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  1. 1. Turn on the Light for... Health Care Reform April 22, 2010 David L. Uyemura, JD, MBA Regulatory Compliance Resources, LLC ©
  2. 2. Turn on the Light Health Care Reform Agenda Welcome  Health care reform fundamentals  Small business credit and retiree subsidy  Coverage mandates – all plans  Coverage mandates – non-grandfathered plans  Administrative requirements  Taxation and revenue  Enforcement We will not address many issues, such as those relating to Medicare and Medicaid. Regulatory Compliance Resources, LLC 2
  3. 3. Health Care Reform The PPACA and the HCERA The Patient Protection and Affordable Care Act (“PPACA” - HR 3590)  signed by President Obama on March 23, 2010 The Health Care and Education Reconciliation Act of 2010 (“HCERA” - HR 4872):  signed by President Obama on March 30, 2010 General provisions:  individual responsibility for obtaining health coverage  employer penalties for failing to provide and contribute to the cost of coverage for employees. Employers are prohibited from discriminating against or terminating employees who receive subsidized coverage. Regulatory Compliance Resources, LLC 3
  4. 4. Health Care Reform Fundamentals Large employer:  During the prior year, had an average of 50 or more full- time employees, as determined on a controlled group basis, based on full-time equivalents (FTE).  Full-time equivalents are calculated by adding the total hours worked in a month by employees, other than full- time employees, and dividing by 120.  Seasonal workers may be excluded under certain circumstances for some requirements. Full-time employees:  Employees who perform, on average, at least 30 hours of service per week. A different definition applies for the small employer credit. Regulatory Compliance Resources, LLC 4
  5. 5. Health Care Reform Fundamentals Grandfathered plan:  A plan in effect on March 23, 2010  Includes all new employees and family members who enroll in the plan regardless of date-of-hire  Uncertain what would cause loss of status Collectively-bargained plans are grandfathered until the date of which the last agreement relating to the grand- fathered coverage terminates. A grandfathered plan is:  permanently exempt from some but not all coverage mandates but  is not exempt from the law’s new taxes and IRS reporting requirements. Regulatory Compliance Resources, LLC 5
  6. 6. Health Care Reform Fundamentals – Compliance by January 1, 2014 Each State will also be required to establish an American Health Benefit Exchange (‘‘Exchange’’) to:  facilitate the purchase of qualified health plans;  establish a Small Business Health Options Program (‘‘SHOP Exchange’’) to assist small employers in the enrollment of employees in small group health plans;  meet requirements, such as for:  rating, certifying and providing qualified health plans;  providing toll-free telephone hotlines and a website  certifying exemptions from individual mandate taxation. Employers must give notices to employees by 3/1/2013:  to provide information about the state Exchanges;  notify if the health plan’s benefits is less than 60%;  availability of a tax credit and free choice vouchers. Regulatory Compliance Resources, LLC 6
  7. 7. Health Care Reform Fundamentals – Compliance by January 1, 2014 States must establish a SHOP Exchanges by 2014:  Small businesses will be businesses with 100 or fewer employees, although states may limit pools to companies with 50 or fewer employees through 2016.  Small businesses will be able to pool together to buy health insurance.  The SHOP Exchange will assist qualified small employers in enrolling employees in qualified health plans;  Companies that grow beyond the size limit will also be grandfathered. The CBO predicts that the SHOP Exchanges will:  reduce premiums between 1% and 4% and  increase coverage by up to 3%. Regulatory Compliance Resources, LLC 7
  8. 8. Health Care Reform Fundamentals Essential health benefits package is a health plan that: 1. provides coverage for medical services typically covered in a group health plan; 2. limits cost-sharing and deductibles to specified amounts; 3. provides a bronze, silver, gold or platinum level of coverage as defined by the Act (“determined by the actuarially equivalent percentages of the full actuarial value of the benefits provided”). Coverage under a group or individual health plan:  will satisfy requirements for individuals to be covered for purposes of the “Individual Mandate” but  employers must satisfy additional requirements for group health plan to qualify as minimum essential coverage to avoid a “Free Rider” excise tax. Regulatory Compliance Resources, LLC 8
