Health care reform: A guide for large employers

Transcription

1 Health care reform: A guide for large employers

2 1231 East Beltline Ave. NE Grand Rapids, MI Dear business owner: In the complex world of health care reform, we understand how confusing the regulations and requirements can be and how much preparation is required for Our responsibility is to ensure that we are prepared, knowledgeable and ready to respond to your health care reform inquires and to meet your needs in a timely fashion. Over the past few years, we have been continually communicating health care reform legislation and requirements that impact our group commercial clients, as well as providing access to tools necessary to help you make informed business decisions. In addition to our ongoing communications, we ve launched a comprehensive website UnderstandingHealthReform.com, introduced an online reform calculator, conducted presentations to business groups and met one-on-one with many of our large and small employers who all want to know the same thing: How will health care reform affect me? To help answer that question, we introduced a user-friendly health care reform guide (and an online tool) designed to answer this question. And, it gives you options. The guide is designed to be used collaboratively. We encourage you to sit down with your Priority Health account manager or agent and use the information to make informed decisions about your benefits in 2014 and beyond. Then, select one of our reform-friendly products and benefit options, including: Self-funded plans available for groups with as few as 50 employees, including new stop loss options. A defined contribution platform via the iselect Custom Benefits Store, Michigan s first multi-carrier and multi-distributor benefits exchange for small- and mid-sized employers. PriorityValue SM plans that are affordable, easy to understand & focused on prevention. HealthbyChoice SM plans which engage employees in their health. When it comes to health care reform, you can trust us to provide information that is relevant to you. And, if you re interested in receiving regular reform-related updates from Priority Health, please take a moment to sign up at UnderstandingHealthReform.com. Again, we appreciate your business and encourage you to contact your agent, account manager or our small business department with any questions you may have so we can better serve and guide you into In good health, Scott Norman Vice President, Sales & Client Services

3 Health care reform: A guide for large employers This guide was developed by Priority Health to help answer employers questions regarding health reform. The summaries and examples are based on information provided in proposed rules on shared employer responsibility and other federal regulation. This is an educational tool only. Information provided by Priority Health about health reform should not be considered legal or tax advice. Please note federal regulation is released regularly. Table of contents Determining employer size... 4 Counting employees: A case study... 6 Determining employee eligibility... 7 Who is full time: A case study... 8 Affordability and minimum value The Pay-or-Play Clause Getting ready for 2014: A timeline Large employer checklist

4 Determining employer size Am I a large employer or small? 1-49 vs. 50+ Determining employer size (large vs. small) Under the Affordable Care Act, large employers have a shared responsibility with the federal government to offer health insurance to employees. To summarize: Large employers must offer full-time employees (and their dependents) an opportunity to enroll in minimum essential coverage under employer-sponsored plan; if they fail to do so, a penalty may be imposed. What s a large employer? Large means 50 or more full-time equivalent employees. Notice it s not just full-time employees, but equivalents. Employer size calculation must be done each year. So, how do you calculate if an employer is large? Add the full-time employees to the full-time equivalents to get the number. An employer needs to look at the last calendar year and do the math for each month. So, look at January and count the number of full-time employees and full-time equivalents, then February, and so on. Who is full time? Full time means any employee who works 30 or more hours on average per week or 130 hours per month. Transitional relief: Employers can use a period of six consecutive months (of the employer s choosing) instead of the full calendar year for the first calendar year only. What s a full-time equivalent? To identify the full-time equivalents, the employer needs to sum the number of service hours by all employees who are not full time and divide by 120. Do not count more than 120 hours for any one employee. For example, disregard hours above 120 for any employee who may have worked overtime. Again, this must be done for every month in the prior calendar year. In addition, the government has indicated that service hours rather than work hours must be used for this calculation. Therefore, if an employer pays a part-time employee vacation time, those hours of service would count toward the calculation. 4 Health care reform: A guide for large employers

