PPACA Presentation - Updated

Employer Tactics: Employer Tactics:

Affordable Care Act Affordable Care Act

in 2014 and Beyondin 2014 and Beyond

Consumer Perceptions

Overview

Employer Mandate

Fees/Plan Design Changes

Reporting and Disclosure

Strategies and Cost Containment

Individual Mandate

Employer Mandate

Three important questions:

1) Are we subject to the mandate and have to offer insurance?

– Do we have more than 50 FT + FTEs?

2) To whom do we have to offer coverage?

– Full-time employees

– Part-time employees

– Variable/seasonal employees

– Leased/temporary staffing employees

3) What kind of coverage do we have to offer?

– Minimum value

– “Affordable”

“Pay or Play”

FT + FTE = Total employees for that calendar month

Total PT hours = # of Full-Time Equivalents (FTEs) for120 that calendar month (no rounding)

Add 12 month totals = Average # of FT employees for that year12 (round down)

Question #1 – Are we a large employer?

“Hour of Paid Service”“For employees paid on an hourly basis, employers must calculate actual hours of service from records of hours worked and hours for which payment is made or due for vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence.”

“For employees not paid on an hourly basis, calculate under any of the following three methods: (1) counting actual hours of service [same as above]; (2) using a days-worked equivalency method whereby the employee is credited with eight hours of service for each day for which the employee would be required to be credited with at least one hour of service under these service crediting rules; or (3) using a weeks-worked equivalency of 40 hours of service per week for each week for which the employee would be required to be credited with at least one hour of service under these service crediting rules.” - 29 CFR 2530.200b-2(a)

We are still awaiting guidance on issues with varying pay structures (i.e. – piece rate, commission, per-mile)


Company A has 75 employees; 25 full-time employees and 50 part-time employees. The part-time employees each work three six-hour shifts a week (18 hours/week), for a total of 3,600 hours in January (18 X 50 X 4).

3,600 / 120 = 30 FTEs

25 FT + 30 FTE = 55 total full-time employees (for PPACA)


Part-time employees are cut back to two six-hours shifts in February (12 hours/week), for a total of 2,400 hours worked (12 X 50 X 4).

2400 / 120 = 20 FTEs

25 FT + 20 FTE = 45 total full-time employees (for PPACA)


Calculator made available to all Higginbotham clients.15

Question #1Question #1 –– Are we a large employer?Are we a large employer?

16

Remember!


Seasonal Employee Exception

26 USCA § 4980H(c)(2)(B)(i) In general.--An employer shall not be considered to employ more than 50 full-time employees if--

(I) the employer's workforce exceeds 50 full-time employees for 120 days or fewer during the calendar year, and(II) the employees in excess of 50 employed during such 120-day period were seasonal workers.

Definition of seasonal workers - labor is performed on a seasonal basis where, ordinarily, the employment pertains to or is of the kind exclusively performed at certain seasons or periods of the year and which, from its nature, may not be continuous or carried on throughout the year – employers may used “reasonable good-faith interpretation” of seasonal until further guidance is issued


Controlled Group Rules

(1) Parent-subsidiary controlled group - One or more chains of corporations connected through stock ownership with a common parent corporation if--

(B) the common parent corporation owns stock possessing at least 80 percent of the total combined voting power.

(2) Brother-sister controlled group - Two or more corporations if 5 or fewer persons possessing more than 50 percent of the total combined voting power of all classes of stock entitled to vote(3) Combined group of parent-subsidiary and brother-sister

Remember!


Seasonal Employee Exception

Controlled Group Rules

Transitional Relief – 6 Month Look Back for 2015

Temporary/Leased Employees

Union Employees

1099 Contractors

When do we have to comply?

2015 “Mid-Size” Employer Exemption

• Applicable large employers that have fewer than 100 full-time employees will have an additional year, until 2016, to comply with the pay or play rules. Provided that:

1) The employer must employ a limited workforce of at least 50 full-time employees (including full-time equivalent employees, or FTEs) but fewer than 100 full-time employees (including FTEs) on business days during 2014;

2) During the period beginning on Feb. 9, 2014, and ending on Dec. 31, 2014, the employer may not reduce the size of its workforce or the overall hours of service of its employees in order to satisfy the workforce size condition; and

3) During the coverage maintenance period (that is, the period ending Dec. 31, 2015, or the last day of the plan year that begins in 2015), the employer may not eliminate or materially reduce the health coverage, if any, it offered as of Feb. 9, 2014.

