HEALTH CARE REFORM ALERT

Transcription

1 HEALTH CARE REFORM ALERT Upcoming Health Care Reform Compliance and Planning Issues for 2013 and 2014 By: Jeffrey D. Kirtner and Amanda M. Walkup EMPLOYEE BENEFITS PRACTICE GROUP Jeffery D. Kirtner Amanda M. Walkup July 26, 2013 In the coming months, a significant number of new requirements will take effect under the Patient Protection and Affordable Care Act ( ACA ), including new insurance coverage requirements and new fee, notice and reporting requirements. The recent delay of the large employer pay or play penalties has not affected these requirements. Employers that sponsor group health insurance plans need to understand the new fee, notice and reporting requirements, and they should begin planning in advance for the potential impact of the pay or play penalties in Part 1 of this benefits alert summarizes the ACA requirements that will take effect in late 2013 and during 2014 and the actions that employers sponsoring group health insurance plan should take. Part 2 discusses several ACA requirements that have been delayed, including the large employer pay or play penalties, and what employers should do to plan for their implementation. Part 3 discusses recordkeeping issues. PART 1: ACA COMPLIANCE ISSUES FOR 2013 AND Plan Design and Coverage Issues. Many of the ACA s expanded coverage requirements take effect on January 1, Although most of the coverage requirements will be implemented directly by the insurance companies, employers sponsoring insured plans should work with their insurance broker to determine the likely impact of the various requirements on cost and participation. Employers that sponsor selfinsured plans should work with their advisors to determine the potential impact of the various ACA requirements and modify their plans to comply. Three key changes to be aware of are: No Lifetime and Annual Limits on Essential Health Benefits. Beginning in 2014, plans cannot impose lifetime or annual limits on certain essential heath benefits. This requirement will impact many employer-paid medical expense reimbursement plans Hershner Hunter, LLP Attorneys 180 East 11 th Avenue Eugene, Oregon Tele: Fax:

2 ( MERPs ) and health reimbursement arrangements ( HRAs ), which typically reimburse employee out-of-pocket medical expenses up to a specified limit. There are several exceptions to this requirement. Employers that sponsor a MERP or HRA should determine whether it will meet an exception and, if not, what changes may be necessary. Eligibility Provisions. Beginning in 2014, plans cannot impose an eligibility waiting period of longer than 90 days. Employer plans that currently have longer eligibility waiting periods will need to be modified. For these purposes, 90 days and three months are not equivalent. For administrative reasons, many employers are planning to implement a waiting period in which eligible employees become eligible on the first of the month following 60 days of employment. Wellness Programs. Employers that offer a wellness program should determine whether it complies with the ACA s new wellness program regulations and, if not, what changes may be necessary. Employers that do not currently offer a wellness program may wish to consider whether to adopt one. New Fees. There are two new temporary fees that will soon be required the Patient Centered Outcomes Research Institute Fee ( PCORI Fee ) and the Transitional Reinsurance Program Fee ( TRP Fee ). Both fees apply to a broad range of insured and self-insured plans. Insurance carriers will generally pay these fees and pass along the cost in their insurance premiums. However, employers that maintain self-insured plans, including a MERP, HRA or a cafeteria plan health flexible spending account ( Cafeteria Plan Health FSA ), may be required to pay these fees based upon the number of covered lives in those plans. Consequently, employers that sponsor an HRA, MERP or Cafeteria Plan Health FSA in addition to a major medical health insurance plan should understand these fee requirements and how they apply to their plans. The first PCORI Fee is due by July 31, The first TRP Fee will be due in late Notices. Notice of Exchange. Employers must provide all current employees with a notice about the new state insurance exchange. This notice must be provided on or before October 1, 2013, for current employees and within 14 days of hire for new hires. Standard form notices will be available before the October 1 deadline. Employers should understand these requirements and be ready to provide the notices to their employees. Summary of Benefits and Coverage. Group health plans must provide a summary of benefits and coverage statement ( SBC ) to all participants, beneficiaries and eligible employees at the time of enrollment or reenrollment (i.e., annual open enrollment) and upon request. The SBC must be completed using a standard template and should be included when providing plan enrollment materials. The SBC requirement became effective in 2013, but modifications to it have been made for Additionally, a notice of material modification to an SBC must be provided no later than 60 days prior to the effective date of the change. Thus, mid-year plan amendments will typically require employers to provide 60 days advance notice to employees. Page 2

