Health Care Reform: Fact vs. Fiction for Small Business. What employers should be thinking about now to prepare for 2015

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1 Health Care Reform: Fact vs. Fiction for Small Business What employers should be thinking about now to prepare for 2015

2 Fact vs. Fiction Healthcare is less expensive overall: Fact or fiction? Employers have more options: Fact or fiction? Exchanges are open and easy to operate: Fact or fiction? More workers with healthcare coverage: Fact or fiction? HCR increased compliance obligations: Fact or fiction?

3 Are You Prepared? Ø Ø Ø Ø Many employer requirements have been recently implemented Many new responsibilities on the horizon Do you have systems in place to comply? Do you have the resources to stay informed?

4 Did You Know? Employer penalties: 18 different employer penalty provisions Pages of the law: 2,700 Regulations: 15,000 pages/11 million words New government employees: Thousands Cost Savings:???

5 Funny? or Not so Funny?

6 Cost Drivers Fees & Taxes PCORI Fee Temporary Reinsurance Fee Health Insurer Premium tax Cadillac tax Taxes on pharmaceuticals Taxes on medical device manufacturers Elimination of Medicare Part D subsidies Increased itemized deduction threshold Increased hospital insurance tax Increased Medicare tax Indoor tanning tax

7 PCORI Fee General Description Patient Centered Outcomes Research Institute Temporary fee to: study the clinical effectiveness of medical treatments, procedures, drugs, and other healthcare strategies Fee paid by: Fully-insured plans Insurance carriers Self-insured plans Employers HRAs - Employers Fee applicable for plan years Paid annually by July 31 Reported on IRS Form 720

8 Transitional Reinsurance Fee General Description To subsidize issuers in the individual market: Newly insured with pre-existing conditions Temporary program: (calendar years) Entities required to pay fee: Issuers providing major medical coverage Employer-sponsors of self-insured group health plans* *Employers who self-administer their self-insured group health plan are exempted from having to pay the fee in 2015 and 2016 Fee assessable per-covered-life: $5.25 per-life/per-month - ($63 annually) $3.66 per-life/per-month - ($44 annually) TBD

9 Health Insurer Provider Tax Fee is paid by insurers on: Fully-insured medical plans Fully-insured dental plans Fully-insured vision plans Tax used to pay for premium subsidies The CBO predicts the tax will be: largely passed through to consumers in the form of higher premiums. Estimated to increase premiums by 2-3%

10 HCR Fees Applied to Premiums Monthly Premium Covered Employees Covered Lives Invoiced Premium / Fees Monthly Employee $ $42,000 Employee + Spouse $ $30,000 Employee + Child(ren) $ $9,000 Family $1, $60,000 Total $141,000 Annual Total Annual Premium $1,692,000 3% HIP Fee on Premium ($1,692,000 x 3%) $50,760 PCORI (415 x $1) $415 Reinsurance Fee (415 x $63) $26,145 Total Fees $77,320 Total Premium + Fees $1,769,320 $ Increase with HCR Fees $77,320 % Increase with HCR Fees 4.57%

11 It s 2014, and Starting for plan years beginning on or after January 1: Rating restrictions *# Guaranteed issue *# Guaranteed renewability *# Waiting period limitations Access to clinical trials * Cost-sharing limitations Coverage of Essential Health Benefits (where applicable) Changes to wellness incentives *Grandfathered plans excluded #Applies only to fully-insured plans

12 Age Rating/List Billing Members of group rated based on age: No medical underwriting Small group only Age Rated Curve: Employers receive list bill All ees/dependents shown: o Each with different premium o Maximum 3:1 ratio AGE PREMIUM RATIO AGE PREMIUM RATIO AGE PREMIUM RATIO Composite rating possible: Dependent on State/carrier and older 3.000

