Brandon: I’d like to welcome back Iris Tilly to the podcast. Iris is an associate at Barran Liebman LLP in Portland, Oregon and she specializes in employment law, ERISA compliance, HIPPA, and much more. Welcome, Iris.
Iris: Thank you Brandon.
Brandon: You’re welcome, it’s good to have you back. Last time we chatted about Health Care Reform and we had a good response on that so we decided to bring you back to talk about this subject again because there’s been quite a few updates. Let’s dive right in and talk about the employer mandate. Over the last few months in the news, and in the local media there’s been some talk about the delay of the employer mandate. Can you elaborate on this and give listeners a sense of what they should expect?
Iris: Right before the 4th of July, the administration snuck out an update. It came in one daybefore the holiday and because of that it felt like a lot of employers were blind-sided since people were on vacation and then they came back to this big change. The change was that the administration decided to delay for one year the components of health care reform that require employers to either provide coverage or pay a penalty. This is for the employers who have 50 employees or more. The significance of this delay is that employers don’t have reporting obligations or any type of penalty liability in 2014 as expected, it’s now delayed until the start of 2015. All of the other aspects of health care reform at this point are moving forward. We still have the individual mandate moving forward and all of the insurance requirements that require some changes to employer’s health plans beginning at the start of 2014.
Brandon: Just to be clear, the delay is only regarding the employer mandate; it has nothing to do with the individual mandate. Is that correct?
Iris: That is correct and the exchanges are still going forward and opening. It’s an interesting dichotomy at this point because the Health Care Reform is so reliant on three aspects: the exchanges, the employer mandate and the individual mandate, so removing one of those components is throwing a few hiccups into how the process is designed to work.
Brandon: Do you think the delay of the employer mandate will help employers in terms of the planning and process?
Iris: It will help employers. I think that overall our clients breathed a big sigh of relief when that notice came in. The difficulty for employers is that we still have this measurement and stability period issue. For employers who are going to be using measurement and stability period, it actually isn’t much of a reprieve because some transitional guidance will allow employers more time to establish their measurement and stability period, whether it’s extended along with the mandate, so that means employers are still having to look at those periods this Fall.
Brandon: Let’s talk about the exchange and the individual mandate since there are some deadlines coming up. In terms of notices and things that employers are required to do, can you talk about what the deadlines are, when they are and what employers are required to do? This is probably on the technical side of things, but maybe you can walk us through that.
Iris: We have the Exchange Notice Deadline coming up on October 1st. The October 1st deadline is the deadline to provide this notice to all current employees, and after that date all new hires will need to receive this notice as part of their new hire packet. What the notice is, is a notice letting employees know that the exchanges exist. The DOL has put out a model notice that’s available on its website for Health Care Reform.
There are two model notices. One for employers who intend to provide healthcare, and one for employers who do not intend to provide healthcare. One thing to be aware of with the model notice is that the model notice for employers who will be providing healthcare is a three page document. The third page includes quite a bit of cumbersome information about the health plan where the notice is asking employers to certify whether the plan meets certain healthcare requirements. That final page is optional and is not required by the regulations that govern these notices. It says on the form that it’s optional but it’s in like size 4 font, so I’ve been getting a lot of questions from employers who say, “I don’t have this information, I haven’t gotten it from my insurers, but we have to get this notice out.” Know that most employers at this point aren’t filling out that final page and anyone who is listening can remove that final page and ignore it, and just fill out those first pieces of the notice, which I think you’ll find that they don’t provide that much information but it’s all that the DOL is requiring at this point. As I mentioned, the deadline for that is October 1st for existing employees, and upon hire for all employees going forward. This is going to be an annual notice so it will go in your open enrollment materials each year.
Brandon: So the form is pretty standardized. Is there a lot of work that needs to go into filling out the form and getting the information out to participants?
Iris: No, there really isn’t. It’s a pretty straight forward form; it doesn’t require much information from the employer as long as you ignore that page 3 of one of the notices.
Brandon: Last time we talked a little bit about the individual mandate, but there has been quite a bit of new information, hasn’t there?
Iris: There has. We got final regulations on the individual mandate, and I think the administration has been pushing for those regulations because the individual mandate was supposed to go into effect as of January 1st. Just as a reminder, the individual mandate is the piece of Health Care Reform that requires all American adults to carry a minimal level of health insurance or to pay a penalty. The penalty in the first year is really low, it’s under $100 and some low income individuals wouldn’t have to worry about the penalty anyways, but it is an aspect of Health Care Reform that a lot of employees are concerned about because it could have an effect on their individual earnings and having to pay a penalty.
