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Health Care Reform Seminar


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  • 1. Health Care Reform Seminar Andy  Impastato   Addie  Prewi>   William  Po>er  BancorpSouth  Insurance   Taylor  Porter   Postlethwaite  &  Services/Wright  &  Percy   Associate,  Tax  and   Ne>erville,  APAC   Vice  President,   Health  Care   Senior  Tax  Director    Client  Compliance   Prac:ce  Team  
  • 2. Insurance Update Andy  Impastato   March  18,  2013  
  • 3. DisclaimerThis publication is provided for educational and informational purposes onlyand does not contain legal advice.  You should not act on any informationprovided without consulting legal counsel.  To comply with U.S. TreasuryRegulations, we also inform you that, unless expressly stated otherwise, anytax advice contained in this communication is not intended to be used andcannot be used by any taxpayer to avoid penalties under the InternalRevenue Code. Proprietary and Confidential. Not for Distribution 01  
  • 4. Agenda•  Small Employer Provisions •  Employer Mandate o  Grandfathered Plans o  Large Employer Status o  Carve Out Plans o  Full-Time Employee Status o  Exchange Notice o  Minimum Essential Coverage o  Essential Health Benefits o  Affordability o  Minimum Value o  “Pay or Play” Penalties o  Tax Credit 02  
  • 5. Small Employer Provisions
  • 6. Grandfathered (GF) Plans•  Impermissible changes o  Elimination of benefits o  Any increase in percentage cost-sharing o  Increase in fixed-amount cost-sharing §  15% above medical inflation is allowed o  Decrease in employer contribution §  Five percentage points o  Certain changes to annual limits•  Disclosure requirements•  Recordkeeping requirements 02  
  • 7. Carve Out Plans•  Nondiscrimination in favor of highly compensated individuals (HCI) o  Applies to all self-insured plans o  Applies only to non-GF fully insured plans §  Delayed effective date* o  Definition of HCI o  Eligibility test o  Benefits test o  Penalties for noncompliance •  Other laws 03  
  • 8. Exchange Notice•  Applies to employers subject to the FLSA•  Delayed effective date o  Originally effective for March 1, 2013•  Content requirements o  Existence, services and contact information of Exchange o  Eligibility of premium tax credit or cost-sharing reduction o  Consequences of dropping employer coverage•  Model Notice? 04  
  • 9. Essential Health Benefits•  Applies to non-GF, small group plans•  Effective for plan years beginning in 2014•  Requirements o  Provide essential health benefits o  Limit cost-sharing o  Provide either bronze, silver, gold or platinum coverage (or catastrophic plan for individuals) 05  
  • 10. Essential Health Benefits•  Essential health benefits o  Categories §  Ambulatory patient services §  Emergency services §  Hospitalization §  Maternity and newborn care §  Mental health and substance abuse §  Prescription drugs §  Rehabilitative and habilitative services and devices §  Laboratory services §  Preventive and wellness services §  Pediatric services (includes oral and vision care) 06  
  • 11. Essential Health Benefits•  Cost-sharing limits o  Out-of pocket limits §  Estimated to be $6,250 / $12,500 §  Includes deductibles, co-payments and coinsurance •  Deductible limits §  Will be $2,000 / $4,000 §  May be increased by maximum reimbursement available to participant under FSA 07  
  • 12. Essential Health Benefits•  Coverage (metallic) levels o  Levels based on actuarial values o  Standard data o  Actuarial value calculator tool•  Benchmark plan o  Designated by individual States o  Based on largest products sold in State or by HHS in the absence of State action 08  
  • 13. Employer Mandate
