FHCA 2014 Annual Conference & Trade Show CE Session #53 Health Care Reform's Impact on Assisted Living: Treasure or Trinket? Friday, July 11 8:15 to 9:45 a.m. Crystal K Assisted Living Upon completion of this presentation, the learner will be able to: explain the unique ways that senior living facilities are impacted by the PPACA requirements; evaluate the pay or play model when dealing with assisted living employers; and illustrate the impact of the federal government s definition of a full time employee on assisted living employers and employees. Seminar Description: The Patient Protection and Affordable Care Act legislation will have a unique impact on the assisted living community. From the definition of a full time employee, to the affordability of the programs, employers will have to determine whether it is better to pay or play in the marketplace. Assisted living workforce demographics make this a different playing field from other industries. This session will address these and other affects the new requirements will have on ALFs. Presenter Bio(s): Catherine has been a member of the executive team at Sullivan for the past 13 years. She oversees all aspects of client management and service. Catherine regularly presents on such topics as ERISA, Compliance, Employee Benefits and Health Care Reform. Catherine is a certified instructor and holds her Life, Health and Variable Annuity license from the state of Florida. David Roach is Financial Analyst & Benefit Plan Consultant for Sullivan. He began his career with the global accounting and consulting firm, Deloitte & Touche. Mr. Roach served as an auditor and tax consultant in Deloitte s Tampa office. After serving in that position for three years, he took his services to the University of South Florida Athletics Department. As the Director of Finance, David was responsible for the oversight and management of the Department s $40 million operating budget. David brings a wealth of financial acumen and experience to Sullivan. David is a graduate of the University of Minnesota.
Florida Health Care Association Health Care Reform and the Impact on the Senior Living Community PRESENTED BY: CATHERINE RATCLIFFE DAVID ROACH Key Characteristics of Senior Living Industry Aged workforce High percentage of female workers High percentage of low wage earning employees 24 hour staffing requirements High number of part-time and variable hour employees 1
Premium Calculations Total Required Premium Manual Rates Projected Claims Age/Sex Industry Current Claims Employer Penalties For Not Offering Required Coverage Known as the Employer Mandate Provisions, The ACA imposes a penalty on large employers that do not offer minimum essential coverage to full-time employees and their dependents. Large employers that offer this coverage may still be liable for a penalty if the coverage is unaffordable or does not provide minimum value. The Employer Mandate Provisions were set to take effect on January 1 st, 2014. However, the Dept. of Treasury announced the delay of penalties and related reporting requirements for one year, until 2015. 2
Employer Penalties for Not Offering Coverage 2015 Employers with 100 or more Full Time Employees or FTEs 2016 Employers with 50-99 or more Full Time Employees or FTEs Employers with 50 or more Full Time Employees or FTEs Employer Penalties For Not Offering Required Coverage Employer Penalties: The monthly penalty assessed on employers that offer minimum essential health coverage to substantially all fulltime employees and their dependents will be 1/12 of $3,000 for each full-time employee who receives a premium tax credit or cost-sharing reduction under an insurance exchange for any applicable month. The total penalty is limited to the total number of full-time employees (excluding 30 full-time employees or 80 full-time employees for the 2015 plan year for employers with 100 or more full-time employees) multiplied by 1/12 of $2,000 for any applicable month. This penalty is triggered when a full-time employee is not offered coverage or when the coverage is unaffordable or does not provide minimum value. 3
Employer Penalties For Not Offering Required Coverage Employer Penalties: The monthly penalty assessed on employers that do not offer minimum essential coverage to substantially all fulltime employees and their dependents is equal to the number of full-time employees (excluding 30 full-time employees) multiplied by 1/12 of $2,000. For 2015 (plus any calendar months of 2016 that fall within an employer s 2015 plan year), if an employer has 100 or more full-time employees, the penalty is calculated by reducing the employer s number of fulltime employees by 80 rather than 30. Identifying Full-time Employees Large Employers: Employers with 50 or more full-time employees (including full-time equivalent employees, or FTEs). When: Starting in 2015 for employers with 100 or more fulltime employees. Starting in 2016 for employers with 50-99 full-time employees. 4
