JESSICA ROGERS, ESQUIRE

The Affordable Care ActVirginia Association of Counties

June 5, 2013

Uninsured in Virginia

• Nearly 15 percent of Virginians under age 65 are without medical insurance (14.6%).

• The majority of uninsured (69.6%) are part of working families. • Nearly half (47.4%) are part of families with at least

one full-time worker • 22.2% are in families with at least one part-time

worker.• More than 70% (70.6%) of Virginia’s uninsured had

incomes below 200% of the federal poverty limit (FPL).

• The uninsured in Virginia represent all racial/ethnic groups:• 47 % are white, 24 % are black, 20 % are Hispanic,

and 7 % are Asian/Pacific Islanders. • The vast majority of Virginia’s uninsured are US

citizens (78.6%)Statistics from Virginia Health Care Foundation

The Affordable Care Act: Overview

1. Marketplace Reforms: Provide more access to private insurance.

2. Medicaid Expansion: Increase eligibility to 138% of federal poverty level for men, women, and children. *Now OPTIONAL because of U.S. Supreme Court decision.

3. Innovation and Reform: Improve health care delivery system, find alternatives to fee for service payment system.

Medicaid Expansion in Virginia

The General Assembly, in the 2013 Budget Bill, created the Medicaid Innovation and Reform Commission.

This group will determine if certain requested Medicaid reforms have been approved and implemented; if so, Virginia will expand Medicaid.

Under the Act, new Medicaid enrollees will be 100% federally funded through 2016. The federal funding then gradually decreases to 90% by 2020.

Overview: Insurance Reforms

• Pre-Existing Conditions Exclusions:• Eliminated for children in 2010.• Eliminated for everyone else in 2014.

• Lifetime and Annual Limits: • No lifetime limits on essential health benefits, as of 2010. • Gradual phase out of annual limits on essential health benefits

(completed in 2014).

• Rescission/Cancellation: • Policies can only be rescinded for fraud or intentional

misrepresentation of a material fact.• Can still be cancelled for lack of payment, with proper notice.

• Dependent coverage: • Plans that offer dependent coverage must offer such coverage for

dependents up to age 26 (2010).

Insurance Reforms, cont’d

Preventive Services: Certain preventive services must be covered, with no cost-

sharing (2010). For children, covered services include immunizations, several

health and mental health screenings, behavioral assessments, iron supplements, etc.

For pregnant women, covered services include certain genetic screenings, well visits, breastfeeding support, contraception, domestic violence screening, etc.

For adults, covered services include immunizations, obesity counseling, tobacco use cessation assistance, aspirin use.

Limits on out-of-pocket expenses: In 2014, out-of-pocket expenses in qualified health plans cannot

exceed limits that currently apply to high deductible spending plans.

Essential Health Benefits

Categories that must be covered in qualified health plans:

Ambulatory Care Emergency Care Hospitalization Maternity & Newborn Care Mental Health Services and Substance Use Disorder Services Prescription Drug Coverage Rehabilitation & Habilitation Services Lab Tests Preventative & Wellness Care & Management of Chronic

Diseases Pediatric Care, Including Oral and Vision Care

Insurance Reforms, cont’d

Medical Loss Ratio (MLR) Rebates: As of 2011, insurers are required to rebate, to enrollees, premium

income in excess of a MLR of 85% (for the large group market) or 80% (for the individual and small group markets).

MLR is the premium revenue used for clinical services and activities to improve health care quality divided by the total premium revenue.

Temporary Reinsurance Program: By 2014, each state must have a three-year reinsurance program

for certain individuals with serious health conditions. Intended to help stabilize premiums in the individual market

during the transition years. The fee to support the program will be assessed on both

insurance issuers (fully-insured plans) and third-party administrators (self-insured plans).

Individual Mandate

Individual Mandate: Requires most citizens and legal residents to have “minimum essential coverage” or pay a penalty. Exemptions for people for whom bronze-level

coverage is unaffordable, those with incomes below the income tax filing level, prisoners, those not lawfully present, members of recognized Indian tribes, members of recognized religious sects or health care sharing ministries, those residing outside the US, and anyone the Secretary of HHS determines has suffered a hardship.

Individual Mandate, cont’d

Individual shared responsibility payment for each adult without coverage will be the greater of: $95 in 2014, $325 in 2015, and $695 in 2016; or  The following percentage of income that is greater than

the federal income tax filing threshold ($9,350 for singles and $18,700 for couples): 1 percent in 2014, 2 percent in 2015, 2.5 percent in 2016 and thereafter.

