1 FOR PRODUCERS AND EMPLOYERS Health care reform for large businesses A guide to what you need to know now DECEMBER 2013
2 CONTENTS 2 Introduction Since 2010 when the Affordable Care Act (ACA) was signed into law, a number of significant reforms have taken effect. Many parts of the ACA are now well understood, however, the government continues to issue regulations. As a result, some parts of the ACA remain murky. In a few cases, implementation or enforcement has been delayed. And there are more regulations to come. This health care reform guide will provide you with concise information on what is known about the law as it applies to large groups, and what s still evolving. In each section you ll find the status of a requirement, a brief summary, information on action you may need to consider, and what Group Health is doing to meet our responsibilities. Unless otherwise noted, this information applies to fully insured, self-funded, grandfathered, and non-grandfathered plans. CONTENTS Employer requirements 3 The employer mandate 3 W-2 reporting 5 Automatic enrollment 5 Exchange notice 6 Plan design requirements 7 Waiting periods 7 Prohibition on pre-existing 8 condition exclusions Lifetime and annual limits 8 Out-of-pocket maximum 9 limitation Wellness programs 10 Taxes and fees 11 Comparative effectiveness fee 11 Transitional reinsurance fee 12 Health insurance provider fee 12 Cadillac tax 13 Glossary 14 Timeline 15
3 EMPLOYER 3 Employer requirements The employer mandate Also known as employer shared responsibility, and pay or play. Implementation delayed until The employer mandate requires that all large employers offer health insurance to all full-time employees and their dependents or pay a penalty. Spouses are not considered dependents. Implementation was originally scheduled for January 2014 but in 2013 the Department of the Treasury announced the employer mandate would be delayed until January Since it is delayed, the requirements as we know of them today are subject to change. A large employer is defined as having 50 or more full-time equivalent (FTE) employees. A fulltime employee is anyone who works 30 or more hours a week. Special rules apply to how the number of employees is calculated when an employer has part-time, seasonal, and variable hour employees. Employers do not need to offer health coverage to part-time employees, however, they are included in the calculation to determine the size of the employer. Current regulations specify that the health plan offered must: Offer minimum essential coverage. Provide meaningful value designed to pay at least 60 percent of the cost of medical services for a standard population. Be affordable the premiums for the individual employee are no more than 9.5 percent of the employee s household income. The government has provided employers with various safe harbors for determining household income, including using the employee s W-2. Penalties come into play in a number of ways: If an employer chooses not to offer health coverage, or if a plan does not have minimum essential coverage, and any employee buys their insurance through a health care exchange, and receives a government subsidy in the form of a tax credit for the premium or cost share reductions, the employer is subject to penalties of up to $2,000 annually for each full-time employee, excluding the first 30 employees. The proposed rules state that employers who offer coverage to 95 percent of their full-time employees and dependents will not be subject to penalties. If a large employer offers minimum essential coverage that does not provide meaningful value, or is not affordable, and one or more full-time employees purchase health care coverage (Continued on next page)
4 EMPLOYER 4 through the exchange and receive a government subsidy, the employer will be subject to fines. The penalties are up to $3,000 annually for each full-time employee receiving a tax credit or subsidy, or $2,000 for every full-time employee (excluding the first 30 employees), whichever is less. Reporting requirements. There are significant reporting requirements associated with the employer mandate. Employers are required to provide annual reports to the IRS and to employees about the health plan coverage offered by the employer. The reporting to the IRS must include: A certification as to whether the employer offers minimum essential coverage to employees. The employer contribution to the lowest-cost plan s premium. The number of full-time employees for each month during the year. Identification of the employees enrolled in the employer s plan. Other information. Employers must also provide each full-time employee with a written statement with the same required information and additional information (see W-2 reporting on page 5). Penalties are imposed for failure to comply. The one-year delay allows time for the administration to consider ways to simplify the reporting requirements, and to provide additional time for employers to adapt their current coverage and reporting systems to the new requirements. The reporting to the IRS and to employees must be done on specific forms as required by the IRS. For more on these requirements, go to or or speak with your benefits consultant. Figure out if you are subject to the employer mandate by determining whether you have 50 or more full-time equivalent employees and will be subject to the pay or play rules in There are detailed rules around this calculation. Additional guidance is available from the IRS on the Affordable Care Act Tax Provisions Home in the section on Employer Shared Responsibility Payment. By 2015, decide to offer health insurance to all full-time employees and dependents or pay penalties. If you are subject to the employer mandate, determine whether the coverage provided to employees provides minimum value by covering a minimum of 60 percent of the costs of the benefits. Prepare to provide the required information reporting to the IRS and to your employees in 2016 (for coverage provided in 2015). When employers receive their rate confirmation and Summary of Benefits and Coverage, the group-specific designation indicating that the plan meets actuarial minimum value will be included.
