Benefit Strategies and Compliance in a Health Reform Era

Transcription

1 2013 CliftonLarsonAllen LLP Benefit Strategies and Compliance in a Health Reform Era CLAconnect.com Nicole Otto Fallon Director/Consultant Aging Services of MN Institute February 5, 2014

2 Agenda I. Recap of Affordable Care Act Basics II. Compliance Issues for employers/plan sponsors in 2014 and 2015 III. Evaluating your benefit strategy in a reforming environment A Panel and Audience Discussion 2

3 Recap 3

4 Defining Small and Large Employers The definition of large employer varies depending upon the section of the law one is referring to: For employer penalties: 50 or more full-time employees plus full-time equivalents. FT employee: avg. 30 or more hours of service per week FT equivalents = Hours worked in a month by all PT employees divided by 120 Eligibility for premium tax credits: 25 or fewer employees earning < an avg. of $50,000 Eligibility for the SHOP: Fewer than 50 OR Fewer than 100 Employer who must auto-enroll: employees

5 2014: Individual Mandate Individual mandate to obtain health coverage: Beginning in 2014, most individuals must obtain a minimum-level of health insurance coverage or pay a penalty Minimum essential coverage includes: Medicare, Medicaid, TRICARE Insurance purchased through an Exchange, or the individual market Employer-sponsored coverage that is affordable & provides minimum value Grandfathered plans (group plan in effect on 3/23/2010) Penalties for failure to obtain coverage: Hardship exemption In 2014: greater of $95 or 1.0% of income Premium cost for In 2015: greater of $325 or 2.0% of income lowest cost plan > 8% In 2016: greater of $695 or 2.5% of income of Household Income Penalty is capped at three times the per person amount for a family Assessed penalty for dependents is half the individual rate

6 2014: Government Assistance to Help Some Individuals Obtain Coverage Medicaid expansion: Expands eligibility to individuals and families up to 133 % of the federal poverty level (FPL) or Modified Adjusted Gross Income(MAGI) of 138% of FPL If cost effective, states can opt to subsidize employer-sponsored premiums for this group 138% FPL Individual = $16,105 Family of 4 = $32, % FPL: Individual= $46,680 Family of 4= $95,400 Premium tax credit assistance: Individuals and families with household income of % FPL may be eligible for sliding-scale assistance to help pay premiums; Cost sharing assistance: Those earning between % FPL are also eligible for outof-pocket reductions to help with cost sharing (e.g., maximum out-of-pocket, deductibles, copayments) if enrolled in a silver plan 6

7 2014: Health Insurance Exchanges What is an exchange? A marketplace for individuals and small businesses to shop for insurance. Offer a choice of health plans Standardize health plan options Consumers compare plans based upon price Intended to provide a more competitive market Provides consumers with a neutral party to assist with plan enrollment, information and eligibility determination for any subsidies

8 2014: Exchange Plans Types of exchange plans to be offered by insurers Bronze = 60% actuarial value Silver = 70% actuarial value Gold = 80% actuarial value Platinum = 90% actuarial value Catastrophic plan Only available to individuals < 30 years old, or those exempted from the individual mandate due to unaffordability or hardship. Plan must cover: minimum essential benefits a minimum of three primary care visits per year All exchange metal plans must cover essential health benefits, limit costsharing and have a specified actuarial value 8

9 2015: Potential Large Employer Penalties Law does NOT require employers to offer health insurance Large employers subject to one of two shared responsibility penalties if any FT employee receives Exchange subsidies For employers that own multiple companies, the 50 + employees is determined by control group or affiliated service group For minimum essential coverage, see IRS Notice at: Large employer = 50 or more full-time employee + FTEs FT employee = avg. 30 or more hours of service per week FT equivalents = Hours worked in a month by all PT employees divided by 120 9

