Impact of Health Care ReformOn Employers

Prepared by:Josh Treece, Esq.

Woods Rogers PLC540.983.7600

www.woodsrogers.com

Copyright © 2013 Woods Rogers, PLC

2013 VEC Employer Conference

2012 Kaiser Employer Benefits Survey

• Employers that offer Health Plans:

– 3-9 EEs = 50%

– 10-24 EEs = 73%

– 25-49 EEs = 87%

– 50 -199 EEs = 94%

– 200+ EEs = 98%

2012 Kaiser Employer Benefits Survey

• Premium for Families rose to $15,745 per year

– 2012 EE’s contribution = $4,316

– 2012 ER’s contribution =$11,429

– Up 4% from 2011

– 9% increase from 2010 to 2011

– 97% increase since 2002 (wages increased 33%)

Impact of Health Care Reform on Health Care Costs

• Kaiser estimates:

– 1-2% of the 9% premium increase in 2011 was attributed to Health Care Reform.

• Young Adult Coverage

– 2.9 million young adults up to age 26 were added to their parents’ plans

• Preventative Care without cost sharing

Health Care Exchange

Individual & Employer Penalties

Health Care Exchanges• Individual and Small Business Health Option (“SHOP”)

Exchanges (aka “Marketplace”)

– ERs with 50 or fewer FTEs can enroll

– Open enrollment slated to begin October 1, 2013

– Must open by Jan. 1, 2014

– In 2017, states can allow large employers to enter exchange

SHOP EXCHANGES• SHOP exchanges:

– Allow small employers to offer plans from multiple insurers

– receive single bill and write single check.

– Small employers may be eligible for a tax credit of up to 50% of ER’s premiums

• Full Implementation Delayed:

– Single SHOP plan expected in 2014-ERs only allowed to select 1 plan to offer their EEs

– In 2015, ERs will be allowed to select multiple plans for EEs to choose from.

Virginia’s Exchanges• Virginia

– On March 29, 2013, Virginia received approval to perform plan management activities.

– The Federal Gov. will retain control over all other Exchange functions.

– VA’s SHOP Exchange should be open to ERs with 50 or fewer FTEs.

Insurance Offered Through Exchange Must

• Must Provide “Essential Health Benefits” including:

• Ambulatory patient services

• Emergency services

• Hospitalization

• Maternity and newborn care

• Mental health and substance abuse services

• Prescription drugs

• Rehabilitative and habilitative services and devices

• Laboratory services

• Preventive and wellness services and chronic disease management

• Pediatric services, including oral and vision care

– Must match other benefits provided by the state’s designated “benchmark plan”

• ER Plans need not offer all of the EHBs

Premium Limitations• In 2014, there will be no underwriting (evaluating health

conditions and risk) in the individual and small group markets (adjusted community rating)

• Premiums can only be adjusted based on four criteria:

– (1) Age

• (cannot vary more than 3x among adults = 85 yr. old premium cannot be more than 3X that of 21 yr. old)

– (2) Geographic Area

– (3) Family Size

– (4) Tobacco Use

• (cannot vary more than 1 - 1.5x)

• Health status & gender cannot be considered

Medical Loss Ratio• Insurers Must Satisfy Medical Loss Ratio (currently in effect)

– Large group market:

• 85% of premium must be spent on patient care

– Individual/small group market:

• 80% of premium must be spent on patient care

• On June 20, 2013, HHS reported:

– Consumers saved $3.9 billion in premiums in 2012 due to the MLR

– If an insurer did not spend enough on patient care, rebates will be paid to consumers by either:

• Mail or credit card reimbursement

• Reduction in future premiums

– HHS reports that 8.5 million Americans will receive an avg. rebate of $100 per family.

