THE AFFORDABLE CARE ACT: 2014 AND BEYOND October 28, 2013 Howard Van Mersbergen, Vice President of Employee Benefits, Christian Schools International Julie Sessions, Principal, Mercer
Patient Protection and Affordable Care Act (PPACA) Agenda Individual Coverage Mandate Determination of Small vs. Large School New Taxes and Fees Required by PPACA - January 1, 2014 Marketplace Exchanges for Individuals and Employers Carrier Rating Methodology - September 1, 2014 Summary / Questions 1
Individual Coverage Mandate All Individuals must have health coverage or pay a penalty: 2014: Greater of $95 (single), $285 cap (family) or 1% of household income. 2016: Greater of $695 (single), $2,085 cap (Family) or 2.5% of household income. Penalty will be in the form of a tax to individuals. If your school offers healthcare coverage, you must offer the plan to: FTEs and their dependent children under age 26 (employers do not have to cover spouses or domestic partners). Dependents include biological, adopted, step and eligible foster children. No penalties for lack of dependent coverage in 2014, if you are working to add dependent coverage by 2015. 2
Determination of Small vs. Large Employer Small School 1-49 Full Time Equivalent Employees (FTEs) Large School 50 or more Full Time Equivalent Employees (FTEs) Full time means any employee who works 30 hours or more per week or 130 hours per month. To calculate the number of full-time equivalents: add (1) all of your FT employees who work 30 hours or more per week, plus (2) add-up the number of service hours by all parttime employees (i.e. those who work less than 30 hours a week) and divide by 120. Note: For part 2, do not count more than 120 hours for any one employee. Example: John Knox Christian School has 25 full-time employees (i.e. work 30+hours a week) and 100 part-time employees. step 1. step 2. 25 full-time employees 100 part-time employees work 6,000 hours collectively (15 hours/week) 6,000 divided by 120 = 50 full-time equivalents (FTE) step 3. Add (1) and (2) together: 25 FT + 50 FTEs = 75 TOTAL full-time equivalents The Law allows an employer to assess a look back period to determine the FTE count. This can range from 90 days to 12 months to determine both employer count and shared responsibility rules. For Schools and Educational Institutions: there are guidelines related to counting employee hours due to the summer employment break: Employment breaks of four weeks or longer must not be included in the measurement period. 3
New Taxes and Fees - January 1, 2014 Large Schools and Small Schools that offer health coverage Potential for enrollment growth in 2014, and thus, more fees. For example: current plan opt-outs may decide to join the Plan in response to the individual mandate. We will be calculating the new fees for you and then listing them separately on your monthly invoice starting January 1. Fee Small Group Large Group Annual Fee on Health Insurance Carriers Transitional Reinsurance Program Fee is indexed for 2015 & 2016. Fee is expected to sunset in 2016 Patient-Centered Outcomes Research Institute Fee (PCORI) Risk Adjustment Administration Fee.75%-1.5% of premium (HMO/POS) $5.25 per member, per month for all plans beginning Jan. 1, 2014 Year 1: $1 Per member per year Year 2: $2 Per member per year Year 3-2019: $2 Per member per year + medical inflation $ 1 Per member per year Not Applicable Projected PMPM Total Cost based on 2013 Projections (Not CSI School Specific) $15-17 PPO Products $ 8-10 HMO Products (Including HSAs) $14-16 PPO Products $ 8-10 HMO Products (including HSAs) 4
New Taxes and Fees continued. Large Schools and Small Schools that offer health coverage Responsibility for ACA Taxes & Fees The new taxes and fees are an employer responsibility, but they can be a part of the school s existing premium-sharing policy beginning January 1, 2014. In addition, you can change the employees pre-tax payroll contribution amounts January 1. See next bullet point for details. Section 125 Plan The premium-only portion of your Section 125 Plan allows you to change the payroll contribution amounts effective January 1 for the new ACA Taxes & Fees. However, you may not change the contribution amounts of the related Flexible Spending Account and Dependent Care Account due to the ACA Taxes and Fees (note: not all employers offer the FSA/DCA). Friendly reminder if you allow pre-tax premium deductions from payroll or have pre-tax HSA contributions deducted from payroll, by law, you must have a Section 125 Plan in place. 5
