presented for: agc state board of directors meeting may 3, 2013 san francisco, california obamacare...

Presented For:

AGC State Board of Directors MeetingMay 3, 2013

San Francisco, California

OBAMACARE IS HERE, NOW WHAT?

Julie A. PaceThe Cavanagh Law Firm, [email protected]

Heidi Nunn-GilmanThe Cavanagh Law Firm, [email protected]

Jennifer L. SellersThe Cavanagh Law Firm, [email protected]

Health Care Demographics

Julie A. Pace The Cavanagh Law Firm, P.A. 602.322.4046 [email protected]

There are approximately 265 million non-elderly Americans 148.6 million w/ employer based coverage

(55.8%) 15 million w/ individual private insurance

(5.7%) 54.6 million w/ Medicaid or other State (20.5%) 47.9 million are uninsured (18%) Nearly all elderly covered by Medicare, but still

690,000 uninsured in 2011

The Henry J. Kaiser Family Foundation, The Uninsured, A Primer: Key Facts About Americans Without Insurance Coverage (Oct. 2012)

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The Big Picture


Major initiatives effective 2014Individuals must “enroll or pay” – carry

coverage or pay penalties Individuals will have access to basic health coverage

through: Employer-sponsored group health plans Individual insurance policies offered through an Exchange Individual insurance policies offered on private market Government plan (Medicare, Medicaid, Veterans’ or CHIP)

Employers must “pay or play” - offer medical coverage to full-time employees or pay tax penalties

Array of Federal subsidies for small businesses and lower income individuals

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Employer Options


March 23, 2010-January 1, 2014:

Continue coverage that existed as of 3/23/2010 (Grandfathered Plan)

Other employer group plan Insured Self-funded

No coverage

Post January 1, 2014:Continue

Grandfathered PlanEmployer insured

group planEmployer self-funded

planOffer Exchange plan

(when available)No coverage

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“Grandfathered health plan” is defined as any group health plan or individual health insurance

coverage in which an individual was enrolled on March 23,

2010

Whether plan is “Grandfathered” is relevant to determining the coverage obligations of the employer and the plans, which may help control costs of grandfathered plans.

Grandfathered Health Plan


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Grandfathered Health Plan

“New employees” and their families may enroll in a Grandfathered Health Plan after March 23, 2010

Family members may enroll in Grandfathered Health Plan after March 23 ,2010, if such enrollment was permitted under the terms in effect as of March 23, 2010


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Non-Grandfathered Health Plans


Employers may offer health plans other than “grandfathered plans” before and after 2014

All non-grandfathered plans, including self-insured plans, are subject to additional coverage improvement and reporting requirements

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Non-Grandfathered Health Plans


Most requirements become effective for plan years after September 23, 2010, unless otherwise noted

After January 1, 2014, employer-sponsored coverage must meet minimum coverage and affordability standards to qualify for the pay-or-play exemption

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Collectively Bargained Agreements (CBAs)


Insurance reforms do not apply to health coverage maintained pursuant to CBA ratified before the enactment date (3/23/10) until the date on which the last of the CBAs relating to the coverage terminates Coverage requirements applicable to other

Grandfathered Plans, including dependent coverage, do not apply

Any CBA coverage amendment which amends coverage solely to conform to any requirement added by the Act shall not be treated as a termination of such CBA

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Coverage Requirements for Grandfathered and Non-Grandfathered Plans


For plan years beginning on or after 9/23/2010: No pre-existing condition provisions may apply to

children < 19 No lifetime limits on essential health benefits and

restrictions on annual limits Regulations set out minimum annual limits through 2014

increasing each year Plan years after September 23, 2012-December 31, 2013

minimum $2 million annual limits Total exclusion of essential benefits not prohibited by this

rule

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Coverage Requirements for Grandfathered and Non-Grandfathered Plans


For plan years beginning on or after 9/23/2010: Must extend benefits to children up to age 26 Must provide uniform benefits summary

information May not rescind coverage, other than for fraud May not have “excessive” eligibility waiting

period

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Coverage Requirements for Grandfathered and Non-Gathered Plans


Post 2014 Pre-existing condition exclusions prohibited for

all covered members No annual dollar value limits on benefits No eligibility waiting period greater than 90 days

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Additional Coverage Requirements for Non-Grandfathered Plans


In addition to the coverage requirements that apply to Grandfathered Plans, beginning with plan years starting 9/23/10 non-Grandfathered coverage must: Cover preventive health services without cost-sharing

requirements Satisfy mandatory internal and external appeal

process requirements Quality reporting annually to Health & Human

Services (HHS) Secretary

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Additional Coverage Requirements for Non-Grandfathered Plans


Insured plans must account for claims/non-claim costs and rebate to enrollees if non-claims costs too high

Non-discrimination based on salary to prevent highly compensated employees from having more generous benefits than other employees

Patient protections No restriction on selection of pediatrician, primary care

physician, OB/GYN Unrestricted access to coverage for emergency

treatment No prior authorization for obstetric/gynecological care

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Preventive Health Benefits for Non-Grandfathered Plans


Health Plan must cover, without any cost-sharing requirements, A & B rated evidence-based items and services currently recommended by U.S. Preventive Services Task Force Immunizations Pediatric preventive care and screenings Women’s health preventive care and screenings

including breast cancer screening, mammography Screenings for high blood pressure, diabetes, high

cholesterol etc. Complete list at healthcare.gov website

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Non-Discrimination Requirements for Non-Grandfathered Plans


Self-insured plans already subject to separate non-discrimination provisions (including self-insured Grandfathered Plans)

New non-discrimination rules will be “similar” to rules for self-insured plans Do not go into effect until after final guidance issued

Employer plans cannot favor highly compensated employees (HCE) re plan eligibility or benefits