  • 14. Employer Pay or Pay Mandate•  Big Penaltyo  “Large” employers (50 FTEs) that fail to “offer” “minimum essential coverage” to “substantially all” of its “full-time employee” (those working 30 hours per week) and their dependents will be subject to a $2,000 per employee penalty if any full-time employee goes to an Exchange and qualifies for a subsidy. Penalty is calculated based on the total number of full-time employees (minus 30). 02  
  • 15. Employer Pay or Pay Mandate•  “Large Employer” Statuso  Average of 50 or more full-time employees on business dayso  Look at preceding calendar year (transition relief)o  Full-time” defined as 30 or more hours of service per weeko  Part-time employees represent FTEs (total hours/120)o  Aggregation rules (controlled group) applyo  Special rule for new employerso  Seasonal employee exception 03  
  • 16. Employer Pay or Pay Mandate•  “Offer” of Coverageo  Employee must have an effective opportunity to accept coverage at least once during the plan yearo  Electronic offer permissibleo  Facts and circumstanceso  No “offer” for a month unless coverage available for every day of month 04  
  • 17. Employer Pay or Pay Mandate•  Minimum Essential Coverageo  Not defined in Proposed Ruleo  Employer-sponsored GHP plan offered on the small or large group marketo  Where is going to land between major medical and excepted benefits?o  Big open issue 05  
  • 18. Employer Pay or Pay Mandate•  “Substantially All”o  An employer will be deemed to have offered covered to substantially all” full-time employees and their dependents if: §  Coverage is offered to 95% of full-time employees and their dependents (or, if greater, 5 employees) §  Failure to offer to 5% need not be inadvertent (i.e., planning opportunity) §  Does not eliminate penalty for 5% 06  
  • 19. Employer Pay or Pay Mandate•  “Full-Time Employees”o  Part-time employees are excludedo  Full-time employees only §  30 “hours of service” per week §  130 “hours of service” per month §  Hours worked v. “hours of service”o  Common law definition of “employee”o  Full-time status measured monthly on an ongoing basiso  Safe harbors mitigate impact of month-to-month analysis 07  
  • 20. Employer Pay or Pay Mandate•  “And Their Dependents” o  The employer is required to offer coverage to dependents §  Does not include spouse §  Does include son, daughter, stepson, stepdaughter, adopted child, child placed for adoption, and foster children up to age 26) §  Transition relief – dependent coverage not required in 2014 if employer not currently offering takes steps during 2014 plan year to offer to dependents 08  
  • 21. Employer Pay or Pay Mandate•  No coverage (or coverage but not to substantially all) o  Example: §  Employer A has 100 full-time employees. §  Employer A does not offer coverage to any of its employees. §  Employer A owes $2,000 for each full-time employee minus 30, so Employer A owes a total penalty of $140,000 (100 – 30 = 70; 70 x $2,000 = $140,000) 09  
  • 22. Employer Pay or Pay Mandate•  Little Penaltyo  Large employers that offer coverage will be subject to a $3,000 per employee penalty if the coverage is either not affordable” (9.5% HI) or does not meet “minimum value” (fails to cover 60% of total plan costs), and as a result, any full-time employee qualifies for a subsidy. Penalty is calculated based on the number of full-time employees who obtain a subsidy (with a maximum penalty cap). 10  
  • 23. Employer Pay or Pay Mandate•  Affordableo  Employee’s premium for single coverage is greater than 9.5% of employee’s household income §  W-2 safe harbor §  Rate of pay safe harbor §  FPL safe harbor 11  
  • 24. Employer Pay or Pay Mandate•  Minimum Valueo  Employer pays less than 60% of total allowed costso  Not a contribution rateo  Tests §  MC Calculator §  Safe Harbor Checklists §  Actuary 12  
