 
Here is a quick reminder of some PPACA changes that
went into effect in the years 2010-2012:
 Grandfather rules
 Depende...
A few changes take effect in 2013:
 FSA limit reduced from unlimited to $2,500, regardless of
plan year. The limit only a...
Personal taxes in 2013:
 For those earning over $200,000 ($250,000 if jointly
filing), there will be a .9% increase in ta...
This talk will focus particularly on the ―Pay or Play,‖ but
here are other changes that will go into effect in 2014 (but
t...
Individual Mandate:
U.S. citizens in 2014 who are above a minimum income threshold must do one
of the following to comply ...
PPACA provides that an employer that has 50 or
more employees (full-time and full-time
employee equivalents), which is cal...
 Large employer status would be determined by calculating the number
of full-time and full-time equivalent employees for ...
 Employees who work less than full-time (30 hours per week)
are considered ―full-time equivalent employees‖ when
deciding...
 The ―no offer‖ penalty of $2,000 applies if the large employer
does not offer ―minimum essential‖ coverage to a sufficie...
 The ―inadequate coverage‖ penalty of $3,000 applies if the
large employer offers medical coverage, but it is not
―afford...
 Note that the first 30 employees do count under this
―inadequate coverage‖ penalty. Also, if the first (―no
offer‖) pena...
 Large Employer – PPACA defines as having at least 50 full
time or full-time equivalent on average over prior calendar
ye...
 Part-Time – works less than 30 hours per week or 130
hours monthly
 Seasonal Employees – work either part-time or full-...
Common-Law Employee – no set definition but the parameters
are:
 hirer has control over how an individual performs a task...
 It is expected that current DOL rules for counting hours
for pension plan purposes will be used to count an
employee’s h...
 The agencies are considering several possible methods
of counting hours and have said that they expect that
employers wi...
 An employer may simply look at its population on a
current, month by month basis if it wishes to. However,
to avoid the ...
Note that the employer will still have to track the employee’s hours
during the stability period, as that information will...
 Standard Measurement Period – a ―look-back‖ period
of 3-12 months used to track and determine how many
hours an employee...
 Employers may use different standard
measurement and stability periods and period
start dates for these classes of emplo...
 To avoid penalties, a new employee who is reasonably expected to
work 30 or more hours per week must be offered coverage...
 At least for 2015, employers who hire seasonal or variable hours employees
have significant flexibility in determining w...
 Impact of reform is minor
o Plans pass
o Eligibility requirements today already comply
o Positive employee or dependent ...
Using the UBA national survey, we can see how the 9.5%
employee cost threshold compares to average costs in the
Western U....
A New Excise Tax in 2018
o Applies to health plans or self-funded plans and not employers or
employees directly
o Tax base...
“Covered California” Exchange
The California Exchange has received from the federal government over $910 million thus far
...
Changes in Rating Formula for Small Group Plans.
Currently small group plans (2-50 eligible employees) may use any of the ...
Other Changes
California law will mandate that the waiting period be a maximum of 60 days (not first of the month
followin...
Changing medical landscape in California:
We are seeing limited network plans move into the Northern
California (they have...
Individual health insurance will be available with no pre-
existing condition exclusion and no medical questions
asked. An...
The cost of healthcare in 2014 will be affected by the ACA
in many ways. Here are new taxes under the ACA:
—Patient-Center...
In addition to new taxes, 2014 will see significant changes to small
group health plans rates. We saw already the changes ...
The ACA is designed to provide subsidies to those who
earn less than 400% of the federal poverty level and who
do not qual...
Federal:
With the re-election of President Obama, and the
Democrats retaining control of the Senate and the
Republicans re...
We are also happy to answer any questions on healthcare
reform.
Jordan Shields
Keith McNeil, CLU, CEBS, GBDS
The SSM Group...
Upcoming SlideShare
Loading in …5
×

Mc neil.saturday

961 views
887 views

Published on

Published in: Economy & Finance, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
961
On SlideShare
0
From Embeds
0
Number of Embeds
39
Actions
Shares
0
Downloads
3
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide
  • 35% tax rate, $3,077 expense is $256 a month per employee. Non-profits and governmental entities the tax is 0% and the penalties are less impactful. You pay nothing for waivers today, but you still pay a penalty on them tomorrow if you don’t offer a plan. The industries where these can tend to appear are charitable, senior care, etc.
