Health Care Reform Updates and Strategies for 2015 and Beyond Presented by: Ryan McArton, JD Sr. Advisor of Regulatory Affairs
Health Care Reform Overview 2
PPACA Objectives 1. Improved access to health care services & coverage 2. Health Care Quality and Patient-Safety Improvements 3. Marketplace Cost Containment and Improved Financing Geographic, provider, and affordability access through reforms, Medicaid expansion, incentives, individual and employer mandates, exchanges Critical Medicaid eligibility expansion disrupted by 2012 Supreme Court decision Achieving this objective since 2010-11 insurance/ market reforms Likely peak with 2014 mandate and health insurance marketplace provisions becoming effective Reduce patient deaths, recurring admissions, and poor outcomes, which over time will reduce health care expenditures Implementation in progress primarily through Medicare and Medicaid initiatives, will quickly follow into private insurance marketplace Significant up-front expense ROI expected to begin in the next 2 to 3 years Reduced marketplace and government health plan cost increases plus additional revenues through fees and penalties CBO projects PPACA will reduce the federal deficit by $143 billion beginning 2019 Experts argue savings will never happen due to higher than expected frontend costs, and unrealistic change required in health care marketplace and US population s health September 9, 2014 3
Health Insurance Marketplaces Get Off To A Rocky Start Obama Administration expected 7 million Americans will enroll for marketplace coverage in 2014 Enrollment website plagued by technical failures, but as of April 2014, 8 million have applied (unknown how may have actually bound coverage with premium payments) Challenges leading up to/since the initial enrollment could destabilize the Marketplaces: Concessions for you can keep your coverage promise may keep good risks out of standard marketplace plans (cheaper off-market plans permitted and low cost, low coverage catastrophic plans expanded to anyone whose plan was cancelled ) Young and healthy individuals not enrolling at sufficient level after the website is fixed Uncertainty regarding subsidies for lower-income individuals in federally-run marketplaces Politics likely an influential part of Marketplace future September 9, 2014 4
PPACA Legislative Trouble Spots Legality of Federal Marketplace Subsidies: IRS interprets PPACA to include subsidies in Federal marketplace even though law s language specifically provides for subsidies in state-based marketplaces Issue may have to go to SCOTUS for final resolution Until matter is resolved in the courts, IRS will continue to offer subsidies in Federal marketplace Medicaid Gap: In states that don t expand Medicaid (currently 24 states), those between current Medicaid thresholds below 100% FPL and 100% FPL are ineligible for both Medicaid and marketplace subsidies; estimated 5 million people affected. (SEP in Wisconsin) Preferential Treatment of Non-Citizens: Because legal resident aliens aren t eligible for Medicaid, they are eligible for marketplace subsidies down to 0% FPL, even though American citizens in the Medicaid gap are not Subsidy Funding Gap: States were to fund subsidies for excess premiums from state-mandated benefits greater than a national benchmark plan, but HHS has not defined benchmark plan so Federal government will be paying greater than expected subsidies September 9, 2014 5
Recent Updates Hobby Lobby Decision Issue: In a 5-4 decision, the U.S. Supreme Court has held in favor of forprofit employers that challenged the ACA s preventive services mandate as it relates to coverage of women's contraceptive services Ruling: The Court held that the requirement to provide contraceptive coverage, as applied to closely held for-profit corporations, violates the federal Religious Freedom Restoration Act (RFRA) when providing the coverage would be contrary to the owners religious beliefs. Rationale: The Court suggested that for-profit employers with religious objections could be provided with accommodations similar to those available to nonprofit employers. Or the government could assume the cost of providing the contraceptives at issue to women who would otherwise not receive them due to their employers religious objections.
