What every employer needs to know about healthcare reform september 2013

What Every Employer Needs to
Know About Healthcare Reform
Made Available Courtesy of Heroik Media
www.HEROIKMEDIA.COM

What Every Employer
Needs to Know About
Health Care Reform
(September, 2013)
Presented By
David L. Fear, Sr. RHU
Employee Benefit Consultant

The Patient Protection and Affordable Care Act
(PPACA)
• Signed into law in March, 2010
• Largest piece of health legislation since Medicare/Medicaid (1965)
• Many provisions have already gone into effect including:
– Exemption for “grandfathered” plans
– Dependent coverage to age 26
– Preventive care services at 100%
– Unlimited lifetime benefits
– Medicare tax increase for high income earners
– Minimum Loss Ratio “Rebates”
• U.S. Supreme Court ruled in June, 2012 to uphold majority of the law:
The “Individual Mandate” is a tax and that is legal
• Since the November 2012 elections regulations have been released
nearly every week on various parts of the law and how it will be
enforced
• Businesses need to prepare to comply with the law because the “Train
Has Left The Station”:
– While the Republican controlled House has again voted to repeal PPACA, the Democrat
controlled Senate will not and the President has indicated he will veto any repeal
legislation sent to him
– Chances are slim that amendment legislation will be approved during this session of
Congress
Roseville Chamber -
9/6/2013
3

Full Enactment of the Law starts now…
• 2014:
– The Individual Mandate to purchase “Essential Health Benefits”
– Expansion of Medicaid (“Medi-Cal” in California) begins
– Federal Health Insurance Premium Subsidy begins
– Insurance Market Reforms go into effect
– Health Insurance Exchanges begin operation
– Health Insurance Taxes and Fees are levied
• 2015 and beyond:
– The Employer “Shared Responsibility” Mandate will begin
– Large Employers may join the Exchange (2017)
– Additional Taxes on “Cadillac” plans (2018)
9/6/2013
4

2014: The Individual Mandate
• All American citizens and legal residents will be
required to purchase “essential health benefit”
insurance coverage or pay a fine (“tax”)
• Exceptions will be allowed for:
– Religious objectors
– Incarcerated individuals
– Hardship waivers (individuals with income less
than 100% of Federal Poverty Level-FPL)
– Members of Indian Tribes
– People with no income tax liability
– Individuals who are not ‘lawfully present’
– Those who were not covered for a period of less
than three months during the year
9/6/2013
5

2014: Essential Health Benefits
• Health plans which provide coverage in the ten
categories of health care services as defined:
– Ambulatory Patient Services
– Emergency Services
– Hospitalization
– Mental, Substance Abuse, Behavioral Disorders treatment
– Maternity and Newborn Care
– Prescription Drugs
– Rehabilitative Services and Devices
– Laboratory Services
– Preventive & Wellness Services and Chronic Disease Management
– Pediatric Services including Oral and Vision Care
• Health plans may include deductibles, co-payments and
other cost sharing provisions but cannot exceed an
annual cost sharing limit of $6,350 per person (in
network, x2 family)*
*On August 21st, the out of pocket limit requirement was pushed back to 1/1/2015
9/6/2013
6

2014: The Individual Mandate
• Mandate applies to both employed and unemployed
persons who are not specifically exempted from the
law:
– If their employer does not provide an “essential” benefit
plan, they must still comply and pay penalty if they fail to
obtain “essential” coverage
• The penalty for non-compliance of the individual
mandate is the higher of:
– A percentage of gross household income equal to:
• 1% in 2014
• 2% in 2015
• 2.5% in 2016 (*capped at “bronze” level cost)
• or
– A flat amount equal to:
• $95 per person in 2014
9/6/2013
7

2014: Expansion of Federal Medicaid
• Currently, Federal Government funds part
of Medicaid and the states fund the
balance and administer the program for
the poor:
– Currently available to families (with children)
with less than 100% of Federal Poverty Level
(FPL) income (see chart)
• PPACA gives states funding to expand to
133%/138% of FPL
– California has funds to expand “Medi-Cal” to
138%
– Available to both single and families
– Will expand to a “managed care” program in
nearly all 58 counties of California
9/6/2013
8

