HEALTH CARE REFORM: CONSIDERATIONS FOR THE BUSINESS MANAGER

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HEALTH CARE REFORM: CONSIDERATIONS FOR THE BUSINESS MANAGER This is only a brief summary that reflects our current understanding of select provisions of the

1 HEALTH CARE REFORM: CONSIDERATIONS FOR THE BUSINESS MANAGER This is only a brief summary that reflects our current understanding of select provisions of the law, often in the absence of regulations. All of the interpretations contained herein are subject to change as the appropriate agencies publish additional guidance.

3 EXPANDED ACCESS TO COVERAGE Cornerstone of Health Care Reform Public Exchanges Individual mandate Federal premium tax credit to purchase Exchange coverage Employer responsibility

4 PUBLIC EXCHANGES States must operate Exchanges or federal government is providing a default Bronze, silver, gold, and platinum options Coverage is guaranteed issue, no preexisting condition limits, no individual medical underwriting

5 INDIVIDUAL MANDATE Must obtain minimum essential coverage or pay a tax, beginning January 1, 2014 Penalty is capped at average cost of bronze level Exchange coverage Exceptions if coverage is unaffordable, for low income taxpayers, and short coverage gaps

6 FEDERAL PREMIUM TAX CREDIT May use to purchase Exchange coverage Available to certain individuals with household income up to 400% FPL Credit not available if eligible for: Adequate/affordable employer coverage Government provided coverage

7 EMPLOYER MANDATE Penalty may apply if: No coverage offered to full-time employees and dependents Coverage is unaffordable or inadequate Employee enrolls in Exchange coverage and qualifies for a federal premium tax credit

8 EMPLOYER MANDATE (CONT D) Transition relief for non-calendar year plans Large employer : 50+ full time equivalent employees Employers with full-time equivalent employees required to comply by 2016 plan year Members of a controlled group treated as single entity to determine large employer

9 EMPLOYER MANDATE (CONT D) Full-time employees: 30+ hours/week or 130+ hours/month Counting hours Special rules for certain employees: Bona fide volunteers Employees paid a stipend Leased employees

10 METHODS OF CALCULATING TOTAL HOURS WORKED Two methods Monthly measurement period method Look back measurement period method May use different methods only for specified categories of employees May not just use look back method for nonfull-time employees

11 ALLOWABLE CATEGORIES Salaried versus hourly employees Employees who work in different states Collectively bargained versus nonbargained employees Each group of collectively bargained employees covered by a different agreement

12 MONTHLY MEASUREMENT PERIOD If you know an employee is going to work fulltime for the upcoming month, you offer the employee health coverage for that month Works well if employee hours have little variation from month-to-month Rules allow an employer to measure hours weekly to coordinate with payroll Coverage must be offered for the full calendar month

13 LOOK BACK MEASUREMENT PERIOD METHOD New employees Not expected to work full-time - measure If reasonably expected to work full-time, treat as full-time without delay for measurement New factors to be taken into account to determine reasonableness Variable hour or seasonal employees - measure

14 LOOK BACK MEASUREMENT PERIOD METHOD (CONT D) Start date for initial measurement period Date of hire First of the month following date of hire First day of the first payroll following date of hire Ongoing employees measure everyone in the category May want to use look back for all employees

15 MEASUREMENT PERIOD TRANSITION RULE General rule: stability period must be at least as long as the measurement period Transition rule: Employers may use a 6 month measurement period in 2014 with a 12 month stability period Measurement period must start no later than July 1, 2014

16 4980H(a) PENALTY Penalty for failing to offer coverage: 1/12th x $2,000 per month/per FTE (after first 80 employees in 2015, 30 employees thereafter) Must offer to substantially all FTEs

17 SUBSTANTIALLY ALL FULL-TIME EMPLOYEES

18 DEPENDENT CHILDREN In order to avoid a penalty, must offer coverage to dependent children Biological and adopted children Through the end of the month in which the child turns age 26 Transition rule: must offer dependent child coverage by plan year beginning in 2016

19 4980H(b) PENALTY Penalty if available coverage is inadequate or unaffordable (or unavailable): 1/12th x $3,000 per month (per employee who qualifies for a premium tax credit) Inadequate: plan pays <60% allowable costs Unaffordable: employee pays >9.5% of household income for employee-only coverage Ineligible: employee falls in the substantially all gap

