Implementing Health Care in 2014:
It’s Far More Than Just a ‘Pay or Play’ Decision
Getting Down to the Details – Employers...
Agenda
• Determination of “Large Employer” Status for “Pay or Play”
• The Individual Mandate
• The ACA “Grandfather”
• Gro...
Agenda
• Medicare and income tax changes and Tax Planning Ideas
• Medical Device Excise Tax
• The Notice of Availability o...
Large Employer Status and the
Employer Shared Responsibility
“Play or Pay” Rules• The PPACA does not mandate an employer t...
Large Employer Status and the
Employer Shared Responsibility
“Play or Pay” Rules
 Employer Mandate- January 1, 2014
- Del...
To Determine the Number of
“FTEs”
 Full-time employees (30+ hours per week)
 Part-time employees (total monthly hours di...
To Determine 30+ Hour Employees-
“Standard Measurement Periods” &
“Stability Periods”
“On-going Employees”= employees who...
To Determine 30+ Hour Employees-
“Standard Measurement Periods” &
“Stability Periods”
> If employee works 30+ hours per we...
To Determine Whether You Are A “Large
Employer”
• Counting Employees
On-going employees: Administrative safe harbor
> Empl...
To Determine Whether You Are A “Large
Employer”
• Counting Employees
New employees expected to work full-time
> Employer n...
To Determine Whether You Are A “Large
Employer”
• Counting Employees
 New variable hour or seasonal employees – Safe harb...
To Determine Whether You Are A “Large
Employer”
 Employers should measure the hours of service completed
by the employee ...
To Determine Whether You Are a “Large
Employer”
Example:
> Employer has 35 full-time employees (30+ hours per week).
> Emp...
To Determine Whether You are a “Large
Employer”
Month Totals
January 35 + 9.02 = 44.02
February 35 + 9.02 = 44.02
March 35...
To Determine Whether You are a “Large
Employer”
 Anti-abuse rules
 Employers cannot use an equivalency method for determ...
The Individual Mandate
 Penalty phased in Beginning 2014
 Individuals are required to obtain minimum essential health
co...
Grandfathered Plans
• Certain group health plans in effect on March 23, 2010
are exempt from many of the mandated benefit
...
HEALTH CARE REFORM
Federal Benefit Mandates – Already in effect for Nongrandfathered Plans
• Preventive services at 100%
•...
HEALTH CARE REFORM
Miscellaneous – 2014 (non-grandfathered plans)
• No pre-existing condition limitation for any enrollee
...
HEALTH CARE REFORM
Federal Benefit Mandates – Already in effect
(non-grandfathered plans)
• Coverage of children to age 26...
HEALTH CARE REFORM
Annual Limits
• Some waivers for have been allowed
• Problem for stand alone HRAs – no exemption after ...
HEALTH CARE REFORM
Nondiscrimination Rules – 2014 (or later)
• Non-discrimination rules apply to insured plans – IRC secti...
Nondiscrimination Rules –
• Maximum penalty is $500,000
• Does not apply to small employers with between 2 and 25
employee...
Nondiscrimination Rules –
• IRS issued guidance delaying the effective date of these rules
until it issues regulations des...
Nondiscrimination Rules –
• Discriminatory insured health coverage creates a claim under
ERISA Title I for comparable bene...
HEALTH CARE REFORM
Simple Cafeteria Plan – Calendar 2011
• New small employer “simple” Cafeteria Plan - employers with
100...
Flexible Spending Arrangements - 2011
Calendar Year
• Over the counter drugs not eligible for tax benefits
• Applies from ...
Flexible Spending Arrangements - 2013
Calendar Year
• Flex spending account limit for salary deferrals is $2,500
(indexed ...
HEALTH CARE REFORM
Medical Loss Ratio Rebates -
• ACA requires insurance companies to spend 80 or 85% of
premiums on healt...
HEALTH CARE REFORM
Medical Loss Ratio Rebates -
• Employers who received refunds needed to evaluate whether
refund must be...
HEALTH CARE REFORM
Medical Loss Ratio Rebates
• Proceeds attributable to participant contributions should
generally be use...
HEALTH CARE REFORM
W-2 Reporting 2012
• W-2 reporting of value of employer provided health coverage
(not including HSAs or...
HEALTH CARE REFORM
W-2 Reporting 2013
• Per IRS Notice 2011-28, W-2 reporting of health plan coverage
is optional for 2012...
HEALTH CARE REFORM
W-2 Reporting 2013
• IRS Notice 2012-9 clarified several issues on W-2 reporting:
 Employers with fewe...
HEALTH CARE REFORM
W-2 Reporting 2013
• Report in Box 12 with code “DD”
• No reporting on the W-3
HEALTH CARE REFORM
W-2 Reporting 2013
• Large employers (over 250 W-2s) must report aggregate cost
of employer sponsored c...
HEALTH CARE REFORM
W-2 Reporting 2013
• IRS Notice 2012-9 clarified several issues on W-2 reporting:
 Reporting does not ...
HEALTH CARE REFORM
W-2 Reporting 2013
• Regulations will specify COBRA type rules for valuation of
coverage
• March 2011 N...
HEALTH CARE REFORM
W-2 Reporting 2013
• Alternative #1 is the “Charged Premium Method” – for insured
plans
• Alternative #...