Expansion of Medicaid (Medi-Cal) and Federal Poverty Level of Income
Household
Size
Current 1
00%
In 2014
133%
150% 200% 300% 400%
1 $11,490 $15,282 $17,235 $22,980 $34,470 $45,960
2 15,510 20,628 23,265 31,020 46,530 62,040
3 19,530 25,975 29,295 39,060 58,590 78,120
4 23,550 31,322 35,325 47,100 70,650 94,200
5 27,570 36,668 41,355 55,140 82,710 110,280
6 31,590 42,015 47,385 63,180 94,770 126,360
7 35,610 47,361 53,415 71,220 106,830 142,440
8 39,630 52,708 59,445 79,260 118,890 158,520
For each
additional
person, add
$4,020 $5,347 $6,030 $8,040 $12,060 $16,080
9/6/2013
9

2014: Federal “Premium Subsidy”
• A Federal health insurance “premium subsidy”
becomes available to qualified individuals:
– It is a sliding-scale refundable tax credit paid to the
health plan for individuals or families with incomes of
between 133% and 400% of Federal Poverty Level
(family of 4 = $31,322 to $94,200)
– Subsidy only available through an Exchange*
– Not available to employees (or their dependents) of
employers who offer “affordable” and the “minimum
value” coverage to their employees
– Subsidy is limited to amount based on the “Silver”
benefit level where the person resides and is higher for
families than for individuals
• Individuals who elect a plan which costs more will
pay the difference
*Subsidy in 2014 will not be subject to income verification; Subsidy can be changed in
2019 if total subsidy payments exceed .504% of GDP.
9/6/2013
10

2014: Insurance Market Reforms
• All health insurance coverage will be guaranteed issue and
guaranteed renewable in all markets (Individual, Small Group,
Large Group)
– Self Insurance is still permitted after 2014
• Pre-existing condition exclusions will be prohibited in all
markets
• Annual or Lifetime benefit limits will be prohibited in all plans
• Benefit plans for individuals and small employer groups will
become more standardized and fit into the four “metallic”
categories (“actuarial value”):
– Platinum (90% Actuarial Value)
– Gold (80% Actuarial Value)
– Silver (70% Actuarial Value)
– Bronze (60% Actuarial Value)
• It is expected that premium rates for individuals will rise since they
are now guaranteed issue; Some small employer group plan rates
may increase as employers may have to increase benefits to meet at
least the “bronze” benefit level
9/6/2013
11

2014: Insurance Market Reforms
• Re-defines the small group market as 1-100
employees (1-50 in California until 2016)
• All fully insured individual and group policies
up to 100 lives must abide by strict
community rating standards:
– Premium variations only allowed for:
• Age (3:1 price ratio – compressed from 7:1)
• Tobacco use (1.5:1 price ratio, ex. CA)
• Family composition (EO, ES, EC, EF)
• Geography (CA will have 19 regions)
– Experience rating will be prohibited – “Risk
Adjustment Factors” will go away
– Wellness discounts are allowed for group
plans under very specific circumstances
9/6/2013
12

2014: Health Insurance Exchanges
• PPACA mandates that an Exchange will be available in all States
in 2014 (States set up or Feds do it for them)
– For Individuals and for Small Employers (SHOP)
– Large Employers can join in 2017
• Exchange will handle the administrative tasks including:
– Negotiate rates, benefits and services with health plans
– Educate the public on health care reform
– Determine eligibility for premium subsidy, tax credits
– Bill, collect, remit premium for health plans
– Transmit data to Feds to comply with individual mandate
• California established its own exchange with about $1.5 billion
in grants from Feds (“Covered California”)
– Developing plans, rates and services for 10/1/2013 kick off date for
1/1/2014 effective date
– Will feature both an Individual and Small Employer exchange
– Will employ more than 1,000 state workers
– Will contract with over 20,000 “Navigators”, Assisters and appointed
Insurance Agents to enroll individuals and small employer groups
– 13 carriers are participating in the Individual Exchange initially
9/6/2013
13

