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Watkins Meegan Health Care Reform Lunch and Learn - February 13, 2013


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  • 1. Health Care Reform  H lth C R fPresented by: Jody Buyalos, Partner, The Insurance Exchange Justin Reid, Senior Manager, Watkins Meegan February 13, 2013
  • 2. AGENDA• Future of the Health Care Reform Law• Reporting, Compliance and Fees• Exchanges and 2014 Coverage Requirements• Penalties – Employer and Employee• On the Lookout On the Lookout• How Will This Impact My Business in 2014• R Resources• Effective Strategies Going Forward 2
  • 4. Effect of the ElectionEffect of the ElectionElection results:Election results: – President Obama re‐elected – Senate: Democratic Party majority –HHouse: Republican Party majority R bli P t j itGovernor results: – 30 Republicans 30 Republicans – 19 Democrats – 1 IndependentImplementation of health care reform continues as scheduledState implementation of Exchanges varies (see above) p g ( ) Proprietary and Confidential           4
  • 5. What it Means for Health Care Reform What it Means for Health Care ReformParts of health care reform law could be on the bargaining table – Premium subsidies? – Expanded Medicaid eligibility? – Implementation schedules? p – Tax benefits? Health Care Reform continues to be fluid Health Care Reform continues to be fluid Proprietary and Confidential           5
  • 7. W 2 ReportingW‐2 Reporting • Employers must report aggregate cost of  Employers must report aggregate cost of group health plan coverage on each  employee’s Form W‐2 • Does not change the tax rules for health  coverage – coverage is still not taxable • Mandatory for 2012 tax year  • BUT compliance delayed indefinitely for  BUT compliance delayed indefinitely for small employers (filed fewer than 250 W‐2  Forms last year)  • Used to track costs for employee and family  coverage for the 2018 excise tax 7
  • 8. Coverage to ReportCoverage to ReportYES NO  OPTIONALMajor medical Health FSA salary reduction  Self‐funded benefits not  amounts subject to COBRA (Church plans)Health FSA contributions  HSA/Archer MSA  Separate dental/vision(other than salary  contributions (reported reductions) separately)EAP/on‐site medical EAP/ i di l Excepted benefits E db fi HRA contributions HRA ib iclinics/wellness programs that provide medical careHospital indemnity or  Military coverage or Indian Multiemployer plansspecified illness (pre‐tax or  tribal government plansemployer contributions only) Proprietary and Confidential           8
  • 9. Increased Medicare TaxIncreased Medicare TaxMedicare tax rate to increase for high‐earners g – 0.9 percent increase (from 1.45 percent to 2.35 percent) High‐earner threshold  g – Single: $200,000 – Married : $250,000Employer responsibilities – Withhold additional amounts from wages in excess of  $200,000 $200 000 – No requirement to match additional tax – No requirement to notify employees Proprietary and Confidential           9
  • 10. Increased Medicare Tax (Continued)Increased Medicare Tax (Continued)Medicare tax on investment income – the Unearned Income Medicare Contribution – New 3.8 percent increase on unearned income for tax  years beginning after December 31, 2012 – Imposed on lesser of net investment income or MAGI  in excess of $200,000 ($250,000 for MFJ; $125,000 for  MFS) • Net investment income includes interest, dividends,  annuities, royalties and rents, capital gains and gains on  home sales in excess of current exclusions home sales in excess of current exclusions Proprietary and Confidential           10
  • 11. Affect on Business Owners’ Share of Reportable Net IncomeR t bl N t I Type of Entity of Entity   .9% Medicare Tax 3.8% Unearned Medicare Tax  3.8% Unearned  (Participation  for High‐Earners Income Medicare  Level) Contribution Partnership (Active) Partnership (Passive) S Corporation (Active) S Corporation (Passive) Proprietary and Confidential           11
  • 12. Other Tax ChangesOther Tax ChangesFor tax years beginning after December 31, 2012 y g g , – Threshold to claim an itemized deduction for  unreimbursed medical expenses increases from 7.5%  p of AGI to 10% AGI – Individuals 65 and older are exempt from increased  threshold Proprietary and Confidential           12
