Eye On Washington: Health Care Reform

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Since the inception of the Patient Protection and Affordable Care Act (ACA), the Department of Health and Human Services, the Department of Labor and the Internal Revenue Service have issued …

Since the inception of the Patient Protection and Affordable Care Act (ACA), the Department of Health and Human Services, the Department of Labor and the Internal Revenue Service have issued regulations affecting businesses’ employee benefits administration. Companies of all sizes need to understand changes concerning HR benefits, exchanges, penalties and reporting requirements for employee benefits administration. This issue of Eye on Washington provides updates and information on recent changes..and suggestions of benefits administration changes to come

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  • 1. HEALTH CARE REFORMEye on WashingtonADP PERSPECTIVE: BEnEfIT TREnDS foR 2012 – 2014The New Year brings lots of exciting opportunities and challenges for employers. Since the inception ofthe Patient Protection and Affordable Care Act (ACA), the Department of Health and Human Services, theDepartment of Labor and the Internal Revenue Service have issued regulations affecting businesses of allsizes concerning benefit requirements, exchanges, penalties and reporting requirements. This issue of Eyeon Washington provides updates and information on recent changes and suggestions of things to come.1 WELLNESS AND CONSUMER 2009 and 2016 according to the Centers for FOCUSED SOLUTIONS MAY SLOW Medicare and Medicaid. HEALTH CARE COSTS Wellness programs offer the potential For more than 50 years, annual average per to reduce the demand for health care by capita health care spending has increased changing the underlying need for health care at more than twice the rate of inflation as as participants improve their lifestyle, and measured by the Consumer Price Index (CPI).1 their medical compliance. In fact, there has not been a single year Consumer focused solutions – such as High during the last 50 years when the increase in Deductible Health Plans and Incentives – can per capita health care spending was equal to change participant buying patterns. The hope or less than the rate of increase in the CPI – it is that by economically involving participants has exceeded the rate of growth in the CPI in their purchase decisions they will choose every single year. higher quality and lower cost solutions. The average cost of health care spending is 1. Per Capita National Health Expenditures (NHE) - Centers For Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, U.S. projected to annually increase 6.1% between Department of Commerce, Bureau of Economic Analysis2 PLAN DESIGN FLEXIBILITY WILL narrowing of differences among employer LIKELY DECREASE sponsored health care plans – making it more likely over the next 5 to 10 years that employer Health Care Reform will require significant sponsored plans will begin to look more and re-thinking around benefit design as a more alike. result of both coverage mandates, new nondiscrimination rules applicable to fully- Since plan design will likely become less of a insured plans that are expected to become differentiator among employers – and more effective in 2014, and a new 40% excise employers will likely move toward a Defined tax that will apply to high cost insurance in Contribution strategy - the value proposition 2018, all of which were included in the ACA. for employer sponsored plans will likely shift The result of these provisions could be a to such things as: Continued on next page.HR. Payroll. Benefits. 1
  • 2. • Improving ability to control costs for both – Moving to a defined contribution model the employer and the employee for employer sponsored health care – Engaging the employee as a • Ensuring an employer-branded, consumer at both the moment of plan consistent, and high quality participant selection and at the moment of service benefit experience being provided – Implementing Consumer Driven Health Plans3 EXCHANGES – CHANGING coverage through the Exchange may want to THE PARADIGM consider whether offering coverage through the Exchange is a viable alternative to their The ACA requires that states establish health current offering. In addition to the public insurance exchanges by January 1, 2014 in exchanges, many private exchanges are order to facilitate the purchase of qualified being established which may provide another health plans by individuals. The ACA also coverage alternative for employers. Some provides for the establishment of a Small private exchanges are being established Business Health Options Program (SHOP) solely for large employers that are not eligible Exchange for businesses that are eligible to to purchase coverage through the public receive coverage through the small group exchanges as of January 1, 2014, while other market to purchase coverage. The individual private exchanges offer coverage to employers and SHOP Exchanges may be offered through of any size. one Exchange. The Department of Health and Human Services (HHS) will establish and Today virtually all employers offer coverage operate a federal exchange for any states that through what is effectively an exchange – do not establish their own exchange by 2014. although a limited exchange. Regional and interstate exchanges may also For example, most employers hold an annual be established. enrollment during which their employees can A new employer notification