Fraser Trebilcock attorneys Beth Latchana and Mark Kellogg spoke this week at the Institute of Continuing Legal Education’s 27th Annual Tax Conference. In their overview of health care reform, they detailed most important aspects of the ACA, including: the health insurance marketplace, employer classification, the Pay or Play Mandate, reporting requirements, group health plan mandates, the individual insurance mandate, the Small Business Health Option Program, and the Small Business Health Care Affordability Tax Credits.

1. HEALTH CARE REFORM
STRATEGIES FOR EMPLOYERS
© 2014 Fraser Trebilcock
Davis & Dunlap, P.C.
Elizabeth H. Latchana, Esq.
Phone: (517) 377-0826
Email: elatchana@fraserlawfirm.com
Mark E. Kellogg, JD, CPA
Phone: (517) 377-0890
Email: mkellogg@fraserlawfirm.com

2. Introduction

3. Be Prepared for
Health Care Reform
 Are You a Large or Small Employer?
 Pay or Play Mandate (2015).
 Reporting Requirements (Section 6055 and Section
6056).
 Additional Health Plan Mandates and Changes.
 Individual Insurance Mandate.
 SHOP & Small Business Health Care Affordability
Tax Credits.

4. Are You a Large
or Small Employer?
How do you Determine Your FTEs?
 Step 1: Evaluate employees’ monthly hours for each month:
 Number of full-time employees, with respect to a calendar month,
average 30 hours of service per week [Please note that special optional
methods exist: a monthly equivalency rule (130 hours per calendar
month) or a weekly rule (120 hours for months with 4 weekly periods;
150 hours for months with 5 weekly periods – special rules apply].
 Total non-full-time hours in a month (but not more than 120 hours per
any employee) / 120.
 Add the number of full-time employees for the month and FTEs
for the month together to get the company's total count for the
month.

5. Are You a Large
or Small Employer?
How do you Determine Your FTEs?
 Step 2: Repeat this process for each month of the proceeding
calendar year.
 Step 3: Add the monthly calculations together.
 Step 4: Divide total monthly calculations by 12.
 Step 5: Round down to the nearest whole number.
The FTE is the average of each monthly calculation across the
preceding calendar year. The rules related to counting employee
hours are complex and different rules and guidelines exist for
different types and classifications of employees.

6. Under 50 FTEs
 Employers do not have to offer insurance to employees.
 However, if health insurance is offered, it must meet the essential
health benefits, metal levels and be available to full-time
employees.
Small Employers
Are You a Large
or Small Employer?

7.  The Pay or Play Mandate applies to large employers and imposes
employer shared responsibility requirements beginning in 2015.
 For purposes the Mandate, large employers are those employers
with 50 or more FT/FTEs (transition relief for 2015 exists).
 If a large employer either fails to offer health insurance to its full-
time employees (and dependents) or fails to offer those employees
affordable coverage that meets the required minimal value, that
large employer is subject to penalties under the Internal Revenue
Code if a Section 1411 Certification is issued (tax credit/subsidy
received through the Exchange).
 In February 2014, key changes were made to the Pay or Play
Mandate.
Pay or Play Mandate (2015)

8.  For 2015, timing to determine large employer status?
 For 2015 only, employer can determine large employer status by reference to a
period of at least six consecutive calendar months in the 2014 calendar year.
 For 2015, does it have 50 FT/FTEs but less than 100 FT/FTEs? If so, does it
meet the transition relief?
 Cannot reduce the size of workforce between February 9, 2014 and December 31,
2014.
 Cannot eliminate or materially reduce the health coverage offered as of February 9,
2014 (including employer contributions).
 Must certify (as part of the transmittal form require to be filed with the IRS under
Code section 6056 employer reporting requirements) that it meets the safe harbor.
 Not available if employer modifies its plan year after February 9, 2014 to begin on a
later calendar date.
 Special rules exist for new employers, employers first becoming large
employers, employers part of a controlled group or affiliated service groups,
and other circumstances mentioned in regulations.
Determine if Employer is a
Large Employer