The amount for children is half that for adults, but total household penalty is capped at 3 times the adult penalty or the national average premium for a bronze level plan for the household.

No criminal penalties.

Employer Shared Responsibility Payments

The Act requires large employers, with 50 or more full-time employees, to either (i) offer affordable health care coverage with minimum value to all full-time employees and their dependents, or (ii) pay a penalty.

There are two penalty scenarios: A penalty for offering NO coverage. A penalty for offering coverage that is deemed

unaffordable or of inadequate value.

Penalties: No Coverage

If a large employer offers NO health care coverage to full-time employees (or offers coverage to less than 95% of full-time employees): Penalty = $2000/year for EACH full-time employee,

disregarding the first 30. It is assessed monthly. No penalty for full-time equivalents. $2000 is for 2014; this amount will increase with

inflation.

Penalties: Unaffordable or Inadequate Coverage

If coverage is determined to be unaffordable, or does not provide minimum value: Penalty is $3,000/year for each employee who receives

a subsidy through the exchange. Assessed monthly. This penalty is capped at the penalty amount for

offering no coverage.

Applicable Large Employer

To be subject to penalties, an employer must have at least 50 full-time employees, or the equivalent thereof.

A full-time employee works, on average, 30 or more hours a week, for the previous calendar year.

The Act uses the common-law definition of “employee.”

Seasonal employees who work less than 120 days a year are not counted.

Large Employer: Full-time Equivalents

Part-time employees’ hours are aggregated in the calculation of full-time equivalent positions (FTEs).

Each month, the hours of all part-time employees (but no more than 120 hours per part-time employee) are added together and divided by 120. This gives the number of FTEs for the month.

If the number of full-time employees, plus the number of FTEs for the year, divided by 12 is 50 or more, penalties apply.

There are special transition rules for 2013.

Controlled and Affiliated Service Groups

The Act says that any employer treated as one employer under IRC § 414(b)(c)(m) or (o) will be treated as one employer for purposes of the Act.

IRC § 414 has not been applied to local governments before; the proposed regulations say that guidance is forthcoming. In the meantime, local governments should use a good faith interpretation of the statute.

IRC § 414

This section deals with controlled groups and affiliated service groups.

Both definitions are generally applied to private entities, and have to do with common ownership and control.

Since local governments aren’t “owned,” it’s hard to see how this provision will translate.

“Control” is more familiar.Until further guidance is issued, local governments

will not be penalized for a good faith determination of who constitutes a single employer.

Aggregation for Penalty Assessment

Each member of a controlled group is penalized separately.

The 30 employees disregarded for penalty purposes are split among controlled-group members.

What Must Be Offered?

To avoid penalties, employers must offer minimum essential coverage that is affordable and meets minimum value requirements to all full-time employees and their dependents.

“Dependents” means children up to age 26, but not spouses.

Most employer sponsored plans will qualify as minimum essential coverage – dental only plans, for example, will not.

Affordability

“Affordable” means no more than 9.5% of an employee’s household income for employee-only coverage.

Since most employers won’t know their employees’ household incomes, they may use the gross pay from W-2s.

Note that employers must offer coverage to dependents (children up to age 26, but not spouses), but family coverage need not be affordable.

Minimum Value

The plan offered must have the same minimum value as the bronze level plans offered through the exchange.

The plan must cover 60% of the costs of health care, with the employee paying the rest through co-pays, co-insurance and deductibles.

Premium costs are not included in this calculation.

Who Is a Full-time Employee?

A full-time employee has 30 or more hours of service a week (or 130 hours a month).

Hours of service include paid leave.Seasonal employees: employers may use a good

faith interpretation until the definition is clarified (note: the 120 day rule does not apply here).

No penalty for not offering coverage to employees working less than 30 hours a week.

There are special rules for employees of educational institutions who work on an academic year schedule.

Variable Hour Employee Safe Harbor

If it cannot be determined, at date of hire, if an employee will regularly work 30 or more hours a week: variable hour analysis applies.

If a new employee is expected to work 30 or more hours a week, he must be offered coverage within 90 days (or penalties apply).

Employees hired for a limited duration do not have to be considered full-time.

Variable Hour Employee Analysis: Standard Measurement Period

Employers may choose a Standard Measurement Period (SMP) between 3 and 12 months.

Employers may use different SMPs for different classes of employees (hourly vs. salaried, collectively bargained vs. not).

During the SMP, employers track hours of variable hour employees. If average for SMP is 30 or more hours/week, the employee is deemed full-time for following Stability Period.

