health care reform seminar

BancorpSouth Insurance Services/Wright & Percy

Vice President, Client Compliance

Andy Impastato

Health Care Reform Seminar

Postlethwaite & Ne>erville, APAC Senior Tax Director

William Po>er

Taylor Porter Associate, Tax and

Health Care Prac:ce Team

Addie Prewi>

March 18, 2013 Andy Impastato

Insurance Update

This publication is provided for educational and informational purposes only and does not contain legal advice. You should not act on any information provided without consulting legal counsel. To comply with U.S. Treasury Regulations, we also inform you that, unless expressly stated otherwise, any tax advice contained in this communication is not intended to be used and cannot be used by any taxpayer to avoid penalties under the Internal Revenue Code.

Proprietary and Confidential. Not for Distribution

01

Disclaimer

•  Small Employer Provisions o  Grandfathered Plans o  Carve Out Plans o  Exchange Notice o  Essential Health Bene!ts

02

Agenda

•  Employer Mandate o  Large Employer Status o  Full-Time Employee Status o  Minimum Essential Coverage o  Affordability o  Minimum Value o  “Pay or Play” Penalties o  Tax Credit

Small Employer Provisions

•  Impermissible changes o  Elimination of bene!ts o  Any increase in percentage cost-sharing o  Increase in !xed-amount cost-sharing §  15% above medical in#ation is allowed

o  Decrease in employer contribution §  Five percentage points

o  Certain changes to annual limits

•  Disclosure requirements •  Recordkeeping requirements

Grandfathered (GF) Plans

02

•  Nondiscrimination in favor of highly compensated individuals (HCI) o  Applies to all self-insured plans o  Applies only to non-GF fully insured plans §  Delayed effective date*

o  Definition of HCI o  Eligibility test o  Benefits test o  Penalties for noncompliance

•  Other laws

Carve Out Plans

03

•  Applies to employers subject to the FLSA •  Delayed effective date

o  Originally effective for March 1, 2013 •  Content requirements

o  Existence, services and contact information of Exchange o  Eligibility of premium tax credit or cost-sharing reduction o  Consequences of dropping employer coverage

•  Model Notice?

Exchange Notice

04

•  Applies to non-GF, small group plans •  Effective for plan years beginning in 2014 •  Requirements

o  Provide essential health bene!ts o  Limit cost-sharing o  Provide either bronze, silver, gold or platinum coverage (or

catastrophic plan for individuals)

Essential Health Bene!ts

05

•  Essential health bene!ts o  Categories §  Ambulatory patient services §  Emergency services §  Hospitalization §  Maternity and newborn care §  Mental health and substance abuse §  Prescription drugs §  Rehabilitative and habilitative services and devices §  Laboratory services §  Preventive and wellness services §  Pediatric services (includes oral and vision care)


06

•  Cost-sharing limits o  Out-of pocket limits §  Estimated to be $6,250 / $12,500 §  Includes deductibles, co-payments and coinsurance

•  Deductible limits §  Will be $2,000 / $4,000 §  May be increased by maximum reimbursement available to participant

under FSA


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•  Coverage (metallic) levels o  Levels based on actuarial values o  Standard data o  Actuarial value calculator tool

•  Benchmark plan o  Designated by individual States o  Based on largest products sold in State or by HHS in the

absence of State action


08

Employer Mandate

•  Big Penalty o  “Large” employers (50 FTEs) that fail to “offer” “minimum essential

coverage” to “substantially all” of its “full-time employee” (those working 30 hours per week) and their “dependents” will be subject to a $2,000 per employee penalty if any full-time employee goes to an Exchange and quali!es for a subsidy. Penalty is calculated based on the total number of full-time employees (minus 30).

Employer “Pay or Pay” Mandate

02

•  “Large Employer” Status o  Average of 50 or more full-time employees on business days

o  Look at preceding calendar year (transition relief)

o  “Full-time” de!ned as 30 or more hours of service per week o  Part-time employees represent FTEs (total hours/120)

o  Aggregation rules (controlled group) apply o  Special rule for new employers

o  Seasonal employee exception


03

•  “Offer” of Coverage o  Employee must have an effective opportunity to accept coverage at

least once during the plan year

o  Electronic offer permissible o  Facts and circumstances

o  No “offer” for a month unless coverage available for every day of month


04

•  “Minimum Essential Coverage” o  Not de!ned in Proposed Rule

o  Employer-sponsored GHP plan offered on the small or large group market

o  Where is going to land between major medical and excepted bene!ts?

