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Decoding the Affordable Care Act An Employers TranslationBy: Al Holifield

Holifield & Associates, PLLC11907 Kingston PikeSuite 201Knoxville, TN 379234aholifield@hapc-law.comPhone: (865) 566-0115Fax: (865) 566-01191ExchangesEssential Health Benefits (EHB) to include: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; andPediatric services, including oral and vision care2ExchangesPrior to 2016, small employers are employers with 100 or less employees but states may limit to 50 employees or lessPrior to 2017, only small employers (100 employees or fewer) can participateStarting in 2017 and thereafter, states may allow all employers to participate3ExchangesInitial open enrollment period for the 2014 benefit year: October 1, 2013 through March 31, 2014For benefit years in 2015 or later, the annual open enrollment period will be from October 15th through December 7th of the prior yearSpecial enrollment provisions will be included4The Metals Exchanges to Offer Four Levels of Coverage:Bronze (60%)Silver (70%)Gold (80%)Platinum (90%)And: a catastrophic plan for individuals under 30Insurers may offer separate health plan products outside of an Exchange, but they are prohibited from offering rates for those health plan products that are lower than those offered within the ExchangeExchanges5Employers must issue notices to new employees with information about the Exchanges within 14 days of hireWhat employers are included?Any employer covered by the FLSAHospitals, schools, and institutions of higher learningGovernmental employers at the federal, state, and local levelWho receives notice?All full time and part time employeesDependents do not receive a noticeNotice to Employees6The existence of the Exchange;Contact information and description of services offered on the Exchange;A statement that the individual may be eligible for a premium tax credit if the employee purchases a qualified plan on the ExchangeA statement that if the employee purchases a qualified plan on the Exchange, the employee may lose the employer contribution to any health benefit plan offered by the employer and all or a portion of employer contributions may be excluded from federal incomeWhat Must Be Included in the Notice?7Becomes effective on the first day of the plan year on or after January 1, 2015 unless employer meets new IRS transition relief requirements to delay mandate until January 1, 2016See E-Alert IRS Issues Transitional Relief that Delays Employer Mandate Again. Guidance released August 31, 2012 is effective through 201490 days means 90 days within the first day they are eligibleIf employees can elect within 90 days but fail to elect within 90 days it is not a violationEmployer may use a reasonable period to determine eligibility if (a) period is not designed to avoid the 90 day period limitation, (b) individual becomes eligible within 90 days of being assessed eligible or, if earlier, within 13 months of start date (plus the days to the first day of the next calendar month if the employees start date is the middle of the month)Pay-or-Play Mandates:90-Day Waiting Period Requirement8In 2015, the pay-or-play mandate requires employers of 50 full time employees or more that do not meet the new transition relief requirements delaying the mandate to 2016 to offer quality, affordable health insurance coverage to full time employees and their dependents (no spouses)Full time employees: those employees working on average 30 hours or more per weekFailure to offer such coverage may subject the employer to a penalty for a given month if a full time employee receives a federal premium tax credit or cost-sharing reduction and is enrolled in coverage through a health insurance exchangeEmployer Pay-or-Play Mandate9Nationwide Mutual Insurance Company v. Darden503 U.S. 318, 112 S.Ct. 1344 (1992)