  9. 9. Turn on the light Compliance 2010 Small employer tax credit and Early retiree subsidy Regulatory Compliance Resources, LLC
  10. 10. Health Care Reform Small employer tax credit Small employers that contribute health coverage premiums for employees may be entitled to a tax credit:  from 2010 through 2013 with  an “enhanced” version of the credit beginning in 2014. To qualify, an employer must:  have fewer than 25 full-time employees (FTE) for the tax year (50 half-time employees will satisfy requirement);  pay average annual wages below $50,000; and  pay a uniform percentage of employee-only premiums (at least 50%) for all employees (a “qualifying arrangement”). Tax-exempt organizations are also entitled to the credit, subject to special rules for calculating the credit. Regulatory Compliance Resources, LLC 10
  11. 11. Health Care Reform Small employer tax credit To determine the number of full-time employees (“FTE”):  add the total number of hours of all full and part-time employees (but not more than 2,080 hours per employee);  divide by 2,080; and  round down to the next whole number. Average wages:  divide the total amount of wages (as defined for FICA purposes) during the tax year by  the number of FTEs and  round down to the nearest $1,000 Do not include:  hours worked by owners or their family members or  seasonal workers who worked during 120 days or less. Count all employees of a controlled group of companies. Regulatory Compliance Resources, LLC 11
  12. 12. Health Care Reform Small employer tax credit Maximum Credit:  35% of the premium paid by a small business  increasing to 50% on January 1, 2014, but  the premium paid may not exceed the average small group market premium in the state as published by HHS. For tax-exempt organizations  25% of the premium paid  increasing to 35% on January 1, 2014, but  capped by the total amount of income and Medicare tax withheld from employees’ wages and the employer’s share of Medicare taxes. The credit phases out proportionately for employers with average wages between $25,000 and $50,000 and for companies with between 10 and 25 FTEs. Regulatory Compliance Resources, LLC 12
  13. 13. Health Care Reform Small employer tax credit - Examples Employer 1:  has 10 employees and pays total wages during the 2010 tax year of $250,000 ($25,000 per worker)  pays $70,000 in health insurance premiums for employees Tax credit is $24,500:  35% of $70,000 Employer 2 (phase out for more than 10 FTEs):  32 half-time employees (the equivalent of 16 FTEs) and pays total wages of $400,000 ($25,000 per FTE) in 2010  pays $192,000 in employee health insurance premiums Tax Credit is $40,320:  $192,000 x 35% = $67,200. Credit reduction is 6/15 = 40% (FTEs over 10 divided by 15) times $67,200 = $26,880. Regulatory Compliance Resources, LLC 13
  14. 14. Health Care Reform Small employer tax credit The tax credit is claimed on the employer’s tax return:  no credit without taxable income (unless tax-exempt);  quarterly estimated tax payments may consider the credit;  deductions for health insurance premiums must be reduced by the amount of the tax credit; and  the employer may not reduce withheld income tax and FICA in anticipation of the credit. Anticipated transition relief for tax year beginning in 2010: 1. the requirement of paying a uniform percentage of the premium for all employees will not be enforced if 2. the employer pays at least 50% of the employee-only coverage even if the employee is actually receiving two- party or family coverage. Regulatory Compliance Resources, LLC 14
  15. 15. Health Care Reform Temporary early retiree reinsurance Temporary $5 billion early retiree health coverage subsidy:  Reimburses participating employers for portion of health insurance cost for retirees age 55/older. Reimbursement:  may offset employer’s or retiree’s costs  is 80% of claims between $15,000 and $90,000 (indexed)  excludible from gross income of participating employer  Definition of “claims” for this purpose is uncertain. Employers should apply to participate as soon as the application process is announced by HHS:  sunsets in 2014 or when appropriation is exhausted, if earlier The program is required to open not later than 90 days after March 23, 2010. Regulatory Compliance Resources, LLC 15
  16. 16. Turn on the light Group health plans Coverage mandates Grandfathered and non-grandfathered Regulatory Compliance Resources, LLC