  • Mc neil.saturday

    1. 1.  
    2. 2. Here is a quick reminder of some PPACA changes that went into effect in the years 2010-2012:  Grandfather rules  Dependent children covered to age 26 for medical insurance  Pre-existing conditions limitations removed for children  Group medical insurance tax credit program for employers with 25 or fewer employees with low average incomes  Non-qualified HSA withdrawal tax surcharge increased from 10% to 20%  OTC drugs not eligible for HSA or FSA reimbursement unless prescribed by a doctor  Lifetime limits removed in medical insurance  W-2s must include the total cost of health insurance in 2012 or 2013 depending on size of the employer (but benefits not taxable)
    3. 3. A few changes take effect in 2013:  FSA limit reduced from unlimited to $2,500, regardless of plan year. The limit only applies only to employee contributions.  2.3% excise tax added to certain durable medical device manufacturers  The new required document, Summary of Benefits and Coverage (SBC), actually started on the first medical insurance renewal after September 23, 2012, but this will mostly be seen in 2013  Medical expense deduction limit increased from 7.5% of AGI to 10% for under 65 (for 65+ is remains 7.5% until
    4. 4. Personal taxes in 2013:  For those earning over $200,000 ($250,000 if jointly filing), there will be a .9% increase in tax for Medicare, but it is not matched by the employer. The tax is on the earnings above those limits. The employer must withhold the tax for earnings over $200,000.  For the same income brackets, there is also a 3.8% income tax increase on net investment income, with several caveats.
    5. 5. This talk will focus particularly on the ―Pay or Play,‖ but here are other changes that will go into effect in 2014 (but there are no penalties for Pay or Play until 2015, it is voluntary in 2014):  Pre-existing conditions exclusions will be removed for adults  Remove annual limits on medical insurance  Limit of 90-day waiting period for new employees to become eligible for medical insurance (60 days in California)  Health benefit exchanges start offering coverage to individuals and small groups (SHOP)  Minimum essential benefits are required by health insurance  Individual health insurance mandate  Wellness discounts on health premiums could be as high as 30% (or 50% if authorized by the federal government—50% surcharge approved for smokers but not in California)
    6. 6. Individual Mandate: U.S. citizens in 2014 who are above a minimum income threshold must do one of the following to comply with the ―individual mandate‖ to purchase health insurance. If they do not, they must pay the higher of:  The sum of months without coverage— 1/12 of the greater of: —a flat dollar amount ($95 in 2014, $325 in 2015, $695 in 2016); OR —an applicable percentage of income over a minimum threshold (1% in 2014, 2% in 2015, and 2.5% in 2016) The child penalty is 50% of the above adult penalty, and there are limits for families. Some exemptions apply if such coverage is deemed ―unaffordable.‖
    7. 7. PPACA provides that an employer that has 50 or more employees (full-time and full-time employee equivalents), which is called a ―large employer,‖ must provide health coverage, or pay one of two penalties. This has been delayed until 2015. PPACA calls for two possible penalties: • one for not offering “minimum essential” coverage [$2,000] • one for offering coverage that is considered inadequate because it is not “affordable” and/or it does not provide “minimum value” [$3,000]
    8. 8.  Large employer status would be determined by calculating the number of full-time and full-time equivalent employees for each month, totaling the monthly numbers and dividing by 12. The proposed process would be: o Calculate the number of full-time employees for each month of the prior calendar year o Calculate the number of FTEs for each month of the prior calendar year (if you get a fraction, keep the fraction) o Add the number of FT and FTEs for each month o Add the 12 monthly totals together o Divide by 12  If the final result is a fraction, the employer would round down to the nearest whole employee.  Note: your temporary leased employees are considered employed by you and not by a leasing company or PEO. If the result is 50 or more, the employer is a “large employer” and subject to the penalty; however if the employer only exceeds the 50 FT/FTE threshold for fewer than 120 days (4 months) of the year and seasonal employees caused it to exceed to 50 threshold, the seasonal employees can be disregarded when deciding if the employer is large.