requirement will pick a health care plan from among those apply that is related to the establishment that are offered and, in most cases, several of the exchanges. Effective March 1, 2013, vendors/carriers are involved. A typical plan all employees and new hires must receive a sponsor may offer a choice of one or more notification from their employer that includes plans through an insurance company like information about the exchanges and an United or Aetna or Blue Cross along with one employee’s ability to shop for coverage on or more HMOs. Employees can compare the exchange. The ACA further provides that plan provisions, network coverage, and price the notification include the eligibility rules for and may even be provided with decision premium assistance and include language support tools (at a minimum some sort of explaining that if the employee chooses plan comparison capability) to assist them in coverage through the exchange, the employee picking the plan that is best suited to meet will lose the employer’s contribution to their needs. coverage which is excludable from income. With this in mind there are really three types Once more specific information on the of exchanges employers will be considering: Exchanges starts becoming available, small • Limited Exchange: Traditional employer employers that will be eligible to purchase sponsored plans – generally limited to Continued on next page.HR. Payroll. Benefits. 2
  • 3. 3 to 6 health care plan choices, and still vehicle (i.e., 501(c)(9) Trust/VEBA, HSA/ primarily Defined Benefit in design HRA – or for Public Sector employers an • Private Exchange: Dozens of plan choices Integral Part Trust, etc.) aggregated by a provider or an outsourcer • Public Exchange: The state and/or federal with employer input as to which ones are exchanges required under Health Care offered, with the ability for employers to Reform will vary by jurisdiction in terms rapidly embrace a Defined Contribution of coverage, quality, and participant strategy utilizing a qualified funding support/experience4 SHARED RESPONSIBILITY – The solution is to actively manage these MANAGING COMPLIANCE potential issues by integrating automated Time & Labor Management tools, Payroll, and Beginning in 2014, employers (with at Benefit Administration. least 50 employees) must meet the requirements described below, or be Large employers (generally defined as subject to a potential penalty: employers that have more than 50 full-time equivalent employees) should also begin • Offer full-time employees the opportunity planning for the ACA’s shared responsibility to enroll in minimum essential coverage provisions which become effective in 2014. under an employer plan (Code Sec. Effective January 1, 2014, an individual 4980H(a)); or can purchase health coverage through the • This minimum essential coverage, among public exchange and apply for premium other things, must be affordable (i.e., no assistance to reduce the required monthly more than 9.5% of the employee’s W-2 contribution amount. If an individual has been earnings with the employer). offered employer-sponsored coverage, the If the employer fails to do the above, AND the individual will only be eligible for assistance employee purchases coverage through an if the employee’s income falls within 400% exchange, AND the employee is eligible for of the FPL and the coverage is either: (1) and receives a Federal Tax Credit in order to “insufficient” (meaning that the plan does not subsidize the cost of their coverage, THEN the provide minimum value); or (2) “unaffordable” employer will be subject to a penalty. (the premium cost to the employee exceeds 9.5% of the employee’s household income). It is important to keep in mind that employees with household income up to 400% of the The exchange will notify an employer when Federal Poverty Level (FPL) will be eligible one of its employees qualifies for premium to receive the Federal Tax Credit. For 2011, assistance because the employer’s plan the FPL was $22,350 for a family of four – does not meet the minimum value test or meaning that an employee with a family of four it is deemed unaffordable. The notice to earning less than $89,400 would be eligible employers will include information about for a Federal Tax Credit if they enrolled in potential assessments and any appeal an exchange. (Note: the FPL is indexed for process. There are two different assessment inflation and will likely be higher in 2014). structures; one for employers that do not offer coverage to full-time employees and another This could be a significant issue for employers structure that applies to employers that do with hourly employees regularly scheduled to offer coverage to full-time employees that fail work less than 30 hours per week – many of either the minimum value or affordability test. whom are likely to have both W-2 wages and household income that will be less than 400% of the FPL. Continued on next page.HR. Payroll. Benefits. 3