10 Employer Shared Responsibility Penalties Penalty only assessed if a FT employee receives Exchange subsidies. Employees ineligible for subsidies if employer coverage affordable. No Insurance Coverage Penalty Also applies if coverage not offered to at least 95% of FT employees and their dependent children under age 26. Amount = $2000 x each full-time employee (after first 30 employees) Unaffordable Employer Coverage Penalty If employer fails to offer coverage that is: 1. Minimum essential coverage and minimum 60% actuarial value offered to employees and their children under age Affordable = Employee premium cost for single coverage < 9.5% of household income. Amount = $3000 x # of full-time employees who receive exchange subsidies Affordable = the employee premium contribution for single coverage is less than 9.5% of their MAGI household income, or one of three employer safe harbor options exist. (e.g., W-2 wages) Maximum penalty = no insurance penalty Inflationary adjustments to penalties begin in 2015 Employer pays no penalty for Medicaid eligible employees 10

11 2015: Other Employer Requirements Beginning in 2015, large employers (50 or more FT employees + FTEs) will be required to submit an information return to the IRS, including at least the following: Names of FT employees on the health plan Employer contribution levels to employee coverage Plan waiting period length Whether employer-sponsored plan meets minimum essential coverage requirements Large employers to auto-enroll: Employers with 200+ FT employees will be required to auto-enroll employees into their employersponsored health plan Employees can opt out Won t be effective until U.S. Dept. of Labor issues rules. No sooner than 2015.

12 Compliance Issues 12

13 2014 Compliance Issues 2014 Payment of ACA-related fees 90-day waiting period Pre-tax reimbursement limitations FSA Carryover Option Individual mandate Track hours for look-back measurement safe harbor 2015 Information Return filing Large employer pay or play Affordability Minimum Value 95% offer Non-discrimination rules? Documenting safe harbors Large employer autoenroll? Smaller employer W-2 health care cost reporting? 13

14 Additional Health Plan Fees/Taxes Patient-Centered Outcomes Research Institute (PCORI) Fee (2012) Effective for plan years ending on or after 10/1/2012 Requires health insurance and self-insured plans(employer) to pay a per participant fee Fee Year 1: $1/participant Year 2: $2/participant Due by 7/31/ : Inflation adjusted rate 9/30/2019: Phased out IRS indicated it is tax deductible Filed on Form 720 Transitional Reinsurance Fee (2014) Third Party Administrators pay on behalf of the Plan Nov. 15 each year: annual enrollment count to HHS for first 9 months By Dec. 15, HHS will notify issuer/plan sponsor of fee Within 30 days of notice: Remit fee Estimated fees: $63 per covered life in 2014 Phases out: $42 in 2015; $26 in

15 Health Insurance Industry Tax (HIT) (2014) Assessed on fully-insured health plans in the individual and small group markets Fixed dollar assessment based upon insurer s net premiums Non-profits: tax assessed on 50% of net premiums Exemption for plans receiving > 80% of revenues from public programs for the poor, elderly & disable Non-deductible; due 9/30/14 Cadillac Plan Tax (2018) 40% excise tax assessed on health insurer or plan administrator offering high-cost health coverage High cost = annual premium > $10,200 single coverage > $27,500 family coverage Tax on portion of premium above the thresholds Goal is to generate revenue to help pay for coverage for the uninsured and to make the most expensive plans less attractive. 15

16 90 Day Waiting Period: Newly Hired, Full-Time Employees Beginning January 1, 2014, an employer s waiting period for insurance generally cannot exceed 90 calendar days IRS Notice provided guidance on 90-day waiting limitation (Public Health Service Act 2708) Newly Hired, Full-Time Employees: If employee is reasonably expected to be full-time, then must be eligible to enroll within 90 days of start date Not permitted to wait until the 1 st of the month after 90 days May require employers to allow mid-month enrollment or participate well before 90 days have passed

17 90-Day Waiting Period & Variable Hour Employees For variable hour employees: Employer can take a reasonable period of time to determine whether employee meets plan s eligibility requirements. Reasonable time can include: A measurement period of up to 12 months An administrative period up to 90 days Coverage must be effective no later than 13 months from employee s start date If employee s start date is not the first day of a calendar month, will include remaining time until the first day of the next calendar month

18 Pre-Tax Reimbursement Changes for 2014 Allowed HRAs integrated with Group Health Plan Ancillaries dental, vision, LTC Prohibited HRA + Individual Health Plan Pre-tax reimbursement of individual plan premiums If individual has Minimum Essential Coverage, NOT eligible for Exchange subsidies such as premium tax credits Minimum essential coverage includes: medical coverage provided through Sec. 125 plans, employer payment plans, health Flexible Spending Accounts, and HRAs Pre-2014 HRA contributions, can be used in 2014 and beyond if: Contribution made before January 1, 2013 Contributions credited in 2013 to an HRA in effect on 1/1/

