TESTPresentation

Health Care Reform – What Do We Have To Do?What Are Our Options?

Willis Human Capital Practice Legislative and Regulatory Update

Jay M. Kirschbaum, JD, LLM, FLMI Practice LeaderWillis National Legal & Research Group

March 8, 2013

This material and any accompanying remarks are provided for informational purposes only and nothing contained in either should be taken as a legal opinion or as legal advice Copyright 2013 All rights reserved

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Can Employers Hope For Relief?

“For myself, I am an optimist – it does not seem to be much use being anything else.”

- Winston Churchill

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Ever Changing Compliance Requirements

Health Care Reform – Where Are We Now? Political and Regulatory Updates

Health Care Reform – Where Are We Going? Plan compliance continues State actions Individual mandate

‒ Some new rules Pay-or-play mandate

‒ Some new rules Questions

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Political and Legal Environment

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Political Realm PPACA Upheld by Supreme Court Political divisions remain Previous political changes led to:

Repeal of 1099 reporting Repeal of free-choice vouchers Abandonment of LTC program

Delays in certain mandates Automatic enrollment Nondiscrimination rules

Significant challenges remain Implementation continues

No chance for repeal in 2013‒ Rumors of budget deal delay

Employer political risks ERISA preemption Tax exclusion

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Status Quo

Compliance Efforts: Keep moving forward Expect agencies (IRS, DOL, HHS) to release significant amount of

regulatory guidance Continued increase in audit activity Could see some changes to health care reform (technical corrections)

and/or delays in enforcement Employers need to determine benefit strategy

Beyond just the 2014 mandates Be aware of what States are doing

State actions may vary significantly‒ Medicaid expansion‒ Establishing of Exchanges

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Plan Compliance

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Employer HCR Timeline2010Coverage reforms (plan years on or after September 23, 2010)Coverage reforms (plan years on or after September 23, 2010)Early retiree reinsurance programSmall employer tax creditChildren’s coverage nontaxableNo incentives to opt out and go to high-risk poolNondiscrimination rules for NonGF insured plans (postponed)2011OTC drug restrictionsIncreased penalties for non-medical HSA withdrawals“Simple” cafeteria plansCLASS program (authorized, but will not be implemented per HHS)

2012 Required use of uniform summaries of

benefits and coverage (SBCs) 60 days’ advance notice of mid-year

changes to SBC information required Report value of coverage on W-2s $1 per capita fee applies to years ending

after 9/30/12 Refunds for medical loss ratios <85% or

80% for small plans Reporting on heath improvement benefits

standards (date for reporting unclear) Transparency reporting standards (date for

issuance/report unclear)

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Employer HCR Timeline2013 Health FSA salary reduction contributions

capped at $2500• IRS guidance - start with 2013 plan year

Per capita fee increases to $2 Medicare Part D subsidy no longer

deductible Notice of state exchanges and premium

assistance availability Medicare payroll tax increases to 2.35%

on pay over $200k/$250k2014 Pay or play/free-rider penalties Individual mandate Employer reporting to IRS re: individuals’

coverage Automatic enrollment >200 EEs -

required (enforcement delay until after 2014)

2014 (continued) Insurance exchanges open to individuals

and small employers Wellness incentives up to 30% (50% for

smoking) Employers offering exchange plan may

allow pre-tax premiums Reinsurance fee collection (through 2016) Early retiree reinsurance program ends

(ended early) Coverage mandates

Out of pocket max - $5950/$11900 (adjusted to 2014 limits) – non-GF plans

Deductible limit $2,000/$4,000 (maybe small group only) – non-GF plans

Guarantee Issue/Guaranteed renewability

No preexisting condition exclusion No waiting periods > 90 days Additional insurance reforms – non-GF

plans

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Employer HCR Timeline

2016 Insurance exchanges must open to

employers with <100 employees2017 States may open insurance exchanges to

any size employer2018 Excise tax on high-cost plans2019 Per capita fee sunsets

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What Happens in 2014?

