Affordable Care Act/Healthcare Reform

Legal Issues – What You Need to Know!!

Rebecca Dobbs Bush

SmithAmundsen LLC

rdobbs@salawus.com

(630) 587-7928

Patient Protection and Affordable Care Act (PPACA)

General Disclaimer

o At the outset –note that the law is VERY confusing.

o There are many ambiguities where we are still awaiting relevant government agencies to issue detailed regulations.

2014 – Are you Ready?

Mandates – Individual and EmployerAutomatic Enrollment (>200 FT Employees)

o On Hold – pending further guidance

Insurer Fees/ Plan taxBenefit limitsPremium SubsidiesMaximum waiting period (90 days)

Insurer Fees/Plan Taxes

Paid annuallyFor insured plans:

o Will be paid by insurance companyo Passed on to employer – noted as separate charge on invoiceo For 2014, estimated to be $63 per enrollee per year

For self-insured plans:o For plan years ending on or after 9/30/12o Each self-insured plan must pay to the IRS an annual fee of $2

per participant (reduced to $1 for the first plan year)

Benefit Limits

Deductible limits applied to small group marketo Maximum of $2,000 deductible for single

coverage and $4,000 for other than single coverage

Out-of-pocket limits applied to all size fully-insured and self-funded groupso Capped at HSA qualified plan limits ($6,250

single/$12,500 Family)

Premium Subsidies/Exchanges

States will receive funding to establish health insurance exchanges

Individuals and small employers can purchase coverage through an exchange

Individuals can be eligible for tax creditso Limits on income and government program eligibility

o Employer plan is unaffordable and/or not of minimum value

Three model options:o State-run facilitator*

o State-run active purchaser

o Federally run

Status of IL Exchange

IL received approximately $39 million in establishment funds from Federal Government

IL is only 10% complete – has asked for assistance from Federal Government in finalizing set up

Illinois will use a Federal/State Partnership Model

Supposed to be operational by October of 2013

Exchange: Plan Designs

Four Levels of coverageo Platinum – 90%o Gold – 80%o Silver – 70%o Bronze – 60%

Other Factors:o Guaranteed availability and renewability of coverageo Fair health insurance premiums (age-3:1; Tobacco; Family Size;

Geography)o Single statewide risk poolso Catastrophic plans (<30 years old; financial need)o Rate review program (annual review process)

Individual Responsibility (and Premium Subsidies)

Starting 1/1/14 – individuals, including children, must enroll in minimum essential coverage, or pay a penalty-tax

Penalty Tax Amount: Greater of $ amount or a % of incomeo 2014: $95 or 1%o 2015: $325 or 2%o 2016: $695 or 2.5%o Family penalty capped at 300% of the adult flat dollar penalty or

“bronze” level premium

Assessed on a monthly basis

Premium Credit and Subsidies

Those who don’t have access to affordable, minimum essential coverage may be entitled to a credit and/or subsidy based on income level.

Under 133% of Federal Poverty Level (FPL) driven to Medicaid (provision still unclear)

Between 133% and 400% of the FPL

– For an individual, that is between $15,282 and $45,906 per year (2013)

– For a family of four, that is between $31,322 and $94,200 per year (2013)

Employer Responsibility Provisions

To Whom Does it apply?o Employers with 50 or more full-time equivalent

(FTE) employees Initially for 2014, can use any consecutive six-month

period during 2013 to measure Employers that are part of a “controlled group” have to

count total employees of “controlled group” – BUT, Pay or Play rule penalty generally applies separately with respect to each applicable large employer member of the “control group”

How do you count employees under the ACA?

o A full-time employee is one who works 30 hours a week.

o Part-time employees count as a fraction of an employee.

o When employee thresholds are referenced – the reference is to a full-time equivalent employee (FTE).

Counting Employees:

To figure out if an employer meets the 50-employee threshold:

An employer would first count full-time employees. If they do not have 50 full-time employees, they would then count

part-time employees.

To count part-time employees: Count the total number of part-time employees. Then, count all the hours worked by those part-time employees in

the month and divide them by 120 (30 x 4) to figure out how many FTEs the employer has.

Example:

A company has 35 full-time employees (30+ hours). In addition, the company has 20 part-time employees who all work 24 hours per week (96 hours per month).

These 20 part-time employees would be treated as equivalent to 16 full-time employees based on the following calculation:

20 employees x 96 hours / 120 = 1920 / 120 = 16 Thus, this employer would be considered a large employer

with a total FTE count of 51 employees (35 + 16 = 51).