  17. 17. Coverage mandates - First plan year after 9/23/10 All plans - grandfathered and non-grandfathered Prohibits maximum lifetime benefit:  Lifetime limits will be prohibited on the dollar value of “essential health benefits” for any participant or beneficiary.  “Essential health benefits” will be defined by HHS. Wellness plans:  may not require or collect information about the presence of firearms and  may not base premiums, discounts, rebates or rewards on the basis of ownership of firearms or ammunition. Regulatory Compliance Resources, LLC 17
  18. 18. Coverage mandates - First plan year after 9/23/10 All plans - grandfathered and non-grandfathered Rescission of coverage:  is prohibited except for fraud or intentional misrepresentation of a material fact but  is permitted for nonpayment of premium or termination of the plan but only upon prior notice. Internal and external claims and appeals:  Currently required for ERISA plans.  Plan must establish external review process that complies with state law for insured plans or DOL regulations for self-funded plans. Employees must be given a notice of review processes and the availability of appeals assistance through insurance divisions and an ombudsman’s office. Regulatory Compliance Resources, LLC 18
  19. 19. Coverage mandates - First plan year after 9/23/10 All plans - grandfathered and non-grandfathered Emergency services:  Must be covered by plan without prior authorization even for treatment from a non-participating provider, and  Benefits must be subject to the same cost-sharing provisions as in-network services. Preexisting condition exclusions and limitations are prohibited:  First plan year after 9/23/10 for children under age 19 in non-grandfathered and grandfathered plans.  First plan year in 2014 for grandfathered plans. Regulatory Compliance Resources, LLC 19
  20. 20. Coverage mandates - First plan year after 9/23/10 All plans - grandfathered and non-grandfathered Coverage must be made available to participant’s children until age 26, even if married:  Applies only if the plan offers dependent coverage.  Not clear if child must be financially “dependent” on participant — HHS will provide regulations.  Coverage not required for a grandchild or the spouse of a child. Effective dates:  First plan year after 9/23/10 for non-grandfathered and grandfathered plans for children who are not eligible to enroll in another employer-provided plan.  First plan year in 2014 for grandfathered plans. Fair market value of adult child’s coverage is not taxed to employee if child is age 26 or under at year’s end. Regulatory Compliance Resources, LLC 20
  21. 21. Coverage mandates - First plan year in 2011 All plans - grandfathered and non-grandfathered Reimbursements through Health FSAs, Health Savings Accounts and health reimbursement arrangements:  will be prohibited for non-prescription, over-the-counter drugs and medicines unless prescribed. The excise tax for non-qualified withdrawals from an HSA:  will increase from 10% to 20%  Archer MSAs: will increase from 15% to 20% Adoption assistance:  The adoption tax credit has been extended until the end of 2011 and  increased $1,000 to $13,170 for adoptions occurring retroactive to January 1, 2010. The credit is refundable. Regulatory Compliance Resources, LLC 21
  22. 22. Coverage mandates - First plan year in 2013 All plans - grandfathered and non-grandfathered Health FSA elections:  will be capped at $2,500, indexed to CPI  cap will apply in the aggregate to all cafeteria plans offered by employer Cap does not apply to HRA or FSA that is not part of a salary reduction arrangement under a cafeteria plan Regulatory Compliance Resources, LLC 22
  23. 23. Coverage mandates - First plan year in 2014 All plans - grandfathered and non-grandfathered Annual limits will be prohibited:  will be prohibited on “essential health benefits”  HHS will specify permitted annual limits on dollar value of coverage for “non-essential health benefits”  HHS will set “restricted limits” to ensure that access to needed services is made available with a limited impact on premiums. Wellness plans:  The maximum annual award in wellness plans  will be increased from 20% to 30% of the cost of coverage with the Secretary’s discretion to increase to 50%. Prohibits waiting periods greater than 90 days. Regulatory Compliance Resources, LLC 23
  24. 24. Coverage mandates - First plan year after 9/23/10 Applicable only for non-grandfathered plans Selection of primary care provider:  Participant may designate any available PCP  including a pediatrician for a child or an Ob-Gyn for a female participant. Direct access to Ob-Gyn without preauthorization or referral is required. Plans must provide preventive care with no cost-sharing:  services recommended by US Preventive Services;  immunizations recommended by CDC;  preventive care and screenings (e.g., breast cancer screening, mammography) recommended by Health Resources and Services Administration. HHS may provide additional recommendations. Regulatory Compliance Resources, LLC 25
