Monitoring the ACA s Vital Signs The Affordable Care Act A Progress Report
Today s Discussion Affordable Care Act Some Foundational Knowledge Affordable Care Act Compliance Requirements Plan Design Reporting Fees/Taxes Health Coverage Mandate and Penalties 2
What the ACA Is Supposed To Do 3 Policy Objectives of the ACA Cover the uninsured Bend the cost curve downward Not increase the Federal deficit 3
18% Uninsured 6% Other Private 3% Other Public Health Care Coverage Nonelderly U.S. Population Pre-2014 18% Medicaid 55% Employer Source: Kaiser Family Foundation 4
How Does the ACA Cover the 18% Who Are Uninsured and Under 65? Federally Regulated Insurance Exchanges With Subsidized Health Insurance Coverage Expanded Medicaid Covering Americans Earning Up to 138% FPL Employer Mandate to Offer Coverage To all Full Time Employees (2015) 5
Covering the Nonelderly Uninsured Public Exchange Enrollment Public Exchange Enrollment in Private Health Insurance Projected vs. Actual (in millions) Between 1.4 and 1.9 Million Exchange enrollees were previously insured Source: The Wall Street Journal 3.3 Million Projected 2.2 Million Enrolled 2013 7 Million Projected 2014 7.5 Million Enrolled? Source: Department of Health and Human Services 6
Public Exchange Enrollees Are Skewing Older and Female Age 55 64 30% Age 45 54 23% Age 35 44 16% Age 25 34 16% Age 18 24 10% Age 0 17 6% 53% over age 45 Enrollees eligible for subsidies: 83% 56% Federal/ 44% State exchange enrollees: Bronze: 18% Silver: 63% Gold: 13% Platinum: 6% Catastrophic: 1% 69% over age 35 54% female Source: Department of Health and Human Services 7
Covering the Uninsured Medicaid enrollment in 2014 48 Million Americans covered under Medicaid in 2013 Additional 3.9 Million Americans enrolled in Medicaid for 2014 via Exchanges More Than Half were in states that did not expand Medicaid 8
Bending the Cost Curve? Slower Growth, Not Necessarily Due to ACA Total U.S. health-care spending in 2012 grew 3.7% to $2.8 trillion Spending on hospital care and home health services rose 5% Drug costs grew 0.4% in 2012 vs. 2.5% in 2011, as more drugs came offpatent National health care spending fell to 17.2% of GDP in 2012 from 17.3% in 2011 Trillions $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 2007 2008 2009 2010 2011 2012 Source: Centers for Medicare and Medicaid Services 9
Affordable Care Act Your Compliance Timeline**** 2011 Plan Year 2011 2012 2013 2014 2018 Small Business Health Over-the-Counter Employer Distribution Notice to Inform Individual Mandate to Excise Tax on Insurance Tax Credit (effective in 2010) Medicines Not Reimbursable Under of Summary of Benefits and Employees of Coverage Options in Purchase Insurance or Pay Penalty High-Cost Coverage Lifetime dollar limits on Health FSA, HRA, or Coverage* Exchange State Insurance Essential Health Benefits from HSA Absent a Comparative Limit on Health Care Exchanges (EHB) prohibited* Prescription, Except Effectiveness Fee FSA Contributions to Employer Responsibility Preexisting Condition Insulin Employer Quality of $2,500 (Indexed) to Provide Affordable Exclusions Prohibited for HSA Non-Medical Care Report** Elimination of Minimum Essential Health Individuals under 19* Expense Tax Increase (DELAYED) Deduction for Coverage*** (DELAYED Overly restrictive annual Medical Loss Ratio Expenses Allocable to ONE YEAR) dollar limits on EHB rebates (insured plans Retiree Drug Subsidy Preexisting Conditions prohibited* only)* Medicare Tax Increase Exclusions Prohibited* Extension of Adult Child Employer Reporting of on High Income Annual Dollar Limits on Coverage to Age 26* Health Coverage on Earners EHB Prohibited* Prohibition on Rescissions* Form W-2 (due January Addition of Women s Limit of 90-Day Waiting No Cost Sharing for 31, 2013) Preventive Health Period for Coverage* Preventive Health Insurer Rate Review Requirements to No Employer Reporting of Services** Effective Appeals Process** Patient protections** Nondiscrimination and Disclosure Cost Sharing for Preventive Health Services ** Health Insurance Information to Government /Participants (DELAYED ONE YEAR) requirements for insured Increased Cap on Rewards *Denotes group/insurance market reforms applicable to all group health plans. plans** (DELAYED) **Denotes group/insurance market reforms not applicable to grandfathered health for Wellness Program** Expanded MEWA Oversight plans. OOP Maximum Limits for *** This requirement applies to full-time employees (e.g., 30 hours per week) and Automatic Enrollment will require coverage that is affordable and satisfies a certain actuarial value to All Group Health Plans ** (DELAYED) avoid the penalty. Guidance forthcoming. Transitional Reinsurance **** Where effective date determined by plan year, assumes plan year is calendar Contributions year. Coverage of Clinical Trials** 10
ACA Compliance Your Top Ten List for 2014 and Beyond 11
1 Employer Mandate and Penalties Begin in 2015 Doomsday Penalty Employer does not offer Minimum Essential Coverage ( MEC ) to at least 95% [70% in 2015] of all FT Faculty and Staff and FT Faculty and Staff s eligible non-spouse dependents, and At least one FT Faculty or Staff enrolls in Exchange and receives Federal subsidy $2,000 per year for each FT Faculty and Staff (minus first 30 [80 in 2015] FT Faculty and Staffs) prorated by applicable large employer member Or Bull s Eye Penalty Employer offers MEC to FT Faculty and Staff and FT Faculty and Staff s eligible non-spouse dependents but coverage is either Unaffordable or Not minimum actuarial value $3,000 per year per each FT Faculty and Staff who enrolls in an Exchange and receives a Federal subsidy 12
