Affordable Care ActSHRMApril 10th, 2013

Chris KeenKeen Insurance Associates- President410-213-9060 / 410-251-8605 cellckeen@keeninsurance.com

Affordable Care ActAcronyms & Synonyms

ACA

Patient Protection and Affordability Care Act

PPACA (“Pa Pac a”)

Free Health Care

Health Care Reform

Obamacare

Background & Key ProvisionsExpansion of Medicaid up to 133%-138% of

Federal Poverty Level (state specific down to 100% of FPL)

Requires US Citizens* & legal residents to have health insurance (Individual Mandate)

Create state-based exchanges for individual purchase of health insurance, to include federal funding for “subsidized premiums” ◦ Incomes from 133% to 400% sliding subsidy

Requires large employers with 50 or more employees to provide Acceptable and Affordable Health Insurance (Pay or Play)

Medicaid ExpansionMedicaid currently varies state to

stateOffers need based coverage with

income restrictions up to 100% of Federal Poverty Level (state specific)

Expansion provides federal funding for states up to 133%-138% of poverty

133% Poverty estimates 2012: $15,282 Single $31,322 Family of Four

Individual Mandate- January 1, 2014Have Coverage or Pay PenaltyPenalty will be the greater of:1% of income or $95 in 2014,2% of income or $325 in 2015,2.5% of income or $695 in 2016,The amount is reduced by one-half

for dependents under the age of 18,The total family penalty is the greater

of the annual percentage or capped at 300% of the flat dollar amount.

Individual Penalty Example

*2016 Family of 4 meets fixed dollar cap

Samples Year 2014 Year 2015 Year 2016

Single $20,000 Annual Earnings $200 $400 $500

Single $50,000 Annual Earnings $500 $1,000 $1,250

Family $70,000 Annual Earnings

$700 $1,400 $2,085*

Individual Mandate- Subsidized Coverage via State ExchangeKey Provisions- State Exchange Risk Pool Premium-

No more than 3 to 1 difference (Highest to Lowest)

No pre-existing coverage limits No load for medical or life style risk No more than 50% load for tobacco

use

FPL and Exchanges

Individual Mandate- Subsidized Coverage via State ExchangeProjected Premium on Exchange (Kaiser Health Foundation Non-Profit)Single Member Age 40- Income $34,000 (300% Poverty Estimate)

Annual MonthlyProjected Premium: $4,500 $375Subsidy $1,165 $114Premium to Member $3,335 $261*

*Remaining Premiums after subsidy are paid with after tax income. No section 125 deductions are permitted.

Individual Mandate- Subsidized Coverage via State ExchangeProjected Premium on Exchange (Kaiser Health Foundation Non-Profit)Family with two children – Adults Age 61- Income $93,000

Annual MonthlyProjected Premium: $25,100 $2,091Subsidy $16,265 $1,355Premium to Member $8,835 $736*

*Remaining Premiums after subsidy are paid with after tax income. No section 125 deductions are permitted.

Individual Mandate- Subsidized Coverage via State ExchangeProjected Premium on Exchange (Kaiser Health Foundation Non-Profit)Family with two children – Adults Age 61- Income $95,000

Annual MonthlyProjected Premium: $25,100 $2,091Subsidy $0 $0Premium to Member $25,100 $2,091*

OVER 25% OF GROSS HOUSEHOLD INCOME

*Remaining Premiums after subsidy are paid with after tax income. No section 125 deductions are permitted- Income above 10% may be deductible using federal itemized deduction options.

Consult your tax adviser for review of any potential tax implications.

Pay or Play- Large EmployersPay a penalty for not offering

“minimum essential” coverage (MEC), and “affordable” coverage, or pay a penalty for not offering coverage at all.

Play by offering “affordable” & “minimum essential” coverage to all full-time employees*.

Pay or Play- Large Employers

Pay Option- Don’t Offer a MEC Plan:$2,000 Annualized Tax Penalty Per Full Time

Employee (Penalty is Valid for 2014) (Less $60,000 for first 30 exempt employees)Ex.130 FT Employees = $200,000 Penalty

Employees earning less than 400% of poverty can purchase coverage on exchange or pay their own tax penalty for being uninsured

Employees / Owners earning more than 400% of poverty can purchase insurance on or off the exchange at new unsubsidized rates

Pay or Play- Large Employers

Play Option- Offer a Plan:If your plan meets the minimum

essential benefit standard and is deemed affordable*:Employees eligible for Medicaid will not

require employer penalty Full time employees must be offered

coverage within 90 days of employmentAffordability measures employee

payroll premium costs

Pay or Play- Large Employers

Play Option- MEC PlanMake sure plan meets Minimum

Essential Coverage Test (ACV 60%) Plan Must meet 60% Determined

Actuarial Calculated Plan ValuePlan should be “expected” to pay

60% of likely incurred medical expenses*

What wouldn’t qualify?$10,000 deductible plan

Pay or Play- Large Employers

Play Option- Affordable Plan:To be affordable by law

Premium cannot exceed more than 9.8% of household income- amended to 9.5%

Affordable under interim Safe Harbor rules3 allowable Safe Harbors maybe

used to determine affordability

Safe HarborsW-2 Box 1 safe harbor allows a 9.5%

affordability test of self only coverageRate of pay safe harbor takes the

hourly rate, multiply by 130 hours, affordable if self only contribution is less than 9.5% of total.