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HCE is defined as: One of the five highest paid officers Top 25% highest paid employee Shareholder who owns more than 10% of Company

stock

Does not prohibit offering different benefits to PT versus FT employees

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Two non-discrimination tests Eligibility – plan must meet one of the following

requirements: At least 70% of all employees are covered; At least 70% of all employees are eligible to participate in

the plan and at least 80% of eligible benefit are covered; or

A non-discriminatory classification of employees is covered

Penalties – excise tax of $100/day Civil action to compel it to provide non-discriminatory

benefits

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Potential Strategy Option It is discriminatory to directly pay higher percentage

of premiums for managers than others. Can provide salary increase to key employees to in

recognition of higher premium costs – but cannot tie increase directly to requirement that employee use it to pay insurance premiums

Section 125 “Cafeteria Plan” would allow employees to designate premium payments with before-tax dollars so that increased wages do not increase taxes

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Coverage of Adult Children


For plan years after September 23, 2010, insurance plans, including Grandfathered Plans, that provide dependent coverage must: “Continue to make such coverage available” for an adult

child Until the child (unmarried or married) turns 26 years of

agePlans not required to offer dependent coverage

Post-2014 employer plan must offer dependent coverage to avoid “pay or play” penalty

Child not required to be a dependent as defined by IRS

Not required to cover a child of a child receiving coverage

IRC amended to exclude expanded coverage from income tax

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For plan years beginning prior to January 1, 2014, Grandfathered health plans only required to provide coverage for older dependent if child is not eligible to enroll in an eligible employer-sponsored health plan other than the parent’s grandfathered plan

Post-2014 Grandfathered health plans offering dependent coverage must expand enrollment to all dependents up to 26


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Health plan prohibited from offering dependent health coverage for adult children on different terms, including cost and coverage, than the terms provided for minor children

Employers must provide adult children under 26 opportunity to enroll in first plan year on or after 9/23/2010 – so all plans now covered Provide notice to employees no later than first day of

eligibility Leave enrollment open minimum 30 days

Claims and Appeals Procedures for Non-Grandfathered Plans


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Non-grandfathered health plans must have internal appeals process that: Allows enrollees to appeal denial of claims or rescission of

coverage Provides enrollees detailed information about grounds for

denial of claims or coverage Notifies employees of their appeal rights

Notices must include certain information required by regs. Ensure full and fair review of denial Provides expedited appeals processes in urgent cases –

claimant must be notified of coverage determination (adverse or not) for “urgent care” within 72 hours


Patients will also have the right to appeal some denied claims to independent external review according to state external appeals laws Claims involving medical judgment Claims involving rescission of coverage Claims involving contractual or legal interpretation

of contract not subject to external review processStates encouraged to adopt processes that

meet certain minimum standards – Uniform Health Carrier External Review Model Act

If state does not adopt standards, health insurance issuers are required to implement external review processes meeting standards set by HHSJulie A. Pace The Cavanagh Law Firm, P.A. 602.322.4046

[email protected]

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All notices required by appeals procedure must be provided in “culturally and linguistically appropriate manner.” Required to provide notices in non-English

language upon request Include in English version notice instruction on

obtaining notice in non-English language Provide telephone assistance available in second

language Required if 10% or more of population in

claimant’s county is literate only in same non-English language


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Rebates for Excessive Non-Claim Costs


PPACA sets maximum Medical Loss Ratio (MLR)

Insurance carriers required to spend at least 80% of their premium income on health care claims and quality improvement efforts

Large group plans require carrier to spend 85% of premiums on health care claims

Does not apply to self-insured plans

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Carrier who do not meet MLR standard required to issue “rebates” to participants Can be in form of payments to participant or

reduction in premiums or the costs of benefit enhancements

Can be paid only to current participants Portion of refund attributable to employee

contributions are considered “plan assets” under ERISA

Portion of rebate attributed to employer contribution may be used to reduce future employer contributions

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Rebate generally taxable to employee if employee paid premium with pre-tax dollars

Employers have 90 days from receipt of “rebate” to make distributions

Distributions to employees not required to exactly reflect individual premiums paid— employers allowed to consider the cost to the plan and

the ultimate plan benefits as well as the competing interests of participants or classes of participants provided such method is reasonable, fair, and objective.

Could be as simple as evenly dividing between all participants

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Market Reforms January 1, 2014


Effective for plan years after January 1, 2014 Prohibition on discrimination on the basis of health

status Health and Wellness Program safe harbor Allow incentives of up to 30% of premium (increased from 20%) Proposed regulations allow additional 20% incentive for

programs to reduce or eliminate tobacco usage Guaranteed availability and renewability

(individuals over age 19) – no preexisting condition exclusions Recall that all plan years on or after 9.23.10

preexisting condition exclusions for children under 19 are prohibited

Comprehensive coverage requirements to be established

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Post-2014 Options


Continue Grandfather Plan

Health Plan through Private Market Not subject to essential benefit requirements

Qualified health plan through an Exchange Exchanges available for small employers beginning 2014 Available for largest of employers beginning 2017 Exchange Plans required to provide essential health

benefits

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Max 90-Day Waiting Period for Enrollment


PPACA prohibits plans from having more than 90-day waiting period for enrollment

Notice 2012-59 provides guidanceWaiting period defined as the period that must pass

before the coverage for an employee or dependent who is otherwise eligible to enroll under the terms of the plan can become effective.

Coverage must be provided within 90 days – Providing coverage on first day of month after 90 days of

employment would violate Act Requirement satisfied if coverage is offered—even if

employee delays enrollment

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Post-2014 Options

Any employer or individual may enroll in a health plan offered outside an Exchange (non-qualified health plan) Subject to State insurance law mandates May be subject to “pay or play” penalties if plan

does not meet affordability and minimum value requirements Not affordable if employee premium for employee only

plan is greater than 9.5% of household income Employer may base analysis on employee’s own W-2

income Minimum value = covers 60% of costs


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Post-2014 Options

Employer may offer multiple plans and satisfy pay-or-play if one plan meets affordability and minimum value requirements Can offer plans that do not meet affordability

requirements, as long as one plan meets affordability and minimum value

May want one minimum value low cost plan to satisfy requirement to offer affordable minimum value plan and other, richer options can be made available at greater expense to the employee

Affordability analysis is based on lowest cost option offered by employer that meets minimum value requirements


