1 The Patient Protection and Affordable Care Act What Employers need to know Presented by: Misty Baker This update is based on the known provisions of the PPACA. This is not to be construed as legal or tax advice.
2 Questions? Just stop me and ask. this is more fun when you participate.
3 First things, first. Breathe! There is so much to learn and what you learn today may not hold true tomorrow. Clarification, through rule making, from several entities (HHS, DOL, IRS, CCIIO) will take place quickly over the next months. Over 17,000 pages of regulation have already been issued Over a million pages are expected. We cant cover 100% of the rules today, this is an overview that will start conversations with you and your broker.
4 Timeline, 2014 Guaranteed Availability of Insurance Requires guarantee issue and renewability of health insurance regardless of health status and allows rating variation based only on age (limited to a 3 to 1 ratio), geographic area, family composition, and tobacco use (limited to 1.5. to 1 ratio) in the individual and the small group market and the Exchanges. Implementation: January 1, 2014 No Annual Limits on Coverage Prohibits annual limits on the dollar value of coverage. Implementation: January 1, 2014 Employer Requirements Assesses a fee of $2,000 per full-time employee, excluding the first 30 employees, on employers with more than 50 employees that do not offer coverage and have at least one full-time employee who receives a premium tax credit. Employers with more than 50 employees that offer coverage but have at least one full-time employee receiving a premium tax credit, will pay the lesser of $3,000 for each employee receiving a premium credit or $2,000 for each full-time employee, excluding the first 30 employees. Implementation: January 1, 2014
5 Why will it cost more? Reinsurance Assessment - This per capita fee on medical plans will fund a three-year reinsurance program designed to reimburse companies that insure high-cost individuals in the individual health insurance market. The total amounts to be assessed are $12 billion in 2014, $8 billion in 2015 and $5 billion in The estimated fee is approximately $63 per year ($5.25 per month) per covered individual in the first year; however, fees are expected to decrease in subsequent years. The assessment applies to both insured and self-funded plans. Insurance providers will pay the fee for insured plans while third-party administrators may pay the fee on behalf of self-funded plans. Comparative Effectiveness Research Fee (CERF) This is an annual fee imposed on all insured and self-insured plans. The goal of the research is to determine which of two or more treatments works best when applied to patients, thereby comparing different types of therapy against each other. The initial annual fee is $1per year per health plan member (includes dependents). The annual charge increases to $2 per member the following year and then increases annually with inflation after that until it ends in Insurance providers will pay the fee on behalf of insured plans, while employers with self-funded plans will need to determine their liability and account for this fee in their own reporting.
6 Why will it cost more? Health Insurance Industry Fee This annual fee affects all fully insured plans. The estimated cost of this tax will be $8 billion for 2014 and eventually increase to $14.3 billion by The tax is divided among health insurers and will likely be passed on to plan sponsors as an addition to premium. The Health Insurance Industry Fee has a much greater potential financial impact than either of the other two taxes because it is intended to help fund the cost-generating provisions of the PPACA. The fee will be divided among health insurance carriers based on each carrier s share of the overall premium base and will only be assessed relative to insured health plans, inclusive of medical, dental and vision plans. Self-funded health plans and associated stop loss premium will not be included in the premium base. Fee is not deductible for federal income tax purposes. This substantially increases the cost impact, which is expected to be in the range of 2 percent to 2.5 percent of premium in 2014, increasing to 3 percent to 4 percent of premium in later years. Insurance companies will likely begin to reflect this additional cost in their premium rates in 2013 and/or Copyright 2013, Independent Insurance Agents of Texas. All rights Copyright reserved. 2013, Independent Insurance Agents of Texas. All rights reserved.
