Health Care Reform. Ross Manson, Principal Tonya M. Rule, Tax Manager. Health Care Reform Update. ACA employer penalties delayed until /1/2014

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1 Health Care Reform Ross Manson, Principal Tonya M. Rule, Tax Manager 1 Health Care Reform Update ACA employer penalties delayed until /1/2014 Establishment of Public Exchanges Payment of Individual Subsidies Individual Mandate 2 1

2 Health Care Reform EMPLOYER BASICS 3 Employers key number is 50 > = 50 = Large Employer and subject to pay or play penalties < 50 Small Employer and NOT subject to pay or play penalties Full time equivalent employees 4 2

3 Health Care Reform Large Employer? Large employer = 50 or more Full-Time Equivalent Employees Steps: 1. Calculate your Full-Time Employees (average 30 hours/week or 130 hours per month) 2. Calculate your (part-time and seasonal) FTEs (add up total hours and divide by 120) 3. Add the two numbers in steps 1 and 2 4. Add up the 12 monthly numbers in 3 and divide by If less than 50, not applicable large employer 6. If greater than or equal to 50, greater than 120 days? 5 Part-Time and Seasonal Employees Part-Time and Seasonal Employees Part-time employees: those working fewer than 30 hours a week for the year Included in calculating whether an employer has over 50 fulltime equivalents Not included in penalties Seasonal employees: as designated by the Department of Labor Included in calculating penalties in the months applicable Excluded if: seasonal employees caused employer to have > = 50 full-time equivalents for equal or less than 120 days 6 3

4 Large Employer NO insurance Employers NOT offering health insurance A penalty of $2,000 per year/per full-time employee Exempts the first 30 full-time employees from computation Example: 100 full-time employees and one goes to an Exchange and utilizes credit Penalty = (100-30) x $ = $11,667/month $140,000 annually Triggered on all full-time employees if one full-time employee goes to the exchange and receives a subsidy Penalty is NOT tax deductible 7 Large Employer Offer Insurance Potential penalty if employer OFFERS health insurance A penalty of $3,000 per year/per FT employee who goes to the exchange and receives an exchange subsidy Subsidy eligibility based on unaffordable or inadequate insurance Unaffordable = Employee insurance premiums exceeding 9.5% of HHI Inadequate = Insurance policy less than 60% of actuarial value Capped by the amount of penalty for not offering insurance coverage (in aggregate, not per employee) 8 4

5 Inadequate Insurance Actuarial Value: Generally is calculated by computing the ratio of the total expected plan payments for essential health benefits, computed according to the plan s costsharing features (deductibles, coinsurance, copayments, and out-of-pocket limits) over the total costs for the essential health benefits a standard population is expected to incur. Intended to allow consumers to compare and understand a plan s value. HHS has developed a Actuarial Value calculator at: 9 Large Employer Safe Harbor Affordability safe harbor and proposed regulations issued 12/28/12 Employer must offer minimal essential coverage Employee portion of self-only premium for the lowest cost coverage that provides minimum value must not exceed 9.5% of the employee s wages Wages equal Box 1 on Form W-2 Rate of Pay rate of pay at beginning of year multiplied by 130 hours. This becomes base amount for 9.5% affordability calculation. Federal poverty line (FPL) self only coverage < 9.5% of FPL for a single individual. 10 5

6 Large Group Coverage Employer must offer coverage to at least 95% of all full-time employees and their dependents Help protect against errors that could occur in identifying full-time employees; Coverage must be offered to dependents only required to pay premium towards single plan (can t exceed 9.5% test); Dependents; Children up to age of 26 Spouse not defined as a dependent 11 Health Care Reform BUSINESS EMPLOYER SPECIFICS 12 6

7 Automatic Enrollment According to the health reform legislation, an employer must automatically enroll new employees and those who are currently enrolled in their health insurance plan However The department of labor has concluded additional guidance has not been issued in time for automatic enrollment to take effect by 2014 Source: Department of Labor Technical Release : IRS Notice Hours of Service Rules Hours of service include not only hours worked but also hours for which an employee is paid or entitled to payment even when no work is performed. Including: Vacation, holiday, illness, incapacity, layoff, jury duty, military duty or leave of absence Service outside of the U.S. is generally not counted 14 7

8 Key Definitions: Determining Full-Time Employees Hourly Non Hourly Actual hours Days worked equivalency Weeks worked equivalency You cannot intentionally use a method to lower their actual hours (3 ten hour days using days worked would be an example) 15 Controlled Groups Employer Controlled group Parent-subsidiary chains Brother-sister controlled group Combined group of the above Affiliated service group Has direct or indirect ownership interest and Performs services for service organization or Works with other organization in rendering services to third parties 16 8

