watkins meegan health care reform lunch and learn - february 13, 2013

H lth C R fHealth Care Reform

Presented by:

Jody Buyalos, Partner, The Insurance ExchangeJustin Reid, Senior Manager, Watkins MeeganFebruary 13, 2013

AGENDA

• Future of the Health Care Reform Law

• Reporting, Compliance and Fees

• Exchanges and 2014 Coverage Requirements

• Penalties – Employer and Employee

• On the LookoutOn the Lookout

• How Will This Impact My Business in 2014

R• Resources

• Effective Strategies Going Forward

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FUTURE OF THE HEALTH CARE REFORM LAWFUTURE OF THE HEALTH CARE REFORM LAW

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Effect of the ElectionEffect of the Election

Election results:Election results:– President Obama re‐elected– Senate: Democratic Party majorityH R bli P t j it– House: Republican Party majority

Governor results:30 Republicans– 30 Republicans

– 19 Democrats– 1 Independent

Implementation of health care reform continues as scheduled

State implementation of Exchanges varies (see above)p g ( )

Proprietary and Confidential 4

What it Means for Health Care ReformWhat it Means for Health Care Reform

Parts of health care reform law could be on the bargaining table

– Premium subsidies?– Expanded Medicaid eligibility?– Implementation schedules?p– Tax benefits?Health Care Reform continues to be fluidHealth Care Reform continues to be fluid


REPORTING COMPLIANCE AND FEESREPORTING, COMPLIANCE AND FEES

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W‐2 Reporting • Employers must report aggregate cost ofW 2 Reporting • Employers must report aggregate cost of

group health plan coverage on each

employee’s Form W‐2

• Does not change the tax rules for health

coverage – coverage is still not taxable

• Mandatory for 2012 tax year

• BUT compliance delayed indefinitely forBUT compliance delayed indefinitely for

small employers (filed fewer than 250 W‐2

Forms last year)

• Used to track costs for employee and family

coverage for the 2018 excise tax

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Coverage to ReportCoverage to Report

YES NO OPTIONAL

Major medical Health FSA salary reduction amounts

Self‐funded benefits not subject to COBRA(Church plans)

Health FSA contributions (other than salary reductions)

HSA/Archer MSA contributions (reported separately)

Separate dental/vision

EAP/ i di l E d b fi HRA ib iEAP/on‐site medical clinics/wellness programs that provide medical care

Excepted benefits HRA contributions

Hospital indemnity or specified illness (pre‐tax or employer contributions only)

Military coverage or Indiantribal government plans

Multiemployer plans


Increased Medicare TaxIncreased Medicare Tax

Medicare tax rate to increase for high‐earnersg– 0.9 percent increase (from 1.45 percent to 2.35 percent)

High‐earner threshold g– Single: $200,000– Married : $250,000

Employer responsibilities– Withhold additional amounts from wages in excess of $200 000$200,000

– No requirement to match additional tax– No requirement to notify employees


Increased Medicare Tax (Continued)Increased Medicare Tax (Continued)

Medicare tax on investment income – the Unearned Income Medicare Contribution

– New 3.8 percent increase on unearned income for tax years beginning after December 31, 2012

– Imposed on lesser of net investment income or MAGI in excess of $200,000 ($250,000 for MFJ; $125,000 for MFS)

• Net investment income includes interest, dividends, annuities, royalties and rents, capital gains and gains on home sales in excess of current exclusionshome sales in excess of current exclusions


Affect on Business Owners’ Share of R t bl N t IReportable Net Income

Type of Entity .9% Medicare Tax 3.8% UnearnedType of Entity (Participation

Level)

.9% Medicare Tax for High‐Earners

3.8% Unearned Income Medicare Contribution

Partnership (Active)

Partnership (Passive)

S Corporation (Active)

S Corporation (Passive)


Other Tax ChangesOther Tax Changes

For tax years beginning after December 31, 2012y g g ,– Threshold to claim an itemized deduction for unreimbursed medical expenses increases from 7.5% pof AGI to 10% AGI

