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Kicking the Can Down the Road: Transition Policy for Canceled Health Plans Extended

The Affordable Care Act (ACA) includes key reforms that create new coverage standards for health insurance policies, beginning in 2014. For example, effective for 2014 plan years, the ACA imposes modified community rating standards and requires individual and small group policies to cover a comprehensive set of benefits.

Millions of Americans received notices in late 2013 informing them that their health insurance plans were being canceled because they did not comply with the ACA’s reforms. President Obama was criticized that these cancelations went against his assurances that if consumers had a plan that they liked, they could keep it.

Responding to pressure from consumers and Congress, on Nov. 14, 2013, President Obama announced a transition relief policy for 2014 for non-grandfathered coverage in the small group and individual health insurance markets. If permitted by their states, the transition policy gives health insurance issuers the option of renewing current policies for current enrollees without adopting all of the ACA’s market reforms for 2014.

On March 5, 2014, the Department of Health and Human Services (HHS) extended the transition relief policy for two years to policy years beginning on or before Oct. 1, 2016.  Thus, individuals and small businesses may be able to keep their non-ACA compliant coverage into 2017, depending on the plan or policy year.

Transition Relief Policy

HHS outlined the original transition relief policy in a letter to state insurance commissioners. Under the original transitional policy, health insurance coverage in the individual or small group market that is renewed for a policy year starting between Jan. 1, 2014, and Oct. 1, 2014 (and associated group health plans of small businesses), will not be considered to be out of compliance with specified ACA reforms.

Also, to qualify for the transition relief, issuers must send a notice to all individuals and small businesses that received a cancelation or termination notice with respect to the coverage (or to all individuals and small businesses that would otherwise receive a cancelation or termination notice with respect to the coverage).

 

The transition relief only applies with respect to individuals and small businesses with coverage that was in effect on Oct. 1, 2013. It does not apply with respect to individuals and small businesses that obtain new coverage after Oct. 1, 2013. All new plans must comply with the full set of ACA reforms.

Two-year Extension

Under the transition relief extension, at the option of the states, issuers that have issued or will issue a policy under the transitional relief in 2014 may renew these policies at any time through Oct. 1, 2016, and affected individuals and small businesses may choose to re-enroll in the coverage through Oct. 1, 2016. Policies that are renewed under the extended transition relief will not be considered to be out of compliance with specified ACA reforms.

According to HHS, the extension will ensure that consumers have multiple health insurance coverage options, and that states continue to have flexibility in their markets. Also, some commentators have suggested that the extension was issued to avoid a new round of policy cancellations that would occur shortly before the November 2014 elections.

Transition relief also applies to large employers that currently purchase insurance in the large group market but that, as of Jan. 1, 2016, will be redefined by the ACA as small employers purchasing insurance in the small group market. At the option of the states and health insurance issuers, these large employers will have the option of renewing their current policies through policy years beginning on or before Oct. 1, 2016, without their policies being considered to be out of compliance with the specified ACA reforms that apply to the small group market but not to the large group market.

Also, like the original transition relief, issuers that renew coverage under the extended transition relief must, for each policy year, provide a notice to affected individuals and small businesses.

HHS will consider the impact of the two-year extension and assess whether an additional one-year extension is appropriate.

Specified ACA Reforms

The specified ACA reforms subject to the transition relief are the following reforms that take effect for plan years starting on or after Jan. 1, 2014:

  • Modified community premium rating standards;
  • Guaranteed availability and renewability of coverage;
  • Prohibition of pre-existing condition exclusions or other discrimination based on health status, except with respect to group coverage;
  • Nondiscrimination in health care;
  • Coverage for clinical trial participants; and
  • Coverage of the essential health benefits package.

Notice Requirement

The notice to individuals and small businesses must inform consumers of their options and the protections that are available in other plans. HHS’ guidance from March 5, 2014, includes standard notices that issuers are required to use in order to satisfy the notice requirement.

State Decisions

Because the insurance market is primarily regulated at the state level, state governors or insurance commissioners have to allow for the transition relief in their state.

A number of states decided against permitting insurers to use the original transition policy, including California, Connecticut, Washington, Minnesota, New York, Indiana, Vermont and Rhode Island. Some states, such as Maryland, are allowing renewals with specific provisions.

HHS’s guidance on the transition relief extension outlines the following different options for how states may adopt the transition relief.

  • States that did not adopt the original transition relief and that regulate issuers whose 2013 policies renew anytime between March 5, 2014, and Dec. 31, 2014, including any policies that they allowed to be renewed early in late 2013, may choose to implement the transitional policy for any remaining portion of the 2014 policy year (that is, the transition policy could apply to early renewals from late 2013).
  • States can elect to extend the transitional policy for a shorter period than through Oct. 1, 2016, but may not extend it to policy years beginning after Oct. 1, 2016.
  • States may choose to adopt both the original transitional policy as well as the extended transitional policy through Oct. 1, 2016, or adopt one but not the other, in the following manner:
    • For both the individual and the small group markets;
      • For the individual market only; or
      • For the small group market only.
      • States may choose to adopt the transitional relief policy only for large employers that currently purchase insurance in the large group market but that, for policy years beginning on or after Jan. 1, 2016, will be redefined as small employers purchasing insurance in the small group market.

