Getting Ready to "Pay or Play": What Health Care Reform Requires in 2014

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Effective Jan. 1, 2014, the Affordable Care Act requires large employers to provide affordable health care coverage to their full-time employees or pay a penalty. Likewise, most individuals will be required to have health insurance or pay a penalty. Our presentation covers:

• Which employers are large employers for purposes of this health insurance mandate?
• What must an employer health care plan cover?
• Which employees must be offered coverage?
• How much of employees' health care costs must employers pay?
• What options are available to help employers and individuals comply with the Affordable • Care Act and cope with the rising cost of health insurance?

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  • For commissioned employees, must take into account travel time. For adjunct faculty members, must take into account preparation time. Consider airline pilots, whose hours may be limited.
  • For stability periods beginning in 2014, measurement period can be at least six months ong, beginning no later than July 1, 2013 and ending no earlier than 90 days before the first day of the plan year. Example: Measure from April 15, 2013 through October 14, 2013, administrative through December 31, 2013.
  • a. Minimum Value CalculatorHHS and IRS intend to develop an “MV calculator” for use by self-insured plans and insured large group plans.118 The MV calculator would be similar to the actuarial value (AV) calculator developed by HHS to determine the value of qualified health plans (QHPs) offered in the individual and small group markets through an Exchange. 119 Proposed regulations provide that a group health plan using the MV calculator can take into account all of the benefits provided by the plan that are included in “any” of the benchmarks for essential health benefits. 120 Under this approach, plans with certain standard cost-sharing features (e.g., deductibles, co-insurance, and maximum out-of-pocket costs) will be able to enter information about four core categories of benefits (physician and mid-level practitioner care, hospital and emergency room services, pharmacy benefits, and laboratory and imaging services) into the calculator based on claims data of typical self-insured employer plans. According to HHS, although the MV calculator would be similar in design to the AV calculator, the MV calculator would be based on actuarial tables and a standard population reflecting claims data of typical self-insured employer plans, better reflecting a typical employer plan that will use the MV calculator and resulting in a similar or higher actuarial value than the AV calculator for the same benefit designs. 121 In proposed regulations, HHS provides that the result from the calculator can be modified if the plan offers essential health benefits outside the parameters of the MV calculator, but the modification would have to done by a professional actuary. 122 The calculator would also take into consideration a portion of the annual employer contributions to an HSA or amounts newly made available under an HRA, if applicable. Comments are specifically requested on how to adjust for other benefits (e.g., wellness benefits) provided under a plan using the calculator. Treatment of HSAs and HRAs in Calculating Minimum Value. The IRS and HHS have given some indication of how employer HRA and HSA contributions might be taken into account for purposes of determining whether another employer-sponsored plan provides minimum value.* Essentially, the agencies intend to follow the approach proposed by HHS for determining the actuarial value of QHPs offered through the Exchanges (discussed in Section XXI.C).† Under that approach, it is assumed that amounts made available under an HRA will be used by the employee for cost-sharing, so “an appropriate portion” of new employer contributions (not amounts carried forward from a prior year) can be counted toward—i.e., added to—the value of the employer's major medical plan. It is not clear yet exactly how the appropriate portion will be determined. The picture for stand-alone HRAs, however, is murkier as it is not clear whether stand-alone HRA coverage may be used to satisfy the minimum essential coverage requirement (discussed above). Presumably, future agency guidance will address this and related issues. For a more comprehensive discussion of the interplay between the penalty tax and HRA coverage, see Section XXI of Consumer-Driven Health Care (Thomson Reuters/EBIA, 2004-present, updated quarterly).Regarding HSAs, it is assumed that amounts contributed under an HSA arrangement will be used by the employee for cost-sharing, so “an appropriate portion” of employer contributions (not employee contributions or employee salary reduction contributions) can be counted toward—i.e., added to—the value of the HDHP. Again, it is not clear yet exactly how the appropriate portion will be determined. For more on the interplay between the penalty tax and HSA coverage, see Section X of Consumer-Driven Health Care (Thomson Reuters/EBIA, 2004-present, updated quarterly).*IRS Notice 2012-31, 2012-20 I.R.B. 906; PPACA; Standards Related to Essential Health Benefits, Actuarial Value, and Accreditation; Proposed Rule, 77 Fed. Reg. 70643, 70657 (Nov. 26, 2012).