© 2012 Waller Lansden Dortch & Davis, LLP. All Rights Reserved.

Impact of the Affordable Care Act

Nashville Association for Financial ProfessionalsFebruary 14, 2013

James B. Bristol615.850.8922james.bristol@wallerlaw.com

10568079

© 2012 Waller Lansden Dortch & Davis, LLP. All Rights Reserved.| 2

Employee Health Benefits –New Business Decisions For Employers

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Health Law Status Before PPACA

Employer-driven based on tax incentives

ERISA – “settlor” discretion on plan design

ERISA – fiduciary claims administration

Medicare and FAS 106

EMTALA – patient anti-dumping, charity care

Universal Coverage? Cost?

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Employer Obligations

Federal/state mandates – ERISA preemption

HIPAA –pre-existing condition exclusions– Maximum exclusion is 12 months

– No exclusion if coverage break is 63 days

Non-discrimination testing for self-funded plans

Summary description of plan, notice of changes within six months – judicial exceptions

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Popular Changes - Talking Points

Employer Plans Grandfathered

Dependent care through age 26

No pre-existing exclusions – up to age 19; universal in 2014

Community Rating – “affordable”

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Supreme Court Decision

“It’s a Tax Stupid”

– No expansion of interstate commerce

Medicaid unconstitutional – Medicaid funding cannot be withheld for states that opt out

How much tax is ok under equal protection?

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Mandated Health Coverage – Pay or Play

Effective January 1, 2014

Employer Mandate

– Focused on “Large” employers

– Most larger employers are “self-funded”

– Employer as “Settlor” and “Fiduciary”

Individual Mandate

Federal and State Exchanges

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Employer Mandate - Play or Pay

Large employers - 50+ FTEs

– Headcount/30 hours

Must provide “minimum essential coverage”

– Workers at 30+ hours

Employer must provide financial support

– employee premium share cannot exceed 9.5% of income

– plan’s share of benefit cost at least 60%

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Employer Mandate – Tax Enforcement

Per employee tax if plan is not “affordable”

$2,000 per employee tax if no “minimum essential coverage”

$3,000 tax for each employee enrolling in exchange or receiving premium credit

Exclude first 30 employees in calculating tax

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Individual Mandate

Must obtain “minimum essential coverage”

– Through employer or exchange

Tax subsidies assist purchase, based on income

– Employer “pay or play” tax covers subsidies

– Provider reports– W-2 for employer plan

Expands Medicaid – although states can opt out

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Individual Mandate

Tax penalty to enforce individual mandate

– Minimum of $95, phased increases to $695 in 2016 – based on income, up to 3x

– Percentage of income test, 1% phased increases up to 2.5%

– Assistance and exceptions for lower income families

No Time Limit

– EMTALA, Pre-existing ok, Community rating

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Cost Containment

Comparative Effectiveness Research

– Patient-Centered Outcome Research Institute (PCORI)

– Non-profit created by government, funded by taxes

– Compares clinical effectiveness of medical treatment options, communications, healthcare disparity

– Designed to “pry savings” from healthcare

Preventive Care – Wellness

Managed Care?

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Grandfathered Plan Status

Plans in existence on March 23, 2010 grandfathered from most requirements

Status is lost if materially modified

– Changes to cost sharing

– Changes to employer share of premiums

Employers will have continual decisions on maintaining grandfather

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New Employer Obligations to Employees

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Employer Obligations

Standardized summary of plan benefits and coverage

– Template available on DOL website – 4 pages

– Can be part of summary plan description (SPD)

– Applies now

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Employer Obligations

Form W-2 report aggregate cost of coverage for self-funded plans– Used to determine tax credits and tax penalties

– Dept. of Labor valuation methods

• HHS MV Calculator

• Safe-harbor Checklist

• Actuarial Checklist

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Employer Obligations

Submit to HHS and state insurance commissioner policies, practices, medical loss ratio, etc.

Additional IRS reporting requirements for covered employers in 2014

60-day prior notice of material modifications to plan

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Employer Obligations

Accommodations for nursing mothers

– Employers must provide reasonable, unpaid break time for one year after birth

– Location shielded from view

– Similar to many existing state laws

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Employee Status

Many requirements do not apply to smaller employers

– See over 50, over 30 mandates and penalties

– Full-time equivalent calculations – divide hours worked by 2,080, etc.

Worker classification?

– Compare independent contractor vs. employee to retain small employer status

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Employer Obligations

“Whistleblower” Employee Protections

– Cannot retaliate against employee for reporting, testifying about, or objecting to a reasonably believed violation of PPACA

– Complaints investigated by OSHA

– Similar to Sarbanes-Oxley procedures

– New source of employment litigation?

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Mandates for Employer Plans

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Plan Design and Requirements

Healthcare reform imposes many rules for employer plans including:

– Coverage of dependents to age 26

– New hire waiting period 90 days or less

– Universal preexisting condition coverage

Medical Loss Ratio

– Spend 85% of premium (80% small plan) or refund

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Plan Design and Requirements

No lifetime limits on “essential health benefits”

Cannot rescind health benefits other than for fraud/intentional misrepresentation

Limits on annual cost sharing

– Total $5,950 for individual, $11,500 for family

– Annual deductible $2,000 for single, $4,000 for spouse and family coverage

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Plan Design and Requirements

Automatic health plan enrollment required for employers with 200 or more employees

– Auto for new employees, renewal for current employees

– Employees may opt out

– Logistical issues – effective after DOL regulations

• Payroll programming, notices, etc.

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Wellness Incentives – Cost Savings

Many wellness incentives – similar to current practices

Premium discounts for wellness ok if

– Made available to all similarly situated employees

– Up to 30% discount on employee-paid cost (50% if regulation)

– Must be reasonably designed to promote health

– Individuals may qualify at least annually

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Wellness Incentives

Health plans must cover without cost sharing

– Immunizations

– Preventive care, screenings for children until adolescent

– Screenings, preventive care for women (mammogram, cervical cancer, genetic counseling)

– Evidence-based items or services (blood pressure, diabetes, cholesterol test, wellness counseling, etc.)

More under development

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Key PPACA Tax Changes

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Tax Credits

Small Employer Tax Credit (temporary)

– 25 or fewer full-time equivalents

– Plan covers at least 50% of premium cost

– Average annual wages less than $50,000

Based on average employer or small group premium

35% premium credit, 50% in 2014

– 25%/35% for tax-exempts

– Not available after 2016

– Phased out based on employees/wages

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Cadillac Tax

Beginning in 2018 for High Cost Plan

– 40% excise tax on “excess benefit”

• Premiums above $27,500 family, $10,200 single

• Includes contributions to FSA, HRA, employer HSA

– Does not apply to dental, vision, long-term care, after-tax indemnity

– Employer calculates and reports tax, must notify HHS and providers

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Revenue Enhancements

Flexible spending accounts limited to $2,500

Over-the-counter ineligible for HRA, FSA and HSA – 2011

Penalty for ineligible HSA payments increased from 10% to 20% – 2011

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Medicare Tax Increase - 2013

Additional 0.9% - $200,000/250,000

– 2.35% or 3.8% if self-employed

3.8% on investment income $200,000/250,000

– Capital gains/dividends 20% @$400/450,000

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Other Tax Highlights

Medical Device Tax– 2.3% excise tax on gross sales (not profits)

– Items under $100 exempt

Tanning Salon Tax – 10%

Medical Expense Deduction

– Must exceed 10% of AGI – currently 7.5%

Insurance Executive Deduction Limit– $500,000, no commission or performance exception