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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
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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%
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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%)
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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
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Health Care Exchange
Individual & Employer Penalties
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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
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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.
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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.
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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
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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
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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.
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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”
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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.
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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)
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Employer Mandates
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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
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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
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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.
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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
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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
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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
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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
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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.
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“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
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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
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“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
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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
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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
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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
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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
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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
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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
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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.
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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
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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)
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Safe Harbor for Determining Full Time EmployeesSource: Congressional Research Service
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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