†SeeActuarial Value and Cost-Sharing Reductions Bulletin (Feb. 2012) (as visited Jan. 8, 2013). b. Design-Based Safe Harbor ChecklistsThis alternative approach would provide an array of safe harbor checklists that plans may compare to their own coverage. The safe harbor checklists would be used to make minimum value determinations for plans that cover all of the four core categories of benefits and services (physician and mid-level practitioner care, hospital and emergency room services, pharmacy benefits, and laboratory and imaging services) and have specified cost-sharing amounts. Each safe harbor checklist would describe the cost-sharing attributes of a plan (e.g., deductibles, co-payments, co-insurance, and maximum out-of-pocket costs) that apply to the four core categories of benefits and services. 123Certain Categories of Benefits Must Be Covered to Use the Design-Based Safe Harbor. Although employer-sponsored plans are not required to cover the four core benefit categories, the agencies anticipate that a plan will not satisfy any design-based safe harbor if it fails to do so.* *IRS Notice 2012-31, 2012-20 I.R.B. 906. Several safe harbor options are intended to be provided, including coverage equivalent to an HDHP combined with an employer-funded HSA, that would satisfy the minimum value requirement. A plan providing the four core categories would be treated as providing minimum value if its cost-sharing attributes are at least as generous as any one of the safe harbor checklist options. The IRS expects to release the safe harbor checklists when HHS and IRS release the MV calculator.c. Actuarial CertificationA third approach would be available for plans with “nonstandard” features (such as quantitative limits on any of the four categories of benefits, including, for example, a limit on the number of physician visits or covered days in a hospital) or where use of the MV calculator or safe harbor checklists is not “appropriate.” 124 Plans with nonstandard features of a certain type and magnitude would have the option of engaging a professional actuary to determine the plan’s MV without the use of a calculator. 125
  • a. Minimum Value CalculatorHHS and IRS intend to develop an “MV calculator” for use by self-insured plans and insured large group plans.118 The MV calculator would be similar to the actuarial value (AV) calculator developed by HHS to determine the value of qualified health plans (QHPs) offered in the individual and small group markets through an Exchange. 119 Proposed regulations provide that a group health plan using the MV calculator can take into account all of the benefits provided by the plan that are included in “any” of the benchmarks for essential health benefits. 120 Under this approach, plans with certain standard cost-sharing features (e.g., deductibles, co-insurance, and maximum out-of-pocket costs) will be able to enter information about four core categories of benefits (physician and mid-level practitioner care, hospital and emergency room services, pharmacy benefits, and laboratory and imaging services) into the calculator based on claims data of typical self-insured employer plans. According to HHS, although the MV calculator would be similar in design to the AV calculator, the MV calculator would be based on actuarial tables and a standard population reflecting claims data of typical self-insured employer plans, better reflecting a typical employer plan that will use the MV calculator and resulting in a similar or higher actuarial value than the AV calculator for the same benefit designs. 121 In proposed regulations, HHS provides that the result from the calculator can be modified if the plan offers essential health benefits outside the parameters of the MV calculator, but the modification would have to done by a professional actuary. 122 The calculator would also take into consideration a portion of the annual employer contributions to an HSA or amounts newly made available under an HRA, if applicable. Comments are specifically requested on how to adjust for other benefits (e.g., wellness benefits) provided under a plan using the calculator. Treatment of HSAs and HRAs in Calculating Minimum Value. The IRS and HHS have given some indication of how employer HRA and HSA contributions might be taken into account for purposes of determining whether another employer-sponsored plan provides minimum value.* Essentially, the agencies intend to follow the approach proposed by HHS for determining the actuarial value of QHPs offered through the Exchanges (discussed in Section XXI.C).† Under that approach, it is assumed that amounts made available under an HRA will be used by the employee for cost-sharing, so “an appropriate portion” of new employer contributions (not amounts carried forward from a prior year) can be counted toward—i.e., added to—the value of the employer's major medical plan. It is not clear yet exactly how the appropriate portion will be determined. The picture for stand-alone HRAs, however, is murkier as it is not clear whether stand-alone HRA coverage may be used to satisfy the minimum essential coverage requirement (discussed above). Presumably, future agency guidance will address this and related issues. For a more comprehensive discussion of the interplay between the penalty tax and HRA coverage, see Section XXI of Consumer-Driven Health Care (Thomson Reuters/EBIA, 2004-present, updated quarterly).Regarding HSAs, it is assumed that amounts contributed under an HSA arrangement will be used by the employee for cost-sharing, so “an appropriate portion” of employer contributions (not employee contributions or employee salary reduction contributions) can be counted toward—i.e., added to—the value of the HDHP. Again, it is not clear yet exactly how the appropriate portion will be determined. For more on the interplay between the penalty tax and HSA coverage, see Section X of Consumer-Driven Health Care (Thomson Reuters/EBIA, 2004-present, updated quarterly).