– Individuals 65 and older are exempt from increased threshold


Health FSA LimitsHealth FSA Limits

Prior to 2013– No limit on salary reductions– Many employers impose limity p y p

Beginning in 2013, limit is $2500/year

– Limit is indexed for CPI for later yearsApplies to plan years beginning on or after 1/1/13pp p y g g / /

– This is a change from initial effective dateDoes not apply to dependent care FSAs oes not apply to dependent care FSAs


New Health Plan Fees for Employer S d PlSponsored PlansComparative Effectiveness Research Feesp

– Fully Insured and self‐funded plans sponsors– PCOR/PCORI fees to fund research– 2012‐2018 plan years – 2012: $1 per covered life per year; 2013: $2 per covered life per year; beyond 2013: based on health expenditures2012: $1 per covered life per year; 2013: $2 per covered life per year; beyond 2013: based on health expenditures

Transitional Reinsurance Program Fees– To help stabilize individual market premiums

Effective 2014 2016– Effective 2014‐2016– Fully Insured and self‐funded plan sponsors– $63 per covered life per year ($5.25 per month)

Health Insurance Tax (HIT)Health Insurance Tax (HIT)– Effective in 2014– ACA imposes a HIT on the fully insured market– Revenue projection; $8B – 2014, $11.3B – 2015 & 2016, $13.9B – 2017, $14.3B ‐ 2018

HIT obligation divided amongst fully insured carries proportional on market share– HIT obligation divided amongst fully insured carries proportional on market share


Employer ReportingEmployer Reporting

• Employers will have to report certain information p y pabout health coverage to the government and individuals

• Applies to:– “Applicable large employers” – “Offering employers” – employers that provide coverage if employee cost exceeds 8% of income

• Applies to coverage offered after Jan. 1, 2014• First returns to be filed in 2015st etu s to be ed 0 5


Information Employer is Required to Reportp y q p

• Employer identifying informationp y y g

• Whether employer offers health coverage to FT employees and dependents

N b f FT l f h th• Number of FT employees for each month

• Length of any waiting period

• Monthly premium for lowest‐cost option in each enrollment category

• Employer’s share of cost of benefits

• Names and contact info of employees and months covered by employer’s

health plan


EXCHANGES AND 2014 COVERAGE REQUIREMENTSEXCHANGES AND 2014 COVERAGE REQUIREMENTS

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Insurance PossibilitiesInsurance Possibilities

Individual

l dEmployer Sponsored Plan Federal/State Exchange Penalty


Health Insurance ExchangesHealth Insurance Exchanges

States Have 3 Options:p1. Establish State Exchange (Ex: MD, DC, CA)2. Establish Partnership Exchange with HHS3. Do nothing ‐ HHS will set up Federally‐facilitated

Exchange (Ex: VA, TX)

dlDeadlines – Intention and blueprint due: 12/14/12 Determine whether will be operational 1/1/13– Determine whether will be operational: 1/1/13

– Open enrollment: 10/1/13– Fully operational: 1/1/14Fully operational: 1/1/14


Health Insurance ExchangesHealth Insurance Exchanges

• Individuals and small employers can purchase p y pcoverage through an Exchange– Small employers = up to 100 employees until 2017– Before 2016, states can define small employers as having up to 50 employees

• In 2017 states can allow employers of any size to• In 2017, states can allow employers of any size to purchase coverage through Exchange

• Individuals can be eligible for tax credits (subsidized• Individuals can be eligible for tax credits (subsidized coverage) only if purchase coverage on public Exchanges


