Agenda. Play or Pay: Whether & When Decision Tree. HEALTH CARE REFORM (HCR) Latest Changes, New Requirements, Play or Pay Quick Review Special Delays

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1 HEALTH CARE REFORM (HCR) Latest Changes, New Requirements, and Twists in the Road GPRS Fall Conference, October 30, 2014 Presented By Darcy L. Hitesman, Esq IRS Circular 230 Disclosure: To insure compliance with Treasury Regulations, we are required to inform you that any tax advice contained in this communication (including any attachments) was not intended or 1 written by us to be used, and may not be used by you or anyone else, for the purpose of: (i) avoiding penalties imposed by the Internal Revenue Code; or (ii) promoting, marketing, or recommending to another party any tax related matter addressed in this communication. Agenda Play or Pay Quick Review Special Delays Small Applicable Large Employer Non Calendar Year Plans Risk Management through Plan Design Other Items to Consider Reporting & Disclosure Cadillac Tax 2 Play or Pay: Whether & When Decision Tree 3 1

2 Play or Pay What is It? Important: Employer not mandated to provide coverage. In general, beginning January 1, 2015, applicable large employers (ALEs) may be required to pay a penalty if the ALE does not offer coverage of a certain level and cost to enough full time employees. 4 Play or Pay What is It? Two categories of penalties Offer penalty Adequacy penalty Both triggered by full time employee purchasing subsidized public exchange coverage 5 Who are you? As of January 1, 2015 If applicable large employer (ALE), subject to penalty formulas beginning January 1, 2015 unless Special delay applies 6 2

3 Special Delays Two types of special delays Based on size of employer Based on plan year of medical coverage Have to qualify for the delay; not automatic Have to determine whether delay makes sense Takes effort DEFAULT: January 1, Play or Pay: Whether & When Decision Tree 8 Whether Employer is an ALE Large employer Averages at least 50 full time (FT) plus full time equivalents (FTEs) during preceding calendar year Full time defined as 30 or more hours per week; 130 hours per month Special seasonal worker rule Special 2015 rule 9 3

4 Play or Pay: Whether & When Decision Tree 10 Small Applicable Large Employer Delay Play or Pay to January 1, 2016 if: Small at least 50 FTEs but less than 100 FTEs on business days in 2014 Not automatic Must qualify for it Same special 2015 rule applies Must certify as part of 6056 reporting 11 Small Applicable Large Employer In addition to size requirement, from February 9, 2014 December 31, 2014 Maintains size of workforce and overall hours unless bona fide business reason Does not eliminate or materially reduce health coverage from that offered on February 9, 2014 Your responsibility to know whether you qualify If do not qualify, then Play or Pay applies beginning January 1,

5 Play or Pay: Whether & When Decision Tree 13 Play or Pay: Whether & When Decision Tree 14 Non Calendar Year Plans Special transition rule may be available allowing compliance to begin with the first day of the 2015 plan year. Not automatic Must qualify for it Separate and distinct from small ALE delay described above 15 5

6 Non Calendar Year Plans Requirements The employer maintained a non calendar plan year after December 27, 2012 The plan year was not changed to a later non calendar plan year after December 27, 2012 Exists no other plan operated on a calendar year for which they would be eligible Satisfy any one of four percentage tests Commitment regarding 2015 coverage 16 Non Calendar Year Plans All EmployeesPercentage Tests Two possibilities The non calendar plan year covered as least one quarter of all employees (full time, part time) as of any date in the 12 month period ending on February 9, 2014 The non calendar plan year was offered to at least one third of all employees (full time, part time) using the most recent open enrollment period ending prior to February 9, Non Calendar Year Plans Full Time Employees Percentage Tests Two possibilities The non calendar plan year covered at least onethird of all full time employees (just full time) as of any date in the 12 month period ending on February 9, 2014 The non calendar plan year was offered to at least one half of the full time employees (just full time) during the most recent open enrollment period ending prior to February 9,

7 Non Calendar Year Plans Commitment regarding 2015 coverage Coverage offered as of the first day of the noncalendar plan year beginning 2015 must be affordable and of minimum value In effect, this requires the employer to commit to offering coverage that satisfies both Play or Pay Penalty A and Penalty B calculations 19 If you qualify, do you want it? Treat availability of delay as tool available in overall strategy Delay may not fit overall strategy Key: Figure that out now DEFAULT: January 1, Observations & Clean Up Cost/benefit decision Focus on Penalty A avoidance Focus on Penalty B minimization MV or not Preventive care only MEC Affordability Employee cost for lowest cost option, single coverage Add lower tier of coverage 21 7

8 Observations & Clean Up Intentionally not affordable Different designs require consideration, number crunching, etc. Decision making and implementation prior to default Time is of the essence 22 Time is of the Essence Time to consider options and make decision regarding overall strategy Lead time to implement Insurance contracts (fully insured, stop loss) Plan documents CBAs Employment contracts Cafeteria plan enrollment Etc. 23 Not Done Yet Numerous reporting and disclosure obligations Independent from Play or Pay Most not tied to employer size 24 8

9 Reporting & Disclosure 25 Focus on 6056 Reporting Applicable Large Employer (ALE) No special delay for small ALE Based on 2015 information To be filed no later than February 29, 2016, or March 31, 2016, if filed electronically. Alternative Reporting Methods (a/k/a simplified reporting ) Simplified Reporting Alternative reporting methods (Treas. Reg (j)) Certification of qualifying offer Certification made as part of reporting One or more full time employees for all months during the year for which the employee was a full time employee and which are not within a limited non assessment period. MEC at MV and cost not exceeding 9.5% FPL Offer to employee and dependent children AND spouse 27 9