3 Insurance carriers are required to prepare SBCs for insured plans, but employers are responsible to distribute them. Employers that sponsor a self-insured plan, including an HRA, MERP or Cafeteria Plan Health FSA, may need to prepare and distribute an SBC for those plans. Employers should understand the SBC requirements and how the apply to each health plan. Grandfathered Plan Notices. Employers that continue to maintain a grandfathered group health plan must continue to provide employees with a statement of grandfathered status in any plan materials describing benefits. W-2 Reporting. Employers that provide group health plans must report the aggregate cost of employer-sponsored coverage on employees annual IRS Form W-2s. Certain employers and plans are exempt from this requirement and there are several methods to calculate the cost of certain types of plans. Employers should work with their CPA to determine the appropriate cost reporting methodology. PART 2: FUTURE ACA COMPLIANCE REQUIREMENTS; PLANNING CONSIDERATIONS. Large Employer Pay Or Play Penalties Delayed Until January 2015; Advance Planning Considerations. The new pay or play penalties are the biggest issue facing large employers under the ACA. The effective date of these penalties has recently been delayed one year, until January 1, Although that may seem like a long way off, employers should use the additional time to analyze the potential impact of the penalties and determine what steps to take to minimize the impact on their business and workforce. Under the pay or play penalty framework, employers with 50 or more full-time equivalent employees will be subject to penalties if they do not offer health insurance coverage to at least 95% of their full-time employees or if they offer coverage that is unaffordable or does not provide minimum value and any employee receives federally subsidized coverage through the new state insurance exchange. These penalty rules are extremely complex. For example, under the current proposed regulations, whether an employer is subject to the penalty scheme is based on the number of full-time equivalent employees (which factors in part-time employees), but the amount of any penalties is based on the number of full-time employees (those working at least 30 hours per week). There are different rules for determining the number of full-time equivalent employees and the number of full-time employees and rules for how to count seasonal and variable-hour employees for each purpose. There are rules for determining whether coverage is affordable or provides minimum value. Moreover, under the related employer rules, small employers related through common ownership may be treated as a large employer and subject to the penalty scheme. Although the current proposed regulations may be modified before they are finalized, employers should work with their advisors to understand the basic pay or play penalty framework, determine whether they are likely to be subject to the penalty scheme and keep abreast of changes in the regulations. Page 3