Individual Mandate• Beginning January 1, 2014

• Must obtain “minimal essential coverage”

– Employer-sponsored coverage (including COBRA coverage and retiree coverage)

– Coverage purchased in the individual market– Medicare coverage (including Medicare Advantage)– Medicaid coverage– Children's Health Insurance Program (CHIP) coverage– Certain types of Veterans health coverage– TRICARE

• Exceptions

– Religious objections– Income below threshold for filing taxes (~10K for individuals)– If premium cost is more than 8% of Income– Less than 3 mo. gap in coverage– Catch-all “hardship”

Coverage that is Not Minimum Essential Coverage

• Minimum essential coverage does not include:

– specialized coverage, such as coverage only for vision care or dental care,

– workers' compensation,

– disability policies, or

– coverage only for a specific disease or condition.

Individual Mandate• In 2014, Penalty will be the greater of:

– Percentage of Income (phase in)• 1% in 2014• 2% in 2015• 2.5% in 2016

– Specific Dollar Amount (phase in)• $95 in 2014• $325 in 2015• $695 in 2016

– Cannot exceed national average premium for Bronze Level Plan (where individual’s cost is 40%)

• IRS will collect by offsetting refund (cannot use liens or levies)

Employer Mandates

Play or Pay Mandate Delayed

• The Play or Pay Mandate has been delayed until 2015.

• Large ERs will not be subject to “no offer” or “unaffordable” coverage penalties until 2015.

• Other provisions of the ACA are unaffected by the delay. For example:

– 90 day waiting period limitation

– ER obligation to send Marketplace Notices to EEs

– ER obligation to ensure that Summaries of Benefits Coverage are being sent by the insurer to EEs

Exchange Notice to Employees • Before Oct. 1, 2013, ERs must provide written notice to all

EEs (part-time & full time) informing them:

– (1) Of existence of Exchange:

• Description of services provided by Exchange

• Method to contact Exchange for assistance

– (2) If ER share of costs is less than 60%, they may be eligible for:

• Premium tax credit

• Cost sharing reduction (health care subsidy)

– (3) If EE purchases plan through the Exchange:

• EE may lose employer contribution (if any) to health benefits plan and

• All or a portion of EE’s contribution to employer plan may be excludable from federal income tax

Exchange Notice to Employees

• DOL has provided two model notices:

– One for ERs who do not offer a health plan;

– One for ERs who offer a health plan to some or all employees.

• In 2014, new EEs must be provided with notice within 14 days of start date.

Summary of Benefits Coverage & Uniform Glossary of Terms

• SBC is short summary of Benefits & Coverage

– Insurance company typically prepares– DOL has sample versions– 2014 version includes:

• Minimum Essential Coverage and

• Minimum Value representations

• ER is charged with ensuring that all employees receive

• ERs must provide:

– With written application materials for enrollment– At open enrollment/renewal– After request for special enrollment– mid-year if a plan change affects SBC– Upon EE request

• Willful failure to provide can result in $1,000.00 fine per failure

W-2 Reporting Requirements

• ERs required to report value of plans on EEs W-2

– Currently in effect

– Value reported will not be taxed

– Aggregation rules do not apply

• Transition Relief:

– Employers filing fewer than 250 Forms W-2 for the previous calendar will not be required to report the cost of coverage

– Transition Relief remains in effect until modified by IRS Regulations

Employer Mandate Large Employers subject to penalty if they:

•(1) Fail to offer coverage for any month to Full Time EE & Dependents (no offer)

•(2) Fail to cover 60% of cost of EE’s benefits (not minimum value)

OR

•(3) EE’s share of premium exceeds 9.5% of EEs household* income (unaffordable)

AND

– One or more Full-Time EE obtains subsidy or tax credit through Exchange

• B/T 100% and 400% of poverty level

– 400% FPL: Individual = $45,960; Family of 4= $94,200– 100-138% eligible for Medicaid if VA agrees to expand

OR

• EE’s share of employer premium exceeds 9.5% of EE’s family income

*See safe harbor methods

Large Employer Penalties• What is a Large Employer?

– Average of 50 FTEs during the prior calendar yr.

