HEALTH CARE REFORM 2010 A CHRONOLOGICAL OVERVIEW OF THE LAW'S OBLIGATIONS FOR EMPLOYERS. Henry Smith. Smith & Downey.

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1 HEALTH CARE REFORM 2010 A CHRONOLOGICAL OVERVIEW OF THE LAW'S OBLIGATIONS FOR EMPLOYERS Henry Smith Smith & Downey hsmith@smithdowney.com [Note that this presentation is merely a very broad overview of only some of the more important provisions of the health care reform law that affect employers. This presentation should not be viewed as legal advice for any particular situation.] 1

2 THE LEGISLATION: PATIENT PROTECTION AND AFFORDABLE CARE ACT March 23, 2010 plus HEALTH CARE AND EDUCATION RECONCILIATION ACT March 30, 2010 equals THE 2010 HEALTH CARE REFORM LAW 2

3 WHAT THE CONGRESS DECIDED: 1. TO CONTINUE THE CURRENT APPROACH OF THE COMBINATION OF PRIVATE, FOR-PROFIT (OR SELF-FUNDED), PLUS GOVERNMENT-PROVIDED, HEALTH COVERAGE FOR AMERICANS. 2. TO CONTINUE, AND FOR THE FIRST TIME MANDATE, THE CONCEPT OF EMPLOYERS PROVIDING HEALTH CARE PLANS TO THEIR EMPLOYEES. 3. TO APPLY THE NEW RULES TO INSURED PLANS, SELF-FUNDED PLANS, HEALTH INSURANCE CARRIERS, AND PRIVATE SECTOR AND GOVERNMENTAL EMPLOYERS (WITH SOME CHURCH PLAN EXEMPTIONS). 4. TO MANDATE THAT MOST INDIVIDUALS ACQUIRE HEALTH COVERAGE OR PAY A PENALTY. 5. TO MAKE A NUMBER OF OTHER CHANGES TO U.S. HEALTH CARE LAW NOT DIRECTLY RELATED TO EMPLOYERS AND EMPLOYEES. 3

4 THE TIME LINE CONGRESS PROVIDED A RELATIVELY RELAXED "GLIDE PATH" FOR EMPLOYER COMPLIANCE WITH THE CHANGES IN THE LAW: -ONE OF THE CHANGES IS EFFECTIVE JUNE 23, A NUMBER OF CHANGES ARE EFFECTIVE FOR THE FIRST HEALTH PLAN YEAR BEGINNING AFTER SEPTEMBER 22, 2010 (THAT IS, ON JANUARY 1, 2010 FOR CALENDAR YEAR HEALTH PLANS) -ONE OF THE CHANGES IMPACTS SEVERAL CHANGES ARE EFFECTIVE IN SEVERAL CHANGES ARE EFFECTIVE IN A NUMBER OF CHANGES ARE EFFECTIVE IN ONE OF THE CHANGES IS EFFECTIVE IN ONE OF THE CHANGES IS EFFECTIVE IN ONE SIGNIFICANT CHANGE IS EFFECTIVE IN ONE OF THE CHANGES IS EFFECTIVE IN "GRANDFATHERED" PLANS (PLANS IN EXISTENCE ON MARCH 23, 2010 THAT DO NOT EXPERIENCE SPECIFIED CHANGES SEE DETAILS ON SEPARATE HANDOUT) HAVE MUCH MORE RELAXED COMPLIANCE OBLIGATIONS THAN NON- GRANDFATHERED PLANS -NATURALLY, CHANGES MAY BE MADE TO ONE OR MORE OF THE LAW'S PROVISIONS BEFORE THE APPLICABLE EFFECTIVE DATES. -REGULATIONS FROM VARIOUS REGULATORY AGENCIES (PRIMARILY HHS, THE TREASURY/IRS AND THE DOL) HAVE BEEN ISSUED ARE MORE REQUIRED UNDER THE LAW BEFORE A NUMBER OF THE LAW'S PROVISIONS BECOME EFFECTIVE AND/OR MAY BE IMPLEMENTED. 4