Exchange Qualified Health PlansExchange Qualified Health Plans

Must offer Essential Health Benefits packagep g– Provide 10 essential benefits– Limit cost‐sharing of deductibles and out of pocket maximums– Provides 4 “metal” plans: Bronze Silver Gold or Platinum coverage– Provides 4 metal plans: Bronze, Silver, Gold or Platinum coverage

or catastrophic plan

Metal levels– Bronze Plan: covers 60% of the actuarial value of covered benefits– Silver Plan: covers 70% of the actuarial value of covered benefits– Gold Plan: covers 80% of the actuarial value of covered benefits– Platinum Plan: covers 90% of the actuarial value of covered benefits

This allows consumers to more easily compare plans but now fewer optionsThis allows consumers to more easily compare plans but now fewer options


Insurance ReformsInsurance Reforms

Insurance premium rating restrictions p g– Individual and small group only– Higher rates based on health status/gender/other factors prohibitedprohibited

– Rates can be based only on age, geography, family size and tobacco use

Guaranteed issue and renewability– Individual and group market (small and large)– Issuers must accept every employer and individual that applies for coverage and renew coverage at option of policyholder


Notice of ExchangeNotice of Exchange

All Employers must notify new and current employees p y y p yof Exchange information

– Effective March 1, 2013 (delayed until Summer/Fall 2013)– More guidance and model notice to be issued

Notice must include information about 2014 changes:– Existence of health benefit exchange and services providedEmployee potential eligibility for subsidy under exchange– Employee potential eligibility for subsidy under exchange

– Risk of losing employer contribution if employee buys coverage through an exchange


PENALTIES EMPLOYER AND EMPLOYEEPENALTIES – EMPLOYER AND EMPLOYEE

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Individual MandateIndividual Mandate

• Jan. 1, 2014: Individuals must enroll in coverage , gor pay a penalty

• Penalty amount: Greater of $ amount or a % of y $income– 2014 = $95 or 1%

$25,000 $50,000 $100,000

$250 $500 $1,000

– 2015 = $325 or 2%– 2016 = $695 or 2.5%

$500 $1,000 $2,000

$635 $1,250 $2,500

• Employer Impact – Current waivers may join your plan


Will the Employer Pay a Penalty?Will the Employer Pay a Penalty?Employer‐Sponsored Plan: Employee Premium Contribution as a Percent of Employee Income

Federal Poverty Level (FPL)0.0%‐9.5% 9.5% +

401%$45,961+ (Single)

$94,201 (Family of 4)Not Eligible for Premium Subsidy

139‐400%$15,857‐$45,960 (Single)

$32,501‐$94,200 (Family of 4)Not Eligible for Premium Subsidy

Eligible for Premium Subsidy

0‐138%$0‐ $15,856 (Single)

$0‐$32,500 (Family of 4)

Medicaid EligibleNo Employer Penalties for Medicaid‐Enrolled Employees


Employer Shared Responsibility PenaltiesEmployer Shared Responsibility Penalties

• Large employers subject to “Pay or Play” ruleg p y j y y– Offer coverage of a certain Minimum Value or possibly pay a penalty

• Applies to employers with 50 or more full‐time “equivalent” employees in prior calendar year– FT employee: employed for an average of at least 30 hours of service per

week

• Penalties apply if:– Employer does not provide coverage to all FT employees and any FT

employee gets subsidized coverage through Exchange ORemployee gets subsidized coverage through Exchange OR– Employer does provide coverage and any FT employee still gets subsidized

coverage through exchange because either not affordable or does not meet Minimum Value actuarial standard.


Applicable Large EmployersApplicable Large Employers

Employee Category Used to determine “large employer” ?

Employer subject penalty if a i di i d?status? premium credit received?