13 List Billing Example Monthly Invoice Sample Company January 1 January 31 Subscriber Number Subscriber Name Dependents Age Premium Rate 742 Joe Smith 25 $ Mike Jones Jane Jones Bobby Jones $ $ $ Roger Peterson 47 $ Mary Johnson Peter Johnson 16 $ Chris Jennings Jennifer Jennings $ $ Patrick Adams 41 $ Alice Olsen Roger Olsen James Olsen Lauren Olsen $ $ $ $ Josh Robinson 57 $ Total Due: $6,587.80

14 Age Rating Discrimination Issues May cause discrimination issues: Employer contribution methods may be discriminatory towards older employers Employers may not contribute less to older employees Non-discriminatory contributions: Proportional allowable; i.e. 80% self-only/50% dependent coverage Flat dollar unlikely to be permissible, but unclear

15 Expanding Access to Coverage Guaranteed Issue: Issuers must accept all individual and group applicants o May limit based on minimum participation* o May limit individuals outside service area Guaranteed Renewability: Issuers must provide individuals and groups* the opportunity to renew o Unless in cases of non-payment, fraud or noncompliance with plan provisions * Except during the period between November 15-December 15

16 Waiting Period Limitations The period that must pass before coverage for an employee or dependent, who is otherwise eligible to enroll under the terms of a group health plan, can become effective A health plan can not apply any waiting period that exceeds 90 calendar days not 3 months However, employers have flexibility to define eligibility on non-time lapsed criteria.which could greatly exceed 90 days of no coverage Licensing requirement Sales quota Hours worked (<1,200) Employers may have an orientation period before 90 day clock would be required to start

17 Cost-Sharing Limitations Out-of-Pocket Maximums: All group plans may not have out-of-pocket maximums greater than the yearly allowable HDHP: o $6,350 for individual coverage o $12,700 for family coverage Plans may have maximums for separate categories - sum not to exceed annual maximum Maximum Deductibles (REPEALED): Small group plans may not have deductibles greater than: o $2,000 for individual coverage o $4,000 for family coverage

18 Changes to FSAs FSAs limited to $2,500 annually FSA funds may be carried over: Up to $500 FSA limitations: FSA participants are offered a group health plan; and, The employer contribution (if any) does not exceed the greater of: o $500; or o A match of the employee s contribution

19 HRAs New Limitations HRAs may not be integrated with individual market coverage Only integrated HRAs are now allowed: Available only to those enrolled in a compliant group health plan (either employer s or employee s family member s) The following HRAs are still permitted: HRAs that reimburse excepted benefits only HRAs that qualify as retiree-only

20 Small Business Tax Credits Tax credit eligibility very limited: < 25 employees, and; < $50,000 average annual wages Tax credit use very limited: Credit only available for: o SHOP coverage o First 2 consecutive years of coverage Credit amount: Up to 50% of employer cost (sliding scale)

21 Tax Credit Calculation Eligibility Step 2 Eligibility Step $ Estimated Total Annual Wages Paid to 24 Full Time Equivalents from Step Tax Year 1 24 Total Full Time Employees 2 Eligibility Step 2 of 3 is Fulfilled. Proceed to Eligibility Step 3. 0 Part-Time Employees 3 Eligibility Step 3 Average Hours Per Week for a Part Time Employee 24 Total Full Time Equivalent Employees 4 No $ Does the employer pay less than 50% of any employee's premiums? 5 Estimated Annual Total Plan Premiums (based on employee-only coverage) 6 Eligibility Step 1 of 3 is fulfilled. Proceed to Eligibility Step $ Estimated Annual Total Plan Premiums paid by Employer 7 60% % Premiums Paid by Employer

22 Tax Credit Reality Part 2 - Tax Credit Calculation, Tax Years Credit Calculation Step 1 Final Estimated Credit Calculation $72,000 Estimated Qualified Premium for Credit Non-Tax Exempt Entity Tax Exempt Entity Maryland Credit Calculation Step 2 Select Tax Exemption Status Select State of Business Operation $25,200 Estimated Total Initial Credit (Before Deductions) $23,520 Estimated FTE Credit Reduction $24,192 Estimated Wage Credit Reduction 15 # Employees with Employee Only Coverage 5 # Employees with All Other Coverage Levels $0 Estimated Total Credit 8, 9 20 # Employees Validated

