Counties as Employers Health Reform Toolkit: Making Sense of Complex Issues

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1 NATIONAL ASSOCIATION OF COUNTIES Counties as Employers Health Reform Toolkit: Making Sense of Complex Issues 25 MASSACHUSETTS AVENUE, NW SUITE 500 WASHINGTON, DC CONTACT Emmanuelle St. Jean, MPH Program Manager FA

2 Overview The Patient Protection and Affordable Care Act, commonly referred to as the Affordable Care Act (ACA) or the health reform law, contains a number of substantial changes to employmentbased health plans. This toolkit outlines some of the critical issues counties should be aware of concerning the implementation of the health reform law and factors to consider as they make any benefit plan changes. 1 The toolkit for counties is divided into sections by the following topic areas: Key Provisions of the Affordable Care Act for Employers At a Glance Key Terminology Initial Changes to Employer-Sponsored Health Insurance 2014 Changes Changes in 2015 and Beyond Grandfathered Plans Extension of Dependent Coverage to Age 26 Medicare Changes Relevant to Employers Notice and Disclosure Requirements Employer Planning for 2013 and Beyond Quiz Visit for: Recordings of NACo health reform implementation webinars Health reform implementation FAQs and timelines Information about regulations related to the health reform law NACo conference workshop presentations Links to additional information and resources to: Sign up for NACo updates on health reform implementation issues Get answers to your health reform implementation questions 1 This toolkit was prepared by the National Association of Counties for informational purposes and does not constitute legal advice. The toolkit is intended to highlight the key provisions in the Affordable Care Act that will affect counties as employers. Plan sponsors should consult legal counsel for detailed information about how certain provisions and related regulations should be interpreted and applied to their plans specifically. The information in this toolkit is current as of September 18,

3 CONTENTS Key Provisions of the Affordable Care Act for Employers At a Glance 5 Key Terminology 6 Affordable Coverage 6 Essential Health Benefits 6 Large Employer 6 Minimum Value Coverage 7 Qualified Health Coverage 7 Small Employer 7 Initial Changes to Employer-Sponsored Health Insurance Changes Changes Changes Changes 15 Waiting Periods 16 Preexisting Conditions 16 Health Insurance Marketplaces 16 Wellness Incentives 18 Temporary Reinsurance Programs 18 Changes in 2015 and Beyond 19 Employer-Shared Responsibility Penalty 19 Marketplace Expands to Include Large Employers 22 Tax on High-Cost Insurance 22 Grandfathered Plans 24 3

4 Losing Grandfathered Status 27 Additional Resources 28 Extension of Dependent Coverage to Age Eligibility and Coverage Requirements 29 Other Issues 30 Additional Resources 30 Medicare Changes Relevant to Employers 31 Medicare Advantage 31 Part D Changes 31 Additional Resources 32 Notice and Disclosure Requirements 34 Health Insurance Marketplace Notice 34 Summary of Benefits and Coverage (SBC) Day Notice of Plan Changes 35 Employer Planning for 2013 and Beyond 36 Quiz 43 Quiz Answer Key 44 LIST of TABLES Table 1 Form W-2 Reporting of Employer-Sponsored Health Coverage Table 2 Calculating Employer Penalties LIST of FIGURES Figure 1 Types of Health Insurance Marketplace Figure 2 Determining an Employer s Financial Penalty

5 Key Provisions of the Affordable Care Act for Employers At a Glance Provisions Already in Effect Rescind coverage, except in cases of fraud or abuse Premium tax credit for small employers Temporary government subsidies for early retiree plans Ban on lifetime dollar limits on plan benefits No preexisting condition exclusions for enrollees up to age 19 No Flexible Spending Account, Health Savings Account, or Health Reimbursement Accounts, reimbursement for over-the-counter medications Preventive services must be covered without cost-sharing Group plans may only place restricted annual dollar limits on essential health benefits. W-2 reporting of the value of employersponsored health coverage Medical loss ratio rebates for insurance policies Patient-centered outcomes research fees of $1-$2 (ends in 2019) Provisions to be Implemented Health Insurance Marketplaces open (2013) Employers must notify employees Health Insurance Marketplace (2013) No annual dollar limits on essential health plans (2013) Preexisting condition exclusions prohibited (2013) Flexible Spending account contribution capped at $2,500 per year (2013) Elimination of waiting periods over 90 days (2013) Medicare Payroll tax increase (2013) Costs reimbursed by Medicare Part D subsidy no longer deductible (2013) Dependent coverage to age 26 (2014) (Check with your insurer) Increase in wellness programs incentives (2014) Plans cannot deny clinical trial participation Summary of Benefits and Coverage Temporary Reinsurance Fee (2014) Medicare prescription drug doughnut hole beneficiary rebate Income-based Medicare Part D premiums Employer Shared Responsibility Penalty (2015) Excise Tax on High Cost Insurance Plans (2018) 5