Full‐time Counted as one employee, based on a 30 hour or more work week

Yes

Part‐time Prorated (calculated by taking the hours worked by part‐time employees in a month divided by 120)

No

Seasonal Not counted, for those working less than 120 days in a year

Yes, for the month in which a seasonal worker is full‐time

Temporary Agency Generally, counted as working for the temporary agency (except for those workers who are independent contractors)

Yes, for those counted as working for the temporaryagency


Employer Penalty AmountsEmployer Penalty Amounts

• Employers that do not offer coverage to all full‐p y gtime employees:– $2,000 per full‐time employee– Excludes first 30 employees

• Employers that offer coverage:Employers that offer coverage:– $3,000 for each employee that receives subsidized coverage through an exchangeg g g

– Capped at $2,000 per full‐time employee (excluding first 30 employees)


Penalty PotentialPenalty PotentialNot a large employer: Less th 50 f ll

Large employer: 50 or more full-time equivalent employees

than 50 full-time equivalent employees

Does not offer coverage Offers coverage

Scenario ANo full-time

l

Scenario B1or more full-time

l i

Scenario CNo full-time employees

i dit f

Scenario D1or more full-time employees

i dit f h employees receive credits for

exchange coverage

employees receive credits for exchange coverage

receive credits for exchange coverage

receive credits for exchange coverage

No penalty No penalty Number of full-time employees minus

No penalty Lesser of: Number of full time employees employees minus

30 multiplied by $2,000

Number of full-time employees minus 30, multiplied by $2,000.

Number of full-time employees who receive credits for exchange coverage, multiplied by $3,000.

(Penalty is $0 if employer has 30 or fewer full-time employees-because penalty is based on the lesser of the two calculations)

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ON THE LOOKOUTON THE LOOKOUT

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2014 Plan Eligibility Rules2014 Plan Eligibility Rules

• No excessive waiting periodsg p– Waiting periods limited to 90 days

• Must offer health plan coverage to employees working at least 30 hours per weekworking at least 30 hours per week

Oth B fit Pl (d t l i i lif t )• Other Benefits Plans (dental, vision, life, etc.) can still maintain higher per week hour requirements


Nondiscrimination Rules Coming f F ll I d Plfor Fully‐Insured Plans

• Will apply to non‐grandfathered plansWill apply to non grandfathered plans

• Discriminating in favor of highly‐compensated employees (HCEs) will be prohibited( ) p– Eligibility test – Benefits test

• HCEs– 5 highest paid officers – More than 10% shareholder– More than 10% shareholder – Highest paid 25% of all employees

• Effective date delayed for regulationsEffective date delayed for regulations


Automatic Enrollment RulesAutomatic Enrollment Rules

• Will apply to large employers that offer health benefitsWill apply to large employers that offer health benefits – Applies to GF and non‐GF plans– Large employer = more than 200 employees

• Must automatically enroll new employees and re‐enroll current participants

• Adequate notice and opt‐out option required

• DOL: – Regulations will not be ready to take effect by 2014– Employers not required to comply until regulations issued and applicablepp


More CostsMore Costs

• Jan. 1, 2014: Due to Individual Mandate, individuals must enroll in , ,coverage or pay a penalty and this plus Auto‐Enroll and other provisions will potentially drive employees currently waiving coverage to enroll in employer health plan

― Result: additional cost burden to employer

• Employers currently offer one composite rate/payroll deduction to• Employers currently offer one composite rate/payroll deduction to employees but Exchanges will offer individuals “Age Banded” premiums

― Real danger here is that your young single healthy males leave employer plan for the state Health Benefit Exchanges

― Leaves employer with older less healthy population ― Creates a death spiral towards higher & higher costs each renewalC eates a deat sp a to a ds g e & g e costs eac e e a


New Challenges in 2014New Challenges in 2014

• Exchanges vary by state To be competitive• Exchanges vary by state. To be competitive Employer will now need to keep track of Exchange plans in each state.

• Need to have an analysis done to see if your employer sponsored plans meet the new p y p p“Minimum Value” actuarial standard.


Future Costs?Future Costs?

• Employer penalty tax is low at $2,000 per ‐ could increaseEmployer penalty tax is low at $2,000 per could increase in future years to pay for cost of Health Care Reform

• 2018 Excise Tax on High Cost Coverages (Cadillac Tax):2018 Excise Tax on High Cost Coverages (Cadillac Tax): ― 40% excise tax imposed on the value of health insurance

benefits exceeding a certain threshold: $10,200 for individual coverage $27,500 for family coverage

― Applies to both fully insured and self‐funded employer― Applies to both fully insured and self‐funded employer plans.

