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2010 Patient Protection & Affordable Care Act:What Employers Need to Know Presented By: Diana M. Valdez
Patient Protection and Affordable Care Act Background • On March 23, 2010, President Barack Obama signed the Patient Protection and Affordable Care Act into law. • The law puts in place comprehensive health insurance reforms that will roll out over four years and beyond, with most changes taking place by 2014.
Patient Protection and Affordable Care Act Key Provisions • A requirement that most individuals have health insurance beginning in 2014 (“Individual Mandate”); • Medicaid expansion to 133% of the federal poverty level ($14,000 for an individual and $29,000 for a family of four in 2012) for individuals under the age of 65; • Creation of health insurance exchanges through which individuals who do not have access to public coverage or affordable employer coverage will be able to purchase insurance with premium and cost-sharing credits available to some people to make coverage more affordable; • New regulations on all health plans that will prevent health insurers from denying coverage to people for any reason, including health status, and from charging higher premiums based on health status and gender; • Penalties to employers that do not offer affordable coverage to employees, with exceptions for small employers.
Patient Protection and Affordable Care Act U.S. Supreme Court Evaluates Constitutionality • As a result of the enactment of this law, a number of parties filed suit in federal courts across the country, claiming that the law was unconstitutional for various reasons. • On November 14, 2011, the Supreme Court granted certiorari to portions of three cross-appeals of the Eleventh Circuit's opinion: one by the states (Florida v. U.S. Dept. of Health and Human Svcs.), one by the federal government (U.S. Dept. of Health and Human Svcs. v. Florida); and one by National Federation of Independent Business (Nat'l Fed. of Independent Bus. v. Sebelius). • These separate cases were merged into a single case titled National Federation of Independent Business v. Sebelius.
Patient Protection and Affordable Care Act U.S. Supreme Court Evaluates Constitutionality "We do not consider whether the Act embodies sound policies. That judgment is entrusted to the Nation's elected leaders. We ask only whether Congress has the power under the Constitution to enact the challenged provisions." - Chief Justice John Roberts
Patient Protection and Affordable Care Act U.S. Supreme Court Evaluates Constitutionality • In Sebelius, the two key issues before the Court were the constitutionality of: • the Act’s “individual mandate” which requires virtually everyone in the U.S. to buy health insurance beginning in 2014 or pay a penalty for failing to do so; and • the Act’s requirement that states adopt new standards that would have significantly increased the number of Medicaid-eligible individuals (“Medicaid Expansion”), or face a loss of federal Medicaid funding.
Patient Protection and Affordable Care Act U.S. Supreme Court Upholds Constitutionality • On June 28, 2012, the Supreme Court issued a landmark decision to uphold the constitutionality of: • The “Individual Mandate” • In a 5 to 4 ruling, the Court held that the mandate is unconstitutional under the commerce clause, but is constitutional under Congress's taxing power • The“Medicaid Expansion” but with a significant limitation: • The Court held that it is unconstitutional for the government to cut off pre-existing Medicaid funding for states that elect not to participate in Medicaid Expansion • States that opt out will not qualify for enhanced Medicaid funding that the Act provides for • All other requirements of the Act remain untouched and will go into effect provided there are no other legislative changes or a change in the Whitehouse
Patient Protection and Affordable Care Act Summary of Changes • Changes that became effective in 2010: • Insurance companies barred from dropping people from coverage when they get sick • Lifetime coverage limits on essential benefits eliminated • Use of annual dollar limits restricted for new plans in the individual market and all group plans • Insurance companies barred from excluding children under the age of 19 for coverage because of pre-existing conditions • Uninsured adults with pre-existing conditions able to obtain health coverage through a new program that will expire once new insurance exchanges begin operating in 2014 • Adult children able to stay on parents’ health plans until the age of 26 • All new plans must cover certain preventive services such as mammograms and colonoscopies without charging a deductible, co-pay or co-insurance
Patient Protection and Affordable Care Act Summary of Changes • Changes that became effective in 2010: • Small business tax credits: • Employers with fewer than25 employees who provide health insurance, may qualify for tax credit of up to 35% (up to 25% for non-profits) to offset the cost of insurance • Credit will increase in 2014 to 50% (35% for non-profits). • Early Retiree Reinsurance Program • Goal: help employers maintain health coverage for early retirees between age 55 and 64, who do not yet qualify for Medicare. Employers and unions accepted into the program will receive reimbursement for medical claims for early retirees, spouses, surviving spouses, and dependents. • Program has a fixed $5 billion fund and will end on January 1, 2014.