Health Care Reform Timeline Focus on 2014 and Beyond Dependent coverage to 26 (grandfathered plans may limit to children without access to own employer coverage) 1 Additional standards for nongrandfathered health plans, including: 100% coverage for preventive care, mandatory internal and external appeals processes 3 No lifetime dollar limits for essential benefits 1 Restricted annual dollar limits for essential benefits (phased out by 2014) 1 No coverage rescissions 1 No pre-existing condition limitations up to age 19 1 No health FSA/HRA/HSA reimbursement for OTC drugs without prescription Penalties for non-qualified HSA distributions increases to 20% Pharmaceutical manufacturers fees start Medicare, Medicare Advantage benefit and payment reform Income-based Medicare D premiums Insurers subject to medical loss ratio rules Health insurance marketplaces Individual mandate 6 Premium Tax Credits State Medicaid expansion Wellness limit increase 2 No annual dollar limits for essential benefits No stand-alone HRAs 2 Health insurance industry fees No waiting period over 90 days 2 No pre-existing condition limits 2 Dependent coverage to age 26 for any covered employee s child 2 Transitional reinsurance fees Insurers must guarantee issue and renewability 40% excise tax on high cost or Cadillac plans 2010 2011 2012 2013 2014 2015 2016 2018 Change in tax treatment for over-age dependent coverage Accounting impact of change in Medicare retiree drug subsidy tax treatment Early retiree reinsurance program Medicare prescription drug donut hole beneficiary rebate Break time/private room for nursing moms Uniform benefit summaries and 60-day advance notice of material modifications Employers report health coverage value on 2012 W-2s (report in 2013) 4 100% coverage for expanded women s preventive care 5 Comparative effectiveness fees (plan years ending on or after 10/1/12 to before 10/1/19 (first due in 2013) $2,500 health FSA contribution cap (as of 2013 plan year) Employers notify employees about exchanges Medical device manufacturers fees start Higher Medicare payroll tax on wages exceeding $200,000/ individual; $250,000/couples New tax on net investment income for taxpayers with incomes exceeding $200,000/ individual; $250,000/couples Change in Medicare retiree drug subsidy tax treatment takes effect Health insurance exchange initial open enrollment period ERs 100+: Employer shared responsibility for FT EEs (70% threshold) Employer Reportin ERs 50+: Employer shared responsibility for FT EEs and children (95% threshold) Employer reporting and disclosures 1. Applies to all plans effective plan years beginning on or after 9/23/10. 2. Applies to all plans effective plan years beginning on or after 1/1/14. 3. Applies to non-grandfathered plans effective plan years beginning on or after 9/23/10. 4. A temporary exemption applies to certain categories of employers. 5. Applies to non-grandfathered plans effective plan years beginning on or after 8/1/12. 6. Temporary exemption applies to employees of employers with non-calendar yr. plans. 7. Applies to non-grandfathered plans effective plan years beginning on or after 1/1/14. 7
Insurance Mandates 8
Individual Mandate Summary Individuals must have qualifying minimum coverage or pay tax penalty. Potential annual penalties are: 2014: greater of $95 per individual or 1% of household income* 2015: greater of $325 per individual or 2% of household income* 2016: greater of $695 per individual or 2.5% of household income* Employer Plan State Exchange Medicaid Pay Penalty Individuals with no employer coverage or with insufficient or unaffordable employer coverage are eligible for Exchange coverage and may receive a federal tax credit subsidy (sliding scale based on income). *Penalty cannot exceed the national average cost for Bronze plans in the exchange Employee Choices 9
Employer Mandate Overview 2015 2016 100+ FT Employees 50+ FT Employees Offer Coverage to 70% FT Employees Offer Coverage to 95% FT Employees Penalty discounts first 80 employees Penalty discounts first 30 employees 10