― Tax is more likely for rich plans in high cost areas of U.S.


Why is the Cadillac Tax an Issue?Why is the Cadillac Tax an Issue?

2018 Cadillac Tax Cost Example:2018 Cadillac Tax Cost Example: Assumes Health Plan Renewal of +7.5% each year

Current Monthly Premium

2013 Annual Cost

2014 Annual Cost

2015 Annual Cost

2016 Annual Cost

2017 Annual Cost

2018 Annual Cost

Cadillac Tax

ThresholdPremium Cost Cost Cost Cost Cost Cost Threshold

Single Premium $600 $7,200 $7,740 $8,321 $8,945 $9,615 $10,337 $10,200

Family yPremium $1,600 $19,200 $20,640 $22,188 $23,852 $25,641 $27,564 $27,500


HOWWILL THIS IMPACT MY BUSINESS IN 2014?HOW WILL THIS IMPACT MY BUSINESS IN 2014?

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Real World ExampleReal World Example

Current Year:

Assumptions:Monthly Single Coverage 460$ Monthly Family Coverage 1,425$ Total Employees 150Total Employees 150 Employees in Health Plan 100 Employer provides 75% coverage for single employeesEmployer provides 60% coverage for family coverage



Current Year:

EE Receiving l h

EE Paid Health

Insurance

ER Paid Health

Insurance

EE Paid Health

Insurance

ER Paid Health

Insurance

Salary Headcount Health Benefits

Premiums per Month

Premiums per Month

Premiums per Year

Premiums per Year

CEO 225,000$ 1 1 570$ 855$ 6,840$ 10,260$ CFO 175,000 1 1 570 855 6,840 10,260

12 000 23 8 0 8 6 8 0 10 260Program Manager 125,000 23 8 570 855 6,840 10,260 Lead Developer 100,000 32 17 570 855 6,840 10,260 Analyst II 70,000 31 18 570 855 6,840 10,260 Analyst 45,000 30 28 115 345 1,380 4,140 S ff D l 32 500 32 27 115 345 1 380 4 140Staff Developer 32,500 32 27 115 345 1,380 4,140

150 100



2014:

Assumptions:Monthly Single Coverage 495$ Monthly Family Coverage 1,532$ Total Employees 150 p yEmployees in Health Plan 115 Employer provides 75% coverage for single employeesEmployer provides 60% coverage for family coverageEmployer provides 60% coverage for family coverage



2014:

Receiving Health

EE Paid Health

Insurance Premiums

ER Paid Health

Insurance Premiums

EE Paid Health

Insurance Premiums

ER Paid Health

Insurance Premiums per

Salary Headcount Health Benefits

Premiums per Month

Premiums per Month

Premiums per Year

Premiums per Year

CEO 230,625$ 1 1 613$ 919$ 7,353$ 11,030$ CFO 179,375 1 1 613 919 7,353 11,030 P M 128 125 23 14 613 919 7 353 11 030Program Manager 128,125 23 14 613 919 7,353 11,030 Lead Developer 102,500 32 23 613 919 7,353 11,030 Analyst II 71,750 31 19 613 919 7,353 11,030 Analyst 46,125 30 29 124 371 1,484 4,451 St ff D l 33 313 32 28 124 371 1 484 4 451Staff Developer 33,313 32 28 124 371 1,484 4,451

150 115



Two Year Comparison:p

Increase/2013 2014 (Decrease)( )

Health Insurance Expense 689,400$ 893,390$ 203,990$

Fringe Rate 26.20% 27.97% 1.77%

Net Margin 7.50% 6.71% ‐0.79%


Revenue 21,902,026$ 22,668,597$

Fiscal Year 2013 Fiscal Year 2014

Direct Labor 9,890,550 10,137,814 Subcontractors 5,523,557 5,827,353 Other Direct Costs 895,692 944,955

