1

0

Health Care ReformWhat Are the Changes

for Employers

GREENBERG TRAURIG, LLP | ATTORNEYS AT LAW | WWW.GTLAW.COM

Nancy Taylor

Greenberg Traurig

July 20, 2012

1

Information on Presentation

• Background on “ACA”

• Employer Requirements

• Implementation Issues

• Legislative, Regulatory, and Legal

Challenges

2

2

Coverage465 pages19% of total pages

2,409 total pages

ACA Breakdown by Pages

3

How did we get here?

• Decision to expand coverage resulted in a $1 trillion package over 10 years.

• Options:

– Keep coverage that you have (already expensive from a tax code)

– Expand public programs (expensive)

– Provide tax credits to those without coverage (more expensive than public programs)

3

4

Overview

● Analysis of financing of health care reform by sector

● Overview of business segment impact of health care

reform

MedicaidExchanges

InsuranceMarket

Fully insuredSelf Insured

5

Health Care Coverage Timeline

� Most changes occur in 2014 to expand coverage:

● Reform insurance marketplace (“Exchange”);

● Create tax credits; or

● Medicaid eligibility for low-income who do not

have access to employer-sponsored coverage.

� Some interim changes in 2011.

� First stage of reforms allows time for implementation of major changes in 2014.

4

6

General Structure of Reform

● Most Americans stay in their employer-sponsored plans.

● Individuals and small groups may purchase coverage through the state-based exchanges in 2014. (An exchange is a group of insurance plans with new rules.)

● Tax credits for low-income individuals available only

when coverage is purchased through the exchange.

● Between now and 2014, some changes to health insurance and employer-sponsored plans.

7

Changes Starting in Plan Year After September 23, 2010

� Insurance & Employer-Sponsored Plans Must:

● Cover dependents up to age 26 (if plan offers dependent

coverage);

● No lifetime dollar limits (e.g. no limit on the spending

under the plan);

● No restrictive annual dollar limits on essential benefits

(may get a waiver under certain conditions);**

● No rescissions (unless there is fraud);

● Appeals and grievance process*;

● No cost sharing on certain prevention and wellness

benefits*; and

● No pre-existing condition limitations on children 19 and

younger.

* may be grandfathered.

** mini-med waivers have been granted.

5

8

Additional Changes

Additional Changes:

● W-2 reporting (mandatory for 2012

W-2s);

● HSA penalty;

● Changes to FSAs/HSAs/benefits on OTC (prescription only) (applies after December 31, 2010); and

● CLASS Act has ended

● Uniform Summary Benefits must be provided to all employees plan year after September 23, 2012.

9

You must report the cost of employer-sponsored health coverage in box 12 using code DD. The amount reported should include both the portion paid by the employer and the portion paid by the employee.

6

10

IRS Chart of Reporting Requirements

More available at www.irs.gov

11

Uniform Summary Benefit Notices

● ACA Section 1001 (PHS Act Section 2715)

● Final Rule released on February 9, 2012

• Requires use of template, content, coverage examples.

• Subject to changes through future guidances.

• May be done electronically.

• Changes to content and coverage examples.

• Effective date: first open enrollment period after September 23, 2012 or plan year after September 23, 2012.

7

12

13

Changes in 2013

•Notice to employees about benefits and eligibility for exchange (March 1, 2013).

•Medicare payroll and unearned tax increased for certain individuals (no change to employer contribution).

• Limit on FSAs ($2,500).

8

14

Changes Starting January 1, 2014

� Individual obligation to have coverage or pay a penalty.

●Employer obligations go into effect:

● auto-enroll employees into plans if over 200 employees (RFI to be released on how employers offer default enrollment today);

● offer affordable coverage or may pay a penalty.

●Employer plans must: ● pay for 60% of benefit costs;

● guarantee issue without limits on pre-existing conditions;

● have no more than 90-day waiting period;

● no annual limits, appeals and grievances, dependant coverage up to age 26, and other requirements.

15

Individual Obligation - 2014

Individual must obtain coverage through:● Medicare;

● Medicaid;

● Eligibility expanded to all individuals with incomes up to 133% FPL (under age 65)

● Exchanges;

● Individual

● Small Groups (up to 100)

● Employer-Sponsored Coverage; or

● Pay a penalty (exceptions for income below tax filing threshold, no affordable plan available, non-citizens, and religion).