HEALTH CARE REFORM
W-2 Reporting 2013
• The following are not included in the amount reported:
 Long term care premiums
...
Minimum Essential Coverage Reporting
• Beginning in 2014-
• All employers providing minimum essential coverage must file i...
Patient Centered Outcomes Research
Fees – Plan Years after 9/30/12
• Research Trust Fund Fee – assessed against all health...
Patient Centered Outcomes Research
Institute (“PCORI”) Fee
• The amount is equal to:
 $1 per covered life for plan years ...
Transitional Reinsurance Fee
• Distributed to Insurers selling coverage on the Exchanges to
offset the cost of covering in...
Transitional Reinsurance Fee
• Imposed on medical plans (irrespective of “Grandfathered” status)
• Does not apply to excep...
Comparison of PCOR Fee and Transitional
Reinsurance Fee
PCOR Fee
• Applies to major Medical (self-
insured and insured) pl...
Comparison of PCOR Fee and Transitional
Reinsurance Fee
PCOR Fee
• Applies to coverage for Medicare-
eligible retired indi...
Comparison of PCOR Fee and Transitional
Reinsurance Fee
PCOR Fee
• Does not apply to stand-alone dental
and vision plans i...
Comparison of PCOR Fee and Transitional
Reinsurance Fee
PCOR Fee
• Does not apply to a Health FSA
(Flexible Spending Arran...
Comparison of PCOR Fee and Transitional
Reinsurance Fee
PCOR Fee
• A Health Reimbursement Account (“HRA”)
integrated with ...
Comparison of PCOR Fee and Transitional
Reinsurance Fee
PCOR Fee
• Applies to Retiree-Only HRAs
• Does not apply to Mediga...
Comparison of PCOR Fee and Transitional
Reinsurance Fee
PCOR Fee
• Actual Count, Snapshot and Form
5500 Methods all permis...
Comparison of PCOR Fee and Transitional
Reinsurance Fee
PCOR Fee
• Covered Lives determined once for
a combined HRA and se...
Comparison of PCOR Fee and Transitional
Reinsurance Fee
PCOR Fee
• Time Period of Application= Plan Years
ending on or aft...
Comparison of PCOR Fee and Transitional
Reinsurance Fee
PCOR Fee
• Fee Paid on an IRS Form 720
• Due by July 31st of each ...
HEALTH CARE REFORM
Tax Changes –
2013 Calendar Year
• Floor for deductible medical expenses raised from 7.5% to 10%
(delay...
HEALTH CARE REFORM
Medicare Tax Changes –
2013 Calendar Year
• Increased Medicare tax .9% for individuals earning over
$20...
Medicare Contribution Tax- Tax Planning
Ideas
• Estates and Trusts:
 the 3.8% will be assessed on the lesser of:
 undist...
Medicare Contribution Tax- Tax Planning
Ideas
•Highest marginal rate for estates and trusts
began at $11,650 in 2012. Ther...
0.9% Additional Medicare Tax
• 0.9% hospital insurance tax on wages
 Begins January 1, 2013
 Applies to wages over $250,...
Medicare Contribution Tax- Planning
Ideas
 Plan to make activities active
 Look at grouping potential
 RE Pros – rental...
Medicare Contribution Tax-
Tax Planning Ideas
 Retirement Income Planning
 Maximize retirement plan contributions. Distr...
Medical Device Excise Tax
 2.3% of sales price, beginning in 2013
 Manufacturer, producer or importer of device
 Taxabl...
HEALTH CARE REFORM
Notice of Exchange Option
• Employers must notify new and existing employees regarding
 Availability o...
HEALTH CARE REFORM
Notice of Exchange Option
• Employers must notify new and existing
employees
 March 1, 2013 original e...
HEALTH CARE REFORM
Current State of Exchanges
• State- Operated Exchanges
 18 States and DC
 $3.8 Billion in grants to s...
Small Employer Health Options Program
(“SHOP”)
 A new program designed to simplify the process of finding health
insuranc...
Small Employer Health Options Program
(“SHOP”)
• Recent Developments-
 States can define the size of small employers in 2...
Small Employer Health Options Program
(“SHOP”)
 Federally run Exchanges will permit employers in the
SHOP to select only ...
Preparing for SHOP
• Ways to Get Ready:
 Think about how your current plan works for you and your
employees.
 If you don...
Small Business Health Care Tax Credit
 The Credit:
 Maximum credit 35% of health insurance premiums paid by small
busine...
Small Business Health Care Tax Credit
 Eligible small businesses can still claim a business expense deduction for the
pre...
Small Business Health Care Tax Credit
 To Be Eligible:
 Employer must cover at least 50 percent of the cost of single (n...
HEALTH CARE REFORM
2014 Calendar Year
• Premium assistance tax credits to individuals with income between
100% and 400% of...
HEALTH CARE REFORM
2014 Calendar Year
To qualify the taxpayer must:
 Be legally in the U.S.
 Not enrolled in employer pl...
HEALTH CARE REFORM
2014 Calendar Year
• Refundable and advanceable credit is difference between the
benchmark plan and exp...
