COVID-19: Expect New Employer Obligations

By Ann Sullivan

(Update 4/26/20: For more information, check out the DOL FAQ on these provisions here: https://www.dol.gov/agencies/whd/pandemic/ffcra-questions)

Legislation drafted in a hurry, like the Families First Coronavirus Response Act negotiated by Speaker Nancy Pelosi and Secretary of the Treasury Steven Mnuchin, can be confusing.  We are concentrating only on the employer/employee provisions in this comprehensive coronavirus response package. The President signed this bill into law on March 18.

There are two different employer requirements: emergency sick leave and emergency family leave.  Let’s talk about sick leave first.  Every employer under 500 employees is required to offer two weeks of paid sick leave to employees who are sick from the coronavirus, taking care of someone who is sick with the virus or are providing childcare due to cancelled school/daycare – without fear of losing their jobs.  Full time employees who are sick are allotted 80 hours of sick leave and part time employees/hourly workers are given the typical hours worked in a two-week period. Employers are required to pay employees their normal wages or the minimum wage at the federal/state/local level, whichever is the higher.  Employees who are taking care of others are entitled to two-thirds of their regular earnings.  As I read the current bill, these two weeks are in addition to an employer’s existing sick leave policy.  The bill allows the Secretary of Labor to issue regulations exempting businesses with fewer than 50 employees from the paid leave requirement if it would jeopardize the viability of the business. 

With respect to emergency family leave, which is an expansion of the Family and Medical Leave Act (FMLA), the bill expands FMLA availability to employers under 50 employees.  As context, the current law requires 12 weeks of FMLA for employees of companies above 50 employees.  In order to make FMLA applicable to dealing with the coronavirus, the bill expands the definition of who is eligible for FMLA by adding employees who are unable to work because they are providing childcare due to closed schools/daycare centers.  This change is effective through December 31, 2020.  Requirements for employers include paying employees two-thirds pay for a little more than 10 weeks.  The first 10 days of the 12-week period do not need to be paid.  Employers with less than 25 employees would be exempt from requirements to restore an employee's original position if it no longer exists due to changes in either economic conditions or a change in operations as a result of this public health emergency. The Labor Secretary is allowed to issue similar regulations as the family leave exemptions regarding businesses with fewer than 50 employees. In fact, DOL is looking for feedback from employers on compliance for these new rules through March 29.

So, how will this be paid for?  Employers offering this emergency sick leave and family leave will be able to get 100% payroll tax credit for these additional costs on a quarterly basis.  Employers may deduct up to $511 per day for sick employees or $200 per day for employees who are taking care of others.  The tax credit for family leave is up to $200 per day, not to exceed $10,000.  For the self-employed, these credits will be applied against the self-employment tax.  

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Employer Obligations in H.R. 6201: Families First Coronavirus Response Act

Emergency Paid Sick Leave:

• Requires private employers with fewer than 500 employees and all public employers to provide 80 hours of paid leave for full-time employees and part time employees/hourly workers are given the typical hours worked in a two-week period without fear of losing their job. 
• Reasons for this leave can be: 
• Comply with a federal, state, or local quarantine or isolation order.
• Self-quarantine per a health-care provider’s advice.
• Obtain a medical diagnosis for coronavirus.
• Care for an individual who is in quarantine or for a child whose school or day care has closed due to coronavirus.
• Bill caps per employee costs are $5,110 for an employee who is taking the leave for their own illness or $2,000 for employees caring for another individual or child.  
• Leave mandate sunsets on December 31, 2020 and commences 15 days after the bill is signed into law. 
• Allows the Secretary of Labor to issue regulations exempting businesses with fewer than 50 employees from the paid leave requirement if it would jeopardize the viability of the business.
• An employer cannot require a worker to use any other available paid leave before using the sick time or require a worker to find a replacement to cover their hours.

Emergency Paid Family Leave: 

• Requires all employers with fewer than 500 employees to provide to up to 12-weeks of job-protected leave under FMLA for employees who are unable to work or telework because they have to care for a child younger than 18 whose school or day care has closed because of the coronavirus.
• First 10 days of leave could be unpaid, though a worker could choose to use accrued vacation days, personal leave, or other available paid leave for unpaid time off.
• Following the first 10 days, workers would receive a benefit from their employers that will be at least two-thirds of their normal pay rate.
• Per employee cap on costs for the leave are set at $200 per day or $10,000 total. 
• Leave mandate sunsets on December 31, 2020 and commences 15 days after the bill is signed into law. 
• Employers with less than 25 employees would be exempt from requirements to restore an employee's original position if it no longer exists due to changes in either economic conditions or a change in operations as a result of this public health emergency.
• Allows the Secretary of Labor to issue regulations exempting businesses with fewer than 50 employees from the paid leave requirement if it would jeopardize the viability of the business. 

