moving forward with health care reform: a 2013 perspective southern nevada compensation and benefits...

Moving Forward with Health Care Reform: A 2013 Perspective

Southern Nevada Compensation and Benefits Association

Frances K. Horn, JD, PHR National Legal & Research Group

January 23, 2013

This material and any accompanying remarks are provided for informational purposes only and nothing contained in either should be taken as a legal opinion or as legal advice Copyright 2013 All rights reserved

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Agenda

Exchanges Importance

Health Insurance Subsidies Importance

Pay or Play Mandate Issues to Consider Safe Harbor Full-Time Employee Determination

Fees Comparative Effectiveness Research (CER) Transitional Reinsurance

Points to Consider

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Employer HCR Timeline2013 Health FSA salary reduction contributions

capped at $2500• IRS guidance - start with 2013 plan year

Per capita fee increases to $2 Medicare Part D subsidy no longer

deductible Notice of state exchanges and premium

assistance availability (possibly delayed) Medicare payroll tax increases to 2.35%

on pay over $200k/$250k2014 Pay or play/free-rider penalties Individual mandate Employer reporting to IRS re: individuals’

coverage Automatic enrollment >200 EEs -

required (enforcement delay until after 2014)

2014 (continued) Insurance exchanges open to individuals

and small employers Wellness incentives up to 30% (50%

possible for non-tobacco usage) Employers offering exchange plan may

allow pre-tax premiums Reinsurance fee collection (through 2016) Early retiree reinsurance program ends

(ended early) Coverage mandates

Out of pocket max - $6250/$12500 (adjusted to 2014 limits) – non-GF plans

Deductible limit $2,000/$4,000 (small group only) – non-GF plans

Guarantee Issue/Guaranteed renewability

No preexisting condition exclusion No waiting periods > 90 days Additional insurance reforms – non-GF

plans

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Exchanges

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Exchange Eligibility

What is an Exchange? Arrangements through which private and non-profit insurers

offer small employers and individuals the ability to purchase health insurance

All individuals eligible in 2014 Only small employers eligible in 2014

Generally, an employer with 100 or less full time equivalent employees

Unsure how Nevada will define In 2017, states may allow large employers to be eligible Nevada Silver State Health Insurance Exchange approved

‒ Proposed fees charged to insurers

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Exchange Liability

Employers to provide employees notice of Exchanges by 3/2013 (more than likely delayed). Notice informs employee: About existence of the Exchange

‒ Describes the provided services and contact information to request assistance

About premium tax credits or cost-sharing reductions through the Exchange

About possible loss of employer contributions toward the cost of employer-provided coverage

That all or portion of employer contributions to employer-provided coverage may be excludable for federal income tax purposes

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Exchange Liability

Question:

Will all of an employer’s employees, regardless of the number of full time employees the employer has, be eligible to go to the exchange for a health insurance product?

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Health Insurance Subsidies

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Health Insurance Subsidies Form of premium tax credits and cost-sharing assistance Citizens and legal residents in families with incomes between 100% and

400% of FPL who purchase coverage through a health insurance exchange eligible for a tax credit 400% FPL - $92,200 for a family of four in 2012

People eligible for public coverage (i.e., Medicaid) not eligible for premium assistance in exchanges In states without expanded Medicaid coverage, people with incomes

less than 100% of poverty will not be eligible for exchange subsidies, while those with incomes at or above poverty will be

NV has expanded Medicaid‒ Cover people under the age of 65 with income less than or equal to

133% of the FPL People offered coverage through an employer not eligible for premium

tax credits unless the employer plan does not have an actuarial value of at least 60% or the required employee contribution toward the cost of self-only coverage exceeds 9.5% of income

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Tax Credit

Amount of tax credit based on the premium for the second lowest cost silver plan in the exchange and area where the person is eligible to purchase coverage Silver plan is a plan that provides the essential benefits and has

an actuarial value of 70%‒ 70% actuarial value means that on average the plan pays