Who is Considered an Employee? Under the common law standard, an employment relationship exists when the person for whom the services are performed has the right to control and direct the individual who performs the services with respect to the result to be accomplished, along with the details and means by which it is done. Who is a Full-Time Employee? A full-time employee is an employee who was employed on average at least 30 hours of service per week. The final regulations generally treat 130 hours of service in a calendar month as the monthly equivalent of 30 hours per service per week. Calculating Full-Time Employees Calculate the number of full-time equivalent employees (including seasonal employees) for each calendar month in the preceding calendar year by calculating the aggregate number of hours of service (but not more than 120 hours of service for any employee) for all employees who were not full-time employees for that month and dividing the total hours of service by 120. Add the number of full-time employees and full-time equivalent employees (including fractions) calculated above for each of the 12 months in the preceding calendar year. Add up the 12 monthly numbers from the preceding step and divide the sum by 12. Disregard fractions. 5
Calculating Full-Time Employees Example: Facts: During each calendar month for 2015, Employer W has 20 full-time employees each of whom average 35 hours of service per week, 40 employees each of whom average 90 hours of service per calendar month, and no seasonal workers. Conclusion: Each of the 20 employees, who averages 35 hours of service per week, count as one full-time employee for each calendar month. Calculating Full-Time Employees Example Continued: Conclusion Continued: The 40 employees, each of whom average 90 hours per month, would equate to 30 full-time employees for each calendar month. As a result, Employer W has 50 full-time employees and, therefore, would be considered an applicable large employer for 2016. 6
Employer Penalties For Not Offering Required Coverage Substantially All Requirement: The final regulations provide that an employer will satisfy the requirement to offer minimum essential coverage to substantially all of its full-time employees and their dependents if it offers coverage to at least 95 percent of its full-time employees and dependents. Transition Relief: For each calendar month during 2015 (and any calendar months during the 2015 plan year that fall in 2016), a large employer that offers coverage to at least 70 percent or that fails to offer coverage to no more than 30 percent of its full time employees and dependents will not be subject to a penalty. Employer Penalties For Not Offering Required Coverage Dependent coverage The final regulations define dependents for purposes of the ACA s employer penalty to include only an employee s child under the age of 26. Under the final regulations, dependent does not include an employee s spouse. Thus, an employer is not required to offer minimum essential coverage to employees spouses in order to avoid a pay or play penalty. 7
Determining Affordability Determining Affordability Coverage is considered affordable if the employee portion of the premium for the lowest-cost, selfonly coverage that provides minimum value does not exceed 9.5 percent of an employee s household income. Household income means the modified adjusted gross income of the employee and any members of the employee s family, including a spouse and dependents. Determining Affordability Affordability (Safe Harbor Methods): Form W-2 Safe Harbor: determine affordability based on employee s wages from their employer. Rate of Pay Safe Harbor: multiply hourly rate of pay for each employee by 130 hours per month. Federal Poverty Line (FPL) Safe Harbor: cost of coverage doesn t exceed 9.5% of FPL for a single individual. 8
Determining Minimum Value Determining Minimum Value: Under the ACA, a plan fails to provide minimum value if the plan s share of total allowed costs of benefits provided under the plan is less than 60 percent of those costs (actuarial value of the plan). An employer may use one of the following methods to determine if its health plan provides minimum value: Minimum Value Calculators, Safe Harbor Checklists, Actuarial Certification, and Metal Levels. Determining Minimum Value Determining Minimum Value (Safe Harbor Checklists): The IRS proposed the following plan designs as safe harbors for determining minimum value if the plan covers all of the benefits included in the MV Calculator: Option One: A plan with a $3,500 integrated medical and drug deductible, 80 percent plan cost sharing and a $6,000 maximum outof-pocket limit for employee cost-sharing; Option Two: A plan with a $4,500 integrated medical and drug deductible, 70 percent plan cost sharing, a $6,400 maximum out-ofpocket limit and a $500 employer contribution to a health savings account (HSA); and Option Three: A plan with a $3,500 medical deductible, $0 drug deductible, 60 percent plan medical expense cost-sharing, 75 percent plan drug cost-sharing, a $6,400 maximum out-of-pocket limit and drug co-pays of $10/$20/$50 for the first, second and third prescription drug tiers, with 75 percent coinsurance for specialty drugs. 9
Determining Hours of Service To determine an employee s hours of service, an employer must count the following: Working Hours: Each hour for which the employee is paid, or entitled to payment, for the performance of duties for the employer; and Non-working Hours: Each hour for which an employee is paid, or entitled to payment, by the employer on account of a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military leave or leave of absence. Calculation Methods: Hourly Employees: For employees paid on an hourly basis, an employer must calculate hours of service from records of hours worked and hours for which payment is made or due for vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. Non-hourly Employees: For employees not paid on an hourly basis, employers are permitted to calculate hours of service by using one of the following three methods: 10
