Health Care Reform

Health Care Reform Ross Manson, Principal

Health Care Reform Update • ACA employer penalties delayed until 2015 • 1/1/2014 • Establishment of Public Exchanges • Payment of Individual Subsidies • Individual Mandate

Health Care Reform EMPLOYER BASICS

Employers key number is > = 50 = Large Employer and subject to pay or play penalties < 50 Small Employer and NOT subject to pay or play penalties Full time equivalent employees 50

Health Care Reform – Large Employer? • Large employer = 50 or more Full-Time Equivalent Employees Steps: • Calculate your Full-Time Employees (average 30 hours/week or 130 hours per month) • Calculate your (part-time and seasonal) FTEs (add up total hours and divide by 120) • Add the two numbers in steps 1 and 2 • Add up the 12 monthly numbers in 3 and divide by 12 • If less than 50, not applicable large employer • If greater than or equal to 50, greater than 120 days?

Part-Time and Seasonal Employees • Part-Time and Seasonal Employees • Part-time employees: those working fewer than 30 hours a week for the year • Included in calculating whether an employer has over 50 full-time equivalents • Not included in penalties • Seasonal employees: as designated by the Department of Labor • Included in calculating penalties in the months applicable • Excluded if: seasonal employees caused employer to have > = 50 full-time equivalents for equal or less than 120 days

Large Employer – NO insurance • Employers NOT offering health insurance • A penalty of $2,000 per year/per full-time employee • Exempts the first 30 full-time employees from computation • Example: 100 full-time employees and one goes to an Exchange and utilizes credit • Penalty = (100-30) x $166.67 = $11,667/month • $140,000 annually • Triggered on all full-time employees if one full-time employee goes to the exchange and receives a subsidy • Penalty is NOT tax deductible

Large Employer – Offer Insurance • Potential penalty if employer OFFERS health insurance • A penalty of $3,000 per year/per FT employee who goes to the exchange and receives an exchange subsidy • Subsidy eligibility based on unaffordable or inadequate insurance • Unaffordable = Employee insurance premiums exceeding 9.5% of HHI • Inadequate = Insurance policy less than 60% of actuarial value • Capped by the amount of penalty for not offering insurance coverage (in aggregate, not per employee)

Inadequate Insurance • Actuarial Value: • Generally is calculated by computing the ratio of the total expected plan payments for essential health benefits, computed according to the plan’s cost-sharing features (deductibles, coinsurance, copayments, and out-of-pocket limits) over the total costs for the essential health benefits a standard population is expected to incur. • Intended to allow consumers to compare and understand a plan’s value. • HHS has developed a Actuarial Value calculator at: http://cciio.cms.gov/resources/regulations/index.html#pm

Large Employer – Safe Harbor • Affordability safe harbor and proposed regulations issued 12/28/12 • Employer must offer minimal essential coverage • Employee portion of self-only premium for the lowest cost coverage that provides minimum value must not exceed 9.5% of the employee’s wages • Wages equal Box 1 on Form W-2 • “Rate of Pay” – rate of pay at beginning of year multiplied by 130 hours. This becomes base amount for 9.5% affordability calculation. • Federal poverty line (FPL) – self only coverage < 9.5% of FPL for a single individual.

Large Group Coverage • Employer must offer coverage to at least 95% of all full-time employees and their dependents • Help protect against errors that could occur in identifying full-time employees; • Coverage must be offered to dependents – only required to pay premium towards single plan (can’t exceed 9.5% test); • Dependents; • Children up to age of 26 • Spouse not defined as a dependent

Health Care Reform BUSINESS EMPLOYER SPECIFICS

Automatic Enrollment However – The department of labor has concluded additional guidance has not been issued in time for automatic enrollment to take effect by 2014 Source: Department of Labor Technical Release 2012-01: IRS Notice 2012-17 According to the health reform legislation, an employer must automatically enroll new employees and those who are currently enrolled in their health insurance plan

Hours of Service Rules • Hours of service include not only hours worked but also hours for which an employee is paid or entitled to payment even when no work is performed. Including: • Vacation, holiday, illness, incapacity, layoff, jury duty, military duty or leave of absence • Service outside of the U.S. is generally not counted

Key Definitions: Determining Full-Time Employees • Hourly • Non Hourly • Actual hours • Days worked equivalency • Weeks worked equivalency • You cannot intentionally use a method to lower their actual hours (3 ten hour days using days worked would be an example)

Controlled Groups • Employer • Controlled group • Parent-subsidiary chains • Brother-sister controlled group • Combined group of the above • Affiliated service group • Has direct or indirect ownership interest and • Performs services for service organization or • Works with other organization in rendering services to third parties

Health Care Reform Terms • Waiting period • Measurement period • Initial measurement period • Standard measurement period • Stability period • Administrative period