9. Calculating Hours of Service:
 Actual hours for which payment is made or due
 Days-worked equivalency option
 Weeks-worked equivalency option
Periods Used to Determine Full-Time Status:
 Monthly Measurement Method
 Count hours of service for each calendar month
 Weekly period alternative
 Special rules for newly eligible employees
 Special rules for termination and rehire or resumption of services of
returning from a leave of absence
 Special rules for international transfers
Determine Full-Time
Employees

10. Periods Used to Determine Full-Time Status:
 Look-Back Measurement Method
 On-going Employees
 New Full-Time Employees
 New Variable Hours / New Seasonal / New Part-Time
 Special Rules for Rehire & Termination or Absences
 Special Rules for International Transfers
 Special Rules Regarding Changes in Employment Status
 Transition Relief for 2015: shorter measurement period
Determine Full-Time
Employees

11. Pay or Play Mandate (2015)
No Coverage Penalty
 Under IRS Code 4980H(a), a large employer must pay a penalty
for failing to provide minimal essential coverage to its full-time
employees.
 Is triggered if an eligible employer does not offer coverage:
 To 95% of its full-time employees [70% for 2015] and their dependents
[certain transition relief] and if a Section 1411 Certification is issued.
 The penalty for a calendar month equals 1/12 of $2000 multiplied by the
number of full-time employees (minus the employer's allocable share of
30 full-time employees [80 full-time employees for 2015] and
employees in a limited non-assessment period.
 Reminder: All common law employees must be considered.
 Special rules apply to controlled groups.

12. Pay or Play Mandate (2015)
Unaffordable/Lack of Required Value Penalty
 Under IRS Code 4980H(b), a large employer must pay a penalty
for failing to provide affordable health insurance coverage or for
offering health insurance coverage that fails to meet the 60%
minimum value.
 Is only triggered if a full-time employee goes to the Marketplace
and receives a tax credit or subsidy (Section 1411 Certification).
 The Excise Tax is the lesser of:
 The “no coverage” penalty; or
 $3,000 for each full-time employee who enrolls in insurance through the
Marketplace and receives a tax credit or subsidy.
 Safe Harbors Exist for Affordability.

13. Reporting Requirements
 Optional reporting in 2014.
 Required reporting starts for 2015.
 Under Section 6055, starting in 2015, if an employer provides
self-insured health coverage to its employees, it must file an
annual return reporting certain information for each employee
it covered.
 Under Section 6056, starting in 2015, a large employer must
file an annual return reporting whether and what health
insurance it offered to its employees.
Who is Required to Report?

14. How do Applicable Employers Report?
 Under Section 6055, a non-large employer providing self-insured
health coverage must file an annual return (Form 1095-B) plus a
transmittal form (Form 1094-B) on or before February 28th
(March 31st if electronic filing) of the year following the calendar
year in which the minimum essential coverage was provided.
 Under Section 6056, a large employer must file an annual return
(Form 1095-C) plus a transmittal form (Form 1094-C) on or
before February 28th (March 31st if electronic filing) of the year
immediately following the calendar year to which the return
related.
Reporting Requirements

15. Simplified Alternatives May Be Available
 1) Simplified return if Employer certifies is made a "qualifying
offer" of coverage for all months an employee was a full-time
employee.
 Applies to employers that provide a “qualifying offer” to their full-time
employees.
 2) Further simplified return for 2015 only if employer certifies it
made "qualifying offer" to at least 95% of its full–time employees
and their spouses/dependents.
 3) Employers can avoid separately identifying their full-time
employees if they certify they offered minimum essential
coverage providing minimum value that's affordable under
Section 4980H to at least 98% of its employees (and dependents).
Reporting Requirements