7 What size employer does PPACA impact? Get your calculator ready Generally speaking, only LARGE employers, over 50 full time equivalent workers* You must include full time (30 hours per week) and part time workers (prorated). Example: 25 full time employees 40 part time employees, working an average of 80 hours per month 35 seasonal employees working under 120 days* Full time employees: 25 Full time equivalents 26.6 TOTAL full time equivalents part time employees x 80 hours per month = 3200 / 120 = 26.6
8 Group Size & Rules
9 Marketplace (exchange) Notice Marketplace notification required by October 1, Employers must notify their employees of the existence of the Health Insurance Marketplace, in writing to employees by October 1, New employees must also receive information about the Marketplace. Notification requirements The written notification must inform the employee of the existence of the Marketplaces including: A description of the services provided by the Marketplaces The manner in which the employee may contact the Marketplaces to request assistance The availability of premium tax credit to the employee if the employer s plan doesn t cover 60% of services and the employee purchases coverage through the Marketplaces The employee may lose the employer contribution (if any) toward the cost of health benefits if the employee purchases coverage through the Marketplaces Notice for employers that offer benefits to all or some of their employees - Notice for employers that do not offer benefits -
10 Tips for completing Employer notifications Part B the employer completes Make sure to designate an address for contact. Make sure you have a designated employee benefits contact for both employees and government official Employer statement includes offering minimum value affordable coverage This is almost impossible for you to complete right now Page 2 is required, page 3 is optional Due , don t get in a rush. Appears to be a one time notification.
11 Underwriting Considerations Forget everything you know about underwriting & rates Technically: Adjusted Community Rating (ACR), or Modified Community Rating Zipcode Tobacco use Age Cannot charge the oldest person more than 3 times what they charge the youngest person. (3 rate bands) Tobacco use can be charged 50% than non tobacco users No clear indication of how to determine tobacco use, honor system? ONLY when a wellness program is in place MOST carriers will NOT be askig about tobacco use
12 Underwriting Considerations 2013 Rate Age Rate Age Rate 0-18 $ $ $ $ $ $ $ $ Avg $ Avg $ Rate Average rate is $300 per person Average rate is $400 per person
13 What will it cost?
14 Essential Health Benefits (EHB) The law requires health plans offered in the individual and small group markets, both inside and outside of the Exchanges, offer a comprehensive package of items and services, that include: No limit on 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 these EHB
15 Essential Health Benefits (EHB) Cost Sharing and deductible limits Annual maximum out-of-pocket in 2014 $6,350 self only $12,700 family coverage Deductible (Applies to small groups, reasonably applied to large group) $2,000 self only $4,000 family coverage Preventive services covered at 100% No lifetime limits No annual limits on the dollar value of essential benefits
16 What will it cost? Small group: Average increase in Texas in 2013: 30% Small group: Average increase in Texas in 2014: 30-50% Will small employers groups continue to purchase coverage? **4 major carriers will provide data to help soon, make decision by mid to late summer, some no recessions. Use caution-feds are catching on.
17 Small Group Remember: Small employers are not penalized, taxed or fined if they don t offer health insurance Quality employee retention and recruitment are key Be careful if you just give a raise, tax implications and could block employees from Marketplace subsidy Don t be afraid to self fund
18 Full Time Status Waiting periods Waiting Period Not to exceed 90 days Employer mandate delay did NOT change this rule. This is due for all groups.
20 DELAY Large Employer mandate delayed till Questions still remain Expect other delays
21 Ongoing Variable Hour Employees Track number of hours worked by all employees to determine FTE count and who is working 30+ hours and now eligible Can measure every 3 months up to every 12 months Counting: How hours worked by variable hour employees during measurement period Notify and Enroll: Get those newly eligible enrolled on health plan Can last days Employees who work 30+ hours in measurement period must be covered during stability period Must remain covered for at least six months (or length of measurement period, whichever is longer) regardless of number of hours worked in stability period
22 Break in Employment 4 weeks or less = continuous employment More than 26 weeks = rehire 4-26 weeks = Rule of Parity How long did they work for you?
