Health Care Reform Update Compliance Challenges for 2014 and 2015

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1 Health Care Reform Update Compliance Challenges for 2014 and 2015 Brought to you by Winston & Strawn s Employee Benefits and Executive Compensation Department

2 Today s elunch Presenters Erin Kartheiser Employee Benefits and Executive Compensation Chicago EKartheiser@winston.com Steve Flores Employee Benefits and Executive Compensation Chicago SAFlores@winston.com

3 Health Care Reform Plan Sponsor HCR Checklist: Plan reporting requirements Plan eligibility provisions Plan design Enforcement of HCR

4 Plan Reporting Requirements

5 Employer Reporting Minimum Essential Coverage (6055) Reporting Reporting of minimum essential coverage Identifying information for each individual covered by the plan Employer information (name, address, EIN) Name, address, TIN, or DOB of responsible and covered individuals Months in which individuals were enrolled Applies to insurers and sponsors of self-insured plans If plan covers employees of many employers in a controlled group, each employer is separately liable for reporting One entity may report, but all members remain liable for reporting

6 Employer Reporting 6055 Reporting Reporting required for 2015 calendar year To IRS: Form 1095-C and 1094-C File by February 28 (March 31 if filed electronically) of year following calendar year of coverage To responsible individuals: Information reported to government and phone number of contact person By January 31 of year following calendar year of coverage Failure can result in penalty of $100 per failure

7 Employer Reporting Applicable Large Employer (6056) Reporting Reporting of information related to health coverage offered by applicable large employer To IRS: terms and conditions of coverage offered to full-time employees Employer identification information, certification as to whether opportunity to enroll in minimum essential coverage was offered each month Each full-time employee s share of lowest cost monthly premium for minimum value coverage Employee information, including identifying information for covered employees To employees: written statement that may be used by employee to determine whether they may claim a premium tax credit

8 Employer Reporting Reporting required for 2015 calendar year Form 1095-C and 1094-C Simplified reporting available if: Certify that qualifying offer of coverage made to 98% of all employees Such coverage provides minimum value and is affordable Failure can result in penalty of $100 per failure Can fulfill 6055 and 6056 reporting by filing a single report

9 Health Plan Identifier Number ACA requires health plans to adopt health plan identifier number (HPID) by November 5, 2014 Each controlling health plan must obtain its own HPID Each subhealth plan may obtain an HPID Controlling health plan can apply on behalf of any subhealth plans (or these can obtain their own numbers) Can use wrap plan to reduce HPIDs Once established, number must be used to identify plan in standard transactions Get started here:

10 Transitional Reinsurance Program Fee Fee assessed on insurers and third-party administrators of self-insured medical plans $63 per enrollee for 2014, $44 for 2015, and not yet set for 2016 Enrollees counted in similar way as comparative effectiveness fee, but based on first nine months of the year Limited exception for self-insured, self-administered plans Participant counts will be due to HHS by November 15, 2014 Payment due to HHS within 30 days of invoicing 1 invoice expected in December ($52.50) 1 invoice in fourth quarter of subsequent calendar year ($10.50)

11 Additional Reporting and Fees Comparative Effectiveness Fee W-2 Reporting

12 Plan Eligibility Provisions

13 Plan Eligibility Provisions First consideration is who is eligible to participate Second is when those eligible persons must be allowed to enter the plan

14 Pay or Play Decision Tree Did you have 50 or more fulltime equivalent employees last year? Yes. You are a large employer. Do you offer coverage to all of your fulltime employees? No. You are not a large employer. No pay or play penalties apply this year. No. You may be subject to a penalty for all fulltime employees. Yes. Did the coverage provide minimum value and was it affordable? No. You may be subject to a penalty for each full-time employee with unaffordable or non-minimum value coverage. Yes. No pay or play penalties for the relevant month.

15 Employer Pay or Play Penalties Large employers that don t offer minimum essential coverage to their fulltime employees (and dependents) or if that coverage does not meet certain affordability and minimum value designs may be subject to a penalty if a sufficient number of full-time employees obtain exchange coverage and receive a premium subsidy or cost-sharing reduction

16 Employer Pay or Play Penalties Employer pay or play penalties and related reporting requirements delayed until January 1, 2015 This includes: Coverage requirements for full-time employees and dependents Affordability and minimum value requirements Many transition rules apply

17 Pay or Play Penalty Exchange Subsidies Who is eligible for exchange subsidies? Premium Tax Credits Income must be between 100% and 400% of poverty line for applicable family size Cost-Sharing Reductions Families with incomes between 100% and 250% of poverty line for applicable family size Family Size 2014 Yearly Income (400% FPL) 1 $46,680 2 $62,920 3 $79,160 4 $95,400 5 $111,640

