The Impact of Health Care Reform on Large Businesses


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In early July, the Department of Treasury announced it is delaying a key mandate of the Affordable Care Act: what's known as the 'Pay or Play' mandate. While pushing pause on this mandate gives large employers another year to prepare, we strongly advise businesses not to wait to start making strategic decisions. For more information, contact Fraser Trebilcock Senior Health Care and Business Attorney Mike James at or 517.377.0823. You can also find more information at

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The Impact of Health Care Reform on Large Businesses

  1. 1. THE IMPACT OF HEALTH CARE REFORM ON LARGE EMPLOYERS Michael P. James, JD, MBA, CSSGB Phone: (517) 377-0823 (313) 237-7300 Email: © 2013 Fraser Trebilcock Davis & Dunlap, P.C.
  2. 2. The Patient Protection & Affordable Care Act (ACA)  Became law in March 2010.  Supreme Court upholds constitutionality of ACA June 2012.  ACA creates:  Individual Health Insurance Mandate; and  Employer Responsibility Requirements.
  3. 3. ACA Individual Health Insurance Mandate  The individual health insurance mandate requires nearly all Americans to purchase and maintain health insurance.  Qualified coverage evidenced through tax returns.
  4. 4. Health Insurance Marketplaces / Exchanges  Health Insurance Marketplaces / Exchanges.  Open enrollment: October 2013  Plans go into effect: January 2014  Michigan will have a federally-facilitated health insurance marketplace.
  5. 5. ACA Employer Responsibility Under 50 FTEs  Employers do not have to offer insurance.  However, if health insurance offered, must meet EHBs and metals. Over 50 FTEs  Employers must offer insurance.  Must be offered to 95% of full-time employees.
  6. 6. ACA Employer Responsibility Pay or Play: Mandate  1) Applies to employers with 50+ FTEs.  2) Insurance must cover at least 60% of actuarial value.  3) Employer must offer affordable coverage.  Single employee premium contribution not to exceed 9.5% of employee’s household income.  4) Employer will be subject to penalties if any of its full-time employees receives a tax credit on the individual marketplace.  5) Reporting health insurance requirements.  6) Penalties and reporting requirements delayed until 1/1/15.
  7. 7. ACA Employer Responsibility Pay or Play: FTEs  FTEs are calculated under the Pay or Play Mandate as follows:  Full-time employees averaging at least 130 hours/mo. +  Total monthly part-time hours / 120.  Add up the 12 monthly calculations and divide by 12; then  Round down to the nearest whole number.
  8. 8. ACA Employer Responsibility Pay or Play: Value Requirement  Insurance must cover at least 60% of actuarial value.  The percentage of total average costs for covered benefits that a plan will cover.  Large Group products do not need to hit metals levels of exchange, just minimum actuarial value of 60% to avoid penalties.
  9. 9. ACA Employer Responsibility Pay or Play: Affordability Requirement  Employer must offer affordable coverage.  Single employee premium contribution not to exceed 9.5% of employee’s household income.  Safe Harbors  W-2 Income:  Box 1 income on W-2.  Does not include 401(k), 403(b), 125 cafeteria plan.  Rate of Pay:  Hourly: 130 hours x hourly rate of pay.  Salary: Monthly Salary.  Contributions to 401(k), 403(b), 125 cafeteria plan are not excluded from rate of pay calculation.
  10. 10. ACA Employer Responsibility Pay or Play: Penalties - Two Options  Large employer does not provide coverage:  Penalty = $2,000 x (#full-time employees - 30)  Large employer offers unaffordable or low value coverage:  Excise Tax = the lesser of:  No coverage penalty; or  $3,000 x (full-time employees receiving tax credits.
  11. 11. ACA Employer Responsibility Pay or Play: Example Employer has 220 employees. Employer offers unaffordable health insurance to employees. As a result, 40 full-time employees seek insurance in the individual marketplace and receive a tax credit. What is the penalty? Penalty is the lesser of:  (220 - 30) x $2,000 = $380,000  40 x $3,000 = $120,000  Penalty is $120,000
  12. 12. ACA Employer Responsibility Pay or Play: Reporting Requirement  Every Company that provides minimal essential coverage to an individual during a calendar year is required to make a return to the IRS regarding individual health coverage.  Must also provide a written statement to the covered individual.