HEALTH CARE REFORM
Excise Taxes - 2018 Calendar Year
• 40% excise tax on insurers and TPAs who offer coverage
costing more...
Industry Trends for Small Businesses
• Delay in Federal Government SHOP
• Self-Funding Issues
 Self-funding of healthcare...
The Affordable Care Act -What A Small
Employer Needs to Know
Stephen Sutten, Jeffrey P. Cairns
Baker Tilly Virchow Krause ...
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Implementing Health Care in 2014: Guide For Employers Under 50

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Implementing Health Care in 2014: It’s Far More Than Just a ‘Pay or Play’ Decision

On June 19, 2013, the Minnesota Chamber of Commerce hosted a workshop on the new health care reform law. This presentation outlines what small employers need to know about the law changes.

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Implementing Health Care in 2014: Guide For Employers Under 50

  1. 1. Implementing Health Care in 2014: It’s Far More Than Just a ‘Pay or Play’ Decision Getting Down to the Details – Employers with less than 50 FTE Employees – “Small Employers” Presented by: Jeffrey P. Cairns, JD CPA Leonard, Street and Deinard, PA; and Stephen Sutten, Baker Tilly Virchow Krause, LLP
  2. 2. Agenda • Determination of “Large Employer” Status for “Pay or Play” • The Individual Mandate • The ACA “Grandfather” • Group Health Plan Federal Mandates • Non-discrimination rules • Cafeteria Plans • Medical Loss Ratio Rebates • Healthcare Taxes, Taxes and More Tax Issues!  Form W-2 Reporting of Healthcare Premiums  Minimum Essential Coverage Reporting  PCORI and Transitional Re-insurance Fees
  3. 3. Agenda • Medicare and income tax changes and Tax Planning Ideas • Medical Device Excise Tax • The Notice of Availability of Health Care Exchange • The Small Employer Health Options Program (“SHOP”) • Small Business Health Care Tax Credits • Premium Assistance Credits and subsidies • “Cadillac tax” excise tax on high cost coverage • Industry Trends for Small Businesses
  4. 4. Large Employer Status and the Employer Shared Responsibility “Play or Pay” Rules• The PPACA does not mandate an employer to offer health insurance to employees  Penalties may apply to a “Large Employer”  $2000 per FT employee not offered coverage or  $3000 per FT offered unaffordable or non-qualified coverage and – Employee obtains a subsidy in an Exchange  “Large”= at least 50 full-time equivalents (“FTEs”)  This provision also applies to “grandfathered” plans  “Play or Pay” rules do not apply unless you are a “Large Employer”
  5. 5. Large Employer Status and the Employer Shared Responsibility “Play or Pay” Rules  Employer Mandate- January 1, 2014 - Deloitte Survey: - 81% of Companies surveyed representing 84% of the workforce plan to continue offering benefits - 9% of Companies representing 3% of the workforce anticipate dropping coverage in the next 1-3 years - 10% of Companies representing 13% of the workforce are not sure
  6. 6. To Determine the Number of “FTEs”  Full-time employees (30+ hours per week)  Part-time employees (total monthly hours divided by 120)  Excluding full-time seasonal employees who work less than 120 days during the year  Preceding calendar year (monthly calculation)  For purposes of large employer determination, all employees of all entities are counted together. However, penalties will apply on an entity by entity basis.
  7. 7. To Determine 30+ Hour Employees- “Standard Measurement Periods” & “Stability Periods” “On-going Employees”= employees who have been by the employer for at least one complete “Standard Measurement Period”. > Full-time status is determined by looking back at a defined period of time from 3-12 consecutive calendar months = “Standard Measurement Period”). > Employers can choose the months the Standard measurement period starts and ends but must be consistent with all employees in same category. – Collectively bargained vs. non-collectively bargained – Salaried and hourly – Employees of different entities – Employees located in different states
  8. 8. To Determine 30+ Hour Employees- “Standard Measurement Periods” & “Stability Periods” > If employee works 30+ hours per week during the Standard Measurement Period, the employee is considered full time during a “Stability Period”. > The Stability Period = at least 6 months and cannot be shorter than the Standard Measurement Period. > If employee did not work 30+ hours during the Standard Measurement Period, employer can treat that employee as not full-time during the Stability Period.
  9. 9. To Determine Whether You Are A “Large Employer” • Counting Employees On-going employees: Administrative safe harbor > Employers may need time between the standard measurement period and the stability period for administrative issues. > Standard measurement period may end before the associated stability period begins. > The administrative period in between may not reduce or lengthen either the stability period or measurement period. This period may last up to 90 days.
  10. 10. To Determine Whether You Are A “Large Employer” • Counting Employees New employees expected to work full-time > Employer not subject to a penalty for not offering coverage to a new full- time employee during the first three calendar months of employment. > The rule applies when an employee is reasonably expected to work full- time at the start date and the employer sponsors a group health plan and offers coverage to the employee at or before the end of the first three calendar months of employment.
  11. 11. To Determine Whether You Are A “Large Employer” • Counting Employees  New variable hour or seasonal employees – Safe harbor  New employee = variable hour employee if at date of hire it cannot be determined that the employee will be averaging 30+ hours per week.  Employers allowed to use good faith reasonable interpretation of the term “seasonal employee”.  If employer would offer coverage to an employee only if he/she is full- time status, employer may use an initial measurement period lasting between 3–12 months to determine if such an employee is full-time.
