1 understanding the affordable care act fata annual conference presented: june 11, 2013 scott wagner...
TRANSCRIPT
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Understanding the Affordable Care Act
FATA Annual Conference
Presented: June 11, 2013
Scott Wagner
FordHarrison LLP
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• Employer and Individual Mandates– Overview of the rules
– Compliance Challenges and Strategies
• Additional Coverage and Plan Design Rules
Overview
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Recent Regulations and Guidance
• Summary of Benefits Coverage template modified• Exchanges – Delay of full implementation of SHOP• Employer Shared Responsibility Provisions• Counting Hours and determining Full-Time employees • Individual Mandate and Minimum Essential Coverage• Reporting of Information to Exchanges• 90 day waiting period• Whistleblower protection• Notice of Coverage Options about the Exchanges• Final Wellness Program Rules
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Individual’s Obligation
• Individual must obtain coverage througho Medicare, including Medicare Advantage;o Medicaid, CHIP, TRICARE;o Exchanges: Individual or Small Group (up to 100);o Employer Sponsored Coverage (essentially anything other
than HIPAA excepted benefits – dental, vision, health FSA); or
o Pay a penalty
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Individual Play or Pay Mandates
• Applicable individuals must ensure minimum essential coverage for self and any dependents each month beginning 1/1/2014
• Failure to maintain coverage results in monthly penalty calculated as 1/12th of the greater of:
Tax Year
% of income Dollar Amount Single
Dollar Amount Family
2014 1% $95 $2852015 2% $325 $9752016 2.5% $695 $2,085
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Individual Play or Pay Mandate• Exceptions to the requirement include the following:
o persons who are not a US Citizen or legal residento those for whom coverage is unaffordable (contributions exceed 8%
household income)o those below 100% of federal poverty levelo incarcerated individualso those with a hardship waivero persons who claim a religious exemptiono individuals without coverage for less than 3 months during the year incur no
penalty
Source: Kaiser Family Foundation
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Large Employer’s Obligation• Employers with 50 or more full-time equivalents for prior calendar year must
offer certain health care coverage or pay a penaltyo All common law employees (full-time and part-time) in the control group
are counted to determine if reach 50 thresholdo Must aggregate hours of part-time employees to create total number
of full-time employeeso Exclude the following from the count:
• leased employees (Caution)• partners • sole proprietors• more than 2% shareholders in subchapter S corporation • independent contractors (Caution)
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Large Employer’s Obligation
• If reach 50 threshold, there are two potential penalties:
– No Coverage Penalty - coverage only required to be offered for full-time employees (average 30 hours a week or 130 hours a month). This is the “Pay” Penalty.
– Unaffordable Coverage Penalty – Employer must pay for 60% of benefit costs (provide minimum value), and coverage must be affordable – not exceed 9.5% of household income. This is the “Play” penalty.
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Counting for Large Employer Determination
• Determine common law full-time employees (avg. 30 hours week/130 month) in control group for each month in the preceding calendar year
• Add the hours worked by each part-time employee in the month (do not count more than 120 hours for any one part-time employee, then divide by 120 to determine the number of full-time equivalent employees for the month
• Add monthly totals of FT and PT and divide by 12. (Round any fraction down)
• If result is 50 or more, all employers in control group are subject to “Pay or Play” mandate.
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Seasonal Employees For purposes of determining large employer status
• Seasonal employee performs labor on a seasonal basis, as determined by employer in good faith (e.g. retail employees during holiday season)
• If full-time employees and full-time equivalent employees exceed 50 for only 120 days (or 4 months) or less during prior calendar year, and
• Seasonal employees caused control group employees to exceed 50 threshold,
• Then you can exclude those seasonal employees.
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Transitional Measurement Rule for 2013
• Normally, look to all 12 months of the previous year.
• For 2013 Only - Employers can determine the number of employees over any 6 consecutive month period in 2013.
• July 1, 2013
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If Large Employer Mandate Applies
• No Coverage Penalty – Must offer “minimum essential coverage” to at least 95% of full-time employees and their dependents (children up to age 26).