o  Big open issue


05

•  “Substantially All” o  An employer will be deemed to have offered covered to “substantially

all” full-time employees and their dependents if: §  Coverage is offered to 95% of full-time employees and their

dependents (or, if greater, 5 employees)

§  Failure to offer to 5% need not be inadvertent (i.e., planning opportunity)

§  Does not eliminate penalty for 5%


06

•  “Full-Time Employees” o  Part-time employees are excluded

o  Full-time employees only §  30 “hours of service” per week

§  130 “hours of service” per month

§  Hours worked v. “hours of service”

o  Common law de!nition of “employee”

o  Full-time status measured monthly on an ongoing basis o  Safe harbors mitigate impact of month-to-month analysis


07

•  “And Their Dependents” o  The employer is required to offer coverage to “dependents”

§  Does not include spouse

§  Does include son, daughter, stepson, stepdaughter, adopted child, child placed for adoption, and foster children up to age 26)

§  Transition relief – dependent coverage not required in 2014 if employer not currently offering takes steps during 2014 plan year to offer to dependents


08

•  No coverage (or coverage but not to substantially all) o  Example:

§  Employer A has 100 full-time employees.

§  Employer A does not offer coverage to any of its employees.

§  Employer A owes $2,000 for each full-time employee minus 30, so Employer A owes a total penalty of $140,000 (100 – 30 = 70; 70 x $2,000 = $140,000)


09

•  Little Penalty o  Large employers that offer coverage will be subject to a $3,000 per

employee penalty if the coverage is either not “affordable” (9.5% HI) or does not meet “minimum value” (fails to cover 60% of total plan costs), and as a result, any full-time employee quali!es for a subsidy. Penalty is calculated based on the number of full-time employees who obtain a subsidy (with a maximum penalty cap).


10

•  “Affordable” o  Employee’s premium for single coverage is greater than 9.5% of

employee’s household income §  W-2 safe harbor

§  Rate of pay safe harbor

§  FPL safe harbor


11

•  “Minimum Value” o  Employer pays less than 60% of total allowed costs

o  Not a contribution rate

o  Tests §  MC Calculator

§  Safe Harbor Checklists

§  Actuary


12

•  No “affordable” coverage o  Example

§  Employer B offers health coverage and has 100 full-time employees, 20 of whom receive a tax credit and enroll in the Exchange.

§  Employer B owes $3,000 for each employee receiving a tax credit, so it owes a penalty of $60,000. (20 X $3,000 = $60,000)

§  The penalty is capped at the amount Employer B would have to pay if it offered no coverage at all.


13

•  Health Insurance Premium Tax Credit o  Must be lawfully present in the U.S. o  Income between 100% and 400% of the Federal Poverty Level (FPL) o  Cannot be eligible for “minimum essential coverage”

§  Medicare, Medicaid, CHIP, certain veteran’s coverage and affordable employer coverage

§  Medicaid eligibility may expand to 133% of FPL depending on State

o  Must be through public exchange o  Pending litigation


14

Thank You Andy Impastato

Vice President, Client Compliance [email protected]

Office: (225) 336-3238

March 18, 2013

Addie Prewi>

Legal Update

•  Who is an employee? o  Independent Contractors? o  Leased Employees?

•  What is full-time?

•  How do I calculate the number of full-time equivalent employees?

•  Who is the employer? o  Brother/sister o  Affiliated service groups

01 Office: 225.381.0281 Email: [email protected]

(generally 50 FTEs for 6 consecutive months)

Am I an Applicable Large Employer?

02

Should I Pay or Play?

•  Offer “minimum essential benefits” to “substantially all” (95%) full-time employees – no penalties. ��

•  Offer coverage but not to 95% of full time employees or fail affordability and/or minimum value tests – if at least 1 employee purchases insurance through exchange and receives a subsidy (400% of FPL) – pay $3000 annually per subsidized employee. o  Affordable – generally 9.5% of household income o  Minimum value – generally 60% coverage

•  Don’t offer coverage – pay $2000 per employee over 30 employees.

Office: 225.381.0281 Email: [email protected]

•  Insured – more mandates, less flexibility, less risk

•  Self-insured – few mandates, more flexibility, more risk

If I Play, Should I Insure or Self-Insure?


•  Dependent coverage to age 26

•  Coverage of preventative health services without cost-sharing (grandfathered plans exempt)

•  No rescissions of coverage except for fraud or material misrepresentation

•  No lifetime limits and, after 2014, no annual limits on essential health benefits

o  Lifetime and annual limits on non-essential benefits allowed as otherwise permitted under the State and Federal Law.

o  Note that State-imposed restrictions on self-insured plans would give rise to ERISA preemption issues.