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Requirement that Individuals Enroll or Pay Fine


To avoid a penalty, individuals must have acceptable coverage from one of the following sources: Employer-sponsored plan (including a

grandfathered plan) An individual policy (purchased through a private

insurer or through an Exchange) Government program (Medicare, Medicaid,

Veterans, CHIP)

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Those without coverage face the greater of a dollar penalty or a percentage of household income penalty Dollar penalty equals ½ of the amount listed below for

each uninsured dependent under the age of 18 Total dollar penalty for a family is capped at 300% of

the individual penaltyPenalties (per individual) phased in

2014 $95 or 1.0% Income 2015 $325 or 2.0% Income 2016 (and after) $695 (indexed annually) or 2.5%

Income

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Certain individuals are exempt from the fine for failing to carry insurance Individuals who are part of a religion opposed to

acceptance of benefits from a health insurance policy Undocumented immigrants Incarcerated individuals Members of an Indian Tribe Family income is below the threshold required for

filing tax return Insurance would cost more than 8% of income, after

taking into consideration all employer contributions or tax credits

Individuals with short term (< 3 months) gap in coverage

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Subsidies for Individuals


Modest income individuals (between 100% and 400% of the federal poverty level) are eligible for subsidies to pay premiums

Family of 4 - 400% of poverty level is over $92,000 currently and expected to be approximately $95,000 in 2014

Modest income individuals in Exchanges eligible for three subsidies Limits on amount of

income paid for premiums

Cost-sharing (copays, deductibles, etc) limits

Out-of-pocket spending limits

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Premium subsidy only available for purchase of insurance through Exchange Available to individuals eligible for employer coverage

only if employer coverage is not affordable or does not provide required plan value

Subsidy amount based on income and premium for second lowest cost silver plan in exchange for area

Subsidy can be calculated and provided in advance and reconciled on tax returns

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Subsidies available to extent premium exceeds: Up to 133% FPL - 2% of income 133-150% FPL 3 – 4% of income 150-200% FPL 4 – 6.3% of income 200-250% FPL 6.3 – 8.05% of income 250-300% FPL 8.05 – 9.5% of income 300-400% FPL 9.5% of income

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Employers Pay or Play – 2014 & Beyond


Large ERs (=50 FT equivalent EEs) that do not offer health coverage to employees and

dependents and have at least one FT EE who receives premium tax credit must pay a penalty $2,000 per FT EE (excludes the first 30 EEs)

that do offer health coverage to employees and dependents and have at least one FT EE who receives a premium tax credit because employment-related health coverage does not provide minimum value (covers less than 60% of costs) or is not affordable (EE’s contribution to ER coverage > 9.5% of household income) must pay the lesser of $3,000 per employee who is receiving a premium tax

credit $2,000 for each FT EE

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Employers Pay or Play


To calculate penalty for failure to provide employer sponsored health plan: Per month - (1/12 x $2000) x (# of FT employees – 30) Add together each month to obtain annual penalty

To calculate penalty based on coverage that is not affordable or does not meet minimum value requirements Per month – (1/12 x $3,000) x # of full-time employees

that receive premium tax credit for insurance through an Exchange

Add together each month to obtain annual penalty Penalty amounts can be adjusted annually for

inflation

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For determining whether entity is “large employer” (50 or more FTE) for “pay or play” purposes, employees are: FT EEs (30 or more hours/week on average) FT Equivalent Employees (total monthly part-time

hours / 120) Calculate the number of FT and FT Equivalent

employees for the prior calendar year—if 50 or more the employer is subject to the “pay or play” rules Calculate the number of FTEs each month. Add together

and divide by 12 to get annual total. Include fractions in monthly totals. In yearly total

disregard fractions. (49.8 would be 49)

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IRS has proposed transitional relief for 2014 for employers to determine status as “large employer”

Employer may determine its status as “large employer” by reference looking at six month consecutive period in 2013 calendar year (as opposed to entire 2013 calendar year)

E.g. can use period from April 1 to September 30 to determine if employed 50 or more FTEs and period from October 1 to December 31 to make adjustments to comply with PPACA, if necessary.

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If company not in business during preceding calendar year but took over existing business, proposed regs require that predecessor employer be considered in determining with entity is covered “large employer”

If company not in business for preceding calendar year, the employer will be considered a “large employer” if it is reasonably expected to employee 50 or more FTEs during the current calendar year

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Seasonal Worker Exception – exception to “large employer” status for companies only covered due to seasonal workforce

Available if the FT employees plus FT equivalents are greater than 50 for less than 120 days or 4 months (not required to be consecutive) and the excess over 50 are seasonal workers

Seasonal workers – performs work that is ordinarily performed at certain seasons or period of the year and which, from its nature, may not be continuous or carried out throughout the year E.g. agricultural, holiday retail sales, etc. Employers can use “reasonable good faith interpretation” until

more guidance issued.Not available if non-seasonal workforce is 50 or more in

any month

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To qualify under “pay or play” employer-sponsored health plan must provide minimum essential coverage

Employer must offer coverage to “dependents” Dependents include children up to age 26 Dependent does not include spouse Employer can require employee to pay 100% of coverage for

dependents

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Small ERs (< 50 FT equivalent EEs) are exempt from “pay or play” penalties

Group health plans offered by small employers exempt from “pay or play” must still meet all of the coverage improvements and market reforms of the Affordable Care Act

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In counting employees to determine coverage under the Act, the Act applies IRS and ERISA controlled group principles Parent, brother, and sister companies can be counted as one

company, depending on how the business are owned and arranged

IRS proposed regulations would apply the penalty separately to each member of controlled group

The 30-employee reduction of full-time employees for penalty is allocated among the members of the controlled group on basis of number of employees employed by each entity in the controller group

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ER assessments are not tax deductible

Law originally required ERs to offer vouchers for EE at less than 400% of federal poverty level who choose Exchange, but provisions was repealed on April 15, 2011 in 2011 budget bill

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Proposed Regulations re Transition Period

