsidy tax credits.

In addition to addressing questions about IRC Section 125 cafeteria plans and HRAs, the IRS has used the new regulations to deal with matters such as hardship exemptions, the status of government health programs for the poor, and the relationship between anti-tobacco-use program incentives and group coverage affordability.

When employers are calculating affordability, they normally must assume that the wellness program enrollees will resist any efforts to improve their health. Employers must assume that the employees will fail to get flu shots or fill out wellness questionnaires, and that the obese employees will fail to diet. In the new final regulations, the IRS says employers can include financial incentives for going through anti-tobacco-use programs in affordability calculations. In other words: If smokers can earn a 10 percent discount by going to anti-smoking therapy sessions, an employer can assume smokers will earn the 10 percent discount when calculating whether the smokers’ health coverage is affordable.

1. Health insurers need not be health account nannies.

In some cases, the IRS says, employers must run cafeteria plans or HRAs in a certain way if they want to include contributions to the accounts in PPACA coverage affordability calculations.

One commenter asked the IRS not to require the health insurance issuers to determine whether employers are running their health account programs correctly. The IRS says it’s not trying to turn insurers into health account program nannies.

“Neither the proposed regulations under sections 36B or 5000A nor the final regulations impose these requirements on health insurance issuers,” officials say in a preamble to the final regulations.

2. If a worker can use a cafeteria plan only to pay for MEC and other medical expenses, then an employer can include its contributions to the cafeteria plan in coverage affordability calculations.

Workers may like having the flexibility to choose whether to use the employer-provided money in a cafeteria plan to pay for benefits other than medical benefits, but IRS officials say only the amounts that must be spent on medical expenses can factor into coverage affordability.

“If an employee’s use of nontaxable employer contributions to a cafeteria plan is not limited to medical expenses, then it cannot be assumed that the employee will use the contribution for purchasing minimum essential coverage,” officials say.

3. If an employer contributes to an HRA, that money can go into the PPACA coverage affordability calculations.

A worker with an HRA might want the flexibility to use the money to pay premiums, deductibles or coinsurance amounts rather than premiums.

If an employer lets the worker spend the money only on “cost-sharing” amounts, not on premiums, the HRA money can be used to determine whether a plan provides coverage with a minimum value, but it can’t be used in affordability calculations, officials say.

Officials note that the new regulations follow the model the IRS set when it developed similar regulations for the IRC Section 36B PPACA premium subsidy tax credit program.

By: Allison Bell (BenefitsPro)