Action Items and Decisions Facing Employers with the Patient Affordable Care Act

Chris Hodge, District ManagerOasis OutsourcingFebruary 21, 2013

Timeline of Key Provisions2011

• Adult children to age 26 (early adopter)

• No lifetime or annual maximums

• 100% preventive care coverage

• FSAs cannot reimburse over-the-counter (OTC) expenses without Rx

• No preexisting condition exclusions under age 19

• Prohibition on rescissions

• New claims and appeals rules

2012

• W-2 reporting requirements for health care coverage (for January 2013 W-2s)

• Summary of Benefits and Coverage and Uniform Glossary rules

• Nondiscrimination testing rules in all plans, including insured plans

• Medical Loss Ratios Rebates

• Tax credit for employers with < 25 employees

2013

$2,500 health care FSA salary reduction limits

Increase in Medicare payroll tax on individuals making more than $200k/$250K

Investment income subject to Medicare tax for individuals making more than $200k/$250k

Expanded women’s preventive care

Comparative Effectiveness Fee per member participant on all health plans

Notify all employees about exchanges, services and contact info.

2014

Exchanges operational

Free rider penalty (employer mandate)

Individual mandate

Auto-enrollment

No preexisting condition exclusions

Wellness program discount expansion

Eligibility waiting period no longer than 90 days

Employer reporting of health insurance info to govt & participants

2013 Employer Checklist

$2,500 Flexible Spending Account LimitComparative Effectiveness Fee for all

health plan participantsEmployer must provide written notice

regarding the existence of insurance exchanges and that employee may qualify for subsidies

2014 Employer Mandate will be based on 2013 FTEs and hours worked.

2013 Employer Checklist

#1 $2,500 Flexible Spending Account Limit– Child Care spending limit is not affected– Employee Contributions to Medical Flexible

Spending Accounts are limited to $2,500/year

2013 Employer Checklist

#2 Comparative Effectiveness Fee• New fee to fund independent comparative

clinical research programs

• Fee became effective for plan years as of October 1, 2012 and later

• Initial fee is $1 per member per year, increasing to $2 per member in second year.

• Fee is due no later than July 31, 2013

• Assessed by the carrier

2013 Employer Checklist

# 3 Employer must provide written notice regarding the existence of insurance exchanges and that employee may qualify for subsidies• Originally due March 1, 2013• Postponed to early Autumn 2013. No exact

date yet.

2013 Employer Checklist

# 4. Employers that do not currently provide health insurance, evaluate headcount to determine whether your company will be subject to the employer mandate in 2014.

2013 Employer Checklist

# 5. Employers that do provide health insurance, evaluate plans to ensure that by 2014 insurance meets requirements:• Affordability• Adequate coverage

2014 Employer Checklist

Shared Responsibility Provision takes effect (for companies with 50+ employees)

Automatic Enrollment of New EmployeesLimits to waiting periods for coverageReporting of health insurance information

to government

2014 Employer Checklist

# 1 Shared Responsibility Provision takes effect• Applies only to employers with 50+ Full Time

EQUIVALENTS• $3,000 penalty per employee

• If premium contribution is greater than 9.5% of income – Example: For employee earning $35,000/year, 9.5% equals

$3,325 annually or $277 per month

• If plan covers less than 60% of allowable costs.

• The alternative penalty is $2,000 per employee for not offering coverage.

How Eligibility is Calculated

• Do you have 50 Full Time Equivalents?– Any employee averaging 30 or more hours a week is

considered a Full Time Employee.– Add to that number, the total number of hours worked

by all PTEs every month divided by 120.– Seasonal workers (<120 days/year) are excluded.

• Example: A firm has 35 FTEs & 20 PTEs working 24 hours/week (or 96 hours/month).– 20 PTEs X 96 (hours/month) / 120 = 16– 35 FTEs + 16 Calculated FTEs = 51 FT Equivalents

How Eligibility is Calculated

• Companies under common control are considered one company.– You can’t subdivide businesses to avoid

eligibility.– Separate businesses with common ownership

must be evaluated as a whole.

How the Penalties are Assessed

• Assessed differently than eligibility is assessed.• Tax penalty is assessed if at least one FULL-

TIME employee obtains coverage from through an exchange AND receives a premium credit.– No penalties for part-time workers.

• Premium credits are for workers who are 138% to 400% of the Federal poverty level.– Employee premium must be greater than 9.5% of

income.– Plan pays less than 60% of essential health benefits

Penalty for >50FTE Employer not offering Health Insurance

• Penalty applied to FT Employees (working over 30 hours a week) greater than 30.