  • 25. Employer Pay or Pay Mandate•  No affordable” coverageo  Example §  Employer B offers health coverage and has 100 full-time employees, 20 of whom receive a tax credit and enroll in the Exchange. §  Employer B owes $3,000 for each employee receiving a tax credit, so it owes a penalty of $60,000. (20 X $3,000 = $60,000) §  The penalty is capped at the amount Employer B would have to pay if it offered no coverage at all. 13  
  • 26. Employer Pay or Pay Mandate•  Health Insurance Premium Tax Credit o  Must be lawfully present in the U.S. o  Income between 100% and 400% of the Federal Poverty Level (FPL) o  Cannot be eligible for minimum essential coverage” §  Medicare, Medicaid, CHIP, certain veteran s coverage and affordable employer coverage §  Medicaid eligibility may expand to 133% of FPL depending on State o  Must be through public exchange o  Pending litigation 14  
  • 27. Thank You Andy Impastato Vice President, Client Compliance Office: (225) 336-3238
  • 28. Legal Update Addie  Prewi>   March  18,  2013  
  • 29. Am I an Applicable Large Employer? (generally 50 FTEs for 6 consecutive months) •  Who is an employee? o  Independent Contractors? o  Leased Employees? •  What is full-time? •  How do I calculate the number of full-time equivalent employees? •  Who is the employer? o  Brother/sister o  Affiliated service groups Office:  225.381.0281   01   Email:  
  • 30. Should I Pay or Play? •  Offer minimum essential benefits to substantially all (95%) full-time employees – no penalties. •  Offer coverage but not to 95% of full time employees or fail affordability and/or minimum value tests – if at least 1 employee purchases insurance through exchange and receives a subsidy (400% of FPL) – pay $3000 annually per subsidized employee. o  Affordable – generally 9.5% of household income o  Minimum value – generally 60% coverage •  Don t offer coverage – pay $2000 per employee over 30 employees. Office:  225.381.0281   02   Email:  
  • 31. If I Play, Should I Insure or Self-Insure? •  Insured – more mandates, less flexibility, less risk •  Self-insured – few mandates, more flexibility, more risk Office:  225.381.0281   03   Email:  
  • 32. Examples of ACA Requirements Applicable to Self-Insured Plans •  Dependent coverage to age 26 •  Coverage of preventative health services without cost-sharing (grandfathered plans exempt) •  No rescissions of coverage except for fraud or material misrepresentation •  No lifetime limits and, after 2014, no annual limits on essential health benefits o  Lifetime and annual limits on non-essential benefits allowed as otherwise permitted under the State and Federal Law. o  Note that State-imposed restrictions on self-insured plans would give rise to ERISA preemption issues. •  Access to pediatric and ob/gyn care •  Due process and appeal rights Office:  225.381.0281   04   Email:  
  • 33. Examples of ACA Requirements Not Applicable to Self-Insured Plans •  Essential Health Benefits requirements (individual and small markets only) •  Annual limitations on deductibles •  Nondiscrimination in favor of highly compensated employees Office:  225.381.0281   05   Email:  
  • 34. Thank you Addie  Prewi   Attorney, Taylor Porter Tax Health Care Practice Team 225.381.0281
  • 35. Definition of Controlled Groups and Tax and Penalty ProvisionsFacing Individuals and Employers William C. Potter March  18,  2013  
  • 36. Determination of Full-time Employees in a Controlled Group •  Businesses organized in multiple forms may be considered as a single employer •  Controlled groups can be parent-subsidiary, brother-sister, combinations or affiliated service groups 01   Office:  225-­‐922-­‐4600  
  • 37. Parent - Subsidiary Controlled Group•  Control exists if parent owns 80% of the subsidiary•  Could involve multiple subsidiaries 02   Office:  225-­‐922-­‐4600  
  • 38. Brother – Sister Controlled Group•  Where the same five or fewer individuals own 80% of the related entities, AND•  Effectively control more than 50% (identical ownership)•  Attribution o  Family Members – spouse, children, grandchildren, parents o  Partner to Partner o  Estates and Trusts and Beneficiaries o  Corporations and Shareholders 03   Office:  225-­‐922-­‐4600  