10 6056 Simplified Reporting 98% Offer Rule Offers MEC with MV that is affordable to at least 98% of employees No differentiation between part time and full time No individualized employee reporting 28 Focus on November 2014 Transitional Reinsurance Fees Recap Pay.gov Health Plan Identifiers ( HPIDs ) 29 Transitional Reinsurance Recap Creates pool of money to assist insurance companies through transition HHS determines annual fee per covered life $63 dollars for 2014 $44 dollars for 2015 First nine calendar months Permissible plan expense and tax deductible Who pays depends on plan type Insured insurance carrier pays Not insured plan pays 30 10

11 Transitional Reinsurance Recap Types of coverage subject to fee Major medical plans defined as health coverage for a broad range of services and treatments, including diagnostic and preventive services and medical and surgical conditions. Broad 31 Transitional Reinsurance Recap Prop. Regs. specifically exempt the following plans and coverages: Plans consisting solely of HIPAA excepted benefits (e.g., stand alone dental or vision plans) Health reimbursement arrangements (HRAs) that are integrated with a major medical plan Health flexible spending arrangements within the meaning of Section 125 Health savings accounts EAPs, disease management programs, and wellness programs that do not include major medical coverage 32 Transitional Reinsurance New Final regulations exempt certain additional self insured plans Self insured, self administered Retains responsibility for claims processing, claims adjudication, enrollment Self insured, limited TPA (pharmacy/dental/vision, di minimis, network rental, repricing) 33 11

12 Transitional Reinsurance Fees Pay.gov required ACA Transitional Reinsurance Program Annual Enrollment and Contributions Submission Form Auto calculates Schedules payment(s) 34 Health Plan Identifier (HPID) *HIPAA Electronic Data Interchange 35 HPID A unique 10 digit number that identifies the health plan. Remember: For HIPAA Privacy and Security purposes, a health plan is a covered entity. Furthers objective of standardization. HPID is to be used when the health plan conducts HIPAA standard transactions. Note: Includes where a TPA or other third party conducts the transaction on the health plan s behalf. Important: Not relieved of responsibility just because health plan does not conduct any HIPAA standard transactions. Still have to get the HPID. Just may never be required to use it

13 Plans that must obtain an HPID Health plan defined very broadly Remember: Way back to the HIPAA Privacy and Security analyses you did. Includes self insured health plans sponsored by employers for the benefit of their employees and families. Self insured means not insured; not provided through an insurance policy May include EAPs, wellness, on site medical facilities 37 HSAs, Health FSAs, and HRAs Recent FAQs issued by CMS Confirm HSAs and Health FSAs are individual accounts directed by the individual and, therefore, do not need HPIDs. In general, HRAs require HPIDs if the HRA is a health plan. HRAs that cover only deductibles or out of pocket maximum costs do not need an HPID; viewed as additional benefits of major medical Stand alone HRAs require HPIDs. Remember: Whether a particular health plan actually conducts transactions electronically does not matter. Action Item: Identify HSAs, Health FSAs, and HRAs that do not need HPIDs. 38 Must apply online Obtaining the HPID HPID User Manual. Describes step by step process of obtaining the HPID through the CMS website. and Guidance/HIPAA Administrative Simplification/Affordable Care Act/Downloads/HPIDQuickGuideOctober Accessible.pdf. Special Note: Where asked to provide an NAIC number or Payer ID, most employer sponsored self insured health plans should answer not applicable because they do not have these numbers

14 40 Cadillac Tax Effective January 1, 2018 The purpose is revenue generation Originally $80 billion With cost overages, now even more Why worry now? What you do/do not do between now and then matters 41 Cadillac Tax No Small Employer Exception! 40% excise tax on amount by which aggregate cost of applicable employersponsored health coverage exceeds the applicable threshold. New cost of making benefits available Excise tax itself Administrative costs 42 14

15 What is it? Applicable employer sponsored health coverage Coverage under group health plan Different list than other reporting requirements More than just major medical Made available to employee by employer Either actually excluded under 106 or would be if employer paid it Note: Who pays (employer or employee) is irrelevant. 43 What Coverage Counts? Major medical Dental (self insured)* Vision (self insured)* HRA Health FSA On site medical HSA!! *May get guidance similar to W 2 reporting. 44 Aggregate cost Cadillac Tax Not the part of the premium the employee pays! In general, look to the COBRA rate Special rules for account based benefits Add the cost of what the employee actually takes Employee by employee Month by month Administratively intense 45 15

16 Cadillac Tax Thresholds $10,200 self $27,500 other than self only Higher threshold for qualified retiree and high risk profession Based on status at beginning of each month Not without issues Keep in mind if do nothing Keep in mind if make changes 46 Cadillac Tax Compare to threshold Calculate excise tax Allocate among responsible parties Report to IRS Note: If employer miscalculates, penalty of 100% of additional excise tax due to miscalculation. 47 Suggestions Start thinking about this now As the cost of coverages increase, possibility and amount increase Not like affordability; not keyed off of what the employee pays Can t satisfy by shifting more to the employee Can t satisfy by having benefit be taxable 48 16

17 Suggestions Start thinking about the communication aspects Nature of the tax Excise or Penalty Both suggest something was done wrong Really just a cost of providing the benefit package 49 Action Item Summary List all self insured health plans. Break down bundled plans into components Err on the side of over including Identify HSAs, Health FSAs, and HRAs that do not need HPIDs. Identify the size of each self insured health plan. Identify the plan administrator of each self insured health plan. Identify the TPA, if any, of each self insured health plan. Determine if and when to apply for HPID(s). Determine who is going to obtain HPID(s). 50 Questions 51 17

18 Play or Pay: Whether & When Decision Tree 52 18