•  Access to pediatric and ob/gyn care

•  Due process and appeal rights

Examples of ACA Requirements Applicable to Self-Insured Plans


•  “Essential Health Benefits” requirements (individual and small markets only)

•  Annual limitations on deductibles

•  Nondiscrimination in favor of highly compensated employees

Examples of ACA Requirements ��Not Applicable to Self-Insured Plans


Thank you Addie Prewi>

Attorney, Taylor Porter Tax & Health Care Practice Team [email protected]

225.381.0281

March 18, 2013

William C. Potter

De!nition of Controlled Groups and Tax and Penalty Provisions

Facing Individuals and Employers

•  Businesses organized in multiple forms may be considered as a single employer

•  Controlled groups can be parent-subsidiary, brother-sister, combinations or affiliated service groups

01

Determination of Full-time Employees in a Controlled Group

Office: 225-‐922-‐4600 [email protected]

•  Control exists if parent owns 80% of the subsidiary •  Could involve multiple subsidiaries

Parent - Subsidiary Controlled Group

02 Office: 225-‐922-‐4600 [email protected]

•  Where the same !ve or fewer individuals own 80% of the related entities, AND

•  Effectively control more than 50% (identical ownership) •  Attribution

o  Family Members – spouse, children, grandchildren, parents o  Partner to Partner o  Estates and Trusts and Bene!ciaries o  Corporations and Shareholders

Brother – Sister Controlled Group


Example

Percentage of Ownership

Member A Corp B LLC Effective

A 80% 20% 20%

B 10% 50% 10%

C 5% 15% 5%

D 5% 15% 5%

Total 100% 100% 40%

04

•  The four owners have more than 80% of A and B, so that requirement is satis!ed. But identical ownership is only 40% so they fail the 50% test. They are two separate employees


•  Subjective determination •  Related entities may or may not have ownership relationships •  Performing services to or on behalf of the other entity, and when capital

is not a material income producing factor

Affiliated Service Groups


Small Employer Health Insurance Tax Credit

•  Allows eligible small employers to claim a 35% credit (25% in the case of tax-exempt employers) for premiums paid toward health coverage for its employees in tax years beginning 2010 through 2013. These percentages increase to 50% and 35%, respectively, in 2014.

•  An eligible small employer is an employer that has no more than 25 full-time employees and the average annual compensation of these employees is not greater than $50,000.

•  The credit is reduced by 6.6667% for each full-time employee in excess of 10 employees and by 4% for each $1,000 that average annual compensation paid to the employee exceeds $25,000.

•  After 2013, employer must participate in an insurance exchange to be eligible for credit.

•  Must pay at least 50% of premium for all employees and the percentage must be uniform among all employees


06

Small Employer Health Insurance Tax Credit Average Wage

Number of FTEs $25,000 and

less $30,000 $35,000 $40,000 $45,000 $50,000

10 and fewer 35% 28% 21% 14% 7% 0% 11 33% 26% 19% 12% 5% 0% 12 30% 23% 16% 9% 2% 0% 13 28% 21% 14% 7% 0% 0% 14 26% 19% 12% 5% 0% 0% 15 23% 16% 9% 2% 0% 0% 16 21% 14% 7% 0% 0% 0% 17 19% 12% 5% 0% 0% 0% 18 16% 9% 2% 0% 0% 0% 19 14% 7% 0% 0% 0% 0% 20 12% 5% 0% 0% 0% 0% 21 9% 2% 0% 0% 0% 0% 22 7% 0% 0% 0% 0% 0% 23 5% 0% 0% 0% 0% 0% 24 2% 0% 0% 0% 0% 0% 25 0% 0% 0% 0% 0% 0%


07

Expansion of Coverage – Individual Mandate

•  Individual Mandate o With limited exceptions, ALL individuals must maintain “minimum essential

coverage” or pay a penalty. §  Government provided coverage §  Employer sponsored coverage §  Exchange coverage.