20 4980H(b) PENALTY (CONT D) Affordability examples: Coverage is affordable Coverage is unaffordable Enroll in coverage anyway Enroll in spouse s plan Enroll in Exchange

21 EMPLOYER MANDATE Mechanics: Notice Timing Method of payment

22 6055 AND 6056 REPORTING Two components: Section 6055: Minimum Essential Coverage Reporting Section 6056: Large Employer reporting Employers subject to both can combine the reporting Employers with 250+ returns must file electronically

23 6055 AND 6056 REPORTING First reporting will be for calendar year 2015 Regardless of plan year Due to covered individuals by January 31, 2016 (in conjunction with W-2 Forms) Due to the IRS by February 28, 2016, or March 31 if filed electronically (Form1095) Draft form and instructions available

24 SECTION 6055 Purpose Minimum Essential Coverage (MEC) reporting Facilitates compliance and administration of the Individual Mandate and premium tax credits Forms 1094-B and 1095-B

25 IRS Form 1094-B

26 IRS Form 1095-B

27 SECTION 6056 Purpose Employer Mandate (4980H) tracking Determine eligibility for Federal Premium Tax Credit through an Exchange Forms 1094-C and 1095-C

28 IRS Form 1094-C

29 IRS Form 1094-C

30 IRS Form 1094-C

31 IRS Draft Form 1095-C

32 AUTOMATIC ENROLLMENT Plan sponsors with 200+ full-time employees must automatically enroll newly eligible full-time employees Must provide notice Employees may opt out Effective date to be established by regulations

33 KEY MANDATES INFLUENCING PLAN DESIGN Waiting periods limited to 90 days Reasonable and bona fide employment-based orientation period Required out-of-pocket maximum limits 2014 limits: $6,350 individual and $12,700 family Coverage of dependent children Limits on rescissions Essential Health Benefits

34 CADILLAC TAX Effective 2018: 40% non-deductible excise tax Imposed on aggregate value of health coverage that exceeds threshold amounts Applies for specified health coverage

35 CADILLAC TAX (CONT D) General thresholds: $10,200 individual coverage $27,500 family coverage Indexed for inflation CPI-U: 3-4% per year Medical inflation: 7-10% per year

37 CADILLAC TAX (CONT D) 6 Years 80% Actuarial Value 60% Actuarial Value Excise Tax Threshold

38 COMPLIANCE ACTION PLAN Employer Mandate Determine who is currently considered full-time, and whether coverage is offered and affordable Develop strategy and administrative procedures Consider implementing hours tracking Amend plan documents to reflect changes in eligibility if necessary Consider changes to workforce and acquisition strategies (i.e., awareness of controlled group issues)

39 COMPLIANCE ACTION PLAN (CONT D) Ensure plan complies with mandates Adopt necessary administrative procedures Watch for guidance Automatic enrollment Nondiscrimination testing Disclosures Copyright Copyright 2014 American 2013 American Fidelity Fidelity Administrative Assurance Services, Company LLC

40 WHAT DO YOU DO NOW? Understand your responsibilities Assess whether costs are sustainable Understand your choices Design an implementation strategy Implement your plan

41 CHOICE SPECTRUM

42 PATH 1: MAINTAIN CURRENT PLAN Need to attract/retain talented workforce Limited ability to make plan changes Supports Grandfathering Minimal impact to employees May want to explore cost management

43 PATH 2: TRANSITION TO LOWER COST DESIGN Concerned about long-term costs HSAs or HRAs may be an effective option Employees take greater responsibility for their health and lifestyle choices Requires good communication to explain plan changes

44 PATH 3: SPONSOR AN EXCHANGE PLAN Public Exchange is available to small employers in 2014; possibly to larger employers in 2017 Employer elects level of coverage May offer Section 125 plan to allow employees to buy coverage pre-tax Reduces involvement in plan sponsorship Private exchange options also available

45 PATH 4: DO NOT SPONSOR A PLAN Employer wants to exit plan sponsorship role Employer has cost concerns and/or limited resources for administration Will likely owe employer mandate penalty May require significant employee communication to protect goodwill

