Part II: Obamacare By Ben A. Tallman EA

Part II: Obamacare
By Ben A. Tallman EA
If you missed Obamacare – Part I, you should find it in the archives. This article avails
itself to future events that begin in 2015. Most of this legislation was deferred for 1 year
to allow employers and businesses the opportunity to prepare for the new record-keeping
requirements and the requirement to provide employee healthcare.

The first article was broken into 7 categories. This article will concentrate on the large
employer requirements that begin on January 1, 2015. There will be some points of interest at the end of this article
you may wish to keep and reference for future use.

Identifying Large Employers

Under the Affordable Care Act (ACA or Obamacare), how do we identify a large employer? A large employer has at
least 50 full-time (or full-time equivalent [FTE]) employees. Unlike the standard 40-hour work week required under
the Small Business Health Care Credit (previous article), the larger employers consider a 30-hour work week. The
impact on a large employer is costly. Employees that normally work “¾ time” are now actually full-time employees
when it comes to health care coverage. Any previous thoughts of reducing employee hours to avoid Obamacare
just disappeared with the 30-hour work standard. Part-time employees hours under 30 hours per week must be
aggregated (or totaled) and then divided by 30 to help compile the FTE number of employees for the company.
Monthly hours are based on 130 hours (30 x 52 / 12) for those using monthly totals. A national retail chain recently
cut employee hours across the board to 29 hours per week. There may be more of this coming.

Attribution Rules Apply

If a company believes it can circumvent the 50-employee rule by setting up additional subsidiaries and hiring fewer
employees in each one, it is mistaken. Under Section 414, referred to as the Attribution or Aggregation Rules, all
subsidiaries and related businesses are aggregated into one business for Obamacare requirements. If you’ve heard
this before, it was probably working with small dental or medical practices that were trying to maximize Simplified
Employee Pension (SEP) contributions for the owners and little or nothing for the staff. It didn’t fare well for them.
Section 267 also has good information on related party rules. Any easy way to research these Code Sections is
through the Cornell University website. It is free. Just pull up the US Code, go to Title 26 (title for income tax), drop
in a section number, and you are ready to research. Check it out!

New Employers & Successor Employers

Just because a company acquires a business or starts a new business does not mean they can wait until reaching
the 50 employee threshold to begin offering health care. If there is a reasonable expectation that the business will
need at least 50 employees, then the Obamacare requirements apply immediately. See Section 4980H for additional
guidance on this issue.

Seasonal Employees, Leased Employees, and Owners are Excluded

There are a few exceptions to the 50 employee threshold. These include seasonal employees with less than 4 months
or 120 days during the year. This is normally on-going for ski slopes, summer camps and resorts, holiday retail help,
or other seasonal work. Leased employees also fit the exception under Obamacare, as long as the leasing company
is treating them as employees and not sub-contractors. Finally, the owners that are sole proprietors, partners, or 2%
S-corporation shareholders under Section 4980H are excluded from the 50 employee threshold. For those wishing
to learn more, research “look-back” measurement methods and variable hour employees. This topic goes “in-depth”
and requires more time than we have available, but it is something you may wish to check into as 2015 draws near.
See REG-138006-12, Explanation of Provisions Preamble, (I)(A)(1); section 4980H(c)(2); and section 54.4980H-2(b)
(1) for further reference.

Types of Coverage for Employer Shared Responsibility

A large employer must provide health coverage to all employees that is affordable and meets the minimum essential
coverage requirements. This is referred to in the ACA as Employer Share Responsibility. There is a 5% grace
factor built into the law to allow for dropped or missed coverage on new employees. Under the non-discrimination
requirements, health insurance premiums for each employee may not exceed 9.5% of that employee’s household
income, and coverage offered to the employee must pick up at least 60% of their medical costs. This means under
the minimum plan the employee would be responsible for 40% of their medical costs as a co-pay or deductible.
Furthermore, employees cannot go for more than 3 months per year without health coverage and avoid the individual
penalty. See the prior article for details.

Employer Penalty for Not Providing Adequate Health Coverage

Beginning in 2015, employers with at least 50 full time employees (FTE) will be subject to monthly penalties (1/12
the annual penalty) for not offering an affordable health plan or not offering the right affordable health plan to their
employees.

    •    An annual $2,000 penalty per employee will apply if the large employer does not offer affordable health care
         coverage to full-time employees, and at least one of those employees obtains coverage from the State or
         Federal Exchange using a subsidy or premium assistance credit. The penalty applies to all full time employees.