5 Determining employer size Employer XYZ 100 part-time employees work 6,000 hours collectively (15 hours per week) 6, = 50 full-time equivalents Full-time employees = FTE + 25 FT = 75 employees Employer XYZ is a large group. Seasonal employer exception The seasonal employee exception indicates employers are not large if they exceed the 50 employee count for 120 days (or four months) or fewer during the preceding calendar year (the 120 days or four months do not have to be consecutive). Small employers are exempt from shared responsibility And, of course, small employers with less than 50 full-time employees are exempt from the responsibility and the corresponding penalties. So, small employers are off the hook and do not have to offer coverage to their full time employees. Now, if coverage is offered, small employers will have to abide by rules related to waiting periods, plan designs and rating rules, but employers will not bear a penalty if coverage is not offered. If you are determined to be a small employer, the rest of this guide does not apply to you. To learn more about the small employer impacts of health reform, you can watch our webinar at UnderstandingHealthReform.com. Can I divide my company into many small employers? All employees of a controlled group or an affiliated service group are to be taken into account (Under 414 (b), (c) or (m) of the Internal Revenue Code) Employers with less than 50 employees are not required to offer employee benefits. 5

6 Determining employer size Counting Employees (Employer Size) Case Study: A Produce Farm This employer has 120 employees. Only 30 employees are full-time. Part-time employees hours worked are noted below. JAN FEB MAR APRIL MAY JUNE JULY AUG SEPT OCT NOV DEC Step 1: Enter how many full-time employees (30+ hours per week) you had for each month Step 2: Determine full-time equivalents (FTEs) for each month Enter total hours worked by non-full-time employees** for each month ,800 10,800 10,800 8,400 8,400 8, Divide by Total FTEs Step 3: Total employees (Add Step 1 and Step 2) Step 4: Find your average number of employees To use the 6 month transition relief, total employees any 6 months of the preceding year Add together all 12 monthly totals from Step Add together all 6 monthly totals from Step Divide by or Divide by 6 6 Annual average number of employees 67 Annual average number of employees 48 Are you a large employer Y / N Are you a large employer Y / N 6 Health care reform: A guide for large employers

7 Determining employee eligibility Determining employee eligibility Full time under the ACA is defined as any employee who works 30 or more hours on average per week. This provision will be a big change for many employers in their benefit offerings. Large employers must offer full-time employees (and their dependents) an opportunity to enroll in minimum essential coverage under an employer-sponsored plan. A 130-hour standard may be used as a monthly equivalent of 30 hours per week. Variable hour employees (including seasonal employees) These employees experience fluctuation in the hours worked and the employer cannot easily assess if the employee typically works 30 hours. The federal government has provided guidance on the process to be used to identify employees who may be full time but not easily identified due to the irregularity in their schedules. The terms to understand for this process are: Standard measurement (or look-back) period A period of 3-12 months (the employer chooses how long to measure) in which an individual employee s hours are reviewed to determine if they work, on average, 30 or more hours and are eligible for benefits. Administrative period This is a period of time afforded to the employer to perform the measurement calculations, communicate to employees and enroll eligible employees in the plan. This period cannot exceed 90 days. This period could include the open enrollment activities. Stability period The period of time that the eligible employee is enrolled in benefits. The coverage is protected regardless of whether the employee works 30 hours per week on average until the stability period ends and eligibility is measured again. The stability period can last from six to 12 months and cannot be shorter than the measurement period. If the employee is determined to be employed on average at least 30 hours of service per week during the measurement period, then the employee must be treated as a full-time employee during a subsequent stability period, regardless of the employee s hours of service during the stability period, so long as he or she remains an employee. The stability period must immediately follow the standard measurement period (and any applicable administrative period). There are special rules in the draft guidance on how the federal government proposes handling employees with variable hours. Employers are permitted to start and stop measurement periods around payroll cycles (versus exactly the first day of the month) 30+ hrs/wk 7

8 Determining employee eligibility Who is full time: A case study Workplace: A restaurant Employees: 15 management staff, 125 variable-hour employees Plan renews: January 1, 2014 The employer chooses the measurement period duration. Different periods can result in different outcomes. This restaurant must determine which of its employees are eligible for benefits. The employer is considering a 12-month measurement period and would like to allow for a 2.5 month administrative period to conduct open enrollment meetings and enroll employees in the plan. 10/15/12-10/14/13 Measurement period (12 month) 10/15/13-12/31/13 Administrative period 01/01/14-12/31/14 Stability period (12 month) 01/01/13 04/01/13 07/01/13 10/01/13 01/01/14 04/01/14 07/01/14 10/01/14 10/15/12 12/31/14 Meet Jane: Jane works at the restaurant, but her hours vary week to week and the restaurant management cannot determine that Jane is reasonably expected to work 30 hours on average per week. 12-month measurement Jane is full time Jane s hours during 12-month measurement: OCT 13 NOV DEC JAN 14 FEB MAR APR MAY JUN JUL AUG SEP AVG month measurement Jane is part time If the six-month measurement is used: APR MAY JUN JUL AUG SEP AVERAGE Health care reform: A guide for large employers