•  Exemption from mandate o  if required contribution to purchase insurance exceeds 8% of household income. o Religious objection o American Indians o  Incarcerated Individuals o  Those with incomes below the tax !ling threshold



•  Penalty amount is the lesser of a #at dollar amount of percentage of income. o  2014: $95 or 1% of household income o  2015: $325 or 2% of household income o  2016 and later: $695 or 2.5% of household income


09


•  Individual Mandate o  Duty to purchase insurance is mitigated by premium credits and

cost-sharing subsidies available to individuals with income between 100%-400% of federal poverty limit.

o  Premium assistance is not available if individual has access to employer provided coverage UNLESS: §  Too Skinny: Employer coverage provides less than 60% actuarial

value. §  Too Expensive: Required contribution under employer plan for

self-only coverage exceeds 9.5% of household income.


10

Expansion of Coverage – Individual Mandate Poor Middle Income Upper Income

Federal Assistance Medicaid Subsidies None

Premiums limits 2% of income 3% to 9.5% No limit

Cost sharing limit 94% 70 – 93% No limit

Eligibility < 133% FPL 133 – 400% FPL > 400 FPL

Family of 1 < 14.4 14.4 – 43.3 > 43.3

Family of 2 < 19.4 19.4 – 58.3 > 58.3

Family of 3 < 24.4 24.4 – 73.2 > 73.2

Family of 4 < 23.9 23.9 – 88.2 > 88.2

Family of 5 < 34.3 34.3 – 103.2 >103.2


11

•  Effective in 2014 for employers with at least 50 full time employees •  Large employer must offer full time employees (FTE) and their

dependents the opportunity to enroll in minimum essential coverage under an eligible employer sponsored plan

•  FTE must generally not be asked to pay more than 9.5% of their modi!ed household income for coverage

•  Exceptions for new employees

Large Employer Penalties


12

•  Employer not offering coverage •  Employer offering coverage whose employee receives a credit

Penalty for Non-Compliance


13

•  Such employers are subject to a penalty if one or more FTE is certi!ed to the employer as being covered by an Exchange and received a premium tax credit

•  Penalty for any month is an amount equal to the number of FTE’s in excess of 30 times 1/12th of $2,000

•  Regardless of the number of FTE’s who are enrolled in the Exchange and received a premium credit

Employers Not Offering Coverage


14

•  One FTE of a large employer who does not offer health coverage enrolled in an exchange

•  Suppose the employer has 70 FTE’s •  The monthly penalty would be:

70 – 30 = 40 x ($2,000 / 12) = $6,667

•  If the employer offered no coverage all year, the penalty would be:

$6,667 x 12 = $80,004

Example


15

•  Large employer not offering coverage may not be liable for penalties •  If employer has no FTE whose income would qualify him or her for a

subsidy through an Exchange

Note


16

•  Some employers who offer health insurance coverage to FTE’s may be subject to a penalty

•  Penalty can apply based on the number of FTE’s who purchase coverage through an Exchange and receive a credit or cost-sharing reduction

Employers Offering Coverage


17

•  For each FTE in the Exchange, the monthly penalty each month is 1/12th of $3,000 or $250

•  If 25 employees are in the Exchange, penalty per month would be $6,250

•  Penalty is limited •  Assume 50 FTE’s. Penalty is:

50 – 30 = 20 20 x 1/12 of $2,000 = $3,333

Penalty Calculation


18

Expansion of Medicare Taxes (2013)

•  Employee portion of Medicare tax increased by 0.9% •  Applies to wages or self-employment income in excess of $200,000 ($250,000

in the case of a joint return, $125,000 in the case of a married taxpayer !ling separately).

•  The additional Medicare tax increases the employee portion to 2.35% or a total Medicare rate of 3.8%.

•  Employer has the obligation to withhold the additional tax on wages (without regard to spouse’s wages) if its employee earns more than $200,000; Employee is liable to the extent not withheld by employer.

•  Self-employed are not allowed a deduction for ½ of the additional 0.9% tax.


19

Expansion of Medicare Taxes (2013)

•  Individuals, estates and trusts required to pay 3.8% tax on net investment income such as interest, dividends, annuities, royalties, rents, capital gains and income from passive activities.

•  Applies to the income in excess of $250,000 for joint returns, $125,000 for married !ling separate and $200,000 for all others


20

Thank You William C. Potter

Senior Tax Director [email protected]

Office: 225-922-4600

BancorpSouth Insurance Services/Wright & Percy

Vice President, Client Compliance

Andy Impastato

Health Care Reform Seminar

Postlethwaite & Ne>erville, APAC Senior Tax Director

William Po>er

Taylor Porter Associate, Tax and

Health Care Prac:ce Team

Addie Prewi>

health care reform seminar

Business

limits o

o increase

o decrease

selfinsured plans o

individual states o

reduction o consequences

essential health benefits

compensated individuals