70% of the cost of covered benefits for a standard population of enrollees

Amount of tax credit varies with income such that the premium that a person would have to pay for the second lowest cost silver plan would not exceed a specified percentage of their income (adjusted for family size): For example:

‒ Up to 133% FPL: 2% of income‒ 300-400% FPL: 9.5% of income

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Reduced Cost Sharing

Available to families with incomes at or below 250% FPL Cost sharing reduced so that the plan, on average, pays a greater

share of covered benefits Amount of cost-sharing available varies with income

‒ For people with incomes between 100% and 150% FPL, the actuarial value of the plan will be increased to 94%

Cost-sharing assistance limits the plan’s maximum out-of-pocket costs and for some people will also reduce other cost sharing amounts (i.e., deductibles, coinsurance or copayments) For example, for those with incomes between 100% and 200%

FPL, a 2/3rd reduction applies

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Pay or Play Mandate

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Pay or Play Mandate

Pay or play mandate is a two-part excise tax Each applies only to a large applicable employer (50 or more full-time

employees (equivalents) in the last calendar year) First part of tax is $166.67 for each of a large employer’s full –time

employees (less the first 30) applicable to any month that- Employer

‒ Offers no health coverage‒ OR offers health coverage that is not minimum essential coverage

(MEC)‒ OR offers MEC to less than “substantially all “ full-time employees

(and dependents after 2014) But only if the employer receives certification that a full-time employee

qualified for a premium tax credit or cost-sharing reduction

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Pay or Play Mandate

Pay or play mandate is a two-part excise tax Second part of tax is $250 per full-time employee for which a large

employer receives certification) applies to any month that— Employer offers MEC to “substantially all” full-time employees and after

2014, their dependents But the MEC either-

‒ Is not affordable (employee’s cost for self-only coverage is greater than 9.5% of employee’s household income or safe harbor alternative)

‒ OR does not provide minimum value (at least 60% actuarial value) If second part of tax would be greater than the first penalty, then the first

penalty applies instead

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Issues to Consider Under Pay or Play Mandate

Who is considered an employee? Employees determined under the common law test

“leased employees” are not counted for this purpose Partners, more than 2% shareholders in a Subchapter S, and self-employed

individuals don’t count Seasonal employees may be excluded for determining if an entity is an applicable

large employer (certain conditions must be met) Seasonal employees may not be excluded when determining whether a full-time

employee must be provided coverage

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Who is considered an employer? IRS says that the “employer” will be all members of a controlled group

Parent-subsidiary Brother-sister subsidiary Combination of above Affiliated services

Employers in controlled group aggregated for determination of being an applicable large employer Controlled group is NOT aggregated for purposes of pay and play penalty

‒ Each entity is considered separate applicable large employer member‒ BUT, the 30 employee reduction for the penalty of not offering coverage is

prorated across the controlled group‒ BUT, hours of service for employees are counted across all employer members

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Who is considered an employer? IRS has reserved a section in the regulations for special rules for controlled

groups as it relates to governmental entities Temporary staffing agencies

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What is “substantially all” employees? Coverage is offered to 95% of its full-time employees (or the greater of five

persons) (and their dependents) Need not be inadvertent

This is used to avoid the $2,000 penalty If coverage does not have minimum value or is not affordable, employer still on the

hook for $3,000 penalty If any of the 5% (or the greater of five) employees who are not offered coverage

receive premium assistance for coverage from the Exchange, $3,000 penalty will apply

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Issues to Consider Under Pay and Play Mandate

Employer must provide coverage to full-time employees (and dependents)

Includes only an employee’s child Son, daughter, stepson, stepdaughter, adopted child, child placed for adoption

and foster child Future guidance expected on foster child Up to age 26 (based on day the child turns 26)

Does not include spouse If employer does not currently provide dependent coverage, it is required after 2014

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How an employer satisfies the requirement to offer coverage Employee must have an effective opportunity to accept coverage at least once

during the plan year Based on facts and circumstances

Employee must also have opportunity to decline If accepted by employee coverage would be applicable for that month or day