9

16

Supreme Court

• Individual mandate is constitutional under Congress’s authority to “lay and collect” taxes

• Not constitutional under Commerce Clause or Necessary and Proper Clause

• Medicaid expansion is constitutional under Spending Clause

• But Congress cannot give the Secretary authority to tie all of a State’s federal Medicaid funding to compliance•Can only tie expansion funding to compliance with expansion program

17

Low-Income Americans without Employer Coverage (in 2014)

If an individual/family does:

• not receive “affordable” employer sponsored coverage and

• earns between 133-400%* of the federal poverty level, then

• the individual/family will get a tax subsidy to pay for all or part of their health insurance coverage.

The tax subsidy can only be used in the exchange.

10

18

Supreme Court Made Some Changes

Supreme Court held that the Medicaid expansion is not

enforceable under the law. Therefore, States may not

expand eligibility up to 133% of FPL.

Law permits individuals who earn between 100-400% of the

federal poverty level to get a tax subsidy. If an employee

gets a tax subsidy who otherwise would be eligible for

coverage, an employer would be penalized.

Law did permit all who earned less than 133% of the federal

poverty level to get Medicaid coverage. If an employee

becomes eligible for Medicaid, an employer would not be

penalized.

Now it is unclear what will happen in each State. Stay tuned and

watch for more updates.

19

Employer Obligation Effective 2014

Employers may either offer coverage or risk paying a

penalty.

● Coverage is only required for full-time employees

(working more than 130 hours/month but rules will

permit a three month-one year lookback stability

period).

● Coverage must be a plan that pays out 60% of the costs

of the plan or meet a “minimum value test”

● Coverage must be “affordable” for full-time

employees, or full-time employees may get coverage

in the exchange and may qualify for a tax subsidy.

11

20

Definition of Employer and Employee

�Definition of Employer

- Uses the common-law test

- Employer includes a predecessor employer

- An employer not in existence during an entire preceding calendar year will be an applicable large employer for the current calendar year if reasonably expected to employ an average of at least 50 full-time employees (taking into account FTEs) on business days during the current calendar year

- Common Control: Entities treated as a single employer under IRC § 414(b), (c), (m), or (o) are treated as a single employer, so all employees of a controlled group or an affiliated service group, as defined by the IRS, are taken into account in determining whether any member of the controlled group or affiliated service group is an applicable large employer.

�Definition of Employee

- A worker who is an employee under the common-law test

21

If Employer Offers CoverageThat is Not Affordable

•If the full-time employee must pay more than 9.5% of income for individual premium costs, the plan may be deemed “unaffordable” and the employee may opt out and receive a tax credit for coverage in the exchange.

•For each full-time employee that qualifies and receives a tax credit, employer will pay $3,000 (or $2,000 (-30) for all full-time employees, whichever is less).

•For each full-time employee who is not offered coverage, employer will pay $2,000 for all full-time employees (-30).

12

22

Affordability Test

Request for comments from IRS (IRS Notice 2011-73)

• 9.5% test applies to self-only coverage.

• Safe harbor for employers who base the 9.5%

premium on the employer wages.

• No penalty if employee can demonstrate that family

wages higher and eligible for tax subsidy.

• Affordability test does not apply to dependent

coverage.

• If employee offered dependent coverage (that is or

is not affordable), then dependents may not eligible

for tax credits (issue still pending).

23

Employer Shared Responsibility

IRS Notice for Comment – Notice 2011-36

• How to define “full-time” employees who must be

eligible for coverage beginning in 2014.

• Employee – defined under the common-law test

(“leased” employees would not be counted).

• “Hours of service” is an employee who works 130

hours of service in a calendar month.

• Employer permitted a “look-back” of 3-12 months

to determine eligibility.

13

24

Full-Time / Part-Time

• ACA Section 1513

• FAQs released on February 9, 2012

• Clarifies that safe-harbor and stability period will be

included in proposed rules

• Permits employers to define in plan eligibility

requirements

• 90-day waiting period will apply after eligibility

period is met

• Greater clarity in seasonal and part-time

25

Employer Shared Responsibility

“Look-back/stability period” for existing

employees

• Employer would determine each employee’s full-time

status by looking back at a defined period of not less

than three, but not more than twelve consecutive

months, as chosen by the employer, to determine

whether the employee averaged least 130 hours of

service per calendar month.

• If yes, then during the “stability period”, the employee

would be required to have coverage or the employer

would pay a penalty.

For new employees, IRS requested comments

14

26

Employer Shared Responsibility

Proposed Facts and Circumstances Test for New Hires

• Employer must determine, in light of the facts and circumstances:

• (a) whether employee is reasonably expected at time of hire to work an

average of 30 or more hours per week on an annual basis; and

• (b) whether employee’s first 3 months of employment are reasonably

viewed, as of the end of that period, as representative of the average hours

the employee is expected to work on an annual basis.