18 Pay or Play Are You a Large Employer? A large employer is determined on a controlled-group basis Treated as a large employer for a calendar year if employ an average of at least 50 full-time employees (including full-time equivalent employees) during the preceding calendar year To determine if you will be a large employer in 2015, take the sum of full-time employees and full-time equivalent employees for each calendar month in 2014 and divide by 12 *Transition rule: for 2015, threshold is 100 full-time employees

19 Pay or Play Penalty for Failure to Offer Coverage Each employer that does not offer full-time employees and their dependents an opportunity to enroll in minimum essential coverage may be subject to a monthly penalty if exchange certifies to it that at least one full-time employee has enrolled in an exchange plan and received a premium tax credit or costsharing reduction Basic penalty calculation for failure to provide coverage in a month is: Number of full-time employees minus 30 x 1/12 of $2,000 (adjusted in future years) *Transition rule: for 2015, reduce by 80 instead of 30

20 Pay or Play Penalty for Failure to Offer Coverage If there are multiple members of a controlled group: each member is assessed the penalty separately each member is allocated for its share of the 30-employee reduction each member is liable for only its employees de minimis exception appears to apply on an individual controlled group member basis a member will not be considered to fail to offer coverage in a month if, for that month, it offers coverage to all but 5% (or, if greater, five) of its full-time employees (and their dependents) *Transition rule: for the 2015 plan year, de minimis exception is 30%

21 Pay or Play Penalty for Unaffordable or Non- Minimum Value Coverage Each employer that offers coverage that is not affordable or does not provide minimum value to its full-time employees may be subject to a monthly penalty if an exchange certifies to it that a full-time employee has enrolled in an exchange plan and received a premium tax credit or cost-sharing reduction Monthly penalty is equal to number of full-time employees of employer who receive a premium tax credit or cost-sharing reduction times 1/12 of $3,000 (adjusted for inflation) Includes full-time employees who can permissibly be excluded from coverage under 5% de minimis rule Cannot exceed the penalty that would be assessed for not offering coverage

22 Pay or Play Penalty for Unaffordable or Non- Minimum Value Coverage Coverage provides minimum value if plan s share of allowed costs of benefits provided under the plan is at least 60% of such costs How do you determine if you meet the standard? HHS minimum value calculator, Safe harbor designs proposed by HHS and IRS, or Actuarial certification If your plan is not meeting minimum value requirements, consider impact of HSAs, HRAs, and wellness plan incentives

23 Pay or Play Penalty for Unaffordable or Non- Minimum Value Coverage Coverage is affordable if employee s required contribution does not exceed 9.5% of the employee s household income (modified adjusted gross income of employee and spouse and dependents) for the taxable year, or any of the following safe harbors: Form W-2 Rate of Pay Federal Poverty Line

24 Pay or Play Penalties Who Are Full-Time Employees? Penalties and large employer determination tied to full-time employees Average of 30 hours a week or 130 hours a month For hourly employees, count hours; for other employees, must use one of the following methods: Actual hours Assumed hours (per day or per week) Can use different methods for different classifications of employees, and each controlled group member can use different methods

25 Pay or Play Penalties Who Are Full-Time Employees? Can determine full-time status by using one of two methods: Monthly measurement method Look-back measurement method

26 Pay or Play Penalties Who Are Full-Time Employees? Monthly measurement method requires large employer to count an employee s hours of service for each month For new employees who are expected to be full-time, employer has three months to begin coverage

27 Pay or Play Penalties Who Are Full-Time Employees? Look-back measurement period requires employers to set up processes to measure whether variable-hour ongoing employees are full-time employees Must establish an observation period ( standard measurement period ) If it is determined that someone is full-time, then must be treated as such for the stability period ( stability period ) Can include optional administrative period of up to 90 days, but that period may not reduce the stability period

28 Pay or Play Penalties Who Are Full-Time Employees? Example: Company uses the period between January and September 2014 to determine if variable hour employees averaged 30 hours per week (the standard measurement period). Company then uses the period between October and December 2014 to contact and enroll employees who averaged 30 hours per week (optional administrative period). Company must then treat these employees as full-time employees from January through December 2015, irrespective of whether they average 30 hours per week in 2015 (the stability period) If employee averages less than 30 hours per week from January through September 2015, he or she can then be dropped from coverage in 2016

29 Pay or Play Penalties Who Are Full-Time Employees? New Employees For new (as opposed to ongoing) employees who are expected to be full-time for the initial measurement period, employer has three months to begin coverage For new employees with uncertain hours (variable-hour employees) or seasonal employees: Must use standard measurement period that begins within a month of employee s start date to determine full-time status ( initial measurement period ) If employee is determined to be employed on average at least 30 hours a week, employee must be treated as a full-time employee for stability period beginning after initial measurement period Can include optional administrative period of up to 90 days where hours are not counted combined measurement period and administrative period cannot extend beyond last day of first calendar month following first anniversary of employee s start date

