Health Care Reform: Not Everything Has Been Delayed

Transcription

1 Health Care Reform: Not Everything Has Been Delayed HR. Payroll. Benefits.

2 Contents Introduction 3 What Has Been Delayed? 5 Who Is Eligible for a Federal Subsidy? 7 How Much Will Coverage Cost if a Subsidy Is Provided? 8 What Has Not Been Delayed? 9 Conclusion 14 2

3 Introduction In 2010, the Affordable Care Act (ACA) became law, spawning a multitude of regulations that impact U.S. healthcare spending, which accounts for almost 20 percent of the gross domestic product. Under the ACA, almost every person legally residing in the United States must have healthcare insurance coverage beginning on January 1, 2014, or face a penalty (certain exceptions apply). Moreover, virtually every employer, healthcare provider, hospital, insurance company, prescription drug manufacturer, and medical-device manufacturer is affected by this sweeping law. Even small employers are impacted. They may need to demonstrate that they employ fewer than 50 Full- Time Equivalent employees (FTEs) as defined under the ACA. They may also have to develop a working knowledge of, as well as engage, various subsidies, tax credits, and the Small Business Health Insurance Options Program (SHOP), once the Marketplaces (aka Exchanges ) are up and running in (Note: SHOP was scaled back for 2014 but not delayed.) The number of employers that have to take some action in response to ACA requirements is enormous, as shown in the chart below. Number of Employers in the United States Impacted by the ACA Employer Type For-profit, incorporated For-profit, unincorporated Total 1 9 Employees Employees Employees Employees 1,000+ Employees 4,431,515 2,394, , , , ,175 1,581,580 1,167, ,698 85,050 60, ,812 Nonprofit 498, ,281 66,640 60,997 87,336 36,175 Total 6,511,524 3,809, , , , ,162 Source: Agency for Healthcare Research and Quality, Center for Financing, Access and Cost Trends Medical Expenditure Panel Survey-Insurance Component The ACA is unusual in both its scope and timetable for implementation. Clearly, it is one of the most significant pieces of social legislation in U.S. history. Although, passed into law in 2010, various requirements and provisions will be phased in through January 1, 2018 an extraordinary length of time for a single piece of legislation to take full effect. One of the most significant elements of the law for employers the Employer Mandate was originally scheduled to take effect on January 1, However, on July 2, 2013, the U.S. Department of the Treasury announced that the Obama Administration would delay Employer Mandate reporting requirements from an effective date of January 1, 2014, to January 1, 2015.* Due to the delay of the reporting requirements, which were the primary enforcement mechanism for the Employer Mandate, the IRS will not assess penalties in 2014 for failure to comply with the Employer Mandate. * Treasury Notes: Continuing to Implement the ACA in a Careful, Thoughtful Manner 3

4 ACA Time Line for Employers A SELECTION OF NOTABLE MANDATES AFFECTING EMPLOYERS Small business premium tax credits W-2 reporting of employer-provided healthcare coverage Summary of Benefits Coverage Notice to inform EEs of Exchange (Oct 2013) FSA contributions limited to $2,500 Medicare payroll tax increase for high earners Wellness tax credit for small ERs; Various fees; Some plan design changes Shared Responsibility ($2-3K nondeductible penalty per EE) Auto Enrollment; Nondiscrimination (Anticipated) Exchange and Federal Reporting (for the 2015 calendar year) Exchanges open to large ERs Penalty Assessment Reconciliation Cadillac Nondeductible Excise Tax (40%) Potential for significant penalties Only 32 percent of small, 32 percent of midsized, and 50 percent of large employers are confident in understanding their responsibilities under the ACA. 1 In addition to employer-specific mandates, provisions for individuals, insurers, states, and the federal government (e.g., Marketplaces/Exchanges) will likely impact clients, and present new challenges for employers. Source: PPACA legislation, ADP Research Institute (ADP RI). 1 ADP RI research study of HR decision makers, June Each delay in implementing the ACA further underscores the immense complexity of this law. 4