What we saw that was interesting in the individual shared responsibility regulations that came out, is that those regulations are continuing to define what will constitute a health plan really broadly. This is important from the employer’s perspective because we saw when we started getting regulations on these issues that a rich dental plan would seem to comply with the requirements and avoid penalty, and that continues to be the case. In these individual shared responsibility penalties, we are seeing that pre-tax contribution arrangements will factor into having a health plan that’s efficient. I think that once we get final regulations on the employer mandate component, we are likely to see a really broad definition of what constitutes a health plan. This is good news for employers because it means they are in the position to craft something that could be really low cost and it could be lower cost than paying the penalty. When we initially saw this, we were thinking that for most employers it would be cheaper to pay the penalty than to provide health insurance but now all of these alternative arrangements are being recognized. It is great news for employers and something to keep an eye on going forward.
Brandon: That’s really interesting, because at first I had heard that people were going to be choosing really high deductible plans to make it as low cost as possible, but I’ve never heard of just having a rich dental plan that could possibly satisfy the requirements.
Iris: It’s fascinating that the administration is allowing these models. It would need to be a self-insured dental plan because a lot of these requirements are really designed to target what covers the exchanges offer, so we are seeing a lot of areas where coverage isn’t offered through these exchanges so the policies that the employer offers directly don’t have to comply with a lot of these requirements.
Brandon: I’m going to apologize to listeners who are outside of Oregon, but there have been some changes in Oregon, specifically with the Oregon Exchange. Can you tell us about what has happened over the past few months and what employers can expect?
Iris: Oregon is one of the states that is really excited about Health Care Reform. As soon as Oregon got enough information to get the exchange started we started seeing a lot of movement going forward on getting the exchange going. We started seeing hiring and the website got pulled up for Cover Oregon. The Oregon exchange right now is scheduled to open on October 1st. What we’ve seen in the last couple months is a lot more information about what health plans the Oregon exchange is going to offer for both smaller employers and to individuals. We’ve seen some rate information and we’ve seen some specifics about exactly what kinds of coverage will be provided with those health plans. What we are being told at this point is that we won’t have a lot of enrollment information available on the website until those exchanges open on October 1st, but on October 1st, we’ve been promised that there will be a lot of staff available with Cover Oregon to go through the options that are available to individuals and small employers to help guide them through the process. That way hopefully they can compare the plans and get a good sense of whether it makes sense to offer those exchange coverage options or to continue with other types of coverage options.
Brandon: It terms of premiums that you have seen from Cover Oregon, the Oregon exchange, have you seen that they are being competitive with what private insurers are offering?
Iris: At this point, yes. It’s interesting to see the premiums because everyone’s premiums are going up a little bit with Health Care Reform at this point, but we’ve been promised that it will swing back down once we get some economies of scale. At this point we are not seeing that, and I don’t think anyone was expecting to see that, but it does seem that the Cover Oregon premiums seem to be competitive. How the plans that are set up on Cover Oregon is interesting because it is more difficult to compare apples to apples if you’re looking at what’s offered through cover Oregon compared to what you might be getting through your broker right now. The reason for that is Cover Oregon is tied to these plan designations. We have the bronze plan, the silver plan, the gold plan so that way they are in these silos based on those plan types and then the age of employee and it’s charted out that way. The benefits look a little bit different than the benefits you might be seeing from a broker from the employers stand point.
Brandon: What will the individual experience be like? If I wanted to go to Cover Oregon and shop rates versus a private carrier, what does that experience look like? Am I going on their website and choosing my plan and getting a quote that way? Or am I actually getting on the phone with somebody?
Iris: The goal is that you will be going on the website and choosing a plan that way. In the beginning we are going to see a lot of phone service with Cover Oregon because people aren’t necessarily going to understand how the website works. The goal of all of the exchanges is that it will be a web based system and we are supposed to be seeing a side-by-side comparison. There should be a way to see plan X compared to plan Y so you can look through and see what coverage options are available for each plan and then make an informed decision based on that comparison.
Brandon: Let’s move on to something that’s a little more confusing, to me at least: The measurement and stability period. What are employers required to do for this and give listeners a really broad sense of what this is and what it means.