9 Health Care Reform Terms Waiting period Measurement period Initial measurement period Standard measurement period Stability period Administrative period 17 Waiting Period Waiting Period period of time that must pass before an employee or dependent, who is otherwise eligible to enroll under terms of a group health plan, can receive coverage. This period cannot exceed 90 calendar days 18 9

10 Measurement and Stability Period Measurement Period period of not fewer than three or more than 12 months, chosen by the employer, as the measurement period that can be looked back to in order to determine the full- or part-time status of an employee Stability Period next period where an employee is locked in according to the results of the measurement period Measurement and Stability periods apply to: Ongoing employees New variable hour employees New seasonal employee 19 Measurement Period Standard Measurement Period (SMP) applies to ongoing employees Employees employed at least one full SMP Initial Measurement Period (IMP) applies to new variable hour and seasonal employees Is usually going to be different than the SMP Begins between the employee s start date and first day of next calendar month IMP and SMP will likely overlap for new employees 20 10

11 Stability Period The Stability Period is the period in which an employee s status is determined for offering insurance or paying penalties Status will be either a full time or part time employee (as determined from the measurement period) Full time employee: stability period has to be at least six months or the length of the measurement period Part time employee: Ongoing employee not longer than SMP New variable hour seasonal employee not longer than IMP plus one month and status must be tested again during first SMP 21 Administrative Period Administrative Period this is the time allowed between the measurement period and stability period used to determine the status of the employee which cannot exceed 90 days and cannot delay the effective date of coverage to an eligible full-time employee Initial measurement period and administrative period cannot exceed past the last day of 1 st calendar month beginning on or after 1-year anniversary of new variable hour employee (approximately 13 months) 22 11

12 Permissible Employee Categories for Measurement Periods Collectively bargained employees and noncollectively bargained employees Each group of collectively bargained employees under separate agreements Salaried and hourly employees Employees in different states 23 Example 1 Ongoing full time employee: SMP 11/1/13 to 10/31/14 (12 months) Admin period 11/1/14 to 12/31/14 (2 months) Stability period 1/1/15 to 12/31/15 (12 months) Employee Alex has worked for XYZ for 10 years and averaged more than 30 hours per week Alex would be considered a full time employee during the Stability period of 1/1/15 to 12/31/15 XYZ must offer insurance to Alex or pay a penalty 24 12

13 Example 1 Chart 11/1/13 SMP 10/31/14 AP 1/1/15 SP 12/31/15 SMP = Standard Measurement Period AP = Administrative Period SP = Stability Period 25 Example 1 Chart 11/1/13 SMP 10/31/14 AP 1/1/15 SP 12/31/15 11/1/14 SMP 10/31/15 AP 1/1/16 SP 12/31/16 SMP = Standard Measurement Period AP = Administrative Period SP = Stability Period 13

14 Example 2 Ongoing part time employee: Same measurement, admin and stability period as Example 1 Employee Ben works for 10 years but averages less than 30 hours per week during SMP XYZ company does not count Ben as a full time employee during stability period and is not required to offer insurance and is not subject to any penalties Ben s status cannot change during the year 27 Example 3 New variable hour employee: Carter is a new employee who started June 1, 2014 for XYZ XYZ choses a 12 month IMP starting on Carter s hire date (6/1/14 to 5/31/15) XYZ s SMP is 11/1/14 to 10/31/15 Admin period: New employee 6/1/15 to 6/30/15 Ongoing employees 11/1/15 to 12/31/

15 Example 3 continued Carter averages more than 30 hours a week during IMP (6/1/14 to 5/31/15) Carter is a full time employee of XYZ from 7/1/15 to 6/30/16 XYZ must also track Carter s hours during the SMP and if Carter s hours during the SMP are greater than 30 per week, than XYZ must consider Carter full time during the stability period associated with the SMP i.e. 7/1/16 to 12/31/16 29 Example 3 Chart 6/1/14 IMP 5/31/15 AP 7/1/15 SP-IMP 6/30/16 11/1/14 SMP 10/31/15 AP 1/1/16 SP-SMP 12/31/16 IMP = Initial Measurement Period AP = Administrative Period SP = Stability Period SMP = Standard Measurement Period 30 15

16 Fiscal Year Plans Transition Relief Employers with fiscal plans in place as of 12/27/12 can receive transition relief, but must have: Plan offered to at least 1/3 of employees; or Plan must have covered at least ¼ of employees; Employers must determine they meet the qualifications for relief. Then measurement period may occur based on fiscal year date renewal 6/30/13 plan year can run from 7/1/13 to 6/30/14. Employer must offer coverage to qualifying full-time employees ( > 30 hrs/wk) upon first plan renewal date. ASSUMPTION-this will remain in effect for 2015 waiting for guidance. 31 Employment Status Change Change in employment status for new variable hour or seasonal employee during IMP If employee would have started in that employment status and been expected to work 30 hours per week, then employee must be treated as full-time and coverage would need to be extended on the first day of the fourth month following the change This rule does not apply to ongoing employees as their status is locked (during stability period) even if they have a change in employment status 32 16