  • 13. Health FSA LimitsHealth FSA LimitsPrior to 2013 – No limit on salary reductions – Many employers impose limit y p y pBeginning in 2013, limit is                                $2500/year – Limit is indexed for CPI for later yearsApplies to plan years beginning on or after 1/1/13 pp p y g g / / – This is a change from initial effective dateDoes not apply to dependent care FSAs                            oes not apply to dependent care FSAs Proprietary and Confidential           13
  • 14. New Health Plan Fees for Employer Sponsored PlansS d PlComparative Effectiveness Research Fees p – Fully Insured and self‐funded plans sponsors – PCOR/PCORI fees to fund research – 2012‐2018 plan years  – 2012: $1 per covered life per year; 2013: $2 per covered life per year; beyond 2013: based on health expenditures 2012: $1 per covered life per year; 2013: $2 per covered life per year; beyond 2013: based on health expendituresTransitional Reinsurance Program Fees – To help stabilize individual market premiums – Effective 2014‐2016 Effective 2014 2016 – Fully Insured and self‐funded plan sponsors – $63 per covered life per year ($5.25 per month)Health Insurance Tax  (HIT)Health Insurance Tax (HIT) – Effective in 2014 – ACA imposes a HIT on the fully insured market – Revenue projection; $8B – 2014, $11.3B – 2015 & 2016, $13.9B – 2017, $14.3B ‐ 2018 – HIT obligation divided amongst fully insured carries proportional on market share HIT obligation divided amongst fully insured carries proportional on market share Proprietary and Confidential           14
  • 15. Employer ReportingEmployer Reporting• Employers will have to report certain information  p y p about health coverage to the government and  individuals• Applies to: – “Applicable large employers”  – “Offering employers” – employers that provide  coverage if employee cost exceeds 8% of income• Applies to coverage offered after Jan. 1, 2014• First returns to be filed in 2015 st etu s to be ed 0 5 Proprietary and Confidential           15
  • 16. Information Employer is Required to Report p y q p• Employer identifying information p y y g• Whether employer offers health coverage to FT employees and dependents• Number of FT employees for each month N b f FT l f h th• Length of any waiting period• Monthly premium for lowest‐cost option in each enrollment category• Employer’s share of cost of benefits• Names and contact info of employees and months covered by employer’s  health plan Proprietary and Confidential           16
  • 18. Insurance PossibilitiesInsurance Possibilities Individual Employer Sponsored  l d Federal/State Exchange Penalty Plan Proprietary and Confidential           18
  • 19. Health Insurance ExchangesHealth Insurance ExchangesStates Have 3 Options: p 1. Establish State Exchange (Ex: MD, DC, CA) 2. Establish Partnership Exchange with HHS 3. Do nothing ‐ HHS will set up Federally‐facilitated  Exchange (Ex: VA, TX)Deadlines  dl – Intention and blueprint due: 12/14/12  – Determine whether will be operational: 1/1/13 Determine whether will be operational 1/1/13 – Open enrollment: 10/1/13 – Fully operational: 1/1/14 Fully operational: 1/1/14 Proprietary and Confidential           19
  • 20. Health Insurance ExchangesHealth Insurance Exchanges• Individuals and small employers can purchase  p y p coverage through an Exchange – Small employers = up to 100 employees until 2017 – Before 2016, states can define small employers as having  up to 50 employees• In 2017 states can allow employers of any size to In 2017, states can allow employers of any size to  purchase coverage through Exchange• Individuals can be eligible for tax credits (subsidized Individuals can be eligible for tax credits (subsidized  coverage) only if purchase coverage on public  Exchanges  Proprietary and Confidential           20
  • 21. Exchange Qualified Health PlansExchange Qualified Health PlansMust offer Essential Health Benefits package p g – Provide 10 essential benefits – Limit cost‐sharing of deductibles and out of pocket maximums – Provides 4 “metal” plans: Bronze, Silver, Gold or Platinum coverage  Provides 4  metal plans: Bronze Silver Gold or Platinum coverage or catastrophic planMetal levels – Bronze Plan: covers 60% of the actuarial value of covered benefits – Silver  Plan: covers 70% of the actuarial value of covered benefits – Gold Plan: covers 80% of the actuarial value of covered benefits – Platinum Plan: covers 90% of the actuarial value of covered benefitsThis allows consumers to more easily compare plans but now fewer optionsThis allows consumers to more easily compare plans but now fewer options Proprietary and Confidential           21