  12. 12. To Determine Whether You Are A “Large Employer”  Employers should measure the hours of service completed by the employee during the initial measurement period and determine if the employee averages 30+ hours per week. During this time the employer is not subject to penalties on these employees.  If the employee is full-time during the initial measurement period, the stability period must be at least 6 consecutive calendar months that is no shorter in duration that the initial measurement period.  If not full-time, does not have to be treated as such during stability period.
  13. 13. To Determine Whether You Are a “Large Employer” Example: > Employer has 35 full-time employees (30+ hours per week). > Employer has 10 employees who work 25 hours per week  25 x 4.33 = 108.25/month; 10 x 108.25 = 1082.50/120= 9.02 > Employer has 15 seasonal employees who work 36 hours/week during June, July and August – Not included > Employer has 15 employees who work 20 hours per week for July – December  20 x 4.33 = 86.6/month; 15 x 86.6 = 1299/120 = 10.825
  14. 14. To Determine Whether You are a “Large Employer” Month Totals January 35 + 9.02 = 44.02 February 35 + 9.02 = 44.02 March 35 + 9.02 = 44.02 April 35 + 9.02 = 44.02 May 35 + 9.02 = 44.02 June 35 + 9.02 = 44.02 July 35 + 9.02 + 10.825 = 54.845 August 35 + 9.02 + 10.825 = 54.845 September 35 + 9.02 + 10.825 = 54.845 October 35 + 9.02 + 10.825 = 54.845 November 35 + 9.02 + 10.825 = 54.845 December 35 + 9.02 + 10.825 = 54.845 TOTAL 593.19/12 = 49.4325 49 FTEs = Not subject
  15. 15. To Determine Whether You are a “Large Employer”  Anti-abuse rules  Employers cannot use an equivalency method for determining hours worked if the method “substantially understates” an employee’s hours of service.  Employers cannot have an employee work 20 hours per week as an employee and 20 hours per week as the employee of a temporary staffing agency in order to avoid penalties.
  16. 16. The Individual Mandate  Penalty phased in Beginning 2014  Individuals are required to obtain minimum essential health coverage for themselves and their dependents or pay a monthly penalty tax for each month without coverage. The monthly penalty tax is one-twelfth of the greater of the following dollar penalty or gross income penalty amounts: - 2014= $95 per individual ($285 per family of three or more) or 1% of income, whichever is greater - 2015= $325 per individual ($975 per family of three or more) or 2% of income, whichever is greater - 2016- fully implemented= $695 per individual ($2085 per family of three or more) or 2.5% of income, whichever is greater - Congressional Budget Office estimates 6 million people will pay a penalty because they are uninsured in 2016 and that total collections will be near $7 billion in that year
  17. 17. Grandfathered Plans • Certain group health plans in effect on March 23, 2010 are exempt from many of the mandated benefit requirements if the plan design or eligibility is not modified from that in effect on that date • To our knowledge, all small group insured plans in Minnesota have been modified by the carriers since 2010 so as to void any grandfathered status
  18. 18. HEALTH CARE REFORM Federal Benefit Mandates – Already in effect for Nongrandfathered Plans • Preventive services at 100% • No pre-authorization or differential in coverage for emergency care services (in or out of network) • Cannot limit emergency care to in-network providers • Regs have rules that allow out of network providers to balance bill for amounts in excess of amounts paid by the plan • No rescissions except for fraud or misrepresentation
  19. 19. HEALTH CARE REFORM Miscellaneous – 2014 (non-grandfathered plans) • No pre-existing condition limitation for any enrollee • No waiting periods longer than 90 days  Can use measurement periods for “pay or play” for employees when uncertain if hours requirement will be met  Time working while not in eligible class is not taken into account  Cannot delay coverage for more than 13 months plus time remaining to first of month  IRS Notice 2012-59 • Coverage for participants in approved clinical trials required (nongrandfathered plans only)
  20. 20. HEALTH CARE REFORM Federal Benefit Mandates – Already in effect (non-grandfathered plans) • Coverage of children to age 26 • Break time for nursing mothers  “Reasonable” break time to express milk  Private place other than bathroom  Until child is 1 year old  Fair Labor Standards Act (FLSA) requirement – only applies to nonexempt employees  Employers with less than 50 employees exempt if “undue hardship”
  21. 21. HEALTH CARE REFORM Annual Limits • Some waivers for have been allowed • Problem for stand alone HRAs – no exemption after 2013 other than plans that are limited to dental and/or vision care with a group health plan. Exemption until 2013 for any HRA in place 9/23/10
  22. 22. HEALTH CARE REFORM Nondiscrimination Rules – 2014 (or later) • Non-discrimination rules apply to insured plans – IRC section 105(h) – unless “grandfathered” plan • 105(h) rules require plans not be discriminatory in eligibility or benefits • Penalty is not income tax but $100/day excise tax under Public Health Services Act
  23. 23. Nondiscrimination Rules – • Maximum penalty is $500,000 • Does not apply to small employers with between 2 and 25 employees – “business as usual” • Does not apply to retiree medical plans that are not providing coverage to at least two active employees
  24. 24. Nondiscrimination Rules – • IRS issued guidance delaying the effective date of these rules until it issues regulations describing how to determine if the coverage is discriminatory  IRS Notice 2011-1