5 EMPLOYER 5 W-2 reporting The requirement became effective for tax reporting year In general, the W-2 reporting requirement applies to all employers that offer an employer-sponsored health plan. Employers must report to the IRS the aggregate costs of the health benefits coverage provided to the employee on their employee s W-2 form (excluding FSA salary reduction contributions), whether paid by the employer or the employee. Reporting this cost does not mean that the coverage is taxable. It s for reporting purposes only. There is some transitional relief for employers who filed fewer than 250 W-2 forms for the prior calendar year. These employers were not required to report the costs of their coverage in But the IRS is expected to issue new guidance, so it s unknown how long this transitional relief will be in effect. You can read more about this requirement at the IRS website in the section titled Reporting Employer Provided Health Coverage in Form W-2. You must report the aggregate cost of health benefits coverage on the employee s W-2 form. Since this is an employer responsibility, there is no requirement for action by Group Health Cooperative. Automatic enrollment The final regulation on automatic enrollment has not yet been issued, though it is expected in Until the regulation is issued, employers are not required to comply. Employers that are subject to the Fair Labor Standards Act (FLSA) with more than 200 full-time employees, who offer employees one or more health benefit plans, must automatically enroll full-time employees into one of those health plans. They must also notify their employees of the enrollment and give them an opportunity to optout. When the final regulation is issued, if you have more than 200 full-time employees, you will need to: Automatically enroll them in the health plan you offer. Notify them of this enrollment and give them a chance to optout. Group Health Cooperative will comply with this legislation and enroll employees as requested by the employer.
6 EMPLOYER 6 Exchange notice Employers were required to provide a notice of the ACA s exchanges to current employees no later than Oct. 1, New employees must be notified at the time of hiring as of Oct. 1, For 2014, notice to new hires must be provided within 14 days of an employee s start date. Current guidance indicates that until final regulations are issued, no fines or penalties will be assessed against employers for failure to provide a notice. This regulation applies to employers subject to the FLSA. It requires that the employer deliver written notice to current employees full-time and part-time and new hires that includes: A description of the state s online exchange marketplace (Washington Healthplanfinder) and services provided, and who the employee can contact to request assistance. Information about the employee s potential eligibility for a premium tax credit or cost sharing subsidy through the exchange if the employer plan is less than 60 percent actuarial value, or if the employee premiums exceed 9.5 percent of household income. Notice of possible loss of employer contribution to a health benefits plan offered by the employer if an employee purchases a health plan through the exchange. Employers of all sizes must provide written notice to full-time and part-time employees about the three items detailed above. Employers can use language in a model notice provided by the Department of Labor. Samples of model notices and other information on the notice requirements are available at the Department of Labor website. When employers receive their rate confirmation and Summary of Benefits and Coverage, the group-specific designation indicating that the plan meets actuarial minimum value will be included.