    9. 9.  Employees who work less than full-time (30 hours per week) are considered ―full-time equivalent employees‖ when deciding if the employer has 50 employees. Full-time equivalent employee numbers would be determined by: o Using the hours of service each month for each person who worked an average of less than 30 hours per week during the month • This includes the hours of seasonal employees who averaged less than 30 hours for that month o A maximum of 120 hours of service should be considered for any employee who is not full-time for a month  Counting fractions for each monthly total, but rounding the total annual number down.  ―Seasonal employees‖ would mean retail employees who work only during holiday seasons and others who perform work that by its nature is only performed at certain times of the year (such as harvesting or tax season).
    10. 10.  The ―no offer‖ penalty of $2,000 applies if the large employer does not offer ―minimum essential‖ coverage to a sufficient number of employees. o The agencies have said that they do not expect to apply the penalty to employers who offer coverage to the vast majority of their employees, but exclude a few for a legitimate business reason or because of an error; that was later clarified to mean cover at least 95% of eligible employees.  The ―no offer‖ penalty is $166.67 per month ($2,000 per year) for each full-time employee who is not offered basic medical coverage. The penalty does not apply to the first 30 employees. The penalty would not apply if the non-offering employer had no employees who qualified for a premium tax credit. (Example: 100 eligible employees and no insurance offered= (100-30)*$2,000 = $140,000. Annual cost of “average” group health insurance in West U.S. [average $469/month] for 100 employees if employer pays 75%= $422,100.)
    11. 11.  The ―inadequate coverage‖ penalty of $3,000 applies if the large employer offers medical coverage, but it is not ―affordable‖ and/or it does not provide ―minimum value.‖ o Under a safe harbor that will be good at least we believe through 2015, coverage is “affordable‖ for purposes of the employer penalty if the cost of single coverage is less than 9.5% of the employee’s W-2 income. o Coverage is ―minimum value‖ if the coverage is expected to pay at least 60 percent of claims costs.  The penalty is $250 per month ($3,000 per year) for each full-time employee who: o Is not offered coverage that is both minimum value and affordable coverage, and purchases coverage through an exchange, and o Receives a premium credit subsidy in the exchange (the household income must be below 400% of federal poverty level to qualify for a subsidy)
    12. 12.  Note that the first 30 employees do count under this ―inadequate coverage‖ penalty. Also, if the first (―no offer‖) penalty would be less expensive than the second (―inadequate coverage‖) penalty, the employer would pay the first penalty. Therefore it would be necessary to run both tests.  For purposes of calculating the penalty, although part- time (less than 30 hour per week) employees count when deciding if the employer is ―large,‖ no penalty will be due if coverage is not offered to these employees. A penalty would be due on seasonal employees while they are working full-time, if adequate coverage is not offered.
    13. 13.  Large Employer – PPACA defines as having at least 50 full time or full-time equivalent on average over prior calendar year. o If (FT employees each month + FTE each month)/12 >= 50, (fractions round down) then subject to Pay or Play penalty o Families of companies are added together  Full-Time – if employee works an average of at least 30 hours per week during the month, he/she is considered full time for that month.  FTE (Full-Time Equivalent) – to calculate the number per month, divide total hours of service of all part-time employees by 120. This number (rounded down if a fraction) is added to the Full Time number to determine total number of Full-Time
    14. 14.  Part-Time – works less than 30 hours per week or 130 hours monthly  Seasonal Employees – work either part-time or full-time hours during a busy season; not specifically defined in the new notice so will be employer’s good faith determination at least for 2015.  Variable Hours Employees – hours are uncertain and not reasonably expected to average 30 hours or more (includes both those working full time at first but knowing hours will be reduced later and those ―on-call‖ employees).
    15. 15. Common-Law Employee – no set definition but the parameters are:  hirer has control over how an individual performs a task and where the tasks are performed;  length of relationship is indefinite;  hirer provides material needed to complete the task;  ability to assign additional tasks;  sets work hours;  payment is made on set schedule of time;  work is part of regular business;  benefits and perks are provided and person is invited to company events;  training is provided;  expenses are reimbursed.
    16. 16.  It is expected that current DOL rules for counting hours for pension plan purposes will be used to count an employee’s hours of service as a full-time employee or full-time employee equivalent. Under these rules, a person is considered to have completed an ―hour of service‖ with each hour for which he is paid for work, vacation, holiday, sick time, layoff, jury duty, military duty, etc.  When converting time to a monthly basis, 30 hours per week would mean 130 hours per calendar month.