  13. 13. Essential Health Benefits Required Coverage 1) Ambulatory Patient Services 2) Emergency Services 3) Hospitalization 4) Maternity and Newborn Care 5) Mental Health & Substance Use Disorder Services; Behavioral Health Treatment 6) Prescription Drugs 7) Rehabilitative and Habilitative Services and Devices 8) Laboratory Services 9) Preventative Wellness Services and Chronic Disease Management 10) Pediatric Services, Including Oral and Vision Care
  14. 14. ACA Employer Responsibility Pay or Play Reporting & Penalties: Delayed  Will not be penalized in 2014 for not providing coverage and/or reporting.  New guidance on reporting requirements expected out soon.  Allow some employers to consider new options.  What will effect be of individual and SHOP marketplaces?  Were you ready for reporting requirements?  Do you have a compliance plan?
  15. 15. 2012-13 Effective Mandates  Cost of Employer-Sponsored Health Coverage on W-2  For W-2s issued in January 2013; Code DD in Box 12.  Does not apply to contributions to salary reduction contributions.  Restricted Annual Benefit Limits  The annual limit rule increases the minimum annual dollar limit on the value of benefits for any participant or beneficiary with respect to the scope of essential health benefits from $1.25 million to $2 million for 2013.  Employer Annual Reporting Requirements Regarding Quality of Care  Group health plans must annually submit, to the HHS and enrollees under a plan, a report during each open enrollment period regarding wellness and prevention programs.  Reporting requirement regulations still pending.  Extension of Non-Discrimination Rules  No eligibility rules or levels of coverage that favor high-wage employees.  New under the ACA for fully-insured group health plans, except for 125 cafeteria plans.  Has been delayed; still need to keep in mind when making design choices.
  16. 16. 2012-13 Effective Mandates  Varying compliance dates for disclosure – generally went into effect September 23, 2012.  Group health plans must provide a summary of benefits and coverage that:  In color or grayscale;  Presented in a uniform format;  Uses terminology understandable by average plan enrollee;  Does not exceed four double-sided pages in length; and  Does not include print smaller than 12-point font.  Applies to self-funded and fully-insured group health plans. Uniform Summary of Benefits and Coverage
  17. 17. 2012-13 Effective Mandates  Two additional requirements for second round of SBCs:  Whether the plan or coverage provides minimum essential coverage (MEC).  Whether the plan or coverage meets the minimum value (MV) requirements.  Not less than 60% of costs (actuarial value).  Need to make sure that you SBC is updated. Uniform Summary of Benefits and Coverage
  18. 18. 2012-13 Effective Mandates  Patient-Centered Outcomes Research Institute  The first fee is $1 per covered life for plan years ending on or after October 1, 2012 and before October 1, 2013.  Includes those on COBRA (or similar continuation coverage under other federal or state law).  Increases to $2 for the next plan year (10/1/13 to 10/1/14).  Additional increases will incur until fee ceases for years ending or after October 1, 2019.  First PCORI fee payment due July 31, 2013! PCORI FEE Payments
  19. 19. 2012-13 Effective Mandates  Methodologies for calculating “covered lives” for fee:  Actual Count:  Total number of lives covered for each day, divided by number of days in plan yr.  Snapshot Method:  Calculate the covered lives on a quarterly basis.  Form 5500 Method:  Can only be used if filing before July 31st deadline.  HRAs and Health FSAs:  HRAs and health FSAs that are not excepted from reporting only must count the covered participant and not the spouses and dependents. PCORI FEE Payments
  20. 20. 2013 Effective Mandates  Flexible Spending Account Limit to $2,500  The flexible spending account limit on salary deferral will be $2,500, adjusted in future years for changes in the cost of living.  Applies to plan years effective on or after January 1, 2013.  Elimination of Deduction for Expenses Allocable to Medicare Part D Subsidy  The employer’s deduction for the amount of any Medicare Part D retiree subsidy will be eliminated.