9 Determining employee eligibility Jane s administrative period The employer communicates to Jane and allows her to enroll in the plan. Jane s 12-month stability period On January 1, 2014, the stability period begins and Jane is covered under the plan regardless of whether the hours she works in 2014 meet the fulltime definition. During the stability period, Jane is locked-in to benefits for the full 12 months, unless employment is terminated. Pull employee hours by month and start crunching numbers! OCT 13 NOV DEC JAN 14 FEB MAR APR MAY JUN JUL AUG SEP AVG In 2014, her hours do dip below the 130 per month full-time measurement. Jane is locked in for 2014, but the hours worked in 2014 are being measured for 2015 eligibility. The measuring and stabilizing doesn t end after a one-year cycle. Based on the new measurement period, Jane would be excluded from coverage during the 2015 stability period. Once the first measurement period ends, the second period will begin. Employers with variable hour employees will constantly be measuring to determine eligibility for coverage under the next stability period. Rules for new employees If the new employee is in a variable hour/seasonal position, their eligibility must also be measured the same way as the other variable-hour employees. The employer must use the same measurement and stability period duration as what is used for ongoing employees. The initial measurement period and the administrative period for newly hired variable hour employees cannot exceed 13 months after their hire date (last day of the first month of their anniversary). Other little known facts For non-hourly employees that don t have a history of tracking hours worked, employers can use a reasonable method for determining hours worked. There are three ways to do this: track actual hours worked, use a days-worked equivalency (8 hours) or weeks-worked equivalency (40 hours) method. These provisions are designed to protect the employees, so employers are advised to not use methods that would understate the hours of service by employees. For new employees, the employer must use the same measurement and stability period duration as what is used for ongoing employees. Employers do not have a responsibility to offer minimum essential coverage to part-time employees. They can offer this but will not be penalized if they choose not to do so. 9

10 Determining employee eligibility Frequently asked questions I augment my staff with resources from a temporary staffing agency. Do I have to measure these employees to assess full-time status? Do I have a responsibility to them? The IRS is concerned that either position they take on this could lead to inadvertent consequences. Of particular concern is that employers could use temp agencies in order to avoid application of the shared responsibility rules. Guidance is pending on this topic. included when averaging hours worked, educational staff may not hit the full-time threshold. And so, employment breaks of four weeks or longer must not be included in the measurement period averaging. What if my full-time employees decline coverage that I offer? Large employers have a responsibility to offer fulltime employees an opportunity to enroll in coverage. We do know that anti-abuse rules will be included in final regulations. The specific case referenced in the proposed rules that will not be allowed is an employer hiring an employee for 20 hours and then renting the same employee from a temp agency for another 20 hours in order to avoid the shared responsibility provision. The IRS promises to prevent those types of workforce tactics. I m a large employer, do I have to offer benefits to dependents? Yes, employers are responsible for offering coverage to full-time employees and their dependents. Employers do not, however, have to offer coverage to spouses. HHS has issued transition relief and employers will not be penalized for not offering coverage to dependents in the first year. We do know, however that in 2015 employers will be penalized for failing to offer coverage to dependents of the full-time employees. What about schools and educational institutions? For schools and educational institutions, there are special rules related to counting employee hours because of the length of employment breaks during the summer months. If the summer months are If employees decline coverage, the employer is not responsible. The employee may face a penalty for not maintaining coverage, but the employer will not be penalized as the rules stand today. Are there record-keeping requirements to prove the coverage was offered? The Employer Shared Responsibility Regulations do not propose any new specific rules for demonstrating that an act of coverage was made. The otherwise generally applicable substantiation and record keeping requirements apply. (26 CFR Section 6001, Rev. Proc , Notice 99-1) Are employers required to treat employees uniformly during the measurement period duration? Employers must treat employees uniformly in terms of the meassurement period duraciton, but can use different look-back measurement periods for: Collectively bargained agreement employees versus non-cbas Hourly versus salary Employees of different entities Employees in different states 10 Health care reform: A guide for large employers

