eGuide

Affordable Care Act FACTS, FORMS AND NO FREAK-OUTS EMPLOYER CATEGORIES Which ACA rules apply to your company? TRACKING, NOTIFICATIONS, REPORTING What steps can you take to make the rules easy to follow? HEALTH PLAN DEFINITIONS Which health plan designs are right for your company? FUTURE ACA CONSIDERATIONS What lies ahead for your company and employees?

Table of Contents INTRODUCTION............................................................................3 ACA EMPLOYER CATEGORIES........................................................4 ALE................................................................................................5 Employer Shared Responsibility.................................................................. 5 Reporting.................................................................................................... 6 Tracking and Notifications........................................................................... 7 Documentation and Recordkeeping............................................................ 8

NON-ALE.......................................................................................8 Individual Mandate..................................................................................... 8 Notifications................................................................................................ 9 Small Business Tax Credit............................................................................ 9 Documentation and Recordkeeping.......................................................... 10

SMALL GROUP INSURANCE MARKET DEFINITION CHANGE........10 Definition Expansion................................................................................. 10 Implications for Plan Design...................................................................... 11 Implications for Underwriting.................................................................... 12

FURTHER ACA CONSIDERATIONS................................................. 14 Cadillac Tax............................................................................................... 14 Non-discrimination................................................................................... 14

Disclaimer: The contents of this white paper have been prepared for educational and information purposes only. The content does not provide legal advice or legal opinions on any specific matters. Transmission of this information is not intended to create, and receipt does not constitute, a lawyer-client relationship between TriNet, the author(s), or the publishers and you. You should not act or refrain from acting on any legal matter based on the content without seeking professional counsel.

Introduction The ACA has been in effect since 2010, but some of its most pivotal provisions are only now becoming actionable regulations. These changes have significant implications for your company and employees. • Which ACA rules apply to your company? • Which steps do you need to take to make these rules easy to follow? • And how are you ensuring you do this in the most efficient way possible?

This ACA guide outlines easy steps you can take to comply with the ACA. Some ACA rules may directly impact your company such as the Employer Shared Responsibility Mandate. Other ACA rules, such as the Individual Mandate, may have indirect impacts. Much depends on whether or not your company is an Applicable Large Employer (ALE). The ACA Employer Categories section helps you determine if you are an ALE. Once you know that, this e-guide can steer you through the items you need to check off your list. Through the process, you will review the regulations, understand what they specifically require, and be able to formulate next steps.

2014 KEY HEALTH REFORM PROVISIONS TAKE EFFECT • Health Insurance Marketplace options were available for first calendar year. • Individual Mandate requires all individuals to purchase insurance or pay a penalty. These penalties increase each year until 2016 and are then indexed.

2015

2016

2020

DELAYS AND TRANSITION RELIEF FOR CERTAIN GROUPS

CHANGES WITH IMPACTS ON EMPLOYERSPONSORED COVERAGE

CADILLAC TAX TAKES EFFECT

• Applicable Large Employers (ALEs) with 100+ full-time employees or full-time equivalent employees (FTEs) are subject to the Employer Shared Responsibility requirements.

• Maximum 90 day waiting period limit for coverage is implemented.

• PACE act passes, altering the ACA. Now states determine whether ALEs with 50-99 FTEs classify as small group or large group for medical plans.

•Cost-sharing limits apply for all group health plans. Copayments and deductibles must apply to out-of-pocket-maximums.

• ALE reporting to IRS and employees begins for this calendar year with deadlines for each report in 2016 or ALEs will face penalties.

• ALEs with 50-99 FTEs are subject • Cadillac excise tax of 40% will to the Employer Shared be implemented for employers Responsibility requirements. on any high-cost coverage that they offer their employees. • IRS extended the due dates for filing Form 1094-C to June 30, 2016, and Form 1095-C to March 31, 2016, for reporting coverage offered in 2015. • Providers of minimum essential coverage must provide Form 1095-B to covered individuals.

• Limits on rewards for wellness activities raised to 50% of medical coverage for tobacco-related activities and 30% for non-tobacco-related activities. • Non-grandfathered group plans must provide coverage for routine patient costs in an approved clinical trial. • Transitional Reinsurance Fee began.