  21. 21. 2013 Effective Mandates  An employer is required to provide notice of the availability of the Exchange, informing employees that:  1) the existence of the Marketplace;  2) that employees may be eligible for a subsidy under the Marketplace if the employer’s share of the aggregate cost of benefits is less than 60%; and  3) that if the employee purchases a policy through the Marketplace, he or she will lose the contribution to any health benefits offered by the employer.  Notice must be provided to each employee at the time of hiring.  For existing employees, the notice must be give no later than October 1, 2013. Health Insurance Marketplace Notice
  22. 22. 2014 & Beyond  Prohibition on Annual Benefit Limits  Beginning in 2014, annual limits on the dollar value of benefits for any participant or beneficiary will no longer be allowed.  However, group health plans may still place annual or lifetime limits on specific covered benefits that are not essential health benefits.  Automatic Enrollment for Large Employers Offering Coverage  An employer with more than 200 full-time employees that offers employees enrollment in one or more health benefits plans must automatically enroll new, full-time employees in one of its plans and to continue the enrollment of current employees in a health benefits plan offered through the employer.  Subject to waiting period authorized by law.  Requires adequate notice and the opportunity to opt out of coverage.  Effective date is unclear; Department of Labor says regulations by 2014.
  23. 23. 2014 & Beyond  Prohibition on Excessive Waiting Periods  Group health plans and a health insurance issuer offering group or individual health insurance coverage are prohibited from applying any waiting period that exceeds 90 days.  Waiting Period = the period that must pass before coverage begins for an employee or dependent who is otherwise eligible to enroll under the terms of a group health plan.  Check your plan!  Many are changing waiting period.
  24. 24. 2014 & Beyond  Two Types of Employee / Wellness Programs Allowed Post 2014  1) Health Contingent Wellness Programs  Activity Only – must perform or complete an activity related to a health factor.  Example: 10k steps per day.  Alternative must be provided.  Outcomes Based – must attain or maintain a specific health outcome.  Example: Maintain a body-mass index <30.  Alternative must be provided if member cannot achieve outcome (walking if BMI > 30).  Reward cannot exceed 30% of the cost of coverage; rewards for tobacco allowed to add an additional 20%.  2) Participatory Wellness Programs  Available to all employees regardless of health status.  Example: awards to employees who attend health-related seminars.  No alternative required.  No limit on potential reward employee can receive.
  25. 25. 2014 & Beyond  Coverage for Clinical Trials  Group health plans are prohibited from:  1) denying the individual participation in a clinical trial;  2) denying (or limiting or imposing additional conditions on) the coverage of routine patient costs for items and services in connection with participation in the trial (there are some exceptions); and  3) discriminating against the individual on the basis of the individual’s participation in such trial.
  26. 26. 2014 & Beyond  Excise Tax on Cadillac Plans  Effective date 2018.  A 40% nondeductible excise tax will be imposed on high-cost health coverage.  If the coverage is insured, the health insurance issuer is responsible for paying the tax.  If the coverage is HSA or Archer MSA contributions, the employer is responsible for paying the tax.  For over coverage, the plan administrator is responsible for paying the tax.  There are substantial penalties for miscalculating the tax payment:  100% of the amount due to miscalculation, plus interest.
  27. 27. Grandfathered Health Plans Grandfathered Health Plans  Group health plan in existence prior to ACA.  Protected from certain ACA mandates.  Very difficult for a company to maintain a grandfathered health plan.  Must provide notice to enrollees.  Must keep records to substantiate status.  Minimal changes allowed:  Add new beneficiary; change terms to comply with law; adopt consumer protects not required by law; modest adjustments to benefits or cost sharing; raise premiums; add new members; and renew.
  28. 28. What do Businesses Do? Provide Health Insurance Send Employees to Exchange
  29. 29. What do Businesses Do? Develop a Compliance Plan
  30. 30. Fraser Trebilcock Davis & Dunlap, P.C. 124 W. Allegan Street, Suite 1000 Lansing, Michigan 48933 Phone: (517) 482-5800 Fax: (517) 482-0887 Fraser Trebilcock Davis & Dunlap, P.C. One Woodward Avenue, Suite 1550 Detroit, Michigan 48226 Phone: (313) 237-7300 Fax: (313) 961-1651 Michael P. James, JD, MBA, CSSGB Phone: (517) 377-0823 (313) 237-7300 Email: © 2013 Fraser Trebilcock Davis & Dunlap, P.C.