Health Care Reform: What Employers Need to Know and How They Can Take Advantage of Reform Delays

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1 Health Care Reform: What Employers Need to Know and How They Can Take Advantage of Reform Delays DOMA and HIPAA updates Presentation to the Nevada Chapter of the Association of Corporate Counsel September 24, 2013 Timothy R. Mulliner, Ballard Spahr LLP Diane A. Thompson, Ballard Spahr LLP Calvin Siemer Glen MacIntyre Vice President & General Counsel Director of Risk Management The Venetian/The Palazzo University Medical Center of Southern Nevada

2 Topics of Discussion for Employers Affordable Care Act current status future planning Defense of Marriage Act ( DOMA ) Changes to HIPAA affecting employers 2

3 Affordable Care Act 3

4 Health Care Reform Health Care Reform Three Concepts Delayed 4

5 Current Status Health Care Reform in a Nutshell Strategic Decisions for Employers - Will I pay a penalty in 2015? - Should I change my workforce for 2014/2015? - Should I continue my health plan for 2014/2015? Compliance Changes for 2013 and 2014 Employer Mandate delayed Visit out Health Care Reform Dashboard: 5

6 Individual Mandate Not Delayed Obtain minimum essential coverage or pay a penalty - Employer or government (e.g., Medicare) coverage - Exchange coverage Greater of a dollar penalty or a percentage of household income penalty Year Individual $ Penalty % Income Penalty 2014 $95 1.0% 2015 $ % 2016 (and after) $695 (as indexed) 2.5% Penalty is less for dependents ½ of the dollar amount listed above for each uninsured dependent under the age of 18 Total dollar penalty for a family is capped at 300% of the normal penalty 6

7 What are Health Insurance Exchanges? A one-stop marketplace of health insurance issuers that will enable individuals and small businesses to choose a quality, affordable private health insurance plan Enrollment in the Nevada Exchange begins October 1, 2013 Coverage becomes effective January 1, 2014 Until 2016, employers with 1 to 50 employees can participate In 2016, all employers with 1 to 100 employees can participate - For large employers (more than 100 employees): no earlier than January 1,

8 Employer Mandate Enforcement Delay Announced by IRS blogpost on July 2, 2013 Delay of employer and insurer reporting to January 1, 2015 Delay of employer shared responsibility payments until January 2015 pay or play 8

9 What are the Pay or Play Provisions? Requirement for large employers to offer health coverage to full-time employees or pay a financial penalty - Large employers have at least 50 full-time employees (FTEs) Two types of penalties - $2,000 penalty per FTE without coverage Employer does not offer health coverage to FTEs and dependents: At least one FTE obtains subsidized coverage through an Exchange (ignore the first 30 FTEs) - $3,000 penalty per FTE who obtains subsidized Exchange coverage Employer offer health coverage, but it is unaffordable or inadequate Cannot exceed what the $2,000 penalty would be for all FTEs 9

10 Which Employers Must Pay or Play? Only large employers are subject to the employer pay or play rules - 50 or more full-time employees (FTEs) during the preceding calendar year May use a 6-month period for measurement in the first year (i.e., 6 months in 2014 for 2015) - Related employers are aggregated under the Internal Revenue Code controlled group rules If the all related employers together employ at least 50 FTEs, all of the related employers are treated as large employers - Use the common law rules for determining who is an employee 10

11 What Are Large Employers? Counting Rules for Large Employer Status - Full-time means employed, on average, at least 30 hours per week Regulations include special counting rules for non-hourly employees, foreign employees and seasonal employees - Add in a value for full-time equivalent employees Combine all hours for part-time employees in a month (max of 120 hours for any employee), divide by Calculate the number of FTEs (and full-time equivalent employees) for the prior calendar year; if 50 or more, employer is subject to pay or play rules - Utilize look-back period and stability period rules 11

12 Strategic Decisions of Employers Strategic Decisions for Employers - Will I pay a penalty in 2015? Am I a large employer subject to the penalty? Do I offer health coverage to employees? Is the health coverage adequate and affordable? - Should I make changes to my workforce for 2014/2015? Part-time employees Temporary/Leased employees Independent contractors - Should I continue my health plan for 2014/2015? Cost-benefit analysis 12

13 Delayed Implementation An Opportunity to Restructure Workforce? Large employers only pay penalties for FTEs (not fulltime equivalent employees) who received subsidized coverage through an Exchange - Also, employers don t pay the $2,000 penalty for the first 30 FTEs 13

14 Cadillac Tax 2018 Penalty on employer-sponsored health plans that are deemed too rich Excise tax is equal to 40% of the excess benefit per covered employee - Excess benefit is the aggregate cost of the benefit in excess of: $10,200 for single-only coverage (as adjusted) $27,500 for family coverage (as adjusted) - Exceptions for qualified retirees and those in high-risk jobs Does not become effective until

15 Should I Continue My Health Plan? Employment-based health care system in the United States - In 2009, 61.4% of Americans had health care system in the United States - Down significantly from 2000 levels 69.4% for all Americans - Trader Joe s and Wegmans Market discontinuing coverage of part-time employees - Time Warner and IBM discontinuing coverage of retirees * Source: State-Level Trends in Employer Sponsored Health Insurance, June 2011, Robert Wood Johnson Foundation 15

16 Should I Continue My Health Plan? Reasons for the decline in employer-sponsored coverage - Cost Increase in Cost of Average Premium ( ) % Change Single Family Single Family Single Family National $2,490 $6,415 $4,528 $11, % 74.7% * Source: State-Level Trends in Employer Sponsored Health Insurance, June 2011, Robert Wood Johnson Foundation 16