30 Pay or Play Penalties Who Are Full-Time Employees? New Employees Example Company uses 12-month initial measurement period to determine if variable hour employees averaged 30 hours per week and a 1-month administrative period to contact and enroll employees who averaged 30 hours per week Employee is hired on May 10, 2015; the initial measurement period runs from May 10, 2015, to May 9, If employee averages more than 30 hours per week during this period, employee must be offered coverage from July 1, 2016, to June 30, 2017 (combined measurement period and administrative period May 10, 2015, through June 30, 2016 does not extend beyond last day of first calendar month following first anniversary of employee s start date)

31 Pay or Play Penalties Who Are Full-Time Employees? New Employees If variable-hour employee remains employed beyond the initial measurement period and remains employed at the end of next standard measurement period, then the employee must be tested along with all other ongoing employees Example: Employer uses calendar-year standard measurement period and 12-month initial measurement period. Variable-hour employee begins February 12, Employer s initial measurement period runs through February 11, If employee remains employed through the end of 2016, then he/she must also be tested under the 2016 calendar year standard measurement period

32 Pay or Play Penalties Who Are Full-Time Employees? Each employer can set up its own periods Can use different measurement periods and stability periods for the following classifications of employees: Collectively bargained employees and non-collectively bargained employees Collectively bargained employees covered by different CBAs Salaried and hourly employees Employees whose primary places of employment are in different states

33 Pay or Play Temporary or Seasonal Employees No special treatment of temporary employees If expected to be full-time during initial measurement period, then treated as full-time for pay or play provisions Seasonal employees In a position for which the customary annual employment is six months or less Treated as variable hour employees

34 Pay or Play Staffing Agencies Employers who use temporary staffing agencies have special considerations Must accurately determine common-law employee status IRS on the lookout for arrangements that purport to relieve liability for penalties by splitting work between employer and temporary staffing agency Coverage provided by staffing firm to employees of a client employer under a staffing firm plan will not be treated as an offer of coverage by the client employer unless the fee the client employer would pay to the staffing firm is higher than the fee the client employer would pay the staffing firm for the same employee if that employee did not enroll in health coverage under the plan

35 When Employees Must Be Allowed to Enter Plan Pay or play rules require that full-time employees be offered coverage within 3 months of hire There is a separate 90-day restriction on waiting periods Penalties are different

36 When Employees Must Be Allowed to Enter Plan Health plans cannot apply waiting periods of more than 90 days Only limits time-based participation requirements to 90 days or less once an employee meets plan eligibility requirements This requirement is not violated simply because a participant takes additional time to elect coverage If specific hour requirement is a part of eligibility, for variable-hour employees, can take a reasonable period of time to determine if eligibility condition met (not to exceed 12 months)

37 Plan Document Considerations Plan document considerations Are eligibility provisions in line with pay or play rules (e.g., wholesale exclusion of groups may no longer work)? Are waiting periods in plan documents and CBAs sufficiently short?

38 Plan Design Considerations

39 Essential Health Benefits Non-grandfathered health coverage in individual and small group markets must cover essential health benefits ( EHB ) States can require exchange plans to offer benefits in addition to EHB EHB include items and services in 10 statutory benefit categories equal in scope to typical employer health plans

40 Essential Health Benefits Ambulatory patient services Emergency services Hospitalization Maternity and newborn care Mental health/substance use disorder services Prescription drugs Rehabilative and habilative services Laboratory services Preventive and wellness services and chronic disease management Pediatric, including oral and vision care

41 Essential Health Benefits Issuers of qualified health plans on the exchange must cover EHB substantially equal in scope to benefits offered under state-specific benchmark plan selected from the market For example: California benchmark is Kaiser Small Group, HMO Georgia benchmark is BCBS of GA HMO Urgent Care 60 Copay Illinois benchmark is BCBS of IL BlueAdvantage Entrepreneur, PPO Texas benchmark is BCBS of TX BestChoice, PPO Obtain information about benchmark plans by visiting:

42 Essential Health Benefits How does this affect self-insured, large group market, and grandfathered health plans? These plans are not required to cover all 10 categories of EHB These plans cannot apply annual and lifetime dollar limits on EHB (including grandfathered plans) Non-grandfathered, self-insured plans and large group health plan cost sharing on EHB cannot exceed $6,350 for self-only coverage or $12,700 for family coverage (adjusted thereafter) Must use good-faith effort to follow HHS s definition of EHB