IRS proposed regulations on 12/27/12 for transition period to allow employers easier transition

If before 12/27/12 employer had non-calendar plan year, no penalty due for 2014 as long as offer coverage by first day of 2014 plan year (rather than 1/1/14)

Large employer on calendar plan year can use six months of 2013 as look-back/measurement period to determine status of full-time employees & have 12 month stability period


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Incentives for Small Employers to Provide EE Benefits


ER criteria for tax credits ER must pay at least 50% of EE health care coverage ER must have no more than 25 FT Equivalent EEs

Maximum credit for ERs with 10 or fewer FT Equivalent EEs ER must pay average wage < $50K/year

Maximum credit available for ERs that pay average wage < $25,000

Amount of tax credits Phase I (2011- 2013)

Credit up to 35% of ER contribution toward EE’s health insurance premium

Phase II (2014 and later) Credit up to 50% of ER contribution toward EE’s health insurance

premium

Tax exempt entities are eligible for FICA credits

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Determining Full-Time Employees For Required Health Coverage


Employers are subject to a penalty only for full-time employees who are not offered minimum essential coverage, so it is imperative to understand who is considered full-time

An employee is full-time under the PPACA for months in which the employee averages 30 “hours of service” per week. IRS regulations propose that 130 hour per month be considered

full time.No obligation to cover part-time or leased employeesNo obligation to cover independent contractors

Must truly be independent contractor In proposed regulations, employment relationship determined

under common-law control test

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Determining Full-Time Employees For Required Health Coverage


“Hours of Service” include both: Hours for which the employee is paid or entitled to be paid for

services rendered for employer AND Each hour for which an employee is paid or entitled to be paid by

the employer for time period in which no duties are performed due to vacation, holiday, illness, disability, or other leaves of absence

Periods of special “unpaid leave” such as FMLA leave, leave for military duty, or leave for jury duty cannot be counted against an employee to reduce his or her average hours of service

An employer may use different methods of calculating hours for different employees if the classifications are reasonable and consistently applies

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Determining Full-Time Employees For Required Health Coverage – Rehired Employees


If employee is rehired or returns from unpaid leave or are rehired after a break of at least 26 weeks, the employer may treat them as a new employee

Employer may adopt “parity rule” for breaks in employment (leave or separation) of less than 26 weeks An individual can be treated as a new employee if the period of

the break in employment is at least four weeks long and is longer than the employee’s period of employment preceding the break in service was shorter than the break in service

For example, employee worked for six weeks, did not work for employer for a period of 12 weeks, then returned to employer. The employee can be treated as a new employee because the break in service is longer than the amount of time that the individual was originally employed.

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Determining Full-Time Employees For Required Health Coverage – Rehired Employees


Rehire rule applies only for purposes of determining full-time status under the look-back/measurement calculations

If person does not qualify as new employee under this rule, then they are considered a continuing employee and the measurement and stability period that would have applied if the employee had not had a break in service will apply upon the employee’s resumption of service

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Determining Full-Time Employees For Required Health Coverage – IRS Safe Harbor


IRS proposed “Safe Harbor” for determining whether variable hour employees are “full-time employees” for which the large employer must pay a penalty if it does not provide adequate employer-sponsored coverage

Safe harbor is not required method of calculating whether employees are full-time, but other methods may be challenged by IRS or other and employees reclassified as full-time if employer method disapproved by IRS

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Determining Full-Time Employees For Required Health Coverage – IRS Safe Harbor Key Terms


We will define several terms relating to the IRS Safe Harbor with which employers should become familiar Variable Hour Employee Standard Measurement Period (sometimes referred to as

“look back” period) Stability Period Administrative Period Initial Measurement Period

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Determining Full-Time Employees For Required Health Coverage-Existing Employees Standard

Measurement Period


Existing variable hour employees (those who cannot be determined whether will work average of 30 hours per week or more) Employer may select “standard measurement period” (look back)

of no less than three and no more than 12 months Standard measurement period is fixed calendar period, e.g.

January 1 to December 31 or January 1 to June 30 and July 1 to December 31

Employer determines average hours worked per week by dividing the total hours worked during the standard measurement period by the total number of weeks in the standard measurement period

If employees hours of service = 30 hours per week or more (or 130 hours per month under IRS proposal), then the individual is considered FULL-TIME for the “stability period”. If less than 30 hours per week, then employee is PART-TIME for stability period.

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Determining Full-Time Employees For Required Health Coverage-Existing Employees Standard

Measurement Period


Existing variable hour employees (those who cannot be determined whether will work average of 30 hours per week or more) Employer may select “standard measurement period” (look back)

of no less than three and no more than 12 months Standard measurement period is fixed calendar period, e.g.

January 1 to December 31 or January 1 to June 30 and July 1 to December 31

Employer determines average hours worked per week by dividing the total hours worked during the standard measurement period by the total number of weeks in the standard measurement period

If employees hours of service = 3o hours per week or more (or 130 hours per month under IRS proposal), then the individual is considered FULL-TIME for the “stability period”. If less than 30 hours per week, then employee is PART-TIME for stability period.

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Determining Full-Time Employees For Required Health Coverage-Existing Employees – Stability

Period


“Stability Period” must be equal to the standard measurement period, but cannot be less than six months.

Person considered “full-time” is required to be covered by employer insurance coverage (or employer must pay penalty), for the entire subsequent stability period, regardless of the hours actually worked.

Person found to be “part-time” is not required to be covered by employer insurance (and no penalty) for the entire subsequent stability period, regardless of hours actually worked (unless employment changed, e.g.. became fixed 40-hour employee).

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Determining Full-Time Employees For Required Health Coverage—Existing Employees Example


EXAMPLE:Company A elects to have a 12-month standard measurement period, from November 1, 2012 to October 31, 2013. For each employee, the Company must take the total hours of service and divide by 52 weeks. The employees determined to be full-time by working an average of 30 hours per week (or 130 hours per month), must be provided with health insurance for the stability period of January 1, 2014 to December 31, 2014, regardless of the hours worked by the employee in 2014. The employees determined not to be full-time (work less than 30 hours per week or 130 hours per month), are not required to be provided health insurance (and employer not liable for a penalty) for the stability period of January 1, 2015 to December 31, 2015, regardless of the hours worked (unless the employee actually obtains some type of full-time status).

