The Next Steps for Strategic Planning in Light of the ACA

Transcription

1 The Next Steps for Strategic Planning in Light of the ACA This is only a brief summary that reflects our current understanding of select provisions of the law, often in the absence of regulations. All of the interpretations contained herein are subject to change as the appropriate agencies publish additional guidance.

2 Current Hot Topics Employer mandate: Tracking who is a full time employee Offering coverage once a year Offering coverage that is affordable and adequate (or preparing to pay a penalty)

3 Current Hot Topics 1094 and 1095 Form Reporting First reporting will be for entire calendar year 2015 Regardless of plan year Due to covered individuals by March 31, 2016 (1095 Forms) due to the extension Due to the IRS by May 31, 2016, or June 30, 2016 if filed electronically (1094 and 1095 Forms) due to the extension

4 IRS Forms 1094 & 1095 Transmittal Form (1094) Send to IRS B Forms (Section 6055) Individual Mandate 1094-B Fully insured plans: insurance company files Self-funded plans: employer with <50 FTE files C Forms (Section 6056) Employer Mandate 1094-C All ALEs file Employee Forms (1095) To individuals with copies to IRS 1095-B Same as 1094-B 1095-C All ALEs with fully insured plans: complete Parts I & II All ALEs with self funded plans: complete parts I, II, & III

5 Current Hot Topics Affordability Testing: Coverage is unaffordable if the employee pays more than 9.56% of Adjusted Gross Household income to participate in the plan for lowest cost plan that meets the affordability test Under the employer mandate regulations three safe harbors are provided: W-2 Income Rate of Pay Federal Poverty Line

6 Current Hot Topics Affordability Testing: What is the true risk of an affordability penalty? Can lower cost alternative be offered to provide a more affordable plan? What are the risks and benefits of reducing employee contributions to make the plans affordable? Is paying an affordability penalty a bad thing?

7 What s Coming Next? Excise tax on high cost plans Public exchange tax credit reporting or audit support Nondiscrimination rules for insured plans May also see new rules for self-funded plans Quality reporting Transparency disclosures

8 Excise Tax on High Cost Plans Sometimes called the Cadillac Tax Now Effective 2020: 40% excise tax Imposed on aggregate value of health coverage that exceeds threshold amounts Important caveat still waiting on IRS regulations

9 PATH Act Creates Delay Excise Tax on High Cost Plans delayed until 2020 Tax becomes deductible for employers Threshold amounts will continue to be indexed as before the delay and therefore the 2020 threshold amounts not yet known Thresholds for certain plans may be increased due to age and gender adjustments

10 Who Does What? Following entities pay the tax: Insured plans insurance company Expected to pass expense to the employer Self-funded plans plan administrator Unclear who this is HSA - employer Employers must: Calculate value of coverage on a per employee/ per month basis Notify entity required to pay and IRS

11 Included in Applicable Coverage Major medical and prescription drug coverage Health FSAs HSAs HRAs Pre-tax specified disease and hospital indemnity insurance Gap insurance On-site medical clinics (unless provide only de minimis care) Retiree coverage

12 Excluded from Applicable Coverage Stand alone dental and vision insurance Accident insurance Disability insurance After-tax specified disease and hospital indemnity insurance Long-term care insurance EAPs qualifying as an excepted benefit

13 Excise Tax on High Cost Plans General thresholds applicable in 2018 (will be indexed for 2020): Individual coverage: $10,200 Family coverage: $27,500 High Risk Professionals or retired individuals age 55 and older and not eligible for Medicare Individual Coverage: $11,850 Family Coverage: $30,950

14 Excise Tax on High Cost Plans Family limit applies to everyone in a multiemployer plan (e.g., Taft-Hartley plan) Distinction from multiple employer plan Important for the employer to confirm whether the plan qualifies

15 How is Excise Tax Calculated? 40% of the excess benefit of applicable employer sponsored coverage in excess of the annual limitation Cost of individual (self-only) coverage = $15,000 Self-only limit = $10,200 Difference = $15,000 - $10,200 = $4,800 Tax = 40% of $4,800 = $1,920

16 Planning Ahead - Impact of Delay Delay provides some time for preparation Analyze current employer-sponsored coverage that is offered and number of enrollees in each plan Actuaries estimate that 50% of medical plans will exceed the 2018 threshold amounts Explore strategies

17 When to Start? For non-calendar year plans, adjustments will likely need to be in place for the plan year beginning in 2019 Tax is calculated each month beginning Jan Allow time for collective bargaining discussions Allow for time to adjust offerings and educate employees

18 Strategies to Consider HSA Contributions Pre Tax vs Post Tax After tax HSA contributions are exempt Employers may still make contributions and direct deposit employee contributions Employees deduct income taxes on Form 1040 For employer and employee contributions Only lose FICA tax savings Employer can still make funds available for health benefits without triggering the tax Must use with qualified high deductible health plan

19 Strategies to Consider Supplemental insurance Pre Tax vs Post Tax Gap insurance is always subject to the tax Accident and disability are always exempt Specified disease (e.g., cancer and critical illness insurance) and hospital indemnity can be excluded if after-tax Applies to employer and employee contributions Dental and vision standalone plans are exempt Ensure plans are not integrated with medical

20 Strategies to Consider Flexible Spending Accounts Employer can determine the limit for employees each year (not more than the allowable Federal limit) Allows employees to keep the benefit and employers to reduce risk

21 Strategies to Consider Move away from composite rates Composite rates = everyone pays the same amount regardless of whether the employee is covering family members Composite rates are higher for individuals than a true individual rate, so may trigger more tax Converse is also true should perform analysis May want to split into two or more tiers if that would lessen the impact of the tax May be a bargaining issue

22 Strategies to Consider Manage impact through post-tax enrollment strategies May be able to vary eligibility or tax status based on whether employee has reached the threshold with other elections Example If enroll in a high cost medical, may only be eligible for aftertax critical illness If covered on spouse s medical, could purchase critical illness on a pre-tax basis Regulations will hopefully confirm the extent to which this is possible

23 Strategies to Consider Reducing medical plan costs Unlike employer mandate, can t avoid tax just by offering lower cost plan Tax is calculated based the coverage in which the individual actually enrolls Can delay the impact of the tax by reducing plan costs and eliminating high cost options May be a bargaining issue May want to consider wellness programs, on-site clinics, or self-funded medical

24 Impact Over Time

25 Self-Funding In self-funding, the employer accepts the risk of higher than expected claims An actuary helps estimate the employer s expected claim costs for the year The employer pays the claims up to the attachment point for any stop loss The employer expense includes: Claims TPA Fee Network Fee Consulting Fee Stop Loss

26 Potential Savings with Self-Funding Note: this is a hypothetical example.

27 Strategies to Consider Providing Incentives to enroll in lower cost plans The more employees elect lower cost plans, the less tax is triggered Employer could: Offer a reduced premium for lower cost plans Add HSA contribution for lower cost plans (has to be a cash contribution, unlike FSA/HRA) HRA or Health FSA contributions are also an option, but create other challenges This should also be considered as part of an overall strategy along with Affordability testing.

28 Questions? Or need more information? HCReducation.com American Fidelity Administrative Services, LLC

29 Thank you! This is only a brief summary that reflects our current understanding of select provisions of the law, often in the absence of regulations. All of the interpretations contained herein are subject to change as the appropriate agencies publish additional guidance.