Calculation Methods Continued: Counting actual hours of service from records of hours worked and hours for which payment is made or due. Using a days-worked equivalency method under which an employee is credited with eight hours of service for each day with an hour of service. Using a weeks-worked equivalency method under which an employee is credited with 40 hours of service per week for each week. Measurement Methods: The final regulations provide two methods for determining full-time employee status the monthly measurement method and the look-back measurement method. In general, an employer must use the same measurement method for all employees. Thus, an employer generally cannot use the monthly measurement method for employees with predictable hours of service and the look-back measurement method for employees whose hours of service vary. 11
Monthly Measurement Methods: The monthly measurement method involves a month-tomonth analysis where full-time employees are identified based on their hours of service for each calendar month. This month-to-month measuring may cause practical difficulties for employers, particularly if there are employees with varying hours or employment schedules, and could result in employees moving in and out of employer coverage on a monthly basis. The final regulations provide that an employer will not be subject to a pay or play penalty with respect to an employee for not offering coverage to the employee during a period of three full calendar months, beginning with the first full calendar month in which the employee is otherwise eligible for coverage. Look-back Measurement Method: The look-back measurement method involves: A measurement period for counting hours of service (called a standard measurement period or an initial measurement period); A stability period when coverage may need to be provided depending on an employee s full-time status; and An administrative period that allows time for enrollment and disenrollment. 12
Look-back Measurement Method: The details of this method vary based on whether the employees are ongoing or new, and whether new employees are expected to work full-time or are variable, seasonal or part-time employees. An employer has discretion in deciding how long these periods will last, subject to specified IRS parameters. Look-back Measurement Method (Ongoing Employees): For ongoing employees, an employer determines each employee s full-time status by looking back at a standard measurement period (SMP) lasting between 3 to 12 consecutive months, as chosen by the employer. For example, if an employer chooses an SMP of 12 months, the employer could make it the calendar year, a non-calendar year plan year or a different 12-month period, such as the one that ends shortly before the plan s open enrollment period. An ongoing employee is an employee who has been employed by a large employer for at least one complete SMP. 13
Look-back Measurement Method (Ongoing Employees): If the employee was employed on average at least 30 hours of service per week during the SMP, the employer must treat the employee as a full-time employee for a set period into the future, known as the stability period. This rule applies regardless of the employee s number of hours of service during the stability period, as long as he or she remains an employee. Example #1 Facts: Employer W chooses to use a 12-month stability period that begins January 1 st with a 12-month standard measurement period that begins October 15 th and an administrative period from October 14 th January 1 st. Employee A has been employed by Employer W for several years, continuously. Employee A worked fulltime during the standard measurement period that begins October 15 th of Year 1 and ends October 14 th of Year 2 and for all prior standard measurement periods. 14
Example #1 continued: Facts: Employee B has also been employed by Employer W for several years, continuously. Employee B also worked full-time for all prior standard measurement periods, but did not work full-time during the standard measurement period that begins October 15 th of Year 1 and ends October 14 th of Year 2 and for all prior standard measurement periods. Example #1 continued: Conclusion: Because Employee A was employed for the entire standard measurement period, Employee A is considered an ongoing employee and must be offered coverage during the entire stability period. Because Employee B did not work full-time during the standard measurement period, Employee B is not required to be offered coverage during the stability period. 15