Employer Mandate Penalties 4980H(a) Penalty - Employer does not offer Minimum Essential Coverage (MEC) to all full-time employees and at least one employee purchases subsidized individual coverage through a public exchange - $166.67/mo ($2,000/yr) times number of all full-time employees (not counting first 80 in 2015) 4980H(b) Penalty - Employer offers coverage to all full-time employees, but - Coverage is not affordable for some full-time employees or - Coverage doe not provide minimum value - $250/mo ($3,000/yr) times number of employees who qualify for and purchase subsidized individual coverage through a public exchange 11
Employer Mandate Transition Relief Requirements: For 2015 delay: (a) Employer has less than 100 but more than 50 FTE s (b) Employer does not reduce workforce or reduce hours to satisfy (a) above (c) May not reduce or terminate health coverage if any was offered as of 2/9/14 (d) Employer certifies the above requirements are met. 12
Employer Mandate Calculating Affordability General Rule: Coverage must be less than 9.5% the following: (a) W2 wages (b) Employee s rate of pay (i.e. $10x 130hrs) (c) Federal poverty line (prior 6 month calc allowed) Employer can pick one or more of the above categories May apply them to all employees or reasonable categories of employees. New: Rate of pay may be used even if pay is reduced mid-year. 13
Reporting 14
Overview ACA reporting requirements support enforcement of the mandates and tax credits. Individual Mandate Employer Mandate Tax Credits Reporting Provisions: Individual Mandate 6055 Employer Mandate 6056
ACA Reporting Who must report: Employers with more than 50 FTEs Applies to each employer member of a control group Not required to report if no full-time employees Self-funded employers will report both 6055/6056 Exceptions: No reporting required for coverage that supplements MEC or HDHP such as: Health Savings Accounts Health Reimbursement Accounts Wellness Programs No employer reporting required if insured coverage is sponsored by another organization
Background Timeline: Reporting requirements issued in Notices 2012-32 & 2012-33 On July 2, 2013 delay of the employer mandate due to complications with crafting reporting requirements Proposed rules were issued September 9, 2013 Final reporting rules issued March 5, 2014
Reporting Due Dates Reporting to the IRS is due by Feb. 28 (or Mar. 31 if filed electronically) following the calendar year. 6055 use 1094B or 1095B 6056 use 1095C E-file required if entity files at least 250 returns Statements to individuals/employees are due by Jan. 31 following the calendar year to which the statement relates. (First reports due Q1 2016) No distinction if calendar or non-calendar year plan. Voluntary reporting in 2015 for 2014 year.
Reporting Forms Form Name Form Purpose Information to be provided by 1094-C IRS Transmission Form Fully Insured & Self-Funded 1095-C Employee Statement Two Part Form: Top Half ( 6056) Self-Funded* & Fully Insured Employers Bottom Half ( 6055) - Self-Funded Employers* *Self-Funded employers must complete both sections. 1094-B IRS Transmission Form Insurers, sponsors of non-ale self-insured plans, providers of government sponsored coverage, and self-insured multiemployer plans 1095-B Statement Insurers, sponsors of non-ale self-insured plans, providers of government sponsored coverage, and self-insured multiemployer plans
General Reporting Requirements Who / What Section 6055 Reporting Self-Funded Large Employers The name, address, and social security number (SSN) of the primary insured. The name and SSN of each other individual, including spouses and dependents, covered under a policy. The months each person was covered Section 6056 Reporting Fully Insured & Self-Funded Large Employers Employer s name, date, and EIN Certification of an offer of minimum essential coverage (MEC) Number of full time (FT) employees for each month of the calendar year Name, address and taxpayer ID of each FT employee and the months they were covered under the plan during the calendar year. Why Compliance with the individual mandate Compliance with the employer mandate and confirm eligibility for individual premium tax credits September 9, 2014 20
6056 Reporting Reportable Information: Employer s name, date, and EIN Certification of the availability of minimum essential coverage (MEC) by calendar month Number of full time (FT) employees for each month of the calendar year Name, address and taxpayer ID of each FT employee and the months they were covered under the plan during the calendar year. Each full-time employee s share of self-only coverage by calendar month.
