“Preparing for Change: Understanding the Details of the Affordable Care Act”

Adam Solander

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• Agenda/Timeline• Market Reforms• Employer Mandate Delay• ERISA 510 and Whistleblower Complaints• Wellness Changes• Defense of Marriage Act Decision• Exchange Notices

Agenda

Major Employer EventsMarket Reforms

(Now-2014)

Shared Responsibility (Now-2015)

Cadillac Tax (Now-2018)

Part IMarket Reforms

Market Reform Overview• ACA is more “coverage” than “reform”• Health insurance standards created by ACA include:

– Wellness– Essential Health Benefits– Pre-Existing Conditions– Rescissions– Lifetime/Annual Limits– Claims and Appeals– Preventive Care– Dependent Coverage– Rate Review– Prohibition on Excessive Waiting Periods– Among many others...

Market Reforms in 2014• Annual and Lifetime Limits: Prohibits a plan or

issuer from placing annual or lifetime limits on the dollar value of “essential health benefits.”– If self-funded should select a benchmark to ensure

no limits on EHBs• Excessive Waiting Periods: Must allow employee

to elect coverage that is effective on or before the 91st day after the start of the waiting period.– Examine union plans

Part 2Shared Responsibility

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• The Shared Responsibility provision provides that “applicable large employers” with 50 or more full-time (including full-time equivalent) employees are potentially subject to a tax penalty if any “full-time employee” receives a premium tax credit or cost-sharing reduction to purchase coverage through an Exchange

• Full-Time employee is eligible for a cost sharing subsidy if: – An employer does not offer at least 95 percent of its full-time

employees (and their dependents) the opportunity to enroll; or– An employer offers its full-time employees the opportunity to enroll but

coverage is “unaffordable” or does not provide “minimum value” • Penalties differ between “offer” and “coverage” prongs

Shared Responsibility: At Its Core

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• Three ACA requirements are delayed:– Employer shared responsibility provisions under Section

4980H of IRS Code;– Information reporting requirements under Section 6056 of

IRS Code, which are linked to employer mandate; and– Information reporting requirements under Section 6055 of

IRS Code, which apply to self-insuring employers, insurers, and certain other providers of “minimum essential coverage”

• For many employers the delay is over starting January 1, 2014– Its time to look back…

Employer Mandate Delay

Full-Time Employees• Employer share of coverage= full-time employees• “Full-Time Employee” means, with respect to any month, an

employee who is employed on average at least 30 hours of service per week.– Determining full-time status on a monthly basis (penalty provisions

monthly) would cause practical difficulties – Legislation introduced to increase to 40 hours

• “Hours of Service” includes1) Paid for performance of services, or entitled to payment even

when no work is performed2) Paid on account of time during which no duties are performed –

vacation, sick, holiday, etc.

Look Back Period• Employers may select a period of time between three months and one

year to use as a “measurement period.” If the employer determines that an employee was employed on average at least 30 hours of service per week during the “measurement period,” then the employer must treat the employee as a “full-time” employee during a corresponding “stability period,” regardless of the number of hours of service the individual works over that time period.– The duration of stability period would be at least the greater of six consecutive

calendar months or the length of the standard measurement period.– Generally, an employer must apply the same Look Back Period to all

employees, but different periods may be used for certain categories of employees, such as hourly and salaried employees or employees in separate collective bargaining units.

– Regulations permit employers to alter the starting and ending dates of their Look Back Period in order to avoid splitting a regular payroll period

New Variable/Seasonal Employees• If new employee is “reasonably expected” to work

30 hours on average, an employer must offer coverage within three months.

• If at the time of hire, a determination cannot be made:– An initial measurement period of between three and

12 months and an administrative period of up to 90 days may be used.

– However, the initial measurement period inclusive of any administrative period may not extend beyond the last day of the first calendar month beginning on or after the one-year anniversary of the employee’s start date.

• Problem: The Individual Mandate has not been delayed– Many employees who will be subject to this requirement

were relying on their employer to offer them an opportunity to enroll in coverage

– “Full-time” employees will be forced to purchase exchange coverage in 2014 and disenroll in coverage a year later because subsidies unavailable

– Is not offering/assisting employees in 2014 equivalent to dropping coverage?• Recruitment/retention• Morale/ productivity• Union

• Problem: Market reforms are not delayed– Examine any waiting periods that may exceed 90 days or

any limits. Especially true in union context.

2014 HR / Benefits Issues

• Problem: Employees misclassified as independent contractors.– If employee misclassified could trigger a

penalty for not offering coverage.• Problem: I have too many “full-time”

employees. – I cannot afford to provide coverage to all of

them so I am going to cut their hours.

2014 HR / Benefits Issues

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“It shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan..., or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan.” 29 USC § 1140

ERISA § 510

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• Issue: Whether an employer’s workforce management efforts improperly interfered with an employee’s attainment of a right to which such participant is or may become entitled.