19 New Carryover Provision for Healthcare Flexible Spending Accounts New IRS rules permit plan sponsors to adopt policy allowing employees to carryover up to $500 of their FSA contributions to the next plan year without penalty [IRS Notice ] Effective immediately, but employers decide timing: Can be effective for plan years beginning in 2013, if amendments completed on or before last day of the plan year that begins in Must amend health FSA and Section 125 plan documents to permit carryover option. No grace period if carryover option elected Carryover amount not subject to $2500 annual contribution limit and can carry forward multiple years 19

20 Pending Implementation: Fully-Insured Plans Can No Longer Discriminate Expands the nondiscrimination rules to cover fully-insured group health plans (IRS Code Section 105(h), which already applies to selfinsured) Also includes HRAs or stand-alone Medical Reimbursement Plans (MRPs) Affects non-grandfathered plans for plan years beginning on or after 9/23/10 UPDATE: As of 1/18/2014, Obama Administration said they won t enforce the provision in 2014 because they have not yet issued regulations. Penalties An employer who sponsors a discriminatory insured group health plan will be subject to an excise tax liability of $100 per day per employee or $36,500 per employee/year U. S. Chamber has suggested establishing a single set of nondiscrimination rules for self-insured and fullyinsured plans

21 Evaluating Your Benefit Strategy in a Reforming Environment A panel and audience discussion 21

22 Factors in Evaluating Health Benefits Size of employer: do you have to pay or play? Number of full-time employees: what if they all enroll? Premium cost: What can you afford to pay? Can you make it affordable for your employees? How does what employee pays for employer coverage compare to what they would pay for a plan through the Exchange? Employer benefit philosophy Employee recruitment and retention Wages vs. health care benefits: which drives your employees more? What will your competitors do? 22

23 What Impacts Premium Costs? What can increase costs? Guarantee issue No pre-existing conditions No annual or lifetime dollar limits on essential benefits First dollar coverage for preventive benefits. Deductibles and maximum out of pockets Limits Broader benefit package Claims experience ACA fees on insurers What Can reduce costs? Narrow provider networks Steep provider discounts on what plans pay Higher actuarial value plans Skinny benefit set Higher deductibles and copays 23

24 Health Insurance Premium Tax Credit Eligibility: Household Income between % FPL and NOT eligible for minimum essential coverage Credit calculation = Premium cost for benchmark plan (second lowest silver plan) taxpayer s applicable percentage Household Income as a % of Federal Poverty (FPL) Annual Income (Low) Annual Income (High) Affordable monthly premium for top of range Initial Exchange Contribution (% of Income) Initial Monthly Exchange Premium Cost Final Exchange Contribution (% of Income) Final Monthly Exchange Premium Cost Less than 133% FPL $15,521 $15,521 $ % $ % $ % FPL $15,522 $17,505 $ % $ % $ % FPL $17,505 $23,340 $ % $ % $ % FPL $23,340 $29,175 $ % $ % $ % FPL $29,175 $35,010 $ % $ % $ %FPL $35,010 $46,680 $ % $ % $ *Using 2014 Federal Poverty Levels 24

25 Individual Example for Minnesota: Calculating Premium Assistance Tax Credit 40 year old individual Household Income (MAGI) = $28,725 (250% FPL/individual) Applicable % = 8.05% MN Area 1 SE MN MN Area 8 - Metro Benchmark plan $3,588 $1,748 Expected taxpayer contribution $2,349 $2,349 Credit amount $1,239 $0

26 Cost Sharing Subsidies Federal government will pay insurers to reduce the cost sharing for individuals: Enrolled in a silver-level plan through an Exchange and Whose household income is between % FPL Household income as % of FPL Cost sharing Reduction % FPL Two-thirds % FPL 50% Reductions don t apply to benefits not included in the federal definition of essential health benefits

