11/17/2011. Hollyy Claghorn Senior Attorney, TASB Legal Services. Medical Costs Continue to Rise. U.S. National Health Expenditures (trillions) $3.

Transcription

1 11/17/2011 g Hollyy Claghorn Senior Attorney, TASB Legal Services Medical Costs Continue to Rise U.S. National Health Expenditures (trillions) $3.0 10% 8.6% 9.0% 9% 8.3% $2.5 $2.40 (P) 8% $2.24 $ % $2.0 $ % $1.85 $ % 7% 6.7% $1.60 $ % 6.1% (P) $1.47 6% 5% $1.35 4% $1.0 3% 2% $0.5 1% $0.0 0% (P) Source: National Health Expenditure Accounts, CMS 18 1

2 PPACA overview Who is responsible for what? What decisions are out of your hands? What should you worry about? Signed into law March 23, 2010 o Multiple effective dates State exchanges Individual responsibilities Plan responsibilities o Insurance in Texas school districts Employer responsibilities 2

3 Exchanges will provide eligible individuals and small businesses with access to private plans o Exchanges themselves will not be insurers o Similar to Travelocity or Expedia, which are not airlines but provide access to available flights and fares in a comparable way. States are expected to create insurance exchanges by January 1, 2014 o Federal government may take over if it determines, by January 1, 2013, that a state will not create an exchange by the deadline Coverage for self and dependents (2014) o Penalty for noncompliance o Low-income tax credit Automatic enrollment (2014) o Employers with > 200 employees o Employees can opt out 3

4 Financial exceptions: o Low income o Self-only coverage > 8% of household income o Other hardship (determined by HHS) Categorical exceptions: o Religious egousbees beliefs o Short term gaps Greater of: Monthly Penalty: o Percent of applicable income (difference between household income and filing threshold) Annual Penalty: o Flat amount for each taxpayer and any dependents 4

5 Two adults, two minors, $40,000 income $21,300 applicable income Monthly penalty method (annualized): o $2,556/yr (2014), $5,112/yr (2015), $6390 (2016) Annual penalty method: o $285/yr (2014), $975 (2015), $2085 (2016) Districts are required to provide health insurance Maintenance of Effort (MOE): o Full-time employees o Minimum $225 per month ($2,700 per year) District: $150 per full-time employee ($1,800 per year) State funding: $75 per employee 5

6 TRS-ActiveCare: 90% of ISDs o Mandatory: 500 or fewer employees o Optional for larger districts Who is the plan sponsor? TRS plan year: September 1 to August 31 Enrollment eligibility: o Determined by TRS o Active, contributing TRS member; or o Regularly scheduled 10 or more hours each week (e.g., bus drivers) 6

7 Plan changes: o Coverage of dependents to 26 o Pre-existing conditions covered to age 19 o No-cost preventive care o Prohibition on lifetime coverage limits o Claims appeal process Grandfather status Nondiscrimination Affordability Administrative responsibilities Flexible spending accounts Cadillac tax 7

8 Favoring highly compensated employees prohibited o Top 5 highest-paid officers; or o Top 25% highest paid employees Preferential treatment for benefits not allowed: o Better benefits o Employee s share of premiums is lower Example: District pays superintendent s entire TRS- ActiveCare premiums Penalty: $100 per day, per employee discriminated against Example: o 1,000 Es 1 supt = 999 o 999 x $100 = $99,900 per day Effective date: after IRS regulations are issued o Start planning now! o Convert benefit subsidies to compensation 8

9 Large employers Affordable health insurance Penalty for each full-time employee who gets a tax credit for purchasing insurance through the state exchange IRS is considering a safe harbor A large employer is one whose full-time + full- time equivalents (FTEs) = 50 o Full-time employee: 30 hours or more per week o FTE employees: all hours worked in a month by employees who are not full-time, divided by 120 Full-Time Employees Full-Time Equivalents 50 9

10 Example: District A has 56 employees: 42 full-time and 14 part-time Part-time employees work a total of 1,200 hours in a month 1,200 hours/120 = 10 FTEs 42 full-time + 10 FTEs = 52 District A is a large employer Insurance is not affordable if the cost to the employee is more than 9.5% of household income o Premiums for lowest tier of TRS-ActiveCare o Coverage applicable to employee s family situation o Deduct MOE and any other amount paid by district/state (at least $2,700) 10

11 Example 1: Teacher: $40,000/year x 9.5% = $3,800 Tier 1 employee only premium: $3,900 per year Cost to employee: $3,900 - $2,700 (MOE) = $1,200 Insurance is affordable Example 2: Custodian: $15,000/year x 9.5% = $1,435 Tier 1 employee & family premium: $9,804 Cost to employee: $9,804 - $2,700 (MOE) = $7,104 Insurance is not affordable 11

12 Penalty: If district i t is a large employer; and Insurance is not affordable; and Employee purchases insurance through the state exchange; and Employee receives a tax credit Penalty: Excise tax of the lesser of: o $3,000 per employee who receives a credit; or o $2,000 per full-time employees, less 30 12

13 Example: District is a Large Employer with 42 full-time employees Five full-time employees receive premium credits for obtaining insurance through the state exchange Penalty is the lesser of: $3,000 x 5 = $15,000; or $2,000 x (42-30) = $24,000 Increase Premium Subsidy? Estimate $5k per employee: $5,000 x 5 = $25,000 Existing MOE obligation: $1,800 (MOE) x 5 = $9,000 Total annual cost: $34,000 Pay Penalty? Affordability penalty: $15,000 Savings to district (MOE): - $9,000 Total annual cost: $6,000 13

14 Proposed safe harbor: IRS Notice o Affordability based on employee s wages from that employer (W-2, Box 1) Year-end determination Employee-by-employee o Guidance will also address partial-year employment Effective date: o January 1, 2014 Wages required to meet 9.5% test ( TRS rates, Tier 1 coverage) For Employee Only : $1,053/mo. Employee & Spouse: $5,432/mo. Employee & Children: $3,095/ mo. Employee & Family: $6,232/mo. 14

15 2012: Uniform summary of benefits (TRS) 2013: Notice to new employees about state exchange (District) 2014: HHS report about health insurance plans (District) IRS certification regarding offer of coverage (District) TBD (2014?): Automatic enrollment (with opt out) if 200 or more employees (District) Prescription required for over-the-counter medications Effective 2013: employee contribution is limited to $2,500 annually Start planning now 15

16 Effective % excise tax on value of employer-provided d coverage exceeding thresholds o $10,200 for employee-only coverage o $27,500 for other coverage (employee & spouse, e.g., employee & family) Example 1: TRS-ActiveCare Ati Tier 3 premium: $584/mo. x 12 = $7,008 $10,200 - $7,008 = $3,102 Premium would have to increase 45.5% by 2018 to be subject to Cadillac tax 16

17 Example 2: TRS-ActiveCare Ati Tier 3 premium: $1,461/mo. X 12 = $17,532 $27,500 - $17,532 = $9,968 Premium would have to increase 57% by 2018 to be subject to Cadillac tax Now: Nondiscrimination (regulations are coming) Flexible spending accounts (2013) Later: Administrative responsibilities (2014) Affordability (2014) Cadillac tax (2018) 17

18 Pay or Play Plan design changes (TRS-ActiveCare Ati districts) ditit) Grandfather status (TRS-ActiveCare districts) Early retiree reinsurance Thank you! 18