Federal poverty line safe harbor allows self only contribution less than 9.5% of FPL($20.99 per week in 2013)

Pay or Play- Large Employers

Safe Harbor W-2 Earnings Example :Sample Large Employer

Offers MEC Plan to all Eligible Fulltime employees within 90 days of hire

Employee required contribution for plan is $35 per week

Sample Employee W-2 Box 1 Earnings for 2014 are $22,000

Employer is not liable for penalty – plan is deemed affordable under Safe Harbor

(9.5% of $22,000 is $40.19 per week)

Large EmployersDoes this apply to me?Large Employer is Well Defined within ACA

50 or More combined Full time and Full time equivalent employees (FTEs)

Full time employee defined-Reasonably expected to work 30 hours per

week or 130 hours per monthFTEs

The aggregation process of adding all part time employees working less than 130 hours per month

Converting those hours into full time equivalents

Large EmployersDoes this apply to me?

Monthly CalculationStep 1 – Count full-time employeesStep 2- Count all employees with 130 or more

hours count each as one FTEStep 3 – Count the hours of all remaining

employees, using no more than 120 hours for any employee.

Step 4 – Divide those hours by 120.Step 5 – Add 1 + 2 + 4 Step 6- Equals FTE for that month.Step 7- Average the 12 months totals

Large EmployersCalculations- Sample Month

April Full Time Employees 40

FTE >130 10 FTE < 130 – Hours (count max 120) 1500FTE Part / 120 12.5

Combined FT +FTE 62.5

Large EmployersCalculations- Total

JanuaryFebruar

y March April May June July Aug Sept Oct Nov DecFull Time Employees 25 25 25 40 40 50 50 50 40 30 25 25

FTE >130= FTE Part I 0 0 0 10 20 40 50 50 40 20 10 5

FTE Part II- Hours 200 225 375 1500 2000 2500 3000 3200 2800 1500 1000 500

FTE Part / 120 1.66 1.875 3.125 12.5 16.66 20.83 25 26.66 23.33 12.5 8.33 4.16

FTE Part II Round Down 1 1 3 12 16 20 25 26 23 12 8 4

Combined FT +FTE 26.66 26.875 28.125 62.5 76.66 110.83 125 126.66 103.33 62.5 43.33 34.16 826.63

AVG 68.88

Large Employer 68

Avoid Being a Large Employer?Misinformation

Run two separate 90 day shifts of “seasonal employees”?Still included in large employer count, not person

specific, driven by hoursSeparate companies, partnerships, lease

backs, property leases, associated service organizations?Employer aggregation is required in ACA as defined

in IRS section 414 (b)(c)(f)(m)(o)Hire non-us citizen work force?

All hours count towards 50 large employer. All legal workers are covered by ACA

90 Day Waiting Period 2012-59 PHS Act section 2708 does not allow any waiting period

that exceeds 90 days. 2012-59 gives guidance through 2014 regarding waiting periods. Defines “eligible to enroll” as having met the plan’s substantive eligibility conditions.

Also allows “reasonable time” to determine if variable hour employees meet the plan’s eligibility. Specifically gave an example stating a plan’s cumulative hours of more than 1200 hours would violate PHS Act 2708

Guidance issued March 18th 2013 further stated that this provision is a one time eligibility requirement only and does not permit re-application to the same individual each year.

Also, while compliance with the 90-day waiting period limitation satisfies PHS Act 2708, incorrectly defining variable hour employees may not satisfy 4980H or HIPAA non-discrimination guidelines.

Measurement Periods 2012-58 released in August 2012 gives guidance

through 2014 regarding MEASUREMENT PERIODS See HRS insight dated 9-13-12 2012-58 allows up to a 12-month initial

measurement period to determine full time status 2012-58 also allows up to a 12-month standard

measurement period for ongoing variable hour employees

It also determines subsequent stability periods for employee’s insurance coverage if they “qualified”

Guidance 12-27-2012 clarified that “an employer intending to ADOPT a 12-month measurement period will face time constraints in doing so”.

New Areas Of ComplianceEmployment classification as full-time,

variable, or seasonalAudit manuals and compliance documents 5% error results in maximum 4980H(a) penaltyFirst date of service for re-hired employees,

change in employment status, and their eligibility

FMLA, jury duty, USERRA IRS annual filings, 6056 reportingNew terminology and measurement periods

Solutions for Large EmployersPay Penalty- Do not offer plan!

Need:Estimate penaltySection 6056 notice compliance Track and manage the penaltyProvide payment and annual

notice

Solutions for Large EmployersMake sure plan meets Affordability & Benefit

StandardsDefine the employee populations you wish

to reward with affordable benefit coverageBudget for inclusion of these benefitsManage additional labor needs with limited

or no penalty exposure Implement policies, procedures and controls

to ensure ongoing compliance & reviewPartner with a consultant prepared to audit

your plan to assure ACA compliance.

Run the Analytics

Contact Information:

Chris KeenKeen Insurance Associates- President410-213-9060 / 410-251-8605 cellckeen@keeninsurance.com