aflac healthcare reform reference...

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The American College – Copyright 2011

AFLAC Healthcare Reform Reference Guide

Overview

On March 23, 2010, the Patient Protection and Affordable Care Act was signed into law,

and a week later on March 30, 2010, the Health Care and Education Reconciliation Act was also

signed into law. Together, these two bills are referred to as the “Affordable Care Act”, or

healthcare reform. This reform is a massive overhaul of the healthcare industry and affects all

levels of the industry including states, hospitals, doctors, entitlement programs, agents, brokers,

carriers, and consumers.

Key Terms

Affordable Care Act - This refers to the two pieces of healthcare reform, which are the Patient

Protection and Affordable Care Act and the Health Care and Education Reconciliation Act.

Comprehensive Wellness Program- For purposes of the Small Business Comprehensive

Wellness Program grants, a comprehensive wellness program will include the following

components:

Health awareness initiatives,

Efforts to maximize employee engagement,

Initiatives to change unhealthy behaviors and lifestyle choices, and

Supportive environment efforts

Early Retiree Reinsurance Program- A program that was established by healthcare reform that

reimburses a percentage of incurred costs by eligible plans that offer early retiree coverage and

meet all the requirements of the program.

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Essential Health Benefits- minimum required benefits that include several categories of

benefits, as well as, any other benefits that HHS deems to be essential.

Grandfathered Health Plans- A health plan that was in existence on March 23, 2010, and has

not taken any of the restricted actions specified in the regulations. Note that grandfathering a

plan is an opportunity for insurance carriers and some employers to continue to offer coverages

that they were satisfied with prior to healthcare reform.

Health Benefit Exchanges- Health benefit exchanges are going to be established and operating

in 2014. They will act as an insurance marketplace for both the individual and small group

markets. The exchanges will offer qualified heath plans, and eligible individuals will receive

premium tax credits.

Individual Mandate- This mandate requires all U.S. Citizens to obtain healthcare coverage in

2014 or face a penalty tax.

Large Employer- Healthcare reform defines large employers as those with 101 or more

employees. States have the option of defining large employers as those having 51 or more

employers.

Medical Loss Ratio- These are new requirements for insurance carriers under healthcare reform

that took effect in 2011. These regulations require insurance carriers to comply with annual

reporting requirements, medical loss ratio standards for the individual, small group, and large

group markets, and required rebates if they fall short of the applicable medical loss ratio

standard.

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Navigator- A role in health benefit exchanges that was established under the Affordable Care

Act. Navigators will help individuals, families, and small groups navigate their way through the

exchanges and obtain the best coverage possible.

“Play or Pay Tax”- This tax will take effect in 2014. Applicable large employers that both offer

and do not offer coverage will be subject to it when employees are certified as receiving

coverage through the exchanges. For applicable large employers that do not offer coverage, the

applicable tax amount will be $166.67 a month per employee (after a 30-employee reduction).

For applicable large employers that do offer minimum essential coverage, the applicable tax

amount will be $250 a month per employee that receives coverage through the exchanges.

Qualified Health Plan- is an Exchange-certified “health plan” that offers an “essential health

benefits package.”

Simple Cafeteria Plan- The Simple Cafeteria Plan is a new type of plan that is added to the

Internal Revenue Code, and is available to eligible employers. The main benefit to this type of

plan is that it grants eligible employers a safe harbor from the nondiscrimination testing of the

Internal Revenue Code.

Small Business Health Care Tax Credit- a tax credit created by healthcare reform that will

allow eligible small employers to receive a credit up to 35% of the nonelective contributions paid

toward employee premiums, and up to 25% for tax-exempt small employers. Note that all

eligibility requirements must be met for an employer to receive this credit.

Small Employer- Under healthcare reform a small employer has between 1 and 100 employees.

States have the option of defining small employers as having between 1 and 50 employees.

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Wellness Program Grants- Healthcare reform establishes grants for eligible small businesses

that implement a comprehensive wellness program, and did not have a wellness program prior to

March 23, 2010.

Timeline

Provisions Taking Effect in 2010

Elimination of lifetime dollar maximums on essential health benefits (Effective for plans

renewing on or after September 23, 2010)

Dependent coverage age extension (Effective for plans renewing on or after September

23, 2010)

Elimination of pre-existing condition restrictions on children under age 19 (Effective for

plans renewing on or after September 23, 2010)

Prohibition on retroactive coverage rescissions except in cases of fraud (Effective for


Prohibition on cost-sharing for preventive care services (Effective for plans renewing on

or after September 23, 2010)

Coverage of emergency room treatment for emergency medical conditions (Effective for


An allowance for designation, on behalf of a child, of an allopathic or osteopathic

primary care physician (Effective for plans renewing on or after September 23, 2010)

Coverage of obstetrical and gynecological care without pre-authorization or referral

(Effective for plans renewing on or after September 23, 2010)

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Expansion of Medicaid to cover people, who are not eligible for Medicare, whose income

is at or below the 133% FPL (Effective immediately)

Extension of CHIP benefits for eligible children (Effective immediately)

$250 rebate when Medicare beneficiaries hit the coverage gap for prescription drugs

(Effective June 1, 2010)

Small Business Health Care Tax Credit (Effective immediately)

Creation of the Early Retiree Reinsurance Program (ERRP) (Effective July 1, 2010)

States must establish a temporary high-risk pool to provide health coverage for

individuals who cannot get coverage elsewhere due to pre-existing conditions (Effective

