Health Care Reform What Are the Changes for Employers. Greenberg Traurig

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1 Health Care Reform What Are the Changes for Employers Nancy Taylor Greenberg Traurig July 20, 2012 GREENBERG TRAURIG, LLP ATTORNEYS AT LAW 0 Information on Presentation Background on ACA Employer Requirements Implementation Issues Legislative, Regulatory, and Legal Challenges 1 1

2 ACA Breakdown by Pages Coverage 465 pages 19% of total pages 2,409 total pages 2 How did we get here? Decision to expand coverage resulted in a $1 trillion package over 10 years. Options: Keep coverage that you have (already expensive from a tax code) Expand public programs (expensive) Provide tax credits to those without coverage (more expensive than public programs) 3 2

3 Overview Analysis of financing of health care reform by sector Overview of business segment impact of health care reform Exchanges Medicaid Insurance Market Fully insured Self Insured 4 Health Care Coverage Timeline Most changes occur in 2014 to expand coverage: Reform insurance marketplace ( Exchange ); Create tax credits; or Medicaid eligibility for low-income who do not have access to employer-sponsored coverage. Some interim changes in First stage of reforms allows time for implementation of major changes in

4 General Structure of Reform Most Americans stay in their employer-sponsored plans. Individuals and small groups may purchase coverage through the state-based exchanges in (An exchange is a group of insurance plans with new rules.) Tax credits for low-income individuals available only when coverage is purchased through the exchange. Between now and 2014, some changes to health insurance and employer-sponsored plans. 6 Changes Starting in Plan Year After September 23, 2010 Insurance & Employer-Sponsored Plans Must: Cover dependents up to age 26 (if plan offers dependent coverage); No lifetime dollar limits (e.g. no limit on the spending under the plan); No restrictive annual dollar limits on essential benefits (may get a waiver under certain conditions);** No rescissions (unless there is fraud); Appeals and grievance process*; No cost sharing on certain prevention and wellness benefits*; and No pre-existing condition limitations on children 19 and younger. * may be grandfathered. ** mini-med waivers have been granted. 7 4

5 Additional Changes Additional Changes: W-2 reporting (mandatory for 2012 W-2s); HSA penalty; Changes to FSAs/HSAs/benefits on OTC (prescription only) (applies after December 31, 2010); and CLASS Act has ended Uniform Summary Benefits must be provided to all employees plan year after September 23, You must report the cost of employer-sponsored health coverage in box 12 using code DD. The amount reported should include both the portion paid by the employer and the portion paid by the employee. 9 5

6 IRS Chart of Reporting Requirements More available at 10 Uniform Summary Benefit Notices ACA Section 1001 (PHS Act Section 2715) Final Rule released on February 9, 2012 Requires use of template, content, coverage examples. Subject to changes through future guidances. May be done electronically. Changes to content and coverage examples. Effective date: first open enrollment period after September 23, 2012 or plan year after September 23,

7 12 Changes in 2013 Notice to employees about benefits and eligibility for exchange (March 1, 2013). Medicare payroll and unearned tax increased for certain individuals (no change to employer contribution). Limit on FSAs ($2,500). 13 7

8 Changes Starting January 1, 2014 Individual obligation to have coverage or pay a penalty. Employer obligations go into effect: auto-enroll employees into plans if over 200 employees (RFI to be released on how employers offer default enrollment today); offer affordable coverage or may pay a penalty. Employer plans must: pay for 60% of benefit costs; guarantee issue without limits on pre-existing conditions; have no more than 90-day waiting period; no annual limits, appeals and grievances, dependant coverage up to age 26, and other requirements. 14 Individual Obligation Individual must obtain coverage through: Medicare; Medicaid; Eligibility expanded to all individuals with incomes up to 133% FPL (under age 65) Exchanges; Individual Small Groups (up to 100) Employer-Sponsored Coverage; or Pay a penalty (exceptions for income below tax filing threshold, no affordable plan available, non-citizens, and religion). 15 8