16. Combined Reporting Under Section 6055 & 6056
 A large employer that provides self-insured coverage is subject to
Section 6055 and 6056 reporting. All large employers will file a
combined return.
 1) Large employers that self-insure will report on Form 1095-C,
completing both sections to report under sections 6055 and 6056.
 2) Large employers that fully-insure will report on Form 1095-C,
completing only the section to report under 6056.
 3) Non-large employer reporting entities (such as small employers
that self-insure) will report under Section 6055 on Form 1095-B.
Reporting Requirements

17. Statements Furnished to Individuals
 Under Section 6055, reporting entities must furnish statements to each
responsible individual (employee/former employee or other person
listed in regulation who enrolled one or more individuals in coverage)
by January 31st of year following calendar year in which minimal
essential coverage is provided.
 Under Section 6056, large employers must furnish statements to each
full-time employee by January 31st of year following calendar year for
which a 6056 IRS return was filed related to them.
 Under both Sections, first class mail to last known permanent address
discharges responsibility. Special rules for electronic statements exist.
Reporting Requirements

18.  Prohibition on Excessive Waiting Periods
 Effective for plan years beginning on or after January 1, 2014.
 Group health plans and a health insurance issuer offering group or
individual health insurance coverage are prohibited from applying any
waiting period that exceeds 90 days.
 Waiting Period = the period that must pass before coverage begins for an employee
or dependent who is otherwise eligible to enroll under the terms of a group health
plan.
 Check your plan!
 Many are changing waiting period.
Group Health Plan Mandates

19. Group Health Plan Mandates
 Cost of Employer-Sponsored Health Coverage on W-2
 Report with Code DD in Box 12.
 Certain transition relief still available.
 Uniform Summary of Benefits and Coverage
 Group health plans must provide a summary of benefits and coverage that meets
requirements, including whether plan offers minimal coverage and minimal value.
 Make sure your SBC is updated. Special distribution and timing rules apply.
 Cost-Sharing Requirement (Deductible Limit for Small Group
Market Repealed)
 Plan years beginning on or after January 1, 2014 cannot impose cost-sharing
requirements exceeding certain limits (for 2014, those are $6,350 for self-only
coverage, $12,700 for other than self-only coverage).
 Cost-sharing includes deductibles, co-insurance, co-payments or similar charges with
respect to essential health benefits, but does not include premiums.
 Additionally, the ACA limited the deductibles for small insured plans to $2,000/$4,000,
but that provision was recently repealed.

20. Group Health Plan Mandates
 Prohibition on Annual Benefit Limits
 Beginning in 2014, annual limits on the dollar value of benefits for any participant or
beneficiary will no longer be allowed. Lifetime limits previously prohibited.
 However, group health plans may still place annual or lifetime limits on specific covered
benefits that are not essential health benefits.
 Flexible Spending Account Limit to $2,500
 The flexible spending account limit on salary deferral will be $2,500, adjusted in future years
for changes in the cost of living. Applies to plan years effective on or after January 1, 2013.
 Health Insurance Marketplace Notice
 An employer is required to provide notice of the availability of the Exchange, informing
employees of:
 1) the existence of the Marketplace; 2) that employees may be eligible for a subsidy under
the Marketplace if the employer’s share of the aggregate cost of benefits is less than 60%;
and 3) that if the employee purchases a policy through the Marketplace, he or she will lose
the contribution to any health benefits offered by the employer.
 Notice must be provided to each employee now due at the time of hiring (within 14 days).

21. Group Health Plan Mandates
 PCORI Fee Payments
 The new Form 720, as well as the attached Form 720-V to submit payment, must
be used to report and pay the requisite PCORI fee to the IRS.
 Plan sponsors of applicable self-funded health plans are liable for this fee imposed
by Code section 4376.
 The first fee is $1.00 per covered life for plan years ending on or after October 1,
2012 and before October 1, 2013. The fee increases per year and concludes with
plan years ending on or after October 1, 2018 and before October 1, 2019.
 HRAs and health FSAs that are not excepted from reporting only must count the
covered participant and not the spouses and dependents.
 The fee is due no later than July 31 of the year following the last day of the plan
year.
 There are specific calculation methods to be used to configure the number of
covered lives and special rules may apply depending on the type of plan being
reported.