2 The Employer Mandate & Eligibility for Exchange Subsidies Individual is not eligible for subsidized coverage if offered affordable health care coverage of minimum value from an employer What happens if an employed individual is offered affordable employee-only coverage, but family coverage is unaffordable? Employer must offer dependent coverage (not spousal coverage) to employee to avoid penalty, but coverage does not have to be affordable Individual enrolled in employersponsored MEC not eligible for a subsidy Regardless of whether coverage is affordable or minimum value Employee and family will not be eligible for subsidy in the exchange Determine Full-Time Employee (FTE) Status Establish length of time for measurement, administrative, and stability periods Determine whether any faculty or staff members (and child dependents) who are not offered health care coverage are FTEs under the ACA, including Variable hour /seasonal faculty and staff members Adjunct faculty For now, universities can make good faith determination on adjunct faculty, but a safe harbor has been created which recognizes o For class time, 1 ¼ hours credited in addition to each hour spent in class o For non-class time, 1 hour credited for each hour of required non-class time Students: work/study hours not counted 13
3 Final Regulations on Reporting Rules Code Section 6055 requires reporting to IRS by plan sponsors and health insurers about health care coverage offered to individuals and requires statements to individuals Code Section 6056 requires employers to file a return with the IRS about MEC/affordability/minimum value provided to FT Faculty and Staff and provide a written statement to FT Faculty and Staff When to File with IRS? February 28, 2016 for 2015 coverage year (or March 31, if filed electronically) When to Provide to Individuals? Initially due no later than January 31, 2016 Filing by applicable large employer member Combined 6055 and 6056 for self-insured plans Third party administrator may assist General method (default; a lot of data) v. alternative method (9.5% of single FPL affordability safe harbor) 14
4 Transitional Reinsurance Fee Designed to Stabilize Exchanges Reinsurance fund stabilizes insurers in exchanges during their first three years in the event of losses due to adverse selection Calculate average covered members for the 1 st three quarters of 2104 using most favorable method Fees are due in two installments Fees are required only for major medical coverage 2014 per capita payment ($63) due in two installments 2015 per capita payment ($44) due in two installments 15
5 Cost-sharing Limits Start in 2014 Health plans must limit annual costsharing to same cost-sharing limits as HDHP/HSA plans in 2014 Transition rule for 2014 for multiple service providers For 2015, medical and Rx carve-out may use separate OOP limits, as long as combined OOP limit applicable to all EHBs does not exceed maximum OOP limit Non-grandfathered benefit packages $6,350 (individual) and $12,700 (family) OOP limits apply only to payments for essential health benefits ( EHBs ) Payments for non-network providers and non-covered services do not count 16
6 What Is And Isn t Minimum Essential Coverage? Minimum Essential Coverage does not include excepted benefits FSA is an excepted benefit only if employee has other health care coverage available FSA cannot exceed greater of (1) 2 x salary reduction amount or (2) $500 plus salary reduction amount Must be offered through a Section 125 cafeteria plan Excepted benefits don t have to comply with ACA group market rules but won t satisfy mandates Limited scope dental and vision benefits (separate election if self-insured or separate policy of insurance if insured) Disability coverage, AD&D coverage, liability insurance, Workers Comp EAPs that do not provide significant benefits in the nature of medical care or treatment new test 17
7 HRAs and the ACA HRAs must be integrated with another ACA-compliant group health plan in order to comply with ACA group market reforms Previous guidance outlined minimum value and nonminimum value options for an HRA to be considered integrated Stand-alone HRAs and employer payment plans violate ACA rules prohibiting annual dollar limits and requiring 100% preventive care coverage Stand-alone retiree-only HRAs are not subject to the ACA group market reforms HRA can only be available to employees enrolled in other group health plan coverage Employer does not have to sponsor the other coverage Participant must be able to permanently opt out and waive HRA coverage Participant must have the option of permanently forfeiting the HRA upon termination of employment 18