July 1, 2010)

Grandfather Provision, which allows already existing plans to remain substantially the

same (Effective immediately)

Internet Portal (Healthcare.gov) (Effective immediately)

Employee Protections

Provisions That Take Effect in 2011

Medical Loss Ratio reporting and rebates (Effective for 2011 plan year information)

New over-the-counter drug reimbursement rules and taxes (Effective January 1, 2011)

A new appeals process, including external review (Effective July 1, 2011)

Small business grants to provide comprehensive wellness programs (Effective January 1,

2011)


Four Page Summary of Benefits (Effective March 23, 2012)

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W-2 Reporting- employers must include aggregate cost of employer-sponsored health

coverage on annual W-2 form (informational only)

Quality of Care Reporting (Effective March 23, 2012)

CLASS Act


Employee notice of State Exchanges provided by Employer (Effective March 23, 2013)

$2,500 cap on FSA contributions (Effective January 1, 2013)

Creation of Consumer Operated and Oriented Plan (CO-OP) programs which will create

non-profit health insurance companies that will operate in the states (Establish by 2013)

New HIPAA Electronic Standards (Various effective dates)

Increase in medical deduction threshold


Individual mandate that all U.S. citizens and legal aliens get health insurance

Operation of Health Benefit Exchanges where there will be cost sharing subsidies for

people between the 133% and 400% of the federal poverty level (Effective January 1,

2014)

o Health Benefit Exchanges will be required to offer 4 tiers of coverage plans

(Bronze, Silver, Gold, and Platinum) and a catastrophic plan

Required guaranteed issue and renewability and allow rating variation based on age,

geographic location, family composition and tobacco use

Elimination of annual dollar maximums on essential health benefits (Effective January 1,

2014)

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Elimination of waiting periods exceeding 90 days (Effective January 1, 2014)

Elimination of pre-existing condition restrictions for all enrollees (Effective January 1,

2014)

Automatic Enrollment of employees where the employer has over 200 employees

No more underwriting based on health-status factors (Medical Underwriting)

Transparency in Coverage Reporting (Effective January 1, 2014)

Fair Health Insurance Premiums

Free Choice Vouchers (Effective January 1, 2014)

Play or Pay Tax (Effective January 1, 2014)

Coverage for Clinical Trials (Effective January 1, 2014)

Comprehensive health insurance coverage (Effective January 1, 2014)


Large employers are allowed to enter State Exchanges (2017)


Increased taxes on “Cadillac Plans”

Excepted Benefits

All of the following coverages and benefits are considered “excepted benefits” and

therefore are not subject to provisions of healthcare reform:

Accident-Only Coverage

Disability Income

Liability Insurance

Worker’s Compensation Insurance

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Automobile Medical Insurance

Credit-Only Insurance

On-Site Medical Clinics

Limited-Scope Benefits

Noncoordinated Benefits

Medicare and Tricare Supplements

Stand-Alone Wellness Programs

Health FSAs Designed to offer HIPAA Excepted Benefits

Group Health Plans Covering Fewer than 2 Current Employees

Health Savings Accounts (HSAs)

Archer MSAs

Long-Term Care

Retiree-Only Plans

Group Size

Table: Group Size Defined

One of the many complexities of the Affordable Care Act is that group sizes are defined

in different ways according to the provision of law to which they are related. The table below

acts as a handy guide to defining group size.

Provision of Healthcare

Reform

Size of Group Analysis

Health Benefit Exchanges

Small Group Market is

defined as employers with

100 or fewer employees in

Be aware how your

State defines small

group market, because

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the preceding year. However,

States have the authority to

define the small group market

as 50 or fewer employees in

the preceding year.

it could impact a

client’s ability to access

the exchanges.

Play or Pay Tax Employers will be applicable

large employers if they have

an average of 50 or more

employees in the preceding

years. Employees include

full-time equivalent

employees, which are

calculated on a monthly

basis.

Consultants will need to

execute this full-time

equivalent employee

calculation in order to

determine if a client

will be subject to this

tax.

Medical Loss Ratio Small Group Market is

defined as 100 or fewer

employees. Large group

market is over 100

employees. However, States

have the authority to define

the small group market as 50

or fewer employees, which

would make the large group

employers those who employ

51 or more employees.

Depending on the

State’s definition of

small group market and

large group market, a

group may be subject to

either an 80% or 85%

medical loss ratio

standard, which will

have an impact on the

chances that plan

enrollees have of

receiving a rebate.

Small Business Health Care

Tax Credit

Only employers that have 25

or fewer full-time equivalent

employees, and meet the

other eligibility requirements

can claim this tax credit. The

Consultants should be

able to execute this full-

time equivalent

employee calculation in

order to determine

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full-time equivalent

employee calculation is

calculated using yearly

information.

client eligibility for the

tax credit.

Simple Cafeteria Plans To be eligible to establish a

Simple Cafeteria Plan,

employers must have

employed an average of 100

or fewer employees in either

of the two preceding plan

years. Note that there are

special rules for “growing

employers” and “new

employers”.

The regulations are

unclear if the employer

must count full-time

equivalent employees

when determining

eligibility. For now, it

seems wise to include

these employees.

Small Business Grants for

Comprehensive Wellness

Programs

Employers who employ 100

or fewer employees and meet

other eligibility criteria will

be eligible for these grants.

We are waiting on

further guidance

regarding these small

business grants.