Iris: The measurement and stability periods, first off, every employer should know that they are a safe harbor. Employers don’t have to use the measurement and stability periods. Employers with consistent workforces who don’t have variable hour employees or seasonal employees, there’s really no reason for them to use measurement and stability periods. Even employers who have those types of employees can choose to look on a monthly basis to determine whether or not employees qualify for coverage. When measurement and stability periods can be advantageous for employers to put into place is when employers have a workforce that includes variable hour and seasonal employees, and employers are looking for a way to figure out how many hours those employees are working before they actually put them on the plan. Typically if we are operating under Health Care Reform and we have an employer who is subject to the employer mandate who is concerned that they could be subject to penalties, if an employee in a particular month bumped over 30 hours then you would want to put them on the plan. The next month if they were less than 30 hours, you would want to take them off the plan. You could have a lot of on and off and you could end up covering employees who you are keeping for a really short time and you never have the intention of including in your healthcare plans.
What the measurement and stability periods allow you to do is to pick a longer term period where you are going to be looking at and averaging an employee’s hours over that longer term period. For most employers, looking at a 12-month period makes sense, however, a period can be as short as 3-months. I haven’t talked to many employers who have a situation where a 3-month measurement period would make sense. Typically what would happen is you would start measuring an employee’s hours and look at them over a full 12-month period. At the end of that 12-month period, if their hours exceeded 30 hours per week then you would go ahead and put them on the health plan. They would need to continue that status on the health plan unless of course they are terminated or there is some significant change in their job function which changed their status. They would need to continue on that healthcare plan for the next 12 months which is considered the stability period.
When you are thinking about setting up the measurement and stability periods, they can feel really cumbersome because you will need to have a standard measurement period which employers typically set to begin and end in conjunction with their plan year and open enrollment period. How it works is that you can have a period between 3 and 12 months where you are measuring the employees, and then you can have up to 90 days of administrative period to count hours and enroll employees. Employers typically line that up with their open enrollment period. After that, you have your period of stability which cannot be less than your measurement period but is typically another 12 month period.
This is an example: If you have an employer who is on a calendar year plan, which is typical for a lot of employers, your plan year runs from January 1 to December 31. A common measurement period would be to have a measurement period that begins in the middle of October or the beginning of November and runs for 12 months. When it ends after that 12 month period, you have a couple months to count hours and get employees enrolled, which will line up with the calendar year open enrollment period. As of January 1 of the next year you have employees in that plan.
The tricky piece of this from the employers perspective is that they need to be in a position to have these variable hour employees enrolled in their plan as of January 1, 2015, which means that they intend to use a 12 month measurement and stability period. That means this Fall is when they need to get those periods started. I’ve been talking to a lot of employers about the best way to manage getting those periods set up now because I know that some payroll companies don’t yet have their processes in place. We’ve been looking at some mechanisms for getting the counting started and then getting the process rolling so that way if new employees come on, the process is already started. That’s the big picture view, I know that the concept when looking at it in abstract can be really confusing. Brandon please let me know if you see any areas where I can clarify.
Brandon: You did a great job of clarifying what it means. The question I was going to have for you is how do you even start tracking something like this? Is it the responsibility of an employer, are they tracking it in a spreadsheet? If someone is using a third-party payroll company, or maybe they have a payroll department in house are they tracking it through a system they are using or an accounting system? What have you seen?
Iris: What I’ve seen is that most employers who use an external payroll company are working with their payroll company to get a good system in place. Most of the payroll companies either already have a system in place or are working to get one in place by January 1. For employers who are working with payroll companies who won’t have a system in place until January 1, they are doing a lot of excel spreadsheet tracking this Fall. Their plan is to do this excel spreadsheet tracking, and then January 1 to get all of the data loaded into the payroll system, and then going forward to use their third party payroll. I know that the third party payroll companies are putting together some great solutions to make this a little easier for employers to track.
Brandon: I’m a huge fan of excel but I worry about the human error factor. With a payroll system you have some standardized mechanisms, probably less room for error in that case. So you think people will move to that direction come January 1?
Iris: Exactly, use an external payroll provider. I think that they will move to that direction. For some employers it depends. If you only have 3 seasonal employees in a year, then it’s not that hard to track those hours, but if you are a fire district and you have a ton of people coming in and out, or a retailer, those are the employers who really need those external resources. I think we will also start seeing some computer programs and development, or they may already be coming out, that are designed specifically to track this. That way employers will find themselves relying less on excel if they have a lot or employees going in and out.