6 Key Terminology Affordable Coverage The employee s share of premium costs is less than 9.5 percent of employee s income. Essential Health Benefits Insurers are required to ensure the following items and services are included in a health plan to meet minimum essential coverage: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care. Grandfathered Plan Grandfathered plans are health plans already in existence when the health reform law was enacted (March 23, 2010). They do not have to meet all of the requirements of the Affordable Care Act unless they make significant changes to those plans, such as how much employees pay for premiums, copays and deductibles, and changes to the plan s benefits. Large Employer A large employer is defined as having 50 or more full-time employees (FTEs), not counting seasonal workers. Full-time employees are individuals who work 30 hours or more per week, whereas part-time employees work less than 30 hours per week. A state has the option to modify the definition of a small employer by substituting 50 for 100. Beginning in 2017, a large employer will be an employer that has at least 101 employees. 6

7 Example: ABC County employs 20 FTE who work 30 or more hours a week on average. The county also employs 40 part-time employees who work 15 hours per week on average. 30 FTE 40 PTE x 15 hours 50 Fulltime equivalent employees Large Employer Minimum Value Coverage Also referred to as the minimum essential coverage A plan covering at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan. Qualified Health Coverage Insurance that has minimum value coverage (at least 60 percent of health care expenses are paid) and is affordable Small Employer An organization or non-federal government employer that has at least two, but not more than 50 employees. Some states may consider a business with only one employee as a small employer. 7

8 Initial Changes to Employer-Sponsored Health Insurance Since the first plan year after September 23, 2010 (for calendar year plans, the compliance date was January 1, 2011) group health insurance plans have been forbidden to: Rescind coverage, except in cases of fraud or abuse Restrict coverage for children under age 19 based on health conditions (in 2014, this provision will apply to all individuals) 2 Impose lifetime caps on essential health benefits The law also restricted the ability of group health plans to place annual limits on essential health benefits, and in 2014 all annual limits are prohibited (for more information on the annual limit restrictions, see the section Grandfathered Plans). Additionally, in the first plan year after September 23, 2010, the law required all individual and group health insurance plans that provide coverage to beneficiaries dependent children to provide them coverage until they reach age 26. This rule initially applied to existing employer plans (plans in existence on March 23, 2010, which are considered grandfathered health plans) unless the adult child has another offer of employer-based coverage. Effective for plan years beginning on or after January 1, 2014, all plans must offer dependent coverage to age 26 for any covered employee s child (for more information and details about how this requirement affects existing group health plans, see the Section Extension of Dependent Coverage to Age 26). Also, in June 2010 the law established a temporary reinsurance program, the Early Retiree Reinsurance Program, and the Department of Health and Human Services began accepting applications to reimburse employers for a portion of the costs associated with providing health insurance to non-medicare eligible retirees over age 55, as well as their spouses and 2 Until 2014, when insurers will not be permitted to deny coverage to any individual based on pre-existing health conditions, individuals with pre-existing medical conditions who have not had health insurance coverage for the past six months were able to apply for coverage in 2010 through a temporary high-risk pool program funded by the federal government, called the Pre-Existing Condition Insurance Plan (PCIP). States have the option to run the program themselves, but in states that have chosen not to, the Department of Health and Human Services operates the program. On February 16, 2013, the federally-operated PCIP suspended acceptance of new enrollees until further notice to ensure funds were available through 2013 to cover those currently enrolled. For more information, see 8

9 dependents. On April 23, 2013, the Centers for Medicare and Medicaid Services released guidelines 3 on how the program would be terminated by January 1, The law contains new mandates for new group health plans (new plans are ones that were not in existence on March 23, 2010), such as requirements to provide coverage of preventive services without beneficiary cost sharing. However, these new requirements will apply to any plan that loses grandfather status (for more information about the requirements and how plans can lose grandfather status, see the Section Grandfathered Plans) Changes The penalty for withdrawals from Health Savings Accounts for non-medical expenses increased from 10 percent to 20 percent. Flexible Spending Accounts, Health Reimbursement Arrangements and Health Savings Accounts will only be permitted to reimburse for over-the-counter drugs if the participant has a prescription (except for insulin). Medical Loss Ratio o The health reform law requires health insurance issuers to provide rebates to consumers if the amount spent on clinical services and quality is less than 85 percent of the premium cost (for plans in the small group and individual market, the rate is 80 percent) Changes The law requires employers to report the cost of health insurance coverage on employees W-2 forms. Employers need to develop appropriate reporting mechanisms to meet this requirement. The reporting is only for informational purposes and is intended to disclose the value of the benefits provided by employers; it is not a taxable item. o The law originally stated that the W-2 reporting requirement would begin for W-2 forms issued for tax year 2011, reflecting health insurance coverage provided in However, in October 2010 the Internal Revenue Service (IRS) announced that reporting the cost of such coverage will not be mandatory for W-2 forms 3 Centers for Medicare and Medicaid Services. 78 Federal Register 78 (23 April 2013) pp Centers for Medicare and Medicaid Services. Early Retiree Reinsurance Program, 78 Federal Register 78 (23 April 2013) pp

