The Affordable Care Act

The Affordable Care Act Tax and ERISA Considerations Elizabeth J. Atkinson, Esq. James P. Anelli, Esq. November 2013 Webinar Before we begin...  ...
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The Affordable Care Act Tax and ERISA Considerations

Elizabeth J. Atkinson, Esq. James P. Anelli, Esq.

November 2013 Webinar

Before we begin...  Reminder that phone lines are muted  Direct your questions to the Chat box or the Q&A box (to both host/presenters) – we’ll cover at the end, as time allows  Look for future alerts & webinars & guidances  Share any email addresses for others within your organization that would like to be on our ACA email list  Any questions offline – please email [email protected]  We have provisional HRCI credit approval – to request your certificate of attendance, please email [email protected] with your request & contact info. (You must be logged in via computer individually to have your attendance recorded). 2

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Today’s presenters

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Jim Anelli

Liz Atkinson

Newark, NJ

Norfolk

Co-leader, LeClairRyan Affordable Care Act team

Shareholder, Tax and Benefits Practice

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Tax Provisions of the ACA    

The Individual Mandate is a tax Premium Tax Credit Small Business Tax Credit Deductibility of insurance premiums

 Excise taxes on plans  Payroll reporting requirements  Use of tax data for compliance 4

Premium Tax Credit (individuals)  Employers may consider whether employees are better off without employer sponsored coverage—should spousal coverage be dropped? should employee hours be cut back?  Financial issues/emotional issues—health insurance often ties the employee to the job  Problems with employees moving in and out of coverage 5

Small Business Tax Credit  This is a refundable credit for small businesses and tax exempt employers who provide coverage for employees and have fewer than 25 FT employees.  Credit is 50% of premiums for up to 2 years;  Credit is 35% of premiums for tax exempt  (note that credit is subject to sequestration cutback)  No credit for premiums paid for owners of the business  Insurance must be obtained through the SHOP marketplace

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Deductibility of Insurance Premiums  Employers have always been able to deduct insurance premiums for employees  Employee contributions can be paid pre-tax  Other medical plans (vision, dental can be pre-tax)  Flex spending account versus HSA  Eventual “Cadillac Tax” will penalize rich benefits

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Payroll Reporting Requirements    

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A huge new burden: Shows payroll data and coverage data Preliminary guidance is out Internal Revenue Code Sections 6056 and 6066

Reporting of Coverage  Code Section 6051 cost of employer health care: in effect: reported on W-2, box 12, code DD  Code Section 6055: minimum essential coverage: tax year 2015: reported on Form 1095-B—filed by insurer for group plans or employer if self-insured plan—can be delegated to 3P but strict contractual requirements 9

Reporting--continued  Code Section 6056: report whether employee offered MEC: tax year 2015: Form 1095-C  Applies to any Large Employer  Requires tracking of monthly data  Lots of data; lots of work  Required from each employer in controlled group even if common health plan  HIPAA and privacy concerns especially if contract out  Figure out data capture and who will prepare NOW!  Regs can still change—IRS seeking input 10

Who gets a statement?  

Every full-time employee Data on statement: 1. 2. 3. 4. 5. 6.

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employer name, address, EIN, phone # whether MEC offered to employee number of FT employees each month months for which coverage was available employee share of lowest cost premium name, address, TIN of employee and months covered under employer plan

Penalties  Section 6721 failure to file information return  Section 6722 failure to furnish correct statements  Make sure if 3P messes up, 3P indemnifies for penalties  Watch HIPAA and Privacy—separate penalties and damages for those violations

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Problems and Concerns  Accuracy of employee TINs  Continuing problems with tax return identity theft—premium tax credits will probably increase this problem  Review contracts with outside payroll providers  Review internal payroll processes and controls  If you are in a controlled group or multi-employer plan, have meetings to figure out who will do what, keeping in mind that each employer must report separately under its EIN 13

ERISA Considerations  ERISA: Federal law enacted in 1974 that limited ability of states to regulate employee benefits  ACA substantially changes the reach of ERISA, both in expanding ERISA regulations but also in permitting state regulation in areas normally preempted by ERISA 14

ERISA Applicability  Does not apply to governmental or religious plans  Does apply to private employer plans both self-insured and group insurance plans, but with differences  ERISA claims handling Regulations now have wide applicability  Plan documents need to conform with these Regulations 15

Adverse Benefit Determination    

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Has very broad scope and applies to: Eligibility to participate in a plan Resulting from any utilization review Failure to cover item or service based on “experimental, investigational, or not medically necessary or appropriate”