Employer Tax Credits:

• Employers offering this emergency sick leave and family leave will be able to get 100% payroll tax credit for these additional costs on a quarterly basis. 
• Emergency sick leave credit:
• For each employee the credit would be for wages of as much as $511 per day while the employee is receiving paid sick leave because they are quarantined, or $200 if they are caring for someone else who is quarantined or their child’s school is closed.
• Emergency family leave credit:
• As much as $200 per day while the employee is receiving paid leave, or a total of $10,000.
• The credit would be in effect for wages through the end of 2020.
• For self-employed, there is a similar credit applied against the self-employment tax.

Five Myths About Healthcare Reform

By Ann Sullivan

The collapse of the Obamacare repeal legislation in the Senate sent partisan pundits into a frenzy, but for those of us who are less interested in politics and more interested in good policy, here are five myths about health care reform worth debunking.

1.     Fixing the ACA (Obamacare) is Dead: Yes, for the time being it is, but not in the long run. If you listen to speeches delivered from Democrats and Republicans, healthcare is far too important to the public and this sector of the economy to ignore. Senator McCain and others pleaded for the Senate to go through the committee process, which includes hearings and collaboration, to pass comprehensive legislation. In Capitol Hill-speak, that process is called “regular order.” That is likely the next move for Congress.

2.     Republicans Control the Congress and the Executive Branch so Passage Should be Easy:  This oft-repeated statement assumes that all Republicans think alike. In reality, the party runs the gamut of ultra-conservative to moderate to libertarian-ish. So, it’s not surprising that when it comes to healthcare reform, the party is all over the map. Getting Republicans to agree to a bill is a tall order given these different philosophical bents in both the House and Senate.

3.     Democrats Don’t Want to Fix Obamacare: If you thought the Republicans are a disorganized bunch, take a look at the Democrats. They often pride themselves on their chaotic ways. Sure, some Democrats believe Obamacare is perfect, but the vast majority do not. In closing remarks of the Senate debate, Senator Schumer acknowledged the law needed revision, stating “it’s not perfect – let’s work together.”

4.     The Congressional Budget Office is Partisan: Since the agency’s formation in 1975, the CBO’s budget scorekeeping on major public policy proposals has been criticized by politicians when estimates didn’t agree with their positions. The head of the CBO is appointed by the party in power and its mission is nonpartisan.

5.     Reform Will Result in Reduced Premiums: Health insurance is a risk pool. Structuring the pool to include enough healthy people to subsidize the unhealthy people is a balance Obamacare was largely unsuccessful in achieving. The other side of the equation is the expense side of the delivery of healthcare—which is anything but transparent. Premiums will not come down until these two problems are resolved. Nibbling around the edges of health insurance regulations or a simple repeal will not achieve reduced premiums.  

Are Regulations Discouraging Entrepreneurship?

By: Jake Clabaugh, WIPP Government Relations

Is the federal regulatory process stacked against entrepreneurs? The Joint Economic Committee sought to answer this question during a hearing entitled “Encouraging Entrepreneurship: Building Business, Not Bureaucracy.” The Committee’s Vice-Chair, Pat Tiberi (R-OH) opened the hearing with this direct question to witnesses: Is the thicket of government bureaucracy strangling private initiative?

Before taking on the Vice-Chair’s question, the witnesses began by framing the landscape. Entrepreneurship – the birth of new firms – has been trending downward since President Jimmy Carter’s Administration in the 1970’s. Dr. Tim Kane, a Research Fellow at Stanford University’s Hoover Institution, highlighted the decline in the number of startup firms from 16% of total firms in the U.S. in 1977 to just 8% today.

Despite the decline in overall start-ups, National Women’s Business Council (NWBC) Chair Carla Harris lauded the growth in women-owned businesses. Since 2002, the number of women-owned firms has leaped from 6.5 million to 10 million. Women are creating businesses at 2 -1/2 times the national average. The progress made by women business owners provided a bright spot in otherwise gloomy testimony on the outlook for entrepreneurs.

When the witnesses were asked what regulations were causing the most headaches, the Affordable Care Act (ACA) was the most commonly cited culprit. Specifically, the ACA defines a full-time employee as an individual working thirty hours a week instead of the traditional forty. This definition determines whether a business is exempt from the employer mandate. The witnesses echoed the experiences of many WIPP members who have found the thirty-hour workweek definition detrimental.

To tackle this and other regulatory challenges, WIPP partnered with the National Association of Manufacturers, Small Business & Entrepreneurship Council and International Franchise Association to launch Rethink Red Tape.  As part of this initiative, WIPP will be calling on policymakers to produce better, fairer rules. In the opinion of the Joint Economic Committee and WIPP Members alike, regulatory reform will be a win for entrepreneurship.

