The Benefits Game: The Small Employer s Playbook for Affordable Care Act Compliance November 8, 2012

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1 The Benefits Game: The Small Employer s Playbook for Affordable Care Act Compliance November 8,

2 DISCLAIMER The materials in this presentation are not to be construed as legal advice or an opinion on any specific fact or circumstance. We do not assume any responsibility to update these materials if there are subsequent changes to the law. CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any U.S. tax advice contained in this communication (or in any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication (or in any attachment). 2

3 Guidance & Enforcement: Health & Human Services () Treasury Department () Department of Labor (DOL-EBSA) 3

4 Why Should Employers Care? Penalties: (Subject to Certain Exceptions) Excise taxes of $100/day per person affected Minimum penalty of $2,500 (up to $15,000) if discovered after notice of examination. DOL civil penalties. Participant lawsuits. 4

5 Exchanges Online internet store Sell insurance to individuals Sell insurance to small employers or fewer employees - State may define small employer as 50 or fewer for first two years 5

6 Exchanges Qualified Health Plans - Essential Health Benefits Provide comparative information - Premiums/Cost Sharing 6

7 Exchanges Bronze (60% of allowed benefits) Silver (70% of allowed benefits) Gold (80% of allowed benefits) Platinum (90% of allowed benefits) 7

8 Exchanges Small Business Health Option Program, or SHOP Sell health insurance (s) and enrollment services to small employers 8

9 Premium Tax Credit Refundable tax credit to help pay premiums for health insurance Income of 100% to 400% of federal poverty level Family of 4 - $27,010 to $108,040. Must be enrolled in and not eligible for minimum essential coverage 9

10 Premium Tax Credit Employer provided coverage is minimum essential coverage only if both: - Coverage provides minimum value - Plan pays 60% of allowed costs - Coverage is affordable - No more than 9.5% of income 10

11 Reduced Cost Sharing Individuals can also qualify for reduced cost sharing, e.g., lower annual deductibles Income must be 100% to 400% of FPL Per statute, silver coverage required Must receive premium tax credit 11

12 Shared Responsibility (Play or Pay) Applies to employers with 50 or more s - Large employers only Large employers must provide coverage to all full-time employees - Full time = 30 hours/week 12

13 Shared Responsibility (Play or Pay) Penalty for No Coverage - If one employee gets premium tax credit or reduced cost sharing subsidy - Employer pays $2,000 a year multiplied by s minus thirty 13

14 Shared Responsibility (Play or Pay) Penalty if Unaffordable or Not Minimum Value - If one employee gets premium tax credit - Employer pays $3,000 a year for each who receives tax credit, up to $2,000 multiplied by s minus thirty. - Penalty may increase each year based on growth of insurance premiums 14

15 Small Business Tax Credit Small employer (controlled group basis) or tax-exempt entity. 25 or fewer full-time equivalent employees () excludes owner and family members. - Thus, you can employ more than 25 if s < 25 Average annual wages of less than $50,000 per in the tax year. 15

16 Small Business Tax Credit Employer must pay at least 50% of premium for single coverage Credit of up to 35% (25% for tax-exempt) of premiums paid (or, if less, benchmark premiums based on state averages) In 2014, the credit will increase to 50% (35% for tax exempt) 16

17 Small Business Tax Credit Credit phased out as the number of s and average annual wages increase. Full credit of 35% - 10 or fewer s with $25,000 in average annual wages. Partial credit 11 to 25 s with more than $25,000 up to $50,000 in average annual wages. File Form 8941 to claim credit 17

18 Nondiscrimination Rules for Fully Insured Plans Under existing law, if a self-insured plan discriminates in favor of highly compensated employees ( HCE ), the HCE is taxed. In the future (possibly 2014), similar nondiscrimination rules will apply to fully insured plans. The penalty for a discriminatory fully insured plan will be an excise tax imposed on the employer. Penalties may be up to $100/day/per covered employee. 18

19 SIMPLE CAFETERIA PLANS Simple cafeteria plans meet nondiscrimination cafeteria plan rules and other benefits: Group term life insurance Self-insured medical care Dependent care assistance Probably non-discrimination for fully insured plans 19