Patient Protection and Affordable Care Act Summary of Changes • Changes that became effective in 2011: • Prescription Drug Discounts for Seniors • Seniors who reach coverage gap receive a 50% discount when buying Medicare Part D covered brand-name prescription drugs • Preventative Care for Seniors on Medicare • Includes annual wellness visits and personalized prevention plans • Health Care Premiums • 85% of premium dollars collected by insurance companies for large employer plans and at least 80% for plans sold to individuals and small employers, must be spent on health care services and health care quality improvement • W-2 forms • Optional for employers to disclose the cost of employer-sponsored coverage on employees’ W-2 tax forms
Patient Protection and Affordable Care Act Summary of Changes • Changes effective in 2012: • Physician payment reforms are implemented in Medicare to enhance primary care services and encourage doctors to form “accountable care organizations” to improve quality and efficiency of care • An incentive program Value-Based Purchasing program (VBP)is established in Medicare for acute care hospitals to improve quality outcomes • Transition relief from the W-2 reporting requirement is available for some employees with regard to certain types of coverages • Group health plan sponsors and insurers must issue summaries of benefits and coverage (“SBC”), effective September 23, 2012
Patient Protection and Affordable Care Act Summary of Changes • Changes that become effective in 2013: • Payment Bundling: • national pilot program to encourage hospitals, doctors, and other providers to work together to improve coordination and quality of care • hospitals, doctors, and providers paid a flat rate for an episode of care rather than the current system where each service is billed separately to Medicare • Increased Medicare Payments for Primary Care Doctors • primary care physicians will be paid no less than 100% of Medicare payment rates in 2013 and 2014 for primary care services • increase is fully funded by federal government • Additional Funding for the Children’s Health Insurance Program • states will receive two more years of funding to continue coverage for children not eligible for Medicaid
Patient Protection and Affordable Care Act Summary of Changes • Changes that become effective in 2014: • State health insurance exchanges for small businesses and individuals open • Most people will be required to obtain health insurance coverage or pay a penalty if they fail to do so • Healthcare tax credits become available to help people with incomes between 100% to 400% of poverty line purchase coverage • Second phase of small business tax credit goes into effect--up to 50% of the employer’s contribution to provide health insurance for employees and up to a 35% credit for small non-profit organizations • Medicaid expansion to include those who earn less than 133% of the poverty level (approximately $14,000 for an individual and $29,000 for a family of four) • No pre-existing condition exclusions
Patient Protection and Affordable Care Act Individual Mandate • U.S. citizens and legal residents will be required to have minimum essential coverage for themselves and their dependents • Minimum essential coverage is defined as: • Coverage under certain government-sponsored plans • Employer-sponsored plans, with respect to any employee • Plans in the individual market • Grandfathered health plans; and • Any other health benefits coverage, such as a state health benefits risk pool, as recognized by the HHS Secretary • Minimum essential coverage does not include health insurance coverage consisting of exceptedbenefits, such as dental-only coverage
Patient Protection and Affordable Care Act Individual Mandate • Those without coverage will pay a tax penalty. The penalty will be phased-in according to the following schedule: • 2014: $95 per individual ($47.50 per child) or 1 percent of household income over the filing threshold • 2015: $325 per individual ($162.50 per child) or 2 percent of household income over the filing threshold, and • 2016: $695 per individual ($347.50 per child) up to a maximum of three times that amount ($2,085) per family or 2.5% of their household income • 2017and beyond: the penalty will be increased annually based on cost-of-living adjustment
Patient Protection and Affordable Care Act Individual Mandate • Exemptions • religious objections • American Indians • those with coverage gap of less than three months • undocumented immigrants • incarcerated individuals • financial hardship (those for whom the lowest cost plan option exceeds 8% of an individual’s income) • those with incomes below the tax filing threshold
Patient Protection and Affordable Care Act Individual Mandate • Flat dollar amount for individuals: $95 in 2014; $325 in 2015; and $695 in 2016; increases indexed to inflation after that, subject to a cap. • For example: An uninsured family of three (two parents and one child under 18), not exempt from the mandate, would have a flat dollar penalty of $1,737 in 2016. • Percentage of individual taxable income: fixed percentage of household income in excess of tax filing threshold – 1% in 2014; 2% in 2015; 2.5% in 2016. • For example: An uninsured, non-exempt individual with household income of $50,000 would be forced to pay 1% of the difference between $50,000 and the tax threshold (let’s say $10,000 for an individual in 2014), or roughly $400. Since $400 is greater than $95, this individual would have to pay $400. *Courtesy of Blue Cross Blue Shield
Patient Protection and Affordable Care Act Employer Mandate • Applies to employers with 50 or more full-time employees • Full-Time: Average of 30 or more hours per week • Whether an employer has 50 or more full-time employees is determined based on average number of employees in 2013 • Full-time equivalent employees (“FTEE”) count toward determining the number of full-time employees for calendar year 2013 • FTEE is determined based on total number of hours worked each month by part-time employees divided by 120: • 500 hours/120=4.1 FTEE • 47 Full-Time employees + 4 FTEE = 51 Employees
Patient Protection and Affordable Care Act Employer Mandate • Employers who meet the threshold must offer minimum essential coverage to employees • Ten required benefits of all health plans: • Ambulatory patient services • Emergency services • Hospitalization • Maternity and newborn care • Mental health and substance abuse • Prescription drugs • Rehabilitative and habilitative services and devices • Lab services • Preventative and wellness services and chronic disease management • Pediatric care, including oral and vision
Patient Protection and Affordable Care Act Employer Mandate Question: What if an employer chooses to outsource employee functions to a third-party vendor providing independent contractors in an effort to reduce its employee census below 50? Will that protect the employer from the mandate?