  25. 25. Coverage mandates - First plan year after 9/23/10 Applicable only for non-grandfathered plans IRC §105(h) nondiscrimination will apply to insured plans:  Current rules for self-funded plans inhibit favoring highly- paid employees as to eligibility or benefits  Penalty for violation will be $100/day/participant. Plans must establish internal and external appeals process:  to provide notice to enrollees of internal and external appeals processes and availability of health insurance consumer or ombudsman assistance; and  to allow enrollees to review their file, present evidence and testimony and receive coverage during appeals. Plans must establish an external review process:  in compliance with state law for insured plans or  DOL regulations for self-funded plans. Regulatory Compliance Resources, LLC 26
  26. 26. Coverage mandates - First plan year after 1/1/2014 Applicable only for non-grandfathered plans Endorses HIPAA’s rules:  prohibiting discrimination based on health status and  for wellness plans. Prohibits employee cost-sharing requirements:  that exceed the limits for high deductible health plans in 2014. These limits will be raised annually. Participating providers:  prohibits discrimination against any health provider who wishes to be a participating provider  so long as the provider is acting within the scope of the provider’s license or certification under state law. Regulatory Compliance Resources, LLC 27
  27. 27. Turn on the light Group health plans Administrative requirements Regulatory Compliance Resources, LLC
  28. 28. Health Care Reform – Uncertain effective date Administrative requirements Automatic enrollment under The Fair Labor Standards Act:  Employers with more than 200 FTEs must:  automatically enroll new FTEs  subject to permitted waiting periods  Employers must provide notice and opt-out opportunity.  State payroll laws preempted to permit auto-enrollment.  Applies to grandfathered plans. Regulations explaining this requirement will be published. Note regarding optional Long Term Care program:  Effective 1/12011 the “CLASS” program, which stands for “Community Living Assistance and Supports”, will begin.  Employers who choose to participate must automatically enroll employees and administer payroll deductions. Regulatory Compliance Resources, LLC 29
  29. 29. Health Care Reform – First plan year after 9/23/10 Administrative requirements Transparency Reporting - Group health plans must report:  claims payment policies and practices;  periodic financial disclosures including rating practices, enrollment and disenrollment data and claim denials  cost-sharing data for out-of-network coverage  information on Health Care Reform participants’ rights and other information required by the regulators. The information must be provided:  to Health and Human Services;  state insurance commissioners; and  must be made available to the public. The GAO may also require data to assist its study of coverage denials and reversals of denials. Regulatory Compliance Resources, LLC 30
  30. 30. Health Care Reform – Probably effective in 2012 Administrative requirements Quality of Care reports to improve health outcomes:  Group health plans will be required to make annual quality-assurance reports to HHS and participants during open enrollment  describing their criteria for:  improving outcomes,  reducing hospital readmissions,  reducing medical error,  designing and implementing wellness programs. Group health plans will also be required to submit annual reports to HHS describing the success of their criteria. Compliance required after HHS publishes regulations which are expected within two years from March 23, 2010. Regulatory Compliance Resources, LLC 31
  31. 31. Health Care Reform – Probably effective in 2012 Administrative requirements Explanation of Coverage – HHS will develop standards:  for group health plan and health insurer notices;  to provide information in notices according to standards for terminology, language and content. EOCs are in addition to Summary Plan Descriptions:  a summary of the coverage, cost-sharing and exclusions;  insurer or administrator obligations and requirements;  renewability and continuation provisions;  whether or not the plan provides minimum essential coverage and covers at least 60% of covered services;  examples of common benefit scenarios; and  consumer assistance information. Compliance required within 24 months from 3/23/2010. Penalty for noncompliance - $1,000/participant. Regulatory Compliance Resources, LLC 32