As always, contact us with any questions!

Telecommuting: A Driver or a Drain on Productivity

Telecommuting is the term for working from a remote location, usually an employee’s residence. Workers are connected to employers and company servers via the Internet and are able to communicate regularly in real time using email, instant messaging, webcams and conference calls. Telecommuting can range from working exclusively from a home office to only working at home a few hours every week.

History and Prevalence

The term “telecommuting” was coined in the early 1970s by a University of Southern California professor researching communication and transportation. Companies and government offices began seriously promoting the idea later that decade during the energy crisis.

Technological innovation allowed telecommuting to increase over the next three decades. By 2011, data collected by the U.S. Bureau of Labor statistics showed that 24 percent of employed Americans work from home on a weekly basis. Another survey by Global Workplace Analytics showed that the rate of telecommuting had increased 73 percent since 2005, and that 2.5 percent of the non-self-employed workforce (roughly 3 million people) primarily works from home.

 But while the overall usage of telecommuting has steadily increased, many companies have chosen not to adopt it, and some have chosen to push back. In 2013, Yahoo! CEO Marissa Mayer prohibited telecommuting in her offices, where it had been established company policy. Yahoo’s shift in policy highlighted some of the downfalls of this way of conducting business.

 Pro and Cons

Telecommuting brings advantages and disadvantages to the way companies do business. Here’s a look at some of them. 

Pro: Increased productivity. While it’s easy to imagine workers shirking their duties at home more readily than in the office, numerous studies show that workers who telecommute are 15 to 55 percent more productive. Two-thirds of employers report increased productivity among their telecommuters.

 Additionally, AT&T reports that employees work an extra five hours per week when telecommuting versus when they are at the office, and Sun Microsystems data shows that employees spend 60 percent of the time they would have used commuting working for the company.

 Pro: Fewer costs. Over half of all employers reported cost savings as a significant benefit to telecommuting. By allowing workers to telecommute, companies reported big savings on real estate, absenteeism and relocation costs. In many areas there are also grants and other financial incentives for companies that offer telecommuting.

Pro: Increased employer flexibility. Telecommuting gives employers the option to hire from across the country without worrying about relocating workers to a central location. Employers can also more readily hire part-time, semi-retired, disabled or homebound workers.

Pro: Healthier employees. Telecommuting relieves the stress caused by commuting and other issues related to the workplace or being away from home. Telecommuters eat healthier and exercise more than their office-bound counterparts, and are less likely to get sick from contagious germs.

Con: Disengagement. Many employers say that telecommuting interferes negatively with the relationship between workers and management, and can foster jealousy and rivalries between telecommuters and non-telecommuters.  Staying connected and supervising employees who work from home can also be a challenge for managers.

 Con: Lack of collaboration. Innovation can be stifled when workers are not physically interacting with each other. This is the main reason cited by Mayer for the discontinuation of Yahoo’s telecommuting policy.

 Con: Technology and security concerns. Not all employees are tech-savvy, and there can be problems trying to remotely access an office network or set up remote meetings. Sensitive company information carries the potential for greater risk of being compromised through unsecure home computers. Additionally, 59 percent of telecommuters do not use their company’s data backup system, risking the loss of hard work and valuable information.

Con: Wasted downtime. Capitalizing on lulls in job tasks between big projects is more difficult to manage when an employee is working from home than when he or she is in the office.

 Legal Issues

In addition to the strengths and weaknesses of telecommuting, employers must recognize legal issues associated with it before deciding it is right for them. The following are legal issues that may need to be addressed.

Property. Make sure you have a clearly stated company policy for employees who are issued company electronics that addresses what to do in the event they are lost, damaged or stolen. Consider insuring more expensive items.

One way to handle company property issues is to have a written policy in place. If you are issuing electronics to your employees, have them sign something that acknowledges their receipt of the equipment, and indicates who is responsible for maintenance and damages.

Privacy. Employees should be made aware of their privacy rights when working from home. Just because work is being performed on a home computer doesn’t mean that it’s exempt from being monitored or inspected by the employer. Though the location may be personal, employees are still acting under the scope of employment.

Security and confidentially. Security concerns arise with workers accessing company information from their home computers. One way to guard against intentional leaking is to require that telecommuters sign a nondisclosure agreement. Have your company outline security measures employees should follow to protect information on their computer from exposure to external forces.

Payroll records and compensation.

Telecommuting presents difficulties for employers in complying with hourly recordkeeping regulations. Employers with telecommuters should set up a way to track those hours and ensure their accuracy.