10 issued for 2011, to provide employers more time to implement the necessary changes to their payroll systems. 5 o There is transition relief from reporting the cost of health benefits provided on 2012 Forms W-2. However, this relief applies for certain employers, types of coverage, and situations. This relief will apply to future calendar years until the IRS published additional guidance, according to the IRS. o For more information, see: Coverage-Informational-Reporting-Requirements:-Questions-and-Answers and Coverage o Table 1 displays the reporting requirements for Box 12, Code DD. Table 1 Form W-2 Reporting of Employer-Sponsored Health Coverage Form W-2 Reporting of Employer-Sponsored Health Coverage Coverage Type Form W-2, Box 12, Code DD Report Do Not Report Optional Major medical Dental or vision plan not integrated into another medical or health plan Dental or vision plan which gives the choice of declining or electing and paying an additional premium Health Flexible Spending Arrangement (FSA) funded solely by salary-reduction amounts 5 For more information, see the IRS issued guidance on October 12, 2010: as well as a draft W-2 form that includes the codes that employers may use to report the cost of coverage under an employer-sponsored group health plan: The IRS has issued additional guidance on Form W-2 reporting of Employer-Sponsored Health Coverage. It can be found at: 10

11 Form W-2 Reporting of Employer-Sponsored Health Coverage Coverage Type Form W-2, Box 12, Code DD Report Do Not Report Report Health Savings Arrangement (HSA) contributions (employer or employee) Archer Medical Savings Account (Archer MSA) contributions (employer or employee) Hospital indemnity or specified illness (insured or self-funded), paid on after-tax basis Hospital indemnity or specified illness (insured or self-funded), paid through salary reduction (pre-tax) or by employer Employee Assistance Plan (EAP) providing applicable employer-sponsored healthcare coverage On-site medical clinics providing applicable employer-sponsored healthcare coverage Wellness programs providing applicable employer-sponsored healthcare coverage Multi-employer plans Domestic partner coverage included in gross income Required if employer charges a COBRA premium Required if employer charges a COBRA premium Required if employer charges a COBRA premium Optional if employer does not charge a COBRA premium Optional if employer does not charge a COBRA premium Optional if employer does not charge a COBRA premium 11

12 Form W-2 Reporting of Employer-Sponsored Health Coverage Coverage Type Form W-2, Box 12, Code DD Report Do Not Report Optional Governmental plans providing coverage primarily for members of the military and their families Federally recognized Indian tribal government plans and plans of tribally charted corporations wholly owned by a federally recognized Indian tribal government Self-funded plans not subject to Federal COBRA Accident or disability income Long-term care Liability insurance Supplemental liability insurance Workers' compensation Automobile medical payment insurance Credit-only insurance Excess reimbursement to highly compensated individual, included in gross income Payment/reimbursement of health insurance premiums for 2 percent shareholderemployee, included in gross income 12

13 Other Situations Report Do Not Report Employers required to file fewer than 250 Forms W-2 for the preceding calendar year (determined without application of any entity aggregation rules for related employers) Optional Forms W-2 furnished to employees who terminate before the end of a calendar year and request, in writing, a Form W-2 before the end of that year Forms W-2 provided by third-party sick-pay provider to employees of other employers Source: IRS. Form W-2 Reporting of Employer-Sponsored Health Coverage. Updated April 26, All health insurance plans are required to provide a summary of benefits with uniform explanations of coverage using standardized definitions, called the Summary of Benefits and Coverage (SBC) statement, as well as a glossary of commonly used insurance terms. See the Section Summary of Benefits and Coverage (SBC) for additional information. In the first plan year ending after September 30, 2012, all health plans (insured and selfinsured) are required to pay a temporary fee to fund comparative effectiveness research (the fee is phased out in 2019). o The fee is $1 per participant for the first plan year ending after September 30, 2012, and for subsequent years, the fee is $2 per participant, indexed for inflation. Women s preventive services must be covered. For non-grandfathered-plans this element was effective for plan year beginning on or after August 1, Changes Flexible Spending Account pre-tax contributions are capped at $2,500 a year 6 The Medicare payroll tax on wages have increased. Employers are to deduct and withhold additional Medicare hospital taxes on annual employee wages that exceed $200,000 for individuals and $250,000 for married couples for the Medicare Part A payroll tax. 6 This amount in subsequent years will be inflation-indexed. 13