  • 39. Example Percentage of Ownership •  The four owners have more than 80% of A and B, so thatMember A Corp B LLC Effective requirement is satisfied. But A 80% 20% 20% identical ownership is only B 10% 50% 10% 40% so they fail the 50% C 5% 15% 5% test. They are two separate D 5% 15% 5% employeesTotal 100% 100% 40% 04   Office:  225-­‐922-­‐4600  
  • 40. Affiliated Service Groups•  Subjective determination•  Related entities may or may not have ownership relationships•  Performing services to or on behalf of the other entity, and when capital is not a material income producing factor 05   Office:  225-­‐922-­‐4600  
  • 41. Small Employer Health Insurance Tax Credit •  Allows eligible small employers to claim a 35% credit (25% in the case of tax-exempt employers) for premiums paid toward health coverage for its employees in tax years beginning 2010 through 2013. These percentages increase to 50% and 35%, respectively, in 2014. •  An eligible small employer is an employer that has no more than 25 full-time employees and the average annual compensation of these employees is not greater than $50,000. •  The credit is reduced by 6.6667% for each full-time employee in excess of 10 employees and by 4% for each $1,000 that average annual compensation paid to the employee exceeds $25,000. •  After 2013, employer must participate in an insurance exchange to be eligible for credit. •  Must pay at least 50% of premium for all employees and the percentage must be uniform among all employees 06   Office:  225-­‐922-­‐4600  
  • 42. Small Employer Health Insurance Tax Credit Average Wage $25,000 and $30,000 $35,000 $40,000 $45,000 $50,000 Number of FTEs less 10 and fewer 35% 28% 21% 14% 7% 0% 11 33% 26% 19% 12% 5% 0% 12 30% 23% 16% 9% 2% 0% 13 28% 21% 14% 7% 0% 0% 14 26% 19% 12% 5% 0% 0% 15 23% 16% 9% 2% 0% 0% 16 21% 14% 7% 0% 0% 0% 17 19% 12% 5% 0% 0% 0% 18 16% 9% 2% 0% 0% 0% 19 14% 7% 0% 0% 0% 0% 20 12% 5% 0% 0% 0% 0% 21 9% 2% 0% 0% 0% 0% 22 7% 0% 0% 0% 0% 0% 23 5% 0% 0% 0% 0% 0% 24 2% 0% 0% 0% 0% 0% 25 0% 0% 0% 0% 0% 0% 07   Office:  225-­‐922-­‐4600  
  • 43. Expansion of Coverage – Individual Mandate •  Individual Mandate o  With limited exceptions, ALL individuals must maintain “minimum essential coverage” or pay a penalty. §  Government provided coverage §  Employer sponsored coverage §  Exchange coverage. •  Exemption from mandate o  if required contribution to purchase insurance exceeds 8% of household income. o  Religious objection o  American Indians o  Incarcerated Individuals o  Those with incomes below the tax filing threshold 08   Office:  225-­‐922-­‐4600  
  • 44. Expansion of Coverage – Individual Mandate •  Penalty amount is the lesser of a flat dollar amount of percentage of income. o  2014: $95 or 1% of household income o  2015: $325 or 2% of household income o  2016 and later: $695 or 2.5% of household income 09   Office:  225-­‐922-­‐4600  
  • 45. Expansion of Coverage – Individual Mandate •  Individual Mandate o  Duty to purchase insurance is mitigated by premium credits and cost-sharing subsidies available to individuals with income between 100%-400% of federal poverty limit. o  Premium assistance is not available if individual has access to employer provided coverage UNLESS: §  Too Skinny: Employer coverage provides less than 60% actuarial value. §  Too Expensive: Required contribution under employer plan for self-only coverage exceeds 9.5% of household income. 10   Office:  225-­‐922-­‐4600  
  • 46. Expansion of Coverage – Individual Mandate Poor Middle Income Upper Income Federal Assistance Medicaid Subsidies None Premiums limits 2% of income 3% to 9.5% No limit Cost sharing limit 94% 70 – 93% No limit Eligibility 133% FPL 133 – 400% FPL 400 FPL Family of 1 14.4 14.4 – 43.3 43.3 Family of 2 19.4 19.4 – 58.3 58.3 Family of 3 24.4 24.4 – 73.2 73.2 Family of 4 23.9 23.9 – 88.2 88.2 Family of 5 34.3 34.3 – 103.2 103.2 11   Office:  225-­‐922-­‐4600  