    •     An annual $3,000 penalty per employee will apply on each employee using the subsidy or premium tax credit,
         even if the employer offers health coverage to all (or at least 95%) of full-time employees. Employees that
         find the premiums unaffordable (more than 9.5% of household income) and go to the Exchange to purchase
         health coverage using a premium assistance credit will “trigger” the penalty for their employer. The penalty
         only applies to them and not all employees.

Ironically, the smaller penalty actually applies to the employer that does not offer coverage; however, the $2,000
penalty applies to all employees. The $3,000 penalty only applies to the employees receiving the subsidy or premium
assistance credit.

Avoiding Pitfalls for Large Employers

With all the regulations and requirements, how can a large employer avoid the pitfalls and penalties of Obamacare?
There are some safe harbors an employer can use as protection against potential penalties. The most common
problem will be the employee ‘affordability’ issue. Even though the “9.5% of wages test” covers most employees, it
does not cover those families that fall into the Federal Poverty Level (FPL). In order to insure the employee’s family
is offered ‘affordable’ coverage, the employer needs the family size and the employee’s household income. Since this
information is not available to employers and in many states it is illegal to request it, employers are offered three safe
harbors.

    1.   Is the employee’s premium cost 9.5% or less of his or her W-2 Wages for the year? This could vary annually
         due to reductions in over-time or other factors. Safeguards must be in place to insure that the health
         insurance premium cost does not exceed 9.5%. See Notice 2012-58 and Notice 2011-73.

    2. The ‘rate of pay safe harbor’ computes the employee’s hourly rate (on the first day of coverage) times 130
       hours per month. It then charges the employee the lowest self-only minimum coverage and compares it to
       9.5% of the monthly rate of pay to confirm compliance. See Section 54.4980H-5(e)(2)(iii).

    3. The ‘federal poverty line safe harbor’ considers FPL for a single individual and then charges the employee no
       more than 9.5% of that figure for health insurance premiums during the year. See §54.4980H-5(e)(2)(iv).

The reason for these safe harbors is to avoid the $3,000 penalty on employees that consider the employer’s plan
unaffordable (exceeding 9.5% of household income) and then go out to obtain coverage from the Federal or State
Insurance Exchange with a premium assistance credit.

Penalties can still be assessed for not offering health coverage or offering inadequate and over-priced coverage.
What can be done to help an employer caught in this trap? Since these penalties are assessed monthly on full-time
employees we need to determine the penalty assessment. Part-time employees are not considered in computing
the penalty. The “employee de minimus rule” (only applicable on the $2,000 penalty) exempts the first 30 full-time
employees from the penalty calculation.

Example: Chick-fil-A has 62 employees at their local store and has failed to offer health insurance for any of their
employees in 2015. Mr. Johnson, the manager has contacted you to see if you can help. Your first question is how
many full-time employees do you have? The owner replies “28 full-time (greater than 30 hours per week), and the
rest are part-time.” You can advise the manager that his store is currently safe from the non-compliance penalties
since he has less than 30 full-time employees. The part time employees were not counted in the penalty computation.

The importance of knowing the nuances of Obamacare are imperative for us. We are the “Watchmen on the Wall”
and it is our responsibility to know and educate our clients on these new regulations. They expect us to protect and
advise them of the financial “entrapments and danger zones”. Please remain informed on this issue through your own
research or classes.

Special W-2 Reporting Rules

Employers must now combine the employee’s and the employer’s portion of the health care premium and enter
the amount on Line 12 of the W-2 Form using the code “DD”. The IRS website shows a chart that clarifies these
procedures.

Grandfathered Plans

If a large employer already has a health care plan, medical reimbursement plan, or self-insured health plan under
its Flexible Spending Account (FSA) or Cafeteria Plan, it may currently be grandfathered into Obamacare even
though minimum requirements are not fully met. Coverage must have been in effect since March 23, 2010. There
is discussion that these grandfathered plans will be expected to upgrade to meet minimum essential coverage in the
near future.

Medical Loss Ratio (MLRs)

MLRs relate to rebate checks paid by the insurance companies. The insurance companies must spend a designated
percentage (80%-85%) of the health insurance premiums for actual health care. If they do not spend all of these
funds by the end of the year, they must rebate the unused portion back to the company or members that paid the
premiums. You will likely be asked if the rebate is taxable. The answer is simple. Did they receive a pre-tax benefit
through their medical plan, FSA, HSA, cafeteria plan, or other program? If they say “yes” then the rebate check is
taxable. The 80% standard applies to smaller employers and groups, whereas, the 85% standard applies to larger
employers and companies. In essence, this forces insurance companies to operate on a 15-20% margin of the
premiums they collect.