Who is an Employee?10Anyone who is not an Employee.Who is an Independent Contractor?11For these purposes only, full time employees are determined by taking the sum of the employers full time employees (using a 30 hour per week standard) and the number determined by dividing the hours of service of employees who are not full time employees by 120 (full-time equivalents).When is an Employer Subject to Pay-or-Play?12Examples:Employer employs 40 full time employees and 20 part-time employees who each work 60 hours per month.50 FTE: 40 + (20 60 120) = 50Employer employs 35 full time employees and 20 part-time employees who each work 96 hours per month51 FTE: 35 + (20 96 120) = 51When is an Employer Subject to Pay-or-Play?13Seasonal EmployeesSpecial rule for seasonal employeesSeasonal workers are those who perform labor or services on a seasonal basis as defined by the DOL and retail workers employed exclusively during holiday seasonsWhen is an Employer Subject to Pay-or-Play?14Employers who opt out of providing benefitsEmployers who do not provide health coverage to all full time employees (and their dependents (no spouses)) are penalizedIf at least one full time employee (30+ hrs/wk or 130+ hrs/mo) is eligible for, or receives, a tax credit and enrolls in exchange coverage, the employer is subject to an annual penalty of $2,000 all full time employees (except for the first 30)Penalty is assessed monthly (i.e., $167.67 per full time employee per month)What are the Pay-or-Play Penalties?15Example 1: No full time employee receives a tax creditNo penalty assessedExample 2: One or more full time employees receive a tax creditThe annual penalty is calculated by taking the number of full time employees minus 30, multiplied by $2,000If there are 50 full time employees, the penalty would not vary if only one employee or all 50 employees received the credit; the employers annual penalty would be (50-30) $2,000 = $40,000What are the Pay-or-Play Penalties?16Employers who provide unaffordable coverageCoverage is affordable only if the premium for single coverage under the employers lowest cost plan with at least a 60% actuarial value does not exceed 9.5% of household income (or W-2 wages)Annual penalty is the lesser of $3,000 for each full time employee who receives a tax credit and enrolls in exchange coverage, or $2,000 multiplied by all full time employees (subtracting first 30)Penalty is assessed monthly (i.e., $250 per subsidy-receiving full time employee per month)What are the Pay-or-Play Penalties?17Example 1: No full time employee receives a tax creditNo penalty assessedExample 2: One or more full time employees receive a tax creditFor an employer with 50 full time employees, annual penalty is the lesser of:The number of full time employees minus 30, multiplied by $2,000, orThe number of full time employees who receive tax credits multiplied by $3,000Assuming 10 full time employees received tax credits, the potential annual penalty on the employer would be $30,000However, if the employer had 30 full time employees who received tax credits, then the potential annual penalty on the employer would be capped at $40,000 (20 employees $2,000) rather than $90,000 as calculated (30 employees $3,000)What are the Pay-or-Play Penalties?18Notice of Proposed Rulemaking (IRS), 78 Fed. Reg. 217 (01/02/13) Shared Responsibility for Employers Regarding Health CoverageNotice of Proposed Rulemaking (IRS), 78 Fed. Reg. 7314 (02/01/13) - Shared Responsibility Payment for Not Maintaining Minimum Essential CoverageProposed Rules (HHS/CMS), 78 Fed. Reg. 7348 (02/01/13) Exchange Functions; Eligibility for Exemptions (shared responsibility payment); Miscellaneous Minimum Essential Coverage ProvisionsProposed Rules (IRS), 78 Fed. Reg. 16445 (03/15/13) Shared Responsibility for Employers Regarding Health Coverage; CorrectionNotice 2011-36 Definitions of employee, employer, hours of serviceNotice 2011-72 - Affordability of coverageNotice 2012-17 Determining full time employeeNotice 2012-58 Interim guidanceDetermining Full Time Employee Status for Purposes of the Pay-or-Play Tax19An employer elects to use a 6-month measurement period and a 6-month stability period for purposes of determining its full time employeesThe first measurement period runs from January 1, 2014 through June 30, 2014 and the associated stability period runs from July 1, 2014 through December 31, 2014Example of Full Time Employee Status20A Variable Hour Employee (new employees only)On start date, it cannot be determined whether employee is expected to work on average at least 30 hours per weekInitial Measurement Period of between 3 and 12 monthsAssess average during Initial Measurement PeriodAssessment is then used for stability period that is the same as for ongoing employeesUse of Administrative PeriodCan use an administrative period but total of initial measurement period and administrative period cannot exceed 13 months (plus the remainder of the month if anniversary falls in middle of month)Variable Hour Employees & Full Time Employee Status21An employer will not be subject to a penalty for the first 3 months following an employees date of hireThis coordinates with 90-day limit on waiting periodCoordination with 90-Day Waiting Period Limit22DOL, IRS, and HHS audits will increaseAlready seeing audits of grandfathered status by DOL under the ActDOL efforts focus on increasing employer compliance rather than assessing penalties in early yearsWorker misclassificationThe ACA Litigation Minefield23Employee Claims under the ActWorkforce RealignmentIROsClaims to Mandated BenefitsWhistleblower ActionsThe ACA Litigation Minefield24Final regulations were issued jointly by Department of Treasury, DOL, and HHS on June 3, 2013Final regulations apply to plan years beginning on or after January 1, 2014Types of Wellness Programs:Participatory Wellness ProgramsHealth-Contingent Wellness ProgramsActivity-Only Wellness ProgramsOutcome-Based Wellness ProgramsWellness Programs25A wellness program is a program of health promotion or disease prevention1996: HIPAA added provisions to the IRC, ERISA, and PHS Act prohibiting group health plans and group health insurers from discriminating against individual participants and beneficiaries in eligibility, benefits, or premiums based on a health factException: Premium discounts or rebates or modification to otherwise applicable cost sharing (including copayments, deductibles, or coinsurance) in return for adherence to certain programsWellness Programs262006 Final regulations were issued implementing HIPAA nondiscrimination and wellness provisions2010 ACA amended the PHS Act (but not ERISA or IRC)Added nondiscrimination and wellness provisions which largely reflected the 2006 regulations and extended HIPAA nondiscrimination protections to the individual marketWellness program exception to prohibition on discrimination applies with respect to group health plans (and any health insurance coverage offered in connection with such plans) but does not apply to coverage in the individual marketWellness Programs27Programs that either do not provide a reward or do not include any conditions for obtaining a reward that are based on an individual satisfying a standard that is related to a health factorNo changes under final regulationsStill must be made available to all similarly situated individuals regardless of health status Examples:Filling out a health risk assessment or having a diagnostic test performedAttending a monthly, no-cost health education seminarProgram that reimburses employees for all or part of the cost of membership in a fitness center