Variable Hour Employee Analysis: Stability Period

Employers choose a Stability Period (SP), which must be at least 6 months AND at least as long as the SMP.

Employees found to be full-time during the SMP must be treated as full-time (offered coverage) throughout SP, regardless of how many hours they actually work during the SP.

Employees found NOT to be full-time during SMP, do not need to be offered coverage for entire SP (unless they cease to be variable hour employees and become full-time).

Employees found not to be full-time are not eligible for employer-coverage; they will be eligible for subsidies through the exchange during this period, if they meet other criteria.

Variable Hour Employee Analysis: Administrative Period

Employers may also use an Administrative Period (AP) for purposes of tabulating hours and enrolling employees.

AP can be up to 90 days, and must overlap with the Stability Period. In other words, anyone previously found to be full-time must retain coverage during the AP.

Variable Hour Employee Analysis: New Employees

New variable hour employees’ hours will be measured during an Initial Measurement Period (IMP).

If found to be full-time, they must be treated as such throughout an Initial Stability Period (ISP).

New employees’ hours will also be measured beginning the first SMP of employment, regardless of whether that period overlaps with the IMP or ISP.

The IMP plus an Administrative Period must end by the end of the month following the new employee’s one year anniversary (just over 13 months).

Variable Hour Employee Analysis: Transition Rules (2013 only)

Employers with a fiscal year plan (as of December 27, 2012) do not need to comply with the coverage requirements until the first day of their plan year in 2014.

If you plan to use a 12 month SMP and 12 month SP, you can use a SMP as short as 6 months in 2013, but it must begin by July 1, 2013 (and can be followed by a 90 day administrative period).

Variable Hour Employee Analysis: Example

Employer plan year: January 1 - December 31 SMP: October 15- October 14. AP: October 15 - December 31. SP: January 1 - December 31 (same as plan year).

For 2013, SMP: April 15 – October 15, 2013. AP: October 15 – December 31, 2013. SP: January 1 – December 31, 2014.

New employee hired February 16, 2014: IMP: February 16 – February 15, 2015. AP: February 15, 2015 – March 31, 2015. ISP: April 1, 2015 – March 30, 2016. Hours are also measured during SMP beginning October 15,

2014.

Other Provisions

Patient-Centered Outcomes Research Institute (PCORI) Fee: This is a fee paid by insurers, based on lives insured,

for plan years from 2012 – 2019. The fee is $1 per covered life for 2012, $2 per covered

life for 2013, and then will increase based on medical inflation.

Self-insured plans also pay this fee.

Auto Enrollment: Beginning on January 1, 2014, employers with 200 or

more employees who offer coverage must automatically enroll/reenroll employees, with ample opportunity to opt-out.

Other Provisions, cont’d

Notice/Reporting Requirements: A requirement to notify employees of options and

subsidies available through the exchange has been delayed.

Employers are required to report the cost of employer-sponsored coverage for employees (2011).

Additional reporting requirements: Whether employer offers coverage to full-time employees. Monthly premiums and the employer’s share of the total costs of

benefits Number of full time employees per month. Identifying information on each full-time employee covered under the

plan.

SHOP Exchange

Small Business Health Options Program: a marketplace for small businesses to purchase health insurance for their employees.

SHOP exchanges will eventually offer small businesses a choice of plans, from which their employees may choose, all administered through the exchange.

Full implementation has been delayed until 2015.

Small Business Tax Credit

Small Business Tax Credit: Credit for small businesses and non-profits who pay at

least half of the costs of health care for employees. Businesses with 25 or fewer full-time equivalents,

with average annual wages of $50,000 or less are eligible.

Maximum credit is 35% for businesses, and 25% for non-profits through 2013.

In 2014, the maximum amounts increase to 50% for businesses and 35% for non-profits.

Premium Assistance Tax-Credit and Cost-sharing Subsidies

In order to qualify for subsidies, applicants will need an income between 100 – 400% of the federal poverty level.

In 2013, 400% of the federal poverty level for a family of four is $94,200.

Subsidies are available in advance, to help make premium payments.

They are calculated on a sliding scale, with more assistance for lower-income earners.

Applications for Assistance

One online application, to see if individuals qualify for Medicaid, SCHIP, or subsidies for health plans available through the health benefits exchange.

Medicaid application must be simplified: based only on Modified Adjusted Gross Income (MAGI).

In-person assistance will be available for applications.

Individuals will be able to begin enrolling in plans on October 1, 2013, for coverage beginning January 1, 2014.

Questions?

Jess RogersSands Anderson, PC

Richmond, VA (804) 783-7260

jrogers@sandsanderson.com