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Let’s Get Serious About Health Care Reform


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Focus on analysis and planning that companies need to do in dealing with Health Care Reform. The purpose is to go beyond simply telling you what the law requires.

Published in: Health & Medicine
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Let’s Get Serious About Health Care Reform

  1. 1. Let’s Get Serious About Health Care ReformKelly Hart & Hallman, LLP 1421150_1.PPTX
  2. 2. Presenter:Henry Robinson, Partner Kelly Hart & Hallman, LLP 201 Main Street, Suite 2500 Fort Worth, Texas 76102 (817) 878-3558 2
  3. 3. Purpose Focus on Analysis and Planning ThatCompanies Need to Do in Dealing withHealth Care Reform. The Purpose is to Go Beyond Simply Telling You What the Law Requires. 3
  4. 4. DisclaimerThis presentation is a public service.This presentation is not legal advice. 4
  5. 5. Today’s Topics1. State/Federal Exchanges and Subsidies: Prerequisite to Understanding Penalties Against Employers2. Searching for Ways to Avoid Being Covered by the Employer Mandate3. How Can an Employer Minimize the Mandate Penalties?4. What Management Discretion Remains to Allow an Employer to Minimize Health Care Costs?5. Why Employers Should Know and Understand the Individual Mandate with its Premium Tax Credits and Cost-Sharing Reductions?6. Are Small Employer Tax Credits Worth the Effort?7. Do We Wait Until 2018 to Get Ready to Deal with the Cadillac Tax?8. Managing Turning Health Care Reform as a Positive or Negative 5
  6. 6. This Session Covers Only Part of the Employer’s Role in the Pervasive Changes of Health Care Reform1. Expansion of Scope of Who Has Health Coverage and Eliminating Coverage Gaps 6
  7. 7. 2. Incentivizing Employers to Provide Health Care 7
  8. 8. 3. Insurance Cost Containment 8
  9. 9. 4. Medical Cost Containment and Reduction 9
  10. 10. 5. Increases in Revenue 10
  11. 11. 6. Incentivizing Improvements in Health and in the Quality and Efficiency of Medical Care 11
  12. 12. 7. Extending Non-Discrimination Rules (Tax Code § 105(h)(2)) to insurance plans 12
  13. 13. 8. Health Care Workforce 13
  14. 14. 9. Payment Changes 14
  15. 15. 10. New Protected Category for Retaliation Suits 15
  16. 16. TOPIC ONE State/Federal Exchanges:Knowledge About Exchanges and Subsidies Is Prerequisite to Understanding When Large Employers May be Subject to Penalties 16
  17. 17. Review of Exchanges Small Employers (with 100 or fewer workers) may browse through policies and select one or Insurance more Negotiate Exchange Carriers (employers remain free not to use services of Exchange) Policies must have (1) at least minimum benefit categories of an Individuals may browse throughessential health benefits package, (2) approved policies and select one maximum deductibles (individuals remain free not to use($2,000/$4,000), and (3) cover costs services of Exchange). at 60%, 70%, 80% or 90% rate Potential Subsidies. 17
  18. 18. Government Subsidies Available to Some of the Individuals Who Obtain Insurance Through a State/Federal ExchangePremium Tax Credit: Employee’s receipt ofpremium tax credit may lead to penalty againstemployer.Cost-Sharing Reduction: Employee’s receipt ofcost-sharing reduction may lead to penaltyagainst employer. 18
  19. 19. Limited Availability to Employers 2014-2016 Limited to employers with 100 or fewer employees. 19
  20. 20. Simplicity/Uniformity of InsurancePolicies Offered Through Exchanges Minimum Specified Benefit Categories Maximum Annual Deductibles Standardized Levels of Cost Coverage 20
  21. 21. TOPIC TWOSearching for Ways to Avoid Being Covered by the Large Employer Mandate 21
  22. 22. Review of What May Subject a Large Employer to an “Assessable Payment”Covered “large employers” divided into two categories:1. Those offering employees and their dependents opportunity to enroll in “minimum essential coverage” under an “eligible employer-sponsored plan”1. Those not offering employees and their dependents opportunity to enroll in “minimum essential coverage” under an “eligible employer-sponsored plan” 22
  23. 23. “Assessable Payment” (Penalties or Taxes) is Hammer for Employer Mandate Large employers offering and not offering employees (and their dependents) the opportunity to enroll in “Minimum Essential Coverage” under an “Eligible Employer-Sponsored Plan” are potentially subject to an “Assessable Payment.” 23