• We do not know how this will play out.• Risk is likely stratified based on employment:

– Highest risk: current full-time reduced below 30– Medium risk: on-going part-time employee capped at 28

hours– Lowest risk: new employee hired with a 28 hour cap

Section 510 Claims

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• Courts will evaluate 510 claims using a three-part burden shifting test:

• Step 1: Prima Facie Case• Had the opportunity to attain rights under plan• Was qualified for the position at issue• Subjected to adverse action giving rise to inference of

discrimination

• Step 2: Employer must dispel the inference of discrimination from prima facie case.

510 Cause of Action

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• Step 3: Plaintiff must show that employer was motivated by the specific intent of interfering with employee’s benefits.– “No relief if the loss of an employee’s benefits was incidental to,

and not the reason for, the adverse employment action. Were this not so, every discharged employee who had been a member of a benefit plan would have a potential cause of action.” Barbour v. Dynamics Research Corp., 63 F.3d 32, 39 (1st Cir. 1995)

– “Not required to prove that interference with ERISA rights was the sole reason for the discharge but must show more than an incidental loss of benefits...” Gitlitz v. Compagnie Nationale Air France.,129 F.3d 554, 558 (11th Cir. 1997).

Section 510 Cause of Action

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• Shared responsibility provisions contemplate workforce management

• Workforce management to avoid employer mandate is a strategy to avoid taxes, not the provision of benefits

• Inter-Modal Railway Employees Ass’n: “fundamental business decisions” dicta

• Litigation strategy: administrative exhaustion, etc.

Arguments Against

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• Manage communications around workforce management to avoid “specific intent” arguments– Avoid making public statements on your benefit strategy– Package all workforce management in legitimate business needs– Consider avoidance of “capping” or “cutting.” Recent delay may allow for more of a

glide path to under 30– To extent possible protect internal decision making documentation– Centralize communication: organization should have single voice

• Grandfather current 30 hour employees– Move to a new part-time strategy moving forward

• Revise employment agreements to reflect employee status– New hires and on-going part-time

• Legislative and regulatory solutions???– Protect precedent

Employer Options

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• Employers may not take adverse action or retaliate against an employee or applicant who– Provided information that the employee reasonably believed

concerned a violation of ACA Title I to the employer, the federal government or any state attorney general

– Testified, assisted or participated in a proceeding concerning a Title I violation

– Objects or refuses to participate in any activity the employee/applicant reasonable believes to violate Title I

– For receiving a credit under §36B of IRC or a cost sharing reduction under ACA §1402

ACA’s Whistleblower Complaints

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• An employer may be found to have violated the ACA if the employee’s protected activity was a contributing factor in the employer’s decision to take unfavorable employment action against the employee. Such actions may include:

• Firing or laying off• Blacklisting• Demoting• Denying overtime or promotion• Disciplining• Denying benefits• Failure to hire or rehire• Intimidation• Making threats• Reassignment affecting prospects for promotion• Reducing pay or hours

ACA’s Whistleblower Complaints

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• Immediate Issue: Could workforce management be viewed as a unfavorable employment action in anticipation of an individual receiving a credit or subsidy

• Ongoing Issue: Can an employer reduce hours if the employee has received a tax credit or cost sharing reduction

ACA’s Whistleblower Complaints

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• Revise employee handbook and anti-retaliation policies to include ACA protected activity

• Implement policies and mechanisms to receive and address promptly complaints regarding alleged ACA Title I violations

• Train managers and supervisors on the expanded anti-retaliation policy

• Control disclosures of information of employees receiving a credit under §36B of the Code or a cost sharing reduction under ACA §1402

Employer Options

Part 3Creating a Sustainable Benefit

Package

• ACA greatly increases the number of employees who are potentially eligible for employer sponsored coverage• For some this represents the first time with access to care and could lead

to increased demand for services• Newly insured potentially a sicker population

• The ACA increases coverage mandates and decrease employer ability to share cost• Preventive services with no cost sharing• Age 26 coverage• No annual and lifetime limits on EHBs, pre existing conditions etc.• Minimum value requirements of Employer Mandate

More Coverage, More Cost

• 40% non- deductible excise tax on health insurers and health plan administrators for coverage that exceeds certain thresholds in 2018

• The thresholds are $10,200 for single coverage and $27,500 for family coverage

• Indexed to CPI-U plus 1% in subsequent years

Cadillac Tax Is Coming

• Tax will grow in amount each year• Thresholds indexed to CPI-U and not medical inflation. Health care

costs rise much faster than CPI-U • No additional benefit to employees or employers should Cadillac

Tax be triggered• Employees: No additional benefit from additional expenditure• Employer: No tax advantage

• Cost shifting limited by ACA and “minimum value” requirements and coverage mandates

• Limit to which plan design changes can be used to avoid while maintain purpose of providing benefits• According to CBO, Cadillac Tax to bring in $80B over the next decade

Less Benefit, More Costs

• Wellness programs– Recent regulations allow employers to offer incentives up to 30%

of premium• Aggregation

– Association Plans, PEOs, Private Exchanges, MEWAs etc...• Exchanges

– Assuming large employers allowed to purchase post 2017• Value-based purchasing

– Paying for quality, not volume• On-site clinics

– If practical

Options

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• Employer wellness programs are heavily promoted under the ACA as a way to improve health and control health care spending by employers.