  25. 25. Nondiscrimination Rules – • Discriminatory insured health coverage creates a claim under ERISA Title I for comparable benefits by non-highly compensated employees – would need to sue to recover benefits
  26. 26. HEALTH CARE REFORM Simple Cafeteria Plan – Calendar 2011 • New small employer “simple” Cafeteria Plan - employers with 100 or fewer employees  No discrimination tests required if minimum eligibility, participation and contribution requirements are met  All non-excludable employees who had at least 1,000 hours of service during the preceding plan year must be eligible  Minimum employer contribution – 2% of base pay or – lesser of 200% or 6% match  Can exclude <21, union, NR aliens
  27. 27. Flexible Spending Arrangements - 2011 Calendar Year • Over the counter drugs not eligible for tax benefits • Applies from 2010 forward
  28. 28. Flexible Spending Arrangements - 2013 Calendar Year • Flex spending account limit for salary deferrals is $2,500 (indexed 2014 and later)  This was previously unlimited  Employer matching or non-elective contributions not counted toward limit
  29. 29. HEALTH CARE REFORM Medical Loss Ratio Rebates - • ACA requires insurance companies to spend 80 or 85% of premiums on health care costs annually  Does not apply to self funded plans • If less than that spent, insured's are entitled to refunds • First refunds were due August 1, 2012 • Insurers generally required to notify insured's whether standard was met
  30. 30. HEALTH CARE REFORM Medical Loss Ratio Rebates - • Employers who received refunds needed to evaluate whether refund must be passed through to participants • Per DOL for ERISA plans, if employer is policyholder and if plan does not address who is entitled to rebate, then participants are entitled to proportionate share of refund if participants pay part of cost of coverage  DOL Technical Release 2011-04  $8.4 million in Minnesota issued last summer – Health Partners $6.8 million and CIGNA $1.6 million
  31. 31. HEALTH CARE REFORM Medical Loss Ratio Rebates • Proceeds attributable to participant contributions should generally be used within 3 months of receipt  Refund to participants (taxable if premiums paid with pre-tax dollars)  Premium reduction or holiday • Employer should document evaluation and use of refund
  32. 32. HEALTH CARE REFORM W-2 Reporting 2012 • W-2 reporting of value of employer provided health coverage (not including HSAs or flex accounts) beginning 2012 – IRS Notice 2010-69
  33. 33. HEALTH CARE REFORM W-2 Reporting 2013 • Per IRS Notice 2011-28, W-2 reporting of health plan coverage is optional for 2012 calendar year for employers who file fewer than 250 W-2s in January 2013 • Large employers reported in January 2013
  34. 34. HEALTH CARE REFORM W-2 Reporting 2013 • IRS Notice 2012-9 clarified several issues on W-2 reporting:  Employers with fewer than 250 W-2s in prior year also delayed  Wholly owned subs of tribal governments exempt  Flex Spending Accounts are exempt if salary deferral only
  35. 35. HEALTH CARE REFORM W-2 Reporting 2013 • Report in Box 12 with code “DD” • No reporting on the W-3
  36. 36. HEALTH CARE REFORM W-2 Reporting 2013 • Large employers (over 250 W-2s) must report aggregate cost of employer sponsored coverage excluded from income – Jan 2013 • Small employers start reporting for 2013 – Jan 2014
  37. 37. HEALTH CARE REFORM W-2 Reporting 2013 • IRS Notice 2012-9 clarified several issues on W-2 reporting:  Reporting does not apply to taxable excess reimbursements to highly compensated in self-insured plans and coverage for S Corp 2% shareholders  EAP, wellness and onsite clinic costs can be excluded if employer does not charge a COBRA premium
  38. 38. HEALTH CARE REFORM W-2 Reporting 2013 • Regulations will specify COBRA type rules for valuation of coverage • March 2011 Notice provides interim guidance that allows employers to use as a matter of convenience, the applicable COBRA premium, less the 2% administrative charge
  39. 39. HEALTH CARE REFORM W-2 Reporting 2013 • Alternative #1 is the “Charged Premium Method” – for insured plans • Alternative #2 is the “Modified COBRA Premium Method” – employer subsidizes COBRA premiums using the prior year COBRA premiums
  40. 40. HEALTH CARE REFORM W-2 Reporting 2013 • The following are not included in the amount reported:  Long term care premiums  Dental and vision premiums unless not stated separately from major medical  Contributions to HSAs, MSAs, flex spending accounts, HRAs
  41. 41. Minimum Essential Coverage Reporting • Beginning in 2014- • All employers providing minimum essential coverage must file information with the IRS and plan participants • Code section 6055(a) requires every health issuer, sponsor of a self insured health plan, government agency that sponsors government-sponsored healthcare and other entity that provides minimum essential coverage to file annual returns reporting information for each individual for whom minimum essential care is provided • Code section 6056 directs every large employer that is required to meet the shared responsibility requirements during a calendar year to file a return with the Service that reports the terms and conditions of the healthcare coverage provided to the employer’s full time employees for the year - See Notice 2012-32
  42. 42. Patient Centered Outcomes Research Fees – Plan Years after 9/30/12 • Research Trust Fund Fee – assessed against all health plans- • Effective for years ending after 9/30/12 and therefore first effective for 2012 calendar years. It is effective for 7 years.