5 WHAT SHOULD EMPLOYERS DO? 1. REVIEW GENERALLY ALL OF THE EMPLOYER-RELATED PROVISIONS OF THE LAW. 2. IDENTIFY, AND CONTINUALLY MONITOR, THE EMPLOYER'S "GRANDFATHERED" AND NON-GRANDFATHERED HEALTH PLANS. 3. UNDERSTAND THE EMPLOYER COMPLIANCE TIMELINE AND PREPARE SUFFICIENTLY IN ADVANCE FOR THE VARIOUS EMPLOYER COMPLIANCE OBLIGATIONS. 4. STRATEGIZE ABOUT UPCOMING "BIG PICTURE" DECISIONS (SUCH AS WHETHER TO PLAY OR PAY, ETC.). 5. MONITOR DEVELOPMENTS CAREFULLY, ESPECIALLY FOR POTENTIAL CHANGES TO THE LAW AND IMPLEMENTING REGULATIONS FROM THE REGULATORS. 6. CONSULT WITH THE EMPLOYER'S HEALTH CARE BROKER/ADVISOR AND ERISA COUNSEL ABOUT THE MOST EFFECTIVE MEANS TO RESPOND TO AND COMPLY WITH THE LAW. 7. NOTE THAT, AS WITH MANY EMPLOYEE BENEFIT LAW CHANGES, RESPONDING EFFECTIVELY TO THE LAW WILL REQUIRE CLOSE COOPERATION AND CONSULTATION BETWEEN AN EMPLOYER'S HUMAN RESOURCES AND FINANCE DEPARTMENTS. 5

6 LOSS OF GRANDFATHERED STATUS IN GENERAL, A GRANDFATHERED PLAN WILL LOSE ITS GRANDFATHERED STATUS IF ANY OF THE FOLLOWING OCCURS: 1. THE PLAN DOCUMENTS FAIL TO INCLUDE PROVISIONS EXPLAINING THE PLAN'S GRANDFATHERED STATUS. (MODEL LANGUAGE IS PROVIDED IN THE RULES.) 2. THE PLAN DOCUMENTS FAIL TO INCLUDE PROVISIONS IDENTIFYING THE PARTY TO WHOM GRANDFATHERING QUESTIONS AND "COMPLAINTS" CAN BE DIRECTED. (AGAIN, MODEL LANGUAGE IS PROVIDED IN THE RULES.) 3. THE PLAN FAILS TO KEEP RECORDS OF ITS GRANDFATHERED PROVISIONS. 4. THE PLAN FAILS TO MAKE ITS PLAN DOCUMENTS AND RECORDS DESCRIBED ABOVE AVAILABLE FOR INSPECTION BY PARTICIPANTS AND THE REGULATORS. 5. THE EMPLOYER ENGAGES IN A BUSINESS TRANSACTION (A MERGER, A PURCHASE, A SALE, ETC.) FOR THE PURPOSE OF "BUYING OR SELLING" THE PLAN'S GRANDFATHERED STATUS. 6. THE EMPLOYER TRANSFERS AN EMPLOYEE FROM ONE GRANDFATHERED PLAN TO ANOTHER GRANDFATHERED PLAN FOR PURPOSES OF EVADING THE GRANDFATHERED PROVISIONS AFFECTING THE EMPLOYEE IN THE TRANSFEROR PLAN. 7. THE PLAN ELIMINATES OR SUBSTANTIALLY ELIMINATES ALL BENEFITS NECESSARY TO DIAGNOSE OR TREAT A PARTICULAR CONDITION. 8. THE PLAN RAISES ITS CO-INSURANCE PERCENTAGE. 9. THE PLAN RAISES ITS DEDUCTIBLE OR OUT-OF-POCKET MAXIMUM MORE THAN THE RATE OF MEDICAL INFLATION PLUS 15% (MEASURED FROM MARCH 23, 2010). 10. THE PLAN RAISES ITS CO-PAY MORE THAN THE GREATER OF: (A) THE RATE OF MEDICAL INFLATION PLUS 15% (MEASURED FROM MARCH 23, 2010); OR (B) $5 TIMES THE RATE OF MEDICAL INFLATION (MEASURED FROM MARCH 23, 2010) PLUS $5. 6

7 LOSS OF GRANDFATHERED STATUS (Con't) 11. THE EMPLOYER REDUCES ITS CONTRIBUTION TOWARD THE TOTAL COST OF COVERAGE BY MORE THAN 5%. 12. IF THE PLAN HAD NO ANNUAL OR LIFETIME LIMIT ON MARCH 23, 2010, THE PLAN ADDS AN ANNUAL LIMIT. 13. IF THE PLAN HAD A LIFETIME LIMIT ON MARCH 23, 2010, BUT NO ANNUAL LIMIT ON THAT DATE, THE PLAN ADDS AN ANNUAL LIMIT LESS THAN THE LIFETIME LIMIT ON MARCH 23, IF THE PLAN HAD AN ANNUAL LIMIT ON MARCH 23, 2010, THE PLAN LOWERS THE ANNUAL LIMIT. THE RULES EXPRESSLY PROVIDE THAT OTHER POST-MARCH 23, 2010 CHANGES WILL NOT CAUSE A GRANDFATHERED PLAN TO LOSE ITS GRANDFATHERED STATUS (ALTHOUGH THE REGULATORS HAVE REQUESTED COMMENTS ON ADDITIONAL TYPES OF PLAN CHANGES THAT SHOULD BE ADDED TO THE LIST OF LOSS-OF-GRANDFATHERING CHANGES). 7