14 The tax exclusion of Medicare Part D retiree drug subsidy is eliminated. Employers must notify employees about the Health Insurance Marketplaces by October 1, 2013 Employers are prohibited from discriminating or retaliating against an employee who reports a violation of the Affordable Care Act or receives a premium assistance tax credit in the Health Insurance Marketplace. Employers should ensure their health plans comply with HIPAA standards and the new administrative simplification requirements regarding eligibility verification, 7 claims status, 8 electronic funds transfers 9 as outlined in the federal regulations issued by HHS. The Summary of Benefits and Coverage, which was first distributed with open enrollment on or after September 23, 2012, must now be distributed with any enrollment opportunity and upon request. Employees must also be provided with the document 30 days prior to the start of the plan year. Additional information can be found in the Section Summary of Benefits and Coverage (SBC). 7 Department of Health and Human Services. Administrative Simplification: Adoption of Operating Rules for Eligibility for a Health Plan and Health Care Claim Status Transactions. 76 Federal Register 131 (8 July 2011), pp See above. 9 Department of Health and Human Services. Administrative Simplification: Adoption of Operating Rules for Health Care Electronic Funds Transfers (EFT) and Remittance Advice Transactions. 77 Federal Register 155 (10 August 2012), pp

15 2014 Changes In 2014, all U.S. citizens and legal residents, with a few exceptions, will be required to have qualifying health insurance coverage or they will have to pay a tax penalty. Individuals will be able to obtain coverage through their employer, Medicare, Medicaid which will be expanded in 2014 in some states to include all non-medicare eligible individuals under age 65 who have incomes up to 133 percent of the federal poverty level (FPL), including adults without children other federal programs such as veterans health care, or by purchasing coverage through Health Insurance Marketplaces. These changes will impact counties in their roles as employers on or after January 1, The changes listed below apply to all health plans, including grandfathered plans and are described in subsequent sections. Waiting periods for coverage cannot exceed 90 days No preexisting conditions exclusions Existence of Health Insurance Marketplaces Wellness incentive limits may be increased No annual dollar limits on essential health benefits For non-grandfathered plans, cost-sharing limits, coverage related to routine patient costs associated with approved clinical trials, provider nondiscrimination and protection of employees goes into effect for plan years beginning on or after January 1, Additionally, health insurance companies are required to issue a health plan to individual or employers within their state that applies regardless of the individual or group s health status or other health factors. Health insurance issuers are also required to renew all coverage to individuals and groups, unless there is non-payment of premiums, fraud or intentional misrepresentation, the plan sponsor does not comply with contribution or participation requirements, the employer moves outside of the network service, or the issuer discontinues a particular product or all coverage to the group markets. This guaranteed availability/renewability provision does not apply to grandfathered plans. Please visit for additional information. Additional Resources Centers for Medicare and Medicaid Services. Patient Protection and Affordable Care Act; Health Insurance Market Rules; Rate Review, 77 FR 227 (26 November 2012), pp

16 Waiting Periods The ACA prevents an employee and dependents from being required to wait more than 90 calendar days for coverage to become effective. The purpose of the ban on waiting periods exceeding 90 days is to ensure employees and their dependents are protected from excessive waiting periods. Both grandfathered and non-grandfathered group health plans and group health insurance coverage with plan years beginning on or after January 1, 2014, must comply with this rule. The Departments of Treasury, Labor and Health and Human Services noted in their proposed rule that neither a plan nor an issuer offering coverage is required to have any waiting period. 10 The 90 calendar days includes holidays and weekends. The waiting period is a one-time eligibility requirement that must begin once the new employee satisfies the plan s cumulative hours-of-service requirements and cannot exceed 90 days. Therefore, the waiting period cannot be applied to the same individual each year when s/he reapplies for insurance. If there is a 90-day waiting period, coverage is effective on the 91 st day. Coverage cannot be effective on the first day of the month following the 90-day waiting period. Additional information can be found in the Departments of Treasury, Labor, and Health and Human Services proposed rule 11 on implementing the ban on waiting periods exceeding 90 days. Preexisting Conditions For plans years beginning on or after January 1, 2014, there are no preexisting condition exclusions for adults. Between September 23, 2010 and January 1, 2014, the prohibition on preexisting condition exclusions only applied to children under the age of 19. Health Insurance Marketplaces Health Insurance Marketplaces, which were previously called Health Insurance Exchanges, are regulated sites where individuals and families without employer-sponsored health insurance can purchase coverage or small businesses can obtain coverage for their employees. Although there are variations across all 50 states in the Marketplaces, there is a marketplace in every state. Marketplaces will be state-based, state-federal partnerships, or federally facilitated. The Marketplace for individuals is the American Health Benefit Exchange and for small businesses it is the Small Business Health Options Program (SHOP) 10 Centers for Medicare and Medicaid Services. Ninety-day waiting period limitation and technical amendements to certain health coverage requirements under the Affordable Care Act. Proposed Rule. 78 Federal Register 55 (21 March 2013), pp See Footnote No