6056 Reporting Additional Reportable Information (indicator codes): If coverage is of minimum value Whether employee spouse had opportunity to enroll Total employees by calendar month Whether the coverage was affected by a waiting period Whether the employer had no employees during a given month Whether the employer is part of a control group Information on the person reporting on behalf of a governmental unit Whether an employer is subject to a 4980H penalty due to contribution to a multiemployer plan Information on third party preparer, if applicable
1094-C
1094-C
1095-C
Annual Information Reporting Delayed Until Calendar Year 2015 Alternative Reporting Options Who / What Option 1 Option 2 Employer s that make a qualifying offer of coverage to all FT employees for all months during the year. Name, address and taxpayer ID Fact they received a full year offer Employers that meet the following: - Offered coverage to at least 98% of FT employees - Meets MV of 60% - Affordable Do not need to identify FT employees Do not need to specify the numbers of FT employees Just report on the employees who are FT What is a qualifying Offer: MV of 60% The required employee contribution for employee-only (single) coverage was no more than 9.5% of the federal poverty level (FPL) ($92.39 in 2014). Minimum essential coverage was offered to employees spouses and dependents. September 9, 2014 26
6056 Reporting Bottom Line: This will be similar to the W2 process Most data will pull from payroll system Consider if you will meet alternative reporting Make sure you capture TIN on dependents/spouses
Employee Classification & Tracking 28
Employee Classification & Tracking Overview Employee Classifications: Full Time Variable Hour Part Time Seasonal An employee employed on average at least 30 hours per week. An employee who, at the start of employment, the employer cannot in good faith determine whether the individual is expected to average 30 hours of service per week. An employee who never works more than 30 hours per week. Employee in a position for which the customary annual employment is six months or less. 29
Employee Classification & Tracking Variable Hour Determination In General: An employee not reasonably expected to work a full-time schedule 30hr/wk -130 hr/month What s a reasonable expectation?? Must consider the facts of the situation but factors to consider: Is the employee replacing an employee who was full-time or part-time? Are comparable positions full-time or part-time? Was the job advertised/documented/communicated as a 30hr+ position? Tip: Revise job descriptions for explicit hourly expectations 30
Employee Classification & Tracking Seasonal Workers Seasonal may be treated as a variable hour even if they average 30 hours. Defined as in a position where customary employment is 6 months or less. Classification as seasonal not impacted by employment exceeding 6 months Important because requirement to offer coverage in 3 months is not triggered 31
Employee Classification & Tracking Determining Full-Time Status 2 Tracking Strategies Definition Look-Back Period Measurement (MSP) Safe harbor from penalties to measure variable hour employees over a predefined measurement period followed by a stability period in which coverage may not be terminated for failure to average more than 30hrs per week. Rules - 3-12 month measurement period - Up to 90 day admin period - 6 month or greater stability period (at least as long as measurement period) Pro/con - Flexibility for changing schedules - Easy admin - Lower risk of penalty due to tracking error. Definition Monthly Measurement Default method to identify full-time employees based on the hours of service for each calendar month. Rules - Generally cannot be used with lookback method (one or the other method) - Hours must be tracked for the current four week month not the prior month - Four week month = 120 hours - Five week month = 150 hours Pro/con - Must be confident in predicting hours - Penalty risk greater
Employee Classification & Tracking Measurement & Stability Periods (MSP) Choice of a look-back measurement period of 3 to 12 months and a stability period of no less than 6 months. If employee averages 30+ actual hours worked/week during measurement period, employee must be considered full-time for subsequent stability period; if not, employee will be considered not full-time for the stability period. Administrative period up to 90 days between measurement and stability periods to conduct enrollment. May use payroll periods Basic Example: Sample 12-Month Measurement & Stability Periods (With Administrative Period) 2013 2014 2015 2016 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Standard Measurement Period 10/15/13 10/14/14 Adm. Pd. (77 days) Standard Stability Period 1/1/15 12/31/15 Standard Measurement Period 10/15/14 10/14/15 Adm. Pd. (77 days) Standard Stability Period 1/1/16 12/31/16 33
Employee Classification & Tracking New Hire Tracking New Hire Situation: 2 measurement periods: Initial and Ongoing Measurement Period. May track from the date of hire or first of the month following date of hire. Coverage cannot begin later than 13 months after the date of hire. Measurement period = same or 1 month shorter than the initial stability period. Stability period = ongoing stability period. Example: Sample 12-Month Measurement & Stability Periods (With Administrative Period) 2013 2014 2015 2016 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec New Hire DOH 3/15/14 Standard Measurement Period 10/15/13 10/14/14 Adm. Pd. (77 days) Initial Measurement Period 3/15/14-3/14/15 Standard Stability Period 1/1/15 12/31/15 47 days Standard Measurement Period 10/15/14 10/14/15 Initial Stability Period 5/1/15 4/30/16 Adm. Pd. (77 days) Standard Stability Period 1/1/16 12/31/16 34
