Meeting Date: September 16, 2014
Agenda Item #4. Adopt Resolution No. 2014-___, Adopting Safe Harbor under the Patient Protection and Affordability Care Act.
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AGENDA ITEM: Adopt Resolution No. 2014-_, Adopting Safe Harbors under the Patient Protection and Affordability Care Act.
MEETING DATE: September 16, 2014
PREPARED BY: Danna Rasmussen, Sr. Administrative Analyst/Confidential
REVIEWED BY: Jose Antonio Ramirez, City Manager
Adopt Resolution No. 2014-_, Adopting Safe Harbors under the Patient Protection and Affordability Care Act.
BACKGROUND AND DISCUSSION:
The Patient Protection and Affordable Care Act ("ACA") was enacted on March 23, 2010. ACA adds new requirements for large employers, including the employer shared responsibility provisions and annual reporting requirements. ACA establishes rules for determining whether an employer is considered a "large employer." ACA’s shared responsibility provisions allow the Internal Revenue Service (IRS) to impose penalties on a large employer that fails to offer affordable health insurance coverage to substantially all "full-time" employees (and eligible dependents). IRS regulations provide safe harbors to determine which employees are considered full-time under the ACA, as well as to assess the affordability of employer sponsored health coverage.
Under ACA, a large employer (at least 50 "full-time" employees, including "full-time" equivalents) must offer affordable health coverage to substantially all of its "full-time" employees beginning January 1, 2015, or face potential penalties. The City of Livingston is considered a large employer because it employed an average of at least 50 "full-time employees" (including "full-time" equivalents) on business days during the preceding calendar year.
Beginning in 2016, large employers must also report data for the prior calendar year to the IRS identifying their full-time employees and the coverage offered to those employees. The City will need to report 2015 data to the IRS on or before February 28, 2016 (March 31 if filed electronically).
The City has potential exposure to penalties when a "full-time" employee, as that term is defined by ACA, purchases health coverage through Covered California, California’s exchange, and receives a subsidy. ACA defines a "full-time" employee as one who averages 30 or more hours of service per week in any given month. The IRS may assess a monthly penalty under the following two circumstances:
1) The City fails to offer substantially all (defined as 95%, or 70% during 2015 only) of its full time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan; or
2) The City offers substantially all of its full-time employees (and their dependents) the opportunity to enroll, but the employee’s self-only coverage offered is unaffordable relative to an employee’s household income or does not provide minimum value.
In lieu of monthly measuring to identify "full-time" employees, the IRS allows employers to adopt a "Look Back Measurement Method Safe Harbor." Under this Safe Harbor, the City looks back at a defined period of time (e.g., 12 months) to determine each employee’s hours of service over that entire period (i.e. measurement period), rather than calculating hours on a monthly basis. The City must meet specific legal restrictions relating to the timing and length of the periods that must be established under the Look Back Safe Harbor. If an employee averages at least 30 hours of service per week over the measurement period, that employee will be reported to the IRS as full time during a subsequent period of time called a "stability period." Likewise, if an employee does not average at least 30 hours of service per week over the entire measurement period, the employee will not be reported to the IRS as full-time during a subsequent stability period.
If the City does not adopt the Look Back Safe Harbor, then the IRS will impose a monthly hours of service calculation method to determine the identity of the City’s full-time employees. This means that if a seasonal employee averages 30 or more hours of service in any given month, the employee will be considered full-time. With the adoption of the Look Back Safe Harbor, a seasonal employee’s hours of service are averaged over 12 months and the City will not be subject to a potential penalty during a single month where a seasonal employee averages 30 or more hours of service per week.
The IRS also allows employers such as the City to adopt Affordability Safe Harbors to determine the affordability of the minimum value coverage that the City may, if applicable, offer to its full-time employees.
Staff recommends that the City Council adopt the Safe Harbors pursuant to the attached Resolution and delegate authority to the City Manager, or his/her designee, to implement and amend an Administrative Policy that will describe the operation of these Safe Harbors in compliance with ACA. The City Council should be aware that the Departments of Treasury, Labor, and Health and Human Services continue to issue new regulations and guidance interpreting and applying ACA. ACA continues to evolve with new legal interpretations and may change with the release of new regulations and guidance.
Adoption of the Safe Harbors provides the City with flexibility to designate specified measurement periods (up to 12 months) to determine whether a worker is full-time under ACA, as well as to assess the affordability of the City’s coverage under ACA.
Under ACA, a large employer must offer affordable health coverage (that provides minimum value) to substantially all of its full-time employees, and must offer coverage to eligible dependent children, or face potential penalties. Two potential penalties may apply:
(1) A "No-Coverage" Penalty: large employers failing to offer health insurance to at least 95% (70% in 2015) of their full-time employees (and eligible dependent children) during each calendar month may be assessed a penalty of $166.67/month (or $2,000/year) multiplied by the number of full-time employees, less 30 (80 in 2015).