Brandon: Before I let you go, I want to go off topic, but before I do that, is there anything else about Health Care Reform either at the federal or state level that you want to touch on?
Iris: I think we have covered most of the new developments. We did have a new set of regulations come out yesterday afternoon but at this point they are not requiring that we take any big action. It is definitely a sign that the administration is moving forward and trying to get these regulations out. All employers should keep an eye out for the non-discrimination regulations because this is one component of Health Care Reform that could have a big impact on employers who have different plans for different groups of employees. We have been waiting for these regulations since 2012, so I keep reminding employers to keep an eye out for those regulations. We will send an alert, but watch for guidance on those non-discrimination rules because they could have an impact on employer plans going forward.
Brandon: Barran Liebman has some great eAlerts and Xenium always tries to pass those along, whether we post an excerpt or a link. Maybe when new regulations come out regarding Health Care Reform either at the state or federal level we will have you back on again.
Let’s go off topic a little bit. There was some new guidance about same sex marriage that I wanted you to touch on because it is quite interesting and I think it just happened over the last couple weeks. Maybe you can shed some light on what happened and what employers can expect.
Iris: Just this last week before the holiday weekend (apparently the administration loves putting things out just before the holiday weekend) the IRS released some guidance on taxation of benefits for same sex marriage partners. This is relevant arising from the DOMA decision that we had at the Supreme Court earlier this year. Historically when the IRS is determining the validity of marriage, they looked at the state of domicile, where the married couple lives. This is important because a couple who were to get married in a state where same sex marriage is legal, for example Washington, and who lived in Oregon, would not have a valid marriage under the old IRS rules. Once DOMA came out we kind of wondered whether the IRS and the DOL were going to move to a state of celebration model. What that means is if a couple were to get married in the state where same sex marriage is legal, then the IRS or DOL would look to that state to determine the validity of the marriage.
What we saw from the IRS this last week was exactly that. The IRS came out with a notice that stated that the state of celebration is the state that matters for determining validity of a marriage. If a couple gets married in a state where same sex marriage is legal, regardless of where they live, they ultimately have the federal tax benefits of a valid marriage. For employers in states that border states in which same sex marriage is legal, for example Oregon is between Washington and California which are both same sex marriage states, it’s just something to keep in mind and be aware of. Under state law, domestic partner benefits aren’t taxable. However, federal benefits we’ve been impeding to the employees going forward won’t be something you need to do because now they are tax free at the federal level as long as the couple is actually married. We wouldn’t recommend prying into employee’s lives and asking too many questions, but giving employees the opportunity to disclose that they have a valid marriage is a great way to handle it. Consider passing out, in mask, the paperwork or communication, in mask, that just says, “If you have a valid same sex marriage know this is recognized under federal law and let us know.”
The second component of that is that individuals have the option to go back to open tax years, which is typically 3 years, and ask for a refund based on those impeded benefits. You may be getting some requests from employees to get that information so they can go ahead and make those changes, so you might be seeing some request to your payroll department. The other component of that is that employers also have the option to go back and get a refund from the payroll tax they paid on those benefits. For most employers I think that the dollar value is going to be low enough that they won’t decide to go back and make those amendments, but there may be some employers who find that the dollar value is high enough that it makes sense to back and look at their taxes and get a refund.
Brandon: If individuals choose not to disclose this information to their employer, couldn’t they actually have their CPA make the change on their tax returns instead?
Iris: They could, but they would potentially need some information from the employer about the value of the benefits. If they are a person who has that information on hand they can work directly with their CPA, but I know that I wouldn’t have that information on file so that’s why I think we might be seeing some requests.
Brandon: Any resources that you could point listeners to? And also please give out your email address, website, and phone number, anything you want to give away.
Iris: Starting with resources, the DOL webpage on Health Care Reform, called the Affordable Care Act, continues to be a really good place to get up to date guidance. The DOL publishes frequently asked questions regularly and they also post other notices and related information to that webpage. It’s a great resource for notices and other easy to understand guidance because that’s where you’re seeing those frequently asked questions.
Brandon: You’re welcome. You have now become a regular on the show so we will have you back in the future.
Iris: Sounds good, I’m looking forward to it!
Brandon: Iris Tilley, thank you so much.
Iris: Thank you.