23 The Year of Reform Insurance Exchanges 2014 Individual Mandate Employer Mandate

24 Exchanges - Overview State-based insurance exchanges: Often compared to expedia.com States given option to control or defer to Federal government Subsidies available for certain low-income workers Coverage available for individuals and small groups ( SHOP exchange ) Plans must meet insurance mandates & offer Essential Health Benefits Multiple levels of coverage metal levels

25 Exchanges Consumer Options Coverage available: Individual/Family Small business SHOP exchanges Metal Levels:

26 Essential Health Benefits All individual and small group plans must offer EHBs* EHB general categories: Ambulatory patient services Emergency services Hospitalization Maternity and newborn care Mental health and substance use disorder services Prescription drugs Rehabilitative and habilitative services and devices Laboratory services Preventive and wellness services and chronic disease management Pediatric services, including oral and vision care States given the option to define: Select benchmark plan * grandfathered plans excluded

27 SHOP Exchanges Insurance exchanges dedicated to small businesses Defined as under 50 lives Coverage options for eligible employers employee choice : Guaranteed availability: Exception Employers not meeting State minimum participation/ contribution requirements limited to purchasing coverage during open enrollment period (11/15 12/15) Workable for non-calendar year plans?

28 Employee Choice Model Employers may offer: Platinum ////////////// Gold ////////////// Silver Bronze Carrier A Carrier B Carrier C Carrier D One plan option: i.e. employer offers Carrier A s silver plan Metal level option: i.e. employer offers Carrier A s, B s, C s and D s silver plans Carrier option: i.e. employer offers all Carrier C s plans

29 MD SHOP - Application

30 Exchanges Locally - MD MD: Website overhaul: o Fix or different problems? SHOP Exchange: o Open - 1/1/15 o Employee choice 4/1/15 Enrollment periods: o Starts November 17 th o Must enroll by December 18 th for calendar year plans Participation not mandatory

31 Exchanges Locally DC & VA DC Enrollment mandatory: o 2015 plan year Enrollment periods: o Open enrollment begins 11/1/14 Must enroll by the 5 th of the month prior VA: Federally Facilitated Exchange Enrollment periods: o Begin 11/15/14 Employee choice is available o States had option to opt-out

32 Private Exchanges Marketplaces run by private entities, not the government Moves employers from defined benefit to defined contribution strategy Employees choose from plans offered by participating insurers Allows for large group participation

33 Private Exchanges Pros & Cons Pros Predictable costs: o Defined contribution Lower administrative costs: o Enrollment, on-boarding Increased choice within a carrier: o Access to more plan options Non-major medical options available: o Central location for dental, vision, life Lower-risk pool?: o Higher risk joins the public exchange Shift employee resolution issues to exchange: o Employees would go directly to exchange Cons Cost shift to employees: o Employer share limited to defined contribution Limited choice in carriers: o Choice only among participating carriers Employee understanding: o More responsibility on employees No small business tax credit available: o Only coverage via public coverage qualifies Recognition of employer-sponsored o Employer involvement less apparent to employees Higher-risk pool/adverse selection?: o Smaller population = fluctuating risk

34 Private Exchanges as a Viable Option GOOD CANDIDATE NOT A GOOD CANDIDATE You want your employees to have choice. You want budget certainty in each line item of benefit offerings. You want a long term solution and do not require the flexibility to change the benefits annually. Your employees may be too overwhelmed by choice and unable to make decisions. You pride yourself on understanding employee needs and tailoring benefits for them to meet their needs. You want flexibility and the ability to review a different carrier for different products annually.