Small Business Health Care Tax Credit

The Small Business Health Care Tax Credit allows an eligible small employer to receive

a credit for up to 35% of the nonelective employer contributions that are paid toward the

premium costs for employee healthcare and up to 25% for tax-exempt small employers.

Employer Eligibility

To qualify as an eligible employer for the tax credit, a small employer or a tax-exempt

small employer must meet the following three requirements within any given tax year:

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1. The employer must not have more then 25 full-time equivalent employees (FTEs) for the

tax year;

2. The employer’s full-time equivalent employees (FTEs) must have annual average wages

that do not exceed $50,000; and

3. The employer must have a contribution arrangement in effect that meets the requirements

of Code section 45R(d)(4).

Eligible tax-exempt small employers are any organization described in Code section 501(c), and

they are exempt from taxation under Code section 501(a).

Claiming the Credit

Eligible small businesses will claim the credit using Form 8941 as part of their general

business credit on Form 3800. Both of these forms are filed as attachments to the tax return of

the small business claiming a tax credit under this newly created provision of the Code. Tax-

exempt small employers claim the credit as a refundable tax credit that is limited to the

employer’s payroll taxes. Tax-exempt employers that qualify for the tax credit will claim their

credit amount using Form 8941 on Form 990-T.

Tax Credit in 2014 and Beyond

In 2014, the maximum small business health care tax credit that will be available for

eligible small employers will increase from 35% to a maximum of 50% of nonelective

contributions. However, the contribution arrangement requirements will also change. Beginning

in 2014 the contributions must be made on behalf of employees who enroll in a qualified health

plan offered through a health benefit exchange.

Grandfathered Health Plans

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A grandfathered health plan is a health plan that was in existence on March 23, 2010, has

continuously covered someone since that date, and has not taken any restricted actions under the

regulations provided by the Affordable Care Act and the agencies. The grandfathered status is

applied on a benefits package basis. This means that a carrier or plan can grandfather one

benefits package that they offer, and choose to implement all the provisions of the Affordable

Care Act in another benefits package. These actions will not have a negative effect on either

benefits package. For example, if a plan offers a PPO benefits package and an HMO benefits

package, they may choose to grandfather the PPO and not the HMO. This would be permissible

under the regulations that govern grandfathered plans.

Benefit of Grandfathering

The major benefit to grandfathering a health plan is that grandfathered plans can legally

avoid several mandates of healthcare reform and thus avoid the increases in healthcare costs

associated with those mandates. Grandfathered plans will be allowed to avoid the following

mandates:

Fair health insurance premiums

Guaranteed availability

Guaranteed renewability

Nondiscrimination based on health status factor

Comprehensive health insurance coverage

Coverage for clinical trials

Coverage of preventive health services

Transparency in coverage

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Nondiscrimination for insured plans

Quality of Care reporting

New internal claims and appeals processes and external review requirements, and

Patient protections

While it is true that a grandfathered health plan can avoid several of the Affordable Care

Act’s mandates, it cannot avoid all of them. Grandfathered plans will be required to comply with

the following mandates:

Prohibition on pre-existing condition exclusions for children under age 19

Total prohibition on pre-existing conditions exclusions beginning in 2014

Restrictions on excessive waiting periods

Elimination of lifetime maximum limits on essential health benefits

Restrictions of annual maximum limits on essential health benefits

Prohibition on retroactive coverage rescissions

Dependent coverage age extension

Four-page summary of benefits

Medical loss ratio requirements

Restricted Actions

Avoiding increased healthcare costs is the major benefit of grandfathering a health plan;

however, grandfathering comes with its own price. Grandfathered plans are limited in the actions

they can take. The regulations describe several restricted actions that, if taken by a grandfathered

health plan, will cause the plan to lose its grandfathered status. The plan would then be required

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to comply with all provisions of healthcare reform. All of the following are restricted actions for

grandfathered health plans:

The elimination of all, or substantially all, benefits to diagnose or treat a particular

condition

Increases to percentage cost sharing (ex: increases in coinsurance for employees)

Certain increases in fixed-amount cost sharing

Decreasing employer contributions

Changes to annual or lifetime limits when the plan did not impose an overall limit on

March 23, 2010

Permissible Actions

While grandfathered plans are limited in their actions due to the regulations, they still can

take several permissible actions, as clarified by the Department of Health and Human Services.

The following are permissible actions that grandfathered plans may take with no consequences to

their grandfathered status:

Entering into a new insurance contract or changing insurers,

Changing stop-loss coverage,

Eliminating coverage for a segment of the workforce, and

Adding benefit packages or options

Notice and Record Keeping Requirements

Grandfathered plans do have notice and record keeping requirements. To maintain

grandfathered status, the plan must provide certain information in any plan materials that

describe the plan to participants or beneficiaries. Plan documents must include a statement that

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the plan believes itself to be grandfathered, along with contact information for questions or

complaints.

The record keeping and documentation regulations require that a grandfathered health

plan document the plan terms that were in existence on March 23, 2010. That is always the date

you will look to when evaluating whether or not a plan has maintained grandfathered status. All

plan documentation that verifies grandfathered status should be kept as long as the plan takes the

position that it is grandfathered. All documentation must also be made available to plan

participants, State, and other governmental agencies.

Grants for Small Businesses that Incorporate Comprehensive

Wellness Programs

Beginning in 2011, the Affordable Care Act will provide grants to eligible small

businesses that implement comprehensive wellness programs. Under this grant program,

Congress appropriated $200 million to be spent between 2011 and 2015. This grant money is to

encourage small businesses to provide wellness programs and employee assistance programs to

their employees. Wellness programs have been shown to improve employee healthcare habits,

which in the long term are statistically linked to lower employer and long-term healthcare costs.