Patient Protection and Affordable Care Act Employer Mandate Answer: NO! • Those individuals could be counted if they could be reclassified as employees.
Patient Protection and Affordable Care Act Employer Mandate Question: What if an employer creates a separate entity to employ administrative staff in an effort to reduce its employee census below 50? Will that protect the employer from the mandate?
Patient Protection and Affordable Care Act Employer Mandate Answer: Maybe Not • Common ownership of business may result in employee aggregation and all employees counted as “single” employer.
Patient Protection and Affordable Care Act Employer Mandate • Common ownership: • “Parent-subsidiary” controlled group exists where a parent organization owns 80% or more of the equity in subsidiary organization • For corporations, the 80% + test is based on attaining that level of voting power or total value based on all classes of stock • For partnerships, the 80% + test is based on attaining that level of profits interest or capital interest; for trusts and estates, actuarial interests are used • “Brother-sister” common control group exists where same 5 or fewer persons (counting individuals, estates and trusts as "persons") • collectively own 80% or more of the equity in two separate trades or businesses, and • taking into account the level of ownership each of those 5 persons holds in each of the two organizations (using a lowest common denominator approach) collectively own more than 50% of the equity in both of the trades or businesses • “Affiliated service group” exists wherever several organizations regularly collaborate in the services they provide to the public (typically, integrated services), and the several organizations are linked by a material level of cross-ownership.
Patient Protection and Affordable Care Act Employer Mandate • If you have more than 50 employees AND do not offer health insuranceAND have at least one full-time employee who obtains a tax credit to obtain health insurance, you will be assessed a premium tax credit fee of $2,000 per full-time employee. • The first 30 employees are not counted for the fine. • EXAMPLE: • Let’s say you have 75 employees. You do not offer your employees health insurance. As a result, only one of your full-time employees seeks govt. assistance and obtains a tax credit to buy health insurance. What is your tax penalty? 75 employees $2,000 employee -- 30 employeesx 45 employees 45 employees $90,000
Patient Protection and Affordable Care Act Employer Mandate • If you have more than 50 employees AND offer health insurance BUT have at least one full-time employee who obtains a tax credit to obtain health insurance, you will be assessed a premium tax of the lesser of: • $3,000 for each employee receiving a premium credit or • the number of full-time employees minus 30, multiplied by $2,000—or $40,000 for the employer with 50 full-time employees (i.e., 50 minus 30, multiplied by $2,000) • EXAMPLE: Let’s say you have 50 employees. You do offer your employees health insurance. However, three of your full-time employees seek govt. assistance and obtain a tax credit to buy health insurance. What is your tax penalty? $3,000 $2,000.00 x 3 employeesx 20 employees $9,000 $40,000
Patient Protection and Affordable Care Act Small Business Tax Credit • If you have 25or fewer full-time employees (as well as full-time equivalents) AND your average annual wages for employees is less than $50,000, you qualify for a tax credit of up to 35% • The tax credit will be up to 35% of the employer’s contribution toward the employees’ health insurance premium • The employer must contribute at least 50% of the health insurance premium to qualify • This will only apply for tax years 2010 through 2013 • For tax years 2014 and later, small businesses that purchase coverage will get a tax credit of up to 50% of the employer’s contribution • Example:Auto Repair Shop Employees: 10 Wages: $250,000 total, or $25,000 per worker Employer Health Care Costs: $70,000 2010 Tax Credit: $24,500 (35% credit)2014 Tax Credit: $35,000 (50% credit)