• Do not have to offer or provide coverage to spouses.
• Do not have to offer or provide coverage for part-time employees.
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No Coverage Penalty
• Penalty applies if no coverage is offered, ando at least 1 full-time employee enrolls in an Exchange plan, ando That employee is eligible for tax subsidy
• Monthly penalty = $166.67 x number of full-time employees (excluding first 30 employees) ($2,000 annually per employee)
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Control Group Rules & The No Coverage Penalty
• Penalties do not apply to entities within control group• Penalties apply on individual employer basis (separate EIN)• 30 employee deduction for No Coverage Penalty is allocated per
rata among the control group based on how many employees in each entity
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No Coverage Penalty Example
• Employer with 1,030 full-time employees in 2 divisions (single EIN), 800 FT in one division which offers coverage and 230 FT in another division that does not offer coverage.
• Penalty would be $2,000 x (1,030-30)) equals $2 million.
• But - If 230 employees with no coverage are in a separate entity, the penalty would be based on 223 employees (230 – 7 (22.3% of 30).
• Penalty would be 223 FT x $2,000 equals $446,000.
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Unaffordable Coverage Penalty
• Employers with 50 or more full-time employees who only provide “unaffordable” coverage or not “minimal value coverage” to full-time employees are assessed a penalty
• Penalty applies if coverage iso Unaffordable: Employee premium above 9.5% of household
income, and o Does not Provide Minimum Value: employer pays less than 60%,
ando At least one full-time employee declines employer coverage,
enrolls in Exchange plan, and is eligible for a tax subsidy
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Determining Minimum Value
• Plan fails to provide minimum value if the plan’s share of total allowed costs of benefits provided under the plan is less than 60% of such costs. (Actuarial value of at least 60%)
• Minimum value only applies to employee-only coverage. (Can offer unsubsidized coverage for children).
• Minimum value coverage does not have to include Essential Health Benefits in all 10 categories for self-funded or large insured plans.
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Determining Minimum Value
• Four categories of benefits and services are greatest contributors to actuarial value:o Physician and mid-level practitioner care;o Hospital and emergency room services;o Pharmacy benefits;o Laboratory and imaging services.o Other services have limited impact on actuarial value (such
as rehabilitative services, durable medical equipment, acupuncture, chiropractic services, and home health services).
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Determining Minimum Value
• Minimum value can be determined under one of three methods:o A minimum value calculator;o A safe harbor checklist; oro An actuarial certification.o Employer contributions to a HSA or new amounts to a HRA
will be taken into account to determine minimum value.
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Affordability Safe Harbors
• 3 methods to determine affordability of employee only coverage:o W-2: wages reflected in Box 1 of Form w-2 (not include pre-
tax contributions).o Rate of Pay: employee only premium is equal to 1560 hours
(130 hours for 12 months) multiplied by the employee’s hourly rate of pay as of the first day of the plan year.
o Poverty Line: 9.5% of the federal poverty level for a single individual on the first day of the plan year. For 2013, federal poverty level for a single individual is $11,490 (and $23,550 for family of 4).
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Unaffordable Coverage Penalty
• Penalty: $250 monthly ($3,000 annually) x number of full-time affected employees.
• Affected Employees are those who did not receive affordable coverage that provides minimum value and who enrolled in coverage at a health insurance exchange and qualified for a subsidy.
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Unaffordable Penalty Example
Employer offers coverage to all 130 full-time employees.
• Coverage is unaffordable for 40 full-time employees
• These 40 full-time employees get tax credits to buy coverage in the exchange.
• Employer must pay $120,000 (lesser of the two penalty calculations):o $3,000 x 40 FT employees receiving tax credit =
$120,000; ORo $2,000 x (130-30): 100 FT employees = $200,000.
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2014 Transitional Rules for Non-Calendar Year Plans - Option 1 -
• No penalty starting 1/1/2014 if:o Fail to offer minimum value and affordable coverage to FT
employees prior to 1st day of 2014 plan year as long as employees receive an offer of coverage by the 1st day of the plan year under the plan’s eligibility rules in effect as of 12/27/12.
o Not helpful if do not offer any coverage to some FT employees because not all FTEs will be eligible for coverage under existing eligibility provisions.