AFFORDABLE CARE ACT |3

ACA Employer Categories This section will help you calculate whether your company is an Applicable Large Employer (ALE) or a non-ALE. Why should you care if your company is an ALE? Your company is subject to the Employer Shared Responsibility mandate and the IRS’s 6056 Reporting only if it is categorized as an ALE. So then what is an ALE? An ALE is a company with a monthly average of 50 or more full-time employees or full-time equivalent employees (FTEs) on business days during the prior calendar year. For example, to determine ALE status for 2016, use monthly employee data from 2015. Calculate your number of FTEs by: • Counting the number of full-time employees per month, added to • The total monthly hours worked by all other employees per month, divided by 120.

In this calculation, it is important to note: • If you have seasonal workers, their total hours worked must be added to the total FTE count in the same manner as other employees. An employer is NOT an ALE if both of the following apply: -- Your workforce exceeds 50 FTE employees for 120 days or fewer during the calendar year, and -- The employees in excess of 50 employed during such a 120-day period are seasonal workers. • Related companies under section 414 of the Internal Revenue Code are treated as a single employer for

determining their ALE status: -- If the combined group is large enough to be an ALE, each entity that is part of the controlled group is

classified as an ALE. If doing this manually seems like a burden, visit the TriNet 2016 ALE Calculator. Based on your ALE categorization, you should read the ALE or non-ALE section to see which ACA requirements apply to your company.

4 | AFFORDABLE CARE ACT

ALE Okay, so you’re an ALE. Now what? Here are some of the regulations that apply to you and the steps you can take to stay ahead of the ACA.

Employer Shared Responsibility ACA’s Employer Shared Responsibility, also known as the “Pay or Play” Mandate, requires all companies qualifying as ALEs to offer minimum essential coverage (MEC) to at least 95% of full-time employees or potentially pay penalties. Not offering a medical plan results in a fine of $2,160* per full-time employee, excluding the first 30 employees, if even one full-time employee obtains subsidized Marketplace coverage. To comply fully, companies must offer at least one medical plan to full time employees and dependent children, which: • Meets minimum value, and • The employee contribution for the employee-only coverage level is affordable.

Offering a medical plan that doesn’t meet these requirements potentially results in a penalty. The penalty is $3,240* for each full-time employee that obtains subsidized Marketplace coverage. The ceiling for this penalty is the amount of the penalty that would have resulted if the company had not offered a medical at all, as outlined above. outlined above. To avoid penalties, your company was required to offer ACA-compliant plans at the start of your 2015 benefits plan year if you are an ALE with an average of 100 or more FTEs during the prior calendar year. If your company had 50-99 FTEs, compliance is deferred until the start of the 2016 benefits plan year. *The penalty amounts are indexed. $2,160 and $3,240 are the penalties for non-compliance assessed in 2016. For 2015, the penalties are $2,000 and $3,000, respectively.

Health Care Plan Offered

Play

Selective Play MEC Only

Selective Play Carve-Out

Pay

Offer MEC to at least 95% of full-time employees At least one plan:

Offer MEC to at least 95% of full-time employees Plans do not meet minimum value and affordability requirements

Offer MEC to less than 95% of full-time employees (e.g., “carve out” by class) (Regardless of whether plans meet minimum value and affordability requirements)

Discontinue employersponsored plan

• Meets minimum value, and

Penalty if at least one full-time employee obtains subsidized Marketplace coverage

• Employee pays no more than 9.66% of employee-only coverage level None

$2,160 annually per full-time $3,240 annually for each employee, minus the first 30 full-time employee that obtains subsidized Marketplace coverage1

$2,160 annually per full-time employee, minus the first 30

1 The ALE’s total penalty for full-time employees that obtain a subsidy will not exceed the penalty amount for not offering MEC ($2,160 times the number of full-time employees, minus the first 30).

AFFORDABLE CARE ACT |5

An employer-sponsored plan provides minimum value if it covers at least 60% of the total allowed cost of benefits, on average, that are expected to be incurred under the plan. This means that the ACA mandates that these plans must meet the minimum value standard of paying at least 60% of the cost of covered services, considering deductibles, copays and coinsurance. The plan must also cover inpatient hospital and physician services to meet minimum value requirements. An employee’s share of the premium for employer-provided group coverage is considered affordable when at least one plan, employee-only coverage level, costs no more than 9.66% (as indexed) of the employee’s annual household income. Because employers will not generally know their employees’ household incomes, they can take advantage of three IRS safe-harbor measures. Affordability is met when an employer can prove at least one employee-only offered plan does not cost their employees more than 9.66% (as indexed) of the safe harbors described below: IRS Safe Harbor

Based on

W-2 Wages

The amount of wages paid to the employee reported in Box 1 of that employee's W-2

Rate of Pay

The employee's rate of pay at the beginning of the coverage period with adjustments permitted for an hourly employee if the rate of pay is decreased (but not when it is increased)

Federal Poverty Line

The federal poverty line for a single individual for the applicable calendar year.