    17. 17.  The agencies are considering several possible methods of counting hours and have said that they expect that employers will be able to use different counting methods for different classes of employees. The proposed methods include: o For employees who are paid hourly, actual hours worked or paid would need to be used o For employees who are not paid hourly, alternatives would include: • Counting actual hours worked or for which vacation, holiday, etc. are paid • Crediting an employee with eight hours of work for each day for which the person was paid for at least one hour of work, vacation, holiday, etc. • Crediting an employee with 40 hours of work for each week for which
    18. 18.  An employer may simply look at its population on a current, month by month basis if it wishes to. However, to avoid the complications that may arise if an employee alternates between working more and less than 30 hours, or to simply reduce calculation frequency, IRS Notice 2012-58 gives an employer the option of using longer calculation periods to get a smoother, more predictable result if it prefers to do that.  If the employer wants to use a smoothing technique, different processes apply to existing and new employees.
    19. 19. Note that the employer will still have to track the employee’s hours during the stability period, as that information will be needed to make the determination for the next standard measurement period.  Instead of tracking time currently, an employer may look at how many hours the employee averaged during a look-back period called a ―standard measurement period.” Once the determination is made whether the employee worked full-time during the standard measurement period that determination will apply throughout the related ―stability period” regardless how many hours the employee actually works.
    20. 20.  Standard Measurement Period – a ―look-back‖ period of 3-12 months used to track and determine how many hours an employee worked on average during this time period. o The employer must choose a start date for the standard measurement period. It can be Jan. 1, the first day of the benefit period, a date near the start of open enrollment, or any other date the employer chooses  Stability Period – period for which the employee is considered Full-Time or not Full-Time and must be: o At least as long as, but not longer than, Standard Measurement Period if the employee is Full-Time o At least 6 months if the employee is Full-Time but not more than 12 months
    21. 21.  Employers may use different standard measurement and stability periods and period start dates for these classes of employees: o Collectively bargained and non-collectively bargained o Hourly and salaried o Employees of different entities o Employees located in different states
    22. 22.  To avoid penalties, a new employee who is reasonably expected to work 30 or more hours per week must be offered coverage following satisfaction of the eligibility waiting period. Under PPACA, the waiting period generally cannot be more than 90 days—not first of the month following 90 days. No pay or play penalty will be owed during the waiting period if the employee is offered coverage that would be effective on or before the end of the permissible waiting period. (For group plans domiciled in California for employers with 2- 50 employees, the waiting period will be 60 days by State law—not first of month following 60 days.)  Note: IRS Note 2012-59 and March 2013 proposed regulations provide for an alternate option to require the employee to have worked cumulatively up to 1,200 hours before being eligible for coverage (which is up to 40 weeks), but a large group employer in a Pay or Play situation could still be penalized for not offering coverage after 90 days; thus the 1,200 hour option appears to mostly apply to small employers. For California employers that is largely moot.
    23. 23.  At least for 2015, employers who hire seasonal or variable hours employees have significant flexibility in determining whether the new employee is full-time. Employers in this situation may elect to use an ―initial measurement period‖ to determine whether the employee is full-time during a subsequent stability period. Additionally, no penalty is due during this initial measurement period, even if it is ultimately determined the employee averaged 30+ hours and was therefore a full-time employee during this time. Note that this method may only be used when the employer truly expects the employee’s hours to fluctuate or the employee is a seasonal employee.  ―Seasonal employee‖ is not defined in the new notice and at least for 2015, an employer’s good faith determination that an employee is seasonal will be honored. Usually, seasonal employment means employment for a limited period to perform a specific function, such as retail during holiday seasons, tax preparation during tax season, or agriculture during harvesting season.  ―Variable hours employees‖ are those whose hours are variable or are otherwise uncertain and who are not reasonably expected to average 30 or more hours per week over the measurement period. This would include both those expected to work full-time when initially hired but who are expected to have their hours reduced at some point (such as retail workers hired in November, and those whose hours vary from week to week such as on-call employees).