In addition, the employer must provide an appropriate certification stating that it meets all of the eligibility requirements.


Employer Mandate

Three important questions:

1) Are we subject to the mandate and have to offer insurance?

– Do we have more than 50 FT + FTEs?

2) To whom do we have to offer coverage?

– Full-time employees

– Part-time employees

– Variable/seasonal employees

– Leased/temporary staffing employees

3) What kind of coverage do we have to offer?

– Minimum value

– “Affordable”

“Pay or Play”

Question #2 – Who gets offered coverage?

To fall within the PPACA safe harbor, you are required to set a specific schedule of when you will

(1) measure employee hours,

(2) review measurements, and

(3) offer insurance regardless of hours worked during that period.

Employees expected to work more than 30 hours/week must be offered coverage and cannot have more than a 90-day waiting period before coverage takes effect

- Standard Measurement Period (look-back)

- Administrative Period

- Stability Period


Full-time Employees

Your Insurance Cycle

Standard Measurement Period

(SMP) – 3-12 months

� Determines which employees have FT status (30+hr/wk or 130+hr/month)

� Here, the SMP is from November 1, 2013 to October 31, 2014

Ongoing Employees


Administrative Period (Optional)– up to 90 days

� Gives employers time to

� evaluate EE hours and determine eligibility,

� notify EEs of eligibility and coverage options,

� collect materials, and

� enroll EEs

� Coverage must begin on the 91st day

� Coverage of already-enrolled EEs must continue during this time

Ongoing Employees


Stability Period – Same length as SMP, but no shorter than 6 months

� Determination made during SMP sticks with employee (unless promoted to FT status)

� Here, the Stability Period follows the Administrative Period and lasts for 1 year

Ongoing Employees

�All periods must be uniform for employees within the same category

�You may distinguish EE categories based on

1) Collectively bargained EEs and non-collectively bargained;

2) Salaried EEs and hourly EEs;

3) EEs of different entities (parent/subsidiary);

4) EEs located in different states.


Combined

� The periods overlap so that employee FT status is continually being

monitored for the following Stability Period

� Renewal stays at the same date from year to year

Ongoing Employees

Variable Hour/Seasonal Employees

What if we don’t know how many hours the employee will work?

- Initial Measurement Period

- Administrative Period

- Stability Period (same as ongoing employees)

- Standard Measurement Period Crossover


Full-time Employees

Variable Hour Employees

If you cannot determine FT status on start date = VHEE

� Typically restaurants, hospitality industry, retail, tourist related, seasonal (high fluctuations in employees)

� Hourly or salary employees

� Contract employees

� Seasonal employees

� NOT ongoing employees


• Initial Measurement Period (IMP) – 3-12 months

• Administrative Period – up to 90 days– must not extend past the remainder of the VHEE’s 13th month

• Stability Period – Over 6 months and as long as IMP

• In the scenario above, the VHEE will become an “Ongoing Employee” at the end of Measurement Period 2


New HireAverage hours during IMP > 30/wk or 130/month?

- Yes? The coverage must be offered and begin before the first calendar

month beginning on or after the 1st anniversary of the EE’s start date.

Unsure if new hire will be FT or PT?

- No? Then no coverage offered and hours will be reevaluated at the end of SMP 2

↑ New Hire Becomes Ongoing EE

Coverage must last through ASP regardless of EE status at the end of SMP 2

Other Considerations

Variable Hour/Seasonal Employees – New 6 Month Rule


Full-time Employees

?