When choosing a safe harbor, companies should keep the following in mind: • An employer may use any safe harbor as long as it does so on a uniform and consistent basis for all employees in a reasonable category (e.g., salary vs hourly, geographic region). • If an employer offers multiple health care coverage options, the affordability test applies to the lowest cost

employee-only plan available to the employee that also meets minimum value requirements.

Reporting ALEs must report offers of coverage to their full-time employees and to the IRS under the Section 6056 Requirement. This involves submitting IRS Forms 1094-C and 1095-C to employees and the IRS prior to the deadlines. Section 6056 is one of the most significant tax reporting reforms since the W-2 was introduced and requires information from three systems to complete the forms: payroll, benefits and HR. To comply with this requirement: • Send each full-time employee a Form 1095-C by January 31 of the following calendar year. • File Form 1095-C data and Form 1094-C with the IRS by March 31 of the following calendar year

(electronic filing deadline). • For 2015 data only, the IRS extended the deadlines to March 31, 2016, and June 30, 2016, respectively.

For each missing statement or incorrect form, employers will be fined $250, up to a $3 million cap each, totaling up to $6 million. For each intentional violation, the fine is $500 for each with no cap.

6 | AFFORDABLE CARE ACT

For 2015, the IRS announced it will not impose penalties on ALEs that demonstrate a “good faith effort” to comply with the Section 6056 reporting requirements and submit the forms prior to the deadlines, even if data or codes are missing or incorrect.

1094-C

1095-C

IRS

EMPLOYEE

Tracking and Notifications ALEs need to do a few more things regularly to monitor compliance: • Part-time and variable hour employees may be considered full-time if they work more than an average of 30 hours per week during a “Measurement Period,” which is typically 12 months. Be sure you are accurately tracking weekly hours worked by these employees. -- This will determine whether these employees are eligible for benefits under ACA. Missing these

changes may trigger the Employer Shared Responsibility penalties mentioned previously. • During employee enrollment windows, for example, newly eligible and open enrollment, you need to

provide employees with a Summary of Benefits and Coverage for each medical plan. • Under FLSA rules, you must send the Marketplace Notices to employees. Model notices are available on

the Department of Labor website for health care reform. • Waiting period cannot exceed 90 days. All newly eligible employees must have a medical coverage

effective date no later than 90 days after otherwise meeting eligibility requirements. -- This is another reason to strictly monitor changes in employees’ hours so that newly eligible

employees are offered coverage in a timely manner.

AFFORDABLE CARE ACT |7

Documentation and Recordkeeping Beginning in 2016, the Department of Health and Human Services (HHS) started sending notices to employers when employees receive tax credits or subsidies through a Marketplace. The IRS also began sending notices to companies that potentially faced Employed Shared Responsibility penalties for 2015. If your company offered ACA-compliant coverage, you will have an opportunity to appeal to HHS or the IRS, and it will be important to retain documentation or tracking reports to demonstrate: • If your company was/is an ALE • Whether the employee was/is considered full-time, benefits-eligible • Any offer of medical coverage to the employee • The employee’s cost for the lowest-cost medical plan, employee-only coverage level

Remember, penalty notices from the IRS will address potential penalties for prior calendar years. For example, the notices the IRS sends in 2016 are related to coverage offered in 2015. Getting organized now will make it easier to locate documentation and respond to the notices on a timely basis.

Non-ALE When you are not an ALE, be careful not to get too complacent. While the Employer Shared Responsibility mandate and reporting penalties are not applicable to you, there are aspects of the ACA that have direct and indirect implications to your bottom line. These are the things you need to keep top of mind to navigate the ACA effectively.

Individual Mandate So the Employer Shared Responsibility mandate does not apply to you. But are you truly free of the ACA? Given that you and your employees are still subject to the Individual Mandate, competition for talent will create pressure on your company to provide employees with compensation that factors in medical coverage. When you do this, you might want to take two factors into consideration: The Individual Reimbursement penalty clause of the ACA means you can be fined under certain circumstances for reimbursing an employee specifically for the cost of a health care plan purchased through the individual market, including a state Marketplace. This fine is probably the steepest of all, running $100 per day per employee, amounting to $36,500 per employee. The way to get beyond this penalty is to provide all your employees with an allowance that they can spend at their own discretion. When you compare this method to providing your employees with a group plan, you

8 | AFFORDABLE CARE ACT

can see the value of what you provide is reduced substantially when you give it to them individually as taxable income. More importantly, you have no power to control what they spend it on, which means they may not apply it to their health care at all. With a group plan, you only end up spending the extra amount on the employees that accept your offer of coverage and enroll in the plan, resulting in more value for them and you.