    24. 24.  Impact of reform is minor o Plans pass o Eligibility requirements today already comply o Positive employee or dependent enrollment reductions occur  It costs more to cancel the plan than keep it o Penalties are non-tax deductible: $2,000 penalty = $3,077 expense o Employees are second income to family (high waivers)  The plan costs jump dramatically o # of those eligible is increasing o Plans were not bronze level or essential before o New taxes and fees on top of inflation  Rare: It is better for me and my employees to cancel coverage o Employer plan today has high medical cost, low wage earners. This will likely be an employer with under ten employees.
    25. 25. Using the UBA national survey, we can see how the 9.5% employee cost threshold compares to average costs in the Western U.S. (Note: use 9.5% of W-2 income, not gross income.)
    26. 26. A New Excise Tax in 2018 o Applies to health plans or self-funded plans and not employers or employees directly o Tax based on premium paid (or equivalent if self-funded) o Tax (non-deductible) is 40% of the excess over the premium in 2018 of $10,200 single coverage or $27,500 for family (2+) coverage (higher in some cases for those with retirees or ―high-risk‖ jobs) o Those premium thresholds increase each year based on a formula Accumulated Postretirement Benefit Obligation (APBO) o While 2018 is far away, some believe the Cadillac Tax must be included now in projecting future retiree health costs o That is not clear; the tax is not paid by the employer or employee, and the factors that go into a total health care cost are so varied and unknown that including the potential Cadillac Tax in the calculation but excluding other potentially more important changes could be actuarially unsound.
    27. 27. “Covered California” Exchange The California Exchange has received from the federal government over $910 million thus far to get it operational but it must hurry to be ready for employers to be able to notify employees of the Exchange as mandated by the law. Here’s what is interesting:  There is continued debate about how plans outside of the Exchange will have to conform to those that are inside the Exchange. How will the rates compare?  Will the Exchange get enough volume to be able to get by with only 3.5% premium surcharge or will it need more?  Will the State seek to limit the ability of smaller employers to partially self-fund, thus preventing employers from bypassing the Exchange?  How will the two federal plans that the Obama Administration has said it will offer inside the Exchange affect the marketplace? This question has largely been ignored.  Covered California has announced the eligible health plans for their small group ―SHOP‖ plan: —Blue Shield of California —Chinese Community Health Plan —Health Net —Kaiser Permanente —Sharp Health Plan —Western Health Advantage
    28. 28. Changes in Rating Formula for Small Group Plans. Currently small group plans (2-50 eligible employees) may use any of the following factors to determine a rate: Size, Family Structure, RAF Load or Discount, Gender, Location, Medical Cost Trend, Industry Load or Discount, Age, Length of Time with Carrier, Taxes and Fees, and Plan design. (Many health plans are offering to renew current plans in December, 2013, and thereby delay the changes mentioned her until December, 2014.) In 2014 the following rules will apply: Age—one band for under age 20, the rates for each year ages 20-64, then one band for age 65+. The highest cost rate band cannot exceed the lowest cost band by more than a 3:1 ratio. Family Status—Age rates only, no composite rates. Each dependent (including spouse|DP) will have own rate but children will be limited to three oldest children under age 21 plan; all children age 21+ would have their own rate. Area—19 geographic regions apply in California. Rates would continue to be affected by Medical Cost Trend, Taxes and Fees, and Plan Design. If a health plan sells an identical plan inside and outside of Covered California, the rates for both will have to be the same, even including we understand the 3.5% Covered California administration load. Note: the above rules apply to non-grandfathered plans. There are not many grandfathered plans left, and it not clear how the health plans will deal with them. The Small Business Tax Credit will be increased to 50% for coverage that applies and is purchased through Covered California. The benefit levels will be defined by their ―metallic‖ level, from richest plans to most cut back plans: Platinum, Gold, Silver, and Bronze.
    29. 29. Other Changes California law will mandate that the waiting period be a maximum of 60 days (not first of the month following 60 days) starting in the first day of the 2014 plan year. This could mean that many employers will likely adopt a 30 day wait with coverage the first of the month following. The maximum deductible will be $2,000 single, $4,000 family (individual policies may have higher deductibles). The maximum out of pocket limits will include prescription drugs, office visit copays, etc., so coverage would be 100% for all covered services once reached. The Covered California site shows the following examples of how the tax credit could lower the cost of the member’s health insurance.