35 Employer Mandate Large employers subject to Pay-or-Play rule: Offer coverage of a certain standard or possibly pay a penalty Applies to employers with 50 or more Full-Time Equivalent (FTEs) employees in prior calendar year Delayed until 2015* *2016 for mid-size employers meeting transitional relief criteria

36 The Employer Mandate Employers assessed a tax penalty if: Affordable and Minimum Value coverage is not offered to a full-time employee, and; The full-time employee receives a tax subsidy in an insurance exchange Minimum Value coverage The plan design is expected to pay at least 60% of allowed charges Affordable coverage - Employee contributions don t exceed 9.5% of employee s W2 when looking at the least expensive self-only premium plan offering

37 Employer Mandates - Penalties Offer Penalty Employer pays the lesser of: $3,000 x (the number of employees receiving a subsidy); or $2,000 x (the number of full-time employees 30*) No-Offer Penalty If at least 1 employee receives a subsidy, employer pays: $2,000 x (the number of full-time employees 30*) * For 2015 only, employers may subtract the first 80

38 Employer Mandate Penalty Examples Offer Penalty Full-time employees = 125 Coverage meets Minimum Value but is unaffordable for 15 full-time employees all of which receive tax subsidies through an exchange 15 x $3,000 = $45,000 annual penalty No Offer Penalty Full-time employees = (125 80) x $2,000 = $90, (125-30) x $2,000 = $190,000

39 Exchanges Premium Subsidies Premium Subsidies and reduced cost-sharing: Only available for coverage offered in an exchange Eligibility: Income <400% FPL, and; No access to employer coverage which: o Meets Minimum Value, and; o Is unaffordable Single Person FPL % Annual Income Maximum Premium (as % of Income) Enrollee Monthly Share 133% FPL $15, % $ % FPL $17, % $ % FPL $23, % $ % FPL $29, % $ % FPL $35, % $ % FPL $40, % $ % FPL $46, % $369.55

40 Employer Mandate Delay Mid-Sized Employers Mid-sized employers defined as: FTEs Penalty liability delayed until 2016 plan year, if: Between February 9, 2014 and December 31, 2014: o The employer does not reduce size of workforce o The employer does not reduce overall hours of service to move under 100 FTEs Between February 9, 2014 and the end of their 2015 plan year, the employer does not change the employee contribution other than: o The employer continues to contribute at least 95% of the contribution dollar amount, or: o The employer contributes the same (or higher) percentage of cost of coverage Any change in benefits does not eliminate Minimum Value The employer did not eliminate benefits for a class of employees

41 Employer Mandate Non-Calendar Year Plans Transitional relief granted to non-calendar year plans Employers may delay the mandate until the start of their 2015 plan year, if: The employer maintained a non-calendar year plan as of December 27, 2012 The employer has not modified the timing of their plan as of December 27, 2012 The employer satisfies at least one of the following: o On at least one day between February 10, February 9, 2014 had at least one quarter of all employees covered under the plan o The employer offered coverage to at least one third of all employees o On at least one day between February 10, 2013 February 9, 2014 had at least one third of full-time employees covered under the plan o The employer offered coverage to at least one half of its full-time employees

42 Determination of Large Employer Status Calculation of FTEs An applicable large employer is defined as: An employer where the sum of the following is > 50: o Full-time employees, and; o Full-Time Equivalent employees Full-Time Employee: An employee who consistently averages at least 30 hours of service per-week Full-Time Equivalent Employees: (Sum of total hours worked per-month by all part-time employees)/120

43 Employer Mandate Employee Classifications Correctly classifying employees is imperative to employer mandate compliance Full-Time Employee: Employee hired to work at least an average of 30 hours of service per-week. Part-Time Employee: An employee hired to consistently average less than 30 hours of service per-week. Variable Hour Employee: An employee who at the time of hire it is uncertain will work more than or less than an average of 30 hours per-week. Seasonal Employee: An employee performing seasonal work, at the same period yearly, who works no longer than six months

44 Seasonal Employees Clarified Exception remains for determining large employer status: Seasonal workers < 120 days not counted Seasonal employee defined FT status determinations: Seasonal employment <6 months and begins and ends at the same time each year Employees employed > 6 months must be treated as FT/PT (expected hours worked) regardless of seasonal duties Good faith interpretation of seasonal employment allowed Seasonal employees with breaks of service of at least 13 weeks may be treated as a new hire: Can start a new initial measurement period