17 Marketplace. In 2014, the SHOP Marketplace is open to employers with 50 or fewer FTE employees and beginning in 2016 the SHOP Marketplace will be open to employers with up to 100 FTEs. Figure 1 depicts the type of Health Insurance Marketplaces in each state. Figure 1 Types of Health Insurance Marketplace Federally-Facilitated Marketplace Federally-Facilitated Marketplace, state conducting management plan State-run Marketplace State-federal Partnership, state conducting management plan management and consumer assistance State running small-business Marketplace, federal government running individual Marketplace *Iowa is responsible for plan management only. **In New Mexico, the federal government will operate the individual market in Source: CommonwealthFund. Health Insurance Marketplace by State. State Action to Establish Health Insurance Marketplaces. July

18 Wellness Incentives Employers can raise wellness incentives from 20 percent to 30 percent. In addition, incentives for tobacco cessation programs can be up to 50 percent. This change applies to (1) both nongrandfathered and grandfathered plans and (2) fully insured and self-funded group health plans. Final rules were issued by the Departments of Treasury, Labor, and Health and Human Services on June 3, 2013 describing the maximum reward levels permitted and clarified regulations regarding the designing of wellness programs and alternatives. 12 Temporary Reinsurance Programs A temporary new fee is imposed on group health plans from 2014 to The purpose of this fee is to establish a reinsurance pool for insurers in the individual market. This pool will reduce the risk for insurers to ensure premiums for individual coverage do not increase as a result of the guaranteed issue requirements beginning in The reinsurance fee only applies to plans providing major medical coverage and not for excepted benefits (e.g., health savings accounts, health reimbursement accounts, flexible spending accounts, prescription drug coverage, and dental and vision plans offered on a stand-alone basis). The Department of Health and Human Services noted in its final rules 13 that the proposed estimate fee will be $5.25 per month or an annual rate of $63 per person, including dependents covered by a group health plan. The exact amount per person will be determined in 2014 when the Department of Health and Human Services knows the total number of individuals covered. While the fee is paid by the insurer for fully insured group health plans, the fee is paid by the plan for self-insured group health plans. Although this provision does not require immediate action on the part of the plan sponsors, employers should take into consideration this cost as it may be a significant new cost. 12 Departments of the Treasury, Labor, and Health and Human Services. Incentives for Nondiscriminatory Wellness Programs in Group Health Plans. 78 Federal Register 106 (3 June 2013), pp Centers for Medicare and Medicaid Services. Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2014, 78 Federal Register 47 (11 March 2013), pp

19 Changes in 2015 and Beyond The provisions of the ACA listed below are to be implemented in 2015 and subsequent years. Employers must report to the IRS on whether minimum essential coverage and the number of months of coverage offered to employees. 14 The Employer Shared Responsibility Penalty, which initially was to go into effect in The section on Employer-Shared Responsibility Penalty provides additional information. The Health Insurance Marketplace will expand to include large employers in This will permit large employers to purchase coverage in the Marketplace. See Marketplace Expands to Include Large Employers Section for more information. Excise tax on health plans costing more than $10,200 for singles and $27,500 for families goes into effect in Please see the Section Tax on High-Cost Insurance for additional details. Employer-Shared Responsibility Penalty While the health reform law does not mandate that employers provide health insurance, it does contain financial incentives for employers to offer coverage that is affordable and provides minimum essential coverage to their employees. Minimum essential coverage (i.e., minimum value) covers at least 60 percent of total covered costs. To determine if your plan provides minimum essential coverage, a calculator is availabe on the Center for Medicare and Medicaid Services website ( Grandfathered plans are considered to have minimum essential coverage under the law. Some methods for determining if the health plan is affordable include identifying if the cost of coverage are below: 9.5 percent of the employee s W-2 wages 9.5 percent of the employee s monthly wages (hourly rate x 130 hours per month) 9.5 percent of the federal poverty level for a single individual Beginning in 2015, 15 employers with 50 or more full-time equivalent employees that do not offer affordable health coverage to 95 percent of their employees will face a financial penalty if 14 On September 5, 2013, the Department of Treasury and the Internal Revenue Service issued proposed regulations on minimum essential coverage for certain large employers. Department of the Treasury and Internal Revenue Service. Information Reporting by Applicable Large Employers on Health Insurance Coverage Offered Under Employer-Sponsored Plans. 78 Federal Register 174 (11 March 2013), pp