High Cost Employer-Sponsored Health Plan Excise Tax – Begins in 2018

Referred to as “Cadillac Plans,” these include employer health insurance plans with annual premiums that exceed
$8,500 for individuals and $23,000 for family coverage. The excise tax on these plans is assessed on the insurance
companies and plan administrators at 40% the annual premium that exceeds the threshold. The 3-year transition
rule affects the 17 highest cost states by allowing an additional $1,350 to the threshold for individuals and $3,000 for
families of individuals who are 55 or older or individuals that are in high-risk professions. Since enactment is over 3
years away, we can probably expect changes.

New Advisory Boards and Authorities

So what new boards, branches, and authorities have been formed and what over-sight responsibilities do each of
them have? The following list will show the ones I discovered in my research:

   •   15-Member Medicare Advisory Board – They will report to Congress on ways to reduce costs of Medicare and
       improve the quality for beneficiaries.

   •   An Independent Medicare Advisory Board – They will develop recommendations to ensure long-term fiscal
       stability for the Medicare Program.

   •   Advancing Comparative Clinical Effectiveness Research – This group is funded by a $2 fee for each person
       covered under a policy or plan. It is paid by the insurance provider or sponsor of the plan.

   •   Interagency Working Group on Health Care Quality – Convened by the President to collaborate on the
       development and dissemination of initiatives consistent with the national strategy.

   •   Center for Medicare & Medicaid Innovation – The center will research, develop, test, and expand innovative
       payment and delivery arrangements.

   •   Community Health Teams – They will support home medical facilities to increase access to community based
       care.

   •   Health Delivery System Research Center – The group will strive to improve the quality, safety, and efficiency
       of the health delivery system. This is done through medication management and helping patients manage
       chronic diseases from home.

   •   Interagency Prevention Council – Supported by the Prevention and Public Health Investment Fund, this council
       will remove barriers to clinical preventive services. The council will also promote health policies and establish a
       national prevention and health promotion strategy.

   •   School-based Health Clinics – These clinics will be a result of the increased access to clinical preventative
       services provided through the Interagency Prevention Council.

   •   Institute of Medicine Conference on Pain Care – This institute will evaluate pain care, treatment, and
       management. They will also identify barriers to pain care treatment, increase public awareness, and report
       their findings and recommendations to Congress.

New Programs & Initiatives Under ACA

Many new programs will be launched to encourage and create access to quality healthcare services. The following
programs, initiatives, and incentives were discovered through my research on the ACA site:

   •   National Prevention and Health Promotion Strategy & Prevention and Public Health Fund – This fund invests
       in prevention initiatives and policies through the increase in the number of primary care professionals. $15
       billion over 10 years will be dedicated to health care programs and providers to prevent disease by using early
       detection and condition management.

   •   The First Lady’s “Let’s Move” Initiative – This program provides healthier food in schools, encourages physical
       activity, and makes healthy food available to everyone.

   •   Community-based Initiatives – Provides $1 billion in community initiatives for tobacco cessation programs,
       chronic disease reduction, and efforts to reduce infections stemming from hospitals and health care providers.

   •   National Pilot Program to Bundle Payments – Doctors, hospitals, and medical providers will be paid a ‘flat
       rate’ on an episode of care for a patient. This means they bundle their services with the other providers
       and work out their payment among themselves. The aim is to reduce unnecessary or duplicate tests and
       treatments while coordinating care.

   •   Initiative to Increase the Number of Primary Care Providers – The ACA is providing $250 million to support

training, development, and placement of more than 16,000 new primary care providers over the next 5 years.

•   National Health Services Corps is Granted $1.8 Billion – The NHSC will be expected to increase access to
    primary care physicians, nurse practitioners, and physician assistants in underserved areas by 2016.

•   The Department of Labor is Focusing on Health Care Career Training – The DOL is providing $14.7 million in
    grants to Community Colleges, Workforce Investment Boards, Hispanic-Serving Educational Institutions, Black
    Colleges, and other training institutions to prepare workers for careers in the health care sector. These will be
    funded under the Area Health Education Centers (AHEC) Program for minority applicants and disadvantaged
    students who commit to working in the underserved areas in health care.

•   Temporary Assistance for Needy Families – TANF will provide a grant to open residency positions for primary
    care physicians in the service of low-income individuals. It will also develop training and certification programs
    for personal and home-care aides.