Waiting Period Waiting Period–period of time that must pass before an employee or dependent, who is otherwise eligible to enroll under terms of a group health plan, can receive coverage. This period cannot exceed 90 calendardays

Measurement and Stability Period • Measurement Period– period of not fewer than three or more than 12 months, chosen by the employer, as the measurement period that can be looked back to in order to determine the full- or part-time status of an employee • Stability Period– next period where an employee is locked in according to the results of the measurement period • Measurement and Stability periods apply to: • Ongoing employees • New variable hour employees • New seasonal employee

Measurement Period • Standard Measurement Period (SMP) applies to ongoing employees • Employees employed at least one full SMP • Initial Measurement Period (IMP) applies to new variable hour and seasonal employees • Is usually going to be different than the SMP • Begins between the employee’s start date and first day of next calendar month • IMP and SMP will likely overlap for new employees

Stability Period • The Stability Period is the period in which an employee’s status is determined for offering insurance or paying penalties • Status will be either a full time or part time employee (as determined from the measurement period) • Full time employee: stability period has to be at least six months or the length of the measurement period • Part time employee: • Ongoing employee – not longer than SMP • New variable hour seasonal employee – not longer than IMP plus one month and status must be tested again during first SMP

Administrative Period Administrative Period– this is the time allowed between the measurement period and stability period used to determine the status of the employee which cannot exceed 90 days and cannot delay the effective date of coverage to an eligible full-time employee Initial measurement period and administrative period cannot exceed past the last day of 1st calendar month beginning on or after 1-year anniversary of new variable hour employee (approximately 13 months)

Permissible Employee Categories – for Measurement Periods Collectively bargained employees and non-collectively bargained employees Each group of collectively bargained employees under separate agreements Salaried and hourly employees Employees in different states

Example 1 • Ongoing full time employee: • SMP – 11/1/13 to 10/31/14 (12 months) • Admin period – 11/1/14 to 12/31/14 (2 months) • Stability period – 1/1/15 to 12/31/15 (12 months) • Employee Alex has worked for XYZ for 10 years and averaged more than 30 hours per week • Alex would be considered a full time employee during the Stability period of 1/1/15 to 12/31/15 • XYZ must offer insurance to Alex or pay a penalty

Example 1 Chart SMP = Standard Measurement Period AP = Administrative Period SP = Stability Period

Example 2 • Ongoing part time employee: • Same measurement, admin and stability period as Example 1 • Employee Ben works for 10 years but averages less than 30 hours per week during SMP • XYZ company does not count Ben as a full time employee during stability period and is not required to offer insurance and is not subject to any penalties • Ben’s status cannot change during the year

Example 3 • New variable hour employee: • Carter is a new employee who started June 1, 2014 for XYZ • XYZ choses a 12 month IMP starting on Carter’s hire date (6/1/14 to 5/31/15) • XYZ’s SMP is 11/1/14 to 10/31/15 • Admin period: • New employee – 6/1/15 to 6/30/15 • Ongoing employees – 11/1/15 to 12/31/15

Example 3 continued • Carter averages more than 30 hours a week during IMP (6/1/14 to 5/31/15) • Carter is a full time employee of XYZ from 7/1/15 to 6/30/16 • XYZ must also track Carter’s hours during the SMP and if Carter’s hours during the SMP are greater than 30 per week, than XYZ must consider Carter full time during the stability period associated with the SMP • i.e. 7/1/16 to 12/31/16

Example 3 Chart IMP = Initial Measurement Period AP = Administrative Period SP = Stability Period SMP = Standard Measurement Period

Fiscal Year Plans – Transition Relief • Employers with fiscal plans in place as of 12/27/12 can receive transition relief, but must have: • Plan offered to at least 1/3of employees; or • Plan must have covered at least ¼ of employees; • Employers must determine they meet the qualifications for relief. • Then measurement period may occur based on fiscal year date renewal • 6/30/13 plan year can run from 7/1/13 to 6/30/14. • Employer must offer coverage to qualifying full-time employees ( > 30 hrs/wk) upon first plan renewal date. ASSUMPTION-this will remain in effect for 2015…waiting for guidance.