– Full-time : Average of 30 hrs/ wk

– FTEs: total monthly hrs for all PT EEs / 130 hrs

– FTEs Example:

• 8 PT EEs each with 85 hrs per mo. (approx. 20 hrs per week) + 45 Full-Time= 50.23

– (8*85 = 680; 680/130 = 5.23; 5.23+45=50.23)

• Related companies:

– Treated as single ER if they satisfy the IRS “Control Group” Test • (IRC § 414(b), (c), (m) or (o) ):

– Ex. Parent-Subsidiary or Brother-Sister

Calculating Full Time Employee

• Calculating Hours:

– Do not deduct for paid time off

– Seasonal: working less than 120 days per yr. = Excluded from calculation

– Special Leave—ex. Unpaid FMLA leave may not be counted to reduce avg. hours

– See Safe Harbors

• Anti-Abuse Proposed Rules:

– Cannot use Staffing Agencies to avoid large employer status

– Ex. have 2 staffing agencies employee same individual for 20 hrs. per/wk. each and loan to “client” ER for total of 40 hrs. per/wk.

– “Client” will be considered common law ER.

“NO OFFER PENALTY”

• If Large Employer Does Not Offer Coverage to 95% of its Full-time EEs & Dependents:

– Penalty

• $2,000 (per yr.) x # of Full-Time EEs in excess of 30 (including those actually offered coverage)

• $166.67 per mo. x (# Full-Time EEs – 30)

• Assessed until no EE receives subsidy or ER offers qualifying plan

Offer of Dependent Coverage

• Dependent Defined:

– Child under 26 is a dependent

• Transition relief is provided for ERs that do not currently provide coverage for dependent children, but take steps to do so in 2014

• No penalty will be assessed if based solely on failure to cover child

– Spouses ARE NOT dependents

• Spousal coverage is not required and need not be affordable

“UNAFFORDABLE COVERAGE PENALTY”

Even if Coverage is Offered to Full-Time EEs :

•Subject to penalty if coverage is unaffordable or fails to provide minimum value:

– (1) Premium is exceeds 9.5% of EE’s household income (unaffordable)

or

– (2) Employer is not covering 60% of costs (fails to offer minimum value)

•Penalty

– $3,000 (per yr.) x # of Full-Time EEs receiving subsidy

– $250 per mo., per Full-Time EE

– Cannot exceed penalty for no coverage

Offer of Coverage Safe HarborPlay-or-Pay Proposed Regulations

• Offer of Coverage Safe Harbor:

– ER deemed to Offer Coverage to Full-Time EEs in any month where:

• It offers coverage to all but 5% (or, if greater, 5 EEs) of its full-time EEs and their dependent children

– EEs failure to enroll will not count against ER

– Loss of coverage from EE failure to pay required contribution will not count against ER

– ER must offer opportunity to enroll (or decline) at least once per year

Affordability Safe HarborPlay-or-Pay Proposed Regulations

– W-2 Wages

• ER’s lowest-cost, self-only coverage does not exceed 9.5% of EEs W-2 wages

• Regardless of actual cost of dependent coverage

• Safe harbor is lost if contribution rates are adjusted mid-year.

– “Rate of Pay”

• ER’s lowest-cost, self-only coverage does not exceed 9.5% of approximate monthly earnings

– If hourly EE = Hourly Rate X 130 hours per month

– If Salary EE = Monthly Salary

• Only if wages/salary are not reduced during the calendar year

– “Federal Poverty Line”

• ER’s lowest-cost, self-only coverage does not exceed 9.5% of monthly federal poverty line for individuals

• 2013 FLP for individuals = $11,490 x 9.5% / 12 mo. = $90.96 monthly premium

Minimum Value Safe HarborPlay-or-Pay Proposed Regulations

• Anticipated Minimum Value Safe Harbors (set plans that are deemed to meet 60% actuarial costs):

– Plan 1• $3,500 integrated medical and drug deductible• 80% plan cost sharing• $6,000 max out of pocket limit for EE cost sharing