8 2010 ITEMS 1. JUNE 23, 2010 CHANGE: IF THE EMPLOYER MAINTAINS A RETIREE HEALTH PLAN, DETERMINE WHETHER FEDERAL REIMBURSEMENT FOR SOME EARLY RETIREE (AGE 55-64) CLAIMS IS AVAILABLE, UNTIL THE EARLIER OF WHEN THE $5B FUNDING FOR THE REIMBURSEMENTS RUNS-OUT OR DECEMBER 31, (NOTE THAT THE FUNDING HAS NOW RUN-OUT.) 2. PREPARE FOR THESE CHANGES WHICH ARE EFFECTIVE FOR THE FIRST PLAN YEAR BEGINNING AFTER SEPTEMBER 22, 2010: A. ELIMINATE ANY LIFETIME COVERAGE MAXIMUM ON ESSENTIAL BENEFITS. B. ELIMINATE ANNUAL COVERAGE MAXIMUMS (EXCEPT THOSE "RESTRICTED MAXIMUMS" PERMITTED IN HHS REGULATIONS I.E., $750kM FOR YEAR ONE, $1.25M FOR YEAR TWO, $2M FOR YEAR THREE, NO MAXIMUM FOR YEAR FOUR AND BEYOND) ON ESSENTIAL BENEFITS. C. ELIMINATE ANY ABILITY TO RESCIND COVERAGE (EXCEPT FOR FRAUD OR INTENTIONAL MISREPRESENTATION). D. ELIMINATE ANY PRE-EXISTING CONDITION LIMITATION FOR CHILDREN UNDER AGE 19. (NOTE THE NEED TO PICK-UP PREVIOUSLY EXCLUDED CHILDREN.) E. PROVIDE FOR CONTINUED COVERAGE FOR MARRIED AND UNMARRIED CHILDREN UNDER AGE 26. GRANDFATHERED PLANS MAY REFUSE THIS CONTINUED COVERAGE, UNTIL 2014, TO CHILDREN WITH OTHER EMPLOYMENT- BASED COVERAGE AVAILABLE TO THEM FORTUNATELY, THE INTERNAL REVENUE CODE WAS AMENDED TO MAKE BENEFITS UNDER THIS CONTINUED COVERAGE NON-TAXABLE, AND THE JOINT COMMITTEE REPORT STATES THAT THE VALUE OF THIS CONTINUED COVERAGE IS NON-TAXABLE. (NOTE THAT PREVIOUSLY AGED-OUT CHILDREN MAY RE-ENTER THE PLAN.) F. UNLESS A GRANDFATHERED PLAN, NO COST SHARING PERMITTED FOR PREVENTIVE CARE. G. UNLESS A GRANDFATHERED PLAN, INSURED PLANS SUBJECT TO 105(H)-LIKE NONDISCRIMINATION RULES. (NONDISCRIMINATION RULES FORMERLY APPLICABLE ONLY TO SELF-FUNDED PLANS AND SECTION 125 ARRANGEMENTS 8

9 UNDERLYING INSURED AND SELF-FUNDED PLANS. THESE RULES DELAYED UNTIL IRS REGS ARE ISSUED.) H. UNLESS A GRANDFATHERED PLAN, PARTICIPANTS PERMITTED TO SELECT ANY PRIMARY CARE PROVIDER THAT WILL ACCEPT THEM. I. UNLESS A GRANDFATHERED PLAN, CHILDREN MUST BE PERMITTED TO SELECT A PEDIATRICIAN AS THEIR PRIMARY CARE PROVIDER. J. UNLESS A GRANDFATHERED PLAN, REQUIRED ACCESS TO EMERGENCY SERVICES WITHOUT PREAUTHORIZATION OR REFERRAL. K. UNLESS A GRANDFATHERED PLAN, REQUIRED ACCESS TO OB/GYN SERVICES WITHOUT PREAUTHORIZATION OR REFERRAL. L. UNLESS A GRANDFATHERED PLAN, INTERNAL AND EXTERNAL APPEAL RIGHTS MUST BE PROVIDED. M. "SIMPLE" CAFETERIA PLANS AVAILABLE TO "QUALIFYING SMALL EMPLOYERS" (DEFINED AS EMPLOYERS AVERAGING 100 OR FEWER EMPLOYEES DURING EITHER OF THEIR TWO PRECEDING YEARS). THESE PLANS ARE "SIMPLE" BECAUSE THEY ARE EXEMPT FROM THE SECTION 125 NONDISCRIMINATION RULES IF THEY SATISFY CERTAIN ELIGIBILITY REQUIREMENTS (AVAILABLE TO ALL EMPLOYEES EXCEPT THOSE UNDER 21, THOSE WITH FEWER THAN 1000 HOURS IN THE PRIOR YEAR, THOSE WITH LESS THAN ONE YEAR OF SERVICE DURING ANY DAY IN THE PLAN YEAR, UNION EMPLOYEES AND CERTAIN NON-RESIDENT ALIENS, AND ALL ELIGIBLE EMPLOYEES MAY ELECT ALL BENEFITS OFFERED UNDER THE PLAN), AND CONTRIBUTION REQUIREMENTS (EMPLOYER CONTRIBUTIONS FOR EACH NHCE/NON-KEY OF AT LEAST 2% OF COMPENSATION, OR OF AT LEAST THE LESSER OF 100% OF EMPLOYEE'S SALARY REDUCTION OR 6% OF COMPENSATION). N. IF A "QUALIFIED SMALL EMPLOYER" (THAT IS, AN EMPLOYER WITH FEWER THAN 26 FTE'S AND AVERAGE WAGES OF $50,000 OR LESS), DETERMINE WHETHER THE NEW TAX CREDIT FOR EMPLOYER COSTS FOR "QUALIFYING HEALTH COVERAGE" IS AVAILABLE. NOTE THAT THE CREDIT BEGINS TO PHASE OUT FOR QSE'S WITH WAGES AVERAGING MORE THAN $25,000 (INDEXED) AND/OR MORE THAN 10 EMPLOYEES. QUALIFYING HEALTH COVERAGE IN 2010, 2011, 2012 AND 2013 IS COVERAGE FROM A LICENSED CARRIER. QUALIFYING HEALTH COVERAGE IN LATER YEARS IS COVERAGE THROUGH AN EXCHANGE. AFTER 2013, THE CREDIT IS AVAILABLE FOR NO MORE THAN TWO CONSECUTIVE YEARS. 9