22.  Transitional Reinsurance Fees
 Section 1341 of the ACA provides for this transitional reinsurance program in each
State from 2014 to 2016.
 This fee for benefit year 2014 averages approximately $63.00 per covered life.
 Contributing entities must submit enrollment counts by November 15, 2014 to
HHS. HHS will invoice entity by December 15, 2014 and entity then has 30 days
to make payment.
 Exclusions.
 Automatic Enrollment for Large Employers Offering Coverage
 An employer with more than 200 full-time employees that offers employees
enrollment in one or more health benefits plans must automatically enroll new, full-
time employees in one of its plans and to continue the enrollment of current
employees in a health benefits plan offered through the employer. (Subject to waiting
period authorized by law)
 Requires adequate notice and the opportunity to opt out of coverage.
 Effective date is unclear; Department of Labor says regulations by 2014.
Group Health Plan Mandates

23.  Extension of Non-Discrimination Rules (Delayed)
 No eligibility rules or levels of coverage that favor high-wage employees.
 New under the ACA for fully-insured group health plans, except for 125 cafeteria plans.
 Has been delayed; still need to keep in mind when making design choices.
 Excise Tax on Cadillac Plans
 Effective date 2018.
 A 40% nondeductible excise tax will be imposed on high-cost health coverage.
Group Health Plan Mandates

24. Small Business Health
Option Programs
Small Business Health Option Programs (SHOP)
 Open to all small businesses in 2014.
 Must have 50 FTEs or less.
 In 2014, employer chooses one insurance product for all employees.
 In 2015, employer picks the metal level, employees choose the
insurance product.
 In 2016, SHOP expands to businesses with up to 100 FTEs.
 In 2017+, States have option to expand SHOP eligibility to large
groups.

25. Secret Cash Bonus
for Small Employers
Small Business Health Care Tax Credits

26. Secret Cash Bonus
for Small Employers
Potential Tax Credits 2010 - 2013
For-Profit
Up to 35% of employer
contribution to
employees’ health
insurance premium
Non-Profit
Up to 25% of employer
contribution to
employees’ health
insurance premium

27. Secret Cash Bonus
for Small Employers
Potential Tax Credits 2014 - 2016
For-Profit
Up to 50% of employer
contribution to
employees’ health
insurance premium
Non-Profit
Up to 35% of employer
contribution to
employees’ health
insurance premium

28. Secret Cash Bonus
for Small Employers
Requirements
< 25
Employees
Average
Employee
Wages
< $50,000
Employer must
contribute at least
50% of premium
cost

29. Secret Cash Bonus
for Small Employers
Requirements
Maximum credit available to employers with 10 or
fewer FTEs and average annual wages of $25,000 or
less.
 For each FTE above 10 FTEs, the credit is reduced by 1/15.
 For each $1,000 above $25,000 in average wages, the credit
is reduced by 1/25.

30. Secret Cash Bonus
for Small Employers
Which Employees Count?
 Seasonal Workers
 Leased Employees
 Owner of Business
 Family Members of Business Owner

31. Secret Cash Bonus
for Small Employers
Members of a controlled or an affiliated service group may
be treated as a single employer for tax credit purposes.
Which Employees Count?

32. Secret Cash Bonus
for Small Employers
Calculating the Number of Employees
Calculating FTEs for Tax Credit Purposes - Three Methods:
1) Actual Hours Worked + Paid Leave
 Limit of 2,080 hours per employee, per year
2) Days-Worked Equivalency + Paid Leave
 8 hours for each day
3) Weeks-Worked Equivalency + Paid Leave
 40 hours for each week
Add up the total hours of service the employer pays wages to
employees and divide by 2,080. Round down.

