How the Affordable Care Act Will Affect Employers

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How the Affordable Care Act Will Affect Employers

  1. 1. How the Affordable Care Act Will AffectEmployersSeth T. Perretta
  2. 2. Overview of Today’s Discussion•  Where we are now•  Near-term compliance issues anddecision points for employers•  2014 on the horizon – What itmeans for employers
  3. 3. Remainder of 2012
  4. 4. Small Business Tax Credits –ONGOING!•  Eligibility – no more than 25 “full-time equivalentemployees” with average wages under $50,000–  Note: NAPEO colloquy•  Employer must pay a uniform percentage (at least 50%)of employee-only premium cost for each employee•  Maximum credit–  2010-2013 –35% of employer-paid premiums–  2014 and later – Increases to 50% of employer-paid premiums•  Only for coverage purchased through an exchange•  Cannot claim for more than 2 consecutive years•  Tax credits are not refundable (i.e., need tax liability)4  
  5. 5. Small Business Tax Credits2010-2013•  2010-2013•  Maximum credit is 35%of employer-paidpremiums•  25% for non-profits•  Capped at State’s smallgroup averagebenchmark premium•  No double dip, i.e., losededuction for premiumsthat get credit•  2014 and Later•  50% credit•  35% for non-profits•  Credit only for coveragepurchased through anExchange•  Benchmark isExchange’s averagesmall group premium•  Credit only available for2 consecutive years5  
  6. 6. MLR Rebates•  Sub-regulatory rulemaking ongoing, much remains unclear–  Tax allocation–  Treatment of intra-company and third party reinsurance•  First round of rebates due out VERY soon•  ERISA implications–  DOL indicates rebate may be plan assets, depending on governing plandocuments•  Are there opportunities to modify small and large group contracts and plandocuments to make clear that some or all of the rebate is not a plan asset?–  Likely to raise thorny employer relations issues – especially given currentnotice requirements–  Potential fiduciary and/or PT liability for the manner in which they calculatetheir MLR rebates?•  State and federal audits likely•  Penalties?
  7. 7. Summary of Benefits and Coverage•  Technical content and form issues–  How to describe the plan coverage terms in the SBC format•  Especially with medical savings account plans that may not be excepted(such as stand-alone HRAs)•  Inconsistency between instructions and sample form•  Limited space, e.g., for names of plan and plan sponsor•  Can deviate from requirements–  How to address carve-outs such as mental health, Rx–  Questions arising regarding reliability of SBC calculator outputs•  Notice requirements–  J&S liability on issuers and employers under general rules•  Asymmetry/incomplete information for issuers•  Sub-regulatory notice safe harbor for issuers–  Expanded e-delivery rule for group coverage where the SBC isdelivered “in connection with” online enrollment•  What if online enrollment is merely optional?
  8. 8. PCORI Fee•  Per capita fee applies to health insurers and sponsors of self-insured group health plans (IRC sections 4375 and 4376)–  Generally excepts following insurance: HIPAA-excepted plans,certain expatriate plans, stop-loss or indemnity reinsurance–  Generally excepts following self-insurance: HIPAA-exceptedcoverage, EAPs, disease management and wellness if no“significant” medical benefits•  Assessed for plan years ending after 9/30/12; not assessed forplan years ending after 9/30/19•  Responsibility for payment–  If a group health plan is insured, the health insurer is responsiblefor calculating and paying the fee.–  If the plan is self-insured, the plan sponsor is responsible.•  Double counting exception–  Only for self-funded plans, can aggregate plans that share same plan year–  What about insurance?•  Planning opportunities?