10 NON-EMPLOYER ITEMS OF INTEREST FOR 2010 CHANGES FOR INDIVIDUALS: 1. THE MEDICAL COST TAX DEDUCTION NOW REQUIRES MEDICAL EXPENSES EXCEEDING 10% OF AGI (RATHER THAN 7.5% AS BEFORE THE LAW), WITH A TRANSITION PERIOD FOR INDIVIDUALS 65 AND OVER. 2. $250 REBATE FOR MEDICARE PART D BENEFICIARIES WHO REACH THE DONUT HOLE (AND THE BEGINNING OF THE PHASE-OUT OF THE DONUT HOLE BY 2020). A CHANGE FOR CARRIERS: INSURERS MUST BEGIN TO REPORT MEDICAL LOSS RATIOS TO HHS, AND MUST REBATE PREMIUMS TO INSUREDS IF LOSS RATIO IS NOT AT LEAST 85% (80% FOR INDIVIDUALS AND SMALL GROUPS). 10

11 2011 ITEMS 1, PROVIDE EMPLOYEES WITH REQUIRED "SUMMARY OF BENEFITS ANC COVERAGE." REGULATIONS DELAYED UNTIL OPEN ENROLLMENTS AFTER 9/22/12, AND INCLUDE A SAMPLE SBC AND OTHER HELPFUL INFO. NOTE THAT THE REQUIRED SBC'S ARE IN ADDITION TO ALREADY REQUIRED SPD'S AND SMM'S, CANNOT EXCEED FOUR PAGES, MUST INCLUDE THE KEY ELEMENTS OF THE PLAN COVERAGE, MUST BE IN AT LEAST 12 POINT FONT, AND MUST BE "LINGUISTICALLY AND CULTURALLY APPROPRIATE." 2. OVER THE COUNTER DRUGS NOT REIMBURSABLE FROM HEALTH FLEXIBLE SPENDING ACCOUNTS, HEALTH REIMBURSEMENT ARRANGEMENTS, AND TAX- FREE FROM HEALTH SAVINGS ACCOUNTS, UNLESS PER A PRESCRIPTION. 3. TAX PENALTY FOR EARLY WITHDRAWALS FROM HSA'S FOR NON-HEALTH EXPENSES INCREASED TO 20% (FROM CURRENT 10%). 4. NEW FEDERAL GOVERNMENT "CLASS" LONG TERM CARE PROGRAM WAS TO TAKE EFFECT, BUT WILL NOT BECAUSE SELF-SUFFICIENCY STANDARD NOT MET. 11

12 NON-EMPLOYER ITEMS OF INTEREST FOR 2011 DRUG MANUFACTURERS MUST DISCOUNT BY 50% BRAND NAME DRUGS IN THE DONUT HOLE. 12

