Health Care Reform and Small Employers

Steve WojcikVice President, Public Policy

National Business Group on Health

Wendy’s Update MeetingOrlando, FL

September 20, 2010

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Health Care Law Adds Uncertainty to Business Environment

• Many Regulations Still Not Issued Yet

• Political Changes May Bring Some Modifications

• Legal Challenges May Be Successful But Will Take Years before Resolution

• Health Insurance Market Uncertainty

• Uncertainty over How New Options for Buying Insurance (State Health Insurance Exchanges) Will Work

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Summary of Key Employer Provisions of the Law

• Grandfathered Plan vs. Non-Grandfathered Plan (2011)

• Immediate Insurance Requirements (2011)– Cover Dependents Up to Age 26

– No Lifetime or Unreasonable Annual Dollar Limits on Overall Benefits

– No Pre-Existing Condition Exclusions for Children under 19

• Future Insurance Requirements (2014) – No Annual or Lifetime Limits on Essential Benefits

– Bans Waiting Periods Longer than 90 Days for Full-Time Employees

– Bans Pre-Existing Conditions Exclusion Clauses for Adults

• Medicare Surtax on Higher Income People (2013)

• “Pay or Play” Penalties (2014)

• “Cash Out” Vouchers for Certain Low Income Employees (2014)

• Nursing Mother Break Times and Accommodations (2010)

• State Small Business Health Insurance Exchanges (2014)

• Health Account Changes (2011 and 2013)

• “Cadillac” Tax on Higher Cost Plans (2018)

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Keeping the Coverage You Have: Grandfathered Plan Status

• Insurance Plans that Make No Big Changes from Year to Year Are Exempt from Some of the Law’s Requirements

• However, Changing Insurance Carriers May Automatically Lose Grandfathered Status

• In Addition, Any of the Following Changes by Your Insurer Will Trigger Loss of Grandfathered Plan Status:– Decrease Employer Contributions by More Than 5

Percentage Points – Raise Coinsurance Percentages – Raise Copayments by the Greater of Either $5 or 15

Percentage Points Plus Medical Inflation– Raise Deductibles or Out-of-Pocket Limits by More than

15 Percentage Points Plus Medical Inflation– Eliminate All, or Substantially All, Benefits to Diagnose or

Treat Specific Conditions– Adding or Reducing Annual Dollar Limits on Overall

Benefits

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Non-Grandfathered Plans Must Comply with a Host of Government Requirements

• Cover All Government-Recommended Preventive Health Services with No Enrollee Cost Sharing (2011)

• Adopt HHS-Approved Internal Appeals and External Review Processes (2011)

• Nondiscrimination Rules (Insured Plans Only) (2011)

• No Prior Authorization or Higher Out-of-Network Cost-Sharing for Emergency Care (2011)

• No Prior Authorization for Ob/Gyn, and Pediatric Services (2011)

• File Financial Reports with HHS/State Insurance Depts. (2011)

• File Quality of Care Reports with HHS (2012)

• Cover People in Clinical Trials (2014)

• Cost-Sharing Limits not to Exceed HSA Maximums (Currently $5,950 Individual, $11,900 Family) (2014)

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Employer Penalties for Not Offering Insurance

• Begins 2014

• Applies to Employers with More than 50 FTEs. To Determine Whether Employer Has > 50 EEs, Divide Total Monthly Part-Time Hours by 120 and Add to Total Full-Time EEs Applies to EEs Working 30 or More Hours/Week

• Part-Time, Temp and Seasonal EEs Exempt (≤120 Days Per Year)

• No Penalty for 90 Day Waiting Period (Both Part-Time and Full-Time EE Plans)

• First 30 Employees Not Included in Calculation of Any Penalty

• Employer Pays $3,000 for Each EE Where Plan Pays <60% of Premiums OR EE Pays > 9.5% of Their Modified Household Adjusted Gross Income for Coverage AND EE’s Adjusted Gross Income Is at or below 400% of Poverty ($43,320 for Individual, $88,200 for Family of 4 in 2010)

• Employers Not Offering Coverage Pay $2,000 for Each EE if at Least 1 EE’s Adjusted Gross Income Is at or below 400% of Poverty

• Penalties Not Tax Deductible

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Calculation to Determine if You Are Small Enough to Be Exempt from Penalties

• Count Total Number of Full-Time Employees (30+ Hours Per Week) Working in a Month

• Count Total Number of Hours Worked by Part-Time Employees in a Month and Divide by 120 to Determine Number of Full-Time Equivalent Employees

• Add the Total from Both of These to Determine if You Have at Least 50 Employers and Are Not Exempt

• Employers with More than 50 Full-Time Employees Need not Calculate any Hours for Part-Time Employees because They Are Automatically Subject to the Requirement

• Though Part-Time Employees Count toward the Penalty Threshold, Employers Are Not Required to Cover Them

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Example Calculation to Determine Whether Employer Meets Threshold for Penalty

• Employer Has 40 Full-Time Employees, 1 of Which Is Temporary and 2 Who Started a Month Ago

• Employer Also Has 40 Part-Time Employees Each Working 20 Hours/Week = 3200 Part-Time Hours Per Month

• Divide 3,200 by 120 = 26.6 FTEs

• Add 26.6 to the 40 Full-Time Employees = 66.6 FTEs

• Employer Meets Threshold for Penalty

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Example Calculation to Determine Amount of Employer Penalty