  24. 24. Law for Employer Sponsoring a Plan“Assessable payment” is imposed on employerfor any month in which at least one full-timeemployee is certified as having enrolled in aqualified health plan with respect to which apremium tax credit or cost-sharing reduction isallowed or paid to the employee.Internal Revenue Code § 4980H(a) 24
  25. 25. Similar Law for an Employer Not Sponsoring a Plan“Assessable payment” is imposed on employerfor any month in which one or more full-timeemployee is certified as having enrolled in aqualified health plan with respect to which apremium tax credit or cost-sharing reduction isallowed or paid to the employee.Internal Revenue Code § 4980H(b) 25
  26. 26. Qualified Health PlanPremium Tax CreditCost-Sharing Reduction 26
  27. 27. Translation: Generally, employerfaces potential penalty if an employeegoes to an exchange, takes outindividual or family insurance, andqualifies for a subsidy. 27
  28. 28. Purposes of Non-Deductible “Assessable Payment” Against Employers? 28
  29. 29. Efforts to Avoid BeingCovered by Employer Mandate 29
  30. 30. Effort #1 to Avoid Coverageof Employer Mandate: Divide CompanyInto Multiple Companies So No CompanyWill Have 50 Employees 30
  31. 31. Problem With Effort #1: Control Group Test 31
  32. 32. Effort #2 to Avoid Coverageof Employer Mandate: Have OnlyPart-Time Employees 32
  33. 33. Problem With Effort #2: Full-Time Equivalent Formula thatIncludes Part-Time Employees 33
  34. 34. Effort #3 to Avoid Coverageof Employer Mandate: ConvertAll Employees to IndependentContractors 34
  35. 35. Problem With Effort #3: Callinga Person an IndependentContractor Does Not Mean thePerson is Not an Employee. 35
  36. 36. TOPIC THREEHow Can a Covered Large Employer Avoid or Minimize Mandate Penalties? Will They Become anAcceptable Part of Doing Business? 36
  37. 37. Overview of Formula for Calculation of Monthly Penalties for Different Categories of Covered EmployersEmployer Not Offering Minimum Essential Coverage (Calculation basedon total of full-time employees, not based on full-time equivalents)(1/12 x $2,000) x (Number of Full-Time Employees – 30)Employer Offering Minimum Essential Coverage (Calculation based ontotal of full-time employees, not based on full-time equivalents)(1/12 x $3,000) x (Number of Employees Allowed or Paid Premium Tax Credit and/or Cost-Sharing Reduction) [aggregate is capped at number of employees allowed or paid premium tax credit and/or cost-sharing reduction – 30]26 USC § 4980H 37
  38. 38. Choice One of Two Choices: DoNot Offer Minimum EssentialCoverageLikely consequence: Pay apenalty and bear indirect costs 38
  39. 39. Choice Two of Two Choices: OfferMinimum Essential Coverage andTry to Minimize Any PenaltiesWith this alternative, options areavailable to try to minimizepenalties. 39
  40. 40. What are the Available Options to Try toMinimize Penalties for Employers Who OfferMinimum Essential Coverage?Employers have not lost all discretion.Significant options remain available to curtailcosts. We will cover five examples. 40
  41. 41. Example One: Adjust Wages ofLowest Paid, Full-Time EmployeesSo Their Premium Payment is“Affordable” as Defined in theHealth Care Reform Law. 41
  42. 42. Example Two: AdjustEmployer PremiumContributions for LowestPaid, Full-Time Employees SoThat those Employees’Premium ContributionBecomes “Affordable,” asDefined in the Health CareReform Law 42
  43. 43. Example Three: Offer MultipleProducts and Ensure that One is“Affordable” for Low-Wage, Full-Time Employees 43
  44. 44. Example Four: Ensure thatLowest-Paid Employees arePart-Time 44
  45. 45. Example Five: Ensurethat Low-Wage, Full-TimeEmployees Come fromFamilies HavingHousehold Income Above400% of the FederalPoverty Level 45
  46. 46. TOPIC FOURWhat Management Discretion Remains to Allow an Employer to Minimize its Health Care Costs? 46
  47. 47. Management Discretion ATransfer Premium Costs toEmployees 47
  48. 48. Practical Limitations 48
  49. 49. Management Discretion BDecrease percentage of coveredexpenses that the plan will pay(e.g., from 90% to 70%). 49
  50. 50. Limit and Disadvantage 50
  51. 51. Management Discretion C Increase the deductible. 51
  52. 52. Limitations and Disadvantages 52
  53. 53. Management Discretion D Sponsor a plan that covers a narrower range of categories or types of medical expenses. 53
  54. 54. Limits and Risks 54
  55. 55. Management Discretion E Private Exchange. 55
  56. 56. Risk 56
  57. 57. Management Discretion F A Professional Employer Organization (PEO) 57