11 Affordability and minimum value Affordability and Minimum Value Large employers must offer full-time employees (and their dependents) an opportunity to enroll in minimum essential coverage under an employersponsored plan. What is minimum essential coverage? By law, the plan must offer minimum value which is defined as satisfying a 60% minimum value test this means that a plan would pay for at least 60% of medical expenses on average for a standard population. The Department of Health and Human Services has released a minimum value calculator to use for this testing. For more complicated plans, such as self-insured plans, there will be a safe harbor checklist. Most employer-sponsored plans today will easily pass this requirement. Now, let s review the affordability test. This test looks at each employee uniquely, not the aggregated population, to check for affordability. It compares what employees pay for coverage to each employee s wages. The employee s premium contribution for self-only coverage for the lowest cost plan cannot exceed 9.5% of employee wages (either Box 1 of the W-2 or rate of pay). If it does, the plan is not affordable and the employer has failed the responsibility to provide minimum essential coverage for that employee. To use the rate of pay for the affordability test: There are two tests that apply here: Mimimum value Affordability If an employer charges $200 per month for single coverage, the annual cost of coverage would be $2,400. This plan would be unaffordable to employees with annual wages lower than $25,300. Hourly rate X 130 (regardless of hours worked) Monthly wages When employers offer multiple minimum value plan options, the rules say that one of them must be affordable they don t all have to be. There has to be one plan (the lowest cost one) that satisfied the minimum value requirement and is affordable. The rules do not pay regard to the plan the employee chooses just to the fact that an affordable choice is available. Employee s annual wages contribution X 9.5% Maximum annual employee contribution 11

12 The Pay-or-Play Clause The Pay-or-Play Clause The penalty applies only if one (or more) employee(s) goes to the individual marketplace and receives a federal subsidy. Who is eligible for help to buy coverage? U.S. citizens or legal aliens Not incarcerated With incomes between 100% to 400% of the Federal Poverty Level Not offered a qualified employer plan What if employers don t do any of this? What if they don t offer employee benefits? Or what if their employee benefits are too costly for eligible employees? There are two primary penalties large employers face if they fail to meet the ACA s Pay-or-Play requirements. We ll refer to these as the 95% Rule and Unaffordable penalties. The 95% Rule penalty Under the 95% Rule, large employers must offer coverage to 95% of their eligible full-time employees. If they fail to do so, they will be penalized $2,000 per employee above 30 employees. Said another way, if the employer excludes one group of employees that comprises 6% or more of the benefits eligible workforce, then the employer will be assessed the penalty against the entire workforce. Why is the IRS not requiring employers to offer coverage to 100% full-time employees? They understand that employers need 5% wiggle room to accommodate administrative error. $2,000 The Unaffordable penalty The Unaffordable penalty applies if an employer continues to offer coverage but it is unaffordable to some. The employer is penalized $3,000 in this case for each employee who receives a subsidy through the individual exchange. This penalty can be avoided by modifying the premium contribution paid by employees by requiring lower income employees to pay less for coverage. $3,000 X X (number of employees 30) (number of employees receiving federal subsidy) 95% Rule penalty Unaffordable penalty 12 Health care reform: A guide for large employers

13 The Pay-or-Play Clause New reporting requirements coming soon Not much is known about how the penalties will be collected, but they can be collected on a monthly, quarterly or annual basis. Coming soon employers will be required to submit employee rosters, pay information and coverage options to the federal government to allow for future automation of the exchange operations. We don t know fully how that will work and are waiting on regulation from HHS. In the meantime, employers should expect active and frequent interactions with the exchange to attest to information related to employees trying to seek subsidies. Why? Because remember that individuals are only eligible for subsidies if they do not have qualified employer coverage (coverage that is affordable and satisfies the minimum value test). Rules for employers with non-calendar year renewal dates Employers whose current benefit plans renew off the calendar year (January 1) cycle have many questions about when the shared responsibility rules apply. The IRS is offering transition relief to employers in Under these rules, the penalty will not be assessed for months prior to plan renewal for non-calendar year (fiscal year) plans if the fiscal plan year was in place on December 27, 2012 (when the regulation was issued). Don t forget that penalties must be paid with after tax dollars so add on the applicable corporate tax rate to the penalty for the real cost of the assessment. Under these rules, if the employer makes affordable, minimum value coverage available to eligible employees no later than the first day of the plan year that commences in 2014, the employer will not be assessed penalties. Special rules apply to employers with multiple plan year renewal dates. If Michigan expands its Medicaid program to cover individuals and families making 138% of the federal poverty level, employers will not be penalized if their employees enroll in Medicaid. 13