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• No penalty starting 1/1/2014 if:o An employer at the end of open enrollment immediately
preceding 12/27/12, covered at least 1/4 of their employees, OR
o Offered coverage to at least 1/3 of their employees, ANDo The employer offers coverage to those FT employees by 1st
day of 2014 plan year.
2014 Transitional Rules for Non-Calendar Year Plans - Option 2 -
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• Amend cafeteria plan rules to allow employees to enroll and obtain coverage mid-year with no change in status if:o Employee is not covered under health plan and wishes to
enroll beginning after December 3, 2013 to avoid the individual penalty, and
o Employee did not make a salary reduction election through the cafeteria plan prior to the beginning of the 2013 plan year, then
o Employee can make a prospective salary reduction election for health coverage on or after first day of 2013 plan year.
2014 Transitional Rules for Non-Calendar Year Plans - Option 3 -
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Full Time Employee Determination versus
Seasonal / Variable Hour Employee Determination
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Full- or Part-time status is unknown
Employee is hired
Is employee expected to be full-time?
Use Measurement Period – Measure actual hours worked for set period (3-12 months)
Offer coverage to employee within 90
days of hire
Employee considered eligible for full-time coverage
Assumes that the employee is “otherwise eligible” at hire date.
Yes
Employee averages
30+ hrs/week
Must Use Stability Period - Effective date of coverage (6-12 months – same as measurement period)
Yes
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Standard Measuring PeriodStandard Measuring Period Standard Stability PeriodStandard Stability Period
Standard Measuring PeriodStandard Measuring Period Standard Stability PeriodStandard Stability Period
Initial Measuring PeriodInitial Measuring Period Initial Stability PeriodInitial Stability Period
June 15, 2013
July 1, 2013
June 30,
2014
Nov. 1, 2013
Oct 31,
2014
Aug. 1, 2014
Oct. 31, 2014
Dec. 31, 2014
Jan. 1, 2015
Dec. 31, 2015
Nov. 1, 2014
Oct. 31, 2015
Jan. 1, 2016
Dec. 31, 2016
Jul. 31, 2015
Initial Administrative Periods: 1)Start date until first of month following2)One month after Initial Measurement Period
Initial Measurement Period:12 months beginning first of month following date of hire
Initial Stability Period:12 months but ends on October 31 since Standard Measurement Period begins on November 1
Standard Measurement Period:12 months; Nov. 1–Oct. 31 each year for all employees
Standard Administrative Period:Two months after Standard Measurement Period
Standard Stability Period:12 months; Jan. 1–Dec. 31 each year for all employees
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Variable Hour Employee
• A new employee is a variable hour employee if it cannot be determined that the employee is reasonably expected to work on average at least 30 hours per week.
• Average the hours worked by seasonal and variable employees over a measurement period of up to 12 months to determine who averaged at least 30 hours per week and qualifies as a FT.
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• The plan may take a reasonable period of time (from 3 to 12 months) to determine whether the employee meets the plan's eligibility condition.o Allows employers to use look-back measurement periods, followed by stability
periods, as the main building blocks of Full-Time Employee determinations for new seasonal and variable hour employees
• Measurement period = determine employees who average at least 30 hours per week (can use non-calendar months)
• Administrative period = determine eligibility for up to 90 days
• Stability period = offer coverage for calendar year months for no less than 6 months
• Initial periods for New Employees
• Standard periods for Ongoing Employees
Measurement Period
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• Employers may use measurement periods and stability periods that differ either in length or in their starting and ending dates for the following categories of employees: o (1) collectively bargained employees and non-collectively
bargained employees; o (2) salaried employees and hourly employees; o (3) employees of different entities; and o (4) employees located in different States.
Measurement Period
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Stability Period• The stability period is the period that immediately follows the
standard measurement period (and any applicable administrative period), the duration of which would be at least the greater of six consecutive calendar months or the length of the standard measurement period.