Participatory Wellness Programs28A program that requires an individual to satisfy a standard related to a health factor to obtain a reward (or requires an individual to undertake more than a similarly situated individual based on a health factor in order to obtain the same reward)Two types:Activity-only wellness programsOutcomes-based wellness programsFive requirements for health-contingent wellness programsOpportunity to QualifySize of RewardReasonable DesignUniform AvailabilityNotice of Alternative Standard

Health-Contingent Wellness Program29A type of health-contingent wellness program that requires an individual to perform or complete an activity related to a health factor in order to obtain a reward but does not require the individual to attain or maintain a specific health outcomeExamples:WalkingDietExercise programsActivity-Only Wellness ProgramSome individuals may be unable to participate in or complete (or have difficulty participating in or completing) due to a health factor, such as sever asthma, pregnancy, or a recent surgery 30A type of health-contingent wellness program that requires an individual to attain or maintain a specific health outcome in order to obtain a rewardExamplesNot smokingAttaining certain results on biometric screeningsOutcomes-Based Wellness Program31Health-contingent wellness programs must provide individuals who are eligible for the program with an opportunity to qualify for the reward at least once per yearOpportunity to QualifyThe once-per-year requirement was included as a bright-line standard for determining the minimum frequency that is consistent with a reasonable design for promoting good health or preventing disease32The total amount of the reward for health-contingent wellness programs with respect to a plan, whether offered alone or coupled with the reward for other health-contingent wellness programs is limited to 30% of the total cost of employee-only coverage under the planCost of coverage = employer and employee contributions towards the cost of coverage for the benefit package under which the employee is (or the employee and any dependents are) receiving coverageThe 30% limit increases to 50% where the additional 20% is in connection with a program designed to prevent or reduce tobacco usePlans and issuers have flexibility to determine apportionment of the reward among family members, as long as the method is reasonableSize of Reward33Health-contingent wellness programs must be reasonably designed to promote health or prevent diseaseHealth-contingent wellness programs are reasonably designed if it:Has a reasonable chance of improving the health of, or preventing disease in, participating individuals, and Is not overly burdensome, Is not a subterfuge for discrimination based on a health factor, and Is not highly suspect in the method chosen to promote health or prevent diseaseReasonable DesignWhile programs are not required to be accredited or based on particular evidence-based clinical standards, these practices, such as those found in CDCs Guide to Community Preventive Services, may increase the likelihood of wellness program success and are encouraged as a best practice.Nothing in final regulations prevents a plan or issuer from establishing more favorable rules for eligibility or premium rates (including rewards for adherence to certain wellness programs) for individuals with an adverse health factor than for individuals without the adverse health factor.34Outcomes-Based Wellness ProgramsMust provide a reasonable alternative standard to qualify for the reward, for all individuals who do not meet the initial standard that is related to a health factor, in order to be reasonably designedReasonable DesignEnsures that outcome-based wellness programs are more than mere rewards in return for results in biometric screenings or responses to a health risk assessment, and are instead part of a larger wellness program designed to promote health and prevent disease, ensuring the program is not a subterfuge for discrimination or underwriting based on a health factor35The full reward under a health-contingent wellness program must be available to all similarly situated individuals The same full reward must be available to individuals who qualify by satisfying a reasonable alternative standard as is provided to individuals who qualify by satisfying the programs otherwise applicable standardIn lieu of providing a reasonable alternative standard, a plan or issuer may always waive the otherwise applicable standard and provide the rewardUniform Availability & Reasonable Alternative StandardsWhile an individual may take some time to request, establish, and satisfy a reasonable alternative standard, the same, full reward must be provided to that individual as is provided to individuals who meet the initial standard for that plan year.Plans and issuers have flexibility to determine whether to provide the same reasonable alternative standard for an entire class of individuals (provided that it is reasonable for that class) or provide the reasonable alternative stanard on an individual-by-individual basis, based on facts and circumstances presented36All facts and circumstances are considered in determining whether an alternative standard is reasonableSome factors considered:Completion of educational program plan or issuer must make the educational program available or assist employee in finding such a program and may not require individual to pay for the cost of the programTime commitment required must be reasonableDiet program plan or issuer must pay any membership or participation fee, but not required to pay for cost of foodUniform Availability & Reasonable Alternative Standards37Second Reasonable Alternative StandardIf an individuals personal physician states that the reasonable alternative standard is not medically appropriate for that individual, the plan must provide a second reasonable alternative standard that accommodates the recommendations of the individuals personal physician with regard to medical appropriatenessNormal cost sharing can be imposed for medical items and services furnished pursuant to the physicians recommendationsUniform Availability & Reasonable Alternative StandardsNote: an individuals personal physician can make recommendations regarding medical appropriateness that must be accommodated with respect to any plan standard and is not limited to a situation where personal physician disagrees with the specific