9 Supreme Court Individual mandate is constitutional under Congress s authority to lay and collect taxes Not constitutional under Commerce Clause or Necessary and Proper Clause Medicaid expansion is constitutional under Spending Clause But Congress cannot give the Secretary authority to tie all of a State s federal Medicaid funding to compliance Can only tie expansion funding to compliance with expansion program 16 Low-Income Americans without Employer Coverage (in 2014) If an individual/family does: not receive affordable employer sponsored coverage and earns between %* of the federal poverty level, then the individual/family will get a tax subsidy to pay for all or part of their health insurance coverage. The tax subsidy can only be used in the exchange. 17 9

10 Supreme Court Made Some Changes Supreme Court held that the Medicaid expansion is not enforceable under the law. Therefore, States may not expand eligibility up to 133% of FPL. Law permits individuals who earn between % of the federal poverty level to get a tax subsidy. If an employee gets a tax subsidy who otherwise would be eligible for coverage, an employer would be penalized. Law did permit all who earned less than 133% of the federal poverty level to get Medicaid coverage. If an employee becomes eligible for Medicaid, an employer would not be penalized. Now it is unclear what will happen in each State. Stay tuned and watch for more updates. 18 Employer Obligation Effective 2014 Employers may either offer coverage or risk paying a penalty. Coverage is only required for full-time employees (working more than 130 hours/month but rules will permit a three month-one year lookback stability period). Coverage must be a plan that pays out 60% of the costs of the plan or meet a minimum value test Coverage must be affordable for full-time employees, or full-time employees may get coverage in the exchange and may qualify for a tax subsidy

11 Definition of Employer and Employee Definition of Employer - Uses the common-law test - Employer includes a predecessor employer - An employer not in existence during an entire preceding calendar year will be an applicable large employer for the current calendar year if reasonably expected to employ an average of at least 50 full-time employees (taking into account FTEs) on business days during the current calendar year - Common Control: Entities treated as a single employer under IRC 414(b), (c), (m), or (o) are treated as a single employer, so all employees of a controlled group or an affiliated service group, as defined by the IRS, are taken into account in determining whether any member of the controlled group or affiliated service group is an applicable large employer. Definition of Employee - A worker who is an employee under the common-law test 20 If Employer Offers Coverage That is Not Affordable If the full-time employee must pay more than 9.5% of income for individual premium costs, the plan may be deemed unaffordable and the employee may opt out and receive a tax credit for coverage in the exchange. For each full-time employee that qualifies and receives a tax credit, employer will pay $3,000 (or $2,000 (-30) for all full-time employees, whichever is less). For each full-time employee who is not offered coverage, employer will pay $2,000 for all full-time employees (-30)

12 Affordability Test Request for comments from IRS (IRS Notice ) 9.5% test applies to self-only coverage. Safe harbor for employers who base the 9.5% premium on the employer wages. No penalty if employee can demonstrate that family wages higher and eligible for tax subsidy. Affordability test does not apply to dependent coverage. If employee offered dependent coverage (that is or is not affordable), then dependents may not eligible for tax credits (issue still pending). 22 Employer Shared Responsibility IRS Notice for Comment Notice How to define full-time employees who must be eligible for coverage beginning in Employee defined under the common-law test ( leased employees would not be counted). Hours of service is an employee who works 130 hours of service in a calendar month. Employer permitted a look-back of 3-12 months to determine eligibility

13 Full-Time / Part-Time ACA Section 1513 FAQs released on February 9, 2012 Clarifies that safe-harbor and stability period will be included in proposed rules Permits employers to define in plan eligibility requirements 90-day waiting period will apply after eligibility period is met Greater clarity in seasonal and part-time 24 Employer Shared Responsibility Look-back/stability period for existing employees Employer would determine each employee s full-time status by looking back at a defined period of not less than three, but not more than twelve consecutive months, as chosen by the employer, to determine whether the employee averaged least 130 hours of service per calendar month. If yes, then during the stability period, the employee would be required to have coverage or the employer would pay a penalty. For new employees, IRS requested comments 25 13

