ACA: Implementation Rules & Strategies Joan Canning, MBA, HIA HR Advocate, LLC
THE Affordable Care Act (ACA) When it comes to spending we re #1: Of the Top 30 industrial countries the U.S.A. spends more on health care expenditures than anyone else. It s not even close. However we rank only 27 th when it comes to mortality (78.2 yrs). Healthcare is 17.4% of our GDP. When H. R. 3962 originally passed in 2009 it was 1990 pages, now it is closing in on 2500 pages and growing. The bill was passed by only 5 votes (220-215). Most individuals and organizations don t understand the new laws and how they will be affected. The rules and penalties involved in ACA have become complicated and costly. You need to work with a group specialist.
Key Components of ACA Individual Mandate (2014) Subsidies Penalties Insurance Mandates State Mandates Employer Mandates 3
Initial Observations About ACA Costs Will Increase - Direct Cost$ Premium Increases Taxes Penalties - Indirect Cost$ Administrative Costs - Unknown Cost$ Unrestrained Agency Action 4
Timeline 2012 2013 2014 2015-18 Initial MLR Reporting (for CY2011) and Rebate issuance in August Women's Preventive Services expanded (plans renewing on or after 8/1/2012) Summary of Benefits and Coverage (SBC) and 60-day advance notice of material modifications (plans renewing on or after 9/23/12) W-2 reporting of aggregate value of employer-sponsored coverage on 2012 W-2 Patient Centered Outcomes Research Institute (PCORI) Fee (plans renewing on or after 11/1/2011 through 2018) FSA contributions limited to $2,500 Medicare payroll tax rate increase for high income earners Notice to inform employees of Exchange provided by employer (DELAYED UNTIL LATE SUMMER 2013) Employer "Play or Pay" Mandate Individual Mandate to purchase insurance or pay a penalty Federal and State Insurance Exchanges, including Individual subsidies Guaranteed issue: Pre-existing conditions prohibited Essential Health Benefits (EHB) Coverage standardized for small group plans No Annual dollar limits on Essential Health Benefits (EHB) in any plan 90-day limit on Waiting Periods Employer annual reporting of employee coverage Annual Insurer industry fee for fully-insured plans through 2018 Reinsurer Fees through 2016 Wellness Incentives Deductible caps of $2k for individual and $4K for family for small group plans (EXCEPTIONS APPLY IF YOU CAN T MEET ACTUARIAL VALUE OF BRONZE LEVEL PLAN) Increased penalties on individual mandate begin Excise Tax on high cost coverage (Cadillac Tax) States have the option to open Exchanges to all employers by 2017 5
On the Horizon Delay of Exchange Notice Requirement Confirmation by end of summer? Updated IRS Form 720 (for PCORI fee) SBC guidance revisited and amplified Possible changes to FSA "use it or lose it" rule Additional guidance on wellness plans, contraceptive coverage, Health Insurance Tax, MHPAEA, non-discrimination rules 6
Individual Mandate Beginning in 2014, ACA requires individuals to maintain health insurance for themselves and their dependents, with some exceptions Most individuals will be required to maintain "minimum essential coverage", which includes employer coverage individual coverage grandfathered plans, and federal programs such as Medicare and Medicaid Those who do not maintain minimum essential coverage, and who are not exempt from the mandate, will be required to pay a tax penalty for noncompliance 7
Individual Mandate Exemptions Exceptions: Individuals not lawfully present in the United States Individuals who are incarcerated Individuals residing outside of the United States Individuals whose contribution for self-only coverage exceeds 8% of HHI Individuals whose HHI is less than the federal income tax filing threshold Individuals determined by HHS to have suffered a hardship Individuals in a health care sharing ministry Members of Indian tribes Bona fide residents of any possession of the United States No penalty imposed on those without coverage for less than three months Only one three-month period allowed in a year 8
Individual Mandate Annual Penalties: - 2014: $95 per adult and $47.50 per child, up to a family maximum of $285 or 1 percent of family income, whichever is greater - 2015, $325 per adult and $162.50 per child, up to a family maximum of $975 or 2 percent of family income, whichever is greater - 2016, $695 per adult and $347.50 per child, up to a family maximum of $2,085 or 2.5 percent of family income, whichever is greater - Penalty cannot exceed national average for bronze exchange plans; flat-dollar penalty for families is capped at 3x the peradult rate 9