Total Direct Costs 16,309,799 16,910,121

Indirect Expenses

Fringe ExpenseHealth Insurance 689,400 893,390 Paid Time Off 768,450 787,661 Profit Sharing 513,328 526,161 FICA 718,659 736,625

Total Fringe Expenses 2,689,836 2,943,836

Overhead ExpensesOverhead Labor 169,200 173,430 Depreciation 153,477 155,777 Rent 323,610 333,318 Utilities 74,982 78,731 Insurance 33,667 35,350

Total Overhead Expenses 754,936 776,607

General and AdministrativeAdministrative Labor 206,800 211,970 Marketing 47,500 45,325 Rent 81,496 83,941 Utilities 15,663 16,446 Accounting 55,798 56,255 Legal 97,546 102,423

Total General and Administrative 504,803 516,360

Other Expense ‐ ‐

Net Income 1 642 652$ 1 521 672$

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Net Income 1,642,652$ 1,521,672$

RESOURCESRESOURCES

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The Insurance Exchange ResourcesThe Insurance Exchange Resources

• Legislative Briefs:Legislative Briefs:– HCR: Form W‐2 Reporting Requirements

– HCR: IRS Q&As on Form W‐2 ReportingHCR T f C– HCR: Types of Coverage Subject to Form W‐2 Reporting

• HCR: W‐2 Reporting Requirements (video)

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Preventive Care for Women– HCR: Preventive Care Coverage Guidelines– HCR: Preventive Care Guidelines for Women– HCR: Compromise on Contraceptive Coverage for Religious EmployersHCR: Compromise on Contraceptive Coverage for Religious Employers– Federal Courts Temporarily Block Contraceptive Mandate

Medicare Tax– Proposed Rules on the Additional Medicare Tax– Questions and Answers on Additional Medicare Tax

Health FSA LimitsHealth FSA Limits– HCR: Changes to Health Accounts– HCR: IRS Provides Guidance on $2500 Health FSA Limit



Legislative Briefs:g– Health Care Reform: Comparative Effectiveness Research Fees

– Standards for Reinsurance, Risk Corridors and Risk Adjustment

More to come…



― Health Care Reform Timeline

― Temporary Guidance Issued on 90‐day Waiting Period Limit

― Interim Final Rules on Patient's Bill of Rights ‐ Lifetime and Annual Limits

― Proposed Rule on Essential Health Benefits, Actuarial Value and Accreditation StandardsAccreditation Standards

― Interim Final Rules on Patient's Bill of Rights ‐ Pre‐existing Condition Exclusions

― HCR: Proposed Rules on Workplace Wellness Programs

― Insurance Market Nondiscrimination Reforms for 2014



― HCR: Health Insurance Exchangesg

― HCR: Potential Penalties for Employers Under the "Pay or Play" Rules

HCR Will the Emplo er Pa a Penalt ? (chart)― HCR: Will the Employer Pay a Penalty? (chart)

― HCR: IRS Guidance on Minimum Value and Reporting Requirements

― IRS Issues Guidance on Employer Penalties ‐ Full‐time Status and Using W‐2 Wages

― Health Care Reform Pay or Play Calculator


EFFECTIVE STRATEGIES GOING FORWARDEFFECTIVE STRATEGIES GOING FORWARD

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Contact UsContact Us

8000 Towers Crescent Drive 9713 Key West Ave., Suite 401Tysons Corner, VA 22182 www.WatkinsMeegan.com

Rockville, MD 20850www.tie‐inc.com

Justin Reid Senior Manager

GovConInsurance.comJody Buyalos PartnerJustin Reid, Senior Manager

(703) 847‐4425 [email protected]

Jody Buyalos, Partner(301) 545‐1583buyalos.j@tie‐inc.com

watkins meegan health care reform lunch and learn - february 13, 2013

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