17 Employees Rehired A rehired employee will resume their full-time or part-time status for the remainder of the stability period Status would change if: Employee did not have 1 hour of service within the prior 26-week period preceding the return to work Rule of parity employee was gone for longer than their length of service measured in weeks which would also be longer than 4 weeks 33 Service breaks Educational organizations need to apply hours during school breaks based on one of the two following methodologies: Average hours per week excluding the break period which would be the average hours for the entire measurement period OR Credit employee break period with average hours at a rate equal to the rate without regard to the break period There is a cap of 501 hours required to be added for school break periods (exceptions for special unpaid leave) 34 17

18 Section 1411 Certification Department of Health and Human services will establish a process to notify employers of those employees receiving Premium tax credits or cost sharing reductions Requirement will include 2 informational tax returns for reporting..delayed UNTIL Health Care Reform Employers Requirement to notify employees of exchange by October 1, 2013 in 2014 must be given to new hires within 14 days of hire date. It must: Inform employees of exchange Inform employees of potential tax credit if insurance is purchased on exchange Inform employees of potential loss of employer contribution if they get insurance from exchange Inform employees that this contribution may be excluded income on their Federal tax return 36 18

19 Health Care Reform Employers Expanded coverage for children under 26 Effective 2010 Value of employee sponsored health plans on W-2 s effective after December 31, 2012 FSA limit = $2,500 starting in Health Care Reform Employers 40% excise tax on Cadillac health plans ($10,200 for individual, $27,500 for family) Effective 2018 Retirees limit is $11,850 for individual and $30,950 for family Tax is on excess benefit calculated on a monthly basis Applicable on coverage paid by both employer and/or employee Includes pretax contribution to FSAs, HRAs, HSAs Employers are to calculate this penalty for insurers, penalty is 100% plus interest 38 19

20 Additional Fees PCORI (Patient Centered Outcomes Research Institute) Fees applicable to policy and plan years after October 1, 2012 and before October 1, 2019 and is on the average number of covered lives under the plan: $1 the first year, $2 in subsequent years Transitional Reinsurance Fee (2014 thru 2016) fee on insurers and self funded plans. In place to create a fund for insurance companies to offset the cost of covering people in the individual market: Fee is $63 per covered life in 2014 raise $12B 2015 fee decreases raise $8B 2016 fee decrease raise $5B Health Insurance Industry Fee 39 Grandfathering Provisions Grandfathered health plan is one that was in existence on March 23, 2010 Loss of status events Reduce or eliminate benefits Raising co-insurance, or significantly raising copayments and deductibles Significantly lowering employer premium contributions To maintain grandfather status document the plan and policy terms effective as of 3/23/

21 Non-discrimination in Insured Health Plans Non-grandfathered insured group health plans that impermissibly discriminate in favor of highly compensated employees face significant liability under new rules enacted as part of the PPACA Relates to the 1986 Tax Law Internal Revenue Code (IRC) Section 105(h)(2) Relates to prohibition on discrimination in favor of highly compensated individuals 41 Non-discrimination Testing The penalty for plans will have an excise tax of $100 per day for the plan per person discriminated against Maximum penalty of $500,000 for non willful failures Penalties are under IRC 4980D Is for plan years beginning after??? 42 21

22 Health Care Reform Employers Tax credits available for Small Employers 35% credit for (25% for taxexempts) 2014 and 2015 credit is 50% (35% for taxexempts) if coverage is offered on the Insurance Exchange Criteria: No more than 25 full-time equivalent (FTE s) employees FTE average wages cannot exceed $50,000 Offer a qualified health plan 43 Health Care Reform HEALTH INSURANCE EXCHANGES 44 22

23 Health Insurance Exchanges Health Insurance Exchanges: Beginning January 1, 2014 health insurance exchanges will start operating as a second option for health insurance Objective: Competitive marketplaces to compare options based on price, quality, and other factors aimed to enhance competition, improve choice, and give small businesses and individuals more clout (PPACA): Pre Reform Small / Individual Market Individualized Market Costly Post Reform Insurance Exchange Pooled Market Subsidies based on income 45 State/Federal Health Insurance Exchanges Source: Kaiser Family Foundation Website Health Reform 46 23