IRS Collection of the Individual Mandate Penalty IRS can attempt to collect the penalty by reducing future tax refunds Individuals who fail to pay the penalty will not be subject to any criminal prosecution or penalty Government cannot file notice of lien or levy any property of a taxpayer who does not pay the penalty 10
Premium Tax Credits Premium tax credits are federal subsidies direct payments to insurance companies to subsidize coverage for lower-income individuals in the state-based Exchanges Potentially more than 50% of U.S. households could qualify (based on Bureau of Labor Statistics estimates) Depending on the income, age and family size, the subsidy can be substantial 11
Premium Tax Credits The subsidy helps lower-income people between 100% and 400% of Federal Poverty Level (FPL) purchase a silver level plan (70% plan) Only available through the Individual Exchanges (not SHOP) 12
Premium Tax Credits The premium tax credits are based on: The premium cost of the second-lowest-cost silver Exchange plan, and The household income level of the applicant Household Income Level (% above FPL) Maximum Premium as Percentage of Income Less than 133% 2.0% At least 133% but less than 150% 3.0% 4.0% At least 150% but less than 200% 4.0% 6.3% At least 200% but less than 250% 6.3% 8.05% At least 250% but less than 300% 8.05% 9.5% At least 300% but less than 400% 9.5% 13
Federal Poverty Guidelines 2013 FEDERAL POVERTY GUIDELINES Persons in Family 100% FPL 133% FPL 250% FPL 400% FPL 1 $11,490 $15,282 $28,725 $45,960 2 $15,510 $20,628 $38,775 $62,040 3 $19,530 $25,975 $48,825 $78,120 4 $23,550 $31,322 $58,875 $94,200 5 $27,570 $36,668 $68,925 $110,280 6 $31,590 $42,015 $78,975 $126,360 7 $35,610 $47,361 $89,025 $142,440 8 $39,630 $52,708 $99,075 $158,520 14
Purchasing Subsidized Exchange Coverage Example: Family of four purchasing coverage in an Individual Exchange: - Modified Adjusted Gross Income $58,875 - Federal Poverty Level 250% - Family Share of Premium 8.05% - Annual Cost of Second Lowest Silver Plan-$12,000 - Annual Premium Max $4,739 - Premium Assistance Tax Credit $7,261 $12,000 = Cost - 4,739 = Max Family Share $ 7,261 = Subsidy 15
Premium Tax Credits & Medicaid Expansion Medicaid Expansion Requirements: New Medicaid class of beneficiaries ACA required states to cover all individuals under age 65 with income below 133% of the poverty line "Essential benefits" must be provided to all Medicaid recipients Failure to comply = loss of all federal funds Court struck down as Unconstitutional (7-2) Impact on Employers: Increases pool of individuals eligible for federal subsidy in states not adopting expansion 16
Exchanges All states to establish an Exchange by January 1, 2014 - The American Health Benefit Exchange - Small Business Health Options Program (SHOP) Exchange for individuals and small businesses DELAYED UNTIL 2015 Types of Exchanges: - State Exchange - Partnership Exchange - Federally Facilitated Exchange 17
Exchanges "Essential Health Benefits" (EHB) to include: 1. Ambulatory patient services; 2. Emergency services; 3. Hospitalization; 4. Maternity and newborn care; 5. Mental health and substance use disorder services, including behavioral health treatment; 6. Prescription drugs; 7. Rehabilitative and habilitative services and devices; 8. Laboratory services; 9. Preventive and wellness services and chronic disease management; and 10.Pediatric services, including oral and vision care. 18
Exchanges Prior to 2016, small employers are 100 or less but states may limit to 50 employees or less Prior to 2017, only small employers (100 employees or fewer) can participate Starting in 2017 and thereafter, states may allow all employers 19
Exchanges Initial open enrollment period: October 1, 2013 through March 31, 2014. For benefit years in 2015 or later, the annual open enrollment period will be from October 15 to December 7 20
Exchanges The Metals Exchanges to Offer Four Levels of Coverage: - Bronze (60%) - Silver (70%) - Gold (80%) - Platinum (90%) And: a catastrophic plan for individuals under 30 Insurers may offer separate health plan products outside of an Exchange, but they are prohibited from offering rates for those health plan products that are lower than those offered within the Exchange 21