• If the employer determines that the employee did not work full-time during the standard measurement period, the employer would be permitted to treat the employee as not a full-time employee during the immediately following stability period (which may be no longer than the associated standard measurement period).
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Option to Use Administrative Period
• Because employers may need time before and after the measurement period to determine which employees are eligible for coverage, and to notify and enroll employees, an employer may make time for these administrative steps by having its standard measurement period end before the associated stability period begins.
• Can use two administrative periods: first and second administrative period, but total period cannot exceed 90 days.
• To prevent a gap in coverage, the regulations provide that the administrative period must overlap with the prior stability period.
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Variable Hour Employees:New Employees Determined to Be Full Time After
Initial Measurement Period
• Limited Exception for New Full Time Employees - Coverage has to be effective no later than 13 months from the employee's start date, plus if the employee's start date is not the first day of a calendar month, the time remaining until the first day of the next calendar month.
• So, for new hires, a shorter administrative period.
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Existing Employees
• An “ongoing employee” is generally an employee who has been employed by the employer for at least one complete standard measurement period.
• An employer determines each ongoing employee’s full-time status by looking back at the standard measurement period (a defined time period of not less than 3 but no more than 12 consecutive calendar months, as chosen by the employer)
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Compliance Challenges• Determining whether you are a Large Employer
• Requirements for Large Employers
• How to structure workforce
• Use of measurement period and stability periods
• Who to offer health care coverage
• What coverage to offer
• Determining minimum value and affordability
• Minimize penalties and cost of providing health care
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Employer Specific Considerations
• Wage demographics
• Hour demographics
• Use of contingent workforce
• Worker turnover
• Local labor markets
• Unions
• Expected utilization of health coverage
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Play or Pay Strategies• Maintain status quo as to eligibility and plan design• Reduce workforce of FT employees• Utilize contingent workforce (but, caution).• Change plan designs
o Offer current coverage (probably minimum essential coverage) o Offer minimum essential plan only (i.e., you accept the risk of
the unaffordable penalty).o Offer both minimum essential coverage and minimum value
plan (i.e., avoid the penalties).• Assess risks with each option and administrative requirements for
reporting information to exchanges and IRS
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Dependent Considerations
• Do not have to provide coverage for spouses
• Implement spousal carve-out programs if spouse has other employment based coverage
• Do not contribute to the cost of coverage for spouses or children
• Transition Rule: Plans that currently cover only employees are not subject to penalties for year 2014 as long as employer takes steps during plan year to offer dependent coverage.
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2013 Requirements
• Medical Loss Ratio Rebates
• Preventative Care, including women’s services, covered at 100%
• New dollar annual limits on Essential Health Benefits ($2m)
• Comparative Effectiveness Fee (PCORI) due July 31, 2013
• Notice of Exchanges sent by Employers – October 1, 2013
• Open enrollment in exchanges to begin in October 2013 through March of 2014 (thereafter October through December)
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• Must be sent to employees by October 1, 2013, and within 14 days of hire for new employees hired on or after October 1, 2013.
• Must include information regarding the existence of existence of the Exchange, contact information and description of the services provided by the Exchanges, information regarding premium tax credits under section 36B of the Code, and a statement informing the employee that if the employee purchases a qualified health plan through the Exchange, the employee may lose the employer contribution (if any) to any health benefits plan offered by the employer and that all or a portion of such contribution may be excludable from income for Federal income tax purposes.
• DOL model notices are available.
• DOL is revising its model COBRA election notice form too for consistency.
2013 Requirements: Notice of Coverage Options
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Recent Regulations and Guidance
• Summary of Benefits Coverage template modified• Exchanges – Delay of full implementation of SHOP• Employer Shared Responsibility Provisions• Counting Hours and determining Full-Time employees • Individual Mandate and Minimum Essential Coverage• Reporting of Information to Exchanges• 90 day waiting period• Whistleblower protection• Notice of Coverage Options about the Exchanges• Final Wellness Program Rules
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Exchanges in 2014• Exchanges will allow individuals and
small employers (SHOP) to choose from a menu of insurance products – DELAYED.