7 PLAN DESIGN 7 Plan design requirements Waiting periods Proposed rules were issued on March 21, 2013 for implementing the waiting period provisions, and are effective for plan years beginning January 2014 and after. This applies to all employers who offer group health plans and refers to the period of time from when an individual first becomes eligible for coverage under an employer-sponsored health plan, to the start of coverage. The waiting period cannot exceed 90 days including weekends and holidays. If an employee has the option of enrolling during that time, but chooses not to, the employer is compliant. There are additional rules that apply to determine whether eligibility conditions for variable hour employees meet the 90-day waiting period limitation. There is additional guidance available at the IRS website in the section on Group Health Plan Requirements. Review policies in regard to your waiting period and when employees become eligible for coverage under an employer-sponsored health plan. Change the policy if it requires a waiting period exceeding 90 days. Group Health will require all large groups that have an eligibility period longer than 90 days to change to one of the following waiting periods: Date of hire First of the month following (or coincident with) 30 days First of the month following (or coincident with) 60 days
8 PLAN DESIGN 8 Prohibition on pre-existing condition exclusions Also known as guaranteed issue Effective for adults beginning Jan. 1, Effective for children under age 19 since Group health plans and health insurance issuers may not impose pre-existing condition exclusions on any covered members. A pre-existing condition exclusion is a limitation or exclusion of benefits related to a condition based on the condition being present before the individual s date of enrollment in the employer s plan. Group health plans are also prohibited from establishing enrollment eligibility rules for coverage based on a potential enrollee s health status, medical condition, or claims experience. They are also prohibited from charging enrollees higher premiums based on health status. Review health plan(s) offered to employees to determine whether the plans impose any preexisting condition exclusions. Group Health has eliminated all pre-existing condition requirements from all plan designs. Lifetime and annual limits The prohibition on lifetime dollar limits of essential health benefits (EHBs) became effective for plan years beginning on or after Sept. 23, The complete prohibition on annual dollar limits will be effective for plan years beginning on or after Jan. 1, 2014 (there was flexibility in specific circumstances between 2010 and 2014). The ACA generally prohibits group health plans and issuers from imposing lifetime or annual limits on the dollar value of health benefits considered to be EHBs. EHBs are generally considered the typical benefits that many plans offer such as emergency room care and preventive care. Large groups are not required to cover EHBs, but if they do, there can be no annual or lifetime monetary limits on such benefits. Confirm with your health plan provider(s) that no annual or lifetime limits will be imposed on benefits considered to be EHBs for the 2014 plan year. Group Health plans have no lifetime or annual limits on benefits defined as EHBs.
9 PLAN DESIGN 9 Out-of-pocket maximum limitation Effective Jan. 1, 2014 Starting in 2014, non-grandfathered health plans must limit the total out-of-pocket (OOP) costs enrollees pay for essential health benefits (EHBs) provided in network. The individual maximum for 2014 is $6,350, and for families it s $12,700. These limits are determined by the IRS on an annual basis and tied to the out-of-pocket limits on Health Savings Account (HSA) qualified high deductible plans. Work with your health plan provider, benefits consultant, or account manager to make sure the health plans offered to your employees in 2014 will properly apply the OOP maximum limitations. Group Health has added all new OOP maximum riders for non-grandfathered groups so that all applicable cost shares apply to the OOP maximum. Group Health will work with producers and purchasers to ensure that the annual limit for OOP maximums does not exceed the mandated limits.
10 PLAN DESIGN 10 Wellness programs Final rules increasing the amount of the reward allowed in wellness programs were published in June 2013, and apply to all health plans on or after Jan. 1, Wellness programs offered by employers both health contingent and participatory are designed to encourage employees to engage in healthy behaviors. They generally offer employees an incentive or reward for participation. Health contingent programs require an individual to meet a standard related to a health factor. The incentives for this type of program may be either a reward (for example, a premium discount) or a penalty (premium surcharge). Under the ACA, the maximum permissible reward for health contingent wellness programs will increase to 30 percent of the cost of coverage. If a tobacco cessation component is included, the reward can increase to 50 percent. In participatory wellness programs which do not require an individual to meet a standard related to a health factor there is no limit on the size of the reward an employee may receive. Review any wellness programs offered to determine whether they comply with current requirements. Our understanding of legal considerations for wellness programs will be used when we consult with employer groups on population health management and they determine the structure of their wellness programs. The flexibility and configuration of the rewards system in RedBrick Health is consistent with legal definitions of programs. Group Health has joined with RedBrick Health to bring employers a worksite wellness program with an engaging online experience that drives healthy behaviors, better outcomes, and stronger returns on everyone s investment.