13 2012 ITEMS 1. ISSUE A FORM W-2 THAT INCLUDES THE VALUE OF ANY EMPLOYER- PROVIDED HEALTH COVERAGE (DELAYED BY REGS UNTIL 2012 W-2S ARE ISSUED) (NOTE THAT THIS GENERALLY IS FOR INFORMATIONAL PURPOSES ONLY, BECAUSE THE VALUE OF THAT COVERAGE WOULD RESULT IN TAXATION ONLY IF IT IS PROVIDED UNDER A PLAN THAT VIOLATES THE APPLICABLE, EXPANDED NON-DISCRIMINATION RULES OR IS PROVIDED TO A NON-DEPENDENT OTHER THAN A CHILD UNDER 26 ENTITLED TO CONTINUED COVERAGE UNDER THE LAW.) 2. EFFECTIVE WITH SBC REQUIREMENTS, ON-GOING COMPLIANCE WITH THE NEW RULE REQUIRING NOTICE TO EMPLOYEES OF "MATERIAL CHANGES" IN INFO IN SBC NO LATER THAN 60 DAYS BEFORE THE CHANGE BECOMES EFFECTIVE. 3. FOR PLAN YEARS ENDING AFTER SEPTEMBER 30, 2012, PAY THE REQUIRED FEE OF $1 TIMES AVERAGE NUMBER OF COVERED LIVES, FOR COMPARATIVE EFFECTIVENESS RESEARCH, IMPOSED ON PLANS AND CARRIERS. 13

14 2013 ITEMS 1. IMPLEMENT, FOR HFSA YEARS BEGINNING ON OR AFTER JANUARY 1, 2013, $2500 CAP (INDEXED) ON SALARY REDUCTION CONTRIBUTIONS TO HFSA'S. 2. EMPLOYEE MEDICARE TAX AT RATE OF 2.35% (NO LONGER 1.45%) ON MEDICARE WAGES OVER $250,000 FOR JOINT FILERS AND OVER $200,000 FOR OTHERS. (ALSO, NEW MEDICARE TAX OF 3.8% ON SAME TAXPAYERS' NET INVESTMENT INCOME.) HOPEFULLY, REGS WILL PROVIDE THAT EMPLOYERS ARE NOT INVOLVED. 3. CEASE EMPLOYER DEDUCTION FOR PROVIDING RETIREE COVERAGE EQUIVALENT TO MEDICARE PART D. 4. FOR PLAN YEARS ENDING AFTER SEPTEMBER 30, 2013, THE 2012 $1 FEE NOTED ABOVE INCREASES TO $2. 5. MONITOR HHS REGULATIONS TO BE ISSUED NO LATER THAN MARCH 23, 2013 SPECIFYING RULES FOR REQUIRED ANNUAL REPORTS TO EMPLOYEES AND HHS ON HEALTH PLAN BENEFITS THAT "IMPROVE HEALTH." 14

15 2014 ITEMS A. EFFECTIVE FOR PLAN YEARS BEGINNING ON OR AFTER JANUARY 1, 2014, ENSURE THAT THE PLAN HAS: 1. NO WAITING PERIOD LONGER THAN 90 DAYS. 2. NO PRE-EXISTING CONDITION LIMITATION FOR ANY PARTICIPANT. PRE-EX'S FOR CHILDREN UNDER AGE 19 WERE PROHIBITED BEGINNING WITH PLAN YEARS BEGINNING AFTER SEPTEMBER 22, (NOTE NEED TO PICK-UP PREVIOUSLY EXCLUDED INDIVIDUALS.) B. REPORT MINIMUM ESSENTIAL COVERAGE INFORMATION TO EMPLOYEES AND REGULATORS, PER REGULATIONS. C. EXCEPT FOR GRANDFATHERED PLANS, PROVIDE COVERAGE FOR ROUTINE COSTS RELATED TO CLINICAL TRIALS. D. EXCEPT FOR GRANDFATHERED PLANS, NO DISCRIMINATION AGAINST LICENSED PROVIDERS. E EXCEPT FOR GRANDFATHERED PLANS, OUT-OF-POCKET MAXIMUMS THE SAME AS OOP LIMITS FOR HDHP'S. F. EXCEPT FOR GRANDFATHERED PLANS, NO DEDUCTIBLES HIGHER THAN $2,000 FOR SELF-ONLY COVERAGE AND $4,000 FOR FAMILY COVERAGE. G. WELLNESS REWARD/PENALTY LIMITS RAISED FROM 20% TO 30% OF INDIVIDUAL ACTUAL COST (WITH REGULATORS' ABILITY TO RAISE TO AS HIGH AS 50%). 15