14 Getting ready for 2014: A timeline Getting ready for 2014 A timeline for large employers The shared responsibility rules don t go into effect for employers with 50 or more full-time employees until renewal in But that doesn t mean there isn t plenty for employers to be considering prior to renewal. Here s a checklist of items for employers to consider. Now through early fall Pay Patient-Centered Outcomes Fee Insurers and self-funded employers must file this on an excise tax return by July 31 of each year immediately following the calendar year to which the fee applies. The first time by which this must be filed is July 31, 2013 (for plan years that ended after September 30, 2012). The IRS provides three to four different ways for determining the number of lives to count for the payment calculation. Note: Priority Health will file this fee on behalf of our fully funded customers. Employers with self-funded plans, including Health Reimbursement Arrangements (HRAs), must submit this fee directly to the IRS via an excise tax form. Find more information at UnderstandingHealthReform.com. Marketplace notification to employees The Affordable Care Act requires employers to notify their employees of the existence of the Health Insurance Marketplace. The original act required the notification be issued in March 2013 but the requirement was delayed until no later than October 1, The written notification must inform the employee of the existence of the Health Insurance Marketplace. The Department of Labor has made a template available on its website, which employers can download, complete and issue to employees. Find more information including a link to the templates at UnderstandingHealthReform.com. 14 Health care reform: A guide for large employers

15 Getting ready for 2014: A timeline January 2014 (regardless of renewal date) Optional: Amend Section 125 (cafeteria plan) The shared responsibility rules contained a provision that allows employers to amend their cafeteria plan in order to permit employees to change their salary reduction mid-plan year due to the new reform provisions. This is an option for employers. Doing this would allow employees who did not elect benefits to enroll in the employer s plan thus avoiding the individual mandate tax penalty. It would also permit employees to disenroll from the employer s plan to seek coverage in the Marketplace. Taxes and fees Five new taxes and fees will be added to the purchase of health benefits beginning January 1, 2014 (or sooner in the case of the Patient-Centered Outcomes Fee noted on page 14). These taxes and fees will be billed to employer-sponsored coverage beginning January 1, These will be collected in January even on plans with non-calendar year renewal dates. Fee description Annual Fee on Health Insurance Carriers * This annual fee will be assessed on all fully-insured health plans based on premium. (Note: Final regulations have not been released on this fee.) Transitional Reinsurance Program This will be used to pay for high-cost claimants insured in the individual market throughout the country. The program is temporary and runs from 2014 through Patient-Centered Outcomes Research Institute Fee (See page 14 for details.) Projected total cost based on 2013 premiums (reflected as a per member per month amount)^ Self- Funded N/A Large Group 2.5%-4.0% of premium (PPO) 0.75%-1.5% of premium (HMO/POS) $5.25 PMPM for all plans beginning Jan. 1, : $1 PMPY 2014: $2 PMPY $2 PMPY + medical inflation $5-7 $14-16 PPO $8-10 HMO Prepare for new taxes and fees under the ACA. Only two of these apply to self-funded plans. PMPM = per member per month (For example, a family of four would be assessed the amount 4 x 12 months.) PMPY = per member per year * Final regulations are pending. Information noted is based on preliminary rules. ^ Projected PMPM costs are based on fees assessed in These amounts are expected to increase. 15