Similarly, federal rules on overtime and rest and meal breaks apply to telecommuters as much as they do to employees in the workplace. This makes an employer’s obligation to track employee hours especially important.

Employer liability. What happens if an employee slips and falls at home, while on the clock? Or what if an employee commits a crime in the scope of his or her employment while telecommuting? What about workers’ compensation?

Employer liability remains a considerable concern for telecommuting employees. For starters, you should have a specific policy in place to address work-related injuries or torts that occur at a telecommuting employee’s home office.

Telecommuting is not the right fit for every company, but it has a decades-old record of being positive for many organizations. As the business world becomes more ensconced online than ever before, and a younger, more Internet-connected generation moves up the ranks of the workforce, telecommuting may become far more common than it is today. At the same time, there may never be a proper substitute for a centrally located office and face-to-face meetings.

Before your company decides to embrace telecommuting in the future, you must carefully weigh the risks and benefits of instituting a telecommuting policy to ensure it will be an asset to your organization.

 

Affordable Anxiety and Controlled Groups: You Can Run, but You Can’t Hide

Part 2: Brother-Sister Groups and Constructive Ownership

By William Johnson- President and CEO

CIBC of Illinois, Inc.

www.cibcinc.com

In the first part of this series, we discussed how a parent-subsidiary controlled group was being defined by The Affordable Care Act and the IRS. Basically, this type of controlled group exists when a parent organization has a controlling interest in each of the chain organizations it owns. Also, it exists when a common parent organization holds controlling interest in at least one of the organizations in the chain or companies.

I have had business owners who hold multiple businesses and operate them independently come to me and ask if their collective number of employees from all businesses would put them into the pay or play processes of the Shared Responsibility part of the ACA. They wonder if putting the businesses in family member’s hands would help mitigate their exposure or if they will have to pay or play regardless of how they shift around their ownership.  “Can I give my wife 20%, and my kids 5%, and then set up a trust to control x%.” Believe me, business owners are savvy and will look to control costs where necessary. Most would gladly provide benefits if it were within the scope of a sound business decision. For many, however, the profits margins are slim, especially considering the ‘affordability’ portion of the ACA.

So let’s l;ook at the Brother/Sister Controlled Group scenario, and how it is defined by the IRS.

Brother-Sister Controlled Group

A brother-sister controlled group exists when five or fewer individuals, estates or trusts own a controlling interest (80 percent or more) in each organization and have effective control. “Effective control” generally means more than 50 percent of the organization’s stock or profits, but only to the extent the ownership is identical with respect to each such organization.

Here’s an Example –

Family Corporation and Cousins Corporation are owned by four shareholders in the following percentages:

Shareholder

Family Corporation

Cousins Corporation

1

80%

20%

2

10%

50%

3

5%

15%

4

5%

15%

TOTAL

100%

100%

In this example, the four shareholders together own 80 percent or more of the stock of each corporation. However, under the second component, the shareholders do not own more than 50 percent of the stock of each corporation, taking into account only the identical ownership in each corporation as demonstrated below:

Shareholder

Identical Ownership in Both Corporations

1

20%

2

10%

3

5%

4

5%

TOTAL

40%

So, as it is laid out in the graph above, there is no Brother-Sister controlled group scenario and the owner is NOT subject to the pay or play mandate (unless other ACA criterion apply). 

Combined Controlled Group

A combined controlled group exists when:

  • Each organization is a member of either a parent-subsidiary or brother-sister controlled group; and
  • At least one organization is the common parent organization of a parent-subsidiary controlled group and is also a member of a brother-sister controlled group.

For Example

Joe Owner is an individual owning 80 percent of the profits in Parrott Co. and 90 percent of the stock in Sassy Corporation. Parrott Co. owns 85 percent of the stock of Stark Corporation.

 Image

It is important to note that Constructive ownership principles apply to the controlled group rules that treat an individual as owning an interest in an organization based on a family or business relationship.

For example, an individual will be considered to own an interest, owned directly or indirectly, by his or her children under age 21 or by his or her spouse, unless legally separated or divorced. An exception applies if there is no direct ownership, no participation in the organization (for example, as a director, officer or employee) and if no more than 50 percent of the organization’s gross income is from passive investments.

In addition, an interest owned by or for a partnership, corporation or trust is treated as owned by any individual having an interest of five percent or more in the organization, in proportion to the individual’s interest in the organization. For example, if an individual owns 60 percent of the stock of Hello Corporation, and Goodbye Corporation owns 50 shares of Hey Now Corporation, the individual is considered to own 30 shares of Hey Now Corporation (60 percent x 50).

Next week we will get into a common type of controlled group, the ASO (Affiliated Service Organization). Doctors, lawyers, accountants, and PEO’s should take special note of this area of the ACA.

This article is intended for informational purposes only and should not be construed as legal advice. Please consult with a legal professional for legal opinions.

 To get more information on CIBC of Illinois, visit us at www.CIBCINC.Com or call toll free 877-936-3580.

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