• Same Example: Employer Has 40 Full-Time Employees, 1 of Which Is Temporary and 2 Who Started a Month Ago

• Employer Also Has 40 Part-Time Employees Each Working 20 Hours/Week = 3200 Part-Time Hours Per Month

• To Determine Penalty, Do Not Count Part-Time Employees, Subtract Temporary and Seasonal Full-Time Employees, Subtract Full-Time Employees Still in First 90 Days of Employ, and Then Subtract First 30 Remaining Employees to Determine Penalty

• Calculation: (40 Minus 1 Temporary Employee, Minus 2 Employees Working Less than 90 Days, and Minus 30 Employees = 7 Employees

• 7 Employees x $2000 = $14,000 Annual Penalty

• Current Month’s Penalty Payment = 1/12 of Total = $1166.67

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Employee “Cash Out” Voucher

• Begins 2014

• ERs Must Convert Health Care Subsidy to Cash for Any EE Who:– 1) Pays between 8%-9.8% of Their Household Modified

Adjusted Gross Income for Coverage, – 2) Has Income ≤ 400% of Federal Poverty Level, and– 3) Opts Out of ER Coverage for Exchange Plan

• Also Applies for Part-Time Employees Offered Coverage

• Employer Subsidy Equals Plan Option Where Employer Pays Highest Amount, Adjusted for Age and Category of Coverage

• Employees Who “Cash Out” Are Ineligible for Federal Tax Credits

• EEs May Keep Voucher Amounts in Excess of Exchange Plan Premiums

• Vouchers Are Tax Free to EEs, However Excess Amounts Are Taxable

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Excise Tax on Higher Cost Health Plans (“Cadillac Tax”)

• Begins 2018

• 40% Tax on Value of Plans Over $10,200 Individual/$27,500 Family

• Tax Paid by Insurers and Plan Administrators and Is Not Deductible

• $11,850/$30,950 Thresholds for Early Retirees/Deemed High Risk Occupations

• Higher Thresholds for Plans with Older/More Female Plan Participants than National Average Risk Pool as Reflected by Participants in Federal Employee Standard Plan

• Thresholds Indexed to General Inflation But Automatic Adjustment if Federal Employee Premiums for BCBS Standard Option Plan Increase by More Than 55% from 2010 to 2018

• Valuation of Benefits for Calculating Threshold:– Exempts Dental and Vision Benefits from Threshold Calculation– Counts Health Plans, FSA and HRA Amounts, HSA Contributions,

Other Supplemental Insurance– Calculate for Each EE Using Rules for Determining COBRA

Premiums and Report Pro Rata Amount to Plan Administrators/Insurers

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Medicare Surtax on Higher Income Earners

Begins 2013

Applies Only to Individuals with Adjusted Gross Incomes over $200,000 and Married Couples Earning over $250,000– Thresholds Not Indexed to Inflation in Future Years

Additional 0.9% Medicare Surtax on Wages and Salaries Over These Amounts– Beyond the Current 1.45% Employee Portion of the Medicare

Payroll Tax

For People with Incomes over These Amounts, an Additional 3.8% Medicare Surtax on the Lesser of Investment and Other “Unearned” Income or Modified Adjusted Gross Income over These Amounts– Pension, Profit Sharing, 401(k) and Similar Retiree Account

Distributions Are Excluded from Unearned Income for Calculating Tax

No Impact on Payroll Tax

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Nursing Mother Break Time/Accommodations

• Amends Employment Law to Require Employers to Immediately Provide:– “Reasonable” Break Time for Mother to Nurse Child/Express

Breast Milk for 1 Year after Child’s Birth– No Requirement to Pay for Break– Private Place, Other than Bathroom, Required (Shielded

from View and Free from Intrusion from Coworkers and Public)

• Employers with < 50 Employees May Be Exempt if Accommodating Causes Them Undue Hardship (Based on Difficulty or Expense of Compliance Factoring in the Size, Financial Resources, Nature, and Structure of Business)

• Rule Considers Total Number of Employees Regardless of Work Site, Meaning that Employers with <50 Employees at Specific Sites Must Still Comply

• State Laws Pertaining to Nursing Mothers in Workplace Still Apply

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Health Account Changes

• Beginning in 2011, OTC Medicines No Longer Eligible Expense for FSAs, HSAs, HRAs

–Unless Plan Participant Has a Prescription

–Does Not Apply to Insulin without a Prescription

• Beginning in 2011, Penalty for Non-Qualified HSA Distributions for People under Age 65 Increased from 10% to 20%

• Maximum FSA Amount Set at $2,500 (2013)

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HHS Process for Waiver of Annual Limit Restrictions for “Mini-Med” and Limited Benefit Plans

• Plans often Offered to Part-Time Employees

• Limited Coverage and Low Annual Maximum Dollar Limits

• Exemption from Minimum Annual Benefit Limit of $750K

• Temporary Waiver until 2014

• Must Reapply Annually for Waiver until 2014

• Waiver only if Compliance Would Result in:– Significant Decrease in Access to Benefits; or– Significant Increase in Premiums

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Other Key Employer Provisions that Take Effect in Soon

• Report Value of Health Benefits on W-2s (2012)

• Employers with 200+ Employees Must Auto-Enroll New Full-Time Hires in Health Plan (2013)

• Maximum FSA Amount Set at $2,500 (2013)

• Notify Employees of Availability of and Potential Eligibility for Health Insurance Exchanges/Tax Credits (March 1, 2013)