  43. 43. Patient Centered Outcomes Research Institute (“PCORI”) Fee • The amount is equal to:  $1 per covered life for plan years ending on and after 10/1/12 through 9/30/13  $2 per covered life for plan years ending on and after 10/1/13-9/30/14.  The fee is indexed for plan years thereafter based on increases in the projected per capita amount of National Health Expenditures. • Fee is to fund the Patient-Centered Outcomes Research Institute (“PCORI”) established to research risks and benefits of various medical procedures and drugs and to review ways to diagnose, treat and prevent illness.
  44. 44. Transitional Reinsurance Fee • Distributed to Insurers selling coverage on the Exchanges to offset the cost of covering individuals with high claims • Insurers will be responsible for collecting and paying the reinsurance fees on insured plans • Reinsurance fees for self-insured plans to be paid by plan sponsors • Final Regulations issued
  45. 45. Transitional Reinsurance Fee • Imposed on medical plans (irrespective of “Grandfathered” status) • Does not apply to excepted benefits (such as most dental plans, vision plans, and health flexible spending accounts) • Applies to health reimbursement arrangements (HRAs) but, if an individual is covered by both a medical plan and an HRA, you count the individual only once as the medical plan and HRA are treated as a single plan • Applies to retiree health plans but retirees and dependents for whom Medicare is the primary payer are not included in the count of covered individuals.
  46. 46. Comparison of PCOR Fee and Transitional Reinsurance Fee PCOR Fee • Applies to major Medical (self- insured and insured) plus COBRA Coverage • Applies to separate self-insured prescription drug benefits but combined with major medical coverage to determine covered lives • Does apply to pre-65 retiree medical plans Transitional Reinsurance Fee • Applies to Major Medical (self- insured and insured) Plus COBRA Coverage • Does not apply to separate self- insured prescription drug benefits • Does apply to pre-65 retiree medical plans
  47. 47. Comparison of PCOR Fee and Transitional Reinsurance Fee PCOR Fee • Applies to coverage for Medicare- eligible retired individuals • Does not cover Expatriate major medical plans if the insured or self- insured plan is designed to primarily cover employees working outside the US Transitional Reinsurance Fee • Does not apply to coverage for Medicare-eligible retired individuals if the coverage is secondary to Medicare • Does not cover Expatriate major medical plans. HHS will define an expatriate plan in future guidance
  48. 48. Comparison of PCOR Fee and Transitional Reinsurance Fee PCOR Fee • Does not apply to stand-alone dental and vision plans if the coverage is a HIPAA excepted benefit • Does not apply to other HIPAA- excepted benefits • Does not apply to Employee Assistance Programs (“EAPs”), Disease Management or Wellness as long as the program does not provide significant medical care benefits Transitional Reinsurance Fee • Does not apply to stand-alone dental and vision plans • Does not apply to other HIPAA excepted benefits • Does not apply to Employee Assistance Programs (“EAPs”), Disease Management or Wellness as long as the program does not provide significant medical care benefits
  49. 49. Comparison of PCOR Fee and Transitional Reinsurance Fee PCOR Fee • Does not apply to a Health FSA (Flexible Spending Arrangement) so long as the FSA is a HIPAA excepted benefit • Does not apply to HSAs, as the HDHP is covered as a major medical plan Transitional Reinsurance Fee • Does not apply to a Health FSA (Flexible Spending Arrangement) • Does not apply to HSAs, as the HDHP is covered as a major medical plan
  50. 50. Comparison of PCOR Fee and Transitional Reinsurance Fee PCOR Fee • A Health Reimbursement Account (“HRA”) integrated with a self-insured plan of the same plan sponsor can determine the PCOR Fee based on a combined covered life count • A Health Reimbursement Account (“HRA”) integrated with an insured plan must determine the PCOR Fee separately as if it was a “stand- alone” HRA. The insured plan then determines the fee separately as major medical Transitional Reinsurance Fee • A Health Reimbursement Account (“HRA”) integrated with a self- insured or an insured major medical plan is exempt
  51. 51. Comparison of PCOR Fee and Transitional Reinsurance Fee PCOR Fee • Applies to Retiree-Only HRAs • Does not apply to Medigap or Medicare supplemental payments • Does not apply to Medicare Advantage and Medicare Part D Plans • Does not apply to stop-loss and limited indemnity plans Transitional Reinsurance Fee • Application based on Medicare eligibility • Does not apply to Medigap or Medicare supplemental payments • Does not apply to Medicare Advantage and Medicare Part D Plans • Does not apply to stop-loss and limited indemnity plans
  52. 52. Comparison of PCOR Fee and Transitional Reinsurance Fee PCOR Fee • Actual Count, Snapshot and Form 5500 Methods all permissible for determining covered lives • Any reasonable method if the plan year begins prior to 7/11/2012 and ends on or after 10/1/2012 • Can choose a different method for PCOR and Reinsurance Fee calculations Transitional Reinsurance Fee • Actual Count, Snapshot and Form 5500 Methods all permissible for determining covered lives, but revised to determine an annualized covered life count during the first 9 months of the calendar year. No reasonable determination method for first year
  53. 53. Comparison of PCOR Fee and Transitional Reinsurance Fee PCOR Fee • Covered Lives determined once for a combined HRA and self-insured medical plan of the same plan sponsor (No double counting) Transitional Reinsurance Fee • Can aggregate an HRA with both an insured or self-insured major medical (No double counting)