16 H. IF 200 OR MORE FTE'S, AUTO ENROLL EMPLOYEES IN HEALTH PLAN UNDER NEW AUTO ENROLLMENT RULES. I. PROVIDE EMPLOYEES WITH REQUIRED NOTICES CONCERNING EXCHANGES AND AVAILABLE SUBSIDIES. J. EMPLOYER THAT OFFERS COVERAGE THROUGH AN EXCHANGE MAY PERMIT EMPLOYEE CONTRIBUTIONS THROUGH SECTION 125 PLAN. K. EFFECTIVE JANUARY 1, 2014, EXCHANGES BEGIN TO OPERATE FOR INDIVIDUALS AND SMALL EMPLOYERS (GENERALLY, THOSE 50 AND UNDER). L. PLANS MAY NO LONGER HAVE ANNUAL MAXIMUMS ON ESSENTIAL BENEFITS. M. GRANDFATHERED PLANS MUST BEGIN COVERAGE FOR MARRIED AND UNMARRIED CHILDREN UNDER AGE 26 EVEN IF OTHER EMPLOYMENT-BASED COVERAGE IS AVAILABLE TO THEM. N. EMPLOYER MANDATE RULES (SEE FOLLOWING SLIDES) 16

17 EMPLOYERS SUBJECT TO THE 2014 EMPLOYER MANDATE RULES THE RULES APPLY TO EMPLOYERS THAT EMPLOYED, ON AVERAGE, AT LEAST 50 FTES DURING THE PRECEDING CALENDAR YEAR. FOR THIS PURPOSE, FTE IS DEFINED AS AN EMPLOYEE WORKING, ON AVERAGE, AT LEAST 30 HOURS PER WEEK. THE FTE COUNT ALSO INCLUDES A NUMBER OF FULL TIME EMPLOYEE EQUIVALENTS "DETERMINED BY DIVIDING THE AGGREGATE NUMBER OF HOURS OF SERVICE OF EMPLOYEES WHO ARE NOT FTES FOR THE MONTH BY 120." (EXAMPLE: IN ADDITION TO ITS 40 EMPLOYEES WHO WORK AT LEAST 30 HOURS PER WEEK, EMPLOYER HAS 20 PTES WHO EACH WORK 24 HOURS PER WEEK. IN THE AGGREGATE, THE PTES WORK 480 HOURS PER WEEK OR 1920 HOURS PER MONTH DIVIDED BY 120 IS 16, SO EMPLOYER'S 20 PTES ARE COUNTED AS 16 FTE EQUIVALENTS WHICH, WHEN ADDED TO THE 40 EMPLOYEES WORKING OVER 30 HOURS PER WEEK, RESULT IN EMPLOYER BEING SUBJECT TO THE RULES.) AN EMPLOYER IS NOT SUBJECT TO THESE RULES IF THE EMPLOYER S WORKFORCE EXCEEDS 50 FTES FOR 120 DAYS OR LESS DURING THE MEASURING CALENDAR YEAR AND THE EMPLOYEES EMPLOYED DURING THE 120 DAY PERIOD WERE SEASONAL WORKERS. FOR THIS PURPOSE, A SEASONAL WORKER IS DEFINED AS A WORKER WHO PERFORMS SERVICES ON A SEASONAL BASIS AS DEFINED BY THE SECRETARY OF LABOR, INCLUDING RETAIL WORKERS EMPLOYED EXCLUSIVELY DURING THE HOLIDAY SEASON. THE DETERMINATION OF AN EMPLOYER S STATUS AS A COVERED OR NON- COVERED EMPLOYER IS MADE ON A CONTROLLED GROUP BASIS UNDER THE AGGREGATION RULES OF CODE SECTION 414(B), (C), (M) AND (O). IF AN EMPLOYER WAS NOT IN EXISTENCE DURING THE PRECEDING CALENDAR YEAR, THE DETERMINATION OF WHETHER THE EMPLOYER IS A COVERED EMPLOYER IS BASED ON THE AVERAGE NUMBER OF EMPLOYEES THAT THE EMPLOYER IS REASONABLY EXPECTED TO EMPLOY IN THE CURRENT CALENDAR YEAR. 17

18 HOW DOES AN EMPLOYER "PLAY" TO AVOID THE 2014 "PLAY OR PAY" PENALTY? TO AVOID THE PLAY OR PAY PENALTY, AN EMPLOYER MUST OFFER FTES (AS DEFINED), AND THEIR DEPENDENTS, THE OPPORTUNITY TO ENROLL IN "MINIMUM ESSENTIAL COVERAGE" UNDER AN EMPLOYER SPONSORED HEALTH PLAN. THE LAW DOES NOT DEFINE MINIMUM ESSENTIAL COVERAGE. INSTEAD, IT SPECIFIES THAT MINIMUM ESSENTIAL COVERAGE WILL BE DEFINED IN TO-BE- ISSUED HHS REGULATIONS AND WILL INCLUDE COVERAGE UNDER GOVERNMENT SPONSORED PROGRAMS (INCLUDING MEDICARE, MEDICAID, CHIP, TRICARE, VETERAN S HEALTH CARE AND HEALTH CARE FOR PEACE CORPS VOLUNTEERS), CERTAIN EMPLOYER-SPONSORED PLANS, CERTAIN PLANS IN THE INDIVIDUAL MARKET WITHIN A STATE, CERTAIN GRANDFATHERED HEALTH PLANS AND CERTAIN OTHER COVERAGE, SUCH AS A STATE HEALTH BENEFIT RISK POOL. THE LAW DOES PROVIDE THAT MINIMUM ESSENTIAL COVERAGE DOES NOT INCLUDE EXCEPTED BENEFITS UNDER SECTION 2791 OF THE PUBLIC HEALTH SERVICES ACT (E.G. ACCIDENT OR DISABILITY INCOME INSURANCE, ON-SITE MEDICAL CLINICS, LIMITED SCOPE DENTAL OR VISION BENEFITS IF PROVIDED UNDER A SEPARATE POLICY, LONG-TERM CARE INSURANCE AND HOSPITAL INDEMNITY INSURANCE). 18