17 Should I Continue My Health Plan? Reasons for the decline in employer-sponsored coverage - Demographics U.S. population has aged between 2000 and 2009 More individuals on Medicare - From 11.6% in 2000 to 16.6 % in 2009 Source: State Trends in Employer Sponsored Health Insurance, June 2011, Robert Wood Johnson Foundation 17

18 Should I Continue My Health Plan? Does the Affordable Care Act make it more or less likely that employers will continue to provide health coverage to employees? - It depends on: Viability of the State exchanges Size of the employer - 50 or more FTE employees Income level of the workforce Cost of insurance policies offered through the State exchange What competitors are doing Union considerations 18

19 Compliance Changes for 2013 and 2014 Health Flexible Spending Accounts (Health FSAs) and Cafeteria Plans Wellness Program Opportunities Notices 19

20 Health FSAs and Cafeteria Plans Limit on annual employee salary reduction contributions to a health FSA: $2,500 - No limit on employer contributions to a health FSA Effective for plan years beginning after December 31, May amend plan document by December 31, 2014 if otherwise in compliance Consider amending cafeteria plan documents to allow mid-year changes for employees who wish to enroll in Exchange coverage 20

21 What is Required of a Wellness Program? Employer may offer a reward for participation in a wellness program if the reward not conditioned on an individual s satisfying a standard related to a health status factor - No limit to the value of the reward - Types of rewards: Premium discount Rebate of premium or contribution Waiver of a cost-sharing obligation Other benefit 21

22 What is Required of a Wellness Program? Employer also may reward an individual s satisfaction of a standard related to a health status factor if: - Reward does not exceed 30% of total cost of coverage - Program reasonably designed to promote health or prevent disease - Eligible individual must be given the opportunity to qualify for the reward at least annually - Full reward must be available to all similarly situated individuals, including alternative standards for those for whom the standard is unreasonably difficult or medically inadvisable - The alternative standard is described in program communications 22

23 What Employer Notices Are Required? Employers are responsible for furnishing new notices to employees under the Affordable Care Act - Summaries of benefits and coverage (SBCs) Uniform notice of coverage, 4 page model form Provided upon initial enrollment, re-enrollment and upon request - Notice of Exchange coverage and comparison to employer coverage Employers must provide notice by October 1, 2013 Model notice provided by DOL September 11, 2013 no penalty FAQ 23

24 Employer s Action Plan Defense of Marriage Act ( DOMA ) 24

25 What is DOMA? Defense of Marriage Act approved in 1996 defined spouse as a person of the opposite sex United States v. Windsor decided June 28, 2013 overturned DOMA Section 2 IRS issued Revenue Ruling ( ) September 5, 2013 All same-sex marriages recognized for federal tax purposes, even if the individual lives in a state that does not recognize same-sex marriage 25

26 What is the Impact on Employers? Effect on Health and Welfare Plans - Federal taxation - HIPAA special enrollment - Change in status events - COBRA - Health savings accounts (HSAs) - Dependent care assistance programs or Adoption Programs - Spousal life insurance - Employee Assistance programs - Educational Assistance/scholarships 26

27 What is the Impact on Employers? Effect on Qualified Retirement Savings Plans - Survivor benefits and annuity elections/consents - Qualified domestic relations orders (QDROs) - Designation of Beneficiary - Rollovers - Hardship distributions - Loan Consents FMLA - Employee Handbooks 27

28 What are the Next Steps for Employers? Assess your employer-sponsored benefit lineup - Many potential issues for multistate employers - Affects plans other than H&W and qualified retirement plans (e.g., stock plans) Review your plan documentation - Definitions, applicable plan provisions, benefit summaries, beneficiary designation forms, waiver forms, notices, pension funding obligations Review your tax withholding practices - Employer refunds for FICA taxes? Evaluate your employee communication strategies - Communicate now? Communicate at open enrollment? Both? Stay tuned for further guidance - Retroactivity? - State law changes 28

29 Changes to HIPAA 29

30 HIPAA Fundamentals Administrative Simplification Provisions Electronic Transaction Standards Privacy Standards Security Standards 30

31 HIPAA Fundamentals Protected Health Information (PHI) Any information in any form or medium that: Is created or received by a health care provider, health plan, employer, or health care clearinghouse; AND Relates to the past, present or future physical or mental health or condition of an individual, or the provision or payment for health care for an individual; AND Is individually identifiable 31

32 HIPAA Fundamentals Covered Entity Health Plans Health Care Providers who engage in covered electronic transaction Health Care Clearinghouses Covered entity does not include employer that sponsors a health plan, plans other than health plans, or vendors of covered entities. 32

33 HIPAA Changes Business Associate Vendor of covered entity Obtains PHI in performing services on behalf of covered entity Covered entity must require it to enter into business associate agreement (BAA) imposing specified privacy and security requirements Business associates now include those who act on behalf of BA by delegation or contract (subcontractors/agents) BA s responsibilities extended to those performing function, activity or service for BA 33

34 What are the Changes to HIPAA Liability? Business Associates/Subcontractor liable for: Contractual requirements of business associate agreement or subcontractor agreement Certain direct liability for use or disclosures of PHI violating HIPAA Privacy or Security rules Written agreements with subcontractors by

35 HIPAA Fundamentals Compliance Measures Required Risk Assessment Physical, technical, and administrative safeguards (e.g., minimum necessary rule) Specific allocations of responsibility Training Documentation (9/23/2013 deadline) 35

36 What are the Changes to HIPAA Liability? Direct Application of HIPAA responsibility Civil and criminal penalties may apply Subject to audit and enforcement mechanisms Subcontractor BAs may also be sanctioned directly 36