  54. 54. Comparison of PCOR Fee and Transitional Reinsurance Fee PCOR Fee • Time Period of Application= Plan Years ending on or after 10/1/2012 and before 10/1/2019 • Amount of Fee=  PYE on or after 10/1/2012 and before 10/1/2013=$1 per covered life  PYE on or after 10/1/2013 and before 10/1/2014=$2 per covered life  PYE on or after 10/1/2014 =$2 per covered life, as adjusted for health inflation Transitional Reinsurance Fee • Time Period of Application= 2014 to 2016 calendar years • Fees to be determined by HHS as the amount necessary to collect the statutory national amount for each year ($12B in 2014, $8 B in 2015, and $5 B in 2016  Estimates: 2014= $63/covered life, 2015= $37.80/covered life, 2016= $25.20 per covered life
  55. 55. Comparison of PCOR Fee and Transitional Reinsurance Fee PCOR Fee • Fee Paid on an IRS Form 720 • Due by July 31st of each year for the prior year Transitional Reinsurance Fee • Covered entities must notify HHS of the covered life count by November 15th of each year for the first 9 months of that year. HHS will determine the amount of the fee and will bill the entity by December 15th. Payment will then be due within 30 days
  56. 56. HEALTH CARE REFORM Tax Changes – 2013 Calendar Year • Floor for deductible medical expenses raised from 7.5% to 10% (delay for 65+)
  57. 57. HEALTH CARE REFORM Medicare Tax Changes – 2013 Calendar Year • Increased Medicare tax .9% for individuals earning over $200,000 and joint filers over $250,000 • New 3.8% tax on unearned income (interest, dividends, cap gains) for individuals earning over $200,000/ joint filers over $250,000 • $500,000 cap gain exclusion for principal residence still applies
  58. 58. Medicare Contribution Tax- Tax Planning Ideas • Estates and Trusts:  the 3.8% will be assessed on the lesser of:  undistributed net investment income  the excess of AGI over start of highest income tax bracket applicable to estate or trust begins
  59. 59. Medicare Contribution Tax- Tax Planning Ideas •Highest marginal rate for estates and trusts began at $11,650 in 2012. Therefore, 3.8% has immediate concerns  Income distributions  Tax-exempt investments  Growth versus income investments
  60. 60. 0.9% Additional Medicare Tax • 0.9% hospital insurance tax on wages  Begins January 1, 2013  Applies to wages over $250,000 (joint returns) ($125,000 MFS; $200,000 for others)  Applies to self-employed earnings  Employer required to withhold extra 0.9% once employee compensation exceeds $200,000  No employer match due  In addition to the 1.45% regular Medicare tax
  61. 61. Medicare Contribution Tax- Planning Ideas  Plan to make activities active  Look at grouping potential  RE Pros – rental election – treat as one activity  Discuss level of activity with your client  Can they alter activity level  Taxpayers on threshold levels  Manage timing of gains  Look at growth stocks versus dividend  Tax-exempt investments have greater value
  62. 62. Medicare Contribution Tax- Tax Planning Ideas  Retirement Income Planning  Maximize retirement plan contributions. Distributions are not subject to this tax  Consider convert into a Roth Plan in 2012?  Other Considerations  Use of family FLPs, even if children under 14  Would be subject to tax at parent’s rates  Still get benefit of Threshold separately from parents
  63. 63. Medical Device Excise Tax  2.3% of sales price, beginning in 2013  Manufacturer, producer or importer of device  Taxable medical devices  Excise tax, reported on Form 720, Quarterly Federal Excise Tax Return  Exemptions available for specific situations  Minnesota Congressional representatives have authored repeal legislation
  64. 64. HEALTH CARE REFORM Notice of Exchange Option • Employers must notify new and existing employees regarding  Availability of coverage through Exchange  How to access Exchange for coverage  Employee may be eligible for premium subsidy through Exchange  Employee who uses Exchange loses employer’s (pre-tax) subsidy of health coverage
  65. 65. HEALTH CARE REFORM Notice of Exchange Option • Employers must notify new and existing employees  March 1, 2013 original effective date – delayed until Regs issued  Part of FLSA  May 9, 2013 Department of Labor issued regs and model Notice that can be used  Notice must be given before October 1, 2013
  66. 66. HEALTH CARE REFORM Current State of Exchanges • State- Operated Exchanges  18 States and DC  $3.8 Billion in grants to states, as of April 2013 • State-Partnership Exchanges  7 States • Federally-Facilitated Exchanges  25 States  $393.7 million in grants as of April 2013
  67. 67. Small Employer Health Options Program (“SHOP”)  A new program designed to simplify the process of finding health insurance for small businesses.  The health insurance plans available in the SHOP will be maintained by private health insurance companies, the same way small group plans are run now. All plans will offer the same benefits as a “typical” employer plan.  Existing insurance brokers may access the SHOP, or the small business employer can shop for plans without a broker. There will opportunities to review pricing and coverage in apples-to-apples comparisons, complete a single application, and choose the level of coverage that works for the budget, the business, and the employees
  68. 68. Small Employer Health Options Program (“SHOP”) • Recent Developments-  States can define the size of small employers in 2014 and 2015.  States can opt to define it as fewer than 50 or fewer than 100 employees.  In 2016, all states will have to define small employer as fewer than 100 employees.  State-run Exchanges will have two options for SHOP operations.  Option 1-let employers select a metal tier, and then offer access to all Qualified Health Plans (QHPs) in that metal tier. This is how the SHOP was designed to operate.  Option 2- states could choose a scaled-back operation, allowing the SHOP to require an employer to select a specific QHP for employees
  69. 69. Small Employer Health Options Program (“SHOP”)  Federally run Exchanges will permit employers in the SHOP to select only a single QHP.  The SHOP will enroll employees in the plans they choose, collect premiums from the employer, and forward the premiums to the appropriate insurance carriers  This premium aggregation function for SHOP has been delayed until 2015, because it is not needed until employees can choose from among all plans offered in a metal tier. Therefore, if a state Exchange provides the employee choice model in 2014, it must offer the premium aggregation function.