20 one of their full-time employees seeks coverage from the Health Insurance Marketplace and receives a tax credit subsidy. Employers cannot reduce an employee s hours, discharge, and/or retaliate against employees for the subsidies. 16 Although part-time workers are included in the calculations to determine whether an employer is a large employer, part-time workers are not included in the penalty calculations. Therefore, an employer will not pay a penalty even if a part-time employee receives a premium credit. There is no penalty for employers who have fewer than 50 FTEs. The annual 17 penalty amount in 2015 that would be imposed on employers is based on different factors, as follows: Employers with 50 or more full-time employees that do not offer minimal essential coverage 18 and that have at least one full-time employee that receives a premium tax credit through the Marketplace will be penalized. o Employers will be assessed fees of $2,000 per full-time employee, though the first 30 employees are exempt from the assessment Employers with more than 50 full-time employees that do offer minimal essential coverage but have at least one full-time employee that receives a premium tax credit through the Marketplace will also be penalized. 19 o The penalty assessed will be the lesser amount of either: $2,000 for each fulltime employee, exempting the first 30 employees from the assessment or $3,000 for each full-time employee receiving a premium credit. Figure 2 depicts how employers can determine if they will have a penalty and Table 2 demonstrates how to calculate the amount of the penalty. 15 On July 2, 2013, the Treasury Department announced a one-year delay in this requirement. The enforcement postponement means that employers will not face penalties in 2014 over employees who receive premium tax credits to purchase coverage in the Health Insurance Marketplace. 16 The US Department of Labor s Occupational Safety and Health Administration issued a Fact Sheet ( that summarizes its interim final rule on ACA-related whistleblower protections for employees. 17 Employer penalties will be calculated and assessed on a monthly basis; after 2015, the penalty amount would be indexed by the national average premium growth rate. 18 Minimal essential coverage is the coverage of at least 60 percent of health care costs of covered services (e.g., deductibles, copayments, and coinsurance). HHS issued final guidelines on the minimum essential coverage provisions on July 1, 2013 (78 FR 39493; To determine if your plan provides minimal essential coverage, a calculator is available at the CMS website at 19 Individuals who are offered employer-sponsored coverage are eligible for a premium tax credit on the exchange only if: 1) they meet the income criteria 2) they are not enrolled in their employer-sponsored plan and 3) the plan offered by their employer either does not have an actuarial value of at least 60 percent or the employee s share of the premium for self-only coverage exceeds 9.5 percent of his/her household income. 20

21 Figure 2 Determining an Employer s Financial Penalty Counties as Employers Health Reform Toolkit 21

22 Table 2 Calculating Employer Penalties Scenario Penalty Formula Example Employer does not offer coverage Employer has 75 full-time employees, 15 of whom are eligible for premium tax credit or subsidy through the Marketplace $2,000 x (Number of FTE -30) $2,000 x (75-30)= $90,000 Employer offers coverage Employer has 75 full-time employees, 10 of whom receive a tax credit or subsidy The penalty will be the lesser of: a. $2,000 x (Number of FTE 30) b. $3,000 x (Number of employees receiving tax credit/subsidy) The penalty in this scenario will be (b) $30,000 a. $2,000 x (75-30) = $90,000 b. $3,000 x (10) = $30,000 Marketplace Expands to Include Large Employers Beginning on October 1, 2013, only individuals and small group employers are eligible to participate in the Marketplace. On January 1, 2016, the Marketplaces will expand to include employers with up to 100 employees and in 2017, states can expand their Marketplaces to include employers with at least 101 employees. Tax on High-Cost Insurance Insurers of employer-sponsored health plans with a value that exceed $10,200 for individual coverage and $27,500 for family coverage must pay a 40 percent excise tax as of January 1, Standalone dental and vision plans are excluded. The excise tax, commonly referred to as the Cadillac Tax, is on the dollar value that exceeds the threshold. For example, if the individual or family coverage exceeds the threshold by $3,000, the excise tax is $1,200. This tax applies to both fully insured and self-funded health plans. The total value of a health plan is determined by including any funds in Health Savings and Flexible Spending Accounts and both the employer and employee premium contributions. 22

23 The threshold is indexed to the Consumer Price Index plus 1 percentage point in 2018 and 2019 and solely to the Consumer Price Index in 2020 and subsequent years Thresholds will be higher for plans pursuant to age and gender and for plans covering individuals in high-risk professions (e.g., law enforcement officers, firefighters, first-responders, paramedics, etc.). If the majority of the individuals covered by a plan are engaged in a high-risk profession such as law enforcement, the threshold increases by $1,650 to $11,850 for individual coverage and by $3,450 to $30,950 for family coverage. For employers with self-funded health coverage that exceeds the threshold, the employer is responsible for paying the excise tax. In contrast, employers with fully insured coverage exceeding the threshold, the issuer is responsible for paying the 40 percent excise tax. There is no exception for grandfathered plans. 23