  32. 32. Health Care Reform – Probably effective in 2012 Administrative requirements Notice of upcoming “material modification” in coverage:  must be provided to participants not later than 60 days before effective date of modification  required in addition to Summary of Material Modification Effective date and penalties for noncompliance apparently the same as for “Uniform Explanation of Coverage”. Government report is due within one year from 3/23/2010:  about costs, overhead, efficiency, claim denials and limited benefit packages;  economic plan fluctuations; and  potential employer-enrollee conflicts of interest Self-funded health plans will be probably be required to provide information to the DOL and HHS. Regulatory Compliance Resources, LLC 33
  33. 33. Turn on the light Group health plans Taxation and revenue requirements and changes Regulatory Compliance Resources, LLC
  34. 34. Health Care Reform Taxation and revenue effective in 2010 Medicare Part D subsidy accounting adjustment:  employers who provide retiree prescription benefits that are actuarially-equivalent to Medicare Part D coverage  have been entitled to receive 28% of covered charges between $250 and $5,000 per Medicare-eligible participant. Previously, the subsidy amount was deductible.  However, the deduction is being eliminated in 2013, so  employers must probably amend financial statements. $500,000 cap on business expense tax deduction for health insurance company employee salaries:  effective the first plan year after 12/31/2012  and for deferred compensation received on/after 1/1/2010 Regulatory Compliance Resources, LLC 35
  35. 35. Health Care Reform Taxation and revenue effective in 2010 Non-taxable employer-provided Adoption Assistance:  Increases nontaxable maximum adoption assistance in 2010 to $13,170 (a $1,000 increase), but  after 2011, the adoption assistance exclusion will only be a $6,000 credit for special-needs children with no income exclusion. Regulatory Compliance Resources, LLC 36
  36. 36. Health Care Reform – Effective in 2011 Tax and revenue requirements W-2s:  Employers must report the aggregate cost of coverage provided by the employer on W-2s.  This is intended to inform employees of the value of their coverage. 1099s:  Currently only required for non-corporate service providers.  Employers will be required provide a form 1099 for all corporate service providers paid more than $600 per year. Regulatory Compliance Resources, LLC 37
  37. 37. Health Care Reform - Effective in 2012 Taxation and revenue requirements Temporary Fee for each Participant will be assessed:  on insured plans and sponsors of self-funded plans  to fund Patient Centered Outcomes Research Trust Fund for study of comparative effectiveness. The fee will be:  $1 in the plan year ending in 2013  $2 in the plan year ending in 2014 and  indexed after 2014 (under a complex formula) The fee:  does not apply to coverage for accident, disability and limited scope vision and dental and  will not apply for plan years ending after 9/30/2019. Regulatory Compliance Resources, LLC 38
  38. 38. Health Care Reform - Effective in 2013 Taxation and revenue requirements High-Income employees Medicare tax:  The employee portion of the hospital insurance tax part of FICA increases from 1.45% to 2.35% of wages over:  $200,000 for single filers and  $250,000 for a joint return or surviving spouse An additional tax of 3.8% will be imposed on unearned income of high-income employees  such as interest, dividends, royalties, annuities and rent  and for some investment income for estates and trust. This tax does not apply:  to the employer portion of the Medicare tax  non-resident aliens or  a tax-exempt charitable trusts. Regulatory Compliance Resources, LLC 39
  39. 39. Health Care Reform - Effective in 2013 Taxation and revenue requirements Medical expense itemized deductions:  The threshold for the itemized deduction for unreimbursed medical expenses will increase from 7.5% of adjusted gross income to 10% of AGI for regular income tax purposes. Exception for seniors:  if either the taxpayer or the taxpayer’s spouse turns 65 during the tax years of 2013 through 2016,  the threshold will remain at 7.5% for the tax years in which they turn 65 through 2016. Regulatory Compliance Resources, LLC 40