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Determining Full-Time Employees For Required Health Coverage—Existing Employees Administrative

Period


Employers are permitted to have an “administrative period” of no more than 90 days (NOT 3 months) between the “standard measurement period” and the related “stability period” to allow the employer to determine which employees are eligible for coverage and to enroll employees To avoid gaps in coverage, the administrative period must

overlap with the previous stability period Example:

Standard measurement period of November 1 to following October 31Administrative period of November 1 to December 31Stability period of January 1 to December 31

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Determining Full-Time Employees For Required Health Coverage – IRS Proposed Transition Method


IRS proposed regulations would allow employer who wants to use a 12-month standard measurement period and stability period to use a shorter period (no less than six months) in 2013 for determining 2014 coverage

2013 standard measurement period must be at less 6 months long, start no later than July 1, 2013, and end no earlier than 90-days before the first plan year beginning on or after January 1, 2014 Employers using full 12 month measurement period to determine 2014

eligibility are not subject to these requirements

Employers likely need 2-3 months administrative time, so should be planning for a 6-month standard measurement period in 2013 that begins in April or May

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Determining Full-Time Employees For Required Health Coverage—Differing Measurement Periods


An employer may use stability and standard measurement periods that are differ in length or in their starting or ending dates for: Collectively bargaining employees versus non-collectively

bargained employees; Salaried employees versus hourly employees. Employees of different entities. Employees located in different states.

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Determining Full-Time Employees For Required Health Coverage—New Employees


If employee is reasonably expected at time of hire to work an average of 30 hours or more per week, they are full-time at the point of hire

If it is not reasonably determinable at time of hire whether employee will work average of 30 hours or more per week at time of hire, they are variable hour employee

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Determining Full-Time Employees For Required Health Coverage—New Employees Initial

Measurement Period


Employer selects “Initial Measurement Period” of no less than three months and no more than twelve months

No insurance requirement for the “initial measurement period” plus administrative period of no more than 90 days, but the total of the initial measurement period and administrative period cannot extend beyond the last day of the first full calendar month beginning on or after the employee’s first anniversary of employment. E.g. employee hired January 5, 2014—insurance must be

provided if employee eligible by March 1, 2015 Allows employer selecting 12-month measurement period

to forego coverage for new variable hour employee for up to 13+ months

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Determining Full-Time Employees For Required Health Coverage—New Employees Overlapping Standard

Measurement Period


Employer must include a new employee in the standard measurement period with ongoing employees for the first full standard measurement period that begins after the employee start date.

For example, if an employee is hired on March 10, 2014 and the employers standard measurement period is January 1 to December 31, the employee would be included in the standard measurement period that begins January 1, 2015.

New employee who is full-time based on initial measurement period must be treated as FT for the related stability period, even if the employee is determined to be part-time based on overlapping standard measurement period

Employee determined not to be full-time based on initial measurement period but determined to be full-time based on overlapping standard measurement period must be treated as full-time employee during the stability period associated with the standard measurement period

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Determining Full-Time Employees For Required Health Coverage—IRS Examples


Example 1. Facts. The employer uses a standard measurement period of 12 months beginning on October 15 and a stability period of 12-months beginning January 1. For new variable hour employees, Employer B uses a 12-month initial measurement period that begins on the start date and applies an administrative period from the end of the initial measurement period through the end of the first calendar month beginning on or after the end of the initial measurement period. Employer B hires Employee Y on May 10, 2014. Employee Y’s initial measurement period runs from May 10, 2014, through May 9, 2015. Employee Y works an average of 30 hours per week during this initial measurement period. Employer B offers coverage to Employee Y for a stability period that runs from July 1, 2015 through June 30, 2016.

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Conclusion. Employee Y works an average of 30 hours per week during his initial measurement period and Employer B uses (1) an initial measurement period that does not exceed 12 months; (2) an administrative period totaling not more than 90 days; and (3) a combined initial measurement period and administrative period that does not last beyond the final day of the first calendar month beginning on or after the one-year anniversary of Employee Y’s start date. Accordingly, from Employee Y’s start date through June 30, 2016, Employer B is not subject to any payment under § 4980H [the Affordable Care Act] with respect to Employee Y, because Employer B complies with the standards for the initial measurement period and stability periods for a new variable hour employee. Employer B must test Employee Y again based on the period from October 15, 2014 through October 14, 2015 (Employer B’s first standard measurement period that begins after Employee Y’s start date).

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Example 2Facts. Same as Example 1, except that Employer B uses an 11-month initial measurement period that begins on the start date and applies an administrative period from the end of the initial measurement period until the end of the second calendar month beginning after the end of the initial measurement period. Employer B hires Employee Y on May 10, 2014. Employee Y’s initial measurement period runs from May 10, 2014, through April 9, 2015. Employee Y works an average of 30 hours per week during this initial measurement period. Employer B offers coverage to Employee Y for a stability period that runs from July 1, 2015 through June 30, 2016.

Conclusion. Same as previous example.

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Example 3Facts. Same as Example 1, except that Employee Y works an average of 28 hours per week during the period from May 10, 2014 through May 9, 2015 and Employer B does not offer coverage to Employee Y in 2015. Employer B tests Employee Y again based on Employee Y’s hours from October 15, 2014 through October 14, 2015 (Employer B’s first standard measurement period that begins after Employee Y’s start date).

Conclusion. From Employee Y’s start date through the end of 2015, Employer B is not subject to any payment under § 4980H [the Affordable Care Act], because Employer B complies with the standards for the measurement and stability periods for a new variable hour employee with respect to Employee Y.