  • 22. Insurance ReformsInsurance ReformsInsurance premium rating restrictions  p g – Individual and small group only – Higher rates based on health status/gender/other factors  prohibited – Rates can be based only on age, geography, family size and  tobacco useGuaranteed issue and renewability – Individual and group market (small and large) – Issuers must accept every employer and individual that  applies for coverage and renew coverage at option of  policyholder Proprietary and Confidential           22
  • 23. Notice of ExchangeNotice of ExchangeAll Employers must notify new and current employees  p y y p yof Exchange information  – Effective March 1, 2013 (delayed until Summer/Fall 2013) – More guidance and model notice to be issuedNotice must include information about 2014 changes: – Existence of health benefit exchange and services  provided – Employee potential eligibility for subsidy under exchange Employee potential eligibility for subsidy under exchange – Risk of losing employer contribution if employee buys  coverage through an exchange Proprietary and Confidential           23
  • 25. Individual MandateIndividual Mandate• Jan. 1, 2014: Individuals must enroll in coverage  , g or pay a penalty• Penalty amount: Greater of $ amount or a % of  y $ income $25,000 $50,000 $100,000 – 2014 = $95 or 1% $250 $500 $1,000 – 2015 = $325 or 2% $500 $1,000 $2,000 $635 $1,250 $2,500 – 2016 = $695 or 2.5%• Employer Impact – Current waivers may join  your plan Proprietary and Confidential           25
  • 26. Will the Employer Pay a Penalty?Will the Employer Pay a Penalty? Employer‐Sponsored Plan: Employee Premium  Contribution as a Percent of Employee Income Federal Poverty Level (FPL) 0.0%‐9.5% 9.5% + 401% $45,961+ (Single) Not Eligible for Premium Subsidy $94,201 (Family of 4) 139‐400% $15,857‐$45,960 (Single) Not Eligible for  Eligible for Premium Subsidy $32,501‐$94,200 (Family of 4) Premium Subsidy 0‐138% Medicaid Eligible $0‐ $15,856  (Single) No Employer Penalties for Medicaid‐Enrolled Employees $0‐$32,500  (Family of 4)  Proprietary and Confidential           26
  • 27. Employer Shared Responsibility PenaltiesEmployer Shared Responsibility Penalties• Large employers subject to “Pay or Play” rule g p y j y y – Offer coverage of a certain Minimum Value or possibly pay a penalty• Applies to employers with 50 or more full‐time “equivalent” employees  in prior calendar year – FT employee: employed for an average of at least 30 hours of service per  week• Penalties apply if: – Employer does not provide coverage to all FT employees and any FT  employee gets subsidized coverage through Exchange OR employee gets subsidized coverage through Exchange OR – Employer does provide coverage and any FT employee still gets subsidized  coverage through exchange because either not affordable or does not meet  Minimum Value actuarial standard. Proprietary and Confidential           27
  • 28. Applicable Large EmployersApplicable Large EmployersEmployee Category Used to determine “large employer”  Employer subject penalty if a  status? ? premium credit received? i di i d?Full‐time Counted as one employee, based on a 30  Yes hour or more work weekPart‐time Prorated (calculated by taking the hours  No worked by part‐time employees in a month  divided by 120)Seasonal Not counted, for those working less than  Yes, for the month in which a  120 days in a year seasonal worker is full‐timeTemporary Agency Generally, counted as working for the  Yes, for those counted as  temporary agency (except for those  working for the temporary workers who are independent contractors) agency Proprietary and Confidential           28
  • 29. Employer Penalty AmountsEmployer Penalty Amounts• Employers that do not offer coverage to all full‐ p y g time employees: – $2,000 per full‐time employee – Excludes first 30 employees• Employers that offer coverage: Employers that offer coverage: – $3,000 for each employee that receives subsidized  coverage through an exchange g g g – Capped at $2,000 per full‐time employee (excluding  first 30 employees) Proprietary and Confidential           29