5 What Has Been Delayed? Significant provisions impacting large employers (those with at least 50 Full-Time Equivalent employees or FTEs) have not been delayed and include: Requirements related to offering benefits coverage to employees defined as Full-Time under the ACA, including: Offering Minimum Essential Coverage (MEC) to all ACA-designated Full-Time employees (ACA F-T employees) Offering a plan with at least a 60 percent actuarial value (i.e., the portion or percentage of anticipated medical costs a health plan will cover) Ensuring the 60 percent actuarial value plan is affordable meaning that the cost for an employee to purchase individual coverage is no more than 9.5 percent of the employee s household income (or a permitted IRS safe harbor) However, the following requirements have been delayed: Required reporting by employers to: Marketplaces (Exchanges) now to be effective January 1, 2015 The federal government, annually, each January (now to be effective January 1, 2016) Penalties on employers for failing to meet various benefits-offering requirements (now postponed until 2015): Section 4980H(a) of the ACA imposes, on applicable large employers, an annual penalty (assessed monthly) in the amount of $2,000 multiplied by every ACA F-T employee (less the first 30 employees), if the employer fails to offer Minimum Essential Coverage to at least 95 percent of its ACA F-T employees (and their dependent children) under an eligible employer-sponsored plan, and at least one Full-Time employee receives a premium tax credit (federal subsidy) to help purchase a qualified health plan through the Marketplace (Exchange). - This penalty would apply to ALL ACA F-T employees even those to whom coverage is offered, as can be seen in the example on the next page (where the penalty is triggered due to the failure to offer coverage to at least 95 percent of ACA F-T employees) 5

6 Scenario 1 Scenario 2 Scenario 3 Regular F-T Employees 1,500 1,500 1,500 Variable Hour Employees Average Less Than 30 Hours Service Average 30 or More Hours Service Total ACA F-T Eligible Population 1,500 1,700 1,700 Number Offered Coverage 1,500 1,650 1,500 Percent Offered Coverage 100% 97% 88% Nondeductible Penalty $0 $0 $3,340,000 Penalty Calculation Total Number of ACA Eligibles 1,700 Less Excludable EEs 30 Number On Which Penalty Is Based 1,670 Penalty Amount (Annual) $2,000 Total Penalty $3,340,000 Sec. 4980H(b) imposes an assessable payment on an applicable large employer that DOES offer Minimum Essential Coverage to at least 95 percent of its ACA F-T employees (and their dependent children) under an eligible employer-sponsored plan, but the coverage offered is either not affordable or does not provide Minimum Value (i.e., the plan does not provide at least a 60% actuarial value). These penalties may apply if the employer has one or more ACA F-T employees who enroll in a qualified health plan through a Marketplace (Exchange) and the employee or employees receive a premium tax credit (federal subsidy). For example, the assessable payment may apply if the coverage offered either does not provide at least 60 percent actuarial value or is not affordable to that F-T employee. - The penalty under Sec. 4980H(b) is an annual penalty (assessed monthly) in the amount of $3,000, for each individual employee who obtains coverage through a Marketplace (Exchange) and receives a federal premium tax credit but in aggregate, the total penalty amount under this section of the ACA cannot exceed the total penalty assessment that would be due under Sec. 4980H(a) described above. 6

7 Who Is Eligible for a Federal Subsidy? Individuals who are not eligible for Medicaid and whose adjusted gross income does not exceed 400 percent of the federal poverty level (FPL) will be eligible to enroll in a Marketplace (Exchange) and receive a federal subsidy (assuming they are not otherwise eligible for Medicare or other affordable group health plan coverage). The subsidies are provided in the form of a capped premium for those who qualify. The table below shows the income levels (taking family size into account) up to which individuals will be able to qualify for federal subsidies if they are NOT offered affordable, minimum value coverage through their employer or are eligible for Medicaid. For example, an individual with an adjusted gross income of up to $45,960 or a family of four with an adjusted gross income of up to $94,200 may be able to qualify for a subsidy. No. Persons In Family 100% of the Federal Poverty Level: Contiguous States/DC 400% Of The FPL 48 Contiguous States/DC 1 $11,490 $45, ,510 $62, ,530 $78, ,550 $94, ,570 $110, ,590 $126, ,610 $142, ,630 $158,520 Source: Federal Register January 24,