• However, recent regulations present significant hurdles to employer implementation of these programs that could threaten their utility in “bending the cost curve”– Disconnect between ACA and Regulators???

Wellness and the ACA

• Affordability/Minimum Value– Creates a Disincentive for Non-Tabacco Cessation Programs.

• Plan Design – Evidenced Based– Threatens Flexibility

• EAP Ruling– Excepted Benefit: “Significant Benefits in the Nature of

Medical Care or Treatment.”• ADA and Use of Incentives

– Penn State Program- Call to EEOC– “Voluntary” Hearing

Wellness Threats

Part 4Recent Events and Trends

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• United States v. Windsor, No. 12-307 (U.S. June 26, 2013)• Requires legally married same-sex spouses to be treated as a

“spouse” on same basis as opposite-sex spouses for Federal Law purposes

• Does not require individual States to permit same-sex marriages• 12 states have enacted laws recognizing same-sex marriage

– CT, DE, IA, ME, MD, MA, MN, NH, NY, RI, VT, and WA– District of Columbia

• Many questions unanswered by the repeal of DOMA by the Supreme Court

• Will affect over 1,000 federal statutes

DOMA

DOMAOn August 29, the Internal Revenue Service and Treasury released Revenue Ruling 2013-17 (the “Ruling”) and accompanying FAQs addressing some of the issues:• State of Celebration: Therefore, if a couple is married

in a jurisdiction that recognizes same-sex marriage, then the marriage will be recognized for Federal tax purposes, no matter where the couple lives or works

• The Repeal of DOMA is Retroactive

DOMA: Health and Welfare PlansMuch of the focus of the Ruling with regard to health and welfare plans involves the retroactive tax effect of recognizing same-sex marriages. More specifically the Ruling states:• If an employer provided health coverage to a same-sex spouse and

included the value of that coverage in the employee’s gross income, the employee can file a 1040 and recover federal tax paid on the value of the health coverage of the employee’s spouse.

• If an employer sponsored a cafeteria plan that allowed employees to pay premiums for health coverage on a pre-tax basis, a participating employee may file an amended return and recover taxes paid on an after-tax basis for the employee’s same-sex spouse.

• In the situations described above, the employer may claim a refund for the Social Security taxes and Medicare taxes paid on such benefits, even if the employer is unable to locate a former employee who received such benefits.

DOMA: Qualified Retirement PlansThe Ruling identifies several rules that qualified retirement plans must comply with. Much of the guidance relative to qualified retirement plans focuses on the effect of the state of celebration rule. More specifically the Ruling states:• A qualified retirement plan must treat a same-sex spouse as a spouse

for purposes of satisfying the federal tax laws. For example, a plan must pay death benefits to the same-sex surviving spouse of any deceased participant.

• A qualified retirement plan must recognize a same-sex marriage that was validly entered into in a jurisdiction whose laws authorize the marriage, even if the married couple lives in a jurisdiction that does not recognize the validity of same-sex marriages.

• A person who is in a registered domestic partnership or civil union is not considered a spouse for purposes of the federal tax law. For example, a plan is not required to provide a death benefit to a surviving domestic partner of a deceased participant.

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• All employers (subject to the FLSA) provide notice of the existence of the “Marketplace,” formerly referred to as the “Exchange”– Includes all employees – PT and FT– Dependents need not receive an additional notice.

• Notices are due by October 1, 2013 (and thereafter for new employees within 14 days of date of hire)

• Model form notices are available on the DOL website at www.dol.gov/ebsa/– They have not been updated to reflect the Employer Mandate delay.– 3 pages – but only the first page is technically required by the regulations.

• Employer must provide notice that:– Discloses whether the employer offers group health coverage and the existence of the

Marketplace– If group health coverage is offered, provides information on whether the group health

coverage is affordable and provides minimum value and the existence of the Marketplace• New model COBRA notice that mentions the Exchange information (but don’t use it

yet)

Marketplace Notices Due October 1, 2013

• The DOL confirmed that there is no penalty associated with the notice– However, a rule is a rule even if no penalty– Noncompliance could open you up to larger

issues and audits. Provides evidence of noncompliance

Marketplace Notices

Presenter

Adam C. SolanderEpstein Becker GreenHealth Care and Life

Sciences Practice202/861-1884

Asolander@ebglaw.com