8 Implementing U.S. v. Windsor Windsor, IRS confirmed that a same-sex spouse is a spouse for federal tax purposes, even if the married couple is domiciled in a state that does not recognize the validity of same-sex marriages A participant who is lawfully married to a same-sex spouse Can add spouse to the plan mid-year under the cafeteria plan mid-year change in status rules Can pay for health care coverage on a pre-tax basis under a cafeteria plan Can reimburse spousal medical expenses from an FSA Is subject to HSA and DCSA limits for a married couple 19
9 FSA Carryover Option Employers can allow FSA participants to carry over up to $500 of unused FSA funds for use in subsequent plan years Does not count toward $2,500 health FSA maximum amount Employers cannot utilize both the grace period rule and the $500 carryover rule Consider impact on HSAs Employers who want to adopt the $500 carryover rule must amend their plan documents on or before the last day of the plan year from which the amounts may be carried over For 2013, amendment can be made by last day of plan year that begins in 2014 20
10 Excise Tax on High Cost Employer Health Care Coverage Effective in 2018, 40% excise tax is imposed on excess employer health care benefits The excess benefit is coverage over certain indexed thresholds Cost of coverage determined under rules similar to COBRA Self-Only Coverage: $10,200 $11,850 for qualified retirees and high risk professions Other than Self-Only Coverage: $27,500 $30,950 for qualified retirees and high risk professions Indexed at CPI-U (plus 1% in 2019 only) Coverage subject to tax includes medical, health FSA or HRA, and employer (or employee salary reduction) HSA contributions 21
Employers Need to Comply with ACA and Reduce Costs Your Health Care Compliance Strategy What do you have to do? When? What are your options? Your Health Care Strategy What is your long-term plan to manage your health care costs? 22
Steve Clausen Vice President, Health & Benefits 952.807.0806 steve.clausen@aonhewit.com Leah Larson Vice President, Health & Benefits 952.807.0830 leah.larson@aonhewit.com 23
Appendix 24
The ACA Penalties Definitions Who is an applicable large employer? Employer that employed an average of at least 50 full-time employees on business days during the preceding calendar year That includes full-time equivalent employees (FTEs), which are statutorily determined based on the hours of service of employees who are not full-time employees Who is an employee? ACA does not define employee IRS will define employee based on IRS s common law test Employment relationship exists if employee is subject to will and control of employer not only as to what shall be done but how it shall be done Not necessary that employer actually direct or control manner in which services are performed If employer has the right to do so, employment relationship exists Who is a full-time employee? Employee works 30 hours or more per week, measured monthly 130 hours of service in a calendar month is treated as monthly equivalent of 30 hours of service per week 25
What is unaffordable coverage? The ACA Penalties Definitions University plan is unaffordable if the FT faculty or staff member s required contribution exceeds 9.5% of taxpayer s household income for the taxable year Safe harbor methods for 9.5% calculation W-2 wages Rate of pay Federal Poverty Level Affordability is based on cost of self-only coverage, even if faculty or staff member elects family coverage What is minimum actuarial value? Plan must pay at least 60% of covered expenses Different methods to calculate MAV Calculator approach Design-based checklist Actuarial certification 26
The ACA Determining Full-Time Employees Universities need to track hours monthly or use a safe harbor which entails use of: Measurement period Period of time over which university tracks faculty and staff member s hours of service Cannot be less than three months or more than twelve months in duration Initial measurement period for new faculty and staff members will be based on each individual s start date Standard measurement period for ongoing faculty and staff members will be uniform period of time set by university Administrative period optional (up to 90 days in duration) University looks back at faculty or staff member s hours of service in measurement period Did faculty or staff member work an average of 30 hours per week during measurement period? If yes, then faculty or staff member is considered Full-Time (FT) If no, then faculty or staff member is not considered FT and the university has to keep tracking hours of service in next measurement period Stability period Period of time university must offer coverage to FT faculty and staff to avoid ACA penalties Stability period must at least equal measurement period, but not less than six months If not considered FT in measurement period, stability period cannot exceed measurement period 27
The ACA Determining Full-Time Employees Safe harbor method allows universities to determine Full-Time (FT) status of Ongoing faculty and staff New faculty and staff Ongoing faculty and staff Universities will be permitted to use measurement and stability periods of up to 12 months to determine FT status of ongoing faculty and staff New faculty and staff For faculty and staff members reasonably expected to work full-time, university can exclude faculty and staff from health care coverage for first three months of employment without incurring penalty under the ACA For new variable hour/seasonal faculty and staff, universities will use an initial measurement period/stability period to determine FT status All faculty and staff University will not be subject to any ACA penalty if health care coverage offered to FT faculty and staff is Minimum value and Affordable University can use the faculty or staff member s Form W-2 wages (Box 1) to determine affordability 28