  • 30. Penalty PotentialPenalty PotentialNot a large Large employer: 50 or more full-time equivalent employeesemployer: Lessthan 50 full-th f lltime Does not offer coverage Offers coverageequivalentemployees Scenario A Scenario B Scenario C Scenario D No full-time 1or more full-time No full-time employees 1or more full-time employees employees l employees receive l i receive credits f i dit for receive credits f exchange i dit for h receive credits for credits for exchange coverage coverage exchange exchange coverage coverageNo penalty No penalty Number of full-time No penalty Lesser of: employees minus Number of full time employees full-time 30 multiplied by minus 30, multiplied by $2,000. $2,000 Number of full-time employees who receive credits for exchange coverage, multiplied by $3,000. (Penalty is $0 if employer has 30 or fewer full-time employees-because penalty is based on the lesser of the two calculations) 30
  • 32. 2014 Plan Eligibility Rules2014 Plan Eligibility Rules• No excessive waiting periods gp – Waiting periods limited to 90 days• Must offer health plan coverage to employees  working at least 30 hours per week working at least 30 hours per week• Oth B Other Benefits Plans (dental, vision, life, etc.) can  fit Pl (d t l i i lif t ) still maintain higher per week hour requirements Proprietary and Confidential           32
  • 33. Nondiscrimination Rules Coming for Fully‐Insured Plansf F ll I d Pl• Will apply to non‐grandfathered plans Will apply to non grandfathered plans • Discriminating in favor of highly‐compensated employees  ( (HCEs) will be prohibited ) p – Eligibility test  – Benefits test• HCEs – 5 highest paid officers  – More than 10% shareholder More than 10% shareholder  – Highest paid 25% of all employees• Effective date delayed for regulations Effective date delayed for regulations Proprietary and Confidential           33
  • 34. Automatic Enrollment RulesAutomatic Enrollment Rules• Will apply to large employers that offer health benefits Will apply to large employers that offer health benefits  – Applies to GF and non‐GF plans – Large employer = more than 200 employees• Must automatically enroll new employees and re‐enroll  current participants• Adequate notice and opt‐out option required• DOL:  – Regulations will not be ready to take effect by 2014 – Employers not required to comply until regulations issued and  pp applicable Proprietary and Confidential           34
  • 35. More CostsMore Costs• Jan. 1, 2014: Due to Individual Mandate, individuals must enroll in  , , coverage or pay a penalty and this plus Auto‐Enroll and other  provisions will potentially drive employees currently waiving coverage  to enroll in employer health plan ― Result: additional cost burden to employer• Employers currently offer one composite rate/payroll deduction to  Employers currently offer one composite rate/payroll deduction to employees but Exchanges will offer individuals “Age Banded” premiums ― Real danger here is that your young single healthy males leave  employer plan for the state Health Benefit Exchanges  ― Leaves employer with older less healthy population  ― Creates a death spiral towards higher & higher costs each renewal C eates a deat sp a to a ds g e & g e costs eac e e a Proprietary and Confidential           35
  • 36. New Challenges in 2014New Challenges in 2014• Exchanges vary by state To be competitive Exchanges vary by state.  To be competitive  Employer will now need to keep track of  Exchange plans in each state.  • Need to have an analysis done to see if your  employer sponsored plans meet the new   p y p p “Minimum Value” actuarial standard. Proprietary and Confidential           36
  • 37. Future Costs?Future Costs?• Employer penalty tax is low at $2,000 per ‐ could increase Employer penalty tax is low at $2,000 per  could increase  in future years to pay for cost of Health Care Reform • 2018 Excise Tax on High Cost Coverages (Cadillac Tax): 2018 Excise Tax on High Cost Coverages (Cadillac Tax):  ― 40% excise tax imposed on the value of health insurance  benefits exceeding a certain threshold:   $10,200 for individual coverage   $27,500 for family coverage ― Applies to both fully insured and self‐funded employer Applies to both fully insured and self‐funded employer  plans. ― Tax is more likely for rich plans in high cost areas of U.S.  Proprietary and Confidential           37