27 Lowest Cost Premiums in Country: MNsure Individual Premiums Area 1 25 year 40 year 60 year Family Catastrophic 126 N/A N/A N/A Bronze Silver Gold Platinum Dodge, Fillmore, Freeborn, Goodhue, Houston, Mower, Olmstead, Steele, Wabasha, Winona Area 8 25 year 40 year 60 year Family Catastrophic 77 N/A N/A N/A Bronze Silver Gold Platinum Anoka, Benton, Carver, Dakota, Hennepin, Ramsey, Scott, sherburne, Stearns, Washington, Wright 27

28 Identifying Full-Time Employees: 2013 & Beyond Employee engaged in average of 30 hours of service per week or 130 hours in a month. Uses common law definition of employee Does not include: leased employees, sole proprietors, partners in partnership, 2% S-corp shareholder Hours of service = hours worked and hours paid but for which no work was performed (e.g., PTO, FMLA, deployment leaves, disability, etc.) Salaried workers use actual hours, or 8 hours/day or 40 hours per week standard. Special rules for employees of educational institutions Seasonal workers: If 120 days or fewer; or 4 calendar months of work, then excluded from calculation of large employer

29 Defining which employees are full time Strategies Select measurement and corresponding stability period to capture fewest number of full-time employees. Limit employee hours of service to less than 30 hours/week or 130 hours per month. If not offering ESI, limit full-time status to 30 or fewer employees across businesses Why is this important? Employers must offer to full-time employees and their children under age 26 health insurance coverage or pay a penalty. Penalties are assessed for full-time employees only Current FT employees who waive coverage may enroll in ESI in 2014 adding bottom line, non-penalty costs to employers. Now is the time to make strategic decisions to limit penalty risk

30 Safe Harbor: Look-Back Measurement to Define Full-Time Employee IRS Notice and Dec IRS/HHS proposed regulations explain a method employers may use to determine full-time status for ongoing employees, new employees, and variable hour and seasonal workers. Measurement Period 3-12 months (employer determined) Administrative Period Up to 90 days Stability Period Greater of 6 months or measurement period length 30

31 The Look Back Measurement Safe Harbor This method can be used for ongoing employees, and for new variable hour or seasonal employees An ongoing employee is someone employed for at least one standard measurement period Method cannot be used for new employees who are not variable hour or seasonal 31

32 Types of Employees Full-time: one who has an average of 30 hours of service per week or 130 hours per month. On-going: an employee who has been employed by the employer for at least one complete standard measurement period. Newly hired Expected to work full time: Up to 90-day waiting period permitted if full-time. No penalty during waiting period Variable Hour: Up to 13 months to determine full-time status and offer coverage before penalty Variable hour: An employee for which it is unclear whether they will average of 30 hours of service/week for an entire measurement period. Seasonal: Not been defined for the purposes of this safe harbor, only for determining if count toward whether an employer is a large employer. Good faith effort is standard for

33 Measurement/Stability Periods Can Vary May use different measurement/stability periods by classification of employee, including: 1. Collectively bargained employees and non-collectively bargained employees; 2. Salaried employees and hourly employees; 3. Employees of different entities; and 4. Employees located in different states. For new variable or seasonal employees, combined measurement and administrative period cannot exceed 13 months after employee s start date. 33

34 Picking a Measurement period Three-month measurement period, 90-day administrative period J F M A M J J A S O N D J F M A M J J A S O N D J F M th Coverage required No coverage required Coverage required When must employee be covered? Measurement Administrative Stability period - where must offer coverage Stability period - where no coverage required 34

35 Same Employee Data: 6 & 12 Month Measurement Periods month J F M A M J J A S O N D J F M A M J J A S O N D J F M Coverage Required Coverage required J F M A M J J A S O N D J F M A M J J A S O N D J F M 12 month Coverage required In both cases, covered for 12 months but in 12-month example, coverage starts in February 2016 instead of October Measurement Administrative Stability period - where must offer coverage Stability period - where no coverage required 35

36 Seasonal Worker Example: 8 Month Measurement Period th m J F M A M J J A S O N D J F M A M J J A S O N D J F M No coverage required Coverage required Employer only required to offer employee coverage for 8 months out of a possible 27 months. 36