2014 Marketplace Exchanges for Individuals Public Marketplace/Exchanges for Individuals Features Bronze Silver Gold Platinum Catastrophic (age <30) Actuarial value 60% 70% 80% 90% HSA rules Covered services Essential & preventive benefits Essential & preventive benefits Essential & preventive benefits Essential & preventive benefits Essential & preventive benefits Essential benefits No dollar limits No dollar limits No dollar limits No dollar limits No dollar limits 2014 deductible maximums HSA rules HSA rules HSA rules HSA rules HSA rules 2013 cost sharing maximums - will be indexed to 2014 levels Up to $6,050 (I) $12,100(F) Up to $6,050 (I) $12,100(F) Up to $6,050 (I) $12,100(F) Up to $6,050 (I) $12,100(F) Up to $6,050 (I) $12,100(F) The Christian Schools International Insurance Plan options offer significantly more coverage than what is available for individuals on the Marketplace Exchange. Medicaid Expansion Not all states have agreed to expand Medicaid coverage. Michigan will be expanding Medicaid coverage. In these states, public insurance exchange subsidies may be available for certain people to buy coverage (with income at, or below 138% of FPL Federal Poverty Level): 138% of FPL is equal to - $16,332 per year/ Individual in 2014, and $33,474 per year/ Family in 2014. 1 Those ineligible for Medicaid or federal subsidies may still participate in the Exchange or obtain coverage through an employer. Again, small employers are not required to offer health coverage. 6
2014 Marketplace Exchange for Small Employers SHOP Marketplace Small Business Health Options Program (SHOP) What is SHOP: Employers with 50 or fewer full-time equivalent employees can use SHOP to offer coverage to their employees. For most employers of this size, this may be appealing as this platform allows employers to offer 2 perhaps 3 plan options side by side for their employees. (Offering multiple options is something that Christian Schools International offers today.) Small employers may qualify for the Small Business Health Care Tax Credit Must have (1) average annual wages below $50,000; (2) less than 25 FTEs; and (3) the employer contributes 50% or more toward the employee s self-only premium cost. For non-profits, the tax credit works as a rebate to the school from the federal government, and is worth up to 35% of the employer s premium costs in 2014. Maximum tax credit is available to employers with 10 or fewer full-time equivalent employees and average annual wages of less then $25,000. Sliding scale tax credit for 11-24 full-time equivalent employees. 2010-2013, up to a 25% rebate of a not-for-profit employer s premium contribution. It may be possible to go back retroactively to collect the rebate for years prior to 2013. Starting in 2014, the rebate goes up to 35% if small group employers buy coverage through one of the new small business health insurance. Employers with 25-49 FTEs are not eligible for small business health care tax credits on the Federal level. 7
January 1, 2014: Employer Mandate/Penalties Shared Responsibility - All shared responsibility penalties have been delayed until January 1, 2015. However, the requirement to offer affordable coverage to all eligible employees has not been delayed. Large Employers Large employers may face penalties if at least one FTE receives tax-subsidized benefits through a public health exchange. Large employers must offer minimum essential coverage to substantially all FTEs or face a penalty of $2,000 times the number of FTEs (not counting the first 30 FTEs). - Substantially all means coverage is offered to at least 95% of FT employees. In addition, large employers offering minimum essential coverage may still face penalties if coverage does not have a (1) value of at least 60% or (2) is not affordable. Affordability means that the employee s payroll contribution does not exceed 9.5% of the employee s household income (based on self-only payroll contribution). One safe harbor rule is: employee s W-2 wages. Penalty is $3,000 for each employee receiving tax-subsidized benefits through a public health exchange. Reminder for plans with Christian Schools International: if you ve selected the 50% or 60% of full-time employment eligibility criteria (basically 20 hours or 24 hours a week, respectively), you do not have to include those employees that work between 20-29.9 hours or 24-29.9 hours a week, respectively, in the affordability test under the Health Care Reform Rules. Small Employers If a small employer offers coverage, you must offer minimum essential coverage at a value of at least 60%. All Christian Schools International Plans provide coverage of more than 60%. (There are no federal penalties for small employers.) 8
Shared Responsibility Decision Tree 1. Do you have 50 or more full-time equivalent employees? Yes No You will not be subject to any Shared Responsibility penalty. 2. Do you offer minimum essential coverage to all full time employees (FTEs) (and their dependents)? Yes 3. Do all of your employees have household income that exceeds 400% of Federal Poverty Level No You will pay a penalty fee of up to $2,000 (indexed*) annually for every FTE if at least one FTE receives income-based premium assistance to purchase coverage through the exchange. Penalties do not apply to the first 30 FTE s. You will not be subject to any Shared Responsibility penalty. Yes No 4. Does the health plan offered to FTEs pay less than 60% of total benefit costs or is the required employee contribution for plan > 9.5% of household income? Yes No You will not be subject to any Shared Responsibility penalty. You will pay the lesser of up to $3,000 (indexed*) times the number of FTE s receiving income based assistance for exchange coverage; or up to $2,000 (indexed*) times the total number of fulltime employees; first 30 FTE s not counted. *Penalties will increase each year to reflect average national increase in health insurance premiums 9