  • 38. Why is the Cadillac Tax an Issue?Why is the Cadillac Tax an Issue?2018 Cadillac Tax Cost Example: 2018 Cadillac Tax Cost Example:Assumes Health Plan Renewal of +7.5% each year Current  2013  2014  2015  2016  2017  2018  Cadillac  Monthly  Annual  Annual  Annual  Annual  Annual  Annual  Tax  Premium Cost Cost Cost Cost Cost Cost ThresholdSingle Premium $600 $7,200 $7,740 $8,321 $8,945 $9,615 $10,337 $10,200Family  yPremium $1,600 $19,200 $20,640 $22,188 $23,852 $25,641 $27,564 $27,500 Proprietary and Confidential           38
  • 40. Real World ExampleReal World ExampleCurrent Year: Assumptions: Monthly Single Coverage $                   460 Monthly Family Coverage $                1,425 Total Employees Total Employees                     150 Employees in Health Plan                        100 Employer provides 75% coverage for single employees Employer provides 60% coverage for family coverage Proprietary and Confidential           40
  • 41. Real World ExampleReal World ExampleCurrent Year:  EE Paid   ER Paid   EE Paid   ER Paid  Health  Health  Health  Health  EE Receiving  Insurance  Insurance  Insurance  Insurance  Health  lh Premiums  Premiums  Premiums  Premiums per  Salary  Headcount  Benefits per Month  per Month  per Year  Year  CEO $           225,000                           1                        1 $                570 $              855 $             6,840 $            10,260 CFO              175,000                           1                        1                    570                 855                6,840                10,260 Program Manager              12 000 125,000                       23                       8                   5700                8 855               6 8 0 6,840              10 260 10,260 Lead Developer              100,000                        32                      17                    570                 855                6,840                10,260 Analyst II                 70,000                        31                      18                    570                 855                6,840                10,260 Analyst                 45,000                        30                      28                    115                 345                1,380                  4,140 Staff Developer S ff D l                32 500 32,500                       32                     27                   115                345               1 380 1,380                 4 140 4,140                      150                    100 Proprietary and Confidential           41
  • 42. Real World ExampleReal World Example2014: Assumptions: Monthly Single Coverage $                   495 Monthly Family Coverage $                1,532 Total Employees p y                     150 Employees in Health Plan                        115 Employer provides 75% coverage for single employees Employer provides 60% coverage for family coverage Employer provides 60% coverage for family coverage Proprietary and Confidential           42
  • 43. Real World ExampleReal World Example2014:  EE Paid   ER Paid   EE Paid   ER Paid  Health  Health  Health  Health  Receiving  Insurance  Insurance  Insurance  Insurance  Health  Health Premiums  Premiums Premiums  Premiums Premiums  Premiums Premiums per  Premiums per Salary  Headcount  Benefits per Month  per Month  per Year  Year CEO $           230,625                           1                        1 $                613 $              919 $             7,353 $            11,030CFO              179,375                           1                        1                    613                 919                7,353                11,030Program ManagerP M              128 125 128,125                       23                     14                   613                919               7 353 7,353              11 030 11,030Lead Developer              102,500                        32                      23                    613                 919                7,353                11,030Analyst II                 71,750                        31                      19                    613                 919                7,353                11,030Analyst                 46,125                        30                      29                    124                 371                1,484                  4,451Staff DeveloperSt ff D l                33 313 33,313                       32                     28                   124                371               1 484 1,484                 4 451 4,451                      150                    115 Proprietary and Confidential           43