An eligible small business for purposes of the grant is an employer:

that employs less than 100 employees,

whose employees work 25 hours or more per week, and

that did not provide a workplace wellness program as of March 23, 2010

Eligible small businesses will be required to submit an application to the Department of Health

and Human Services that includes a proposal for a comprehensive wellness program.

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For purposes of this grant, a comprehensive wellness program will include the following

components:

Health awareness initiatives,

Efforts to maximize employee engagement,

Initiatives to change unhealthy behaviors and lifestyle choices, and

Supportive environment efforts

These core elements make up a comprehensive wellness program under the law. When the HHS

releases the new application process, it will give more clarification on details of the program. For

now, these general categories include health education, preventive screenings, counseling,

seminars, self-help materials, and increased mental and physical activity.

Simple Cafeteria Plans

Simple Cafeteria Plans were added to Section 125 of the Internal Revenue Code and

became effective on January 1, 2011. They are a new kind of cafeteria plan that offers the

benefit of a safe harbor from the nondiscrimination testing of the Internal Revenue Code. Simple

Cafeteria Plans have three core elements:

1. Employer Eligibility Requirements

2. Employee Participation Requirements, and

3. Employer Contribution Requirements

Employer Eligibility

To be an eligible employer that can establish a Simple Cafeteria Plan, you must have

employed an average of 100 or fewer employees in either of the two preceding plan years. This

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is the general employer eligibility requirement. There are special rules for both new employers

and growing employers.

For employers that were not in existence throughout the entire preceding year the Code

says that you will determine eligibility based on the number of employees the employer

reasonably expects to employ on business days during the current year. Therefore, if the

employer reasonably believes that they will employ 100 or fewer employees, then they are

eligible to establish and maintain a Simple Cafeteria Plan.

The special rule for growing employers will allow a growing employer that established a

Simple Cafeteria Plan, for a year in which they were eligible, to continue as eligible in

subsequent years even though they employ more than 100 employees during the year. The

special rule limits this extended eligibility until the year following the first year in which the

employer employs an average of 200 or more employees on business days.

Employee Participation Eligibility

Simple Cafeteria Plans must comply with eligibility and participation regulations in the

Internal Revenue Code. The general rule is that all employees with at least 1,000 hours of

services during the preceding year must be eligible to participate in the Simple Cafeteria Plan.

The Code excludes certain employees from participation in the plan. During the employee

eligibility analysis, you can always exclude the following employees:

-Self-employed individuals,

-Partners of a partnership,

-2% or greater shareholders of an S-Corp

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The Code explains that there are certain employees that the employer may choose to exclude.

Employers can exclude the following categories of employees:

-Employees who have not turned 21 years old before the close of the plan year,

-Employees who have less than one year of service with the employer

-Employees covered by a collective bargaining agreement, if there is evidence that the

benefits covered under the Cafeteria Plan were the subject of good faith bargaining

between employee representatives and the employer; or

-Certain nonresident aliens working outside the U.S.

Employer Contribution Requirements

Under the Simple Cafeteria Plan contribution rules, the employer must contribute an

amount equal to either:

-A uniform percentage, not less than 2% of the employee’s compensation for the plan

year (Nonelective Contribution Method); or

-An amount that equals or exceeds the lesser of (a) 6% of the employee’s compensation

for the year, or (b) twice the employee’s salary reduction contributions (Matching

Contribution Method)

These contribution amounts must be available for all benefits under the plan. Employers are

permitted to make greater contributions than required by the two methods. Employers can choose

between the two methods; however, they must use the same method for all qualified employees.

Benefits of Simple Cafeteria Plan

The major benefit of a Simple Cafeteria Plan is the safe harbor granted from the

nondiscrimination testing of the Internal Revenue Code. This is an optimal plan to establish for a

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client who has had trouble with nondiscrimination testing in the past and still wants to offer

coverage to their employees. Simple Cafeteria Plans will be treated as meeting the

nondiscrimination requirements of all of the following tests under the Code:

-Eligibility testing

-Benefits testing

-Contributions and Benefits testing

-25% Key employee concentration testing

-5% owners concentration testing

-55% average benefits testing

As you can see, an employer that establishes a Simple Cafeteria Plan will avoid several complex

and expensive testing requirements

Cafeteria Plan and Simple Cafeteria Plan Comparison Chart

(*refers to areas where the regulations for Simple Cafeteria Plans differ from the regulations that govern Traditional Cafeteria Plans)

Traditional Cafeteria Plans Simple Cafeteria Plans

-Offers health benefits as well as other

ancillary benefits

-Offers health benefits as well as other

ancillary benefits

-Allows employees to focus their money on

benefits that are more important to them

-Allows employees to focus their money on

benefits that are more important to them

-To keep its tax-favored status under Code

Section 125, a Cafeteria Plan must:

permit employees to choose between

two or more benefits, consisting of at

least one nontaxable benefit and cash;

be a written plan;

be for employees only (i.e.,allow only

employees to participate);

-To keep its tax-favored status under the

Internal Revenue Code, a Simple Cafeteria

Plan must:

*meet employer eligibility

requirements

o new employer rule

o growing employer rule

*meet contribution requirements

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not include any benefit that defers the

receipt of compensation; and

require participants to make annual

benefit elections.