Special VHEE Considerations

� There are two rehire rules to determine if you should treat a returning employee as a new hire

1) 26 Week Rule (flat) – Employee is a new hire if…

� No hours of service credited for 26 consecutive weeks

2) Rule of Parity (<26 weeks) – Employee is a new hire if…

� No hours of service credited for 4 consecutive weeks, and

� The period without service is longer than the employee’s original period of employment that immediately proceeded this period without service


Special VHEE Considerations� Payroll periods that are one week, two weeks, or semi-monthly:

� [Period that ends on the last day of the payroll period] preceding [the payroll period that includes the date that would otherwise be the first day of the measurement period] – may be treated as the measurement period

� [Period that begins on the first day of the payroll period] that follows[the payroll period that includes the date that would otherwise be the first day of the payroll period], provided that [the measurement period ends on the last day of the payroll period that includes the date that would otherwise be the last day of the measurement period] – may be treated as the measurement period

� Example – Employer using calendar year as a measurement period:

� May exclude entire payroll period that included January 1st if it included the entire payroll period that included December 31st (of the same year), or

� May exclude entire payroll period that included December 31st if it included the entire payroll period that included January 1st of that year


Question #3 – What kind of coverage do we have to offer?

Minimum Value

60% or “Bronze” plan – tested actuarially

� Various Safe Harbors

� HHS MV Calculator

� “Safe Harbor” Plan Design

� Independent Actuarial Certification

� Certified “Metal Tier” Plan if Sold in Small Group Market

Question #3 – What kind of coverage do we have to offer?

Minimum Value

60% or “Bronze” plan – tested actuarially

Coverage must be “affordable”

No more than 9.5% of household income for self-only coverage*

Safe Harbors

*Employers must offer dependent coverage, but there is no

“ “affordability” test attached & no requirement to offer spouse/family coverage

- W-2 – Do premiums exceed 9.5% of W-2 Box 1 income?- Rate of Pay – Do premiums exceed 9.5% of EEs rate of pay multiplied by 130 hours (as of the first day of coverage)?- Federal Poverty Level – Do premiums exceed 9.5% of the FPL divided by 12?

Penalties (non-tax deductible)*

� $2,000 per full time employee (minus first 30)

� Employer does not offer coverage to all, or substantially all (>95%), of full time employees and their dependents

� AND at least one full time employee receives federal insurance subsidies

� $3,000 per subsidized full time employee

� Employer offers coverage but it is “unaffordable” or does not meet the 60% minimum value test


� Lesser of:

� $3,000 per FTE receiving subsidy

or

$2,000 per FTE (minus first 30)

*(annual penalties calculated monthly and pro-rated across controlled groups)

Penalties (non-tax deductible)

Transitional Relief for 2015

� $2,000 per full time employee (minus first 80)

� Employer does not offer coverage to all, or substantially all (>70%), of full time employees and their dependents


� Employer could still be subject to $3000 penalty for employees in the 30%

“Pay or Play”

Source - NFIB

“Pay or Play”

• Case study:

– Employer with 100 + employees

– Currently offers insurance to FTEs

Financial Model

Total Costs $1,133,000 $1,361,000 $878,000

“Pay or Play”Financial Model

• Case study:

– Employer with 100 + employee

– Currently offers insurance to FTEs

“Pay or Play”

Truven Health Analytics Study

“MODELING THE IMPACT OF ‘PAY OR PLAY’ STRATEGIES

ON EMPLOYER HEALTH COSTS”

Our analysis revealed three key findings:

• There is no immediate or long-term cost advantage for employers to eliminate group health benefits.

• It will cost employers more to “make employees whole” when shifting their benefits to an Exchange than to continue existing group health plans.

• Should employers choose to eliminate group health, employees will suffer a significant reduction in overall compensation when they assume the incremental costs of benefits.

All Plans

Fees

Past Plan Design Changes

• FSA limit of $2,500 ($500 rollover now allowed)

• Preventive care with no cost sharing (including women’s health – special rules apply to religious groups)

– USPSTF list continues to grow

• Dependent coverage to age 26

• Summary of Benefits and Coverage

• Grandfathered status?