4 Employers should also work with their advisors to determine whether their current health plan will be affordable and provide minimum value during the 2014 plan year. Although no penalties will apply, these determinations will affect whether their employees will be eligible for federally subsidized coverage through the new state insurance exchange during Employers should also work with their advisors during 2014 to monitor the impact of the ACA changes that take effect in 2014 and analyze their options for providing health insurance coverage in 2015 and the relative cost of the options. When analyzing options for providing insurance in 2015, employers should consider: Employer cost. The cost of providing health insurance coverage and administering the plan is, of course, a significant concern. When analyzing costs, employers should consider the tax benefits for providing coverage. The cost of coverage is tax deductible; the pay or play penalties are not. Employee choice. Starting in 2014, individuals will be able to purchase different coverage options through the state insurance exchange without any pre-existing condition limitations. Thus, many employees will have a much greater range of coverage choices available than in the past. Employers should consider how likely their employees are to obtain coverage elsewhere, such as through a spouse or through the state insurance exchange, as overall costs will be impacted by the number of employees who obtain coverage elsewhere. As noted above, employers should monitor the impact of any changes on their plan costs and participation in 2014 and use this information when planning for Employee cost. Starting in 2014, many individuals will be eligible for financial subsidies if they purchase insurance through the state insurance exchange. These subsidies are not available for employer-sponsored coverage. That said, employees who purchase coverage on the exchange will forgo the benefits of employer-sponsored coverage. Employer-sponsored coverage may be purchased on a pre-tax basis (coverage on the exchange is purchased on an after-tax basis), and many employers subsidize a portion of employee premiums. Employers should consider the net out-of-pocket cost to their employees of the various options available to them. It is a balancing act and much depends on an employer s workforce composition. Certain groups of employees may be better off purchasing subsidized coverage on the exchange, while others may be better off purchasing employer-sponsored coverage. Decisions employers make about the coverage they offer in 2014 will affect the amount their employees pay for coverage and whether their employees and their families will be eligible for financial subsidies through the state insurance exchange. These decisions are likely to impact employer plans in 2014 in ways that may affect planning for the pay or play penalties in Competitive Position. A competitive compensation and benefits package can help employers recruit and retain employees. Employer Culture. Many employers desire to provide health insurance benefits to ensure that their employees have coverage when they need it. Page 4

5 We recommend large employers plan for the pay or play rules well in advance of the 2015 effective date. Employers that may be impacted by these rules should involve their benefits attorney, accountant and insurance broker early in the planning process. IRC Section 6056 Reporting. Employers that are subject to the pay or play penalty rules described above must report certain information to the IRS and to their full-time employees on an annual basis. This requirement is often called IRC Section 6056 reporting, based on the section of the Internal Revenue Code containing the requirement. Because of their close tie to the pay or play penalty rules, these rules were also recently delayed until January 1, However, as with the pay or play penalty rules, employers that will be subject to IRC Section 6056 reporting should understand the reporting process and begin planning to implement it well in advance. IRC Section 6056 reporting consists of the following two-part reporting structure: IRS Reporting. The following information must be tracked and reported to the IRS: o General information: The name, address and EIN of the employer; Certification of whether the employer offers minimum essential coverage to full-time employees and dependents under an eligible-employer sponsored plan; The number of full-time employees during each month of the calendar year; The name, address and TIN of each full-time employee during the calendar year and the months during which employee and dependents were covered under the employer plan; Any additional information that may be required by the IRS in future guidance. o Employers that offer minimum essential coverage must also report: The months during the year that such coverage was available; The monthly premium for lowest-cost option in each enrollment category under the plan; The employer s share of total allowed cost of benefits (e.g., 60%); The length of the eligibility waiting period. Employee Reporting. The following information must be reported to each full-time employee: o The name, address and contact information of the responsible person at the employer; o The specific IRS reporting information described above that the employer is required to report to the IRS about the employee. The IRC Section 6056 reporting cycle consists of a rolling three-year reporting cycle. For the first reporting cycle, workforce information from 2014 will be used to determine employer compliance requirements for 2015 (i.e., whether the employer is subject to the pay or play penalty rules in 2015 and the associated IRC Section 6056 reporting). Employers subject to these requirements must track the compliance information described above during 2015 and file the appropriate IRC Section 6056 reports in For the second reporting cycle, data from 2015 will be used to determine compliance requirements for 2016, and compliance information will be tracked in 2016 and reported in This same process will continue each year thereafter. Page 5