o nonelective contribution method

o matching contribution method

*meet employee participation

requirements

*make all benefits available to all

participating employees

-Benefits to the Employer that offers a

Cafeteria Plan:

reduces payroll taxes

eliminates benefit overlapping

shifts costs of benefits to employees

through the salary reduction

arrangement

reduces benefit waste, because the

employer will not spend money on

benefits that will not be used by the

employees

-Benefits to the Employer that offers a Simple

Cafeteria Plan:

*safe harbor from nondiscrimination

testing of the Internal Revenue Code

reduces payroll taxes

eliminates benefit overlapping

shifts costs of benefits to employees

through the salary reduction

arrangement

reduces benefit waste, because the

employer will not spend money on

benefits that will not be used by the

employees

-Benefits to the Employee who participates in a

Cafeteria Plan:

reduces payroll taxes through salary

reduction contributions

gives employees the ability to control

their benefits to suit their needs

-Benefits to the Employee who participates in a

Simple Cafeteria Plan:

reduces payroll taxes through salary

reduction contributions

gives employees the ability to control

their benefits to suit their needs

-Who can participate in the plan?

full-time employees

leased employees

-Who can participate in the plan?

*all employees that worked 1,000 or

more hours of service in the preceding

year must be allowed to participate in

the Simple Cafeteria Plan

-Who is excluded from the plan?

-Who is excluded from the plan?

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self-employed individuals

sole proprietors

partners

directors of a corporation

2% shareholders of an S-Corp

self-employed individuals

sole proprietors

partners

directors of a corporation

2% shareholders of an S-Corp

-An employer can also permissibly exclude the

following categories of employees under the

plan:

Employees under age 21

Employees with less than 1 year of

service

Employees covered by a collective

bargaining agreement

Certain nonresident aliens working

outside the U.S.

-Years of employment requirement?

An employer can permissibly require

an employee to be employed for three

years before they are eligible to

participate in the Cafeteria Plan

The length of employment requirement

must be the same for all employees

-Years of employment requirement?

*An employer can permissibly require

an employee to be employed for one

year before they are eligible to

participate in the Simple Cafeteria Plan

-A Cafeteria Plan can include all of the

following nontaxable benefits:

health plans, including medical, dental,

hearing, and vision benefits;

group-term life insurance of up to

$50,000 face amount for the employee;

accidental death and dismemberment

insurance (AD&D);

long-term disability benefits (but only

if proceeds are taxable to the

beneficiary when received);

premiums for COBRA continuation

-A Simple Cafeteria Plan can include all of the

following nontaxable benefits (*It appears that

Simple Cafeteria Plans can include all the same

nontaxable benefits that a Cafeteria Plan can):

health plans, including medical, dental,

hearing, and vision benefits;

group-term life insurance of up to

$50,000 face amount for the employee;

accidental death and dismemberment

insurance (AD&D);

long-term disability benefits (but only

if proceeds are taxable to the

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coverage;

contributions to health savings

accounts;

reimbursement for dependent care

expenses of up to $5,000;

buying or selling of vacation time; or

elective deferrals to a 401(k) plan.

beneficiary when received);

premiums for COBRA continuation

coverage;

contributions to health savings

accounts;

reimbursement for dependent care

expenses of up to $5,000;

buying or selling of vacation time; or

elective deferrals to a 401(k) plan.

-Steps to take to implement a Cafeteria Plan:

1. conduct a feasibility study (Would a

Cafeteria Plan suit this employer?);

2. draw up a detailed plan design;

3. implement a menu system (explain

benefits offered, costs, comparison of

benefits sheet, etc.);

4. begin to conduct actual plan operation

(enroll employees, keep records, etc);

5. manage ongoing administration; and

6. review the program periodically.

-Steps to take to implement a Simple Cafeteria

Plan:

1. determine employer eligibility;

2. determine if employer struggles with

nondiscrimination testing;

3. determine contribution amounts

required under both the nonelective

and matching contributions methods;

(Is the employer willing and able to

pay?)

4. determine the employees that must be

eligible to participate?

5. change plan documentation to reflect

that this is, in fact, a Simple Cafeteria

Plan

6. manage and service the plan

7. review plan periodically and monitor

eligibility under the special rule for

growing employers

-Can Cafeteria Plans use automatic enrollment

procedures?

Yes. Employees may have to

negatively elect, or opt out to avoid

automatic enrollment.

-Can Simple Cafeteria Plans use automatic

enrollment procedures?

Unclear. It appears that Simple

Cafeteria Plans could use automatic

enrollment procedures so long as

employees may negatively elect,

however no official guidance has been

given on this point. Also, note that if

the employers use the “nonelective

contribution method”, they must make

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a contribution regardless of whether the

employee takes any salary reduction

contributions, which may make

automatic enrollment moot. Under the

“matching contribution method”, if the

employee makes no salary reduction

contribution, then the employer is not

required to make any contribution.

-Are Cafeteria Plans subject to

nondiscrimination testing under the Internal

Revenue Code?

Yes.

-Are Simple Cafeteria Plans subject to

nondiscrimination testing under the Internal

Revenue Code?

*No.