Keep It Simple, Silly

By: John Stanford, WIPP Government Relations

It’s a favorite phrase of my boss – and WIPP’s Chief Advocate – Ann Sullivan. The idea is nothing new: a simple solution is usually the best. That is why, for years, women business owners used the simplest possible idea for providing health benefits – you (employee) go out and get your own insurance and I (employer) will reimburse you. Simple, right?

They are called Healthcare Reimbursement Arrangements, or HRAs, and bringing them back (for the second time) is one of WIPP’s top healthcare priorities. We are making great progress. The House Ways and Means Committee approved legislation that would allow HRAs to be used for firms with fewer than 50 employees. The House as a whole is expected to vote on the bill next week.

The bill would allow employers to reimburse employees for qualified medical expenses like premiums and out-of-pocket costs. Importantly, employers must offer it to all eligible employees and cannot offer a separate group plan. The reimbursement is capped at around $5,000 for an individual and $10,000 for families and does not count as employee income (meaning no taxes!).

Again, the idea is simple. Employers select an amount to reimburse employees, instead of locking in an insurance plan that may not fit their employees or their budget. But why did we lose HRAs in the first place? That is not so simple.

The Affordable Care Act eliminated caps on health insurance plans—an undoubtedly good thing for when disaster or disease strikes. But, in the opinion of the IRS, these HRAs, by definition, had a cap (however much the employer contributed). So they were outlawed in 2013 or 2014.

2013 or 2014 is a strange way to describe when the IRS banned a certain healthcare plan. But that is what it was – the IRS notices on the issue were so confusing they had to issue additional regulations three times. Policy wonks, insurers, and healthcare consultants were unsure – let alone business owners – about whether they were allowed. And making a mistake on this carries severe penalties; offering a non-conforming plan can trigger a penalty of $100 per day per employee –more than $350,000 a year for a company with 10 employees.

Because of this confusion WIPP stepped in asking Secretary Burwell to intervene on behalf of women business owners. She did and HRAs were allowed through June 2015. Legislation is needed to bring them back permanently and WIPP is optimistic Democrats and Republicans can work together, as they already have, to get this done. After all, ten million women business owners and their nearly ten million employees are pretty active voters.

It’s pretty simple.

More on how WIPP is working with Congress and the Administration to bring competitively-priced and accessible health options to women business owners is in our blog, Making the Affordable Care Act Work.

Common Sense Leads to Victory

By: Ann Sullivan
WIPP Works in Washington

You’ve heard the expression, “if it ain’t broke, don’t fix it.”  In Washington, that means if the private market has solutions that are working fine, government intervention will probably mess it up. 

That is precisely what happened to Health Reimbursement Arrangements/Accounts (HRAs).  Although anything healthcare-related is annoyingly complex, for simplicity’s sake, let me just explain what HRAs are.  HRAs are an easy way to offer health insurance—employees shop for their health insurance and employers reimburse them whatever portion of the premium they choose to. Employees need to show that they are paying premiums in order to get reimbursement from employers.  It’s that simple. 

This arrangement has worked for small employers for many years because of their limited access to affordable group health insurance plans.  The important part of this arrangement is the tax treatment.  Employers can deduct their payments and the benefit is pre-tax to employees.  This is the same tax treatment companies that offer health insurance through a group plan are entitled to.

Enter the IRS, the Department of Labor and the Department of Health and Human Services (HHS).  These federal agencies determined that the Affordable Care Act (ACA), also known as Obamacare, prohibited these HRAs.  According to the agencies, HRAs do not comply with changes made in the ACA.  It is their contention (and hosts of government lawyers) that these HRAs are now considered a group plan under the law and are no longer eligible for pre-tax treatment and do not comply with the ACA reforms.

In 2013, the IRS decided to begin imposing the $100/day per employee penalty to employers who continue to use this arrangement to offer health insurance to their employees.  Ouch.  With that fine looming over their heads, small employers were faced with two choices: 1) Stop reimbursing employee health insurance costs; or 2) Put in place a group plan, most likely through the small business (SHOP) exchanges. 

There are a few things wrong with this approach, beyond the obvious.  First, SHOP exchanges were just launched and are not nearly as robust or as user friendly as we hope they will become as they mature.  From personal experience, it takes patience—and assistance from a broker—to maneuver SHOP exchanges.  Second, the ultimate objective of the ACA is that everyone has access to insurance.  So, denying this arrangement results in loss of employer reimbursement, leaving employees to shop and pay for their own insurance.  Seems counter to the goals of the law, if you ask me.  Finally, many small employers had no idea of the IRS determination.

Don’t stop reading this article and throw up your hands in disgust at government.  Keep reading because there is actually good news.  Secretary Burwell, who heads up HHS, held a roundtable with 10-15 individuals who work with small business associations, of which WIPP was included.  The Secretary wanted to hear concerns from the small business community with respect to the ACA and was interested in how she could help.  WIPP raised the HRA rulings and the problems associated with the IRS determination. 