  9. 9. Form W-2 Reporting•  Effective date: optional for 2011, mandatory for 2012–  Transitional rule for small employers•  Employers filing fewer than 250 Forms W-2 for the preceding calendar yearare not subject to the reporting requirement•  Does not apply across the employer’s controlled group–  Exception for mid-year requests for Forms W-2•  Requires Form W-2 reporting of “aggregate cost” of all“applicable employer-sponsored coverage”–  Generally use COBRA rates to determine “aggregate cost” and COBRAdefinition of “group health plan”–  Applies to coverage paid with pre-tax and post-tax dollars–  Applies to nonspouse/nondependent coverage•  Applies only to those employees otherwise due a Form W-2
  10. 10. Informational Nature of ReportingRequirement•  The guidance makes clear the new reportingrequirement to employees “is for theirinformation only . . . and does not cause [suchcoverage] to become taxable”The  stated  purpose  of  the  repor0ng  is,  “to  provide    useful  and  comparable  consumer  informa0on  to  employees  on  the  cost  of  their  health  care  coverage”  
  11. 11. Informational Nature of ReportingRequirement (Cont’d)•  When reporting, use “code DD” in Box 12of the Form W-2Insert  “DD”  Insert  “aggregate  cost”  for  all  subject  plans  
  12. 12. What Plans Are Subject to Reporting?•  Applies generally to all “applicableemployer-sponsored coverage”IN       Group  health  plans,  including:    •     Major  medical  •     “Mini-­‐med”  •     On-­‐site  medical  clinics  •     Medicare  supplemental  •     Medicare  Advantage  •  Employer  flex  credits  into  an  IRC  §  125  health  flexible  spending  arrangement  (HFSA)       Likely  “in”  (at  least  a  por0on  thereof):  •  EAPs  *  •  Wellness  programs  *  *  Consider  whether  “incidental”  medical  or  bundled  with  major  medical  OUT           “Non-­‐integrated”  dental  and  vision       Long-­‐term  care       Amounts  salary  reduced  into  HFSAs       Health  Savings  Accounts  (HSAs)       Health  Reimbursement  Arrangements  (HRAs)       Accident,  disability  and  AD&D       Workers’  compensa0on  and  similar  coverage       Automobile  medical  payment       Government-­‐provided  military  coverage       Employer  contribu0ons  to  mul0employer  plans       If  HIPAA-­‐excepted  and  paid  on  aer-­‐tax  basis:  •     Hospital  or  fixed  indemnity  insurance  •     Specified  disease  or  illness  insurance    Coverage  provided  by  governments  primarily  for  military  and  their  families  
  13. 13. What Plans Are Subject to Reporting? (Cont’d)•  Special rule for “split” programs–  Where medical benefits are “incidental” to non-medicalbenefits, no reporting required•  But, what is “incidental”? More than “de minimis”?–  Where non-medical benefits are “incidental” to medicalbenefits, the non-medical portion may be reported–  Implications beyond the Form W-2 reportingrequirement?–  Example: LTD with medical benefit riderIncidental?Medical  component  15%  LTD  Component  85%  
  14. 14. What Plans Are Subject toReporting? (Cont’d)•  Considerations for EAPs, wellness and on-site medical:–  Coverage is only required to be reported to the extent it isapplicable employer-sponsored coverage, i.e., a group healthplan–  Note: The Notice provides little meaningful assistance in determining what isapplicable employer-sponsored coverage–  If “split” program and some component thereof provides grouphealth plan coverage, is it “incidental” and can it bedisregarded?–  If not incidental, is separate reporting required?–  If a separate premium is not charged to COBRA beneficiaries for coverageunder EAPs, wellness programs, or on-site medical clinics, then not subject tonew reporting requirement–  If a separate premium is charged, then must separately report–  Note: The Notice does not address where COBRA coverage is not provided forEAPs, wellness programs, or on-site medical clinics; negative implication isthat they are subject to COBRA
  15. 15. 2013
  16. 16. Form W-2 Reporting•  Don’t forget to report subject employer-provided health care in 2012 Forms W-2 issuedin January 2013–  Unless small employer
  17. 17. PCORI Fee•  Don’t forget to pay PCORI Fee (due by July 1stof 2013) with respect to certain self-fundedplans.
  18. 18. Health FSA Contribution Limit•  ACA Imposes a $2,500 limit on employee salaryreduction contributions to a health flexiblespending arrangement (“health FSA”)–  Note: The limit does not apply to the following:•  Employer “flex” credits, i.e., employer profitsharing or matching contributions to employees’health FSAs•  Contributions to dependent care FSAs•  The IRS recently clarified that the limit applieson a plan year (versus taxable year) basis–  Thus, applies to plan years beginning on or afterJanuary 1, 2013–  Resolves potentially thorny issues for employers withnon-calendar year plans.