Health Benefit Exchanges

States are required to submit proposed plans to implement an exchange to the Department

of Health and Human Services by January 1, 2013. States do have the option to opt out of

implementing an exchange, and if they do, then the responsibility falls to the Department of

Health and Human Services to implement an exchange within that State. An exchange may be a

governmental agency, nonprofit entity, or a quasi-governmental entity. The States or HHS is to

establish both an individual market as well as a Small Business Health Options Program, which

will assist eligible small employers in enrolling their employees in coverages offered through the

exchange. The exchange may provide only one market, which encompasses both the individual

market and the small group market if they have adequate resources to assist all consumers that

wish to obtain coverage through the exchange. These exchanges will act as an insurance

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marketplace for the individual and small group markets. Then in 2017, states may allow large

employers to enter the exchanges.

Exchange Eligibility

Starting in 2014, individuals may enroll in a qualified health plan through an exchange in

the state in which they reside. Note that only lawful residents have access to the exchanges and

unauthorized aliens are prohibited from obtaining coverage through an exchange. Also in 2014,

small employers can offer coverage to their employees through and exchange. The default

definition of small employer or small group market, according to the Affordable Care Act, is as

follows:

An employer that employed 100 or fewer employees on business days in the preceding

calendar year, and employs at least one employee on the first day of the plan year.

States have the authority to alter the definition as follows:

An employer that employed 50 or fewer employees on business days in the preceding

calendar year, and employs at least one employee on the first day of the plan year.

As mentioned previously, states may allow access to the exchanges for large employers in 2017.

Coverage Offered Through the Exchange

Exchanges are required to make “qualified health plans” available to eligible individuals

and small group markets. Exchanges can only offer qualified health plans, and no other types of

coverage.

A qualified health plan is an “exchange certified” plan that offers an “essential health

benefits package” and it can only be offered by an insurer that meets the following requirements:

The carrier is licensed and in good standing with the state in which they offer coverage;

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The carrier agrees to offer at least one qualified health plan at the silver level and gold

level of coverage in the exchange;

The carrier agrees to charge the same premium rate for each qualified health plan,

whether it is offered inside the exchange or in the private insurance marketplace through

an insurer or agent; and

The carrier complies with regulations that are issued by the Department of Health and

Human Services and the exchange.

Qualified health plans must be “certified” by the exchange, which means that they must comply

with a certification process. Part of the certification process is the transparency in coverage

reporting requirements. The transparency in coverage regulations require that a plan or insurer

that wish to have their coverage offered through an exchange as a qualified health plan to submit

reports on the plan or coverage. These reports will be sent to the exchange and the Department

of Health and Human Services and will include the following information:

Claims payment policies;

Periodic financial disclosures;

Data on enrollment and disenrollment;

Data on the number of claims denied;

Data on rating practices;

Information on cost-sharing and payments regarding any out-of-network coverage;

Information on enrollee and participant rights under the Affordable Care Act; and

Other information as determined appropriate by the Secretary of HHS

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Once the exchange and HHS receive this information, and the plan is certified, then the

information will be posted on a web portal for consumers to have access to the information.

The transparency in coverage requirement is just one piece of the certification process.

The Department of Health and Human Services is required to establish certification procedures

and regulations beyond the reporting requirement just discussed. HHS will establish regulations

that require plans to:

Meet marketing requirements;

Ensure sufficient provider choice and include, where available, providers that serve low-

income and medically underserved individuals;

Be accredited for clinical qualify, patient experience, consumer access, and quality

assurance and implement a quality improvement strategy;

Use a uniform enrollment form and a standard format for presenting plan options; and

Provide information on quality standards used to measure plan performance.

These requirements, along with the transparency in coverage reporting, will constitute the

certification process for the exchanges. If insurers wish to have their plans or coverage offered

through the exchange as a qualified health plan, then they will be required to satisfy these

regulations.

Qualified health plans are also required to offer an essential health benefits package. An

essential health benefits package must:

Provide essential health benefits;

Limit cost-sharing (out-of-pocket maximum and maximum deductible);

Provide either bronze, silver, gold, or platinum level coverage, or a catastrophic plan; and

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Any insurer that offers a coverage on one of the four tiers of coverage will also be

required to offer the same level of coverage in a child-only plan that is specifically

designed for individuals under age 21.

Essential Health Benefits

Currently, we have a working definition of essential health benefits, and we are waiting

for the final definition to be given to us by the Department of Health and Human Services. The

current working definition includes items and services covered under the following categories of

services and care:

Ambulatory patient services

Emergency services

Hospitalization

Maternity and newborn care

Mental health and substance abuse disorder services, including behavioral health

treatment

Prescription drugs

Rehabilitative and habilitative services and devices

Laboratory services

Preventive and wellness services and chronic disease management, and

Pediatric services, including oral and vision care

2014 Cost-Sharing Limitations

In 2014, two new cost-sharing limitations take effect, with which qualified health plans

must comply. The first cost-sharing limitation is an overall out-of-pocket maximum limit. This

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applies to deductibles, co-insurance, co-payments, or similar charges, as well as any other

required expenditure that is a qualified medical expense. The cost-sharing for these out-of-

pocket expenses cannot exceed the maximum out-of-pocket expense limits for self-only and

family coverage for HAS-compatible high deductible health plans for taxable years. If we were

to apply today’s corresponding limits, the out-of-pocket maximum for self-only coverage would

be $5,950, and for family coverage would be $11,900. These limits will be increased by an

index amount equal to the product of that amount and the “premium adjustment percentage” for

the calendar year.

The other cost-sharing limitation is a maximum deductible, which applies for the small

group market. The maximum deductible for the self-only coverage is $2,000, and for any other

plan it is $4,000. These amounts will be increased by the maximum amount of reimbursement

which is reasonably available to a participant under a flexible spending arrangement.