Reinsurance Fee 35
Reinsurance Fee Overview: - Tax to help cover early costs and risks of the exchange opening to stabilize premiums - Applies to FI and SF major medical coverage and counts covered lives - Paid by FI and SF can use TPA to transmit - $63 in 2014, $44 in 2015 - Paid in two installments $52.50 & $10.50 can be paid at the same time - Enrollment count due November 15, 2014 and registration, submission and remits can be done on pay.gov - Enrollment data will use Jan-Sept 2014 data (even non-calendar year plans) - Pay.gov training will occur
Reinsurance Fee
Reinsurance Fee
Reinsurance Fee
Reinsurance Fee 1 2 3
Reinsurance Fee CMS form & job aid in development
Things to Watch 42
Things to Watch Taxes & Fees Patient-Centered Outcomes Research Fee What is it? Annual fee on insured and self insured plans beginning on/after 10/2/2011 Health Insurance Industry Fee Annual fee on all insured plans beginning in 2014 Reinsurance Assessment Annual fee on insured and self-insured plans, 2014-2016 Excludes Dental/Vision Includes Dental/Vision Excludes Dental/Vision How Much? Annual fee of $2; indexed to medical inflation until 2019 First payable July 2013 Estimated costs: 2 to 2.5% for 2014 3 to 4% for later years Estimated costs: $63 PMPY in 2014 $40 to $60 PMPY in 2015 $25 to $35 PMPY in 2016 Who Pays? FI: carrier pays, most likely built into rates SF: employer must calculate and pay own fee Carrier pays Applies to all insured plans and will be based on each insurer s share (among all U.S. insurers) FI: full amount built into rates for 1/1/2014 plus partial load in 2013 SF: client is liable but carrier will submit payment on behalf of client New Rule: Self administered/self funded plans exempt from 2015/16 reinsurance fee 43
Things to Watch HPID HPID Defined: Unique plan identifier for HIPAA standard transactions Applies to health plans including self-funded plans 2 Requirements: Plans must register to obtain an HPID Then obtain compliance certification ( deadline to obtain and file with HHS is 12/31/15) Compliance Dates: Register by November 5, 2014 for large plans Register by November 5, 2015 for small plans Transactional use to begin November 7, 2016 Small plan defined as less than $5 million in annual receipts 44
Things to Watch High Value ( Cadillac ) Plan Excise Tax Includes medical/rx, individual reimbursement accounts, EAP, and onsite medical clinics 2018 thresholds are $10,200 for single coverage and $27,500 for family coverage will be indexed annually thereafter based on CPI 40% excise tax on the coverage value that exceeds these thresholds Threshold adjustments permitted for pre-65 retirees, high-risk professions, significant age/gender factors, and multi-employer plans Most Likely Employer Actions Regarding Excise Tax 39% 4% 21% 36% Will do whatever is necessary to bring plan cost below threshold amounts Will attempt to bring cost below threshold amounts, but may not be possible Will take no special steps to reduce cost below threshold amounts Believe plan(s) are unlikely to ever trigger excise tax Source: Mercer Survey of Employer-Sponsored Health Plans 2011 45
Things to Watch Pending Regulations FI Medical Nondiscrimination Automatic Enrollment How might this apply? Highly compensated individuals are top 25% in organization Rules apply across all organizations included in a controlled group of companies based on IRC 414 rules Penalties for discriminatory plans - Current self-funded excess benefits provided to highly compensated individuals must be treated as taxable income - Fully-insured - $100 per day per individual discriminated against Applies to employers subject to the FLSA with more than 200 employees Must automatically enroll new full-time employees in one of employer s health plans Employers must provide adequate notice to employees Employees must be given the opportunity to opt out of coverage When does this mandate go into effect? DOL has delayed enforcement until plan years starting sometime after guidance is issued 46
Future of Health Reform Mid-Term Elections Exchanges Enrollment 2015 Rate/Benefit Shock Regulatory Uncertainty?? MARSH & McLENNAN AGENCY LLC 47
Final Thoughts Calculate FT Staff Run a POP Analysis Classify Employees Implement a Measurement & Tracking System Update Plan and Internal Documents 48
Q&A mcartonr@rjfagencies.com This Marsh & McLennan Agency LLC document is intended to inform our clients and employers on general information relating to employee benefit plans and related topics. They are based on general information at the time they are prepared. They should not be relied upon to provide either legal or tax advice. Before making a decision on whether or not to implement or participate in implementing any welfare, pension benefit, or other program, employers and others must consult with their benefits, tax and/or legal advisor for advice that is appropriate to their specific circumstances. This information cannot be used by any taxpayer to avoid tax penalties. 49