Paid as Compensation*

$4,188

Group Plan

Benefits FICA State Federal

$6,000

* Assumes $6,000 per employee contribution and FICA 6.2%, state and federal 20% tax rate.

Notifications Some of the notification requirements are applicable, regardless of whether you are an ALE or not. Things to look out for are: • During employee enrollment windows (for example, newly eligible and open enrollment), you need to provide employees with a Summary of Benefits and Coverage for each medical plan. • Under FLSA rules, you must send the Marketplace Notices to employees. Model notices are available on

the Department of Labor website for health care reform.

Small Business Tax Credit Companies with 25 employees or less might be eligible for the Small Business Tax Credit. However, businesses should remember this credit has very strict parameters and is phased out based on employee count and average salary: • Only available if health plans for full-time employees are bought through the SHOP Marketplace • Employers must pay at least 50% of employee’s premium costs • The maximum credit is only given to companies that: -- Have 10 full-time employees or less -- Employees have an average salary of $25,000 or lower • This tax credit is not available to sole proprietors or their families • If the credit is granted, it is temporary and available for six years

AFFORDABLE CARE ACT |9

For these reasons, very few businesses qualify on such exacting terms. Coupled with the mandatory requirement that the health care plans must be bought from the SHOP Marketplace, this means that even fewer employers are able to participate.

5.5 million small businesses in USA with less than 50 employees.

10,700 small employers participated in the SHOP Marketplace. Marketplace

Documentation and Recordkeeping Beginning in 2016, the Department of Health and Human Services (HHS) started sending notices to employers when employees received tax credits or subsidies through a Marketplace. If your company offered ACA-compliant coverage, you will have an opportunity to appeal to HHS, and it will be important to retain documentation or tracking reports to demonstrate: • Any offer of medical coverage to the employee • The employee’s cost for the lowest-cost medical plan, employee-only coverage level

Why should you consider appealing an employee’s subsidy if your company is not an ALE and won’t have to pay a penalty? If it is later determined an employee isn’t eligible for a subsidy, they will have to pay it back. If, after reviewing the appeal, the Marketplace determines the employee isn’t eligible, they will notify the employee quickly, which minimizes the amount the employee will have to pay back when filing the federal tax return.

Small Group Insurance Market Definition Change Definition Expansion The combination of the ACA and PACE Act has empowered states to determine the size of “small group” and “large group” for the purpose of purchasing group medical insurance. As a result, the delineation of these categories differs based on the state your company is based in. This is important to note, because classification as a small group can result in more restrictive underwriting and plan design rules, as compared to large groups. If you have more than 100 employees in any state, you are eligible for large group plans. If you have 50 or less employees in any state, you are eligible for small group plans. In the states of California, Colorado, New York and Vermont, if you have 100 or less employees, you are only eligible for small group plans.

10 | AFFORDABLE CARE ACT

Please note that as this is a separate distinction from ALE vs. non-ALE. Companies with 50-100 employees in CA, CO, NY and VT are still classified as ALEs and are therefore subject to the Employer Shared Responsibility mandate and IRS reporting requirements. This means that if you are an employer with less than 50 employees, or an employer with 51-99 employees in CA, CO, NY or VT, your company-sponsored health plans will be considered small group health plans. These are the attributes you must keep in mind when planning your benefits strategy: • Companies located in states where companies with 51-99 employees are considered small group will move to small group plans with their 2016 plan renewals. • Companies with less than 50 employees must keep in mind that “pre-Metallic” plans end in 15 states

and DC with the 2016 plan renewal, and in the remaining states with the 2017 plan renewal. This change includes previously “grandfathered” plans. -- 2016: CA, CO, CT, DC, DE, HI, IA, MA, MD, MN, NM, NY, NV, RI, VT, WA -- 2017: AK, AL, AR, AZ, FL, GA, ID, IL, IN, KS, KY, LA, ME, MI, MO, MS, MT, NC, ND, NE, NH, NJ, OH, OK,

OR, PA, RI, SC, SD, TN, TX, UT, VA, WI, WV.