43 Additional Mandates Clinical trial coverage No preexisting condition exclusions Auto enrollment (waiting on regulations) Grandfathered plans must: Phase out of annual limits on essential health benefits Extend eligibility for dependents up to age 26 without regard to eligibility for other coverage Eliminate all pre-existing condition limitations Eliminate waiting periods that exceed 90 days

44 HRAs and Other Reimbursement Arrangements HRAs that are not integrated with an employer plan will not comply with HCR HRAs that allow for coverage without the employee electing the employer s group health plan do not comply with HCR Can use amounts credited pre-2014 in accordance with terms of plan as in effect on January 1, 2013 Retiree HRAs comply, but may preclude retiree from obtaining subsidies Reimbursement for individual premiums generally will not comply with HCR May establish payroll practice of forwarding post-tax employee wages to health insurer at employee s direction

45 Wellness Plans Health-contingent wellness plans (e.g., rewards tied to maintenance of certain levels of cholesterol, blood pressure, body mass index) can increase employer reward for plan years beginning on or after January 1, 2014: Increase the total reward from 20 percent to 30 percent of the total cost of coverage 50 percent for programs designed to reduce tobacco use

46 Wrap and Cafeteria Plans Consider adopting or updating wrap plan documents to address: Minimum Loss Ratio Rebates HPID Cafeteria plans must be updated to address: Health FSA limits $500 rollover

47 HCR Enforcement

48 Enforcement of Health Care Reform Private Litigation Generally amends and incorporates coverage mandates into existing statutes, including ERISA Private cause of action to enforce health care reform rights through ERISA s remedial provisions Clarification of participants rights to benefits Recovery of benefits owed under plan Appropriate equitable relief to redress any other act or practice violating the plan or ERISA Attorneys fees if some success on the merits Prohibition on discrimination, retaliation as to benefits

49 Enforcement of Health Care Reform Private Litigation Areas of litigation risk Employee misclassification Lifetime and annual dollar limits on essential health benefits and other mandated benefits Grandfathered status Workforce realignments Incorrect communications Exit from retiree coverage

50 Enforcement of Health Care Reform Whistleblower Protection Express private right of action for whistleblower claims Affords employees broad protection for reporting health care reform violations or for receiving a tax credit or cost-sharing reduction in a health care exchange Unfavorable actions can include: Firing or laying off Blacklisting Demoting Denying overtime or promotion Disciplining Denying benefits Failing to hire or rehire Intimidation Making threats Reassignments Reducing pay or hours

51 Enforcement of Health Care Reform Whistleblower Protection Anticipate whistleblower suits by disgruntled former employees Must first file complaint with OSHA within 180 days of alleged retaliation If employee proves by a preponderance of evidence that protected activity was a contributing factor to adverse action, employer will need to prove by clear and convincing evidence that it would have taken same action in the absence of employee engaging in protected activity May issue an order requiring reinstatement, payment of back wages, restoration of benefits, and other relief

52 Enforcement of Health Care Reform Government Audits Expect IRS and DOL audits to focus on compliance with health care reform requirements DOL has been requesting the following: For grandfathered plans evidence of required disclosure statement and records dating back to March 23, 2010 Evidence of coverage of dependents up to age 26 Information about any rescissions of coverage Information about annual and lifetime limits Participant notices, including SBCs, right to enroll Information about preventative and emergency services Information about plan claim procedures, including notices and contracts with independent review organizations

53 IRS Excise Taxes What happens if you get it wrong? Excise tax and Form 8928 $100 per day for each individual to whom failure relates Beginning on date failure occurs and ending when failure is corrected Exception for reasonable cause failures If did not know, or exercising reasonable diligence would not have known, failure occurred, or Corrected within 30 days after knew or should have known No exception for failures due to willful neglect or on audit Will require self-reporting of errors to the IRS

54 IRS Excise Taxes Calculated annually, the total potential excise tax with respect to a single individual for a continuous violation of a single requirement could be $36,500 which dwarfs the annual pay or play penalty

55 IRS Excise Taxes No preexisting condition exclusions No discrimination against individual participants and beneficiaries based on health status No discrimination in health care providers Cost-sharing limitations on essential health benefits No waiting periods in excess of 90 days Coverage for individuals participating in approved clinical trials No lifetime or annual limits on essential health benefits No rescissions of coverage Coverage of preventive health services Extension of dependent coverage until age 26 Periodic disclosures required in summary of benefits and coverage Health plan reporting requirements No discrimination in favor of highly compensated individuals Health plan claim and appeals protections Patient protections, including the selection of primary care provider, coverage of emergency services, and access to pediatric, obstetrical and gynecological care providers

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58 Thank You. Erin Kartheiser Employee Benefits and Executive Compensation Chicago Steve Flores Employee Benefits and Executive Compensation Chicago