11 TAXES AND FEES 11 Taxes and fees Comparative effectiveness fee Also called the Patient-Centered Outcome Research Institute (PCORI) fee Fees apply to policy and plan years ending on or after Oct. 1, 2012, and before Oct. 1, This fee provides funding for the Patient-Centered Outcomes Research Institute (PCORI), which was created as part of the ACA. PCORI is a nonprofit corporation whose mission is to help people make informed health care decisions, and improve health care delivery and outcomes. The fee is equal to $1 per covered life the first year and $2 per covered life the second year. Thereafter, the fee amount per covered life will be increased by the percentage increase in the projected per capita amount of National Health Expenditures as published by the Secretary of Health and Human Services (HHS) before the beginning of the fiscal year. Be aware that this fee, along with other fees and taxes, may be reflected in premium rates. Group Health is paying this fee for fully insured groups annually on July 31. The Group Health Research Institute (GHRI) applied for and has received several PCORI grants to conduct comparative clinical effectiveness research. The overall goal of the research is to help patients and those who care for them make better informed health decisions. Because GHRI research frequently includes our own clinics and members, Group Health enrollees are in a unique position to benefit from research supported by this fee.
12 TAXES AND FEES 12 Transitional reinsurance fee Effective for 2014, 2015, and 2016 Health insurance issuers and self-funded group health plans must pay fees to a transitional reinsurance program for the first three years of the health benefit exchange operation. The fees will be used to help stabilize premiums for coverage in the individual market. The reinsurance program s fees will be based on a national contribution rate, which the Department of Health and Human Services (HHS) will announce annually. The reinsurance fee is calculated by multiplying the average number of covered lives by the national contribution rate. Be aware that this fee, along with other fees and taxes, may be reflected in premium rates. Group Health will pay this fee for fully insured groups. For 2014, HHS has proposed a national contribution rate of $5.25 per member per month ($63 per year). Group Health will not collect or pay this fee for self-insured groups. However, we will send a courtesy reminder about this fee and will provide self-insured groups a fee estimation sheet using the different counting methods for comparison purposes upon request. Health insurance provider fee Also called health insurance tax, annual fee, and insurer fee Effective Jan. 1, 2014 This new annual fee on health insurance providers is based on their market share of net premiums written, or the sum of premiums earned from all policies during the previous year. It will be used to help fund federal and state exchanges. The total projected fee amount to be collected across all health insurers is $8 billion in 2014, $11.3 billion in 2015 and 2016, $13.9 billion in 2017, and $14.38 billion in After 2018, it increases annually based on premium growth. The fee is anticipated to raise $101.7 billion and is not tax deductible. Be aware that this fee, along with other fees and taxes, may be reflected in premium rates. We ll pay this fee on behalf of insured businesses as a percentage of premium. We estimate it at 1 percent of premium for Group Health Cooperative and 3 percent for Group Health Options, Inc. plans in 2014.
13 TAXES AND FEES 13 Cadillac tax Takes effect in Health insurance issuers and sponsors of self-funded group health plans will be assessed an excise tax on any benefits provided to employees that exceed a predetermined threshold. These are estimated at $10,200 for individuals, and $27,500 for families. The thresholds may increase depending on medical inflation, and there is also an adjustment for those in high-risk professions, and for age and gender makeup of the group. There are penalties and interest involved with this regulation, and the tax is not deductible for federal income tax purposes. Employers are responsible for notifying insurers of the total benefits provided by the employer to the employee. In the case of contributions to an HSA or Medical Savings Account (MSA), the tax is paid by the employer. For self-funded coverage, the plan sponsor is liable to pay the tax. WHAT GROUP HEALTH WILL DO: When the insurer is responsible for paying the tax, we will pay the tax to the IRS.