46 CHOICE SPECTRUM

47 BEFORE YOU DECIDE No one-size-fits-all solution Can offer more than one Two-part strategy Transition period

48 STRATEGIES TO CONSIDER Private exchange Health Savings Accounts Health Reimbursement Arrangements Wellness Programs

49 WHAT IS A PRIVATE HEALTH CARE EXCHANGE? A one-stop retail site for employers to purchase primarily health care coverage for their employees and their dependents. Run by a private sector company or nonprofit entity. Current organizations include consulting firms, insurance companies, startups, and brokerage firms. Not affiliated with the State-based or Federally-facilitated Exchanges

51 VALUE TO EMPLOYERS Control cost? Reduce administrative burden Provide additional choices to employees Transition to a defined contribution model Transition away from employersponsorship of employee health care (and other) benefits.

52 VALUE TO EMPLOYEES Additional choice of benefit plans Ability to pick plan that best meets coverage needs and cost of coverage Access to a wider array of non-health benefits Access to better technology to make decisions on coverage levels, manage care, and access the health care system

MARKET SO FAR Approximately 56% of employers are considering using a private exchange for active employees or retirees 1 Approximately 28% of employers plan to move to a private exchange in the next

53 MARKET SO FAR Approximately 56% of employers are considering using a private exchange for active employees or retirees 1 Approximately 28% of employers plan to move to a private exchange in the next 3-5 years 2 1 million expected to be enrolled in Major employers include IBM, Xerox, Time Warner, Walgreens, and Dominoes Pizza Management consulting firms predicting growth to million employees by Wall Street Journal, Private-Health-Insurance-Exchanges-Are- Looming.pdf (accessed 4/15/2013) 2 New York Times, (accessed 2/28/2013) 3 BenefitsPro, (accessed 12/20/2013) 4 Booz & Co., Accenture, (accessed 12/20/2013)

54 WHAT S BEHIND THESE FIGURES There are different markets for different population segments: Active full-time employees Active non-health plan eligible employees Pre-65 age retirees Post-65 age retirees Some exchanges are single-carrier in nature and often offered by an insurance company who may be absorbing their own subscribers

55 MULTI-CARRIER VS. SINGLE CARRIER EXCHANGES Multi-carrier Exchange: Offers employer / employees a choice of health plan Carriers and benefit plan options Employer chooses insured or self-funding arrangement Primarily defined contribution Cost controlled through competition amongst carriers Single- carrier Exchange: Offers employers / employees access to multiple benefit options of just one carrier Employer chooses insured or self-funding arrangement Any contribution strategy acceptable Cost controlled via cost management tools

56 POSSIBLE EXCHANGE PRODUCTS / SERVICES Health plan options Pharmacy programs Dental Insurance Vision Insurance Employee Assistance Program Biometric Screenings Health assessments Wellness programs Lifestyle coaching Direct contracting with providers High performing networks Tele-medicine Transparency tools Employee advocacy Supplemental medical / critical illness insurance

57 POSSIBLE EXCHANGE PRODUCTS / SERVICES (CONT D) Bank accounts Annuities Pet Legal Identity theft Property casualty Auto and home Discount programs Financial planning Retirement Leave management COBRA Section 125 HRA HSA FSA

58 COST MANAGEMENT TOOLS Biometric screenings Health assessments Lifestyle coaching Employee advocacy programs Employee engagement Direct contracts with providers High performing networks Tele-medicine Employee assistance programs

59 OTHER STRATEGIES TO CONSIDER Health Savings Accounts Health Reimbursement Arrangements Wellness Programs

60 WHAT IS A HEALTH SAVINGS ACCOUNT? Individually owned savings account Tax free contributions, interest, and distributions No maximum on amount that can be accumulated Portable individual owns the account Funds can be used for: Qualified medical expenses for spouse and tax dependents (tax free) Non-qualified expenses (subject to income and excise taxes)

61 HEALTH FSA/HRA/HSA COMPARISON

62 WHO MAY ESTABLISH AN HSA? Must have a qualified High Deductible Health Plan (HDHP) May not have Medicare Part A, B, C or D May not be claimed as a tax dependent on anyone s else s tax return May not have any other coverage that pays first dollar expenses below the deductible E.g., General purpose-fsas or HRAs (including spouse s), On-site clinics, Tricare, Medicaid, VA Medical, Indian Clinic, etc.