Four Tiers of Coverage

The exchanges will also offer four tiers of coverage options. These options are based on

the percentage of full actuarial value of benefits the plan is designed to provide, and are as

follows:

Tier of Coverage Percent of Costs Covered Required Consumer Cost-sharing

Platinum 90% 10%

Gold 80% 20%

Silver 70% 30%

Bronze 60% 40%

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Actuarial values are estimates of how much the insurance plan will pay of an average person's

medical expenses. For example, if an average person expects to have $10,000 in medical

expenses, a plan that pays $7,500 of those expenses (after premiums, co-pays and deductibles)

has an actuarial value of 75 percent. This means that the higher the actuarial value covered by the

plan, the higher the premium will be, but lower out-of-pocket costs will be charged to the

consumer.

Exchanges may also one more level of coverage. This is referred to as a catastrophic

plan. This type of plan is only allowed to be offered in the individual market and only for young

adults, those who are under age 30 before the plan year begins, who are exempt from the

individual mandate because affordable coverage is not available or they have a hardship

exemption. Generally, these plans will only be available to a young adult with severe medical

conditions that could not obtain coverage due to that fact.

Exchange Premium Tax Credits

In 2014, applicable taxpayers will be eligible to receive a refundable tax credit for the

premium they pay to purchase coverage under a qualified health plan. An eligible individual for

the premium tax credit is a taxpayer whose household income for the taxable year is between 100

percent and 400 percent of the Federal Poverty Level for the appropriate family size. The

exchange regulations dictate that each exchange creates a premium tax calculator that

consumers, agents, brokers, and navigators can utilize.

Navigator Role

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The Affordable Care Act carves out a role for “navigators” in the exchanges. Exchanges

are required by regulations to establish a Navigator Program. The entities that are eligible to be a

Navigator and receive a grant from the exchange must meet the following requirements.

They must be capable of carrying out at least one navigator duty;

They must demonstrate to the Exchange that the entity has existing relationships, or could

readily establish relationships, with employers and employees, consumers (including

uninsured and underinsured consumers), or self-employed individuals likely to be eligible

for enrollment in a QHP;

They must meet any licensing, certification or other standards prescribed by the State or

Exchange, if applicable; and

They must not have a conflict of interest during the term as Navigator.

The exchange program must include entities from at least two of the following categories for

receipt of a Navigator grant:

Community and consumer-focused nonprofit groups;

Trade, industry, and professional associations;

Commercial fishing industry organizations, ranching and farming organizations;

Chambers of commerce;

Unions;

Resource partners of the Small Business Administration;

Licensed agents and brokers; and

Other public or private entities that meet the requirements of this section.

The duties of a navigator are as follows:

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Maintain expertise in eligibility, enrollment, and program specifications and

conduct public education activities to raise awareness about the Exchange;

Provide information and services in a fair, accurate and impartial manner. Such

information must acknowledge other health programs;

Facilitate enrollment in Qualified Helath Plans;

Provide referrals to any applicable office of health insurance consumer assistance or

health insurance ombudsman, or any other appropriate State agency or agencies, for any

enrollee with a grievance, complaint, or question regarding their health plan, coverage, or

a determination under such plan or coverage; and

Provide information in a manner that is culturally and linguistically appropriate to the

needs of the population being served by the Exchange, including individuals with

limited English proficiency, and ensure accessibility and usability of Navigator tools and

functions for individuals with disabilities.

Navigators are prohibited from participating in certain conduct. The Exchange must ensure that

a Navigator must not:

Be a health insurance issuer; or

Receive any consideration directly or indirectly from any health insurance issuer

in connection with the enrollment of any qualified individuals or qualified employees

in a QHP.

Funding for Navigator grants may not be from Federal funds received by the State to establish

the Exchange. It is still to be determined how navigator grants will be funded by the States.

Play or Pay Tax

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The “Play or Pay” tax takes effect in 2014. It is also referred to as the “Shared

Responsibility for Employers Tax”. Applicable large employers will be subject to the tax if they

do not offer coverage, or if they offer coverage and it is considered unaffordable.

Applicable Large Employers

An applicable large employer is an employer who employed an average of at least 50

full-time equivalent employees on business days during the preceding calendar year. Full-time

employees are those that are employed to work an average of 30 hours a week. Full-time

equivalent employees will be calculated on a monthly basis, averaged, and then added to the

number of full-time employees. If the number of full-time equivalent employees for the year is

50 or more, then the employer will be considered an “applicable large employer”.

If an employer was not in existence in the preceding year, then they will be considered an

applicable large employer if they reasonably believe that they will employ 50 or more full time

equivalent employees in the year.

Large Employers Not Offering Coverage

In 2014, an applicable large employer will face a tax penalty if:

They do not offer their full-time employees and their dependents the opportunity to enroll

in minimum essential coverage under an eligible employer-sponsored plan for the month;

and

At least one full-time employee has been certified to the employer as having enrolled for

that month in a qualified health plan for which health coverage assistance is allowed or

paid.

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The applicable penalty amount for 2014 will be $166.67 per month, per employee, after a 30-

employee reduction is taken. Note that the tax is assessed on a monthly basis.

Applicable Large Employers Offering Coverage

An applicable large employer will also pay a penalty tax that any month that:

The employer offers to its full time employees and their dependents the opportunity to

enroll in minimum essential coverage under an eligible employer-sponsored plan for the

month; and

At least one full time employee has been certified to the employer as having enrolled for

the month in a qualified health plan for which a premium tax credit or cost-sharing

reduction is allowed or paid, due to the fact that the minimum essential coverage that is

offered by the employer is unaffordable to the employee.