  • 44. Real World ExampleReal World ExampleTwo Year Comparison: p Increase/ 2013 2014 (Decrease) ( )Health Insurance Expense $           689,400 $           893,390 $           203,990Fringe Rate 26.20% 27.97% 1.77%Net Margin 7.50% 6.71% ‐0.79% Proprietary and Confidential           44
  • 45. Fiscal Year 2013 Fiscal Year 2014Revenue $    21,902,026 $    22,668,597Direct Labor         9,890,550       10,137,814Subcontractors            5,523,557            5,827,353Other Direct Costs              895,692              944,955Total Direct Costs         16,309,799         16,910,121Indirect ExpensesFringe Expense Health Insurance              689,400              893,390 Paid Time Off              768,450              787,661 Profit Sharing               513,328              526,161 FICA              718,659              736,625Total Fringe Expenses           2,689,836           2,943,836Overhead Expenses Overhead Labor              169,200              173,430 Depreciation              153,477              155,777 Rent              323,610              333,318 Utilities                  74,982                  78,731 Insurance                  33,667                  35,350Total Overhead Expenses               754,936               776,607General and Administrative Administrative Labor              206,800              211,970 Marketing                  47,500                  45,325 Rent                  81,496                  83,941 Utilities                  15,663                  16,446 Accounting                  55,798                  56,255 Legal                  97,546              102,423Total General and Administrative               504,803               516,360Other Expense                        ‐                        ‐Net IncomeNet Income $      1 642 652 $ 1,642,652 $      1 521 672 $ 1,521,672 45
  • 46. RESOURCES 46
  • 47. The Insurance Exchange ResourcesThe Insurance Exchange Resources• Legislative Briefs: – HCR: Form W‐2  Reporting Requirements – HCR: IRS Q&As on Form  W‐2 Reporting – HCR T HCR: Types of Coverage  fC Subject to Form W‐2  Reporting• HCR: W‐2 Reporting  Requirements (video) 47
  • 48. The Insurance Exchange ResourcesThe Insurance Exchange ResourcesPreventive Care for Women – HCR: Preventive Care Coverage Guidelines – HCR: Preventive Care Guidelines for Women – HCR: Compromise on Contraceptive Coverage for Religious Employers HCR: Compromise on Contraceptive Coverage for Religious Employers – Federal Courts Temporarily Block Contraceptive MandateMedicare Tax – Proposed Rules on the Additional Medicare Tax – Questions and Answers on Additional Medicare TaxHealth FSA LimitsHealth FSA Limits – HCR: Changes to Health Accounts – HCR: IRS Provides Guidance on $2500 Health FSA Limit Proprietary and Confidential           48
  • 49. The Insurance Exchange ResourcesThe Insurance Exchange ResourcesLegislative Briefs: g – Health Care Reform: Comparative Effectiveness  Research Fees – Standards for Reinsurance, Risk Corridors and Risk  AdjustmentMore to come… Proprietary and Confidential           49
  • 50. The Insurance Exchange ResourcesThe Insurance Exchange Resources― Health Care Reform Timeline― Temporary Guidance Issued on 90‐day Waiting Period Limit― Interim Final Rules on Patients Bill of Rights ‐ Lifetime and Annual  Limits― Proposed Rule on Essential Health Benefits, Actuarial Value and  Accreditation Standards Accreditation Standards― Interim Final Rules on Patients Bill of Rights ‐ Pre‐existing Condition  Exclusions― HCR: Proposed Rules on Workplace Wellness Programs― Insurance Market Nondiscrimination Reforms for 2014 Proprietary and Confidential           50
  • 51. The Insurance Exchange ResourcesThe Insurance Exchange Resources― HCR: Health Insurance Exchanges g― HCR: Potential Penalties for Employers Under the "Pay or Play" Rules― HCR Will the Emplo er Pa a Penalt ? (chart) HCR: Will the Employer Pay a Penalty? (chart)― HCR: IRS Guidance on Minimum Value and Reporting Requirements― IRS Issues Guidance on Employer Penalties ‐ Full‐time Status and Using  W‐2 Wages― Health Care Reform Pay or Play Calculator Proprietary and Confidential           51
  • 53. Contact UsContact Us8000 Towers Crescent Drive 9713 Key West Ave., Suite 401Tysons Corner, VA 22182  Rockville, MD www.tie‐ GovConInsurance.comJustin Reid, Senior ManagerJustin Reid Senior Manager Jody Buyalos, Partner Jody Buyalos Partner(703) 847‐4425  (301) 545‐ buyalos.j@tie‐