63 WHAT ARE THE REQUIREMENTS FOR THE HDHP? Minimum deductibles 2015: $1,300 individual, $2,600 family Required out-of-pocket maximums 2015: $6,450 individual, $12,900 family All expenses except preventive care must be subject to the deductible Including Rx

64 WHAT ARE THE CONTRIBUTION LIMITS? 2015 Annual Limits: Individual $3,350 Family $6,650 Amounts are indexed annually by the IRS Additional $1,000 annual catch up contribution Age 55 and older Excise taxes apply for excess contributions

65 MUST HSAs BE FUNDED? Yes must contribute actual cash The only amount that can be reimbursed is what s actually in the account

66 WHEN ARE FUNDS AVAILABLE TO BE PAID? After contributed (like Dependent Day Care FSA) Can save receipts no requirement to reimburse by a certain deadline (or at all) Provides significant tax planning opportunity HSA can operate like a retirement plan save receipts then receive funds tax free at retirement Only retirement account with triple tax advantage

67 MAY THE EMPLOYER PUT ANY RESTRICTIONS ON THE HSA? Generally no The individual owns the HSA Employer may not impose vesting, limit the ability the use funds for non-qualified purposes, etc. Employer may not dictate investment options The employer may limit the HSAs to which the employer will contribute

68 WHAT MEDICAL EXPENSES ARE ELIGIBLE FOR REIMBURSEMENT? Unreimbursed qualified medical expenses from Code Section 213(d) Limited insurance premiums: Health plan coverage while receiving federal or state unemployment benefits COBRA continuation coverage Medicare premiums: Part A, B, C & D Long-term care premiums (up to IRS limits)

69 MAY FUNDS BE CARRIED OVER FROM YEAR TO YEAR? Yes The individual owns the account Once funds are contributed, the individual has 100% control over them Employer is not able to restrict portability Reason employers in high turnover industries often use HRAs, where the employer keeps forfeitures Individuals may also rollover funds to a different HSA

70 ARE HSAs SUBJECT TO HEALTH CARE REFORM? Generally no An HSA is not a health plan The HDHP is subject to Health Care Reform Pre-tax HSA contributions are subject to the Cadillac tax

71 WHAT IS A HEALTH REIMBURSEMENT ARRANGEMENT? Employer-funded plan authorized by IRS Notice Reimburses the employee for qualified medical expenses of the employee and his/her spouse, dependents, or adult children Typically combined with an HDHP

72 HRA FEATURES AND REQUIREMENTS Only employers may contribute (no limit) Must be integrated with major medical plan No other major medical plan requirements Expenses that may be reimbursed Employee, spouse, dependent children Code section 213(d) medical expenses May not withdraw money for any other reason Claims must be substantiated Funds may be carried over at employer s discretion for active and terminated employees

73 WELLNESS PROGRAMS Many employers are hoping to use wellness programs to help control medical costs Wellness programs must comply with a variety of federal laws Employers may provide incentives for participation and/or reaching health goals Employers have been challenged to prove ROI, but wellness remains an important component of many health plan programs

74 DESIGN IMPLEMENTATION STRATEGY Benefit design and eligibility Cost management Administrative obligations Impact on employees and workforce structure Employee communication Resource availability

75 HEALTH CARE REFORM MADE EASY AFAS is ready to assist: HCReducation.com VIP s and monthly webinars Health Care Reform consulting (packages, retainer arrangements, and custom solutions) In-depth Workshops

76 HEALTH CARE REFORM MADE EASY AFAS is ready to assist (cont'd): Time management software to assist with the Employer Mandate Variable hour employee billing Notice compliance support and fulfillment Resources to help communicate plan changes to employees

77 QUESTIONS? Learn more at: HCReducation.com AmericanFidelityConsulting.com This is only a brief summary that reflects our current understanding of select provisions of the law, often in the absence of regulations. All of the interpretations contained herein are subject to change as the appropriate agencies publish additional guidance.

ESB Copyright 2013 American Fidelity Assurance Company ESB Copyright 2013 American Fidelity Assurance Company

ESB Copyright 2013 American Fidelity Assurance Company ESB Copyright 2013 American Fidelity Assurance Company HEALTH CARE REFORM What You Need to Do from Now to 2015 This is only a brief summary that reflects our current understanding of select provisions of the law, often in the absence of regulations. All of