8 How Much Will Coverage Cost if a Subsidy Is Provided? A Marketplace/Exchange is designed to provide a shopping alternative that generally offers four levels of coverage: PLATINUM: 90 Percent Actuarial Value GOLD: SILVER: BRONZE: 80 Percent Actuarial Value 70 Percent Actuarial Value (tied to the federal premium tax credit) 60 Percent Actuarial Value Premiums will be established within each Marketplace (Exchange) for each plan that is offered. For individuals not eligible to receive a federal premium tax credit, the premium they will have to pay will be the full cost of the plan they select. For individuals who are eligible to receive a federal tax credit, the cost of the Silver plan will be a reduced or capped premium or capped contribution amount. This capped amount is tied to the Silver-level plan (a plan with a 70 percent actuarial value). Should an individual elect a Gold or Platinum plan, his or her costs would be higher than if he or she elects coverage under the Silver plan. Such capped premiums for Silver plans are intended to be affordable. For example, a family of four with an adjusted gross family income of 200 percent of the 2013 FPL would have an income of $47,100. This family would only have to pay $242 per month to sign up for family coverage under the Silver plan in their state Marketplace (Exchange). Percent of Federal Poverty Level Maximum Premium as % of Income (2014) Maximum Amount of Monthly Premium by Family Size FPL in 2013 $11,490 $15,510 $19,530 $23, % 2.00% $19 $25 $32 $38 133% 2.00% $25 $34 $42 $ % 3.00% $37 $50 $63 $77 150% 4.00% $56 $76 $95 $ % 6.30% $117 $159 $200 $ % 8.05% $187 $254 $320 $ % 9.50% $265 $359 $453 $ % 9.50% $310 $419 $529 $ % 9.50% $354 $479 $605 $730 Source: CRS computation based on Annual Update of the HHS Poverty Guidelines, 74 Federal Register 4200, January 23, 2009, and PPACA, for the second-least-expensive Silver plan available to eligible individuals. If individuals choose more expensive plans, they would be responsible for additional premiums. 8

9 What Has Not Been Delayed? GENERAL ITEMS Individual Mandate Almost all individuals residing legally in the United States will be required to have health insurance in 2014, or be subject to a penalty/tax (certain exceptions apply). The following chart illustrates the amount of penalty/tax to which a person failing to obtain coverage would be subject. There is also transition relief for employees (and their spouses and dependents) who are eligible for coverage under employersponsored plans that operate on a non-calendar year basis (such individuals will not begin to incur a penalty under the Individual Mandate until the start of the employer s 2014 plan year). Individual Mandate Penalty and Beyond Maximum Annual Penalty as Percent of Adjusted Gross Family Income (AGFI) Minimum Penalty 1.0% 2.0% 2.5% Individual $95 $325 $695 Family $285 $975 $2,085 EXAMPLES OF MAXIMUM ANNUAL PENALTIES AGFI: $25,000 AGFI: $35,000 AGFI: $50,000 AGFI: $75,000 AGFI: $100,000 Income: $200,000 Individual $250 $500 $695 Family $350 $975 $2,085 Individual $350 $700 $875 Family $350 $975 $2,085 Individual $500 $1,000 $1,250 Family $500 $1,000 $2,085 Individual $750 $1,500 $1,875 Family $750 $1,500 $2,085 Individual $1,000 $2,000 $2,500 Family $1,000 $2,000 $2,500 Individual $2,000 $4,000 $5,000 Family $2,000 $4,000 $5,000 Penalty will be assessed on a monthly basis Penalty will not be assessed until coverage has been lacking for more than 3 months Penalty is progressive increases over time increases as income levels rise likely to have greatest motivational impact on high earners (who are also most likely to have coverage available through employment relationship) Insurance Marketplaces (Exchanges) Insurance Marketplaces (Exchanges) will be established in each state (with the federal government establishing these in at least 33 of the states). Federal Premium Tax Credits These are applied toward coverage in Marketplaces (Exchanges), as described earlier in this paper. 9