16 Getting ready for 2014: A timeline January 2014 or upon renewal* *If transition relief applies, plans can defer changes until renewal date. Expand coverage to avoid $2,000 penalty* Where needed, employers must adjust their employee benefits eligibility requirements to cover those employees who work 30 hours per week and the variable-hour employees who are benefits eligible beginning in Doing so will ensure the employer avoids the $2,000 per employee (less the first 30) penalty. How to fix affordability issues: - Add a lower cost minimum value plan to your offerings (a 60% plan) or - Modify your contribution strategy so that the lower income employees pay less for coverage. Confirm affordability to avoid $3,000 penalty* Employers will need to review the affordability of their plans to ensure employees premium contribution is affordable under the law. Keeping employee premium contributions affordable will ensure the employer isn t penalized $3,000 when an employee receives federal subsidies on the Health Insurance Marketplace. Educate employees about Medicaid options If Michigan expands Medicaid, employers should educate their employees on Medicaid options (if their workforce may be eligible based on household income.) Employers are not penalized for employees who seek coverage from Medicaid. Renewal Implement changes to waiting periods Group health plans cannot impose a waiting period that exceeds 90 days. Final guidance is pending but in an administrative notice, the federal government clarified that the calculation of the 90-day waiting period begins upon the date that an employee becomes eligible to participate in the plan. The notice clarifies that plans don t have to offer coverage to all groups of employees (part-time, etc.), but that when it is offered, the waiting period rule applies. This provision is effective for plan years beginning on or after January 1, It is not effective for all groups January 1, but will be effective as groups renew. Grandfathered groups must also adhere to this rule. Penalties will be assessed for employers which do not comply with this rule. 16 Health care reform: A guide for large employers

17 Getting ready for 2014: A timeline New out-of-pocket maximum imposed By law, all plans sold in the large group markets must have an annual limitation on cost-sharing for covered services upon renewal. Known as an out-of-pocket maximum, it is designed to limit what the enrollee pays for deductibles, coinsurance or copayments for the policy year. It is a true out-of-pocket limit, meaning that enrollees will stop paying copayments for all covered services (including prescription drugs) once the out-of-pocket maximum is met. This product design feature in many cases is an improvement in the plan benefit and may increase premium if other off-setting benefit changes are not made. The law places these limits at the same level as the out-of-pocket maximums that are in place for high-deductible health plans. The amount is set annually. For 2014, these amounts are $6,350 for single coverage and $12,700 for family coverage. Out-of-network services do not apply to this annual limit. Employers with +200 employees must provide auto benefits enrollment Employers with more than 200 employees must auto-enroll their eligible employees in health benefits. The employees can disenroll but the onus is on the employee to do so. Final regulation is still pending on this requirement but it is expected to be effective in Review benefits against discrimination rules Nondiscrimination rules will be established to ensure benefits don t favor highly compensated employees. Under similar rules in place in the self-funded market, employers cannot offer better or richer benefits to their highly compensated staff. The rules, as in place in the self-funded market, not only look to see if the benefits are offered equally, but also measures benefit participation. For example, if only the highly compensated participate in the benefit package, the plan could be discriminatory. Grandfathered groups are not subject to nondiscrimination rules. Final regulation is still pending on this requirement but it is expected to be effective in Employers must understand rules prohibiting discrimination. Prepare for exchange reporting Employers will soon be required to submit employee rosters, pay information and coverage options to the federal government to allow for future automation of the Health Insurance Marketplace operations. We don t know fully how that will work and are waiting on regulation from the Department of Health and Human Services. 17

18 Getting ready for 2014: Checklist Large employer checklist Now through early fall Confirm employer size Understand employee eligibility Pay Patient-Centered Outcomes fee, including HRA, if self-funded by July 31 Distribute Marketplace notification to employees January 2014 (regardless of renewal date) Amend Section 125 (Cafeteria plan) if desired Prepare for 2014 taxes and fees January 2014 or upon renewal* *If transition relief applies, plans can defer changes until renewal date. Expand coverage to employees working 30 hours Confirm affordability of lowest cost plan Educate employees about Medicaid options Renewal Implement waiting period changes Set plan out-of-pocket maximums to new limits Set-up auto-enroll (if 200+ employees)** Review compliance with discrimination rules** Prepare for exchange reporting** **Regulation pending 18 Health care reform: A guide for large employers

19 Notes Notes 19

20 Questions about reform? Learn more about health reform at our website: UnderstandingHealthReform.com. Send an to Legal Disclaimer This workbook provides a general overview of certain aspects of health care reform based on information currently available. It does not cover all of the requirements, and new information is released frequently. Information provided by Priority Health about health care reform should not be considered legal advice. This is an educational tool only and the effect of reform may differ depending on your circumstances Priority Health 7245B 5/13