  19. 19. Employer Notice RegardingExchanges•  Effective March 1, 2013•  Employers are required to provide to all newemployees at time of hire (and currentemployees by no later than March 1, 2013) awritten notice:–  About the existence of the state exchanges post-2013;–  That the employee may be eligible for federal premium assistanceand cost-sharing reductions if the plan’s share of the cost of thebenefits is less than 60%; and–  That if the employee chooses coverage through a state exchange,the employee may lose the employer’s contribution to coverage, allor part of which might be excludable from the employee’s income
  20. 20. More Restrictive Rules Regarding AnnualLimits on Essential Health Benefits•  Effective for plan years beginning on orafter 9/23/10, the ACA imposesrestrictions on the use of annual dollarlimits on benefits that constitute essentialhealth benefits–  For plan year beginning on or after 9/23/10 -- $750,000–  For plan year beginning on or after 9/23/11 -- $1.25 million–  For plan year beginning on or after 9/23/12 -- $2 million•  THUS, annual dollar limit on essential healthbenefits for upcoming year will increase to $2million
  21. 21. More Restrictive Rules RegardingAnnual Limits on Essential HealthBenefits•  Effective for plan years beginning on or after9/23/10, the ACA imposes restrictions on theuse of annual dollar limits on benefits thatconstitute essential health benefits–  For plan year beginning on or after 9/23/10 -- $750,000–  For plan year beginning on or after 9/23/11 -- $1.25 million–  For plan year beginning on or after 9/23/12 -- $2 million•  THUS, annual dollar limit on essential health benefits forupcoming year will increase to $2 million–  Notes:•  Other quantitative limits remain permissible•  Limits do not apply to non-essential health benefits
  22. 22. 2014
  23. 23. 23  $$  COSTS  $$  INSURANCE  POOL  
  24. 24. Imposition of Additional Insurance Reforms•  No Pre-existing condition exclusions now applies to allindividuals (and not just minor-age individuals)•  Complete prohibition on use of annual and lifetime dollar limitson essential health benefits–  Other quantitative limits remain permissible–  Limits do not apply to non-essential health benefits•  Imposition of new cost-sharing limitations–  Maximum out-of-pocket limits–  Maximum deductible limits ($2,000 for self/$4,000 for family with annual indexing)–  Questions remain regarding how they apply to large group and self-funded plans•  New nondiscrimination rules for insured group health plans–  Originally effective for 2011; but currently delayed–  Likely effective post-2013–  Nature of rules unclear – Statute requires them to be modeled on existing rules for self-funded plans•  Likely will affect differential premium subsidies and eligibility restrictions
  25. 25. Imposition of Additional Insurance Reforms•  No Pre-existing condition exclusions now applies to allindividuals (and not just minor-age individuals)•  Complete prohibition on use of annual and lifetime dollar limitson essential health benefits–  Other quantitative limits remain permissible–  Limits do not apply to non-essential health benefits•  Imposition of new cost-sharing limitations–  Maximum out-of-pocket limits–  Maximum deductible limits ($2,000 for self/$4,000 for family with annual indexing)–  Questions remain regarding how they apply to large group and self-funded plans•  New nondiscrimination rules for insured group health plans–  Originally effective for 2011; but currently delayed–  Likely effective post-2013–  Nature of rules unclear – Statute requires them to be modeled on existing rules for self-funded plans•  Likely will affect differential premium subsidies and eligibility restrictions
  26. 26. •  Individual and Employer Mandates–  Individuals are required to obtain qualifying coverage or paya penalty–  Employers with 50+ full-time employees (30+ hours/wk)(“FTE”) are required to provide qualifying coverage or paypenalty; if coverage is unaffordable could be liable for otherpenalty–  Employers with 200+ FTEs are required to auto-enroll theiremployees in coverage if they offer coverage–  NUMEROUS notice obligations on employers•  Exchanges and Subsidies–  Requires states to establish clearinghouses for purchase ofqualifying coverage–  Provides significant premium and cost-sharing subsidies forindividuals up to 400% of federal poverty
  27. 27. •  Effective in 2014, U.S. citizens and legal residentsmust have minimum essential coverage, otherwisemust pay penalty–  Very limited exceptions to this rule–  The penalty, which is subject to annual indexing after 2016,is generally equal to the greater of (i) $695 per individual, upto a maximum of $2,085 per family, or (ii) 2.5% of householdincome–  Penalty is subject to initial phase-in regarding (i) and (ii)above – only $95 and 1% in 2014–  Are penalty amounts sufficientto compel healthy uninsureds togo purchase coverage?Many think not
  28. 28. •  The Act provides for significant premium subsidiesfor lower-paid individuals for whom their employer-provided coverage is unaffordable–  Unaffordable = an employee with modified adjusted grossincome (i.e., adjusted gross income (“AGI”) with a fewmodifications) (“MAGI”) at or below 400% of the federalpoverty level and who is required to contribute more than9.5% of his MAGI to the cost of coverage–  Subsidy amount is determined based on an individual’sMAGI (i.e., it increases as MAGI falls below 400% of thefederal poverty level, until MAGI reaches 100% of thepoverty level)–  Individuals who seek to use the premium subsidy can onlyuse it with respect to coverage purchased from a stateexchange28