What You Should Have Done

2014 Plan Design Changes

• $6,350/$12,700 maximum out of pocket

– Now includes ALL mechanisms of cost-sharing

• Clinical trials (only have to pay for “routine services”)

– The term “approved clinical trial” is defined in the statute as a clinical trial that is conducted in relation to the prevention, detection, or treatment of cancer or other life-threatening disease or condition and is one of the following:

1. A federally funded or approved trial

2. A clinical trial conducted under an FDA investigational new drug application

3. A drug trial that is exempt from the requirement of an FDA investigational new drug application

• No pre-existing condition exclusions

• No lifetime or annual limits on Essential Health Benefits

• Maximum 90 Day waiting period

• Automatic Enrollment (Only if 200+ EEs – delayed indefinitely)

All Plans*

Plan Design Changes

• Composite rating (can only ask age, location, tobacco use) 3:1 Age bands

• Plan must cover essential health benefits (EHB) – includes pediatric dental and vision

• $2,000/$4,000 maximum deductible (REPEALED – 4/1/14!)

*Applies on renewal date in 2014

Small Groups*

Plan Design Changes

PPACA

In connection with a group health plan, the term “small employer” means an employer who employed on average at least 1 but not more than 100 employees on business days during the preceding calendar year and who employs at least 1 employee on the first day of the plan year. (The term “large employer” means, in connection with a group health plan, an employer who employed an average of at least 101 employees on business days during the preceding calendar year and who employs at least 1 employee on the first day of the plan year.)

- For plan years beginning before January 1, 2016, a state has the option of defining a small employer as an employer who employed on average at least 1 but not more than 50 (instead of 100) employees and defining a large employer as an employer who employed on average at least 1 but not more than 51 (instead of 101) employees.

Texas

Senate Bill 1332 amended Texas law to allow the inclusion of part-time employees to classify businesses as large or small employers. It allowed the definitions to be based on total number of employees instead of the previous “eligible” employees, which were those who worked at least 30 hours per week. This brought the state in line with federal definitions regarding how businesses are sized for the Affordable Care Act & HIPAA. The change in law applies only to health benefit plans delivered, issued for delivery, or renewed on or after January 1, 2014.

Small Groups

SHOPs� Insurance may be purchased through the Federally Facilitated

Small Business Health Options Program (FF-SHOP)

– Available to employers with up to 100 employees until 2017, then open to all size employers (States may limit this to 50 employees or less until 2016

� Online FF-SHOP enrollment delayed until November 2014

� Employee Choice Model delayed until 2015

� Employers must enroll in SHOP coverage through “direct enrollment” with an agent, broker, or insurer

� To qualify for the small business health care tax credit, and ER must purchase coverage through the SHOP to be eligible for the tax credit.

Nondiscrimination

Testing for Fully-Insured Plans

• PPACA has a new requirement for fully-insured plans to comply with nondiscrimination benefit rules

– Grandfathered plans are exempt from nondiscrimination testing

• Why is this important?

– Under PPACA fully insured plans that do not comply with the new requirements will be subject to a fine of $100/day per employee subject to discrimination

• Compliance has been delayed until final guidance is issued

Disclosure RequirementsBy October 1, 2013, all employers subject to the FLSA should have provided Exchange notices to their employees, and, moving forward, must do so to all new employees within 14 days of hire.

In general, the Exchange notices must:

• Inform employees about the existence of the Exchange and describe the services provided by the Exchange and the manner in which the employee may contact the Marketplace to request assistance;

• Explain how employees may be eligible for a premium tax credit or a cost-sharing reduction if the employer's plan does not meet certain requirements;

• Inform employees that if they purchase coverage through the Exchange, they may lose any employer contribution toward the cost of employer-provided coverage, and that all or a portion of this employer contribution may be excludable for federal income tax purposes; and

• Include contact information for the Exchange and an explanation of appeal rights.

» Employers may distribute the notice electronically, provided that they use the DOL’s Electronic Distribution Safe Harbor provisions.

» Model Notices are available on the EBSA website

Disclosure RequirementsNew Notices Issued 05/2014:

- New Model COBRA General Notice

- New Model COBRA Election Notice

- New Model CHIP Notice

W-2: “Applicable Employer-

Sponsored Coverage”• Section 9002(a) of the ACA provides that employers must disclose the

aggregate cost of applicable employers sponsored coverage provided to employees on the Form W-2.