*IRS Notice 2012-31, 2012-20 I.R.B. 906; PPACA; Standards Related to Essential Health Benefits, Actuarial Value, and Accreditation; Proposed Rule, 77 Fed. Reg. 70643, 70657 (Nov. 26, 2012).†SeeActuarial Value and Cost-Sharing Reductions Bulletin (Feb. 2012) (as visited Jan. 8, 2013). b. Design-Based Safe Harbor ChecklistsThis alternative approach would provide an array of safe harbor checklists that plans may compare to their own coverage. The safe harbor checklists would be used to make minimum value determinations for plans that cover all of the four core categories of benefits and services (physician and mid-level practitioner care, hospital and emergency room services, pharmacy benefits, and laboratory and imaging services) and have specified cost-sharing amounts. Each safe harbor checklist would describe the cost-sharing attributes of a plan (e.g., deductibles, co-payments, co-insurance, and maximum out-of-pocket costs) that apply to the four core categories of benefits and services. 123Certain Categories of Benefits Must Be Covered to Use the Design-Based Safe Harbor. Although employer-sponsored plans are not required to cover the four core benefit categories, the agencies anticipate that a plan will not satisfy any design-based safe harbor if it fails to do so.* *IRS Notice 2012-31, 2012-20 I.R.B. 906. Several safe harbor options are intended to be provided, including coverage equivalent to an HDHP combined with an employer-funded HSA, that would satisfy the minimum value requirement. A plan providing the four core categories would be treated as providing minimum value if its cost-sharing attributes are at least as generous as any one of the safe harbor checklist options. The IRS expects to release the safe harbor checklists when HHS and IRS release the MV calculator.c. Actuarial CertificationA third approach would be available for plans with “nonstandard” features (such as quantitative limits on any of the four categories of benefits, including, for example, a limit on the number of physician visits or covered days in a hospital) or where use of the MV calculator or safe harbor checklists is not “appropriate.” 124 Plans with nonstandard features of a certain type and magnitude would have the option of engaging a professional actuary to determine the plan’s MV without the use of a calculator. 125
  • Getting Ready to "Pay or Play": What Health Care Reform Requires in 2014

    1. 1. Getting Ready to “Pay or Play”: What Health Care Reform Requires in 2014 Jeffrey J. Bakker Patricia S. Cain Stephanie B. Vasconcellos 312.269.8270 312.269.8032 312.827.1042 jbakker@ngelaw.com pcain@ngelaw.com svasconcellos@ngelaw.comThe contents of these slides should not be construed as legal advice or a legal opinion on any specific fact or circumstance. The slides are intended for general purposes only, and you are urged to consult a lawyer concerning your own situation and any specific legal questions you may have. © Neal, Gerber & Eisenberg LLP 2013
    2. 2. Brief History of Affordable Care Act  March 2010 – Patient Protection and Affordable Care Act signed into law.  Effective September 2010 – Insurers prohibited from imposing lifetime dollar limits on essential benefits. – Dependent coverage up to age 26 mandated. – Cost sharing obligations for preventive services prohibited. – Pre-existing condition exclusions for children prohibited. – Insurers prohibited from dropping policy holders.1
    3. 3. Brief History of Affordable Care Act  Effective January 2011 – Large group insurers must spend 85% of premium dollars on health costs and claims (80% for individual and small group insurers). – FSAs, HRAs and HSAs generally cannot be used to pay for over-the-counter drugs.2
    4. 4. Brief History of Affordable Care Act  June 2012 – Supreme Court decision – Upholds individual mandate to buy health insurance as a constitutional exercise of Congress’s taxing power. – Significant expansion of Medicaid was not a valid exercise of Congress’s spending power, as it would coerce states to either accept the expansion or risk losing existing Medicaid funding.3
    5. 5. Brief History of Affordable Care Act  Effective January 2013 – New Medicare taxes. – Pre-tax contributions to FSAs capped at $2,500 per year. – Most medical devices subject to a 2.3% excise tax.4
    6. 6. What’s New in 2014  Large employers must provide health care coverage or pay penalty.  Individuals must have health care coverage or pay penalty.  90 day limit on waiting periods.  Creation of state or federal health insurance marketplaces, also known as exchanges.  Expansion of Medicaid.5
    7. 7. What’s New in 2014  Other provisions impacting health plan benefits, including: – No pre-existing condition exclusions. – Annual cost-sharing limitations (non-grandfathered plans only). – Increase in wellness reward. – Certain patient protections.6
    8. 8. Overview of Presentation  What rules apply to health plan waiting periods?  What penalties apply if a large employer does not provide health insurance?  What type of health insurance must a large employer provide to avoid penalties?  How will the federal and state marketplaces operate?  What does the Medicaid expansion mean for employers?  What options do employers have to comply with the Affordable Care Act?  What must an employer do to get ready for the Affordable Care Act?7
    9. 9. Waiting Periods  A waiting period is the period of time that must pass before coverage for an employee or a dependent who is otherwise eligible to enroll under the terms of the plan can become effective.  For this purpose, being eligible for coverage means having met the plan’s substantive eligibility conditions (such as being in an eligible job classification).8