23 What about common controlled companies? Independent Contractor (1099) Employed/Independent-Contractor-(Self-Employed)-or-Employee%3F Common Controlled and Affiliated Groups:
24 Common Ownership What if there are multiple employers which are commonly owned? Common Law Test Control Group rules apply (IRC 414(c)) Look at percentage of ownership Rarely found to have common ownership Assumed to not have common ownership Burden on employer to show why there is common ownership Assumed to have common ownership Burden on employer to show why there is NOT common ownership Common ownership
25 Minimum Value- how do you get there? Minimum Value - Empirical estimate of the actual average spending by a wide range of consumers representative of those currently enrolled in self-insured employersponsored plans. Calculator to determine the percentage of the total allowed costs of benefits provided under a group health plan or health insurance coverage. Calculator: (excel spreadsheet PDF, labeled Minimum Value Calculator) USE the calculator to determine what your minimum value is currently. Bottom Line: Carriers WILL determine a plans valueeventually. Best rule of thumb - if the out of pocket is less or equal to HSA maximums, then you're most likely OK on the minimum value score. All the other "switches and gadgets" on the spreadsheet appear to have minimal impact on overall score. The key is deductible, coinsurance and out-of-pocket max.
26 Unaffordable Coverage EXAMPLE: Employee earns $9.50/hour, but monthly cost of employee only coverage is $ W-2 Safe Harbor: Box 1 income is gross income after pre-tax deductions EE earns $19,750, but $1,785 on a pre-tax basis = Box 1: $17,975 FAILS 9.5% of Box 1 income: $ less than $ Pay Safe Harbor: Hourly rate of pay ($9.50) x 130 hours/mo = $1, FAILS 9.5% of $1,235: $ is less than $ FPL Safe Harbor: Federal Poverty Level: $11,170 FAILS 9.5% of FPL: $88.43 is less than $148.75
27 From An Employer s Perspective, Federal Poverty Limit - FPL Does Group Coverage Meet the Affordability Test? 2011 FPL Hourly Rate (40 hr week) W2 Wage 100% (Possibly Medicaid Eligible) $10,890 $5.24/hr 9.5% $86/mo 133%(Possibly Medicaid Eligible) $ $6.96/hr 9.5% $114/mo 150% (Minimum Wage) $16,335 $7.85/hr 9.5% $130/mo 200% $21,780 $10.47/hr 9.5% $172/mo 250% $27,225 $13.09/hr 9.5% $216/mo 300% $32,670 $15.71/hr 9.5% $259/mo 350% $38,115 $18.32/hr 9.5% $302/mo 400% $43,560 $20.94/hr 9.5% $345/mo 400% family of 4 $89,400 $20.94/hr 9.5% Employee Share of Single Premiums per 9.5% income Standard $345/mo since employer only has to use the single rate for lowest tier plan to calculate affordability
28 What are my potential penalties, as an employer? (51+) Affordable is: No more than 9.5% of the employee Box 1,W-2 income* Bronze level plan (60% actuarial value) Penalty if you offer NO coverage Penalty for unaffordable coverage subject to a penalty if any of its full-time employees receives a premium tax credit or cost-sharing reduction toward their exchange plan. In 2014, the monthly penalty assessed on employers that do not offer coverage will be equal to the number of full-time employees (minus 30) multiplied by 1/12 of $2,000 for any applicable month. ER s who do not offer coverage may subtract the first 30 workers when calculating their liability for tax penalties. monthly penalty assessed on an employer for each full-time employee who receives a premium credit will be 1/12 of $3,000 for any applicable month. However, the total penalty for an employer would be limited to the total number of the company s full-time employees (minus 30), multiplied by 1/12 of $2,000 for any applicable month. On Jan. 2, 2013, the Internal Revenue Service (IRS) issued proposed regulations on ACA s employer responsibility requirements. These regulations include guidance on safe harbor approaches for assessing whether an employer s coverage is affordable. Under one of these safe harbors, an employer s coverage will be considered affordable for a particular employee if the employee s cost for single coverage does not exceed 9.5 percent of the employee s W-2 wages (reported in Box 1 of the employee s Form W-2) and the employer meets all other requirements. Premium credit eligibility will still be based on household income, but the employer will not be subject to a penalty for that employee, even if he or she ultimately receives a premium credit.