Employer Notification Regarding Exchanges Employers must provide existing employees and new employees on their hire date with information about the existence of state insurance Exchanges, including information on employee eligibility for an Exchange if coverage is unaffordable or does not provide minimum value, and the loss of employer contribution toward the coverage if employee purchases coverage through an Exchange - No later than 3/1/2013 for existing employees; beginning 3/1/2013 for new hires DELAYED UNTIL LATE SUMMER 2013 Notice must inform employees about how the Exchanges operate and the circumstances under which they may receive coverage Regulatory guidance pending; likely delayed 22
90 Day Enrollment Requirement Effective first day of plan year on or after January 1, 2014 Guidance Released August 31, 2012 is effective through 2014 90 days means 90 days within the first day they are eligible If employees can elect within 90 days but fail to elect within 90 days it is not a violation Employer may use a reasonable period to determine eligibility if (a) period is not designed to avoid the 90 day period, (b) individual becomes eligible within 90 days of being assessed eligible or, if earlier, within 13 months of start date (plus the days to the first day of the next calendar month if the employee's start date is the middle of the month) 23
90 Day Enrollment Requirement If clearly eligible, must be enrolled on or before 90 th day If not clearly eligible upon employment, employer may use a reasonable period to determine eligibility if: - Period of assessment not subterfuge; - Individual is eligible by earlier of: (a) 90 days of being determined eligible or (b) 13 th month from start date (plus days to 1 st of month if hire date was in middle of month) 24
SMALL GROUP Under 50 Considerations Employers who have 50 or fewer employees will have at least the following options in 2014. - Purchase a fully-insured plan from either: - The SHOP exchange, or - The Off-exchange market. - Stop offering coverage and let employees purchase individual coverage on the public exchange.
SMALL GROUP Under 50 Considerations Offer coverage Off-Exchange - Community Rates for (non-grandfathered) plans renewing on or after 1/1/2014. Census-driven rates only adjusted for age and tobacco use. - Age No more than 3:1 ratio. - Tobacco No more than 1:5 ratio. - Business as usual? - More plan design options? Offer coverage SHOP Exchange - Multiple carrier choices? - DELAYED UNTIL 2015
SMALL GROUP Under 50 Considerations Prepare for an audit - Review employee classifications. I.e. exempt vs. non-exempt. - Ensure employee handbooks are up-to-date. - Calculation of variable-hour employees - Summary Plan Description (SPD) - Non-discrimination testing - Summary of Benefits and Coverage (SBC) - Availability of Exchange Notification
What Is An "Applicable Large Employer" An employer is an ALE for a calendar year if: employed average of at least 50 FTE's during preceding calendar year - Full-time equivalent employees (e.g., part-time employees) are counted only for purposes of determining ALE status - Full-time equivalent employees are NOT counted for penalty purposes To determine ALE status, count the employer's full-time employees (using a 30 hour per week standard) plus the result of dividing the hours of service of employees who are not full-time employees by 120 for each month 28
What Is An "Applicable Large Employer" Example: During each calendar month of 2013, an employer has 20 full-time employees who average 35 hours per week, and 40 part-time employees who average 90 hours per month Each of the 20 employees who average 35 hours per week count as one full-time employee To determine full-time equivalent employees, take total hours of the part-time employees (up to 120 hours of service per employee) and divide by 120 - In the example, the employer has 30 full-time equivalent employees each month (40 90 120 = 30) Result: Employer has 50 FTEs during each month in 2013 and is an ALE for 2014 29
What Is An "Applicable Large Employer" Special Rule for Seasonal Employees: - Back out from calculation "seasonal employees" employed no more than 120 days during the preceding calendar year - For these purposes, four calendar months may be treated as the equivalent of 120 days (not required to be consecutive) - Until further guidance is issued, an employer may use a reasonable, good faith interpretation of existing Department of Labor guidance on the definition of seasonal employees 30