• If employee reasonably expected to work full-time and does work full-

time for first 3 months, employee must then be offered coverage

• If the employee’s status cannot reasonably be determined:

• If hours representative of expected work: deemed full-time if he

or she works full-time during first 3 months

• If these hours not representative: plan permitted additional 3

months to determine employee’s status

27

Examples

Employer has a group of employees who work on an

hourly basis.

•The employer establishes a “look-back period” of 12

months. Certain employees work 1560 hours and then are

considered “full-time” employees. These full-time

employees would then be eligible for affordable coverage

for the “stability” period of 12 months or the employer

could face a penalty

Employer has a group of salaried workers.

•Employer determines that they are to be treated as full-

time workers. These workers would then be eligible for

affordable coverage for one year or the employer could

face a penalty.

15

28

Example

●Employer offers coverage to all 230 full-time employees (and dependents).

● Coverage is unaffordable for 40 full-time employees.

● These 40 full-time employees get tax credits to

buy coverage in the exchange.

● Employer must pay $120,000, the smaller penalty.

■ $3,000 x 40 FT employees receiving tax credit = $120,000; versus

■ $2,000 x (230-30) 200 FT employees = $400,000.

29

If Employers Do Not Offer Coverage

� For employers not offering coverage to full-time employees (based on the “look-back/stability” test):

● If one full-time employee gets a tax subsidy to buy insurance in exchange:

● Employer must pay a fee –● $2,000 x # of all full-time employees (minus 30 full-time employees).

16

30

Example

● Employer with 230 full-time employees does not offer coverage.

● 40 full-time employees get government tax credit to buy coverage in the exchange.

● Employer must pay:

� $2,000 x (230-30) = $400,000.

31

Practical Effect of These Provisions

• Can declare an individual “full-time” and offer benefits without the “test” and cover after a waiting period (no longer than 90-days)

• Can declare an individual “part-time” and offer a probationary period with a look-back, stability period and then offer coverage (and include a 90-day waiting period)

• Exchange coverage not available for groups over 100 (or over 50 depending on State discretion)

• Coverage must be “affordable” (individual coverage premium charged may not exceed 9.5% of total premium cost)

• Coverage must meet “minimum credible coverage” (employer plan must pay out 60 percent of the costs of the plan’s covered benefits)

17

32

Treasury Notice 2012 (2/9/2012)

Employee is hired

Is employee expected to be full-time?

Measure actual hours worked on set period (3-12 months)

Offer coverage to employee within 90 days

of hire

Employee considered eligible for full-time coverage

Assumes that the employee is “otherwise eligible” at hire date.

Yes*

Employee averages 30+ hrs/week

Assumes that effective date of coverage is at 3-12 months for same period

Yes*

FT/PT status is unknown

33

Essential Health Benefits

●●●● ACA Section 1302

●●●● Essential Health Benefits Bulletin released

December 16, 2011

• Lifetime and annual limits on EHBs prohibited after 2014

• EHBs apply to exchanges, small group

18

34

Essential Health Benefits

Coverage through the Exchange:

Must meet “Essential Health Benefits” requirements

IOM report – base it on categories of coverage and focus

on the cost of the coverage

Coverage from Employer-Sponsored Plan:

Fully insured coverage – either State benefit

requirements or Essential Health Benefits

Self insured coverage – 60% actuarial value of the

underlying benefit plan

35

Essential Health Benefit Guidance

Transition Period for States

• Benchmark plan selection from four options

• Largest plan by enrollment in any of three largest small group insurance products in State;

• Any of three largest State employee benefit plans;

• Any of the 3 largest national FEHBP plans; or

• Largest HMO in the State.

• Default is largest plan in small group market

19

36

Health Insurance Exchanges

� The Exchange will begin – this means there will be a

selection of insurance plans for individuals and small

groups under 100 to select from in each State.

(enrollment will begin in 2013).

● Exchange plans will

● offer “essential benefit packages” ;

● guarantee issue without limitations on pre-

existing conditions;

● limit premium rates;

● no more than 90-day waiting period; and

● no annual limits, appeals and grievances, and

other requirements.

37

EmployersSmall and Large

162 million

58% of total

Individuals: Exchange Market

24 million

9% of total(19 million subsidized)

QualifiedHealth Plans

QualifiedHealth Plans

Structure in 2014

Subsidies

Note: Enrollment figures are CBO projections for 2019 (CBO, March 2011 Baseline).

“SHOP” Exchange

Exchange

Small BusinessSHOP Enrollment

5 million

(<100 employees)

Medicaid Enrollment

51 million (non-elderly)

18% of total

Outside the ExchangeNongroup &

Other Coverage22 million8% of total

(“Other” is about half and includes

Medicare)

Structure in 2014

20

38

Questions & Answers