20 SIMPLE CAFETERIA PLANS Eligible employer. - Generally employ an average of 100 or fewer employees during either of the 2 preceding years. - Special rules for new businesses - If you establish a simple cafeteria plan with 100 or fewer employees, you are eligible employer for any subsequent year if you do not employ an average of 200 or more in subsequent year. 20

21 SIMPLE CAFETERIA PLANS Eligibility and participation requirements. - All employees with 1,000 hours in preceding year except: (1) Under age 21 (2) Less than 1 year of service (3) Union (4) Nonresident aliens with no U.S. income - Each employee eligible may elect any benefit available under the plan 21

22 SIMPLE CAFETERIA PLANS Contribution Requirements - 2% QNEC - Lesser of 2 times salary reduction and 6% of compensation. The rate of contribution to any salary reduction contribution of a highly compensated or key employee can not be greater than the rate of contribution to any other employee 22

23 What have plan sponsors already had to do? Determine whether plans would remain grandfathered. Implement mandates and provide appropriate notices. 23

24 Mandates: Coverage of dependent children to age 26 No pre-existing condition limitation for children under age 19 Beginning 2014, no pre-existing condition limitation for anyone Elimination of lifetime limits Limitation on annual limits (none in 2014) Prohibition on rescinding coverage, (exceptions: fraud or misrepresentation). 24

25 Mandates Choice of healthcare providers Restrictions on out-of network emergency room charges First-dollar preventive care benefits New claims and appeal procedures 25

26 Current 2013 Compliance Issues Summary of Benefit Coverage () Medical Loss Ratio Rebates $2,500 Limit on Medical FSA Form W-2 Reporting (for 2012) Patient-Centered Outcome Fees Restricted Annual Limits - $2M 26

27 Medical Loss Ratio Rebates The medical loss ratio is based on the ratio of amount spent on claims and quality vs. administrative expenses (including executive salaries). Checks go to the group policyholder. (usually, the Employer) DOL guidance on what to do with money (Is the rebate plan assets? Who paid the premiums?) guidance on tax impact. 27

28 Summary of Benefit Coverage See: Sample & Written Materials Note: Once required, material modifications outside of open enrollment require 60- day advance notice. 28

29 Future issues: 2013 Notice of State Insurance Exchanges Plans required to provide notice of the availability of coverage from the state insurance exchanges by March 1, Guidance to be issued by DOL under FLSA. 29

30 Patient Centered Outcome Fee a/k/a Comparative Effectiveness Fee: Imposed on issuers of specified health insurance policies & applicable self-insured plans Passed on by carrier/tpa $1.00 per average number of covered lives ( increased to $2.00 after first year). First plan or policy year ending on or after October 1, (For calendar year plans first year is 2012). Form 720 due July 31,

31 Form W-2 Reporting Report value of employerprovided group health care coverage for W-2 provided in Smaller employers (those that file fewer than 250 Form W-2s) not required until 2014 or later (when further guidance issued). 31

32 Reduction in Medical FSA to $2,500, effective Need to amend cafeteria plans if limitation is higher. Guidance on non-calendar year plans. 32

33 Future issues: 2013 FICA Medicare Tax Increase Effective January 1, 2013, increase in the employee s Medicare Tax for wages over $200,000 ($250,000 for married couples filing jointly): 1.45% increases to 2.35% No employer matching. 33

34 Future issues: 2014 State Insurance Exchanges Open. Status: Pennsylvania & Ohio (uncertain November 16 deadline). Alternative Federally-facilitated exchange (FFE). 34

35 Future design mandates: 2014 Maximum 90-day waiting period Elimination of pre-existing condition exclusions No annual limitations Automatic enrollment (maybe) 35

36 Future issues: 2014 Play or Pay #2 Individual mandate the requirement to purchase health insurance. Penalties apply for failure to obtain coverage. 36

37 Future issues: 2014 Increase in wellness incentives 20% to 30% 37

38 Future issues: 2014 Reinsurance, Risk Corridors and Risk Adjustment Provisions of. Provisions intended to stabilize rates for individual coverage and the small group market. Fees imposed on health insurance issuer and TPA of self-insured plan. (Anticipated to be passed on). 38

39 Future issues: 2018 Cadillac Tax excise tax if coverage under plan exceeds annual cost of $10,200 (single) or $27,500 (family) adjusted for inflation. 39