37 Three Employer Affordability Safe Harbors: W-2 Safe Harbor IRS Notice Form W-2 Safe Harbor: If employee s premium cost for self-only coverage is less than 9.5% of their W-2 wages for the employer, the health insurance is considered affordable AND The employer will not pay a penalty for that employee The employee may still be eligible for premium tax credits in the Exchange based upon Modified Adjusted Gross Income of Household. Employer is not subject to penalty if employee receives tax credit but later employer-sponsored insurance is determined to be affordable. Affordability for related individuals: employers don t need to make coverage affordable for dependents (e.g. family coverage, employee+1) 37

38 Affordability Safe Harbors: W-2 (continued) Using total amount of wages = Box 1 of Form W-2 Box 1 does not include employee elective deferrals Can include wages paid to employees by a third party that are reported on the W-2 and reflecting the 3 rd party EIN Determined at the end of calendar year on per employee basis using the year s W-2 reportable (e.g. compare 2014 premium cost to 2014 Box 1 W-2 wages) Could be used prospectively to set employee contribution level to < 9.5% of wages IRS Notice December 2012 proposed regulations 38

39 Affordability Safe Harbors: FPL December 2012 proposed regulations Coverage considered affordable for calendar month if employee s required contribution for lowest-cost self-only coverage that provides minimum value under plan does not exceed 9.5% of Federal Poverty Level (FPL) Determined by calculating FPL for single individual (where individual is employed) for applicable calendar year Divided by FPL for single person = $11, % of $11,670 = $ /year or $92.38/month 39

40 Affordability Safe Harbors: Rate of Pay December 2012 proposed regulations Coverage considered affordable for calendar month if employee s required contribution for month for lowest cost, self-only coverage provides minimum value does not exceed 9.5% of a Rate of Pay Safe Harbor Amount Rate of Pay Safe Harbor Amount = 130 hours multiplied by employee s hourly rate of pay as of the first day of the coverage period (generally first day of plan year) Salaried employees use monthly salary instead of hourly rate of pay Available as long as employer does not reduce hourly rate of pay or monthly wages during calendar year 40

41 Applying the Affordability Safe Harbors: Employee Maximum Premium Payment W-2 Safe Harbor FPL Safe Harbor Rate of Pay Safe Harbor Hourly Wage = $8.25/hour $10,500 W-2 wages $15,000 $25,000 $35,000 $ $83.12 $ $ $ $92.38 $92.38 $92.38 $92.38 $92.38 $

42 So, What Does This All Mean? Documentation, tracking will be required Hours, wages, measurement & stability periods Forms, forms, and more forms Fees Income taxes, income verification Proof of insurance W-2s reporting health care benefit costs Employers reporting benefit offerings and full-time employees on information returns Costs: deductible vs. non-deductible Pre-tax benefits narrowing: will it matter? Is the non-deductible penalty really a penalty for employers or individuals when compared with health insurance premium costs? 42

43 Where to Focus Determine and document full-time employees and equivalents Are you a large or small employer? Evaluate how your benefits compare to what is available in Exchange marketplace. If small employer: consider SHOP plan (plus possible tax credit) vs. plan premiums outside the Exchange with no credit. Are your employees likely eligible for subsidies through the Exchange? Compare non-deductible penalty cost vs. premium contributions (after deductibility, if for-profit) Develop processes and procedures for tracking/monitoring Hours of service; determine measurement period, if going to use this safe harbor Who must be offered coverage Waiting period eligibility 43

44 2013 CliftonLarsonAllen LLP Questions? Nicole O. Fallon Health Care Director/ Consultant CliftonLarsonAllen LLP Thank you! For more information on health reform: CLAconnect.com/healthreform CLAconnect.com twitter.com/ CLAconnect facebook.com/ cliftonlarsonallen linkedin.com/company/ cliftonlarsonallen 44