  70. 70. Preparing for SHOP • Ways to Get Ready:  Think about how your current plan works for you and your employees.  If you don’t offer health coverage to your workforce, consider what benefits you’d like to provide. Also consider the amount you may be willing to contribute toward a health plan.  Talk with an insurance broker about how they can help you make the best choices for you and your employees.  Ask your tax advisor if your business may qualify for the Small Business Health Care Tax Credit.
  71. 71. Small Business Health Care Tax Credit  The Credit:  Maximum credit 35% of health insurance premiums paid by small business employers (25% for small tax-exempt employers)  Only firms covering 50% or more of insurance costs are eligible. Beginning in 2014, if firms qualify for the tax credit, insurance coverage must be purchase in a SHOP Exchange (2015 for the federal government SHOP)  On Jan. 1, 2014, the rate will increase to 50 percent and 35 percent, respectively.  A small business employer who did not owe tax during the year can carry the credit back or forward to other tax years
  72. 72. Small Business Health Care Tax Credit  Eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit.  A Refundable credit (even if you have no taxable income (i.e. a tax-exempt organization), the small business may be eligible to receive the credit as a refund so long as it does not exceed your income tax withholding and Medicare tax liability).  Only firms with 10 or fewer employees that pay their workers an average wage of $25,000 or less will receive the full credit; for firms with 11-25 employees more than $25,000 but less than $50,000 in average wages, the amount of the credit received works on a sliding scale. The smaller the business or charity, the bigger the credit. So if you have more than 10 FTEs or if the average wage is more than $25,000, the amount of the credit you receive will be less.
  73. 73. Small Business Health Care Tax Credit  To Be Eligible:  Employer must cover at least 50 percent of the cost of single (not family) health care coverage for each of your employees.  Employer must have fewer than 25 full-time equivalent employees (FTEs).  Two half-time workers count as one full-time worker.  Employees must have average wages of less than $50,000 a year.  Form 8941 Credit for Small Employer Health Insurance Premiums to calculate the credit
  74. 74. HEALTH CARE REFORM 2014 Calendar Year • Premium assistance tax credits to individuals with income between 100% and 400% of the federal poverty level: For 2012 these numbers were: # in household 100% poverty level 400% poverty level 1 $11,170 $44.680 2 $15,130 $60,520 3 $19,090 $76,300 4 $23,050 $92,200
  75. 75. HEALTH CARE REFORM 2014 Calendar Year To qualify the taxpayer must:  Be legally in the U.S.  Not enrolled in employer plan or government health program  Be under 400% of the federal poverty level  Enrolled in an affordable health exchange Estimates are that over 28 million will qualify/year
  76. 76. HEALTH CARE REFORM 2014 Calendar Year • Refundable and advanceable credit is difference between the benchmark plan and expected contribution  Benchmark is the 2nd lowest cost plan at “silver level”  Expected contribution is between 2% and 9.5% of HHI  Credit is available for self only and family coverage
  77. 77. HEALTH CARE REFORM Excise Taxes - 2018 Calendar Year • 40% excise tax on insurers and TPAs who offer coverage costing more than $10,200 for individual coverage or $27,500 family (indexed)  Also called “Cadillac Tax” • Higher limits for retirees 55-64 and selected high risk occupations
  78. 78. Industry Trends for Small Businesses • Delay in Federal Government SHOP • Self-Funding Issues  Self-funding of healthcare could become more attractive to certain small employers as the ACAs market reforms go into effect.  By self funding, a small employer could bypass some of the reforms  By self funding, a small employer could bypass the health insurer fee, that does not apply to self funded health plans
  79. 79. The Affordable Care Act -What A Small Employer Needs to Know Stephen Sutten, Jeffrey P. Cairns Baker Tilly Virchow Krause LLP Leonard Street and Deinard PA 612-876-4593 612-335-1418 steve.sutten@bakertilly.com jeff.cairns@leonard.com .

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