(2) An "Unaffordability" Penalty: If coverage is unaffordable as defined by the ACA, a large employer may be assessed $250/month (or $3,000/year) multiplied by the number of full-time employees that enroll in coverage through Covered California and receive a subsidy.
The penalties may be adjusted each year, and are likely to grow with the increase of insurance costs.
Resolution 2014- _, A Resolution of the City Council of the City of Livingston adopting Safe Harbors under the Patient Protection and Affordability Care Act.
RESOLUTION NO. 2014-
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LIVINGSTON ADOPTING SAFE HARBORS UNDER THE PATIENT PROTECTION AND AFFORDABILITY CARE ACT
WHEREAS, The Patient Protection and Affordable Care Act ("ACA") was enacted on March 23, 2010; and
WHEREAS, ACA added Section 4980H – Shared Responsibility for Employers Regarding Health Care Coverage (Section 4980H) and Section 6056 – Certain Employers Required to Report on Health Insurance Coverage (Section 6056) to Title 26 of the United States Code, the Internal Revenue Code; and
WHEREAS, Section 4980H imposes an assessable payment on an applicable large employer when (1) it fails to offer "substantially all" of its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage or offers coverage to "substantially all" of its full-time employees (and their dependents), but that coverage is either "unaffordable" or does not provide "minimum value" and (2) any full-time employee is certified to the employer as having received a subsidy for coverage through the exchange ("Assessable Payment"); and
WHEREAS, Section 6056 requires an applicable large employer to file with the Internal Revenue Service an annual return for each full-time employee; and
WHEREAS, the City of Livingston ("City") is considered an applicable large employer because it employed an average of at least 50 full-time employees (including full-time equivalents) on business days during the preceding calendar year; and
WHEREAS, the Department of Treasury issued Final Regulations regarding Section 4980H that permit the City to adopt the Look Back Measurement Method Safe Harbor in order to determine the status of an employee as "full-time" for purposes of reporting and calculating the Assessable Payment, if any (79 Federal Register 8544, 8586, February 12, 2014); and
WHEREAS, the City intends to adopt the provisions of the Look Back Measurement Method Safe Harbor in order to determine the full-time status of its employees for reporting purposes and for purposes of the Assessable Payment; and
WHEREAS, the Department of Treasury issued Final Regulations regarding Section 4980H that permit the City to use one of three Affordability Safe Harbors for any reasonable category of employees as long as it is applied on a uniform and consistent basis for all employees in the category (79 Federal Register 8544, 8599-8601, February 12, 2014); and
WHEREAS, the City intends to use the Affordability Safe Harbors as contemplated in the final regulations; and
WHEREAS, the City expects that further guidance and regulations may be issued regarding ACA, which may modify the City’s obligations; and
WHEREAS, the City intends to use good faith efforts to comply with the current legal requirements of ACA and any future modifications.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Livingston as follows:
The City hereby establishes the Look Back Measurement Method Safe Harbor with regard to all employees for the purpose of identifying full-time employees for calculation of the Assessable Payment and for IRS reporting purposes.
The City does not establish the Look Back Measurement Method Safe Harbor for the purpose of determining eligibility for an offer of medical coverage as to any employee. All represented employees’ eligibility for an offer of medical coverage shall be governed by the terms of any applicable memorandum of understanding.
The City hereby delegates authority to the City Manager, including his/her designee(s), to create an ACA Administrative Policy that establishes measurement, administrative and stability periods, governs the measurement and tracking of employee hours of service, and/or otherwise establishes procedures in accordance with Section 4980H to comply with the Look Back Measurement Method Safe Harbor.
For each reasonable category of employees, the City, in its sole discretion, but on a uniform and consistent basis for all of the employees in a reasonable category, will apply one of the three Affordability Safe Harbors (i.e. Form W-2 Safe Harbor, Rate of Pay Safe Harbor, or Federal Poverty Line Safe Harbor) to determine the affordability of the minimum value coverage that it offers its full-time employees.
The City hereby delegates authority to the City Manager, including his/her designee(s), to establish the Administrative Policy to comply with any of the three Affordability Safe Harbors in accordance with and as permitted by Section 4980H.
The City Manager, including his/her designee(s), shall have authority to modify the Administrative Policy, subject to prior City Attorney legal review and approval, to ensure the City’s compliance with Sections 4980H and 6056 of the Internal Revenue Code.
The City Clerk shall certify to the passage and adoption of this resolution and enter it into the book of original resolutions.
Passed and adopted this 16th day of September 2014, by the following vote:
Mayor of the City of Livingston
I, hereby certify, that the foregoing resolution was regularly introduced, passed and adopted at a regular meeting of the City Council of the City of Livingston this 16th day of September 2014.
Deputy City Clerk of the City of Livingston