The Secretary listened carefully and then acted.  Not long after our meeting, the IRS released Notice 2015-17, delaying the steep penalties for small employers using HRAs.  The reprieve lasts until 2016, which should give Congress time to make the necessary fixes to the law to accommodate HRAs. 

Now it is up to us to seek the permanent legislative fix needed to allow small companies to offer HRAs.  A number of other associations are supportive of this common sense change.  As is the case in many laws, good solutions are not one-size fits all.  What works for large companies, doesn’t necessarily work for small companies. In the case of HRAs, small employers found an easy solution to providing health insurance to their employees.  Government should support, not discourage that method of coverage.

If it ain’t broke, don’t fix it.

  

Time To Sign Up for 2016 Health Insurance

By: John Stanford, AEO Government Relations

Beginning November 1^st 2016, the enrollment period to sign up for health insurance is open for both individuals and small businesses. In anticipation of the sign up period, AEO’s policy team has prepared this FAQ to help ensure you know what you need to know. 

What is an enrollment period?

For most individuals and businesses, health insurance can only be selected during an annual enrollment period. Lasting three months, this is a time for consumers to shop between plans and select coverage for the following year. Missing the enrollment period will mean you cannot select insurance for 2016, which comes with a hefty penalty (see below).

Throughout the year, special events like starting a business, losing/getting a job, getting married or having/adopting children, allow for special enrollment periods to select new plans.  

What are the key dates for 2016 Open Enrollment?

Here is a timeline for this year’s enrollment period (note the December 15^th deadline!):

• November 1 – enrollment begins: you can shop plans via www.healthcare.gov (you may be directed to your states marketplace)

• December 15 — Last day to enroll for January 1, 2016 coverage: This is important because if you do not have coverage of some kind on January 1, you may face a penalty

• January 31 — Individual enrollment period closes

• April 2016 – Penalties for not having health insurance in 2015 due ($395 or 2% of your income, whichever is higher)

• Throughout 2016: Small businesses may sign up for insurance through small business (SHOP) marketplaces

What are the penalties for not having health insurance insurance? When would I pay them?

There are two sets of penalties relating to health insurance. Penalties faced by all of us as individuals, and penalties employers may face.

In 2016, the penalty for not having individual insurance is $695 or 2.5% of your income – whichever is higher. This is an increase from 2015.

For employers, there are two types of penalties, but only if you have 50+ employees. Again, there are no penalties for businesses with less than 50 employees for not offering health insurance. For more than 50 employee-sized companies, penalties will be assessed for not offering coverage or offering coverage that is deemed unaffordable. More on employer penalties is available here.

Penalties are paid on tax returns the following year – failure to get coverage in 2016 would be paid in April 2017.

Are more people really signing up for insurance?

AEO was recently at the White House to discuss the upcoming enrollment period. At the meeting, the Administration shared the latest numbers on the impact of the Affordable Care Act up until now:

• Since 2013, 17.6 million Americans have gained insurance, reducing the uninsured rate by 39%
• 29 states (including DC) have expanded Medicaid

Enrollees, however, will now be tougher to find and engage. Of the remaining uninsured, 50% are between 18-34 years of age and 40% fall between 139-250% of the poverty level (up to roughly $60,000 a year for a family of 4).

Does that mean healthcare costs are going down? It certainly does not feel that way.

Healthcare costs are going up. In the years leading up to the Affordable Care Act (ACA), healthcare spending (not premiums specifically, but all health dollars) was increasing by 10-20% each year. This was a byproduct of the high cost of the uninsured, an aging population, and system inefficiencies. It was generally agreed by economists that reform was necessary to address overall healthcare costs.

The ACA sought to solve this by expanding the insured market. The theory was that the high cost of the uninsured would be reined in because insurers generally achieve better pricing for services and prescription medicines.

Among other things, the ACA eliminated insurers’ ability to charge differently for pre-existing conditions and removed lifetime caps on coverage. It also had two mandates to achieve increased coverage: individual – requiring everyone have insurance of some kind; and employer — requiring larger employers (more than 50 employees) offer insurance of some kind to their employees. Both mandates have penalties for failure to comply (see above).

But Premiums Keep Going Up. Why is that?

Now, we have an insured pool that is sicker and costlier than before. This drives the average cost of insurance, and by extension, premiums up. Health insurers are still unsure just how sick these people are and what it will cost. So we can expect to see major fluctuations as insurers get more data on the pools they are covering.

For small businesses shopping in the small business marketplace, the pool remains one of the smallest segments of the health insurance market. This means that prices for America’s entrepreneurs are the most likely to face sharp increases.