If there is a day during a month in which the coverage would not be effective, employee is treated as not being offered coverage for the entire month (unless employee is terminated)

Late or nonpayment of premiums If after being enrolled in coverage employee fails to pay his/her share of

premium on a timely basis employer is not required to provide coverage for that period and employer is treated as having offered coverage for the remainder of coverage period (typically plan year) Apply COBRA rules

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Employee’s required contribution toward cost of self-only coverage is affordable if it does not exceed 9.5% of employee’s household income

W-2 Safe Harbor Self only coverage for the lowest option that provides minimum value does not

exceed 9.5% of the employee’s W-2 wages for that calendar year‒ Must offer coverage to dependents‒ If employee not offered coverage for all months of employment during the

year, W-2 wages are adjusted to reflect period of coverage/premium‒ Employee by employee basis‒ Employer does not know if affordability is met until end of calendar year‒ ER can set contribution as percentage of wages

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Employee’s required contribution toward cost of self-only coverage is affordable if it does not exceed 9.5% of employee’s household income

Rate of Pay Safe Harbor Use the hourly rate of pay for each eligible hourly employee, multiply that rate by

130 and determine affordability based on the monthly wage ‒ Contribution toward lowest cost self-only coverage that provides minimum

value cannot be more than 9.5% of monthly wage‒ Safe harbor is not applicable if employer reduces wages during the year for

either hourly or salaried employee Federal Poverty Line Safe Harbor

Self only cost of coverage does not exceed 9.5% of most recently published federal poverty level for a single individual

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Issues to Consider Under Pay or Play Mandate What is a full-time employee? Employed on average for at least 30 hours of service per week or more

(130 hours of service in a calendar month is considered to be 30 hours per week)

‒ Hours of service includes time for which employee is paid, or entitled to payment, for performance of duties

‒ Vacation, holiday, illness, incapacity (including disability), lay off, jury duty, military duty or leave of absence

‒ No limit to the hours that may be credited for paid leave Includes hourly, salary, commission

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Safe harbor rules for determining full-time employee status “Ongoing employee”- an employee who has been employed for at least one

complete “standard measurement period”. Determined status of employee based on look back (full-time or not full-time) is applied for subsequent standard stability period.

‒ Can use an administrative period after measurement period

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Safe harbor rules for determining full-time employee status New employee- employed for less than one complete standard measurement

period Divided new full time and new variable hour or seasonal each with different rules

New Full-Time Employee At start date employee is reasonably expected to be employed on average 30

hours of service or more per week (and is not a seasonal employee) Coverage must be provided at or before the end of the employee’s first

three months ( cannot have more than a 90 day waiting period)

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Safe harbor rules for determining full-time employee status New variable hour/seasonal employee

Cannot determine at employee’s start date if employee is expected to work on average 30 hours of service per week (assume employment for entire measurement period)‒ Employees of educational organizations generally cannot be treated as

seasonal employee Determined status of employee based on look back (full-time or not full-time) is

applied for subsequent stability period. Initial measurement period—between 3 and 12 months that begins on any date

between the employee’s start date and the first day of the first month following the start date‒ Initial measurement period and administrative period cannot extend beyond

13 months and a fraction of a month (last day of the first calendar month beginning on or after the employee’s first anniversary date

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Other Issues of Concern Change in employment status-new variable hour/seasonal employee Rehired employees/Employees who resume service after absence

Paid or unpaid leave Special rules for unpaid FMLA, USERRA and jury duty

Continuing employee Continuing employee of educational organization Cafeteria Plans

Permitted to use gaining or losing coverage on Exchange as reason to make a mid-year election change

Plan must be amended by December 31, 2014

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Pay or Play Effective Date

Applicable to calendar plan years as of January 1, 2014Transition Relief for Fiscal Plan Year Complex two-part transition rule for plans that had non-calendar plan years on

December 27, 2012 Employees eligible on first day of 2014 plan year, per rules in effect on