Notices  ACA requires a host of notices to employees along with notices that were already required for COBRA, FMLA etc.  Failure to provide required notices or to include necessary language can lead to fiduciary exposure

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Timing of Notices  Pre-service claim 15 days notice –one 15 day extension for good reason only  Post-service claim—30 days—one 15 day extension for good reason only  Urgent care—72 hours  Concurrent care—appeal time before termination or reduction of benefit 18

Who is responsible  Employers delegate to Third Party Administrators (TPAs)  But if TPAs mess up, the employer is still responsible  Contractual agreements with TPAs need to provide for remedies and also need to be carefully drafted so that there are no gaps where employer could be stuck holding the bag

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Appeals—internal and formal  ERISA and ACA require that claimant have reasonable opportunity to appeal to the plan  ACA extended ERISA Claims-Handling Regs to individual plans (unless grandfathered)  ACA goes beyond the ERISA Regs  Then there is an external appeal process: now not preempted by ERISA; ACA makes reference to state provisions and provides for a process where no equivalent state process 20

Interplay of State and Federal Law  Now because the trend is away from ERISA preemption, employers need to be concerned about exposure to claims under health insurance policies in both federal and state courts under a variety of potential theories  ERISA: federal court—shorter deadlines, deference to plan provisions (so long as they comply with ERISA)

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Federal vs. State       

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ERISA: Benefits recoverable Injunctions sometimes Reasonable atty fees Interest at court discretion No punitive damages Shorter deadlines

 State (depends on state)  Quantum meruit  Injunctions and equitable remedies  Misrepresentation/plus other statutory claims  No atty fees (unless contractual)  Punitive may be available

Multi-employer Plans  So far, guidance on multi-employer plans (MEPs) has been slow  Grandfathering provisions may be important and employers should be careful about utilizing grandfathering where it is beneficial  Most MEPs are at least partially self-insured which raises additional issues  Because of collective bargaining agreements, employers in MEPs need to be especially pro-active about ACA compliance and conflicts between existing CBAs and ACA provisions

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Self-insured Plans  If any portion of coverage is other than through an insurance policy, plan meets definition of a selfinsured plan  Special taxes applicable to self-insured plans  Special reporting requirements for self-insured plans  However, good news is that self-insured plans have broad discretion over scope and design of benefits in Health and Welfare plans. 24

ACA provisions that affect self-insured plans  Auto enrollment  Notification of Modification (at least 60 days)  Fee for Patient Centered Outcomes Fund – per capita annual fee  Emergency services—no pre-authorization  Limitations on coverage (annual/lifetime)  Prohibition of Recission of Coverage  Other provisions

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Need to review plan documents NOW Anyone in an MEP should ensure that: 1. grandfathering analysis has been done 2. Plan docs are compliant with ACA 3. Plan docs do not violate CBAs and CBA provisions are coordinated with ACA provisions 4. Plan trustees are aware of tax and reporting requirements and are adequately preparing 26

Multiple States  Employers in multiple states need to be aware of state provisions that now may be applicable to Health and Welfare plans.  May want to draft choice of law, choice of forum provisions in plans and plan related contracts or provide for arbitration.  Employers who are in MEPs that operate in multiple states need to review their MEP documents as well.

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Fiduciary Insurance  Fiduciaries need to carry appropriate insurance and should ensure trustees of MEPs are carrying adequate insurance  Even if a suit is meritless, it costs time and money  There will be more fiduciary litigation post-ACA especially as the boundaries are tested

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Actuaries and Accountants  There will be more work for actuaries and accountants in ensuring that ACA provisions are met.  Delegation to actuary and CPAs is necessary but does not relieve the fiduciaries of liability.  Fiduciaries must oversee the work of their CPAs and actuaries and perform adequate due diligence. Documenting due diligence can be useful in mitigating penalties and fines.

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So... Where is the ACA headed with regard to the exchanges?

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Questions?

Our next ACA webinar is January 8th – Hospital and Insurance Issues

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Thank you  Jim Anelli

[email protected]

 Liz Atkinson [email protected]

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Disclaimer  This slide show provides general information and is not legal advice and should not be used or taken as legal advice for specific situations. You should consult legal counsel before taking any action or making any decisions concerning the matters in this show. This communication does not create an attorney-client relationship between LeClairRyan, A Professional Corporation, and the recipient.  Copyright 2013, LeClairRyan, A Professional Corporation. All rights reserved.

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