  29. 29. •  Premium Subsidy Modeling*–  In 2014, a premium credit for a family of four at 100% ofpoverty could be as much as $25,176 (based on fact that afamily of four at 100% of poverty is only responsible for paying2% of their modified adjusted gross income towards the cost ofcoverage). Thus, they would only be required to pay $509towards coverage costing $25,685. The remaining $25,176premium cost would be paid by the government in the form ofa premium subsidy to the family. For a family of four at 400%of poverty the premium credit could be as much as $16,291.*  Assuming  2011  family  PPO  coverage  costs  $17,691,  health  care  costs  increase  at  tradiOonal  8.9%  and  federal  poverty  level    increases  at  historic  2.9%  
  30. 30. 1.  Must provide qualifying coverage to full-timeemployees–  An employer with 50+ FTEs must provide qualifying“minimum essential coverage”•  If self-insured, may be able to avoid certain benefits andstill qualify as “minimum essential coverage”•  Remember: FTE = > 30 hours per week–  Failure to comply with these rules generally results in apenalty equal to $2,000 per FTE who enrolls in exchangecoverage (question re: eligibility/enrollment)•  First 30 FTEs are disregarded•  Mandate and penalty appear to apply across controlledgroup30
  31. 31. 2.  Coverage must be affordable and provide “minimum value”–  Requirements•  Affordable = Must cost less than 9.5% of an FTE’s MAGI•  Minimum value = ?–  Otherwise, must pay $3,000 penalty for each FTE for whomthe coverage is unaffordable that is eligible for a premiumsubsidy (or $750 per all FTE, if less)–  Considerations:•  Technically, only needs to be affordable for subsidy-eligible individuals; althoughnondiscrimination rules likely require that the coverage be made affordable for all FTEs•  Appears to be based on coverage for FTE and his/her dependents•  Employers with lower-wage workers are likely to have greater difficulty satisfying thisrule•  Can increase employer premium contributions, but that is costly•  If plan is self-insured, may be able to skinny down coverage or increase copays anddeductibles, but these would need to apply to all employees
  32. 32. 4.  The Act amends the Fair Labor Standards Act torequire employers with 200+ FTEs to auto-enrollemployees if offer coverage, unless FTEs opts-out–  Effective date appears to be as established byregulations to be published by the Secretary of Labor–  Likely will apply for 2014, when exchanges are up andrunning, but possible could see this sooner–  Multiple tax and employee relations issuesare likely to arise32
  33. 33. Decision Point #3Should I “play”. . .33  .  .  .  or  just  “pay”  
  34. 34. •  Fact specific determination based on wage and hourcharacteristics of employer’s workforce and nature of coverage–  Higher wages = less likely the coverage offered will be unaffordable–  An employer with a large part-time workforce could avoid thepenalties to a large extent versus employer with FTEs–  If self-insured versus insured coverage, may have more flexibility tomake coverage more affordable (possibly through reduced coverageor increased cost-sharing)•  Also, will need to wait and see what happens with theexchanges and whether they have adequate pooling of risk–  Concern is that state exchanges will become loaded with bad riskthrough anti-selection–  Therefore, if send employees to exchange, might need to increasewages to make employees “whole” for increased health costs (alsoissue of loss of cafeteria plan access as discussed on next slide)34
  35. 35. •  To the extent an employer ceases providing coverage, itappears employees will lose the ability to pre-tax premiumsthrough an employer’s cafeteria plan–  This has the effect of increasing the cost of coverage foremployees–  Would seem that employers might need to provide additionalwages to make employees “whole”•  Issues of non-plan incentives and workplace management–  To what extent can employers provide incentives to employeesto forego employer-provided coverage and get exchange-basedcoverage? Unclear, but wise to be cautious here–  To what extent will we see employers moving to more contingentand part-time workforces, leased employees, etc?
  36. 36. 2018
  37. 37. High-Cost “Cadillac” Plan Excise Tax•  A new 40% excise tax on value ofemployer-provided coverage exceedingcertain dollar thresholds (with increasedthresholds available to select groups)–  Generally applies to all health coverage provided and/or sponsoredby an employer regardless of whether paid by employer, throughpre-tax salary reduction by employee, or by employee on after-taxbasis–  If value exceeds thresholds, then must be reported to appropriateparties–  Responsible parties (i.e., plan administrators and/or insurers) mustthen pay a 40% excise tax on their share of excess–  The tax is NOT deductible for federal income tax purposes37
  38. 38. Please send any questions toinfo@gnapartners.comIRS CIRCULAR 230 NOTICE: Any tax advice contained in this documentwas not intended or written to be used, and cannot be used by the recipientor any other person, for the purpose of avoiding any Internal Revenue Codepenalties that may be imposed on such person. Recipients of this documentshould seek advice based on their particular circumstances from anindependent tax advisor.Thank You

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