2014: The Employer Mandate
• On July 2, 2013 Feds announced that enforcement of the mandate will be
pushed back to 2015
• “Shared Responsibility” or “Play or Pay” mandate applies to “Applicable Large
Employers” with 50+ Full Time Equivalent employees (*see following example)
• They are to offer coverage to Full-Time employees who work an average of 30
hours per week or 130 hours per month
– The coverage must meet a “minimum value standard”
– The coverage must be “affordable”
• The penalty for failure to do this the lesser of:
– $2,000 x no. of Full-Time employees less the first 30 employees, or
– $3,000 x no. of Full-Time employees who receive an exchange premium
subsidy
• Employers are NOT required to provide coverage to Part Time employees or
to Seasonal employees
– Recent “safe harbor” regulations allow for employer to do a “look back”
on ‘variable hour employees’ to determine their full time status (*see
following example)
• All employers must give all of their employees notice of the existence of an
Exchange and whether or not they provide “affordable” coverage by
9/30/2013 (Template of the notice has been provided by USDOL)
9/6/2013
14

Am I an “Applicable Large Employer”?
• Applicable Large Employer = 50+ Full-Time and Full-Time Equivalent employees:
– Full-Time employees are those who average 30 hours/week or 130 hours/month (or 1,560
hours over 12 months)
– Full-Time Equivalent employees are those whose hours worked do not qualify them as Full-
Time. These employee hours are added together and divided by 120 to determine the number of
Full-Time Equivalent employees
– Do not have to include Seasonal Employees who work less than 120 days per year
Example:
• ABC Farms looks back on each month of 2013 and determines that over the this 12 month period:
– It employed 15 Full-Time employees who averaged 35 hours per week, and;
– It employed an additional 60 Part-Time employees who averaged 80 hours per month each. To determine
the Full-Time Equivalent use this formula:
• 60 Part-Time X 80 Hours/Month = 4,800 hours divided by 120 = 40 Full-Time Equivalents
• So, even though ABC Farms has a 75 employees on their payroll (15 Full Time and 60 Part Time), for purposes of
the law, they only have 55 Full-Time Equivalent employees during each month in 2013; But of the 60 Part-Time
employees, 20 are Seasonal who work less than 120 days per year, these are excluded from the count: 15 FT + 40
FTE = 55 – 20 Seasonal = 35 Employees = Exempt From Mandate
9/6/2013
15

Do I provide the “minimum value standard”
coverage to my employees?
• “Minimum Value Standard” for large employers will parallel “essential benefits”
definition which applies to individual and small employer plans
– Designated covered, limited and excluded expenses
– Maximum cost sharing provisions (deductibles, coinsurance, copayments)
– Provides at least a “60% actuarial value” (i.e. “Bronze” level benefits)
– Allow for “catastrophic” plans for employees under age 30
• Most HMO, PPO plans meet this standard today, but most “limited benefit” plans will
not (plans cannot have annual or lifetime benefit limits)
• Feds have indicated that a plan with a maximum out of pocket limit (deductibles,
copayments, coinsurance) of $6,350 per individual in network will meet this threshold
(further guidance is forthcoming and this number is based on 2013 rule) – an “Actuarial
Value” calculator will be available in the near future
• A Maximum Out-of-Pocket limit greater than $6,350 will not meet the
minimum value standard regardless of the plan’s “Actuarial Value”
9/6/2013
16