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States Play Larger Role

PPACA success depends on state action Exchanges Insurance regulation Medicaid

Colorado moving forward Other states, less so

* Kaiser Family Foundation, January 14, 2013

*

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Will State Exchanges Be Viable Options? Federal exchange for 32 states

Initial open enrollment to start 10/1/13 19 states and DC establish state exchanges 7 partnership exchanges 25 states default to federal exchange

Question about tax credits and penalties for coverage on federal exchange

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Exchange Eligibility

All individuals eligible in 2014 Only small employers eligible in 2014

Before 2016, state can define as 50 employees or fewer In 2017, states may allow large employers to be eligible Employers to provide employees notice of Exchanges by 3/2013

(recently delayed) Notice to inform employees:

Existence of Exchange‒ Describe services provided by Exchange‒ Tell how to contact Exchange to request assistance

They may be eligible for subsidy through Exchange They may lose employer contributions for employer-provided

coverage That employer coverage may be excludable from income tax

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Minimum Effective Coverage (MEC)Minimum Value (MV) &Affordability

Will the company offer MEC to ALL of its employees that is affordable and provides MV?

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SignificanceMEC, MV and affordable are important concepts for pay-or-play

Still some open questions, but picture is getting clearer For 2014, employer that offers MEC to substantially all (95% or

more) full-time employees (subject to a 5% or 5-employee margin of error) avoids cliff penalty May still incur drop-off penalty if MEC is not affordable or doesn’t

provide MV For 2014, employer that offers MEC that does not provide MV avoids

drop-off penalty for those who do not waive the coverage Also for those who waive but for whom no certification is received

regarding exchange coverage (e.g., due to income) For 2014, employer that offers MEC that provides MV to full-time

employees avoids drop-off penalty for those who do not waive Also for those who waive but for whom no certification is received

(e.g., because MEC providing MV is affordable)

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Minimum Essential Coverage (MEC)Current definition includes almost any employer health plan As long as it provides health benefits that are not HIPAA-excepted

Limited medical plan guidance, most ARE HIPAA excepted so are not MEC.

Currently, no minimum value or affordability requirement applies General guidance that any group coverage (other than limited

medical) offered by an employer meets the MEC definition Either insured or self-insured

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Minimum Value (MV)

Defined as having at least 60% actuarial value IRS and HHS have published a minimum value calculator and

checklists Most employers’ current plan offerings provide MV MV is frequently referred to as “bronze level,” referring to the

lowest “metal-level” exchange coverage Important differences between the requirements for a bronze

level exchange plan and MEC providing MV‒ Exchange offered coverage must be a qualified health plan

that provides essential health benefits‒ An employer-sponsored plan providing MEC need not be a

qualified health plan or provide essential health benefits‒ MEC need not be a qualified health plan or provide essential

health benefits in order to provide MV

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Affordable

9.5% of household income (but employers get some alternatives)Household income definition always determines individual

qualification for premium assistance/cost-sharing reduction Alternative definitions employers may use –

9.5% of W-2 pay 9.5% of monthly pay rate 9.5% of federal poverty line for an individual ($11,170 for 2012)

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Options For Playing

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Employers are concerned with cost, but underestimate the cost of compliance 60% of employers say that avoiding cost increases is the most

important consideration for their businesses Over half of surveyed employers have not determined the cost of

Health Care Reform compliance Most employers plan to “play” under the “play or pay” mandate

Continuation of the “compliance as we go” strategy as opposed to management of benefits as part of a Total Rewards strategy

Greater cost shift to employees Expansion of Wellness Offering Redesign of benefit options and eligibility provisions

More employers likely to voluntary relinquish their Grandfathered Status

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Willis HCR Survey - 2013

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Pay-Or-Play BasicsDecision to “Play” or “Pay” Not simple dichotomy Continuum along the “Play” decision tree

“Full Play” “Mostly play” “Play less” “Failsafe play” Combine play options

Decisions in “Pay” considerations Pay and redeploy Pay

“Let’s play two!” - Ernie Banks

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Effective Date Transition RuleBe careful, not as generous as it seems on its face Pay-or-play effective date is January 1, 2014 Effective date generally applies regardless of plan year Second part of complex two-part transition rule

No penalty with respect to – ‒ Employees ineligible per rules in effect 12/27/2012 who are

offered affordable MEC that has MV for 2014 plan year ‒ IF the coverage is offered under plan(s) having the same

non-calendar plan year on 12/27/2012‒ AND, at specified times, those plan(s) covered at least ¼ (or

were offered to at least ⅓) of the employer’s employees‒ AND the employees would not have been eligible for any

group health plan of the employer that had a calendar plan year on 12/27/2012

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Identifying Full-TimeEmployees

Does the employer have less than 30 (or its pro-rated share of 30) full-time employees for the calendar month?