    30. 30. Changing medical landscape in California: We are seeing limited network plans move into the Northern California (they have been very common in Southern California). Covered California could have a dramatic impact on small group health insurance sales in California in 2014 (2-50 employees in 2014, 2-100 in 2016 and later). Even if coverage is not purchased through the Exchange, it could greatly affect what is available in the marketplace. In addition, Covered California might result in a proliferation of new limited network plans, as health plans seek to offer their lowest rates and will do so by offering reduced cost networks. Will partial self-funding make a strong come back in California due to PPACA? A proposed bill in Sacramento could effectively eliminate small group self insurance.
    31. 31. Individual health insurance will be available with no pre- existing condition exclusion and no medical questions asked. An open enrollment period will be established so that someone cannot just wait until becoming sick before buying the insurance. If purchased through Covered California, the member could be eligible for a premium subsidy from the federal government based on the member’s income as a percentage of Federal Poverty Level (FPL). The subsidy will not be available is the member has available at work coverage that is deemed by the law to be affordable and a qualified plan.
    32. 32. The cost of healthcare in 2014 will be affected by the ACA in many ways. Here are new taxes under the ACA: —Patient-Centered Outcomes Research Institute (PCORI): $1.00 PEPY for 2012 plans, changing to $2.00 for 2013 plans. —Covered California tax for small group health plans in and outside of the Exchange, set at 3.5% for 2014. —Health Insurance Tax (does not apply to self-funded plans). This is expected to collect nationally $8 billion in 2014, but the tax will increase in later years so that it is expected to collect $14.3 billion by 2018. Blue Shield predicts this will add 2.3% to health plan rates in 2014. —Transitional Reinsurance Tax starts in 2014 and is set to end after 2016. The estimated cost for this is $5.25 each month per covered member. Blue Shield predicts this will 1.3% of premium. The amount should be less in 2015 and 2016. —Risk Adjustment User Tax applies for those states (not California) where the federal government operates the Exchange.
    33. 33. In addition to new taxes, 2014 will see significant changes to small group health plans rates. We saw already the changes to how children are rated. Here are other changes: —Age compression: the maximum age rate for the oldest age may not be more than three times the lowest cost rate. This will raise rates for younger employees and lower rates somewhat for older employees. —Increase rates due to the addition of required pediatric oral and vision care. —Medical inflation continues, but it might be masked temporarily by health plans trying to be competitive for market share in 2014. Thus we might not know the true cost of ACA provisions until 2015 or 2016. —High deductible health plans will be limited to $2,000 in 2014 plan year for Small Group plans. Thus, the many higher deductible plans that exist today will need to be lowered to $2,000 at a higher cost. —Spouses|DPs will have own rate, so no longer going the rate of younger spouse for family coverage. —The desire of health plans to have lowest rates will push reduced ―skinny networks‖ which might be a good thing for those whose doctors are still part of the network. —Elimination of Risk Adjustment Factors (RAFs) for non-grandfathered plans. This will yield a cost increase for those plans that currently have an RAF below 1.00, for example, but those with an RAF above 1.00 can be helped by that.
    34. 34. The ACA is designed to provide subsidies to those who earn less than 400% of the federal poverty level and who do not qualify for federal programs such as Medicare and Medicaid (Medi-Cal in California). However that does not apply to those who have available to them group health coverage that is ―affordable‖ and meets federal qualifications. However ―affordable‖ only applies to employees. Thus, if the coverage is affordable to the employee, that applies to dependents regardless of how much they have to pay for their coverage. Nonetheless, employers must notify their employees of the existence of the Exchange by October 1, 2013.
    35. 35. Federal: With the re-election of President Obama, and the Democrats retaining control of the Senate and the Republicans retaining control of the House, dramatic changes in PPACA are not expected. That is not to say, however, that budget negotiations will not impact the financing of PPACA. State: The past election resulted in a Super Majority for the Democrats in Sacramento. It remains to be seen whether that will have a significant impact on healthcare legislation in California (Single Payer? DOI oversight of rates? Elimination of self-funding for smaller employers?).
    36. 36. We are also happy to answer any questions on healthcare reform. Jordan Shields Keith McNeil, CLU, CEBS, GBDS The SSM Group Novato, CA 94945 jshields@thessmgroup.com kmcneil@thessmgroup.com

    ×