    10. 10. Waiting Periods  Effective January 1, 2014, group health plans and insurers are generally prohibited from applying a waiting period that exceeds 90 days. – Applies to all group health plans, regardless of the size of the employer. – Grandfathered plans must also comply with the waiting period requirements.9
    11. 11. Waiting Periods  Other conditions for eligibility are generally permissible unless the condition is designed to avoid compliance with the 90-day waiting period.  Examples: – Employee is required to complete enrollment forms. – Employee must be full-time. (If originally part-time, 90-day period starts when employee becomes full- time.)10
    12. 12. Waiting Periods  90-day limitation does not mean the first of the month after 90 days elapse.  Part-time and variable hour employees: – If the plan conditions eligibility on working a specified number of hours per period (or working full-time); and – it cannot be determined whether a newly-hired employee is expected to work the required number of hours; then – the plan may take a reasonable period of time to determine whether the employee meets the plan’s eligibility condition. (First of the month following 13 months after start date generally considered reasonable.)11
    13. 13. Shared Responsibility  Under the Affordable Care Act: – the Federal government; – State governments; – insurers; – employers (large); and – Individuals are given shared responsibility to reform and improve the availability, quality and affordability of health insurance coverage in the United States.12
    14. 14. Who is a large employer?  Generally, a large employer has 50 or more full- time employees, including full-time equivalent (FTE) employees.  Who is an employee? – Facts and circumstances. – Common law standard – An employer can direct and control individual performing services not only as to the result, but also the means to accomplish it.13
    15. 15. Who is a large employer?  To determine whether the 50-employee threshold is met, generally the total number of full-time employees is determined for each calendar month in the preceding year.  Full-time employee generally averages 30 hours per week or 130 hours per month.  Non-US hours generally not included.14
    16. 16. Who is a large employer?  Number of FTE employees = – Total hours of service among non-full-time employees / 120. – Example: • 60 part-time employees work 1,500 hours in the aggregate for a month. FTE employees = 1,500/120 = 12.5. • If employer were to average 38 full-time employees and 12 FTE employees a month, it would be a large employer.15
    17. 17. Who is a large employer?  For determining the number of employees, exclude: – Leased employees – Sole proprietors – Partners – 2% S corporation shareholders  Seasonal employees can be excluded if they only work up to 4 months or 120 days in a year.16
    18. 18. Who is a large employer?  Employers who are members of a controlled group or affiliated service group must count all employees in group to determine if it is a large employer.  Example: – Corporation X owns 100% of: • Subsidiary A (36 employees) • Subsidiary B (30 employees) • Subsidiary C (24 employees) – Subsidiaries A, B and C are all large employers, because controlled group has >50 employees.17
    19. 19. Who is a large employer?  A new employer will be treated as a large employer if it is reasonably expected to employ 50 full-time employees and FTE employees and it does so.  Tax-exempt entities and governmental entities can be large employers.18
    20. 20. Shared Responsibility Penalties  Small employer not subject to shared responsibility penalties.  Large employer may be subject to: – Availability penalty; or – Affordability penalty.19
    21. 21. Shared Responsibility Penalties  Availability penalty (2 elements) – Large employer fails to provide minimum essential coverage to at least 95% of full-time employees and their dependents. • Exception: if the employer has < 100 employees, Availability penalty avoided if coverage offered to all but 5 employees and their dependents. – At least one employee receives a premium tax credit or cost-sharing subsidy in a government marketplace.20
    22. 22. Shared Responsibility Penalties  Premium tax credit = A tax credit to offset the cost of an individual’s health insurance premiums. Generally available for coverage for employees who: – are between 100% and 400% of the federal poverty level and enroll in a government marketplace; – are not eligible for Medicaid; and – are not eligible for employer-offered coverage, or are eligible only for coverage that is unaffordable or that does not provide minimum value.21
    23. 23. Shared Responsibility Penalties  Cost-sharing reduction = A reduction in the individual’s out-of-pocket-limits under a health plan. Generally available for employees who: – meet the requirements for the premium tax credit (expected to have household income that does not exceed 250% of the federal poverty level); and – enrolled in the silver level of coverage under a government marketplace.22
    24. 24. Shared Responsibility Penalties  Availability (monthly) penalty = ($2,000/12) x (Number of full-time employees - 30).23
    25. 25. Shared Responsibility Penalties  Availability penalty example: – Employer does not offer health coverage. – 90 full-time employees. – 60 part-time employees (40 FTE employees). – One employee receives a cost-sharing subsidy in a state-run marketplace. – Monthly penalty = ($2,000/12) x (90-30) = $10,000.24
    26. 26. Shared Responsibility Penalties  Availability penalty: – Part-time employees / FTE employees do not factor into amount of penalty. – Penalty is non-deductible. – Penalty is indexed for future years. – HHS/IRS will inform employer that an employee has received subsidized exchange coverage and give the employer a chance to respond before the IRS issues a notice for demand and payment.25