24 Grandfathered Plans Grandfathered health plans are group health plans which were in existence on the date of enactment of the health reform law (March 23, 2010). Interim final rules concerning grandfathered plans were issued in June 2010 and interim final rules regarding some of the requirements for new plans were also issued in June Certain requirements within the health reform law are not applicable to grandfathered plans; the lists below outline the different requirements applicable to both grandfathered and new plans, as well as requirements that are applicable only to new plans or to plans that lose their grandfather status: Requirements applicable to all plans 20, including grandfathered plans: In the first plan year after September 23, 2010 (for calendar year plans, the compliance date is January 1, 2011) No health insurance plans are allowed to rescind coverage, except in cases of fraud or abuse 21 No group health insurance plans are permitted to restrict coverage for children under age 19 based on health status conditions (in 2014, this provision will apply to all individuals regardless of age) All health insurance plans that offer dependent coverage are required to offer coverage for dependents up to age 26 (with some exceptions for grandfathered plans; for more information see Section Extension of Dependent Coverage to Age 26 No health insurance plans are allowed to set lifetime dollar limits on benefits All health insurance plans are restricted from imposing annual limits on essential benefits (in 2014 all annual limits will be prohibited). Prior to 2014, the restricted annual limits may not be less than the following amounts 22 : o $750,000 for plan years beginning on or after September 23, 2010 but before September 23, Retiree-only plans are exempt from all of the new group health plan standards added by the Affordable Care Act. 21 Rescission is a practice where insurance companies rescind an individual s existing health insurance policy when s/he becomes ill as a way to avoid covering the individual s health care costs. 22 If complying with these annual limits would cause a significant reduction in access to plan benefits or a significant increase in premiums, plans are allowed to request a waiver of these annual limits rules. 24

25 o $1.25 million for plan years beginning on or after September 23, 2011 but before September 23, 2012 o $2 million for plan years beginning on or after September 23, 2012 but before January 1, 2014 Other changes applicable to all plans In 2011, the penalty for withdrawals from Health Savings Accounts for non-medical expenses increased to 20 percent In 2011, Flexible Spending Accounts, Health Reimbursement Arrangements and Health Savings Accounts were permitted to reimburse for over-the-counter drugs if the participant had a prescription In 2012, all health insurance plans were required to provide uniform explanations of coverage using standardized definitions In 2012, employers were required to report the cost of health insurance coverage on employees W-2 forms In the first plan year ending after September 30, 2012, all health plans (insured and selfinsured) are required to pay a fee to fund comparative effectiveness research (the fee is phased out in 2019) In 2013, annual Flexible Spending Account contributions are capped at $2,500 a year Beginning in January 2014, all plans must limit eligibility waiting periods to 90 days Employers with more than 200 full-time employees will be required to automatically enroll full-time employees into employer health insurance plans, although employees may choose to opt out of the plans (effective date 2015) Requirements that are not applicable to grandfathered plans; applicable only to new plans (plans created after March 23, 2010) or plans that lose their grandfather status: Beginning in the first plan year after September 23, 2010 Plans must cover certain preventive services rated A or B by the U.S. Preventive Services Task Force, recommended immunizations, preventive care for infants, children and adolescents and preventive care and screenings for women without beneficiary cost sharing requirements Plans cannot require prior authorization or referral for obstetrical or gynecological care 25

26 For emergency care, plans must not require prior authorization and must not impose increased cost sharing for care received from out-of-network providers For group health plans that require the designation of a primary care physician, plans must allow participants and dependents to select any primary care provider or pediatrician Plans must offer coverage that at least meets the essential health benefits package, to be defined by the HHS Secretary (grandfathered plans are assumed to provide coverage that meets these requirements) Fully-insured group health plans are prohibited from discriminating in favor of highly compensated individuals (previously only applied to self-insured plans) Plans must establish a process for internal appeals and external review of claims Plans must comply with certain financial, quality of care and other data disclosure reporting requirements Beginning in 2014 Group health plans and health insurance issuers may not discriminate against health care providers acting within the scope of their licenses Cost-sharing and deductibles limits based on Health Savings Accounts maximums Wellness incentives/penalties on individuals can be increased to 30 percent (or more) of costs For individuals participating in clinical trials, plans must maintain coverage for routine services Additional information reporting requirements For further details about provisions that are applicable and inapplicable to grandfathered plans, see 26

27 Losing Grandfathered Status 23 Existing group plans can lose their grandfathered status if a plan sponsor or issuer makes any of the following plan changes: Eliminates all, or substantially all, benefits related to diagnosing or treating a particular health condition Increases a percentage cost-sharing requirement, such as co-insurance, by any amount Increases fixed-amount cost sharing, such as deductibles or out-of-pocket expenses (but not copayments) that exceed the rate of medical inflation since March 23, 2010 plus 15 percentage points Increases in copayments by an amount exceeding the greater of: a) the rate of medical inflation since March 23, 2010 plus 15 percentage points or b) $5, increased by the rate of medical inflation since March 23, 2010 Reductions in the employer contribution share of the cost of coverage by more than 5 percentage points Implementing certain changes in the plan s annual benefit limits The loss of grandfathered status is effective the date the design change is adopted. For example, if a design change is adopted and effective during a plan year, the grandfathered status is lost during the year. If the design change is adopted during the year (e.g., August 2012), but is effective the next plan year (e.g., January 2013), the grandfathered status will be lost at the start of the plan year (i.e., January 2013). A grandfathered plan can enroll new employees and their families without losing grandfather status. Plans will also not lose grandfathered status if they raise premiums or implement changes to comply with state or federal requirements, including complying with the health reform law. Additionally, self-insured plans are permitted to change third party plan administrators and not lose grandfather status. If a plan believes it is a grandfathered plan, plans must indicate this in the plan materials. 23 The original interim final rules stated that plans would lose grandfather status if they changed health insurance carriers or entered into a new policy, certificate or contract of insurance; however on 11/17/10 HHS issued an amendment stating that employers are permitted to switch insurance companies and maintain grandfather status as long as entering into the new policy does not result in any of the other changes that cause plans to lose grandfather status. 27