Is my coverage “affordable”?
• Law defined “affordable” as coverage which does not cost the employee
more than 9.5% of their family income but most employers don’t know
what that is, so…
• IRS has clarified that an employer may use two safe harbors:
– 9.5% of the employee’s W-2 income from that employer or
– 9.5% of the employee’s hourly wage from that employer
• Affordability only applies to single coverage, not family coverage – an
employer is not required to pay for dependent coverage
• Examples:
– Employee is paid $10 per hour and W-2 income shows a total of 2,000 hours worked in
prior year = $20,000 of W-2 income from that employer
– $20,000 x 9.5% = $1,900 / 12 months = $158.33 maximum employee contribution per
month allowed for single coverage to be considered “affordable”, or;
– $10 per hour x 9.5% = $.95 per hour maximum contribution x 2,000 hours worked =
$1,900 maximum employee contribution per year allowed for single coverage
9/6/2013
17

What penalty will I pay if I don’t comply?
• The lesser of $2,000 times the number of Full Time employees less the first 30 employees or
$3,000 times the number of Full Time employees who obtain a premium subsidy through an
exchange
• Example:
– Employer has 75 full time employees but only offers affordable or minimum value
standard coverage to 10 of them (i.e., salaried but not hourly), so penalty is based on 65
employees who are not offered coverage
– 65 – 30 = 35 x $2,000 = $70,000 penalty or
– Of the 65 employees, 15 enroll in an exchange and receive a premium subsidy
– 15 x $3,000 = $45,000 penalty
– Employer will pay the lesser of the above two penalties = $45,000
• It is expected that this penalty will be due when the employer files his business tax return
after the end of 2014
– Regulatory guidance is pending on when/how penalties are paid
– Feds have announced that 2014 will be a “transition” year for enforcement of the law –
this means that employers with non-calendar year plans can postpone coming into full
compliance until their renewal date after 1/1/2014
• Questions about enforcement of individual mandate & penalties, and subsidy payback, etc.
– The above penalties are NOT tax deductible business expenses!
9/6/2013
18

What about Part Time or Seasonal employees?
• PPACA allows an “Applicable Large Employer” to exclude from having to offer
coverage to both Part Time and Seasonal employees. These are now referred to as
“Variable Hour Employees”
– Part Time are those who work less than an average of 30 hours per week or 130 hours
per month
– Seasonal are those who work less than 120 days per year
– There is a new “Safe Harbor” method for dealing with “Variable Hour Employees”
which works like this:
• Employer does a 3 to 12 month look back or “measurement period” to count the employee’s
work hours
• If they work less than an average of 30 hours/week during this period they can be excluded
going forward
• If they work an average of 30+ hours/week during this period they must be offered coverage for
a minimum of six months regardless of the number of hours they work during this period
(referred to as the “stability period”)
– The employer is allowed to impose up to a 90 day waiting period (60 in CA) (referred to
as the “administrative period”) following the measurement period but coverage must
begin no less than 13 months after their initial hire date
• The above safe harbor gives employers flexibility in dealing with “variable hour
employees”
9/6/2013
19

What else about Part Time & Seasonal Employees
• For 2014, employers may rely in good faith on existing definitions of a Seasonal
Employee previously provided by the Department of Labor
• An employer who uses an “Hours Banked” method to determine eligibility:
– Maximum hours banked must be 1,200 cumulative hours and
– Coverage must begin no later than the 91st day following the accumulation of 1,200 hours
• For Seasonal Employees who have a break in service during the year, an employer
may treat a returning employee as a new employee (and begin a new “measurement
period”) by applying either:
– The “26 week break in service rule” in which the employee has a break in service of at least 26 weeks or
– The “Optional Rule of Parity” in which the “no service” period is at least 4 weeks but no more than 26
weeks in duration and the period of “no service” is longer than the term of employment
• For employers who use Farm Labor Contractors or Temporary Agencies for staffing,
those contractors/agencies must comply with PPACA requirements for if they employ
more than 50+ Full Time Equivalent employees
– Their costs going forward will reflect the cost to comply with the Employer Shared Responsibility
requirement in that they will have to offer “affordable” coverage which meets the “minimum value
standard” (Bronze level plan benefits)
9/6/2013
20