    27. 27. Shared Responsibility Penalties  Availability penalty: – If employer offers coverage to < 95% of full-time employees and their dependents, penalty still based on all employees. – If employer offers coverage to >= 95%, Affordability penalty may apply to those not offered coverage.26
    28. 28. Shared Responsibility Penalties  Availability penalty: – Controlled group. • Liability for penalty not assessed on a controlled group basis; penalty applies to specific entity. • 30-employee offset prorated.27
    29. 29. Shared Responsibility Penalties  Controlled group example (Availability penalty): – Subsidiary A – 36 employees – Subsidiary B – 30 employees – Subsidiary C – 24 employees – Assume no subsidiary provides coverage and pay or penalty applies. • Sub. A penalty = ($2,000/12) x (36 – (36/90 x 30)) = $4,000 • Sub. B penalty = ($2,000/12) x (30 – (30/90 x 30)) = $3,333 • Sub. C penalty = ($2,000/12) x (24 – (24/90 x 30)) = $2,66728
    30. 30. Shared Responsibility Penalties  Affordability penalty: – Large employer offers minimum essential coverage to >= 95% of full-time employees/dependents; – At least one employee qualifies for a premium tax credit or cost subsidy under a government-run marketplace; and – One of the following: • Coverage is unaffordable; • Employer coverage does not provide minimum value; or • A full-time employee not offered coverage enrolls in a government-run marketplace.29
    31. 31. Shared Responsibility Payments  Affordability (monthly) penalty = Lesser of: – ($3,000/12) x (Number of employees who received a premium tax credit or cost-sharing subsidy under a marketplace); or – The amount of the Availability penalty, if it had applied.30
    32. 32. Who must be offered coverage?  General rule: A large employer must offer health insurance to all employees averaging at least 30 hours of service per week, or pay a penalty.  Assuming a large employer wants to offer health insurance in compliance with the law, how does it determine who should be offered coverage?31
    33. 33. Who must be offered coverage?  How are hours counted? – For hourly employees, count: • Actual hours of service, and • Paid hours of – Vacations/holidays, – Illness, incapacity and disability, – Layoff, – Jury duty, – Military duty, and – Leaves of absence32
    34. 34. Who must be offered coverage?  How are hours counted? – For non-hourly employees, three choices: • Count in the same way as hourly employees are counted (i.e., actual hours of service plus other paid hours). • Use a “days-worked” equivalency, where an employee is credited with 8 hours per day worked. • Use a “weeks-worked” equivalency, where an employee is credited with 40 hours per week worked.33
    35. 35. Who must be offered coverage?  Method must be chosen in a manner that would not substantially understate an employee’s hours of service.  Employers may use varying methods for classes of non-hourly employees if classification is reasonable and consistently applied.34
    36. 36. Who must be offered coverage?  Special rules for employees: – who work at academic institutions, – whose compensation is not primarily based on hours, or – whose work is subject to regulatory limits.  Employers must use a reasonable method for calculating service.35
    37. 37. Timing  Measurement Period – Time during which employee hours are counted. – Lasts from 3-12 months.36
    38. 38. Timing  Administrative Period – Time during which employer can tally hours from previous measurement period. – Time for open enrollment. – Lasts up to 90 days.37
    39. 39. Timing  Stability Period – Time during which employees are offered stable health insurance. – 6-12 months but no shorter than the measurement period.38
    40. 40. Timing  Periods may be changed for subsequent years, but cannot change for a year once the standard measurement period has begun.  Optional Transition Measurement Period (2014).39
    41. 41. Timing: Example  Measurement Period from October 15, 2013 – October 14, 2014.  Administrative Period from October 15, 2014 – December 31, 2014.  Stability Period from January 1, 2015 – December 31, 2015.  … and so on, with overlapping periods.40
    42. 42. Who must be offered coverage?  Ongoing Full-Time Employees – Employed for at least one standard measurement period. – Looking at the prior measurement period; determine whether an employee was employed on average at least 30 hours of service per week. – If yes, considered a full-time employee to whom insurance should be offered for the entire stability period as long as she remains an employee. – If no, considered not a full-time employee for the entire stability period.41
    43. 43. Who must be offered coverage?  Ongoing Full-Time Employees: Example – Jared worked 1700 hours from October 15, 2013 to October 14, 2014, resulting in an average of 32.7 hours per week worked. – Jared should be offered health insurance from January 1, 2015 – December 31, 2015 as long as he is an employee, regardless of hours worked in 2015.42
    44. 44. Who must be offered coverage?  New Full-Time Employees – Anyone who is not a seasonal employee and who is reasonably expected, as of start date, to be employed on average at least 30 hours of service per week. – Considered a full-time employee to whom insurance should be offered within initial three calendar months (usually, 90 days) of employment. – After that, use measurement/administrative/ stability periods.43
    45. 45. Who must be offered coverage?  New Full-Time Employees: Example – Julie, on her hire date of August 1, 2013, is expected to work 40 hours per week. – Julie should be offered health insurance within 90 days of her hire date.44