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Example 4Facts: Employer uses a six-month standard measurement period, starting each May 15 and November 15, with six-month stability periods associated with those standard measurement periods starting January 1 and July 1. For new variable hour employees, Employer C uses a six month initial measurement period that begins on the start date and applies an administrative period that runs from the end of the initial measurement period through the end of the first full calendar month beginning after the end of the initial measurement period. Employer C hires Employee Z on May 10, 2014. Employee Z’s initial measurement period runs from May 10, 2014, through November 9, 2014, during which Employee Z works an average of 30 hours per week. Employer C offers coverage to Employee Z for a stability period that runs from January 1, 2015 through June 30, 2015

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Conclusion. Employer C uses (1) an initial measurement period that does not exceed 12 months; (2) an administrative period totaling not more than 90 days; and (3) a combined initial measurement period and administrative period that does not last longer than the final day of the first calendar month beginning on or after the one-year anniversary of Employee Z’s start date. From Employee Z’s start date through June 30, 2015, Employer C is not subject to any payment under § 4980H [the Affordable Care Act], because Employer C complies with the standards for the measurement and stability periods for a new variable hour employee with respect to Employee Z. Employer C must test Employee Z again based on Employee Z’s hours during the period from November 15, 2014 through May 14, 2015 (Employer C’s first standard measurement period that begins after Employee Z’s start date).

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Example 5Facts. Same as Example 4; in addition, Employer C tests Employee Z again based on Employee Z’s hours during the period from November 15, 2014 through May 14, 2015 (Employer C’s first standard measurement period that begins after Employee Z’s start date), during which period Employee Z works an average of 28 hours per week. Employer C continues to offer coverage to Employee Z through June 30, 2015 (the end of the initial stability period based on the initial measurement period during which Employer C worked an average of 30 hours per week), but does not offer coverage to Employee Z from July 1, 2015 through December 31, 2015.

(ii) Conclusion. Employer C is not subject to any payment under § 4980H [the Affordable Care Act] with respect to Employee Z for 2015.

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Determining Full-Time Employees For Required Health Coverage—2014 Transition Rule


IRS proposed rules providing for transition rule for 2014

Solely for purposes of 2014 stability period, employers may select a stability period of 12 months and a shorter measurement period if:

measurement period is not less than six months measurement period begins no later than July 1, 2013 measurement period ends no earlier than 90 days before the first day of the plan year beginning on or after January 1, 2014 Ex: Employer with fiscal year plan beginning April 1 could use measurement period of July 1, 2013 to December 31, 2013 and administrative period ending March 31, 2014

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Determining Full-Time Employees For Required Health Coverage—Employer Considerations


Composition of workforce – whether more stable full-time or more variable hour employees – should be considered in determining standard measurement period and stability period. Rate of turnover may influence standard measurement period

12 month standard measurement likely better for industries with many variable hour employees and high turnover

Size of workforce may influence administrative period—larger workforce may require longer administrative period

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Proposed Substantial Compliance Provision


IRS released proposed regulations on the employer pay-or-play requirements on December 28, 2012

Generally follows guidance previously issued regarding calculating full-time employees

Proposed regulations add a potential “substantial compliance” provision Employers satisfy the pay-or-play requirements if they offer

minimum essential coverage to 95% of their full-time employees, i.e. no more than 5% of full-time employees (or no more than 5 employees if 5 is greater than 5%) are not offered affordable minimum essential coverage

This would allow employers some room for error when calculating full-time employees

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IRS Proposed Anti-Abuse Rule


Would impose penalty on employers who attempt to structure their workforce to avoid being covered by ACA “pay or play” requirements For example, employer hires employees directly for 20

hours per week and leases employees through leasing Company for 20 hours per week

If worker performs same services directly for the employer and through an employee leasing company, then all hours are attributed to the employer for purposes of the “pay or play” penalty

If employee provides services to the same employer through two or more employee leasing companies, all hours are attributed to the client employer if employer controls work

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Minimum Value of Employer-Sponsored Plan


Employer plan must provide “minimum value” to avoid “pay or play” penalties.

Actuarial value must be at least 60%.Actuarial value of a health plan is the measure of

the percentage of health care costs that the plan is expected to cover. HHS study found 98% of individuals currently covered by

employer plan are in plan with actuarial value in excess of 60%

IRS Notice 2012-31 – Requests comments on various approaches to determining whether employer health plan provides “minimum value” of 60% of costs

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Minimum Value of Employer-Sponsored Plan


IRS Notice 2012-31 – Proposals for determining actuarial value Actuarial value calculator (“AV Calculator”) or minimum

value calculator (“MV Calculator”) provided by HHS and Treasury Department – ER input information

Safe harbor checklists that do not use calculations or assistance of actuary

For plans with non-standard features that makes use of AV calculator or MV calculator impossible, the certification of a certified actuary

Actuarial value could be based on four core categories: Physician and mid-level practitioner care Hospital and emergency room services Pharmacy benefits Laboratory and imaging services

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Affordability Safe Harbor


PPACA generally requires employer to pay tax penalty if full-time employee receives federal subsidy because the employer coverage is either not affordable or does not provide minimum value

Coverage is affordable if the employee’s required contribution to the plan does not exceed 9.5% of the employee’s household income

Household income = modified adjusted gross income of employee and any member of employee’s family

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Affordability Safe Harbor


Employer not necessarily aware of employee’s household income, so may not be able to determine if coverage offered is affordable

IRS proposes safe harbor where affordability of employer coverage is satisfied if the premium meets one of the following: W-2 Safe Harbor – EE’s annual premium contribution does not

exceed 9.5% of EE’s wages reported in box 1 of W-2 Rate of Pay Safe Harbor – EE’s monthly premium contribution

does not exceed 9.5% of EE’s hourly rate of pay x 130 or (for salaried EE) their monthly salary

Federal Poverty Limit (FPL) Safe Harbor – EE’s annual premium contribution does not exceed 9.5% of federal poverty level

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Union/Multiemployer Plans After 2014


Definition of multi-employer plan Plan that is maintained pursuant to a collective bargaining

agreement and has a joint board of trustees that represents the employees and employers.