19 WHAT IS THE 2014 "PLAY OR PAY" PENALTY? SOMETIMES REFERRED TO AS THE NO COVERAGE PENALTY, THIS PENALTY IS IMPOSED IF A COVERED EMPLOYER FAILS TO OFFER ITS FTES AND THEIR DEPENDENTS THE OPPORTUNITY TO ENROLL IN MINIMUM ESSENTIAL COVERAGE, AND AT LEAST ONE OF ITS FTES ENROLLS IN HEALTH COVERAGE PURCHASED THROUGH A STATE EXCHANGE WITH RESPECT TO WHICH A PREMIUM TAX CREDIT OR COST SHARING REDUCTION IS ALLOWED OR PAID TO THE EMPLOYEE. THE EMPLOYER IS ASSESSED A PENALTY CALCULATED BY MULTIPLYING THE NUMBER OF FTES EMPLOYED DURING THE APPLICABLE MONTH BY 1/12 TH OF $2,000. HOWEVER, BEFORE CALCULATING THE PLAY OR PAY PENALTY, THE NUMBER OF THE EMPLOYER S FTES IS REDUCED BY 30. THAT IS, THE MONTHLY PENALTY CALCULATION IS: 1/12 TH $2,000 X (FTE 30). IN ADDITION, FOR PURPOSE OF THE PENALTY CALCULATION, FTES INCLUDE ONLY EMPLOYEES EMPLOYED ON AVERAGE AT LEAST 30 HOURS PER WEEK AND DOES NOT INCLUDE ANY FTE EQUIVALENT EMPLOYEES. (THAT IS, THE CONVERSION OF PART-TIMERS TO FTES RULE IS USED ONLY TO DETERMINE IF THE EMPLOYER MEETS THE 50 EMPLOYEE COVERAGE THRESHOLD DISCUSSED ABOVE). AS A GENERAL RULE, EMPLOYEES QUALIFY FOR A PREMIUM SUBSIDY OR REDUCED COST SHARING IF THEY MEET CERTAIN INCOME REQUIREMENTS FOR ASSISTANCE (GENERALLY, THEY MUST HAVE HOUSEHOLD INCOME BETWEEN PERCENT OF THE FEDERAL POVERTY LINE). 19

20 WHAT IS THE 2014 "PLAY AND PAY" PENALTY? SOMETIMES REFERRED TO AS THE UNAFFORDABLE COVERAGE PENALTY, THIS PENALTY APPLIES IF THE EMPLOYER OFFERS ITS FTES (AND THEIR DEPENDENTS) THE OPPORTUNITY TO ENROLL IN MINIMUM ESSENTIAL COVERAGE UNDER AN ELIGIBLE EMPLOYER SPONSORED PLAN, AND AT LEAST ONE FTE ENROLLS IN HEALTH COVERAGE PURCHASED THROUGH A STATE EXCHANGE WITH RESPECT TO WHICH A PREMIUM TAX CREDIT OR COST SHARING REDUCTION IS ALLOWED OR PAID TO THE EMPLOYEE BECAUSE THE EMPLOYER S COVERAGE IS CONSIDERED TO BE EITHER UNAFFORDABLE OR IT DOES NOT PROVIDE MINIMUM VALUE TO THE EMPLOYEE. EMPLOYER PROVIDED COVERAGE IS DEEMED UNAFFORDABLE IF AN EMPLOYEE S CONTRIBUTION FOR THE LOWEST COST, SELF-ONLY COVERAGE EXCEEDS 9.5% (SUBJECT TO ADJUSTMENT) OF THE EMPLOYEE S HOUSEHOLD INCOME (OR, UNDER A REGULATORY SAFE HARBOR, 9.5% OF THE EMPLOYEE'S W2 WAGES FROM THE EMPLOYER). IN ORDER TO PROVIDE MINIMUM VALUE TO THE EMPLOYEE, THE EMPLOYER SPONSORED PLAN MUST PAY AT LEAST 60% OF THE PLAN'S SHARE OF TOTAL ALLOWED COSTS OF BENEFITS PROVIDED UNDER THE PLAN. ADDITIONAL GUIDANCE IS NEEDED TO DETERMINE HOW TO MEASURE THE PLAN S TOTAL COSTS AND THE PLAN S SHARE OF SUCH COSTS. THE PENALTY IS A MONTHLY PENALTY CALCULATED BY MULTIPLYING NUMBER OF FTES WHO RECEIVE A PREMIUM TAX CREDIT OR COST SHARING REDUCTION FOR HEALTH COVERAGE PURCHASED THROUGH AN EXCHANGE BY 1/12 TH OF $3,000. HOWEVER, THIS PENALTY IN ANY MONTH IS CAPPED AT AN AMOUNT EQUAL TO 1/12 TH OF $2,000 MULTIPLIED BY THE NUMBER OF FTES OF THE EMPLOYER (LESS THE 30 EMPLOYEE THRESHOLD). THE RESULT OF THIS CAP IS THAT THE PENALTY IMPOSED ON AN EMPLOYER THAT OFFERS MINIMUM ESSENTIAL COVERAGE WILL NEVER BE MORE THAN THE PENALTY IMPOSED ON AN EMPLOYER THAT DOES NOT OFFER COVERAGE. 20