12/27/2012‒ No penalty with respect to these employees if offered MEC that is affordable

and has minimum value for 2014 plan year‒ Does not solve any issues caused by full-time employees not being eligible

under current plan terms

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Pay or Play Effective Date

Applicable to calendar plan years as of January 1, 2014Transition Relief for Fiscal Plan Year Second part of two part-transition rule

No penalty with respect to ‒ Employees ineligible per rules in effect 12/27/2012 who are offered MEC that

has minimum value for 2014 plan year‒ IF the coverage is offered under plan(s) having the same non-calendar plan

year on 12/27/2012‒ AND, at specified times, those plan(s) covered at least ¼ (or were offered to

at least 1/3) of the employer’s employees‒ AND the employees would not have been eligible for any group health plan of

the employer that had a calendar plan year on 12/27/2012

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Fees

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Comparative Effectiveness Research Fee $2 per capita fee due with respect to plan/policy years ending after

September 30, 2012, subject to exceptions $1 per capita for plan/policy years ending before October 1, 2013

Based on national health expenditures for plan/policy years ending after September 30, 2014

Sunsets for plan years ending after September 30, 2019 Fee generally is required on average number of lives covered, including

spouses, children, other enrollees Special rule for stand alone HRAs and health FSAs subject to fee: count

only participants (employees, qualified beneficiaries, etc.) Paid on Form 720 to IRS by July 31 of the calendar year following the end

of the plan year Employer pays for self-insured, insurer pays for fully insured This is not deductible by the employer

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Transitional Reinsurance Fee 2014 to 2016 Fee imposed on insurers and self-funded plans to finance

reinsurance payments for individual market coverage Assessed on a per capita basis, in 2014 fee is $63 TPAs may pay for self-insured plan Estimated that fees will total $12 billion in 2014, $8 billion in 2015

and $5 billion in 2016 Collected by HHS

Plan reports number of lives by November 15, HHS will advise amount of contribution due, payment due to HHS within 30 days

States are permitted to increase fees at their discretion, but only for insured plans Self insured ERISA plans are preempted from a state extension

This fee is deductible by employer and insurers

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Annual Fee on Health Insurance Fee imposed on health insurers

Non-deductible Allocated proportionately across the industry according to

market share Presumably applicable to medical, dental and vision insurers

‒ Regulations not yet issued, may provide further clarification Amount of fee

$8 billion in 2014 rising to $14.3 billion by 2018 Increased after 2018 by amount paid in preceding year

increased by rate of premium growth for the preceding year Not applicable to self-insured plans

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Points to Consider

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Points to Consider Will you pay or play? Will you pay all the way or play all the way?

Consider managing plan design and cost to sustain employer sponsored plan and to help avoid excise tax

Have plans been reviewed as to meeting actuarial value of 60% bronze plan?

Have the compensation of employees been reviewed to see if cost will not exceed 9.5% of employee’s gross wages? Will wages need increased or premiums lowered?

What kind of coverage will continue to be offered? Drop spouses since not considered “dependents” Increase cost of dependent coverage

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Points to Consider Have you reviewed your population as to any waiving of coverage?

‒ How does this affect total premiums?‒ Will compensation need reviewed if no longer waiving?

How does the new definition of full time employee affect you? Will employee hours be dropped and the workforce adjusted accordingly?

Will low wage full-time employees be unable to access exchange because employer plans meet affordability test? Coverage through the employer plan may be more expensive than the

exchange Will employees lose pre-tax ability because of getting exchange coverage? If subsidizing employees due to exchange coverage have you considered all of

the employment costs? What if decisions result in a discriminatory plan?

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Discussion

Moving Forward with Health Care Reform: A 2013 Perspective

Southern Nevada Compensation and Benefits Association

Frances K. Horn, JD, PHR National Legal & Research Group

January 23, 2013

This material and any accompanying remarks are provided for informational purposes only and nothing contained in either should be taken as a legal opinion or as legal advice Copyright 2013 All rights reserved

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