    46. 46. Who must be offered coverage?  New Variable Employees – Employees that are, based on the facts and circumstances as of date of hire, not reasonably expected to average at least 30 hours a week. – This can include seasonal workers, who may be expected to work 30 hours a week only for a limited time period.45
    47. 47. Who must be offered coverage?  New Variable Employees – In addition to standard measurement/stability and administrative period, employer may use an initial periods that is different from standard.  Refresher – Measurement Period (3-12 months). – Administrative Period (up to 90 days). – Stability Period (6-12 months but no shorter than the measurement period). – However…46
    48. 48. Who must be offered coverage?  New Variable Employees – The initial measurement period plus the administrative period cannot extend longer than the last day of the first calendar month beginning on or after the first anniversary of the employee’s start date.47
    49. 49. Who must be offered coverage?  New Variable Employees: Example – Jasmine is hired on August 8, 2013. – As of Jasmine’s date of hire, her employer cannot determine whether she will be full time. – Employer elects to use maximum 1 year initial measurement period, and measures Jasmine’s hours from August 8, 2013 to August 7, 2014. – Employer uses an administrative period of August 8, 2014 to September 30, 2014 to make its determination.48
    50. 50. Who must be offered coverage?  New Variable Employees: Example – Measure Jasmine’s hours during initial measurement period, and determine whether she should be offered coverage from October 1, 2014 – September 30, 2015. – ALSO measure Jasmine’s hours during the standard measurement period, and determine whether she should be offered coverage from January 1, 2015 – December 31, 2015.49
    51. 51. Who must be offered coverage?  New Variable Employee: Example – Initial measurement period: Aug. 8, 2013–Aug. 7, 2014. – Initial administrative period: Aug. 7, 2014–Sept. 30, 2014. – Initial stability period: Oct. 1, 2014–Sept. 30, 2015. – Standard measurement period: Oct. 15, 2013–Oct. 14, 2014. – Standard administrative period: Oct. 15, 2014–Dec. 31, 2014. – Standard stability period: Jan. 1, 2015–Dec. 31, 2015.50
    52. 52. Who must be offered coverage? Avg. weekly Avg. weekly hours Aug. hours Oct. 15, Results 8, 2013 thru 2013 thru Oct. Aug. 7, 2014 14, 2014 29 hours/week 29 hours/week •No coverage from Oct. 1, 2014-Dec. 31, 2015 •No coverage from Oct. 1, 2014-Dec. 31, 2014 29 hours/week 31 hours/week •Coverage from Jan. 1, 2015-Dec. 31, 2015 •Coverage from Oct. 1, 2014–Sept. 30, 2015 31 hours/week 29 hours/week •No coverage from Oct. 1, 2015–Dec. 31, 2015 31 hours/week 31 hours/week •Coverage from Oct. 1, 2014–Dec. 31, 201551
    53. 53. Who must be offered coverage?  Changes in status?  Beginning administrative period?  Breaks in service/unpaid leaves?  Temporary employees?  High turnover employees?  Short term, full-time employees?52
    54. 54. Who must be offered coverage?  Dependents of an employee must also be offered coverage, defined as: – a child under 26 years of age: • Son or daughter, • Stepson or stepdaughter, • Eligible foster child, • Adopted child or child placed for adoption.  Does not include spouse.  Transition Rule applies.53
    55. 55. Break!54
    56. 56. Penalties  Even if an employer provides health insurance coverage to its full-time employees, it may still be subject to penalties, unless the coverage: – is affordable, and – provides minimum value/ minimum essential coverage55
    57. 57. Is coverage affordable?  The short answer: it depends.  Basic test: to be affordable, premium must not exceed 9.5% of the employee’s household income.  Whether coverage is affordable is based on: – employee cost for self-only coverage. – under any option offered by the employer. – that satisfies minimum essential coverage requirements.56
    58. 58. Is coverage affordable?  Problem: employers are unlikely to know an employee’s household income.57
    59. 59. Is coverage affordable?  Three safe harbors  If the employee’s: – calendar year contribution does not exceed 9.5% of that employee’s W-2 wages from his employer. – monthly contribution does not exceed 9.5% of 130 hours multiplied by employee’s hourly rate of pay. – annual contribution does not exceed 9.5% of the federal poverty level for a single individual (the 2013 federal poverty level is $11,490, so the annual employee contribution could not exceed $1,091).58
    60. 60. Is coverage affordable?  Practical tips: – Look at lowest paid full-time employee and set employee-only premium coverage at 9.5% of that employee’s wages. – Adjust contribution rates for classes of employees.59
    61. 61. Does coverage provide minimum value?  A plan provides minimum value if, for a standard population: – the plan will pay at least 60% of health care expenses – the individual will pay 40% or less of health care expenses, through: • deductibles, • co-pays , and • co-insurance.60
    62. 62. Does coverage provide minimum value?  Three options for determining whether a plan provides minimum value: – Minimum value calculator* – Safe-harbor checklists – Actuarial certification  According to a Towers Watson simulation, nearly all employers offered minimum value coverage, and more than 90% offered platinum, gold, or silver plans.** * Available at http://cciio.cms.gov/resources/files/mv-calculator-final-2-20-2013.xlsm ** Towers Watson, What do PPACA Standards Mean for Employer’s Health Plans?, http://www.towerswatson.com/united- states/newsletters/insider/8283 (October 2012)61