21 NON-EMPLOYER ITEMS OF INTEREST FOR 2014 U.S. CITIZENS AND LEGAL RESIDENTS NOT CARRYING "QUALIFYING COVERAGE" PAY MANDATE PENALTY EQUAL TO GREATER OF 2.5% OF HOUSEHOLD INCOME EXCEEDING TAX FILING LIMIT (PHASED-IN AT 1% FOR 2014 AND 2% FOR 2015), OR $695 (PHASED-IN AT $95 FOR 2014 AND $325 FOR 2015). THE PENALTY FOR UNCOVERED DEPENDENTS UNDER AGE 18 IS ONE-HALF THIS AMOUNT. THE TOTAL HOUSEHOLD PENALTY WILL NOT EXCEED THE LESSER OF THREE TIMES THE ADULT PENALTY I.E., $2085 IN 2016 OR THE NATIONAL AVERAGE ANNUAL BRONZE LEVEL EXCHANGE PREMIUM FOR THE PARTICULAR HOUSEHOLD IN QUESTION. COVERAGE UNDER AN EMPLOYER PLAN, A GOVERNMENT PROGRAM, A GRANDFATHERED PLAN, AN ELIGIBLE INDIVIDUAL CONTRACT OR AN HHS/TREASURY-APPROVED PLAN CONSTITUTES QUALIFYING COVERAGE. INDIVIDUALS ARE EXEMPT FROM THESE PENALTIES IF ANY REQUIRED EMPLOYEE CONTRIBUTION TO THE INDIVIDUAL'S EMPLOYER'S PLAN, OR THE LOWEST COST BRONZE EXCHANGE PLAN AVAILABLE TO THE INDIVIDUAL, EXCEEDS 8% OF THE INDIVIDUAL'S HOUSEHOLD INCOME (WITH POST-2014 ADJUSTMENTS TO THE 8% FIGURE BASED ON THE AMOUNT BY WHICH HEALTH PREMIUM GROWTH EXCEEDS INCOME GROWTH). 21

22 2016 ITEMS EFFECTIVE JANUARY 1, 2016, EXCHANGES BEGIN TO OPERATE FOR EMPLOYERS WITH 100 AND FEWER EMPLOYEES. 22

23 2017 ITEMS EFFECTIVE JANUARY 1, 2017, STATES MAY PERMIT EXCHANGES TO BEGIN TO OPERATE FOR ALL SIZE EMPLOYERS. 23

24 2018 ITEMS IF APPLICABLE, PAY EXCISE TAX ON "CADILLAC" PLANS THAT IS, EMPLOYER- SPONSORED PLANS WITH COVERAGE VALUED BEYOND THE "THRESHOLD AMOUNT" OF $10,200 FOR SELF-ONLY COVERAGE AND $27,500 FOR FAMILY COVERAGE (ADJUSTED FOR AGE AND GENDER, INDEXED IN 2018 TO ACCOUNT FOR GREATER-THAN-EXPECTED HEALTH CARE COST GROWTH BEFORE 2018, AND INDEXED FOR INFLATION BEGINNING IN 2010). THE EXCISE TAX IS 40% OF THE VALUE OF THE COVERAGE EXCEEDING THE THRESHOLD AMOUNT DESCRIBED ABOVE. NOTE THAT STAND-ALONE VISION AND DENTAL PLANS ARE EXCLUDED FROM THE CALCULATION ABOVE. 24

25 2020 ITEMS THE $2 FEE PER AVERAGE NUMBER OF COVERED LIVES THAT IS DESCRIBED ABOVE NO LONGER APPLIES. 25