45 Employer Mandate Measurement Periods Employers may use a measurement period prior to determining eligibility for: Variable hour employees Seasonal employees Employers perform simultaneous measurement periods: Initial measurement periods New variable/seasonal Standard measurement periods Ongoing

46 Measurement Period Example Measuring Ongoing Employees: J u l A u g S e p O c t N o v D e c J a n F e b M a r A p r M a y J u n J u l A u g S e p O c t N o v D e c J a n F e b M a r A p r M a y J u n J u l A u g S e p O c t N o v D e c J a n F e b M a r A p r M a y J u n J u l A u g S e p Standard Stability Period Admin Period Admin Period Standard Stability Period Standard Measurement Period Standard Measurement Period Standard Measurement Period Admin Period Standard Stability Period Admin Period

47 Measuring Variable Hour Employee Example J u l A u g S e p O c t N o v D e c J a n F e b M a r A p r M a y J u n J u l A u g S e p O c t N o v D e c J a n F e b M a r A p r M a y J u n J u l A u g S e p O c t N o v D e c J a n F e b M a r A p r M a y J u n J u l A u g S e p Standard Stability Period Standard Stability Period Admin Period Admin Period Admin Period Variable Hour Employee s Initial Measurement Period A P Variable Hour Employee s Initial Stability Period Standard Measurement Period Standard Measurement Period Standard Measurement Period Admin Period Standard Stability Period

48 Individual Plan Reimbursement Employers now prohibited from reimbursing individual policies: Pre-tax Inside and outside insurance exchanges Reimbursement considered sponsoring Plan would not meet insurance reforms After-tax reimbursement raises compliance issues: Must meet numerous DOL safe harbors Reimbursement of excepted benefits permissible

49 Skinny Plans Are skinny plans right for you?

50 Cutting Hours An Employer can always make business decisions in regards to the business needs, but; it should not terminate an employee or reduce their hours solely based on benefits eligibility Possible interaction with Section 510 of ERISA Unlawful for any person to discharge or otherwise discriminate against a plan participant or beneficiary: For exercising a right the participant or beneficiary is entitled to under ERISA or under an employee benefit plan (i.e.,retaliation for the past exercise of protected rights); OR For the purpose of interfering with any right the participant or beneficiary may become entitled to under ERISA or under an employee benefit plan.

51 HCR Notices and Disclosures Grandfather notice (if applicable): Inform employees of grandfathered status SBCs: Distribute to all plan participants prior to plan year Notice of Patient Protection Rights: Disclose annually to employees Exchange notice: After 10/1/13, new hires only Employer mandate (6055 & 6056) reporting Disclose to IRS & employees W-2 reporting: Report the cost of coverage on employees W-2

52 This Fall Employer Mandate Be prepared for employer mandate compliance: Determine Large Employer Status Develop employee classification strategy Determine timing of measurement periods Determine transitional relief applicability Perform financial analysis of HCR s affects Run affordability test Implement system to count hours Implement system to track required reportable data

53 To Consider? Where all size employers attention should be focused now: Continue to offer a plan? Do employees have coverage options? Should workforce adjustments be made? Should changes be made to contribution structure? Is minimum participation requirements met? Are my plans compliant? Is the company compliant? Coverage through private/public exchange or private market?

54 This Fall Other Compliance Requirements Determine interest in SHOP exchange: Process and deadlines/timing FSA/HRAs compliant? Medicare notice due to Part D eligibles Confirm distribution of all required notices DOL audit preparation: SPDs/Plan documents Notices Disclosures Plan compliance Stay informed!

55 Compliance Doesn t End with ACA Partner with a great advisor!

56 Questions? Jay Fahrer Independent Benefit Services Crabbs Branch Way, Suite 350 Rockville, MD