Employment Status Change • Change in employment status for new variable hour or seasonal employee during IMP • If employee would have started in that employment status and been expected to work 30 hours per week, then employee must be treated as full-time and coverage would need to be extended on the first day of the fourth month following the change • This rule does not apply to ongoing employees as their status is locked (during stability period) even if they have a change in employment status

Employees Rehired • A rehired employee will resume their full-time or part-time status for the remainder of the stability period • Status would change if: • Employee did not have 1 hour of service within the prior 26-week period preceding the return to work • Rule of parity – employee was gone for longer than their length of service measured in weeks which would also be longer than 4 weeks

Service breaks Educational organizations need to apply hours during school breaks based on one of the two following methodologies: Average hours per week excluding the break period which would be the average hours for the entire measurement period OR Credit employee break period with average hours at a rate equal to the rate without regard to the break period There is a cap of 501 hours required to be added for school break periods (exceptions for special unpaid leave)

Section 1411 Certification • Department of Health and Human services will establish a process to notify employers of those employees receiving Premium tax credits or cost sharing reductions • Requirement will include 2 informational tax returns for reporting…..DELAYED UNTIL 2015

Health Care Reform – Employers Requirement to notify employees of exchange – by October 1, 2013…in 2014 must be given to new hires within 14 days of hire date. It must: Inform employees of exchange Inform employees of potential tax credit if insurance is purchased on exchange Inform employees of potential loss of employer contribution if they get insurance from exchange Inform employees that this contribution may be excluded income on their Federal tax return

Health Care Reform – Employers • Expanded coverage for children under 26 • Effective 2010 • Value of employee sponsored health plans on W-2’s – effective after December 31, 2012 • FSA limit = $2,500 starting in 2013

Health Care Reform – Employers • 40% excise tax on “Cadillac” health plans ($10,200 for individual, $27,500 for family) – Effective 2018 • Retirees limit is $11,850 for individual and $30,950 for family • Tax is on excess benefit calculated on a monthly basis • Applicable on coverage paid by both employer and/or employee • Includes pretax contribution to FSAs, HRAs, HSAs • Employers are to calculate this penalty for insurers, penalty is 100% plus interest

Additional Fees • PCORI (Patient Centered Outcomes Research Institute) • Fees applicable to policy and plan years after October 1, 2012 and before October 1, 2019 and is on the average number of covered lives under the plan: • $1 the first year, $2 in subsequent years • Transitional Reinsurance Fee • (2014 thru 2016) – fee on insurers and self funded plans. In place to create a fund for insurance companies to offset the cost of covering people in the individual market: • Fee is $63 per covered life in 2014 – raise $12B • 2015 fee decreases – raise $8B • 2016 fee decrease – raise $5B • Health Insurance Industry Fee

Grandfathering Provisions • Grandfathered health plan is one that was in existence on March 23, 2010 • Loss of status events • Reduce or eliminate benefits • Raising co-insurance, or significantly raising co-payments and deductibles • Significantly lowering employer premium contributions • To maintain grandfather status – document the plan and policy terms effective as of 3/23/10

Non-discrimination in Insured Health Plans Non-grandfathered insured group health plans that impermissibly discriminate in favor of highly compensated employees face significant liability under new rules enacted as part of the PPACA Relates to the 1986 Tax Law – Internal Revenue Code (IRC) Section 105(h)(2) Relates to prohibition on discrimination in favor of highly compensated individuals

Non-discrimination Testing The penalty for plans will have an excise tax of $100 per day for the plan per person discriminated against Maximum penalty of $500,000 for non willful failures Penalties are under IRC 4980D Is for plan years beginning after ________???

Health Care Reform – Employers • Tax credits available for Small Employers • 35% credit for 2010 -2013 (25% for tax-exempts) • 2014 and 2015 credit is 50% (35% for tax-exempts) if coverage is offered on the Insurance Exchange • Criteria: • No more than 25 full-time equivalent (FTE’s) employees • FTE average wages cannot exceed $50,000 • Offer a qualified health plan

Health Care Reform HEALTH Insurance Exchanges

Health Insurance Exchanges • Health Insurance Exchanges: Beginning January 1, 2014 health insurance exchanges will start operating as a second option for health insurance • Objective: Competitive marketplaces to compare options based on price, quality, and other factors aimed to enhance competition, improve choice, and give small businesses and individuals more clout (PPACA): Pre Reform Small / Individual Market Post Reform Insurance Exchange  • Individualized Market • Costly • Pooled Market • Subsidies based on income

State/Federal Health Insurance Exchanges Source: Kaiser Family Foundation Website – Health Reform

Health Care Reform Health Care Reform Analytics

Health Care Reform Analytic • Help Understand: • Determination of Large/Small Employer • Employee Status – full time and part time • Potential costs and fees with ACA • Affordability calculation • Employee subsidies • Cadillac tax potential • Benefit plan opportunities in a developing marketplace! • Helps you make an informed decision!

Employee Breakdown Below displays a breakdown of XYZ’s employees by full time & part time as well as by EBI enrolled plan: 88 employees worked 1,560 or more hours 101 employees worked less than 1,560 hours - 4 part time employees enrolled in single coverage Full time employees are included in the analysis

Subsidy Factors Affordability ? < 60% of actuarial value are determined to be Inadequate health plans Qualified Health Plan (Actuarial Value) = Adequacy Employers will be assessed whether their insurance is affordable or adequate. The two charts below show insurance affordability based on the W-2 wages and an estimate for household income:

Health Care Reform