Employer-sponsored minimum essential coverage will be considered unaffordable in two

situations:

1. When the employers plan share of the total allowed costs of benefits is less than 60%,

or

2. The premium being charged to the employee exceeds 9.5% of the employee’s

household income

Generally, employees will not be eligible for a premium tax credit or other subsidy through an

exchange if they are offered eligible employer-sponsored coverage, unless it meets one of these

two circumstances. If the employee meets one of these circumstances, they can apply for an

affordability waiver through the exchange, and the penalty tax will only apply for employees of

the employer that receive this waiver, and receive subsidized coverage.

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The applicable penalty tax amount for offering employers is $250 a month. This tax

penalty will be assessed on a monthly basis and for each employee who receives financial

assistance through the exchange. There is no 30-employee reduction, and the overall penalty

amount is capped at the maximum amount of penalty that would have been paid if the employer

was not offering coverage and subject to the tax.

Individual Mandate

Healthcare reform includes a mandate, which takes effect in 2014, which requires

individuals to obtain healthcare coverage for themselves and their dependents or face a penalty

tax. The penalty will be imposed on a monthly basis for those applicable individuals each month

they fail to have minimum essential coverage. All persons are “applicable individuals” with

respect to any month and subject to the individual mandate and its penalties unless they fall into

one of these four exceptions:

1. They are a prisoner;

2. They are an undocumented alien;

3. They are healthcare sharing ministry members; or

4. That healthcare goes against their religious conscience

Persons who are applicable individuals will nonetheless be exempt from the penalty of the

individual mandate if they fall into one of the following exemptions:

1. Coverage is unaffordable;

2. They do not meet the filing threshold for purposes of income tax filing;

3. If they are Native Americans;

35


4. If they have a short lapse in coverage (less than three months since they had

minimum essential coverage);

5. They have suffered a hardship;

6. If they are a dependent; or

7. If they reside outside of the United States

All other individuals will be considered “applicable individuals” and therefore subject to the tax.

Amount of Penalty

The amount of the penalty tax will be as follows:

Year Applicable Dollar Amount

2014 Penalty is $95 per adult and $47.50 per child

(up to $285 for a family) or 1.0% of family

income, whichever is greater.


(up to $975 for a family) or 2.0% of family



(up to $2,085 for a family) or 2.5% of family


Provisions to Come

Provision of

Healthcare Reform

Agency Responsible

for Regulations

Effective Date Entities that may

need to take action

Nondiscrimination by IRS Originally March 23, Insurers, Plans,

36


health plans 2010; Regulations

were pushed back and

IRS should release

regs soon

Employers

Restriction on Annual

Maximum Limits on

Essential Health

Benefits

HHS September 23, 2010;

Maximum limits

phase-out until 2014

Insurers, Plans,

Employers

Internal Claims and

Appeals Process and

External Review

Procedures

DOL Originally September

23, 2010; Grace

period extended for

certain pieces of this

provision until July 1,

2011, or January 1,

2012

Insurers, Plans,

Employers

Automatic Enrollment DOL TBD; Appears that

regulations will be

released prior to 2014

Large Employers (200

or more employees)

Four-page Summary

of Benefits

HHS Distributed by March

23, 2012

Insurers and Plans

Quality of Care

Reporting

HHS & IRS Regulations are set to

be released by March

23, 2012

Insurers and Plans

W-2 Reporting

Requirements

IRS Originally was to take

effect in 2011;

Regulations were

pushed back and now

these regulations take

effect in 2012

Employers

$2,500 Health FSA

Cap

IRS January 1, 2013 Employers that

Sponsor Cafeteria

Plans

Notice of Exchanges DOL March 1, 2013 Insurers, Plans, and

Employers

HIPAA Electronic

Transaction Standards

HHS The effective dates of

the new HIPAA

Standards span from

2013 through 2016

Insurers, Plans, and

Employers

Increase in Medical

Deduction

IRS January 1, 2013 Individuals

Fair Health Insurance

Premiums

HHS January 1, 2014 HHS, States and

Insurers

Health Benefit

Exchanges

HHS, IRS, and States January 1, 2014 HHS, States, Plans,

Individual and Small

37


Group Market

Free Choice Vouchers IRS January 1, 2014 Employers and

Exchanges

Individual Mandate IRS January 1, 2014 American Citizens

who do not meet any

exemptions to the

mandate

Play or Pay Tax IRS January 1, 2014 Applicable Large

Employers (Offering,

and Not Offering),

and Exchanges

Total Prohibition on

Pre-existing

Condition Exclusions

HHS January 1, 2014 Insurers and Plans

Guaranteed

Availability of

Coverage

HHS January 1, 2014 Insurers, Plans,

Exchanges

Guaranteed

Renewability of

Coverage


Exchanges

Nondiscrimination

based on Health

Status Factor


Exchanges

Coverage for Clinical

Trials

HHS January 1, 2014 Insurers and Plans

Comprehensive

Health Insurance

Coverage

HHS January 1, 2014 Insurers, Plans, and

Exchanges

Cost-Sharing

Limitations (Out-of-

Pocket Maximum,

Maximum

Deductible)

HHS January 1, 2014 Insurers, Plans, and

Exchanges

High Cost Health

Care Coverage Tax

IRS January 1, 2018 Insurers

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