What Is An "Applicable Large Employer" Special Rules: - Transition Relief for Employers Close to 50 FTE Threshold - An employer may use any consecutive six-month period in 2013 to determine ALE status for 2014 - New Employers - A new employer is an ALE if it reasonably expects to employ an average of 50 or more FTEs during the current calendar year 31
Play or Pay Requirements Employers who do not provide coverage Employers who do not provide health coverage to at least 95% of all full-time employees (and their children under age 26) are subject to a penalty If at least one full-time employee (30+hrs/wk or 130+ hrs/mo) receives a subsidy to purchase Exchange coverage for himself or herself, the employer is subject to an annual penalty of $2,000 all full-time employees (reduced by 30) Penalty is assessed monthly ($167.67 per full-time employee per month) 32
Play or Pay Requirements Employers who provide "unaffordable" coverage Coverage is "affordable" if 1. The employee's cost for single coverage does not exceed 9.5% of household income (or Box 1 W-2 wages or another safe harbor), and 2. The plan provides "minimum value" (it has at least a 60% actuarial value) If 95% of FTEs offered coverage, 5% can trigger affordability penalty Annual penalty is $3,000 for each full-time employee who receives a subsidy for Exchange coverage (not to exceed the "no coverage" penalty) Penalty is assessed monthly ($250 per subsidy-receiving full-time employee per month) 33
Play or Pay Requirements Effective Date Effective for months starting after December 31, 2013 Non-calendar year plans in place on December 27, 2012: Play or Pay effective for plan years beginning on or after January 1, 2014 - Plan must have been offered to at least one third of employees (fulltime and part-time) at the most recent open enrollment (or any date between October 31 December 31, 2012) or - Cover at least 25% of employees, and - Employer must offer affordable coverage that provides minimum value to full-time employees starting with the 2014 plan year 34
Play or Pay Requirements Other Rules Affordability Safe Harbors W 2 Safe Harbor - Affordable if required contribution for self-only coverage (excluding COBRA) does not exceed 9.5% of W 2 wages (Box 1) - Determined after calendar year, on an employee-by-employee basis - Contribution must remain consistent (amount or %) during the year - But employer may require a contribution that is based on a consistent percentage of W 2 wages and subject to a dollar limit specified by the employer (e.g., contribution may be set 9.5% of wages up to $100) - Prorated for partial periods of coverage 35
Play or Pay Requirements Other Rules Rate of Pay Safe Harbor: - Affordable if required monthly contribution does not exceed 9.5% of an amount equal to 130 hours multiplied by the employee's hourly rate of pay - For salaried employees, monthly salary is used instead of 130 multiplied by the hourly rate of pay Federal Poverty Line Safe Harbor: - Affordable if required monthly contribution does not exceed 9.5% of a monthly amount determined as the Federal poverty line (FPL) for a single individual for the applicable calendar year, divided by 12 - FPL is the FPL for the state in which employee is employed 36
Play or Pay Requirements Annual Open Enrollment Requirement To avoid a potential penalty, an employer must provide employees with an effective opportunity to enroll (or decline coverage) at least once each plan year An employer cannot render an employee ineligible for a premium tax credit by requiring the employee to enroll in unaffordable coverage An employee s failure to make a timely premium payment may result in termination of coverage without the employer becoming liable for an affordability penalty 37
Play or Pay Who Is A Full-Time Employee? FTE (Full-Time Employee = average of 30 hours or more per week or 130 hours per month Full-Time Equivalent Employee Rules for identifying full-time employees rules for determining ALE status Penalty assessed monthly so identify monthly (or using a look-back measurement period) Complex counting and recordkeeping 38
Play or Pay Requirements Who Is A Full-Time Employee? Hours of Service Rules Hours of service include PAID: vacation, holiday, illness, incapacity, layoff, jury duty, military duty or leave of absence Hours worked outside US disregarded if not US source income If not full-time and actual hours not tracked, employer must: - Use actual hours of service and hours for which payment is made or due, or - Use equivalency method - 8 hours of service per day if employee works at least one hour, or - 40 hours of service per week if employee works at least 1 hour per week - Method must generally reflect actual hours worked 39