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Significance

Pay-or-play based on coverage offered to full-time employees Covering or not covering part-time employees does not affect

penalty “Play” levels are all based on offering coverage to full-time

employees (may also be considered “pay” levels) Cliff penalty applies after deduction of first 30 full-time employees

If employer has fewer than 30 full-time employees, no penalty can apply (drop-off penalty capped by amount of cliff penalty)

If an employing entity is part of a controlled group or affiliated service group, 30-employee allowance is allocated among group members‒ Separate employing entities usually are identified by separate

EINs

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Meaning Of Full-TimeEmployed for an average of 30 hours of service per week Employer may use 130 hours of service per calendar month instead Hours of service generally are hours paid (including vacation,

holidays, paid leave, etc.) All of an employee’s hours of service with any member of a

controlled group or affiliated service group are counted Per statute, determination to be made for each employee each

month Pay-or-play penalty for each month is based on coverage offered

to individuals employed full-time during that month Some employers can use this definition – most can’t

Proposed regs and other guidance allow determination based on a look-back period, if various conditions are met Safe harbor, but other methods probably are not authorized

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Special Rule for Educational InstitutionsGenerally, employers must use “reasonable” rules to make FT

determination Educational institutions defined – Reg. Sec.1.170A-9(c)(1)

(determination of qualified for charitable deduction) Provides formal instruction normally maintains a regular faculty/curriculum and normally has regularly enrolled body of students in attendance

at the place where its educational activities are regularly carried on

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Special Rule for Educational InstitutionsGenerally, employers must use “reasonable” rules to make FT

determination Educational institutions defined – Reg. Sec.1.170A-9(c)(1) –

(continued) Includes primary, secondary, preparatory, or high schools,

colleges and universities Federal, State, and other public-supported schools which

otherwise come within the definition Does NOT include organizations engaged in both educational

and noneducational activities unless latter incidental to educational‒ Example - ‒ University can operate museum and be educational institution‒ Museum that teaches classes is not an educational institution

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Special Rule for Educational InstitutionsGenerally, employers must use “reasonable” rules to make FT

determination Educational institutions

In general the time off periods like summer and winter breaks get credit for those hours‒ If paid leave – credit for those hours‒ If unpaid, averaging rules would provide credit for those hours‒ Credit must be provided for up to 501 hours during those

periods

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Special Rule for Educational InstitutionsGenerally, employers must use “reasonable” rules to make FT

determination - continued Adjunct professors –

Reasonable assessment‒ Not reasonable to count class room hours only‒ (similar rules for pilots and commissioned sales people)

Further guidance to come – comments requested General “anti-abuse” rule –

If the employer acts to avoid imposition of the rule, that will be disregarded

Affect on Colorado’s “transition rule” for retiring teachers Retired and on “contract” Who pays for insurance or what will be offered?

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Look-Back Measurement MethodIRS’ name for safe harbor Interim guidance issued on August 31, 2012 can be relied on

through 2014 Proposed regulations add qualifiers, special rules and transition

rules, but generally affirm August guidance Also can rely on proposed regulations through 2014

Employer defines look-back “measurement period” and tracks each employees’ hour during that period At end of measurement period employer determines which

employees were full-time Employer must treat those employees as full-time throughout a

stability period that usually is as long as measurement period Employer may have an administration period in between

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Counting Hours

Hours of service generally are hours paid Counting method may vary depending on hourly or salaried status For employees paid on an hourly basis the employer uses actual

hours of service ascertained from records For other employees, employer can count any of –

‒ Actual hours of service from records‒ 8 hours of service for each day the employee would be

credited with an hour of service‒ 40 hours of service for each week the employee would be

credited with an hour of service Count all hours for each employee throughout measurement period to

determine if employee had, on average, 30 hours per week or 130 hours per calendar month

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New Employees

Some new employees have an initial measurement period (IMP) During IMP, need not offer coverage to new employee to avoid

penalty “New employee” – an employee who has not yet been employed

for at least one complete “standard measurement period” If a new employee is a variable hour employee or a seasonal

employee, employer may apply an IMP to that employee “Variable hour employee”– new employee for whom it cannot be

determined at start date that the employee is reasonably expected to have at least 30 hours of service per week on average over the initial measurement period

“Seasonal employee” – not defined, employer can use a reasonable good faith interpretation

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New Employees

No IMP if new employee reasonably expected to work full-time Treat such employees as full-time from date of hire Restriction on waiting periods effective for plan years starting on

or after January 1, 2014 Must offer coverage so, if accepted, will be effective no later

than 90 or fewer days after hire date

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Full-Time Employee

Variable/Seasonal Employee Example 1 Employer uses a 12-month initial measurement period (using hire

date as starting point) May 10, 2014-May 9, 2015 for employee hired May 10, 2014 Employer uses an administrative period that begins after the initial

measurement period through the end of the first calendar month beginning on or after the end of the initial measurement period May 10, 2015-June 30,2015