• Exchanges will verify eligibility, including premium assistance tax credits and cost sharing, and facilitate enrollment
• Exchanges will connect individuals with Medicaid and CHIP, if eligible
• Exchanges will use HHS-managed data services hub to connect to federal data sources (IRS, Social Security, Homeland Security) to determine eligibility
Levels of Coverage under Exchanges
Bronze: 60% Silver: 70%
Gold: 80% Platinum : 90%
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Eligibility for Tax Subsidies
• If an individual does:o not receive minimum essential or affordable employer
sponsored coverage (employee contribution exceeds 9.5% of household income) that provides minimum value; and
o earns between 100% and 400% of the federal poverty level ($44,680 for an individual at 400%), then
o the individual will get a tax subsidy to pay for part or all of the coverage through the individual exchange.
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Small Employer Tax Credit
• Qualified employer- Less than 25 FTE employees- Average annual wages under $50K- Share at least 50% of premium for a “qualifying arrangement”
• Phased Tax credit- 2010-2013 – max credit up to 35% (25% for tax-exempts) of
employer share of premium- 2014 – 2016 – max credit up to 50% (35% for tax-exempts) of
employer share of premium- 50% credit is available for SHOP coverage
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2014 Requirements
• “Qualified Health Plans” will be offered under the Exchanges• Exchange plans will:
o offer “essential benefit packages”o guarantee issue without limitations on pre-existing conditionso limit premium rates;o no more than 90-day waiting period; ando no annual or lifetime limits on the dollar value of essential health benefits.
• Limits on use of Health Reimbursement Accounts (HRAs)o required to be integrated with employer sponsored coverageo cannot be integrated with exchange or individual coverage
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2014 Coverage Mandates• Annual Cost Sharing Limits on non-grandfathered plans (deductibles,
copayments, coinsurance)o Applies to all plans (small, large, insured, self-funded)
• Out-of-pocket expenses cannot exceed amount related to HSA compatible HDHP (2014 is $6,350 for single and $12,700 for family coverage)
• Cost sharing for out of network does not count toward limito Applies to small groups only
• Deductibles for small group fully insured plans (under 100) cannot exceed $2K single and $4K family average (but flexible for bronze plan)
• Deduction limits include HSA and HRA• Deductible limits will NOT apply to large employer insured or self-
insured plans
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2014 Coverage Mandates(for non-grandfathered plans)
• For plan years beginning on or after 1/1/2014 for large and small employers:o guaranteed issue and renewal of fully insured plans (except
nonpayment of premiums, fraud, violation of contribution or participation rules)
o insurers cannot charge higher premiums for health status, gender, or occupation
o premiums only allowed to vary based on age, tobacco use, geographic location, and household composition and size
o required coverage of routine cost for qualified clinical trials
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2014 Reporting Requirements
• Required notices due in 2015 based on 2014 informationo Form 6055 – provide to IRS and all covered individuals
regarding minimum essential coverage provided and the amount paid by employer for Individual Mandate
o Form 6056 – provide to IRS and full time employees regarding certain health plan information pertaining to minimum value and affordability for the Large Employer Mandate (50 or more employees)
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Additional Guidance Expected
• Nondiscrimination requirements for insured plans• Permissibility of corporate restructuring• Employer exchange notice requirement• IRS reporting obligations on forms 6055 and 6056• Collectively bargained plan issues• Requirements for automatic enrollment for employers
with more than 200 full-time employees into a default plan
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Whistleblower Protections
• Unlawful acts of retaliation claim– Reporting PPACA Title I violations
• Lifetime limits, pre-existing condition exclusions, etc.– Receiving tax credit / cost-sharing reduction as a result of participating in an Exchange or
Marketplace (i.e. “pay-or-play” penalty)– Actions that “limit or end” coverage
• 180 days for current or former employee to file complaint with OSHA; employer has 60 days to respond to complaint, based on “clear and convincing” burden of proof
• Damages: Reinstatement, restoration of benefits, back pay and other compensatory damages, all costs and expenses (including attorneys’ fees)
• If complaint frivolous, employer might be awarded attorneys’ fees up to $1,000
• Interim Final Rule: Comments have been requested.