29 Form 6056 & 6055, Another IRS requirement Every large employer subject to pay or play provisions a certification as to whether the employer offers to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan if the employer certifies that the employer did offer to its full-time employees (and their dependents) the opportunity to so enroll (i) the length of any waiting period (ii) the months during the calendar year for which coverage under the plan was available, (iii) the monthly premium for the lowest cost option in each of the enrollment categories under the plan, and (iv) the employer share of the total allowed costs of benefits provided under the plan, the number of full-time employees for each month during the calendar year, the name, address, and TIN of each full-time employee during the calendar year and the months (if any) during which such employee (and any dependents) were covered under any such health benefits plans
30 How caught? Just one employee gets coverage from Exchange would cause employer to be reviewed for penalties How will they know? The Exchanges are responsible to review each individual s income to determine the level of premium subsidy that they are eligible for in the Exchange The Exchange will obviously review tax information for each applicant they find employer
31 Exchange/Marketplace Marketplace Online eligibility Online comparison of plans $4.4 Billion to build (originally $2 billion) Only place to receive immediate individual subsidy Open enrollment starts Oct 1, 2013 March 31, 2014 Marketplace Enrollment can be done: online, in person, via mail or phone Marketplace assistors, agents, brokers, navigators SHOP Exchange (on hold-ish) Small employer option (2-50)* Only place for tax credit 2-25 ee s, annual avg wages are less than $50,000 can get up to 50% tax credit Employee Choice (can be limited by the ER) THIS provision on hold till 2015
32 SHOP Exchange For , the small business health insurance tax credit is based on 35% (25% for taxexempt orgs) of non-elective contributions the business makes on behalf of its employees for insurance premiums. To be eligible, the small business must have 25 or fewer employees and average annual wages of less than $50,000. Employers with 10 or fewer employees and average wages of less than $25,000 get 100% of the credit. Phase-outs reduce the credit as the number of employees goes over 10 (up to 25) and the average wages exceeds $25,000 (up to $50,000). The phase-outs cause many of our clients to be ineligible or make the credit so small it's not worth the effort to compute. For example, if average employee count (FTE) is 20 and averages wages is $30,000, tax credit is only 5% of the employer-paid health insurance costs. If average employer-paid premium per employee is $150/month (20 * $150 * 12 * 5%), then tax credit is $1800. If employee count is 20 and average wages is $35,000, credit phases out to -0-. For 2014 and forward, the full credit (before phase-outs) increases to 50% (35% for tax-exempt orgs), but its available only if insurance is purchased through the state exchanges.
33 Individual Mandate Penalties Taxes begin in 2014 and rise in years following. In each year, the tax consists of the higher of a dollar amount or a percentage of household income. For a given household, the tax applies to each individual, up to a maximum of three. Following is the schedule of taxes: 2014: The higher of $95 per person (up to 3 people, or $285) OR 1.0% of taxable income. 2015: The higher of $325 per person (up to 3 people, or $975) OR 2.0% of taxable income. 2016: The higher of $695 per person (up to 3 people, or $2,085) OR 2.5% of taxable income. After 2016: The same as 2016, but adjusted annually for cost-of-living increases.
34 To see what the subsidy amounts look like:
35 Hanging Chads Discrimination Testing 105(h) $100 per day per impacted employee Not in force yet No idea when rules will come out DOMA Will You have to offer domestic partners health benefits? More guidance expected by Labor Day ERISA 510 Could impact companies that are reducing work hours Would likely take a class action law suit
36 Questions for your company I must have a qualified broker Don t wait until 4 th Quarter 2014 Expect more delays / changes / modifications Do I have to pay or play? Penalty vs. offering insurance? Will I retain quality employees if I don t offer a health plan? Calculate FTE & establish look back Budget for potential rate increase in 2014
37 Reference Material Links to guidance we talked about today: Definition of full-time employee day waiting period limitation Affordability Minimum value W2 Guidance: The IRS in April 2012 issued requests for comments on how to facilitate compliance with IRC 6055 and
38 Thank you! Presented by: Misty Baker This update is based on the known provisions of the PPACA. This is not to be construed as legal or tax advice.