Play or Pay Who Is A Full-Time Employee? Hours of Service Rules Employers with: - Adjunct faculty members - Employees paid on commission - Transportation employees (e.g., airline pilots) - Other analogous employment positions May use a "reasonable method" for crediting hours of service - Adjunct faculty: a reasonable method would account for hours necessary to perform the employee's duties, such as time spent preparing for class - Traveling salesperson paid on commission: a reasonable method would account for travel time to/from appointments 40
Play or Pay Who Is A Full-Time Employee? Employees Rehired or Returning From a Leave of Absence Break of 26 consecutive weeks may result in treatment as a new employee Parity Rule: If break is between 4 and 26 weeks and exceeds length of pre-break employment, may treat returning employee as new employee Employee treated as a continuing employee returns to the measurement and stability period that would have applied had the employee not been on leave Continuing employees must be reinstated as soon as possible upon resumption of services 41
Play or Pay Who Is A Full-Time Employee? Employees Returning from FMLA or USERRA For periods of unpaid FMLA or USERRA, and for unpaid leave for jury duty ("special unpaid leave"), average hours per week exclude the special unpaid leave period employer must use average for paid hours as average for entire measurement period - Alternatively, employees may be credited with hours of service for special unpaid leave at same rate as for nonspecial unpaid leave 42
Play or Pay Who Is A Full-Time Employee? Teachers and Other Employees of Educational Institutions Traditional breaks in the academic year such as winter or spring breaks will often be periods of paid leave - During periods of paid leave, employees are required to be credited with hours of service - Rules for returning/rehired employees (see previous slide) generally result in an employee who works full-time during the active portions of the academic year being treated as a full-time employee 43
Play or Pay Who Is A Full-Time Employee? Optional Look-Back Measurement Method Optional method for determining full-time status - "Initial Measurement Period" for new employees - "Standard Measurement Period" for ongoing employees - Ongoing employees have worked for the employer for at least one standard measurement period 44
Play or Pay Who Is A Full-Time Employee? Ongoing Employees - "Standard Measurement Period" defined period of 3 to 12 consecutive calendar months - Employee determined full-time in standard measurement period is treated as full-time during the "Standard Stability Period" if he remains employed by employer regardless of hours worked during the standard stability period - Standard stability period = longer of six months following the standard measurement period or the number of months in the measurement period (taking into account any applicable "Administrative Period") 45
Play or Pay Who Is A Full-Time Employee? Employers can choose measurement, stability and administrative periods for ongoing employees but determination must be uniform and consistent for all employees in same category Four permissible categories: - Collectively bargained employees and non-collectively bargained employees; - Each group of collectively bargained employees covered by a separate collective bargaining agreement; - Salaried employees and hourly employees; and - Employees whose primary place of employment are in different States 46
Play or Pay Who Is A Full-Time Employee? Administrative Period for Ongoing Employees - Not more than 90 days between end of standard measurement period and start of standard stability period - May neither reduce nor lengthen the measurement period or the stability period - Must overlap with the prior stability period, so that ongoing full-time employees will continue to be offered coverage during the administrative period 10/15/12 10/14/13 Standard Measurement Period (SMP) Calendar Year 2014 Standard Stability Period Admin. Period 10/15/14 12/31/14 Full-Time Employees Based on SMP Remain Covered 47