– Plan 2• $4,500 integrated medical and drug deductible• 70% plan cost sharing• $6,400 max out of pocket limit for EE cost sharing• and• $500.00 HSA ER contribution

– Plan 3• $3,500 medical deductible• No drug deductible• 60% medical cost sharing• $6,400 max out of pocket limit for EE cost sharing• 75% drug cost sharing• Drug co-pays of $10/$20/$50 for 1st, 2nd, and 3rd prescription drug tiers• 75% co-insurance for specialty drugs

Minimum Value Safe HarborPlay-or-Pay Proposed Regulations

• Set Plans Must Offer Benefits Used in the MV Calculator (see http://cciio.cms.gov/resources/regulations/index.html):

– Medical• Emergency Room Services• All Inpatient Hospital Services • Primary Care Visit to Treat an Injury or Illness (exc. Well Baby, Preventive, and X-rays)• Specialist Visit• Mental/Behavioral Health and Substance Abuse Disorder Outpatient Services• Imaging (CT/PET Scans, MRIs)• Rehabilitative Speech Therapy• Rehabilitative Occupational and Rehabilitative Physical Therapy• Preventive Care/Screening/Immunization• Laboratory Outpatient and Professional Services• X-rays and Diagnostic Imaging• Skilled Nursing Facility• Outpatient Facility Fee (e.g.,  Ambulatory Surgery Center)• Outpatient Surgery Physician/Surgical Services

– Drug• Generics• Preferred Brand Drugs• Non-Preferred Brand Drugs• Specialty High-Cost Drugs

Determining Full Time EmployeePlay-or-Pay Proposed Regulations

• No offer penalties are based on # of Full-Time EEs

• Proposed Regulations provide Safe Harbor Method for Calculating Full Time EEs

• 3 Groups of Employees for Determining Full-Time Status:

– (1) New Employees Expected to work Full-Time

– (2) On-going Employees

– (3) New Variable or Seasonal Employees

New Employee Expected to Work Full-Time

• New Employees Expected to Work Full-Time:

– Up to 90 days to Enroll

– Counts as Full-Time EE for Penalty Purposes if not enrolled within 90 days

Ongoing Employees Time Frame for Determining Full-Time Status

• Safe Harbor for Determining Full-Time Status for Ongoing EEs?

– Standard Measurement/Look-Back Period: Select b/t 3-12 mos.

• Assess average # of Hours during SM Period

– Optional Admin. Period (time period to enroll): Up to 90 days

– Stability Period: No shorter than SM Period; at least 6 mo. (6-12 mo.)

• Subject to Penalty if Full-Time (& Penalty is Triggered)

• EE treated as Full-Time during Stability Period Regardless of Actual Hours.

Variable Hour & Seasonal Employees Defined

• Variable Hour EE Defined:

– At start date:

• not reasonably expected to work at least 30 hrs per week

or

• Initial 30 hrs. per/wk is expected for limited duration

• Seasonal For Penalty Purposes: Good Faith Use of Term

• Typical Teacher = bad faith characterization

Variable Hour & Seasonal Employees

• Safe Harbor for Determining Full Time Status:

– Initial Measurement (IM) Period: Can Select b/t 3-12 mos.

– Administrative Period (time period to enroll): Up to 90 days

• But: IM + Admin periods cannot exceed 13 mos.

• Must enroll Full-Time in plan within 13 mos.

– Ex. 12 Mo. IM Period = 1 mo. to enroll

– Ex. 10 Mo. IM Period = up to 90 days to enroll

• NO PENALTY DURING 13 Mo. IM / ADMIN PERIODS

– Stability Period: No shorter than IM Period (3-12 mo.)

• Subject to Penalty if Full-Time (& Penalty is Triggered)

Safe Harbor for Determining Full Time EmployeesSource: Congressional Research Service

Impact of Health Care ReformOn Employers

Prepared by:Josh Treece, Esq.

Woods Rogers PLC540.983.7600

www.woodsrogers.com

Copyright © 2013 Woods Rogers, PLC

2013 VEC Employer Conference