• $166.67 per month penalty for every FTE greater than 30 who do not have company-sponsored health insurance.– 35 FTEs and 20 PTEs. Penalty would be:

35 - 30 = 5 X $166.67 = $833.35/mo.– 29 FTEs and 50 PTEs. Penalty would be:

29 - 30 = -1 or 0 X $166.67 = $0/mo.

Potential Penalties for Employers >50 FTE who do offer health

insurance• Penalty is applied if any of the employer’s FT

Employees (PTEs are excluded) receives a premium credit to purchase from an exchange.

• To get premium credit:– Employee must be 138-400% of FPL AND– Employee’s share of premium > 9.5% of income OR– Policy does not provide minimal essential coverage.

• Penalty is the lesser of:– FTEs – 30 X $2,000– FTEs receiving premium credits X $3,000

Potential Penalties SummarizedLess than 50 FTEs

Large Employer: 50 or more FTEsDoes not offer coverage Offers coverageNo FTEs

receive credit for exchange

coverage

1 or more FTEs receives credit for exchange

coverage

No FTEs receive credit for exchange

coverage

1 or more FTEs receives credit for

exchange coverage

No penalty No penalty Number of FTEs minus 30 multiplied by $2,000.

No penalty Lesser of:

- Number of FTEs minus 30 multiplied by $2,000.

- Number of FTEs who receive premium credit multiplied by $3,000

Online Tools to Determine Eligibility and Penalties

• Online calculator atwww.franchise.org/healthcare/calculator.aspx

• Government’s Outline of Rules

http://www.healthcare.gov/using-insurance/employers/index.html

• DHHS to be releasing a calculator for minimum essential coverage

How does this apply to 2013?

• The determination of the number of full-time vs part-time employees in 2014 will be based on a “Lookback Period” that includes 2013.– Each employee is classified FT or PT based

on the hours they worked in that period.– Period can be 3 to 12 months– Employer can determine the length of the

period

2014 Employer Checklist

# 2 Automatic Enrollment of New Employees– Applies only to employers with 200+

Employees– Employers must automatically enroll new full-

time employees in health plan– Employees may opt out

2014 Employer Checklist

# 3 Limits to waiting periods for coverage• No health plan may impose a waiting period

for benefits of greater than 90 days• Employers with 50+ employees will be fined

for waiting periods over 90 days ($600 per FTE in waiting period).

Decisions facing Employers

• If you do provide health insurance:– Should you continue to

provide coverage?– What changes should

you make to your plans?

– What changes should be made to contributions?

• If you don’t provide health insurance:– Should you start?– Can you stay below

the 50 employee threshold?

– What are the best vehicles to provide insurance?

Considerations in Deciding to Maintain or Buy Group Coverage

• Insurance premiums are tax-deductible but penalties are not.

• Cost of providing insurance is a function of the number of participants, not the number of employees.

• The Individual Mandate will make insurance important to employees who did not care before.

• Any additional compensation to cover Exchange costs will increase payroll (FICA/FUTA) taxes for the employer, and income and payroll (FICA) taxes for the employee.

• If you already provide coverage, why? Has that changed?

Considerations for the Providing Coverage

• Does the plan cover 60% of expenses?– DHHS Calculator– Common sense guide

• Does your contribution keep employees from paying more than 9.5% of their income for their plan?– Increase contribution?– Create classes that reverse discriminate?

Whatever you do (or don’t do)• Do the math!

Summary of Results: Pay or Play Analysis

Potential Penalties

Full-time Employees 73

Penalty (Cost) for not offering coverage to all full-time employees 0

Employees paying more than 9.5% of income for single coverage 29

Does plan pay for at least 60% of covered expenses for a typical population? YES

Penalty for employees paying more than 9.5% $87,000

Total Potential Penalties Accrued $87,000

Cost of Providing Coverage

Annual cost of current plan $198,756

Employee Contributions, including increased employer contribution for low income employees (89,556)

Value of Federal Tax Deduction (37,128)

Employer net cost of plan $72,072

Whatever you do (or don’t do)• Do the math!• Make sure your assumptions are accurate.• Spreadsheet your options• Base calculations on what is known and

minimize speculation.– We do know more than we don’t know– Many remaining questions will not be significant

enough to require a change in course.– If information changes, then change the spreadsheet.

• Re-assess after the exchanges have been around for a year.

Questions and Answers