    63. 63. Penalties  What if the employer offers coverage, but the employee fails to pay for coverage? – Generally, employer will be treated as having offered coverage. – Grace periods and “close but not quite” payments.62
    64. 64. Penalties  What if coverage is offered, but not affordable OR does not provide minimum value? – Monthly penalty of the lesser of: • 1/12 of $3,000 ($250) for each full-time employee for whom coverage is not affordable and who receives a premium tax credit or cost-sharing reduction towards a purchase on a state or federal marketplace. • 1/12 of $2,000 ($166.67) for each full-time employee (reduced by first 30 full-time employees), provided that at least one full time-employee is certified as eligible to receive a premium tax credit or cost-sharing reduction towards a purchase on a state or federal marketplace.63
    65. 65. Penalties  Employer has 200 employees: – 150 full-time; in one month: • 146 are offered insurance at appropriate times: – 20 enroll in a state marketplace with a tax credit or cost- sharing reduction, but coverage is affordable. – 10 enroll in a state marketplace with a tax credit or cost- sharing reduction because coverage is unaffordable. • 4 are mistakenly not offered health insurance and enroll in a state marketplace with a tax credit or cost-sharing reduction. – 50 part-time.64
    66. 66. Penalties  The penalty that applies for the month is the lesser of: – 1/12 * $3,000 * (10 employees enrolling in government market- place due to unaffordability + 4 employees not offered health insurance), or $3,500 – 1/12 * $2,000 * (150 full time employees -30), or $20,00065
    67. 67. The New Marketplaces/Exchanges  Affordable Care Act provides for the creation of exchanges, now called health insurance marketplaces, effective January 1, 2014.  Marketplaces allow individuals and eligible employers to purchase health insurance from insurance companies that participate in marketplace.66
    68. 68. The New Marketplaces/Exchanges  Status of marketplaces: – 17 states and the District of Columbia have elected to operate marketplaces. – 6 states, including Illinois, have elected to operate a marketplace in partnership with the federal government. – Federal government will operate a marketplace in the other states.67
    69. 69. The New Marketplaces/Exchanges68
    70. 70. The New Marketplaces/Exchanges  Marketplaces will be open to: – Employers with fewer than 100 employees (or fewer than 50 employees, depending on state); and – Individuals and families. – Open enrollment begins October 1, 2013.  May be available to large employers beginning in 2017.  Employers will be required to notify employees of availability of government marketplace.69
    71. 71. The New Marketplaces/Exchanges  Four standardized plans will be available through government marketplaces: – Platinum – covers 90% of cost – Gold – covers 80% of cost – Silver – covers 70% of cost – Bronze – covers 60% of cost  Allows consumers to choose between: – higher premiums and less costs for health care; or – lower premiums and more costs for health care.70
    72. 72. The New Marketplaces/Exchanges  Premium subsidies and cost sharing reductions are available for individuals and families with income from 133% to 399% of the federal poverty level ($31, 321 to $93,964 for a family of four in 2013).  Premium subsidies limit the percentage of income that must be paid for coverage under a silver plan.  Federal government also provides subsidy to lower out of pocket maximums71
    73. 73. The New Marketplaces/Exchanges Premiums and Cost Sharing Subsidies Under the Affordable Care Act* Reported Income Max Premium Subsidies Actuarial Value Out-of-Pocket % Poverty Level % of Income Cap <133 0% 100% — 133–149 3%–4% 94% $1,983 150–199 4%–6.3% 87% $1,983 200–249 6.3%–8.05% 73% $2,975 250–299 8.05%–9.5% 70% $2,975 300–399 9.5% 70% $3,967 Families with incomes from 133 percent to 399 percent of the federal poverty level ($31, 321 to $93,964 for a family of four) can obtain coverage under a silver plan by paying the percentage of their income shown in the column titled “Premium Subsidies % of Income Cap” and the government will pay the remaining costs. *J. Gruber and I. Perry, “Realizing Health Reform’s Potential: Will the Affordable Care Act Make Health Insurance Affordable?,” April 27, 2011, available at http://www.commonwealthfund.org/Publications/Issue-Briefs/2011/Apr/ACA-Health-Insurance- Affordable.aspx, last visited on March 1, 2013.72
    74. 74. The New Marketplaces/Exchanges  Age rating for individuals cannot exceed 3:1, e.g. premium for older individual cannot exceed 3 times that for younger individual: – Will result in higher premiums for younger individuals. – Some talk about allowing greater spread initially.  Affordable Care Act provides a temporary reinsurance program (2014-2017) that will provide subsidies for plans that suffer catastrophic losses. – Funded by annual fee of $63.00 per covered life to be paid by insurer or group health plan. – Affordable Care Act includes two other premium stabilization programs.73
    75. 75. The New Marketplaces/Exchanges  California is first state to provide out of pocket and other specifics about policies offered on its health insurance marketplace http://www.coveredca.com.  California is requiring insurers that offer coverage through its marketplace to offer same coverage and premiums outside the marketplace.74
    76. 76. The New Marketplaces/Exchanges  Illinois is projecting that 486,000 persons will buy coverage through its marketplace.  Premium tax credits, which can be advanced, and cost sharing reductions only available through government marketplaces.75