Employer uses a 12-month stability period if variable hour employee deemed full-time July 1, 2015-June 30, 2016

Employer uses a 12-month standard measurement period for ongoing employees from October 15-October 14 and a 12 month stability period from January 1-December 31

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Full-Time Employee Example 1

2015

Standard Measurement Period 10/15/14-10/14/15

Standard Measurement Period 10/1/15-10/14/16

2014

Initial Measurement Period (<12 months)5/10/14- 5/9/15

Administrative Period (< 90 days) 5/10/15-6/30/15

Initial Coverage Stability Period 7/1/15-6/30/16

2016

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Full-Time EmployeeTransition from new employee to ongoing employee Once an employee has been employed for an entire standard

measurement period – employee must be tested for full-time status based on hours during that standard measurement period at the same time and the same condition as an ongoing employee

This means that the initial measurement period and the first standard measurement period applicable to the new employee usually will overlap

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Full-Time EmployeeCompliance Checklist for variable/seasonal Is the employee a variable/seasonal employee? Does the initial measurement period exceed 12 months? Does the administrative period total more than 90 days? Does the combined initial measurement period and administrative period

last longer than the final day of the first calendar month beginning on or after the one-year anniversary of the employee’s start date?

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Ongoing Employees

Standard measurement period (SMP) for ongoing employees Employer cannot use an IMP unless it also has an SMP “Ongoing employee” – an employee who has been employed for

at least one complete SMP SMP can be no less than 3 months and no more than 12 months If an employee is determined to have worked an average of 30

hours per week during SMP, then the employee is treated as a full-time employee during the subsequent “stability period”—regardless of number of hours worked during stability period Must be no less than the greater of six months or the length of

the SMP

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Full-Time Employee

Ongoing Employee Example 2 Employer uses a 12-month standard measurement period.

October 15, 2012-October 14, 2013 Employer uses a 90 day administrative period

October 15, 2013-December 31, 2013 Employer uses a 12-month stability period

January 1, 2014-December 31, 2014; January 1, 2015-December 31, 2015

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Full-Time EmployeeOngoing Employee Example 2 Employee A worked full-time during the standard measurement period

(10/15/12-10/14/13), Employee A must be treated as a full-time employee for the entire stability period (1/1/14-12/31/14).

Employer used the 90 day administrative period (10/15/13-12/31/13) to determine if Employee A’s hours of service were full-time hours, communicate plan information and enroll

Employee B did not work full-time during standard measurement period (10/15/12-10/14/13). Employee B is not a full-time employee during the stability period (1/1/14-12/31/14). If B had coverage under the plan during the preceding stability period, B’s last day of coverage would be 12/31/13 (end of the previous stability period)

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Full-Time EmployeeExample 2

2014

First Standard Measurement Period 10/15/12-10/14/13

First Stability Period 1/1/14-12/31/14

First Administrative Period 10/15/13-12/31/13

2015

2013

2012Second Standard Measurement period 10/15/13-10/14/14

Second Administrative Period 10/15/14-12/31/14

Second Stability Period 1/1/15-12/31/15

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Full-Time Employee

Compliance Checklist Is the employee an ongoing employee? Are measurement period and stability period longer than 12 months? Is the stability period for ongoing employees who work full-time during the

standard measurement period shorter than the standard measurement period?

Is the stability period for ongoing employees who do not work full-time during the standard measurement period longer than the standard measurement period?

Is the administrative period longer than 90 days?

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Full-Time Employee

Different Periods for Some Different Groups Each group of collectively bargained employees covered by a separate

collective bargaining agreement Collectively bargained and non-collectively bargained employees Salaried employees and hourly employees, and Employees whose primary places of employment are in different states

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Questions?

“He must be very ignorant for he answers every question he is asked.”

- Voltaire

TESTPresentation

Health Care Reform – What Do We Have To Do?What Are Our Options?

Willis Human Capital Practice Legislative and Regulatory Update

Jay M. Kirschbaum, JD, LLM, FLMI Practice LeaderWillis National Legal & Research Group

March 8, 2013

This material and any accompanying remarks are provided for informational purposes only and nothing contained in either should be taken as a legal opinion or as legal advice Copyright 2013 All rights reserved