• Include coverage under any group health plan made available to the EE by the ER which is excludable from the EE’s gross income under Code § 106

• Currently optional for “small” employers

– An employer is considered a small employer if it had to file fewer than 250 Forms W-2 for the prior calendar year. If an employer filed fewer than 250 Forms W-2 for 2012 in 2013, the employer would not be subject to the reporting requirement for 2013.

– IRS Controlled group rules are NOT used to aggregate employers

Reporting RequirementsAccording to Section 6056 (6055 for issuers or self-funded plans), large employers will have to report certain information to the IRS including:

• The employer’s name, address and EIN, the name and telephone number of the employer’s contact person and the calendar year for which the information is reported;

• A certification as to whether the employer offered its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan by calendar month;

• The number of full-time employees for each month during the calendar year;

• For each full-time employee, the months during the calendar year for which coverage under the plan was available;

• Each full-time employee’s share of the lowest-cost monthly premium (self-only) for coverage providing minimum value offered to that full-time employee, by calendar month; and

• The name, address and TIN of each full-time employee during the calendar year and the

months the employee was covered under an eligible employer-sponsored plan.

Reporting Requirements� Employers required to file section 6055/6056 information returns must

also furnish to each full-time employee identified on the return a written statement including:

� The employer’s name, address and EIN; and

� The information required to be shown on the section 6056 return with respect to the employee.

� Employee statements for each calendar year must be furnished to full-time employees by Jan. 31 of the next calendar year. Extensions may be available in certain circumstances.

� The employer’s name, address and EIN; and

� The information required to be shown on the section 6056 return with respect to the employee.

IRS is considering

simplified/combined Reporting methods,

such as using codes on Form W-2.

The Future

Assessing your risks/liabilities

• Are you currently offering insurance?

– Will you be required to in 2015?

– Will there be transitional relief for fiscal year plans?

– How many employees will be eligible?

• Does it pass the affordability and minimum value tests?

• What is the income level of your employee base?

– Between 100% and 400% of FPL?

• Would you pass nondiscrimination testing if it were in effect today?

• Will you be subject to the “Cadillac” tax?

Employer Strategies

The Future

Plan for the future

• Pay?

– Penalties (non-deductible)

– Cost shift to employees

– Increased compensation

– Employee recruitment/retention

• Play?

– Budget for new costs

– Change in plan structure (Bronze or MEC Plan)

– Penalties

– Limit potential liabilities

– Reduce claims/costs

• Spectate?

– <50 full-time employees (early renewal up until 10/1/14?)

Employer Strategies

Reducing Cost

Partially Self-Funded/Level Funding

Employer Strategies

Source: JP Farley

Reducing Cost Employer Strategies

Source: Cigna

Partially Self-Funded/Level Funding

Reducing Cost

CDHP with Patient Advocacy Program

Employer Strategies

Source: Compass Case Study of 6000 Life Group


Source: Pan American Life

Minimum Essential Coverage (MEC) or “Skinny” Plans

� Self-funded to avoid state/federal mandates

� Usually only cover preventative care with some doctor’s visits

� May offer RX co-pays

� Often sold alongside voluntary hospital indemnity plans

� May or may not be offered alongside full medical plans


Source: The Horton Group

Defined Contribution/Private Exchanges

Reducing Cost

• Two kinds of wellness programs:

– Participatory wellness programs

– Health-contingent wellness programs (outcomes-based)

• Regulations have increased the maximum reward under a health-contingent wellness program from 20% to 30% of the cost of coverage and further increased the maximum reward to 50% for wellness programs designed to prevent or reduce tobacco use

Employer Strategies


What about HRAs?

Type of HRA Status in 2014

Integrated HRA Permitted if the HRA satisfies one of the integration methods

Stand-alone HRA Not allowed. Stand-alone HRAs must be converted to integrated HRAs or terminated.