Implications for Plan Design Small group plans are subject to regulations in terms of the benefits they include and the amount of benefits that they cover. They are designed to correspond to the health insurance Marketplaces’ Metallic plans and so follow these rules: • All plan designs must conform with Metallic plans -- The Bronze, Silver, Gold and Platinum plans cover 60%, 70%, 80% and 90% of plan benefits,

respectively • Potentially fewer plan design options with Metallic plans -- Plans must cover Essential Health Benefits -- With fewer options, plans would have less flexibility, and employees may see a narrower choice of

benefits

AFFORDABLE CARE ACT |11

Implications for Underwriting and Pricing The underwriting requirements for small groups result in a de facto subsidization of higher utilization groups rates by lower utilization groups. This means that traditionally healthier and favored groups may see significant increases in their premiums, while the opposite may be the experience for groups that have been relatively unhealthier as they might see a reduction in their rates. The reason for this is the restrictions on the factors that carriers can take into consideration when underwriting, or pricing, small group plans. • Nationally, the carriers are limited to pricing plans based on four factors: -- Age (3:1 ratio cap of mature to young) -- Tobacco (1.5:1 ratio cap of smoker to non-smoker) -- Family Size -- Geography • Previous factors that can no longer be used when making pricing decisions: -- Claims History -- Gender -- Health Status -- Industry -- Occupation -- Weight • State-based ratios can be stricter than national guidelines. For example: -- NY is pure community-rated -- CA does not allow carriers to consider tobacco as a differentiating factor in pricing • There is a shift from composite age rates to attained age rates: -- Different rates, based on age, within a company or family -- New administrative and funding challenges, since companies will start receiving multiple rates

for each coverage level (e.g., employee-only, family) based on the age of employees and covered dependents

12 | AFFORDABLE CARE ACT

Companies that would individually qualify for small group plans should consider the advantages that a PEO construct provides them and their employees. Leading PEOs have large group plans with carriers, enabling small group companies that use PEOs to leverage the price stability and plan design flexibility that large group plans provide.

Underwriting

Plan Design

All TriNet clients benefit from access to these Large Group Plans.

SMALL GROUP PLANS

LARGE GROUP PLANS

Companies with NO MORE THAN 50 FTE employees*

Companies with AT LEAST 51 FTE employees**

• Limited and inflexible plan designs. • Must use metallic plan designs (e.g., gold, silver, bronze) that are comparable with health exchange plans.

• TriNet provides access to large group plans regardless of individual client company size. • Access to plan designs that are often out of reach for SMBs. • Ability to customize plans to the needs and preferences of the company.

• Adjusted Community Rating, limited to four basic factors: age, geography, family size and tobacco use. • Certain states have more restrictive underwriting. For example, New York is purely community rated, so all groups have uniform pricing. • Attained age rates replace composite age rates, resulting in added complexity of managing different rates with families and companies. • Underwriting changes result in pricing volatility for many companies.

• Less restrictive underwriting guidelines result in pricing specific to an employer rather than a community of employers. • Ability to use critical factors such as experience, gender and industry in employer’s rating. • Not subject to age banding. • Lower risk employers receive lower rates than higher risk employers, resulting in less subsidization.

*This group also includes companies with no more than 100 FTE employees in NY, CA, CO and VT. **Except companies with no more than 100 FTE employees in NY, CA, CO and VT.

AFFORDABLE CARE ACT |13

Further ACA Considerations The ACA still has a few tricks up its sleeve. This section highlights two regulations that have been delayed but, when effective, will materially affect your plan choices and the costs of your health care offerings.

Cadillac Tax The Cadillac tax is an excise tax on high-cost medical plans. This tax has been postponed to begin in the 2020 plan year. It levies a 40% excise tax on high-cost employer-sponsored medical plans. The limits are indexed and the limits for what is considered high cost are currently set at: • $10,200 per employee enrolled in employee-only coverage • $27,500 per employee enrolled in other-than-self-only coverage

Non Discrimination The ACA also includes regulations that prohibit having group health plans that discriminate in favor of highlycompensated individuals. The IRS has not issued regulatory guidance or an effective date. TriNet will stay on top of this and other changes in ACA legislation so you won’t have to guess when it comes to your company’s health care compliance. TriNet’s Solution Center answers employee questions and can provide ACA documentation as required.

14 | AFFORDABLE CARE ACT

About TriNet TriNet helps small business entrepreneurs realize their ambitions by being their essential HR partner. As their Trusted Advisor, we help them contain HR costs, minimize employer-related risk, and relieve the administrative burden of HR, thus helping them focus on their number one priority—their business. For more information, visit TriNet.com.

© 2016 TriNet. All rights reserved. All trademarks, trade names, service marks and logos referenced herein belong to their respective companies.

Learn more at TriNet.com or call 888.874.6388