24 Health Care Reform HEALTH CARE REFORM ANALYTICS 47 Health Care Reform Analytic Help Understand: Determination of Large/Small Employer Employee Status full time and part time Potential costs and fees with ACA Affordability calculation Employee subsidies Cadillac tax potential Benefit plan opportunities in a developing marketplace! Helps you make an informed decision! 24

25 Employee Breakdown Below displays a breakdown of XYZ s employees by full time & part time as well as by EBI enrolled plan: Plan Type Full Time Part Time Total " " " " " " " " Single SPD 7-7 Family 7-7 Single Waived Family Waived " " 15 " " 17 " " 32 Total " " 88 " " 101 " " employees worked 1,560 or more hours 101 employees worked less than 1,560 hours - 4 part time employees enrolled in single coverage Full time employees are included in the analysis and 2014 Premiums Below displays the baseline 2013 and 2014 baseline inflated EBI monthly and annual premiums: Employee Employer Per Employee Employer Total Plan " " " " Per Month " " Month " " Annual " " Annual " "Premium 2013 Single $ 133 $ 370 $ 1,596 $ 4,445 $ 6,041 SPD ,488 6,297 10,785 Family ,268 7,509 15, Single ,740 4,845 6,585 SPD ,892 6,864 11,756 Family ,012 8,185 17,197 * - SPD: Single plus dependent coverage 50 25

26 Affordability Adequacy 9/3/2013 Subsidy Factors Employers will be assessed whether their insurance is affordable or adequate. The two charts below show insurance affordability based on the W-2 wages and an estimate for household income: Single Premium as a % of W-2 Wages (safe harbor) Single Premium as a % of Household Income 67, 76% Affordable 73, 83% Affordable 21, 24% Unaffordable 15, 17% Unaffordable Qualified Health Plan (Actuarial Value) =? < 60% of actuarial value are determined to be Inadequate health plans 51 Subsidy Factors with Spousal Income The following graph and chart below shows the breakdown of subsidy eligible based on no employer based insurance: Household Income as a % of Federal Poverty Level 12, 14% 35, 40% 18, 20% 23, 26% Medicaid Large Subsidy Eligible Small Subsidy Eligible No Subsidy Eligible Income Level Employee Exchange Premium Employee Grouping # of FT Employees Up to 133% FPL 2% of income (exchange enrollee) Medicaid % FPL 3 4% of income Large Subsidy % FPL 4 6.3% of income Large Subsidy % FPL % of income Small Subsidy % FPL % of income Small Subsidy % FPL % of income Small Subsidy %+ FPL 100% of premium No Subsidy

27 Executive Summary: Employer Below displays the employer impact for XYZ based on the points in time & key assumptions: Employer Cost $513,000 $386,500 $239,000 $260,000 $116,000 Baseline BL Inflated BL Adjusted (100% Waived Included) * - BL: Baseline BL Adjusted (50% Waived Included) 2013 Baseline Plus Inflation Plus Waived No Insurance No Insurance and No Comp Adjustment 53 Executive Summary: Employee Below displays the employee impact for XYZ based on the points in time & key assumptions: Employee Cost $140,000 $153,000 $280,000 $216,500 $289,000 Baseline BL Inflated BL Adjusted (100% Waived Included) * - BL: Baseline BL Adjusted (50% Waived Included) 2013 Baseline Plus Inflation Plus Waived No Insurance No Insurance and No Comp Adjustment 54 27

28 Employer Next Steps: Make an Informed Decision Determine if you are controlled group Calculate your full-time and part-time employees Conduct affordability testing Determine actuarial value of plan Determine strategy on health insurance benefit Look at current plan design New options available Evaluate impact to employees Track hours if a large employer Consult experts to determine penalties, but also to stay on top of new regulations 55 Employer Checklist for 2013 & FSA limit of $2,500 Medicare taxes for highincome 3.8% Net investment income tax Notification of state exchanges to employees 10/1/13 Public Exchange Open enrollment begins W-2 reporting of health insurance (250+) 1/1/14 Health Insurance Marketplaces (Exchanges) begin 1/1/14 Expanded Medicaid begins (for opted States) 1/1/14 Individual Mandate No Pre-existing conditions No lifetime or annual limits on essential health benefits Enhanced wellness program incentives 56 28

29 Thank you! Ross Manson, Principal Tonya M. Rule, Tax Manager *This presentation is presented with the understanding that the information contained does not constitute legal, accounting or other professional advice. It is not intended to be responsive to any individual situation or concerns as the contents of this presentation is intended for general informational purposes only. Viewers are urged not to act upon the information contained in this presentation without first consulting competent legal, accounting or other professional advice regarding implications of a particular factual situation. Questions and additional information can be submitted to your Eide Bailly representative or to the presenter of this session