HRA used to reimburse individual market coverage

Not allowed

Stand-alone, retiree-only HRA Permitted (exempt from the ACA’s reforms)

Individual Mandate

Summary

� Starting January 2014

� Individuals must maintain minimum essential coverage (MEC) or otherwise pay a penalty

� Some exemptions available

� Penalties

� Greater of flat dollar amount OR percentage of individual’s taxable income over the income filing threshold

Financial Assistance� Federal Subsidies

� Premium Tax Credits (amount varies)

– Household income between 100-400% FPL

– Not a dependent

– Filed jointly if married

– Enroll in QHP through an Exchange

– Not eligible for minimum essential coverage

� Cost-Sharing Reductions

– Household income up to 250% of FPL

http://kff.org/interactive/subsidy-calculator/

Marketplaces

How they work:

1 2 3 4

Exemptions

� Cannot afford coverage (cost >8% of your household income)

� Income below the federal income tax filing threshold

� Non-citizens

� Gap in coverage less than 3 months

� Religious conscience objector

� Health care sharing ministry*

� Certain Indian tribes

� Hardship exemption (HHS)*

� Incarcerated*

Certifications of Exemptions

IRS tax-filing process

*Require yearly applications

- There is also transition relief in 2014 for employees eligible to

enroll in a non-calendar year employer sponsored plans

Individual Mandate Penalty

“Income” for this purpose is your household income minus your exemption (or exemptions for a married couple) and standard deductions. Families will pay half the penalty amount for children.

Flat Dollar Amount� The lesser of…

� The sum of the applicable dollar ($95 - $325 - $695) for all nonexempt individuals without MEC for whom the taxpayer is liable, or

� 300% of the applicable dollar amount

– If under 18 as of the beginning of the month, the applicable dollar amount is ½ of the regular dollar amount

Percentage of Income� The excess of the taxpayer’s household income over the

taxpayer’s federal income tax return filing threshold, multiplied by a percentage figure (1% - 2% - 2.5%)

� (Household Income – Threshold) X Percentage

Penalty Cap� Penalty may not exceed the national average premium for

bronze-level QHPs offered through exchanges for the applicable family size involved.

� National average determined for each month

ExampleIn 2014, Taxpayer A is an unmarried individual with no dependents. A does not have MEC for any month in 2014, and A’s household income is $120,000. A’s applicable filing threshold is $12,000. The annual national average bronze plan premium for A is $3,000.

2014Flat Dollar Amount = $95

($95x1) $95 < $285 ($95x3)

Monthly Flat Dollar Amount = $95/12 = $7.92

Percentage of Income = $1,080

($120,000 - $12,000) x 1%

Monthly Percentage of Income = $1,080/12 = $90

Sum of Monthly National Average = $3,000

Monthly National Average = $3,000/12 = $250

Taxpayer A would pay the greater of $7.92 or $90 a month. $90 X12 = $1,080, which is less than the national average for a bronze plan. $1,080 would be his penalty for 2014.


($695x1) $695 < $2,085 ($695x3)

Monthly Flat Dollar Amount = $695/12 = $58

Percentage of Income = $2,700

($120,000 - $12,000) x 2.5%

Monthly Percentage of Income = $2,700/12 = $225


Monthly National Average = $3,000/12 = $250

Taxpayer A would pay the greater of $58 or $225 a month. $225 X12 = $2,700, which is less than the national average for a bronze plan. $2,700 would be his penalty for 2016

Example - BIn 2014, Taxpayers B and C are married and file a joint return. They have three children: D (21); L (15); and M (10). No member of the family has MEC for any month in 2014. B and C’s household income is $120,000. B and C’s applicable filing threshold is $24,000. The annual national average bronze plan premium for a family of five is $12,000.


($95 x 3 adults + $95/2 x 2 children) $380 > $285 (95x3)

Monthly Flat Dollar Amount = $285/12 = $23.75

Percentage of Income = $960

($120,000 - $24,000) x 1%

Monthly Percentage of Income = $960/12 = $80


Monthly National Average = $12,000/12 =$1,000

Family B would pay the greater of $23.75 or $80 a month. $80 X12 = $960, which is less than the national average for a bronze plan. $960 would be their penalty for 2014

Resources

www.dol.gov/ebsa/healthreform/

www.healthcare.gov/

www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions

PPACA Presentation - Updated

Documents

Transcript of PPACA Presentation - Updated