Carrier Rating Methodology - September 1, 2014 Small Group Standard Family Tiers are no longer allowed: Add up rate of each family member to derive family rates. Rates are based on age, geographic location, and tobacco use (tobacco use is optional). Cannot charge for more than 3 children. Per member rating versus composite rating: An employer can choose to blend rates or charge specific amount to the employee (tobacco and age factors can be associated to specific employee) Age Factor (3:1 max) - Children (0-20) all the same Geographic Factor - age 21-63: 1 year increments - age 64+: one rate. Tobacco Factor Not allowed to rate based on: - Optional 50% increase. Industry, occupation, duration of - Required to pair with wellness for coverage, health, claims experience, small groups. gender. Large Group No change in rating methodology. 10
Looking ahead to 2018 the Excise Tax Large and Small Employers that offer health coverage What is the Excise Tax? 40% excise tax on high cost coverage, including medical, health FSA contributions, onsite medical clinics, and employer contributions to HSAs. Current interpretation does not include stand-alone insured dental and vision coverage or certain other coverage types. Initial cap set at $10,200/single and $27,500 family. Higher thresholds ($11,850/$30,950) for retirees and workers in high-risk professions. Higher threshold ($27,500) for single multiemployer plan coverage. Indexed to CPI (for 2019 only, CPI+1%). Aggregate cost determined using a methodology similar to that used for determining applicable COBRA premiums. Employers must determine aggregate cost. Insurers responsible for tax for insured coverage. Benefit administrators responsible for tax for self-insured coverage. Employers responsible for tax for HSA contributions. 11
Summary Large Schools Small Schools Coverage Mandate: No Eligibility Rules (30 hours per week): Yes, must comply Penalty for Not Offering Coverage ($2,000 times the number of FTEs, not counting the first 30 FTEs): Yes Employers that offer coverage but do not meet affordability test or 60% value plan (subject to a $3,000 penalty for each employee receiving a subsidy on the Marketplace Exchange): Yes Employer paid Subsidy for EE s eligible for Public Exchange: Yes Subject to Minimum Essential Coverage Requirements: Yes Coverage Mandate: No Eligibility Rules (30 hours per week): No, do not need to comply. Penalty for Not Offering Coverage: No Coverage for at least 60% Value: Yes, but no penalties for not doing so. (i.e. not subject to Affordability Test or Shared Responsibility Penalties). Employer paid subsidy for EE s eligible for Public Exchanges: No Subject to Minimum Essential Coverage Requirement: Yes (non-grandfathered fully insured plans in the small market must cover essential health benefits with limited deductibles initially $2,000/individual, $4,000/family) Plan Provisions beginning on or after January 1, 2014: All New & Non Grandfathered plans must limit Out of Pocket Maximum within HSAs ($6,250 individual/$12,500/family in 2013) Plan Provisions beginning on or after January 1, 2014: All New & Non Grandfathered plans must limit Out of Pocket Maximum within HSAs ($6,250 individual/$12,500/family in 2013) 12
Summary All Employers New Taxes and Fees effective January 1, 2014: Apply to all plans that offer health coverage, yet varies slightly between large and small employers. We will calculate these taxes/fees for you and include them as a separate line-item on your monthly invoice. Plan Reporting Requirements: W-2 Reporting Employers with 250 or more employees must report the cost of employer-sponsored health coverage on their employees W-2 forms. (For Christian Schools International Schools, this will not include Dental and Vision plans.) This requirement was effective 1/1/13 for the 2012 tax year. Employers with fewer than 250 employees are not subject to this requirement, but may be required in future years. Communication Requirements: Marketplace/Exchange Notice all employers needed to distribute the Notice to ALL employees (full-time and part-time) by October 1, 2013. Going forward, all new employees must receive the Notice within 14 days of hire. Summary of Benefits and Coverage (SBC) - must be provided to all covered employees at open enrollment beginning September 1, 2013 for Christian Schools International Plans. We will provide the SBC every year, close to the start of the plan year, and for newly eligible employees during the plan year. 13
Comments/Questions Thank you! 14
Christian Schools International understands that Mercer is not engaged in the practice of law and this report, which may include commenting on legal issues or regulations, does not constitute and is not a substitute for legal advice. Accordingly, Mercer recommends that Christian Schools International secures the advice of competent legal counsel with respect to any legal matters related to this report or otherwise. The information contained in this document and in any attachments is not intended by Mercer to be used, and it cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code or imposed by any legislative body on the taxpayer or plan sponsor. 15