  58. 58. Risk 58
  59. 59. TOPIC FIVEIndividual Mandate’sImpact on Employers 59
  60. 60. Review of Individual Mandate• Individual and applicable dependents must have minimum essential coverage for each month.• If no minimum essential coverage during a month, individual pays penalty/tax. 60
  61. 61. One Potential Impact onEmployer: DisappointedEmployee Expectations 61
  62. 62. Another Potential Impacton Employer: IndividualMandate Will DriveEmployees to Engage inActs that May Lead toPenalties AgainstEmployers. 62
  63. 63. TOPIC SIX Are Small Employer TaxCredits Worth the Effort? 63
  64. 64. Review: Small Employer Tax Credits• Covered small employer: ˃ Fewer than 25 full-time employees ˃ Average annual wage: less than $50,000 per full-time employee ˃ Employer pays at least 50% of premium cost• Maximum credit: 35% of employer’s contribution• Tax credit phased out as wages and number of employees increase (employers with 10 or fewer FTEs get full 35%) [Non-profits get only 25%.] 64
  65. 65. Relatively Few Small Employers are Taking Advantage of the Tax Credits• Over 90% do not use ˃ Federal government estimated that for 2010, 1.4 to 4.0 million small employers were eligible for small employer tax credits. ˃ 170,300 small employers claimed a tax credit.• Average credit claimed: $2,700(GAO-12-549, May 2012) 65
  66. 66. Statements Reported in GAO Report Raisea Question as to Whether Small Employer Tax Credits Are Worth the Effort • Small employers with low paid employees and low profit margins generally do not pay 50% of premium costs. • The claim form is too complicated for the credit. • Small employers get excited but then do the phase out calculations and eventually do not file because the amount is not worth the effort. 66
  67. 67. TOPIC SEVEN Should Companies Wait Until 2018 toThink About the Excise Tax on High-Cost Plans (Cadillac Tax)? 67
  68. 68. Amount of Excise Tax40% of aggregate value thatexceeds threshold amounts. 68
  69. 69. Threshold Amounts to Qualify as a High-Cost PlanPersons 55+ and/or high-risk professions Individual coverage: $11,850 Family coverage: $30,950Other Persons Individual coverage: $10,200 Family coverage: $27,500 69
  70. 70. Potential SignificanceExample: Company with 1,000 employees, of which 500employees have individual coverage at premium rate of $15,000per year, and 500 have dependent coverage at $30,500 per year: Individual Dependent $15,200 - $10,200 = $5,000 $30,500 - $27,500 = $3,000 x .4 x .4 $2,000 $1,200 $2,000 x 500 employees = $1,200 x 500 employees = $1,000,000 $600,000Summary: $1,600,000 (which is on top of any contributionemployer has already contributed toward premiums). 70
  71. 71. Project Your CircumstanceEvery company should project whether its premium costsare likely to cross the threshold amount in 2018.2012 Averages According to Kaiser: Individual: $5,615 Family: $15,745Average does not tell the story because of the wide rangesof premiums for individual and family coverage. Within thatrange, there is a broad distribution. As a result, manycompanies are expected to be hit by Cadillac Tax. 71
  72. 72. Four Options forReacting to Cadillac Tax 72
  73. 73. Option 1: Wait until 2018 and thenmake one big change all at once. 73
  74. 74. Option 2: Over the next fiveyears, plan and implement anincremental change that ratchetsdown your plan costs to a levellikely to be below the high-costthreshold. 74
  75. 75. Option 3: Continue with yourhigh-cost plan and pay theexcise tax starting 2018. 75
  76. 76. Option 4: Terminatehealth coverage. 76
  77. 77. TOPIC EIGHTManaging EffectivelyWhen Dealing withHealth Care Reform 77
  78. 78. How You Manage Health Care Reform Will Impact Image1. Drag your feet and curse and scream but comply.2. Silently comply.3. Inform employees about each coming change and give the impression of making every effort to comply.4. Refuse to comply with anything, challenge the government to come after you, and fight to your death. 78
  79. 79. Not Realistic to Hope You Will Not Be CaughtReporting requirements starting2014W-2 must show cost of coverage. 79
  80. 80. Suggestion 1: ConsiderEmployee Perception ofManagement Leadership 80
  81. 81. Suggestion 2: ConsiderImpact on Future LegalIssues 81
  82. 82. Suggestion 3: Examine EachChange in Terms of Whether itis an Advantage orDisadvantage to the Employee 82
  83. 83. Detailed Paper on “Health Care Reform for Employers” If you want a copy: Contact Mary 83