Start Here Does the employer have at least 50 full time equivalent employees? No Penalties do not apply to small employers. If the employer has 25 or fewer employees and average wages up to $50,000, it may be eligible for a health insurance tax credit. Does the employer offer coverage to its employees? Yes Does the insurance pay for at least 60% of covered health care expenses for a typical population? Yes Do any employees have to pay more than 9.5% of family income for the employer coverage? No No Yes Did at least one employee receive a premium tax credit or cost sharing subsidy in an exchange Employees can choose to purchase coverage in an Exchange and receive a premium tax credit. Those employees can choose to buy coverage in an Exchange and receive a premium tax credit. Yes The employer must pay a penalty for not offering coverage. Penalties do not apply to small employers. The penalty is $2,000 annually times the number of full time employees minus 30. The penalty is increased each year by the growth in insurance premiums. The penalty is $3,000 annually for each full time employee receiving a tax credit, up to a maximum of $2,000 times the number of full time employees minus 30. The penalty is increased each year by the growth in insurance premiums. No There is no penalty payment required of the employer since it offers affordable coverage. Affordable Care Act Flow Chart Employer Penalties for Not Offering Affordable Coverage Pay or Play Many employers are evaluating the pay or play models to determine if it makes sense to offer a plan at all or just pay the penalties. Due to the higher age demographic, the Senior Living Industry is in a unique situation with this since those covered under Medicare would not qualify for an exchange plan (demographic load is +50%-75% to manual rates). Employees would not find the Medicare only option as attractive as the group plan due to the cost and the donut hole. Traditionally employees who are eligible for the group coverage as well as Medicare will have dual coverage. 16
Post Reform Employer Costs Fees Penalties Premiums Factors Affecting Cost of Health Coverage Annual Limits: effective January 1 st, 2014, health plans are prohibited from placing annual dollars limits on essential health benefits. Excessive Waiting Periods: effective January 1 st, 2014, a group health plan may not impose a waiting period that exceeds 90 days. Pre-existing Condition Exclusions: effective January 1 st, 2014, a group health plan may not impose pre-existing condition exclusions on any covered individual. 17
PPACA Taxes & Fees Overview PCORI Fee: will fund health care research through the Patient-Centered Outcomes Research Institute. Applies T0: health insurance issuers and sponsors of self-insured health plans. Effective Date: Plan years ending on or after Oct. 1, 2012, and before Oct. 1, 2019. Amount: The initial fee is $2 per covered life, increasing to $2 per covered life for 2013 (adjusted annually for later plan years). PPACA Taxes & Fees Overview Transitional Reinsurance Fee: funds reinsurance for high claimants in non-grandfathered individual market plans, on and off Exchange. Applies T0: health insurance issuers and sponsors of self-insured health plans. Effective Date: Calendar years 2014-2016 Amount: $5.25 per covered life per month ($63 per member annually). 18
PPACA Taxes & Fees Overview Health Insurer Fee: Fee on health insurance sector, allocated by market share to fund Health Benefit Exchange subsidies. Applies T0: health insurance issuers whose net premiums exceed $25 million. Effective Date: January 1 st, 2014 Amount: ~2.3% of premium (based on market share of insurance carrier). PPACA Taxes & Fees Overview Example: Facts: For the 2014 plan year, Employer W provides medical coverage to 200 employees. The plan includes a total of 300 members and the total premium is $1,200,000. Conclusion: The inclusion of the PCORI, Transition Reinsurance and Health Insurer fees will cost Employer W an additional $40,000 - $45,000 on top of the premium cost. 19
Employer Reporting of Health Coverage Applicable large employers will be required to provide information to the IRS about the health coverage they offer (or do not offer) to their employees including information on the design and cost of their plans and the employees covered by the plan. The final rules were released on these reporting requirements on March 5 th, 2014. Due to the delay the final rules apply to calendar years 2015 and beyond. IRS is encouraging employers to voluntarily comply with reporting provisions for calendar year 2014. Form W-2 Reporting Requirements Required Reporting Do Not Report Optional Reporting Major Medical EE FSA Contributions Dental ER Contributions to FSA Hospital indemnity or specified illness (if pre-tax or ER paid) Employee Assistance Plan (EAP) - (if COBRA eligible; otherwise optional) Wellness Programs (if COBRA eligible; otherwise optional) On-site Medical Clinics (if COBRA eligible; otherwise optional) HSA Contributions (EE or ER) MSA Contributions (EE or ER) Hospital indemnity or specified illness (if paid post-tax) Military Plans Vision HRA Contributions Multi-employer plans Domestic Partner Coverage 20
Required Notices Notice of Exchange Summary of Benefits & Coverage (SBC s) 60-Day Notice of Plan Change Statement of Grandfathered Status (GF Plans Only) Non-Discrimination Testing In some cases, the penalties for non-compliance are the normal tax consequences for unclaimed income. This can occur when employees have received tax advantages under a plan that is later found to be noncompliant. In such cases, certain employees can be required to pay back taxes, plus IRS penalties and interest, if applicable. This is true in the case of plans that are found to discriminate in favor of Highly Compensated Employees. 21
Traditional Products vs. Worksite Many groups are moving from traditional vendors to worksite programs to shift dollars from the core benefits to a voluntary product Be careful with pre-existing conditions, guarantee issue, and integration of programs Many programs are not EOB driven Administration can be more challenging for Employer and Employee Rates are often age-banded Traditional Products vs. Worksite Work Site Products Out of Pocket Major Medical 22
Questions? Thank you for your attention! 23