28 Some plans may eventually find it financially burdensome to remain grandfathered and/or determine that implementing the provisions that the health reform law requires for new plans would not be particularly burdensome or that they already meet the required standards. Collectively bargained plans in place on March 23, 2010, both insured and self-insured, are considered grandfathered. For further details on collectively bargained plans and additional information about how certain changes implemented after March 23, 2010 may or may not affect a plan s grandfather status, please see AFSCME s fact sheet on grandfathered status (listed under Additional Resources). Additional Resources American Federation of State, County, and Municipal Employees (AFSCME). Patient Protection and Affordable Care Act: Grandfathered Status What Is It and How Does a Plan Lose It? Department of Health and Human Services. What if I have a grandfathered health insurance plan? Families USA. Grandfathered Plans under the Patient Protection and Affordable Care Act. August The Segal Company. Regulations on Grandfathering under the Affordable Care Act. June

29 Extension of Dependent Coverage to Age 26 All group health plans new and grandfathered (grandfathered plans are plans that were in existence on March 23, 2010) that offer dependent coverage are required to extend this coverage to young adult dependents up to age 26. The dependents are eligible for coverage regardless of their financial dependency, residency with parent, student status, employment, and marital status. Interim final rules concerning this expansion of dependent coverage were issued in May This provision was effective in the first plan year after September 23, 2010 (therefore for plans based on the calendar year, this means compliance with this provision had to be met by January 1, 2011) For grandfathered plans, there is one exception to this requirement; specifically, it does not apply if the dependent child has another offer of employer-sponsored health coverage (such as through the child s own employer) o However this exception for grandfathered plans will not be applicable in 2014, meaning that in 2014 young adults up to age 26 will be able to stay on their parent s employer plan even if they have another offer of coverage through an employer If a young adult is not eligible for employer-sponsored coverage on his/her own, and both parents plans offer dependent coverage, neither parent s plan can deny coverage; essentially, neither plan can exclude the child from coverage based on the fact that the child has coverage from the other parent Eligibility and Coverage Requirements Plans are only allowed to have two eligibility requirements: 1) the relationship between the participant and the child 24 and 2) the age of the child. Plans are not permitted to implement other eligibility requirements, such as student status, employment status, place of residence or financial dependency. Additionally, both married and unmarried dependents are eligible for this coverage. However, plans are not required to provide coverage to dependents children and spouses. Plans cannot vary the benefits or terms of the coverage based on the age of the child (except for those 26 or older); essentially they cannot charge more to cover older eligible young adult 24 The regulations regarding the extension of dependent coverage do not define child and therefore plan sponsors can decide on categories of children to cover. Spouses are not included in the definition of dependent. 29

30 dependents than they charge for younger children, and they cannot vary the types of coverage offered based on age. Other Issues Plans had to offer a 30-day enrollment opportunity for the eligible adult children, and written notice of this was to be provided; the 30-day enrollment window opened no later than the first day of the plan year beginning on or after September 23, 2010 o The open enrollment opportunity applies to adult children whose coverage already ended (e.g., upon graduation from college); those who were denied coverage (e.g., were over the plan s age limit when participant became eligible for coverage); and those who were not previously eligible to enroll The value of the coverage is excluded for federal tax purposes from the employee s gross income through the end of the calendar year the dependent turns 26; this is effective March 30, 2010 Any state laws that extend coverage for dependents past the age of 26 remain enforceable (these laws affect group health plans, not self-insured plans) Additional Resources American Federation of State, County, and Municipal Employees (AFSCME). Patient Protection and Affordable Care Act Extension of Dependent Coverage to Age 26. June Department of Labor. Young Adults and the Affordable Care Act: Protecting Young Adults and Eliminating Burdents on Businesses and Families Frequently Asked Questions The Henry J. Kaiser Foundation. Explaining Health Care Reform: Questions about the Extension of Dependent Coverage to Age 26. May The Segal Company. Health Care Reform Insights: Rules on Coverage for Children Clarified. June

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