Government has requested comments on how the “pay or play” requirements should apply to employers in multi-employer plans

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Union/Multiemployer Plans After 2014


2014 Safe Harbor – employer in union plan will not be treated as having failed to offer coverage if: The employer is required by a CBA to make contributions to a

multi-employer plan for the employee Coverage under the multiemployer plan is offered to the full-

time employees The coverage offered to the employees meets the affordability

and minimum value standards

The multiemployer plan must comply with the 90-day limitation on waiting period

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What is a Health Care Exchange?


A marketplace of health insurance issuers (traditional, for-profit insurance companies and non-profit cooperatives) that will offer QHPs to individuals/small ERs

Exchanges will be operational by January 1, 2014 for individuals and small employers Open enrollment set to start October 1, 2013 “Small employer” defined by the State for state exchange

Large employers (100 or more employees) may be eligible to purchase coverage through Exchanges in 2017

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Who Creates an Exchange?

Each state must create an Exchange (funded by $6 billion in federal grants) Establish one or more state or regional Exchange Partner with the federal government to create Exchange Merge with other state Exchanges

Exchange must be a government agency (existing or new) or non-profit established by the state

If state does not create exchange, federal government create exchange for the state


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Who Creates an Exchange?

States wishing to create Exchange required to obtain approval from HHS

States required to disclose their plans to HHS by December 14, 2012 17 states plus DC are pursing State-created

Exchange 7 states are pursuing a state/federal partnership 26 states do not intend to create state exchange


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What is the Goal of an Exchange?

Enhance consumer choice

Creation of single risk pools

“Apples to apples” comparison of health insurance coverage

Create competition for customers on equal terms to lower premiums


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What are the Features of an Exchange?


Issuers must be certified by the Exchange

Issuers must offer at least one silver plan and one gold plan

Issuers must agree to charge the same rates whether plan is sold in Exchange or outside of the Exchange

Rating system based on quality and price

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Additional Features of an Exchange

Enrollee satisfaction system

Insurers barred from basing premiums on health status, gender and other factors. Premiums may vary based on age, with the spread constrained to a 3:1 ratio, and based on tobacco use up to a 1.5:1 ratio. Premiums may also vary by geographic area and family size

Each plan must offer “essential benefits”Julie A. Pace The Cavanagh Law Firm, P.A. 602.322.4046 [email protected]

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Multi-tier Exchange with Different Levels of Coverage


Every tier covers essential benefits % of covered benefits costs ranges 60% to 100% Out-of-Pocket limit for all tiers capped at $6,250

(individual)/$ 12,500 (family) (indexed annually) Tiers labeled Bronze, Silver, Gold, Platinum, and

Catastrophic Bronze = covers 60% of full value of plan benefits Silver = 70% Gold = 80% Platinum = 90% Catastrophic = minimum plan available to people under

30 or otherwise exempt from pay or plan mandate

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Exchanges – Essential Benefits

Essential benefits include 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 Preventative and wellness services Pediatric services, including oral and vision care


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Exchanges – Essential Benefits

Essential benefits include 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 Preventative and wellness services Pediatric services, including oral and vision care


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Excise Tax on “Cadillac Plans”


Cadillac Plan is any plan whose costs, i.e. premiums exceed established threshold Premium of $10,200/year for single-only coverage

(as adjusted annually) Premium of $27,500/year for family coverage (as

adjusted annually) For qualified retirees and those in high-risk jobs

threshold is $11,850/$30,950 (as adjusted annually) High risk professions include firefighters, police, and

miners

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Excise Tax on “Cadillac Plans”

Tax = 40% of “excess benefit” Excess benefit is the aggregate value of the health plan in

excess of the established threshold

Paid by “coverage provider,” i.e. insurance company for insured plans and employer for self-funded plans

Effective January 1, 2018


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Retiree Provisions – Medicare Part D


Medicare Part D

No ER deduction for retiree drug subsidy beginning 2013

Closing the “Donut Hole” on prescription coverage The “Donut Hole” is the amount Medicare enrollees

spend on prescriptions after exceeding the coverage limit but before reaching a level that qualifies them for catastrophic coverage

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Retiree Provisions – ER Subsidies

Subsidy for group plans providing medical coverage to early retirees (55-64) and their spouses Applies June 1, 2010 to January 1, 2014 Plan sponsor must apply to Health and Human

Services and HHS must certify plan before ER eligible for subsidy

Plan sponsor eligible for reimbursement of 80% of claims by retiree and family between $15,000 and $90,000


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HSA/FSA Changes


Effective January 1 2011, most over the counter medications and drugs not covered by FSA/HRA/HSA unless individual has a prescription Medical devices and supplies that are not medications

continue to be covered Insulin continues to be covered without prescription

Beginning for plan years starting January 1, 2013, or later, FSA contributions will be limited to $2,500 IRS reconsidering use-it-or-lose it for FSA

Excise tax on non-medical HSA distributions increased from 10% to 20%

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Notice to Employees


Employers subject to FLSA must provide written notice to current and new employees Identify the Exchange and how to contact If employer’s health plan is not sufficiently valuable,

notify of the existence of premium subsidies and cost-sharing reductions

If the employee enrolls in an Exchange plan, indicate that the employee may lose any employer subsidy in the employer plan

Effective date originally March 13, 2013 – delayed until further regulations or guidance issued

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Notice to Employees


Summary of Benefits and Coverage Required beginning in plans years starting on or after

September 23, 2012 Must contain minimum information regarding health

plan benefits and coverage identified in regulations DOL EBSA has created template for notice to be

customized by employer/plan

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Auto Enrollment


Large employers (200+ FTEs) must automatically enroll new employees in the lowest cost health plan when the employee becomes eligible if the employer offers a health plan

Employees may opt out; advance notice of enrollment and opt out is required

Not effective until after regulations are issued by DOL DOL does not expect to have regulations finalized by

2014

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Taxes on High Income Individuals


Increases the health insurance (HI-Medicare) portion of the FICA tax from 1.45% to 2.35% on wages in excess of $200,000 ($250,000 for a joint return, $150,000 for married filing single)