  • 47. Large Employer Penalties•  Effective in 2014 for employers with at least 50 full time employees•  Large employer must offer full time employees (FTE) and their dependents the opportunity to enroll in minimum essential coverage under an eligible employer sponsored plan•  FTE must generally not be asked to pay more than 9.5% of their modified household income for coverage•  Exceptions for new employees 12   Office:  225-­‐922-­‐4600  
  • 48. Penalty for Non-Compliance•  Employer not offering coverage•  Employer offering coverage whose employee receives a credit 13   Office:  225-­‐922-­‐4600  
  • 49. Employers Not Offering Coverage•  Such employers are subject to a penalty if one or more FTE is certified to the employer as being covered by an Exchange and received a premium tax credit•  Penalty for any month is an amount equal to the number of FTE’s in excess of 30 times 1/12th of $2,000•  Regardless of the number of FTE’s who are enrolled in the Exchange and received a premium credit 14   Office:  225-­‐922-­‐4600  
  • 50. Example•  One FTE of a large employer who does not offer health coverage enrolled in an exchange•  Suppose the employer has 70 FTE’s•  The monthly penalty would be: 70 – 30 = 40 x ($2,000 / 12) = $6,667•  If the employer offered no coverage all year, the penalty would be: $6,667 x 12 = $80,004 15   Office:  225-­‐922-­‐4600  
  • 51. Note•  Large employer not offering coverage may not be liable for penalties•  If employer has no FTE whose income would qualify him or her for a subsidy through an Exchange 16   Office:  225-­‐922-­‐4600  
  • 52. Employers Offering Coverage•  Some employers who offer health insurance coverage to FTE’s may be subject to a penalty•  Penalty can apply based on the number of FTE’s who purchase coverage through an Exchange and receive a credit or cost- sharing reduction 17   Office:  225-­‐922-­‐4600  
  • 53. Penalty Calculation•  For each FTE in the Exchange, the monthly penalty each month is 1/12th of $3,000 or $250•  If 25 employees are in the Exchange, penalty per month would be $6,250•  Penalty is limited•  Assume 50 FTE’s. Penalty is: 50 – 30 = 20 20 x 1/12 of $2,000 = $3,333 18   Office:  225-­‐922-­‐4600  
  • 54. Expansion of Medicare Taxes (2013)•  Employee portion of Medicare tax increased by 0.9%•  Applies to wages or self-employment income in excess of $200,000 ($250,000 in the case of a joint return, $125,000 in the case of a married taxpayer filing separately).•  The additional Medicare tax increases the employee portion to 2.35% or a total Medicare rate of 3.8%.•  Employer has the obligation to withhold the additional tax on wages (without regard to spouse’s wages) if its employee earns more than $200,000; Employee is liable to the extent not withheld by employer.•  Self-employed are not allowed a deduction for ½ of the additional 0.9% tax. 19   Office:  225-­‐922-­‐4600  
  • 55. Expansion of Medicare Taxes (2013)•  Individuals, estates and trusts required to pay 3.8% tax on net investment income such as interest, dividends, annuities, royalties, rents, capital gains and income from passive activities.•  Applies to the income in excess of $250,000 for joint returns, $125,000 for married filing separate and $200,000 for all others 20   Office:  225-­‐922-­‐4600  
  • 56. Thank You William C. Potter Senior Tax Director Office: 225-922-4600
  • 57. Health Care Reform Seminar Andy  Impastato   Addie  Prewi   William  Poer  BancorpSouth  Insurance   Taylor  Porter   Postlethwaite    Services/Wright    Percy   Associate,  Tax  and   Neerville,  APAC   Vice  President,   Health  Care   Senior  Tax  Director    Client  Compliance   Prac:ce  Team