  40. 40. Health Care Reform - Effective in 2014 Taxation and revenue requirements Premium Assistance Credit - Individuals (single or joint) are eligible for a credit under the new IRC §36B if:  their household incomes are between 100% and 400% of the federal poverty level (FPL) as of the tax year ending two years prior to the enrollment period and  they do not receive health insurance through an employer or a spouse’s employer. The credits:  may be used to help purchase health insurance through a state health benefit exchange and  are based on the percentages of income the cost of premiums represents, from 2% of income for those at 100% of FPL to 9.5% of income for those at 400% of FPL. Regulatory Compliance Resources, LLC 41
  41. 41. Health Care Reform – Takes effect in 2014 Individual coverage mandate and excise tax Excise Tax on Uninsured Individuals (“Individual Mandate”):  U.S. citizens and legal residents must have minimum amounts of qualifying health insurance coverage.  Noncompliance not be subject to liens, seizures or criminal penalties. Failure to maintain minimum essential coverage subject to a phased-in penalty from $95 in 2014 to $695 in 2016 up to a maximum of $2,085 (family) or 2.5% of income.  One-half penalty for uninsured individuals under 18.  After 2016, the penalty will be indexed for inflation. Exemptions will be granted for financial hardship, religious objections, native Americans, periods of non-coverage of less than 3 months, some immigrants and the incarcerated. Regulatory Compliance Resources, LLC 42
  42. 42. Health Care Reform – Takes effect in 2014 Individual coverage mandate and excise tax Large employers must file a return to report information to HHS to assist in enforcing the individual mandate:  the employer’s name, date and EIN  whether employees were offered coverage, length of waiting period, lowest cost option, actuarial value, etc.  certification that the employer offers group health coverage to full-time employees and dependents plus:  waiting period  the monthly premium for the lowest cost option  the employer’s share of the total costs of benefits  the number of full-time employees for each month during the calendar year,  each full-time employee’s name, address, and TIN. Regulatory Compliance Resources, LLC 43
  43. 43. Health Care Reform – Takes effect in 2014 Individual coverage mandate and excise tax The employer must give a written statement to individuals listed on the return to provide the following information :  the name and address or the employer and the telephone number of the employer’s contact person, and  the information that was reported. The written statement must be provided to the employee by January 31 of the following year in which the information was reported. Regulatory Compliance Resources, LLC 44
  44. 44. Health Care Reform - Effective in 2014 Taxation and revenue requirements Free Rider tax penalty assessed on large employers (no exemption for seasonal employees) who:  do not offer group health coverage for FTEs,  offer unaffordable minimum essential coverage, or  offer minimum essential coverage in which the plan’s share of total allowed cost of benefits is less than 60%  who have at least one full-time employee who is  certified as enrolled for coverage in an Exchange and  eligible for IRC §36B tax credit or cost-sharing reduction Eligibility for §36B tax credit or a cost-sharing reduction: a. individual’s household income is less than 400% of federal poverty line (FPL) for “cost sharing reduction”, or b. is eligible for trade adjustment assistance or meets certain other requirements for “IRC §36B tax credit” Regulatory Compliance Resources, LLC 45
  45. 45. Health Care Reform - Effective in 2014 Taxation and revenue requirements The Free Rider tax penalty will be assessed on the employer:  If the employer offers group health coverage to an individual with a family income up to 400% of FPL and  the actuarial value is less than the 60% threshold or  any employee’s required premium is greater than 9.5% of the employee’s household income (thus entitling the employee to a tax credit) The Free Rider tax penalty will be a monthly penalty which is the lesser of:  $2,000 per FTE/year excluding the first 30 employees or  $3,000 times the number of employees receiving the tax credit Regulatory Compliance Resources, LLC 46