•   Student Loan Forgiveness for Practicing in an Underserved Area – The IRS excludes taxes from student
    loans that were forgiven (or repaid), if the health care professional agreed under the program to practice in
    an underserved area. Medicare is also offering a 10% payment bonus until 2015 for qualifying health care
    practices in underserved areas.

•   Department of Education Loan Forgiveness Programs – Not only does this loan forgiveness program affect
    health care education and non-profit hospitals and clinics, but it extends to public sector education for jobs in
    the federal, state, local, or tribal government agencies. Public sector employees will have their loans forgiven
    after 10 years of public service.

•   Physicians Quality Reporting Initiative – Physicians and surgeons will receive incentives from Medicare for
    quality performance and detailed reporting of high cost procedures, such as surgery and cardiac care. Long-
    term hospitals, inpatient rehabilitation facilities, and hospice providers will also participate in this quality
    measurement reporting initiative. Penalties will apply for non-participants.

•   Rural Community Hospital Demonstration Program – Allows small rural hospitals and sole community
    hospitals to be held harmless on outpatient services, and it reinstates cost reimbursement for lab services
    from small rural hospitals.

•   Pilot Program for Healthier Communities - CDC will provide grants for state and local health departments to
    evaluate the 55-64 age group for chronic disease risk factors and intervene with treatment to reduce the risk.
    It also obligates restaurant chains with 20 or more stores to provide caloric content on their menu board and
    in written form.

•   Expanding Health Centers and Emergency Medical Services – The ACA authorizes the expansion of federally
    qualified health centers and emergency medical services capable of handling trauma and critical care
    treatment for both children and adults.

•   Transparency and Program Integrity Requirements – To combat fraud and abuse in public and private
    programs, the ACA will require ownership disclosure on hospitals, skilled nursing facilities, nursing homes, and
    other facilities where profits might get in the way of medical treatment for patients.

•   Sharing of Patients’ Medical Records – Federal & State Exchange Services, Insurance Providers, and Medical
    Professionals will all have free access to the patients’ medical records. This could become a problem in a
    job interview or with candidates running for public office if medical information could be accessed revealing
    medical conditions like Epilepsy, Cancer, Tourette Syndrome, STDs, HIV, or any other private medical matter.
    Even though it is not mentioned in the ACA, it is a well known fact that the Department of Homeland Security
    is trying to build a DNA Database. This could give them access to information that would help meet those
    goals.

•   Program of All-Inclusive Care for the Elderly (PACE) – This Medicare/Medicaid program allows those over 55
    who are eligible for nursing home care the option to remain at home with supplemental services. It includes
    home care, transportation for transportation for doctor visits and prescriptions, check-ups, hospital visits, and
    even skilled care facilities when necessary.

•   Elder Justice Act – This Act encourages the prevention and elimination of elder abuse, neglect, and
       exploitation. Owners, operators, and employees of care facilities are required under this act to report
       suspected crimes, abuse, neglect, or exploitation.

   •   Community Living Assistance Services and Support (CLASS) – This is a voluntary long term care insurance
       program that became available in October 2012. Must be 18 or older to enroll and contribute to the plan for at
       least five years. Access to the program benefits begins when the enrollee develops functional limitations with
       the six activities of daily living (ADLs). These include:

               • Performing personal hygiene, grooming, and oral care

               • Dressing, including the ability to make appropriate clothing decisions

               • Eating, the ability to feed oneself, though not necessarily preparing food unassisted

               • Maintaining continence, the ability to control the function of one’s bowels

               • Transferring oneself from seated to standing and getting in and out of bed unassisted

               • Taking a bath or shower oneself

If a doctor certifies that the patient can no longer perform two of the six ADLs, then he or she would become eligible
for the program. The minimum daily benefit will be at least $50 to help support the enrollee’s independence.

Who are the “overseers” and how do we contact them?

       HHS Office of Inspector General		               Centers for Medicare & Medicaid Services

       HHS Tips Hotline				                            Medicare Beneficiary Contact Center

       PO Box 23489					                               PO Box 39

       Washington, DC 20026-3489			                    Lawrence, KS 66044

       800.447.8477					                               800.633.4227

                              Bio on Ben Tallman, EA

                              Ben Tallman is a Tax Practitioner from Atlanta, Georgia. He has taught as an instructor
                              of local, state, and national organizations for the past decade. Ben has served on the
                              NAEA National Board as an Educational Foundation Trustee, as a member of the
                              IRS Regional Liaison Committee, and as Educational Director for GAEA. He recently
                              appeared on Tax Talk Today in a discussion on the Affordable Care Act. Ben is an NTPI
                              Fellow and recently celebrated 40 years in tax preparation.