6 Although IRC Section 6056 reporting has been delayed a year, employers need to determine in 2014 whether they will be subject to the pay or play penalty rules in 2015 and the associated IRC Section 6056 reporting requirements. If so, they should prepare to begin tracking the compliance information described above during Additional guidance on the mechanics of IRC Section 6056 reporting should be forthcoming soon. Automatic Enrollment Requirement; Opt-out Notice. Employers with 200 or more full-time employees that offer a group health plan will soon be required to automatically enroll employees in the health plan. Employees will, however, be allowed to opt out of coverage There is also a corresponding employee notice requirement under which employees subject to automatic enrollment rules must be given information about the automatic enrollment process, the plan in which they will be automatically enrolled, and an opportunity to opt out of coverage. The automatic enrollment requirement has been delayed until regulations are issued and effective. It is unclear at this time how these requirements will impact employers with multiple health plans. Employers that have 200 or more full-time employees should be aware of this requirement and that it will require future action. Transparency in Coverage and Cost-Sharing Reporting. Group health plans and insurers will soon be required to report certain claims, coverage and cost-sharing information to the Department of Health and Human Services ( HHS ) and state insurance commissioners and to make the information available to the public (upon request or through a website). These requirements have been delayed until regulations are issued and effective, but future action will likely be required. Quality of Care Reporting. Group health plans and insurers will soon be required to file an annual report with HHS that includes information about coverage, benefits and provider reimbursement structures that may affect the quality of care. Copies of the report will need to be made available to enrollees during open enrollment periods. These requirements have been delayed until regulations are issued and effective, but future action will likely be required. PART 3: RECORDKEEPING ISSUES. Employers are responsible to maintain all records necessary to document compliance with or exemption from the various ACA requirements. For example, an employer that is audited may be required to show that all applicable notices were provided and all applicable fees were paid on a timely basis and that all applicable reporting requirements were timely met. Employers that cannot prove compliance may be subject to penalties. The pay or play penalty rules are a certain audit target once they take effect. Employers subject to the pay or play penalty rules should be prepared to rebut an IRS claim that additional pay or play penalties are due. Employers that are not subject to the pay or play rules should maintain documentation of their exempt status. For example, an employer with a workforce that consists of a significant number of temporary or part-time employees or that utilizes a significant number of independent contractors should be prepared to show that it properly classified all workers (as employees or independent contractors) and properly counted full-time employees and full-time employee equivalents. Mistakes can be costly. Page 6

7 For these reasons, employers should maintain records documenting: Notices. That all applicable notices were provided on a timely basis. o Employers maintaining a grandfathered plan should keep records necessary to prove the plan maintained grandfathered status and that they provided notice of grandfathered status in all plan materials describing benefits. o Once the automatic enrollment regulations are effective, employers subject to the requirement should document that they provided opt-out notices to eligible employees and either enrolled them or allowed them to opt out of coverage accordingly. Employers should keep copies of any employee coverage waivers. Reporting. That they complied with all applicable reporting rules on a timely basis. o For W-2 reporting, employers should document how they calculated the aggregate cost of coverage. o Large employers subject to the pay or play penalties and IRC Section 6056 reporting should keep records of: The counting rules used to determine large employer status and what related entities are aggregated for purposes of the large employer determination; The categorization of employees (full-time; part-time, seasonal, variable) and any workers considered to be independent contractors; The applicable measurement periods, stability periods and administrative periods used to determine the employees (and their dependents) that the employer must offer coverage to; The hours of service for each employee; and All items of IRC Section 6056 compliance information described above. Fees. Whether the employer maintains any self-insured plans subject to the PCORI Fee and TRP Fee and, if so, that the fees were timely paid and the method used to determine the number of covered lives for calculating the fees. As additional guidance is issued on various ACA requirements, employers should determine whether they need to maintain additional records to document compliance with or exemption from such requirements. CONCLUSION The ACA is a complex web of legal, tax and insurance rules. There are a lot of new requirements that will take effect over the next several years and many potential pitfalls. Careful planning can help you avoid the pitfalls, take advantage of available opportunities and communicate any benefit plan changes to your employees in a positive manner. We recommend you involve us, your accountant and your insurance broker in the planning process. We can assist you in understanding your obligations, analyzing your options and determining a course of action. Page 7

8 If you have questions, please contact any member of our Employee Benefits Practice Group: Jeffery D. Kirtner Amanda M. Walkup This article provides general information and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. If you have specific legal questions, you are urged to consult with an attorney concerning your own situation DOCX Page 8