Pay or Play Employers with 50 or more employees

The Sledge Hammer Tax -- Effective 2014, these Employers are not required to offer coverage, but where they do not (to at least 95% of their full-timers) AND they have at least one full-time employee receive a subsidy and purchase coverage in an exchange, they will be required to pay $2,000 per full-time employee annually ($167 per full time employee monthly).

The first 30 employees will be excluded. Example:

So, an employer with 60 employees that does not offer health coverage will be required to pay $60,000.

[60 employees] less [first 30 employees] multiplied by $2,000 = $60,000.

The Sledge Hammer “Tax” vs. the Tack Hammer “Tax”

o Coverage offered must be “affordable” and of “minimum value”

The Tack Hammer “Tax” -- For those employers offering “unaffordable” coverage that is not of “minimum value,” they will be assessed a $3,000 penalty for each full-time employee that receives a subsidy and purchases coverage in an exchange.

Criteria for assessing penalty – Coverage must be “Affordable”

o Coverage offered must be “affordable” For those employers offering “unaffordable” coverage,

they will be assessed a $3,000 penalty for each full-time employee that receives a subsidy and purchases coverage in an exchange.

Coverage is “unaffordable” where: The employee’s share of the premium exceeds 9.5% of family

income. Example: If you have a single employee working full-time at

Illinois minimum wage ($8.25 as of July 1, 2010), coverage would be “unaffordable” if the employee has to pay more than $135.85 per month.

Criteria for assessing penalty – Coverage must be of “Minimum Value”

To be of “minimum value”o Plan must cover at least 60% of the total allowed

cost of benefits that are expected to be incurred under the plan.

o (i.e., actuarial value of the plan must be at least 60%)

o Note: A minimum value calculator was made available by the IRS and the Department of Health and Human Services (HHS) on February 25, 2013

Penalty Amount Examples:

1. Employer does not offer coverage; or offers coverage to less than 95% of its FT employees, and at least one (1) of the FT employees receives a premium tax credit on the exchange.

$2,000 annual penalty (per full-time employee) First thirty (30) FT employees are exempt

o EXAMPLE: Acme, Inc. has 100 FT equivalent employees and 70 FT employees. They do not offer coverage and one employee receives a premium credit. ANSWER: $2,000 x (70-30) = $80,000/year

Penalty Amount Examples:

2. Employer offers coverage to at least 95% of its FT employees; but at least one (1) of the FT employees receives a premium tax credit on the exchange.o $3,000 annual penaltyo Calculated by taking the number of FT employees who receive

the tax credit for that month multiplied by 1/12 of $3,000.o Maximum penalty is capped at the number of the employer’s FT

employees for that month multiplied by 1/12 of $2,000 (i.e., the penalty they would have incurred for not offering coverage at all – and remember, the 1st 30 are exempt)

When are the penalties effective?

Generally effective for calendar months beginning January 2014.

Transition Rule

Delayed effective date for some non-calendar year health planso First transitional rule states that no penalty will be imposed against an employer

with a non-calendar year plan with respect to any employees who are eligible to participate in a fiscal year plan under its terms as of December 27, 2012 (whether or not they take coverage) until the first day of the non-calendar year plan starting in 2014.

o Second transitional rule exists to allow a plan additional time to expand eligibility provisions and offer coverage to those who were not previously eligible. If you offered to at least 1/3 of the FT and PT employees at the most recent

open enrollment period OR, if you covered at least ¼ of the total employees Then, you are not subject to the penalty until the 1st day of the plan year

starting in 2014 provided that those FT employees will all be offered coverage no later than that date.

In determining whether you meet the 1/3 or ¼ test, you can look at any day between October 31, 2012 and December 27, 2012.

What else should we be thinking about to get ready for 2014?

Should you lower eligibility criteria for your health plan to 30 hours per week to meet the “pay or play” sledge hammer “tax” requirements?

Do you need to increase the amount you contribute towards premiums to meet the “pay or play” tack hammer “tax” affordability considerations?

Do you need to schedule more employees to work less than 30 hours per week?

How is guaranteed issue going to affect health care costs? Do you need to consider self-funding your health plan? Is it really an option to drop health insurance and just pay the

penalty?

Questions???

Rebecca Dobbs Bush rdobbs@salawus.com (630) 587-7928