14 GLOSSARY 14 Glossary Definitions for these terms are in the context of the Affordable Care Act (ACA). Affordable. When used in connection with health plans offered by large employers, this means that premiums are no more than 9.5 percent of an employee s household income. Comparative effectiveness research. Research that compares the outcomes of two or more options for medical treatment, screening, or care delivery. Dependent. For health care coverage, refers to the children, age 26 and under, of a covered employee. Spouses are not considered dependents for purposes of the employer mandate. Employer mandate, or employer shared responsibility. The ACA rule that says an employer with 50 or more full-time employees must offer those employees and their dependents a health plan or pay a penalty. Essential health benefits. These are a basic list of benefits that health plans in the individual and small group market must include. There are 10 categories of essential health benefits. They are: ambulatory patient services, emergency care, hospitalization, maternity and newborn care, mental health and substance abuse disorder services, prescription drugs, rehabilitative and habilitative services and devices, laboratory services, preventive and wellness services, and pediatric services including dental and vision care. Large group plans are not required to include these benefits. Full-time employee. An employee who works 30 or more hours a week. Full-time equivalent employee (FTE). This is a combination of employees who individually work less than full time. Their hours, together, are combined to determine FTEs. There is a specific method an employer must use to determine FTEs. This calculation is important because of the employer mandate. Individual mandate. The ACA rule that says that all U.S. taxpayers with very few exceptions must have a health plan with minimum essential coverage or pay a tax. Minimum value. When used in connection with health plans offered by employers, this means that the health plan is designed to pay at least 60 percent of the total allowed cost of the benefits provided under the plan for a standard population (actuarial value). Minimal essential coverage. The coverage an individual is required to have to meet the individual mandate. It includes most types of employer-sponsored health plans, as well as Medicare, Medicaid, CHIP, TRICARE, and veteran s health care. Pre-existing condition. A medical condition present before an individual s date of enrollment in a health plan.
15 TIMELINE 15 Timeline 2010 On March 23, President Barack Obama signs the Affordable Care Act (ACA). Health plans are required to allow adult children to remain on parents health plans until age 26. Insurers can no longer deny coverage to children under 19 because of pre-existing conditions. Insurance companies can no longer impose lifetime limits on essential health benefits. Insurance companies can no longer use inadvertent errors on customers applications to deny payment for services when customers get sick Medicare recipients receive key preventive services for free, and a 50 percent discount on brandname drugs in the Medicare prescription drug coverage gap or donut hole On June 28, the Supreme Court upholds the law s core requirement that most Americans carry health insurance but allows states to opt out of the Medicaid expansion, which accounts for about half the law s coverage expansion. Physicians receive incentives for coming together in Accountable Care Organizations to better coordinate care, improve quality, prevent disease, and reduce unnecessary hospitalizations in the Medicare program On July 2, the White House announces a one-year delay until 2015 of the employer mandate to allow more time for the government to simplify the reporting requirements and provide additional time for employers to adapt their current coverage and reporting systems to the new requirements. On Oct. 1, online exchange marketplaces open, allowing individuals and small businesses to easily compare and purchase health plans for coverage beginning in Washington state launches its version, Washington Healthplanfinder. Financial assistance from the government is available to qualifying adults through the exchange The individual mandate takes effect, requiring all Americans with few exceptions to have health insurance or pay a penalty. The penalty increases in 2015 and years thereafter. All non-grandfathered individual and small group health plans must include coverage of 10 essential benefits, including emergency care, hospitalization, mental health and substance abuse, prescription drugs and maternity services, pediatric vision and dental services, and more. Medicaid expands in many states to cover more low-income Americans. Insurance companies can t refuse to cover individuals or renew policies because of pre-existing conditions. Insurance companies are not allowed to charge higher rates due to gender or health status. New plans and existing group plans are prohibited from imposing annual dollar limits on the amount of coverage an individual may receive. Small business tax credit increases up to 50 percent of premiums paid for small business employers and 35 percent small tax-exempt employers The delayed employer mandate takes effect An excise tax, known as the Cadillac tax, begins. It s imposed on any benefits provided to employees exceeding $10,200 for an individual or $27,500 for a family. The thresholds increase for individuals in high-risk professions and for employers that have a disproportionately older population Group Health Cooperative 570GG
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