  • 4. Under the first structure, employers that do assessment that is equal to the lesser not provide coverage may face an annual of: (1) $3,000 for each full-time employee assessment of up to $2,000 for each full-time that receives subsidized coverage through employee, excluding the first 30 full-time the exchange, or (2) $2,000 for each full- employees. Under the second structure, time employee, excluding the first 30 full- employers that offer coverage to full-time time employees. All assessments will be employees that fail either the minimum calculated on a monthly basis. value or affordability test may face an annual5 AUTOMATIC ENROLLMENT FOR enrollment provisions until the regulations HEALTH BENEFITS are issued, employers should begin reviewing their internal systems and programs in The ACA requires that all employers with anticipation of the future release of these more than 200 full-time employees who regulations. offer health insurance must automatically enroll employees into health coverage. At We anticipate that, among other things, this time no additional guidance has been employers will have to: released, but rulemaking authority has been • Determine how to administer the auto- delegated to the Employee Benefits Security enrollment requirements for their specific Administration within the Department of populations (both those currently enrolled Labor. An FAQ (http://www.dol.gov/ebsa/faqs/ and those who have waived coverage, faq-aca5.html) indicates that employers will as well as those who elect to opt out of be required to comply at some point after coverage) regulations are released. The Department • Communicate to employees regarding the of Labor intends to release regulations auto-enrollment process, including their prior to 2014. Although large employers are ability to opt out of coverage. not required to comply with the automatic6 Form W-2 Reporting for Value contributions to an FSA (Q & A-19) breaks of Employer-Provided Health down into: Benefits • ER has a Section 125 cafeteria plan The value of employer-provided health including an FSA insurance benefits offered after January 1, • ER has a flex credit that matches EE 2012 will be required to be reported in Box salary reduction 12 of the Form W-2 with code DD sent to • EE makes a $700 FSA salary reduction employees in January 2013. Employers who election filed fewer than 250 2011 Forms W-2 are not subject to the 2012 reporting requirements. • ER matches with $700 If the amount of the health FSA for the plan • FSA = $1,400 year exceeds the salary reduction elected • EE $700 does not exceed $1,400, so the by the employee for the plan year, then the FSA is reportable amount of the employee’s FSA minus the employee’s salary reduction for the FSA is • ER must include $700 in reportable cost reportable. In addition, the IRS provides ($1,400 FSA minus EE $700 an example of employee and employer salary reduction) Continued on next page.HR. Payroll. Benefits. 4
  • 5. Benefits not included in the calculation of the items are not required to be reported if the aggregate reportable cost include amounts employer does not charge a premium with contributed to any Archer MSA, Health respect to that type of coverage provided Reimbursement Arrangement or Health under COBRA to a qualifying beneficiary. Savings Account. Employee assistance For additional information, see IRS Notice programs, wellness programs or on-site 2012-9 Interim Guidance on Informational medical clinics are only to be included in the Reporting to Employees of the Cost of Their aggregate reportable cost if the employer Group Health Insurance (http://www.irs.gov/ charges a premium for such benefits. These pub/irs-drop/n-12-09.pdf).7 INSURANCE REBATES rebates must be determined by June 1, 2012 and be issued no later than August 1, 2012. The medical loss ratio (MLR) provisions Employers should check with their insurance of ACA became effective in 2011. The carriers to determine whether any rebates MLR provisions require health insurance are required to be issued and whether the companies to spend at least 80% of their insurance carrier will require any information premiums collected on medical care or quality from the employer in order to facilitate the improvement or 85% for large-group plans. If issuance of any rebates. the MLR does not meet this threshold then a rebate must be provided to policyholders. Any8 UNIFORM SUMMARY OF individuals. This requirement was initially COVERAGE slated to become effective March 23, 2012. The Department of Labor recently released In addition to other plan disclosures required guidance at the end of 2011 that provides by ERISA, a new uniform summary of that plans and insurers will not be required coverage requirement was added by the to distribute the summaries until final ACA. Under the ACA, plans and insurers regulations are issued. are required to provide a 4-page uniform summary of coverage to all eligible About ADP ADP is committed to assisting businesses with increased compliance requirements resulting from rapidly evolving legislation. Our goal is to minimize your administrative burden across the entire spectrum of payroll, tax, HR and benefits, so that you can focus on running your business. Neither the content nor the manner in which this notice is presented reflects the thoughts or opinions of ADP or its employees. This notice is provided as a courtesy to our clients, to assist in understanding the impact of certain regulatory requirements, and should not be construed as tax or legal advice. Such information is by nature subject to revision and may not be the most current information available. ADP encourages interested readers to consult with appropriate legal and/or tax advisors. Contact your local ADP client service team if you have any questions regarding our services or call 1-800-CALL-ADP.Automatic Data Processing, Inc. The ADP logo and ADP are registered trademarks of ADP, Inc.1 ADP Boulevard In the Business of Your Success is a service mark of ADP, Inc.Roseland, NJ 07068 ©2012 ADP, Inc. Printed in the USAadp.com Last updated: January 17, 2012