recommendations of an agent of the plan with respect to an individual.38Activity-only wellness programMust allow a reasonable alternative standard (or a waiver thereof) for obtaining the reward for any individual for whom, for that period, it is either unreasonably difficult due to a medical condition to meet the otherwise applicable standard, or for whom it is medically inadvisable to attempt to satisfy the otherwise applicable standard.A plan or issuer may seek verification, such as a statement from the individuals personal physician, that a health factor makes it unreasonably difficult for the individual to satisfy, or medically inadvisable for the individual to attempt to satisfy, an otherwise applicable standard if reasonable under the circumstancesUniform Availability & Reasonable Alternative Standards39Outcome-based wellness programProgram must allow a reasonable alternative standard (or waiver thereof) for obtaining the reward for any individual who does not meet the initial standard based on a measurement, test, or screeningThus allows plans and issuers to conduct screenings and employ measurement techniques to target wellness programs effectivelyPlans and issuers cannot require verification by the individuals physician that a health factor makes it unreasonably difficult for the individual to satisfy, or medically inadvisable for the individual to attempt to satisfy, the otherwise applicable standard as a condition of providing a reasonable alternative to the initial standardUniform Availability & Reasonable Alternative Standards40Plans and issuers must disclose the availability of a reasonable alternative standard to qualify for the reward (and, if applicable, the possibility of waiver of the otherwise applicable standard) in all plan materials describing the terms of a health-contingent wellness programOutcome-based wellness programs must also include this notice in any disclosure that an individual did not satisfy an initial outcome-based testWhat must be included:Contact information for obtaining the alternative Statement that recommendations of an individuals personal physician will be accommodatedNotice of Availability of Reasonable Alternative Standard41Activity-Only Wellness ProgramsOutcomes-Based Wellness ProgramsOpportunity to QualifyAt least once per yearAt least once per yearSize of the RewardLimited to 30% of the cost of coverageLimited to 30% of the cost of coverage, plus an additional 20% for non-tobacco use Reasonable DesignMust not be overly burdensome or subterfuge for discrimination based on health statusMust not be overly burdensome or a subterfuge for discrimination based on health status. Must offer a reasonable alternative standard to qualify for the reward to every individual who does not meet the initial standardHealth Contingent Wellness Program Requirements42Activity-Only Wellness ProgramsOutcomes-Based Wellness ProgramsUniform AvailabilityAn alternative to qualify for the full reward (or waiver of standard) must be offered if activity would be medically inadvisable or unreasonable due to a medical condition.An alternative to qualify for the full reward (or waiver of the standard) must be offered to individuals who do not meet the initial standard.Notice of Alternative StandardMust provide notice of availability of alternative standard in all materials describing the program. Notice must include contact info and statement that recommendations from the individuals physician will be accommodated.Must provide notice of availability of alternative standard in all materials describing the program and in disclosures that individual did not satisfy the initial outcomes-based standard. Notice must include contact info and statement that recommendations from the individuals physician will be accommodated.Health Contingent Wellness Program Requirements43ACA addresses two types of claims proceduresInternal claims and appealsExternal reviewsACA general ruleComply with all the requirements applicable to group health plans under 29 CFR 2560.503-1, except as modified by ACA regulationsMeet the additional standards of the PPACA regulationsOnly non-grandfathered health plans must comply with these new proceduresInternal Claims and Appeals and External Review44New procedures create significant compliance obligationsChange existing internal claims and appealsAdd external reviewsEffective datesPlan years beginning on or after September 23, 2010Certain provisions have later effective datesInternal Claims and Appeals and External Review45Types of plans affectedInsuredSelf-insuredResponsible partiesInsured plans = insurerSelf-insured plans = plan administratorPlan sponsors affectedPrivate sectorPublic plans must comply with the original DOL Claims Procedures in place for ERISA-covered plans since 2002Public sector (nonfederal governmental)MultiemployerInternal Claims and Appeals and External Review46ACA changes and additions:1) Effective for plan years on or after Sept. 23, 2010Rescission (retroactive termination of coverage) can be appealedClaimant is entitled, free of charge, to additional evidence considered, or any new or additional rationaleClaims administrator must avoid conflicts of interest 2) Effective for plan years on or after July 1, 2011Denial notices must be updated to include additional contentModel notices at www.dol.govInternal Claims and Appeals473) Effective for plan years on or after January 1, 2012Urgent care claims must be decided within 72 hours, and the plan must defer to attending provider regarding whether claim is urgentDenial notices must be provided in culturally and linguistically appropriate mannerDenial notices must inform claimants of their right to request the applicable diagnosis and treatment codes, and their corresponding meaningsStrict adherence standard applies, but there is a very limited de minimis exceptionInternal Claims and Appeals48Culturally and linguistically appropriate denials Applicable non-English languageFor any address in a U.S. county where a notice is sent, a non-English language statement is required if 10% or more of the population residing in the county is literate only in the same non-English languageSpanish, Tagalog, Chinese, NavajoDOL guidance at:http://webapps.dol.gov/FederalRegister/PdfDisplay.aspx?DocId=25131Include statement of how to access language servicesOral language services in any applicable non-English language Provide, upon request, notice in any applicable non-English language