10 VARIOUS FEES Payment of an annual Patient-Centered Outcomes Research Institute (PCORI) Trust Fund Fee This fee applies to issuers of specified health insurance policies and plan sponsors of self-insured plans to help fund the Patient-Centered Outcomes Research Institute (PCORI). The PCORI is authorized by Congress to conduct research and provide information that helps patients and their healthcare providers make more informed decisions. The amount of the PCORI fee is equal to the average number of lives covered during the policy year or plan year multiplied by the applicable dollar amount for the year. - For policy and plan years ending after Sept. 30, 2012, and before Oct. 1, 2013, the applicable dollar amount is $1. - For policy and plan years ending after Sept. 30, 2013, and before Oct.1, 2014, the applicable dollar amount is $2. - For policy and plan years beginning on or after Oct. 1, 2014, and before Oct. 1, 2019, the applicable dollar amount will be adjusted to reflect inflation in National Health Expenditures, as determined by the Secretary of Health and Human Services. The IRS issued final regulations regarding the PCORI fees in December Payment of transitional reinsurance program contributions Fees to support a transitional reinsurance program will be assessed against both insured and selffunded group health plans. The total amount of fees expected to be collected over the three-year period is $25 billion. The fee is currently estimated to be $63 per covered life for calendar year The IRS confirmed that the reinsurance program fees are tax-deductible by plan sponsors as ordinary and necessary business expenses. - Unlike the PCORI fees, the U.S. Department of Labor (DOL) has indicated that these reinsurance program fees are permissible plan expenses under the Employee Retirement Income Security Act (ERISA). 10

11 NOTICE OF COVERAGE OPTIONS AND MARKETPLACE (EXCHANGE) NOTIFICATION Guidance issued on May 8, 2013: Employers are required to provide a notice to each employee Current employees: Notice must be provided no later than October 1, The model notice can serve as the basis for the final notice. New hires (hired on and after October 1, 2013): Notice must be provided within 14 days of employee s start date. Broad applicability All employers subject to FLSA (generally 1+ employees plus revenues over $500K). Specifically covers the following entities: hospitals; institutions primarily engaged in the care of the sick, the aged, mentally ill, or disabled who reside on the premises; schools for children who are mentally or physically disabled or gifted; preschools, elementary and secondary schools, and institutions of higher education; and federal, state and local government agencies. Must be provided to all employees including both part-time and full-time (but not separately to dependents) including employees who may not be eligible for coverage under the employer s plan. Distribution requirements It must be in writing but can be done electronically, if the employer complies with detailed DOL electronic notice requirements. Two different Model Notices One for employers who DO offer healthcare plans One for employers who DO NOT offer healthcare plans 11