Play or Pay Who Is A Full-Time Employee? New Full-Time Employees - No assessment if coverage offered within first 90 days - Coordinates with the 90 day waiting period requirement Potential Variable Hour Employees - Treat as Variable Hour Employee - Facts and circumstances at time of hire determination cannot be made whether employee is reasonably expected to work on average at least 30 hours per week - Example: retail worker hired full-time for the holiday season who is reasonably expected to continue working after the holiday season but is not reasonably expected to work full-time for the portion of the initial measurement period remaining after the holiday season 48
Play or Pay Who Is A Full-Time Employee? New Variable Hour and Seasonal Employees - If look-back measurement method is used for ongoing employees, can be used for new variable and seasonal employees - Must be consistent with rules for ongoing employees - Except: initial measurement and administrative periods combined may not extend beyond the end of the month beginning on or after the employee's one-year anniversary (totaling, at most, 13 months and a fraction of a month) - Employers that wish to use a longer administrative period may shorten measurement period to 11 months 49
Key PPACA Taxes & Fees Patient-Centered Outcomes Research Institute Fee (2012-2019) Effective for plan years ending after September 30, 2012 and before October 1, 2019 $2 fee per member per year - Paid by insurers if insured plan - Paid by plan sponsor if self-funded plan Fee reduced to $1 for plan years ending before October 1, 2013 For plan years beginning after September 30, 2014, fee increases based on national health expenditures Fee supposed to sunset after 2019 50
Key PPACA Taxes & Fees Medicare Taxes (2013) Increase to the 1.45% Medicare tax by 0.9% for wages in excess of $200,000 ($250,000 if filing jointly) - FICA: 6.2% Social Security tax on wages up to $113,700, plus Medicare tax of 1.45% on all wages New Medicare tax on unearned income - FICA taxes include a new 3.8% tax on the lesser of 1.net investment income, and 2.the excess of AGI over $200,000 ($250,000 if filing jointly) - Generally no employer withholding for the 3.8% tax 51
Key PPACA Taxes & Fees Health Insurance Tax (2014) Starting in 2014, PPACA imposes a health insurance tax (HIT) on the fully-insured market $8 billion in 2014, $11.3 billion in 2015-2016, $13.9 billion in 2017, and $14.3 billion in 2018 HIT obligation is divided among insurers according to a formula based on each insurer's net premiums. Businesses that drop coverage or switch from fully-insured to selfinsured increase HIT obligation to those remaining fully-insured A cascading tax: premiums will increase to pay HIT; New tax assessed on increased premiums 52
Key PPACA Taxes & Fees Temporary Reinsurance Fee (2014-2016 plan years) Intended to stabilize premiums in the individual markets Assessment on carriers and self-funded plans Fee estimated to be $5.25 PMPM ($63 PMPY) in 2014. Generally applies to all group health plans no exceptions for non-erisa plans (e.g., governmental or church plans) Applies on a per-member basis Does not apply to HIPAA-excepted benefits, post-65 retiree plans Additional employer recordkeeping and cost requirements 53
Key PPACA Taxes & Fees Cadillac Tax (2018) 40% nondeductible tax on excess over threshold - $10,200 Single, $27,500 Family - Multiemployer plans always use family threshold - Based on total cost of coverage (employer plus employee) Tax is paid by insurer or administrator, not by participant Increased by $1,650 Single, $3,450 Family: - For retirees age 55 or older and not eligible for Medicare, or - If majority of employees covered by the plan are engaged in a high-risk profession (listed in statute) Excludes dental and vision; includes HRAs, HSAs, and FSAs 54
ACA: Implementation Rules & Strategies Joan Canning, MBA, HIA 419-725-7223 joan@hradvicate.biz The information provided in this slide presentation is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the firm, our lawyers or our clients. No client-lawyer relationship between you and the firm is or may be created by your access to or use of this presentation or any information contained on them. Rather, the content is intended as a general overview of the subject matter covered. Proskauer Rose LLP (Proskauer) is not obligated to provide updates on the information presented herein. Those viewing this presentation are encouraged to seek direct counsel on legal questions. Proskauer Rose LLP. All Rights Reserved. 55.