  46. 46. Health Care Reform - Effective in 2014 Taxation and revenue requirements Free Choice vouchers must be provided by employers who provide and contribute to employee health coverage:  if an employee’s contribution for coverage is between 8% and 9.8% of the employee’s household income (indexed);  the employee’s household income is less than 400% of the Federal Poverty Level; and  the employee does not enroll in the employer’s health plan. Employees may use the vouchers to purchase health coverage through the Exchange:  Employers will pay amounts directly to the Exchange.  The voucher amount must be for the amount the employer would have paid for the employee’s tier of coverage.  If the cost of the Exchange coverage costs less than the voucher, the difference will be paid to the employee. Regulatory Compliance Resources, LLC 47
  47. 47. Health Care Reform - Effective in 2014 Taxation and revenue requirements Free Choice vouchers (cont.):  The cost of the plan is to be determined under rules similar to COBRA, except:  they will be adjusted for age and  enrollment tier (e.g., single party, two-party and family) in accordance with expected regulations.  Amounts paid toward the cost of coverage under the Exchange are excluded from the employee’s income.  The employer receives a tax deduction for the amount of the voucher. A free rider penalty will not be imposed with respect to employees who receive vouchers. Regulatory Compliance Resources, LLC 48
  48. 48. Health Care Reform - Effective in 2014 Taxation and revenue requirements Health insurers will be taxed:  Beginning January 1, 2014: $8 billion  Phased up to $14.3 billion in 2018  Tax will be indexed based upon premium growth The Tax:  will be prorated for each insurer by market share  Tax will apply to reinsurance. The following benefit plans are exempt from this tax:  disability and accident,  specific disease, such as cancer coverage; and  hospital indemnity coverage, such as those that pay a fixed benefit for each day of hospitalization. Regulatory Compliance Resources, LLC 49
  49. 49. Health Care Reform - Effective in 2014 Taxation and revenue requirements Cafeteria plan  New Code § 125(f)(3) provides that a “qualified benefit” under a cafeteria plan does not include qualified health plan offered through an Exchange (with exception for certain small employers)  Rule applies even in 2017 and thereafter, when employers with more than 100 employees may be permitted by States to offer health coverage through an Exchange (see below) Regulatory Compliance Resources, LLC 50
  50. 50. Health Care Reform – Cadillac Tax Taxation requirements effective in 2018 Cadillac plan taxation - A nondeductible 40% excise tax will be imposed:  on the aggregate value of coverage per covered employee that exceeds (for 2018):  $10,200 per individual (adjusted as below) or  $27,500 family (adjusted as below) The 2018 thresholds:  will be calculated monthly;  may be adjusted to reflect excess of actual growth in US health care costs over expected growth.  are indexed to reflect age and gender-based cost of an employer’s workforce. Regulatory Compliance Resources, LLC 51
  51. 51. Health Care Reform – Cadillac Tax Taxation requirements effective in 2018 Cadillac plan taxation (cont.):  2018 thresholds for retirees age 55 and older until Medicare-eligible and employees in high risk professions are increased to:  $1,650 for individual coverage  $3,450 for family coverage The Cadillac tax will be paid by:  Insurers for insured coverage;  Employers or plan administrators for other employer- sponsored coverage. Regulatory Compliance Resources, LLC 52
  52. 52. Health Care Reform – Cadillac Tax Taxation requirements effective in 2018 The value of coverage:  will be the cost of medical coverage (COBRA method)  will include all employer-sponsored health coverage:  medical,  Health FSA, HRA and contributions to an HSA, employee after tax premiums, reimbursements from or Archer MSA, and other supplementary health coverage. Excluded from the calculation are:  employer coverage for long term care  non-health benefits such as accident, specific illness, hospital, other fixed indemnity coverage if paid by employee after tax premium  separately-provided (insured?) dental or vision coverage Regulatory Compliance Resources, LLC 53
  53. 53. Turn on the light Enforcement Regulatory Compliance Resources, LLC
  54. 54. Health Care Reform Enforcement Violations of the new coverage mandates:  are subject to a HIPAA-like tax penalty under IRC §4980D of $100 per day for each affected participant, from the date of failure to the date of correction.  for unintentional failures, the penalty is capped at the lesser of $500,000, or 10% of the employer’s health plan costs. These mandates are also subject to ERISA, but the $100- per-day penalty does not apply to a retiree-only plan. Regulatory Compliance Resources, LLC 55
  55. 55. Turn on the light Thank you! Regulatory Compliance Resources, LLC