14 Employer Shared Responsibility Proposed Facts and Circumstances Test for New Hires Employer must determine, in light of the facts and circumstances: (a) whether employee is reasonably expected at time of hire to work an average of 30 or more hours per week on an annual basis; and (b) whether employee s first 3 months of employment are reasonably viewed, as of the end of that period, as representative of the average hours the employee is expected to work on an annual basis. If employee reasonably expected to work full-time and does work fulltime for first 3 months, employee must then be offered coverage If the employee s status cannot reasonably be determined: If hours representative of expected work: deemed full-time if he or she works full-time during first 3 months If these hours not representative: plan permitted additional 3 months to determine employee s status 26 Examples Employer has a group of employees who work on an hourly basis. The employer establishes a look-back period of 12 months. Certain employees work 1560 hours and then are considered full-time employees. These full-time employees would then be eligible for affordable coverage for the stability period of 12 months or the employer could face a penalty Employer has a group of salaried workers. Employer determines that they are to be treated as fulltime workers. These workers would then be eligible for affordable coverage for one year or the employer could face a penalty

15 Example Employer offers coverage to all 230 fulltime employees (and dependents). Coverage is unaffordable for 40 full-time employees. These 40 full-time employees get tax credits to buy coverage in the exchange. Employer must pay $120,000, the smaller penalty. $3,000 x 40 FT employees receiving tax credit = $120,000; versus $2,000 x (230-30) 200 FT employees = $400, If Employers Do Not Offer Coverage For employers not offering coverage to fulltime employees (based on the lookback/stability test): If one full-time employee gets a tax subsidy to buy insurance in exchange: Employer must pay a fee $2,000 x # of all full-time employees (minus 30 full-time employees)

16 Example Employer with 230 full-time employees does not offer coverage. 40 full-time employees get government tax credit to buy coverage in the exchange. Employer must pay: $2,000 x (230-30) = $400, Practical Effect of These Provisions Can declare an individual full-time and offer benefits without the test and cover after a waiting period (no longer than 90-days) Can declare an individual part-time and offer a probationary period with a look-back, stability period and then offer coverage (and include a 90-day waiting period) Exchange coverage not available for groups over 100 (or over 50 depending on State discretion) Coverage must be affordable (individual coverage premium charged may not exceed 9.5% of total premium cost) Coverage must meet minimum credible coverage (employer plan must pay out 60 percent of the costs of the plan s covered benefits) 31 16

17 Treasury Notice 2012 (2/9/2012) Employee is hired Is employee expected to be full-time? Yes* Offer coverage to employee within 90 days of hire Assumes that the employee is otherwise eligible at hire date. FT/PT status is unknown Measure actual hours worked on set period (3-12 months) Employee averages 30+ hrs/week Yes* Employee considered eligible for full-time coverage Assumes that effective date of coverage is at 3-12 months for same period 32 Essential Health Benefits ACA Section 1302 Essential Health Benefits Bulletin released December 16, 2011 Lifetime and annual limits on EHBs prohibited after 2014 EHBs apply to exchanges, small group 33 17

18 Essential Health Benefits Coverage through the Exchange: Must meet Essential Health Benefits requirements IOM report base it on categories of coverage and focus on the cost of the coverage Coverage from Employer-Sponsored Plan: Fully insured coverage either State benefit requirements or Essential Health Benefits Self insured coverage 60% actuarial value of the underlying benefit plan 34 Essential Health Benefit Guidance Transition Period for States Benchmark plan selection from four options Largest plan by enrollment in any of three largest small group insurance products in State; Any of three largest State employee benefit plans; Any of the 3 largest national FEHBP plans; or Largest HMO in the State. Default is largest plan in small group market 35 18

19 Health Insurance Exchanges The Exchange will begin this means there will be a selection of insurance plans for individuals and small groups under 100 to select from in each State. (enrollment will begin in 2013). Exchange plans will offer essential benefit packages ; guarantee issue without limitations on preexisting conditions; limit premium rates; no more than 90-day waiting period; and no annual limits, appeals and grievances, and other requirements. 36 Structure in 2014 Structure in 2014 Outside the Exchange Nongroup & Other Coverage 22 million 8% of total ( Other is about half and includes Medicare) Medicaid Enrollment 51 million (non-elderly) 18% of total Individuals: Exchange Market 24 million 9% of total (19 million subsidized) Qualified Health Plans Subsidies Exchange Small Business SHOP Enrollment 5 million (<100 employees) Qualified Health Plans SHOP Exchange Employers Small and Large 162 million 58% of total Note: Enrollment figures are CBO projections for 2019 (CBO, March 2011 Baseline)

20 Questions & Answers 38 20