Additional 3.8% tax on lesser of: net investment income (interest, dividends, royalties,

rents, passive income) Modified adjusted gross income in excess of $200,000

($250,000 for a joint return, $150,000 for married filing singly)

Both provisions are effective on January 1, 2013

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Taxes on High Income Individuals


No employer match on the 0.9% increase in HI (Medicare) Tax that applies January 1, 2013

Individuals are liable for additional tax if earning $200,000 filing singly or $250,000 married filing jointly

Additional tax is only on the income earned above the threshold

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Additional MedicareTaxes on High Income Individuals


Employer must withhold if it pays individual more than $200,000, regardless of individual's filing status

Employees whose have additional Medicare tax withheld from pay but do not owe tax due to filing status can obtain refund from federal government

Employer cannot honor request not to withhold additional Medicare tax Employer who does not withhold is liable for tax if

employee does not pay it IRS proposed regulations to allow employers to correct

errors in withholding

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W-2 Reporting Requirements


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Employers required to report the total cost of the health insurance plan they sponsor on the employee’s W-2 Includes the employer and employee contribution Informs employees of cost of their health care Does not make benefit taxable income

Large employers required to report on 2012 W-2 (provided to employees in 2013)

Small employers (fewer than 250 employees) not required to comply with requirements until 2014 or until further guidance is issued

Employer Action Items


Determine if your company has 50 full time employees under the full time employee equivalent test

Consider budgets, and whether it would make more sense to discontinue offering group health plans and pay the penalty for all full time employees if a single employee decides to obtain health insurance either through private insurance or an exchange and receives a tax credit.

If the company intends to continue to provide a grandfathered plan, talk to the company’s current insurer to ensure that any plan modifications comply with new requirements.

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Consider offering different plans with different levels of benefits with each plan providing minimum essential coverage and the least expensive plan being affordable under the affordability test.

Review and update plan document and summary plan description as necessary.

Review and update FSA and HSA plan documents as necessary.

Review and update handbook policies

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Develop talking points for meetings with employees to discuss health benefit options.

Develop a waiver form for any employees who decide not to participate in the company's sponsored health insurance.

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Handbook & Plan Document Revisions


Define full-time and part-time in handbook

Define variable hour employee

Review benefits policies, Summary Plan Descriptions and Plan Documents to determine if new definitions needed

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Plan Amendments


Complying with certain provisions of the Affordable Care Act may require amendments to current health plans.

Employers should work with counsel and insurance companies to ensure plan and plan documents comply with Affordable Care Act requirements

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QUESTIONS??


1634142

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Julie A. PaceThe Cavanagh Law Firm, [email protected]

Heidi Nunn-GilmanThe Cavanagh Law Firm, [email protected]

Jennifer L. SellersThe Cavanagh Law Firm, [email protected]

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Julie A. PaceThe Cavanagh Law Firm, P.A.

[email protected]

Julie Pace has been interviewed and quoted on immigration and employment law in news media across the nation, including ABA Journal, Forbes, Wall Street Journal, Business Week, The New York Times, CNN, NPR, Associated Press, USA Today, L.A. Times, CBS News, Fox News, and Arizona publications.

Ms. Pace is a frequent speaker and author on a variety of employment topics. She is Co-Editor-in-Chief of three books on immigration and employment law -- Employment Verification: An Employer's Guide to Immigration, Form I-9 and E-Verify; Arizona Human Resources Manual; Model Policies and Forms for Arizona Employers, all published by American Chamber of Commerce and Industry HR Compliance Library.

Ms. Pace is a recipient of Arizona Business Magazine’s 2008 Centers of Influence Award, which recognizes the ten leading attorneys, accountants, and bankers in Arizona. Ms. Pace is also a Fellow of the Litigation Counsel of America. She has served as Judge Pro Tem for the Arizona Court of Appeals and is a former judicial law clerk to the Honorable Joe W. Contreras of the Arizona State Court of Appeals. Ms. Pace is a fourth generation Arizonan.

Julie A. Pace

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JULIE A. PACE is a partner in the Phoenix office of The Cavanagh Law Firm PA. Ms. Pace’s practice is concentrated in representing companies in immigration compliance, commercial litigation, construction, and employment law, with particular emphasis in the defense of sexual harassment, employment discrimination, wrongful discharge suits, EEOC and ACRD charges, matters involving OSHA, ICE, OFCCP, DOL, DOT, NLRB, ADA, FMLA, ERISA, I-9s, E-Verify, Davis-Bacon, wage and hour laws, conducting sexual harassment investigations, and providing training to managers and employees. She also counsels employers on noncompete contracts, confidentiality agreements, employee discipline, drug testing, accommodation of disabled individuals, safety policies, affirmative action plans, wage conformances and wage determinations, and other related human resource policies and procedures.

Ms. Pace also handles issues involving the Affordable Health Care Act and addresses the changes and options it presents to companies. Her Davis-Bacon and prevailing wage practice includes counseling and training on state and federal prevailing wages and benefits requirements, coverage and applicability of prevailing wage laws, coverage exemptions, worker classification and pay issues, addressing wage determinations, wage surveys, and representation of employers before the Department of Labor Wage and Hour Division and similar state agencies.

Ms. Pace has been described by Arizona Business Magazine as the "go to" lawyer in Arizona for businesses on immigration issues. She has handled hundreds of I-9 audits, addresses E-Verify issues, and has provided I-9 and immigration compliance training for thousands of supervisors. She has chaired the Immigration Committee of the Arizona Chamber of Commerce and Industry.

For over the past two decades, Ms. Pace has regularly represented companies in OSHA proceedings. She has been working on fall protection issues since the fall protection standard went into effect in 1995. She has handled hundreds of OSHA matters and numerous fatalities in the workplace.

She received her J.D. degree, cum laude, from Arizona State University, where she was also Symposium and Articles Editor of the Arizona State Law Journal. She received her B.S. degree in Business Administration, magna cum laude, from Arizona State University. Ms. Pace can be reached at 602.322.4046 or [email protected].

Julie A. Pace

presented for: agc state board of directors meeting may 3, 2013 san francisco, california obamacare...

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