What about small employers?
• The “Play or Pay” mandate doesn’t apply to employers with less than 50 Full
Time or Full Time Equivalent employees
– But the “affordability” provision related to the Premium Subsidy applies to employers of all
sizes (employees who are offered “affordable” coverage through work are not eligible for an
Exchange Premium Subsidy!)
• Insured health plans for small employers will have benefit mandates:
– “Essential Benefits” is different than “Minimum Value Standard” and will be the standard that must be met
in the Individual Mandate requirement
– There is a $2,000 cap on calendar year deductibles for small employers, but allowance to set up a Health
Reimbursement Arrangement for higher Out-of-Pocket limit plans ($6,250)
– Self funded plans are excluded from the $2,000 deductible cap but must meet the minimum standard value
requirement which includes a $6,250 maximum out of pocket limit
• Small employers may qualify for a Health Insurance Tax Credit (currently offered, but
will be limited through an Exchange in 2014)
– Employer with 25 or less employees and who has an average payroll of less than $50,000 per person
(excluding owner) & pays at least 50% of the cost of single coverage for their employees
– Tax credit is a sliding scale currently capped at 35% of employer’s cost of coverage, this will increase in 2014
to 50% tax credit in 2014 (through the exchange)
• Small employers may want to re-think their contribution strategy…
9/6/2013
21

2014: Other Issues
• A national health insurance premium tax will begin on all fully
insured plans
– Est. cost initially about $500 per family/year
– Increases annually ($8 billion up to $11+ billion)
• A national reinsurance fee will be charged to all fully insured
and self funded health plans of $63 per person per year
• Limits employee waiting periods to 90 days
– 60 days in California (for “small employers”)
– Inclusive of “first of the month” entry
– Can be based on number of hours worked
– Applies only when employee becomes eligible
• Expect the Section 105(h) non-discrimination requirements to
be enforced ($100/day penalty)
– Offer all employees access to all plans available
• Auto-Enrollment for groups of 200+ to be enforced
– Employees will be able to opt-out with other coverage
9/6/2013
22

After 2014: More to come
• 1/1/2015 – Shared Responsibility mandate has been
pushed back from 1/1/2014*
• 1/1/2017 – Large employers will be allowed to enroll in
the State Exchange
– May be some repercussions to Exchange prices if only large
employers with “poor” claims experience join in the exchange
• 1/1/2018 - implementation of a 40% excise tax on
insurers of employer sponsored health plans with
aggregate values that exceed $10,200* for singles and
$27,500* for families (*adjusted for inflation annually)
– this is referred to as the “Cadillac Tax”:
• Plans will be allowed to take into consideration age,
gender and certain other factors that impact
premium costs
• Expect insurers to pass this tax on to policyholders
directly since it is an excise tax
• *Regulations are forthcoming…
9/6/2013
23

Concluding thoughts…
• PPACA is a huge compliance issue for both individuals and employers
– Individual Mandate – begins on 1/1/2014
– Employer Mandate is voluntary in 2014 but enforced in 2015
– Standardized rates, benefits and services – plan design changes
• Businesses may need to re-think their employee benefit strategy:
– Large Employers:
• Should I offer “minimum value standard” and “affordable” coverage, the cost of which is
tax deductible?
• Should I drop my coverage and pay the fines, which are not tax deductible?
• Should I re-classify my employees as “Variable Hour” instead of Full Time?
• Should I purchase coverage directly, or through a private exchange and should it be fully
insured or self funded?
– Small Employers:
• Should I offer “affordable” group coverage – directly or through the exchange?
• How much should I charge my employees for their coverage?
• Should I drop coverage and let my people do their own thing?
• Will my current offerings meet the non-discrimination requirements?
• Do I downgrade my benefits to meet the minimum standard (and reduce costs) and
incentivize my employees with other additional ancillary benefits – or do I set up an HRA
to offset deductible increase?
• I’m an employer with a lot of uninsured employees – what do I need to do?
9/6/2013
24

Information provided through…
9/6/2013
25
David L. Fear, Sr.
(916) 960-0262, ext. 13
davidfearsr@fearcorp.com
2140 Professional Drive, Suite 155,
Roseville, CA 95661
For Members Of The

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