45 Case Studies: Health Reform in Action 45

46 Senior Service Provider Case Studies Case Study#1 Case Study #1a Case Study #2 Case Study #3 Facility type Non-profit SNF Non-profit SNF For-profit CCRC SNF + AL Size 85 beds 85 beds 180 Bed SNF 77 Bed SNF # of employees 79 FT employees 80 FT employees 1922 FT employees 284 FT Employees Employer contribution to single coverage (% of total) $7,632/year (85%) $4,534/year (60%) $4,030/year (81%) $5,090/year (66%) 54% (or 43 FT Currently waived employees 34% (or 27 FT employees) employees) 31.3% (or 603 FT employees) 57.7% (or 164 FT employees) # of Medicaid eligible O FT employees 2 FT employees 10.7% (206 FT employees) 6% (17 FT employees) # of Exchange subsidy eligible Impact of ACA Cost drivers 26% of FT employees (21 of 79 FT employees), many would pay less in the Exchange vs. ESI Estimated to pay 11% less 51.3% of FT employees (41 of 80 FT employees) 3.1% of full-time employees (59 FT employees), many would pay less in the Exchange vs. ESI 74.3% of full-time employees (211 FT employees), most would pay less in the Exchange vs. ESI Estimated to pay 22% more Estimated to pay 25% more Estimated to pay 12.7% more 1. A pre-reform reduction in employer contribution, resulted The increased cost is the result of in higher number of the fact that as a for-profit they waived employees, benefit from the deductibility of resulting in new costs 1. Number of waived employees health insurance premiums today for employer postreform. that will now enroll in ESI but because of the high number of 2. Few subsidy eligible employees employees who would be eligible 2. Pays "no coverage" (many of whom currently waive ESI) to receive subsidies in the penalty because high because FT employee contribution Exchange, the company would number of subsidy is affordable for most so most incur $508K in penalties that are eligible. employees would enroll in ESI not deductible. 46

47 Employer Health Insurance & Penalty (HIP) Costs Impact of Employer Health Insurance Reforms HEALTH REFORM SUBSIDIES IMPACT ON HEALTH COSTS Full-Time Employees 80 (37 Insured / 43 Waived) Sample Today's 2015 Offer 2015 Drop/ Total Staffed 92 (0 PT Insured/12 PT No ESI) ($000s) Cost Coverage Don't Offer 2015 PPACA FTEs 89 Baseline Premium Cost $ 232 $ 232 $ 232 HEALTH REFORM KEY DRIVERS Premium Increase (9.0% / Yr) Single Coverage Employer Premium Cost Pre-Reform Projected Premium Cost Average Single Employer Cost $ 4,534 Tax Adjusted Premium Costs Current Employer Contribution % 60% PLUS: Additional Reform Impact Medicaid Eligible Employees Previously Waived FT Employees Total FT Medicaid Enrollees 2 Penalty: Subsidy Eligibles & ESI Employer Estimated Cost Savings $ 9 ($000s) Health Reform Increased Cost Employer Unaffordable Coverage Penalty Subsidy Eligible Full-Time Employees 41 LESS: Previous Premium Liabilities Subsidy ($3,000) $ 3 Medicaid Employee ESI - (9) - Estimated Subsidy Penalty $ 123 ($000s) Subsidy Eligible FT Employees ESI - (224) - % Total Full-Time Employees 51.3% Health Reform Decreased Cost - (233) - Employer No ESI Insurance Penalty No Minimal Essential Coverage Total Full-Time Employees 80 Less: 2015 Inflation Adjusted HC Cost - - (276) Less: 30 Employees (30) Plus: Subsidy Eligible Penalty Adjusted Full-Time Employees 50 Health Reform No ESI Cost - - (176) No Insurance Penalty ($2,000) $ 2 Post Reform HC Costs $ 232 $ Estimated Subsidy Penalty $ 100 ($000s) HC Cost Change to 2015 Projected $ 62 $ (176) 2015 Pre Reform Projected HC Costs $ 276 ($000s) % HC Cost Change to 2015 Projected 22% -64% Estimated Net Savings $ 176 ($000s) Tax Adjusted HC Costs $ 151 $

48 Employee Exchange Subsidy Eligibility Factors Exchange Subsidy Eligibility = ESI Affordability + Income between % FPL In 2015, employer pays penalty when a FT employee is eligible for Exchange Subsidy. 48

49 2015 Coverage Breakdown Post Reform ESI FT Employee Mix 37, 46% 2, 3% Medicaid Eligible Subsidy Eligible ESI Coverage 41, 51% We estimate 51% of your full-time employees will be eligible for Exchange subsidies, 3% employees eligible for Medicaid, and the remaining 46% enrolled in ESI. 49

50 Average Premium Cost Per Employee Perspective 50

51 2014 Program Eligibility under MNsure & ACA Federal Poverty Level Program % Medicaid % MinnesotaCare % MNSure Subsidies 400% + MNSure - full cost 51