33. Secret Cash Bonus
for Small Employers
Calculating Average Employee Wages
1) Add up the total wages paid by employer during the tax year.
2) Divide total wages by the number of FTEs for the year.
3) Round down the result to the nearest $1,000.
The employer’s average wages are $24,000 ($245,786 / 10 =
$24,578.60, rounded down to the nearest $1,000).
Example: In 2013, an employer pays a total
of $245,786 in wages and has 10 FTEs.

34. Secret Cash Bonus
for Small Employers
Calculating Employer Contributions
1) Employer must pay at least 50% of coverage.
Employer pays at least 50% of the premiums
for each employee enrolled in health
insurance coverage offered by the employer.
Uniformity Requirement:
 The employer is not required to pay the same percentage of the
premium for each employee.
 Required to be at least 50% of the premium for single
coverage; does not have to pay 50% of premium for more
expensive coverage options.

35. Secret Cash Bonus
for Small Employers
Calculating Employer Contributions
2) Payments must be made under a qualified arrangement.
Only premiums paid to a health insurance issuer.
 Major medical plan, dental, vision, etc.
 Each plan must meet requirements.
Payments that do not count:
 Portion paid by employees;
 Premium payments under a salary reduction
arrangement;
 Employer contributions to HRAs, FSAs, and HSAs.

36. Secret Cash Bonus
for Small Employers
Calculating Employer Contributions
3) Cap on the amount of employer’s premium payments that
toward tax credit.
Employer’s premium payments may not be
more than the average premium for the
small group market in the state where the
employer offers coverage.
2013 Michigan: Average Premiums for
Small Group Markets
 Single: $ 5,569
 Family: $ 13,256

37. Summary
1) Determine the employees who count toward the credit.
2) Calculate the hours of service for these employees.
3) Calculate the number of the employer’s FTEs
4) Calculate the average annual wages paid per FTE.
5) Calculate the relevant employer contributions.
Initial Amount of Credit (Contribution x Percentage)
- Reduction for FTE in excess of 10
- Reduction for avg. wages in excess of $25,000
Total Small Business Health Care Tax Credit
Secret Cash Bonus
for Small Employers

38. Secret Cash Bonus
for Small Employers
How to Claim the Credit
 Tax-exempt employer:
 Form 990-T with attached Form 8941 showing calculation of credit.
 Other employers:
 Claim the credit on income tax return, use attached From 8941 showing
calculation of credit.
 Credit may be able to be used to offset Alternative Minimum
Tax liability.
 The tax credit can be reflected in determining estimated tax
payments for the year.
 The credit affects an employer’s allowable deduction for health
insurance premiums; deduction is reduced by amount of credit.
 Credit does not affect employer’s employment tax payments.

39. Health Care Reform
Checkup for Your Business
 Is your business compliant with all the current health care
regulations?
 Many regulations went into effect in 2012 and 2013. Have you
made the necessary adjustments?

40. Develop a Compliance Plan

41. Fraser Trebilcock Davis & Dunlap, P.C.
124 W. Allegan Street, Suite 1000
Lansing, Michigan 48933
www.fraserlawfirm.com
Phone: (517) 482-5800
Fax: (517) 482-0887
Fraser Trebilcock Davis & Dunlap, P.C.
One Woodward Avenue, Suite 1550
Detroit, Michigan 48226
www.fraserlawfirm.com
Phone: (313) 237-7300
Fax: (313) 961-1651
Elizabeth H. Latchana, Esq.
Phone: (517) 377-0826
Email: elatchana@fraserlawfirm.com
Mark E. Kellogg, JD, CPA
Phone: (517) 377-0890
Email: mkellogg@fraserlawfirm.com
© 2014 Fraser Trebilcock
Davis & Dunlap, P.C.
Fraser Trebilcock
Health Care Reform
www.mihealthcarelaws.com