Internal Claims and Appeals49Self-Insured PlanConfirm that the plan is complying with the original DOL claims proceduresRevise the plan documents and SPDs to include the ACA updatesPrepare and update denial notices (initial and final) to account for the ACA updatesDetermine whether any of the claimants reside in counties that would require culturally and linguistically appropriate notices, and if so, prepare to meet that requirementDetermine which functions or obligations will be delegated to a TPAInternal Claims and Appeals Action Items50Insured PlanConfirm that the insurer is complying with the original DOL claims proceduresCheck insurance contract for ACA updatesReview plan document and SPD for ACA updatesInternal Claims and Appeals Action Items51OverviewParticipant may request review by an external independent review organization (IRO) after exhausting internal appealsIROs decision is final and binding on the planInsured plans may already be subject to a State-required external reviewSelf-insured plans may use the safe harbor (3 IRO process) until the federal government establishes an external review procedure for self-insured plansExternal Reviews52Available ACA external review processesTwo Federal ProcessesOne State ProcessPrivate Accredited Independent Review Organization (IRO) Process (3 IRO Process) This is the safe harbor for self-insured plans.HHS-Administered ProcessState External Review ProcessState processes only compliant if minimum consumer protection standards includedHHS determines complianceExternal Reviews53Self-insured ERISA covered plans