12 PLAN DESIGN CHANGES Elimination of annual and lifetime dollar limits on essential health benefits The term essential health benefits is broadly defined under the ACA and includes the following categories: - Ambulatory Patient Services - Emergency Services - Hospitalization - Maternity and Newborn Care - Mental Health and Substance Use Disorder Services, including Behavioral Health Treatment - Prescription Drugs - Rehabilitative and Habilitative Services and Devices - Laboratory Services - Preventive and Wellness Services and Chronic Disease Management - Pediatric Services, including: Oral and Vision Care No more than 90 day waiting period for healthcare coverage The proposed regulations clarify that in measuring the length of a waiting period, all calendar days are counted, including weekends and holidays. If a plan has a 90-day waiting period, and the 91st day is a weekend or holiday, the plan may make the employee s coverage effective earlier than the 91st day for administrative convenience. Plans with waiting periods of less than 90 days may delay the effective date of coverage to the first day of the month or payroll period following the end of the waiting period, but only if coverage begins no later than the 91st day thus permitting coverage to start on the first of each month. New wellness program rules Final regulations require health-contingent wellness programs to follow certain rules, including: - Programs must be reasonably designed to promote health or prevent disease. Must offer a different, reasonable means of qualifying for the reward to any individual who does not meet the standard based on the measurement, test, or screening. - Programs must have a reasonable chance of improving health or preventing disease and not be overly burdensome for individuals. - Programs must be reasonably designed to be available to all similarly situated individuals. Reasonable alternative means of qualifying for the reward must be offered to individuals who fail to meet the specified health-related standard. - Individuals must be given notice of the opportunity to qualify for the same reward through other means. - The proposed rules also increase the maximum permissible reward under a health-contingent wellness program from 20 percent to 30 percent of the cost of health coverage. In addition, the rules increase the maximum reward to as much as 50 percent for programs designed to prevent or reduce tobacco use. 12

13 Coverage of recommended preventive services without cost sharing for nongrandfathered plans. The ACA defines preventive care services as follows: Items or services recommended with an A or B rating by the U.S. Preventive Services Task Force Immunizations recommended by the Advisory Committee on Immunization Practices of the CDC Preventive care and screenings for infants, children, and adolescents supported by the Health Resources and Services Administration Preventive care and screenings for women supported by the Health Resources and Services Administration per the August 1, 2011 guidance: - Well-woman visits - Screening for gestational diabetes - Human papillomavirus DNA testing - Counseling for sexually transmitted infections - Counseling and screening for human immune-deficiency virus - Contraceptive methods and counseling (certain religious groups are exempt) - Breastfeeding support, supplies, and counseling - Screening and counseling for interpersonal and domestic violence The need to track hours of service for purposes of determining whether an employee is a full-time employee as defined by the ACA and must therefore be offered coverage: Hours paid and worked Hours paid and not worked (i.e., paid leave, paid vacation, paid time-off, etc.) Certain unpaid leaves (safe harbor calculations provided in regulations) associated with - Family and Medical Leave Act (FMLA) - Uniformed Services Employment and Reemployment Act (USERRA) - Jury Duty For calendar plan years using a 12-month look-back, this means hours of service must start being tracked in The date from which these hours of service will need to be tracked depends on the amount of time needed for administration, as shown below: Assuming a Calendar Year Plan, Hours of Service Must Be Tracked Beginning as Shown Below Administration Period Needed Track Hours as of First Payroll In 90 Days October Days November Days December

14 Conclusion While significant elements of the ACA have been delayed until 2015, there is much that employers must do now to help ensure that they are in compliance with the requirements that have not been postponed and requirements that will still take effect in Equally important is the work that must be done in 2013 and 2014 to help ensure that employers will be fully able to comply with the requirements that have been postponed until According to the announcement by the U.S. Treasury Department (Treasury), the delay in the Employer Mandate reporting requirements had two goals: 1. Allow Treasury to consider ways to simplify the new reporting requirements consistent with the law, and 2. Provide time to adapt health coverage and reporting systems Treasury also made it clear that this delay was intended to allow employers to voluntarily move forward with the ACA requirements during 2014 including testing of all necessary systems in preparation for the new effective date of January 1, New requirements are still forthcoming and likely to become effective in For example, Auto Enrollment requirements are expected to be released in the future, as are new nondiscrimination rules that are applicable to fully insured plans. For more information, please call CALL-ADP ( ) or visit adp.com/health-care-reform. To receive Eye on Washington alerts, you may subscribe on the Web page listed above. 14

15 ADP does not give legal advice as part of its services. This document provides general information regarding its subject matter and should not be construed as providing legal advice. This material is made available for informational purposes only and is not a substitute for legal advice or your professional judgment. You should review applicable law in your jurisdiction and consult experienced counsel for legal or tax advice. 15

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