    77. 77. The New Marketplaces/Exchanges  Premiums for plans offered on Health Insurance Marketplaces are critical to marketplace sustainability.  Many factors make pricing difficult:* – Mandated health coverage is greater than what one-half of individual plans cover.** – How will previously uninsured utilize benefits? – Who will purchase coverage through government marketplace? – How will risk mitigation program work? * A. Rosenblatt, “The Challenges of Pricing Health Insurance for the 2014 Exchanges,” available at www.nihcm.org, last visited February 23, 2013. ** Gabel J. R., Lore, R., McDevitt R. D., et al. “More than Half of Individual Health Plans Offer Coverage that Falls Short of What Can be Sold Through Exchanges as of 2014,” Health Affairs, 31:1339-48, June, 2012.76
    78. 78. Medicaid Expansion  Individuals under age 65 with income that is less than 133% of the federal poverty level are eligible for Medicaid if state opts in.  133% of federal poverty level for 2013 is $15,282 for an individual and $31,322 for a family of four.  24 states have opted in, including Illinois.  Relieves burden on employers with low wage employees.77
    79. 79. Medicaid Expansion78
    80. 80. Options for Compliance  Employers that currently provide health care benefits: – Employers have traditionally provided health care benefits voluntarily to attract and retain employees and to ensure a healthy workforce. – 84% of U.S. Employers state they are likely to provide health coverage in 2014.* * International Foundation of Employee Benefit Plans, available at http://www.ifebp.org/AboutUs/PressRoom/Releases/ last visited February 23, 2013.79
    81. 81. Options for Compliance  Employers that currently offer health insurance are likely to experience higher costs because of Affordable Care Act: – Employer will be required to offer coverage to all employees who work at least 30 hours of week to avoid penalties. – Employees who previously opted not to be covered may elect coverage. – Waiting period cannot be greater than 90 days.80
    82. 82. Options for Compliance  Employer options to mitigate costs: – Opt to pay penalty for: • Newly eligible employees (e.g. those employees who work at least 30 hours a week and were previously ineligible for coverage). • Employees for whom coverage does not meet affordability requirements.81
    83. 83. Options for Compliance  Employer Options to Mitigate Costs (cont’d) – Decrease coverage paid by employer to offset additional costs. • Could create HR issue with employees whose coverage is being reduced. • Currently covered employees could be allowed to buy up coverage and be paid more to cover additional cost. – Reduce hours of employees to less than 30 hours per week.82
    84. 84. Options for Compliance  Defined Contribution Approach – Give employee a set amount to obtain heath insurance (defined contribution), instead of providing a health plan with certain benefits (defined benefit). – Offer employees a variety of health plan options. May use an on-line exchange (think websites that offer multiple flight options). – If employee wants option that costs more than employer subsidy, employee would pay incremental cost.83
    85. 85. Options for Compliance  Some employers, such as Sears and Darden Restaurants, have elected the defined contribution approach.  Will health plans follow the same path as retirement plans? – 1998 – 90% of Fortune 100 employers offered defined benefit retirement plans to salaried workforce. – 2012 – Only 30% of Fortune 100 employers offered defined benefit retirement plans to new salaried employees.* * http://www.towerswatson.com/en/Insights/Newsletters/Americas/insider/2012/retirement-plan-type-of- fortune-100-companies-in-2012, last visited on February 23, 2013.84
    86. 86. Options for Compliance  For employers who do not currently offer health care benefits to employees: – Penalty is likely less than cost of providing health insurance, but must compare on after-tax basis. – Penalty is not deductible. – Any compensation paid to make-up for lack of coverage is subject to FICA taxes (7.65%).  Implementation of Affordable Care Act may make more health insurance options available to employers.  Employers with less than 25 employees may get tax credits that offset premium cost.85
    87. 87. Options for Compliance  Each employer needs to evaluate costs of its options and decide what option fits with its culture and employees.  Any changes that impact collectively bargained employees will likely require negotiation with union.  Evaluation should begin now.86
    88. 88. Getting ready for 2014  Establish an internal working group with HR, payroll, tax, and finance employees.  Evaluate what changes need to be made to your health care plan: – does waiting period need to be shortened? – do eligibility provisions need to be changed? (expanding coverage to 30 hour employees)? – are employee premiums affordable at all income levels?87
    89. 89. Getting ready for 2014  Evaluate whether changes should be made to your workforce. – Decrease number of employees who work at least 30 hours per week. – Reduce number of employees by increasing hours (but watch out for FLSA).  Prepare a financial analysis of the impact of the 2014 changes: – What will it cost to expand coverage? – Should additional cost be recaptured through changes in health care program?88
    90. 90. Getting ready for 2014  Prepare financial analysis (cont’d) – Does it make sense to pay penalty for certain groups of employees?  Delegate responsibility for ongoing administration: – Who will be responsible for monitoring employee hours? – Who is responsible for health insurance enrollment?89
    91. 91. Questions? Thank you!90

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