(private sector or multiemployer)Self-insured public sector plansFully insured plans

(private or public sector, or multiemployer)3 IRO process

HHS-approved State process, if applicable

HHS-approved State process

HHS-approved State process, if State opens its process and plan opts to participateOtherwise, elect a Federal process and notify HHS of electionIf State does not have one, elect a Federal process and notify HHS of electionExternal Reviews54IRO Contracting ProcessContract with at least 3 IROsRotate assignments among the IROs, or incorporate other independent, unbiased methods for IRO selection, such as random selectionIROs must not be eligible for financial incentives based on likelihood to support a benefit denialSafe HarborContract with at least two IROs by January 1, 2012, and with at least three IROs by July 1, 2012

External Reviews55Eligible under Federal processesClaims that involve medical judgment as determined by the external reviewer (IRO)Claims that involve a rescission of coverageFederal agencies could expand the scope of claims that are eligible for review beyond those noted above

Ineligible under Federal processesClaims based on whether the claimant meets the eligibility requirements under the plans terms, such as worker classificationClaims that do not involve medical judgment or rescission External Reviews56State External Review ProcessStates determine what claims are eligible for review under their External Review ProcessesExternal Reviews57Standard ReviewClaimant has 4 months to filePreliminary review and notice by planPlan assigns to IRO, and submits documents and information to IROIRO notifies claimant, and may accept additional information from claimantIRO provides additional information to plan for reconsideration (if applicable)IRO reviews claim de novoIRO reviews plan document/SPD to assure the IRO decision is not contrary to plan termsIRO issues written decision within 45 daysIf IRO reverses the plans denial, coverage must be provided immediatelyExpedited ReviewGenerally available if standard time frame for completing an expedited internal appeal or a standard external review would seriously jeopardize the life or health of the claimant or the claimants ability to regain maximum functionIRO and plan must follow standard process on expedited basisIRO must make its determination as quickly as possible, but within no more than 72 hoursExternal Reviews58About IROsUtilization Review Accreditation Commission (URAC)51 URAC accredited IROsNational Association of Independent Review Organizations (NAIRO) formed by the majority of URAC-accredited IROs

External Reviews59Issues to consider when choosing an IROYears of experience as IRONumber of external reviews conductedImplementation of new ACA standardsCredentials of reviewersHow fees are chargedCompliance with HIPAA and HITECHExternal Reviews60Implications of external reviewsLoss of control over claims decision making processFiduciary issuesAdministrative costs and burdensPossible increase in need for stop loss insuranceExternal Reviews61Select external review process the plan will follow If using 3 IRO Process:Determine whether plan will delegate the external review process to a TPA or administer it in-housePrepare and distribute RFIs for IROsEvaluate responses and select IROs as appropriateReview plan documents, SPDs, etc. to ensure that they are written as clearly as possible, especially key plan terms and definitionsIncorporate required changes in plan documents, SPDs, notices, announcements, etc.

External Reviews Action Items62As of January 1, 2014, individuals may elect coverage under COBRA or from an ExchangeExchange vs COBRAExchange offers premium subsidies for individuals with household income up to 400% of the federal poverty levelCost of exchange correlates directly to individuals age Cost of employer coverage, and thus COBRA, reflects a broader range of agesExchange does not cover dental, vision, medical flexible spending accounts, health reimbursement accounts, and employee assistance plans, which are subject to COBRAImpact on COBRA Coverage63Does not affect Medicare paymentsMore employers incentivized to get rid of early retirement plansSome large employers have already begun to remove retirees from company health plans to private exchanges:IBMCaterpillarTime WarnerGeneral ElectricWal-Mart Impact on Retiree Health Coverage64