The ACA Determining Full-Time Employees Universities may vary Measurement Periods and Stability Periods for following categories of faculty and staff Union and Non-Union Salaried and Non-Salaried Faculty and staff of different entities Faculty and staff located in different states University is not required to offer coverage to any particular class or individual faculty or staff member, including part-time faculty or staff, but may be liable for penalty However, an otherwise eligible faculty or staff member (or dependent) cannot be required to wait more than 90 days before coverage becomes effective University may condition eligibility on a faculty or staff member regularly working a specified number of hours per period (or working full time) The university may take a reasonable period of time to determine whether the faculty or staff member meets the plan s eligibility condition Break in service <26 weeks requires continued recognition of faculty or staff member s service for measurement and stability periods, unless university elects rule of parity approach for break >4 weeks 29
The ACA Determining Full-Time Employees Employment Break Period for Educational Organizations When calculating a faculty or staff member s hours of service during a measurement period that includes a break in employment > 4 weeks during which the faculty or staff member is not credited with an hour of service, the educational organization must Determine average hours of service during the measurement period excluding the employment break period and use that average as the average for the employment break period, or Apply the average hours of service credited during the period not including the break in employment to the period that includes the break in employment Educational organizations are not required to credit an employee in any calendar year with more than 501 hours of service for any employment break period These rules apply only if the faculty or staff member resumes services after the employment break period They are not applicable to a faculty or staff member who has been treated as terminated and rehired 30
The ACA Determining Full-Time Employees Safe Harbor for Ongoing Faculty and Staff Example: 12 month standard measurement period, 2½ month administrative period, 12 month stability period If full-time during standard measurement period, considered full-time and eligible for coverage during entire stability period (even if stability period overlaps with next administrative period) Administrative Period 10/15 12/31 Stability Period 1/1 12/31 Based on status in preceding standard measurement period, faculty or staff member retains FT or PT status during stability period for purposes of eligibility and calculating penalty. Standard Measurement Period 10/15 10/14 Administrative Period 10/15 12/31 Stability Period 1/1 12/31 Standard Measurement Period 10/15 10/14 Administrative Period 10/15 12/31 31
The ACA Determining Full-Time Employees Safe Harbor for New Faculty or Staff Variable Hour Working 30+ Hours/Week Example: 12 month initial measurement period, administrative period from end of initial measurement period through end of 1 st calendar month beginning on of after end of initial measurement period, 12 month stability period Faculty or staff member starts 5/10/14, works 30+ hours/week during initial measurement period and university offers coverage for initial stability period. No penalty through 6/30/16 Employer not subject to assessable payment for period 5/10/14 12/31/16 with respect to employee Initial Measurement Period 5/10/14-5/9/15 Administrative Period 5/10/15 6/30/15 Stability Period 7/1/15-6/30/16 Standard Measurement Period 10/15/14 10/14/15 Administrative Period 10/15/15 12/31/15 Stability Period 1/1/16 12/31/16 University must test faculty or staff member for full-time status again, based on 1 st standard measurement period after start date 32
The ACA Determining Full-Time Employees Safe Harbor for New Faculty or Staff Variable Hour Working Less Than 30 Hours/Week Example: Faculty or staff member starts 5/10/14 and works on average 28 hours/week for initial measurement period. University does not offer coverage in 2015. University not subject to penalty for 5/10/14 6/30/16 with respect to faculty or staff member Initial Measurement Period 5/10/14-5/9/15 Administrative Period 5/10/15 6/30/15 Stability Period 7/1/15-6/30/16 Standard Measurement Period 10/15/14 10/14/15 Administrative Period 10/15/15 12/31/15 Stability Period 1/1/16 12/31/16 University must test faculty or staff member for full-time status again, based on 1 st standard measurement period after start date Example: University tests faculty or staff member again and determines faculty or staff member worked on average 30+ hours/week during standard measurement period so offers coverage for 2016. University is not subject to penalty for 2016 because coverage has been offered. 33