Update on Health Care Reform Issues Update on Health Care … · Temporary Enforcement Safe Harbor...

June 18, 2013 – ECFA.org

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Update on Health Care Reform Issues

Email questions to [email protected]

Today’s Presenters

Danny Miller, Conner & Winters, LLP.

Contraceptive Coverage


• Effective for plan years beginning on or after 9/23/2010, plans must – Must be non-profit entity; – Provide coverage for designated preventive

care services; and – Cover such services without the imposition of

any cost-sharing requirements (such as a co-payment, co-insurance or deductible).

• Not applicable to grandfathered plans.

Preventive Care


• Evidence-based items/services rated A or B in U.S. Task Force recommendations.

• Immunizations for routine use. • Preventive care and screenings for infants,

children and adolescents. • Preventive care and screenings for women. For a complete list of covered services, see: www.healthcare.gov/center/regulations/prevention.html

Covered Preventive Care Services


• Effective for plan years beginning on or after August 1, 2012, preventive care services that must be provided to women without imposition of cost-sharing includes contraceptives.

• Regulations exempt certain “religious employers” from the requirement to provide contraceptives without cost-sharing.

Coverage for Contraceptives


2012 Final Regulations

In 2012 final regulations, there was no specific exemption for church.

“Religious employer” for purposes of exemption had to meet four requirements. The employer required to:

• have the inculcation of religious values as its purpose;

• primarily employ persons who share its religious tenets;

• primarily serve persons who share its religious tenets; and

• be a church or integrated auxiliary of a church.


After regulations were issued, HHS provided a one-year delay in effective date of rule for certain religious organizations not entitled to the exemption:

• Must be non-profit entity;

• From 2/10/2012 onward, must not have provided some or all of the contraceptive coverage otherwise required at any time because of religious beliefs of organization;

• Must provide notice to participants; and

• Must self-certify that it meets the above requirements.

Temporary Enforcement Safe Harbor


In response to objections of many religious organizations, HHS revised the definition of “religious employer.” As proposed, the revised definition will exempt the health care plans of the following organizations from having to provide contraceptive services:

• Churches;

• Conventions or associations of churches;

• Integrated auxiliaries of churches; and

• Religious orders.

Proposed Regulations (2013)


Integrated auxiliary of a church must be: • 501(c)(3) organization; • affiliated with a church; and • “internally supported.”



Organization is not “internally supported” if: • It offers goods, services or facilities for sale,

other than on an incidental basis, to the general public; and

• It normally receives more than 50% of its support from a combination of governmental sources, public solicitation of contributions, and receipts from the sale of admissions or goods, the performance of services, or furnishing facilities in activities that are not unrelated trades or businesses.



In addition, the proposed regulations provide an “accommodation” for certain non-profit religious organizations (“eligible organizations”).

An “eligible organization” is a nonprofit entity that:

• Opposes providing coverage for some or all of the required contraceptive coverage on account of religious objections;

• Holds itself out as a religious organization; and

• Self-certifies that it meets the above requirements and specifies the contraceptive services for which it objects to providing coverage.



Participants in plans of “eligible organizations” would be entitled to contraceptive coverage:

• Insured plans: Insurance company would automatically provide separate, individual market contraceptive coverage at no cost to participants.

• Self-funded plans: TPA would work with health insurance companies to provide separate, individual market contraceptive coverage at no cost to participants.

• Eligible organizations will not be required to contract, refer or pay for contraceptive coverage.



• Numerous lawsuits have been filed challenging the religious conscience exemption. Cases brought by:

– State attorneys general;

– Church-affiliated employers; and

– Secular employers.

• Basis for challenge: First Amendment (mandate will coerce religious organizations to subsidize contraception, abortifacients, sterilization in violation of their religious beliefs) and the Religious Freedom Restoration Act.

Ongoing Litigation

Other PPACA Reforms – 2013

and 2014


Near-term Provisions

1 These fees apply to both insured and self-insured plans.

Health FSAs Limited to $2,500 2013

Notice of Exchange Eligibility 2013

Comparative Effectiveness Fee1 2013

Quality of Care Reporting 2013

Risk Adjustment Fees1 for Exchanges 2014


Additional Coming Changes

Exchanges, Subsidies and Market Reforms 2014

Large Employer (200+) Automatic Enrollment 2015

Exchanges for Large Employers (100+) 2017

Cadillac Plan Tax 2018

Health Care Exchanges


Beginning 2014, penalty (tax) applies to individuals:

• Who have income above threshold level ($9,350 – single; $18,700 – married filing jointly); and

• Who do not enroll for healthcare coverage.

Penalty =

• 2014: Greater of $95 or 1% of income

• 2015: Greater of $395 or 2% of income

• 2016: Greater of $695 or 2.5% of income

For family, penalty capped at 300% of individual rate.

Individual Mandate


• Individual Mandate. – Individual Insurance Market Reforms.

• Health Insurance Exchanges. – Government Assistance for Modest Income

Premium Tax Credits (PTCs) (federal subsidies).

• Employer Shared Responsibility (“pay or play” or employer mandate).

• Expanded Medicaid.

2014: Four Complex Mechanisms


• Exchanges: Competitive, regulated marketplaces for individuals and small employers to obtain health insurance. – Exchange plan premiums subsidized with PTC for

individuals with household income less than 400% of federal poverty level (FPL). Household income = modified adjusted gross income

(MAGI).

– Individuals with Medicare, Medicaid or “affordable” employer coverage are excluded from these exchange subsidies.

Health Insurance Exchanges


• State-based (or regional) single risk pool. – Many states not ready; Federal Exchange will step in.

• Only “insurance companies” may offer coverage through Qualified Health Plans (QHPs).

• Premium rate variation limits: Age (3:1 limit), tobacco use (1.5:1), family size and geography.

• Platinum (90%), gold (80%), silver (70%) and bronze (60%) plans.

• PTCs available only to eligible individuals who purchase plan on an Exchange.

Health Insurance Exchanges

Enhancing Trust Email questions to [email protected]

Status of State Exchanges


Exchange PTCs

Individuals (households)* with MAGI between 100% FPL and 400% FPL receive PTC to purchase Exchange coverage.

* PTCs are not available to employees of plan sponsors adopting Exchange plans as employers.

FPL 2014 (est.) Individual Family of 4 100% $11,850 $24,450 400% $47,400 $97,800


Subsidies for Individuals in Exchanges

Income Level (in terms of

FPL)

Max. % of Income Paid Toward Health

Care Coverage

Up to 138% 2%

138 - 150% 3% - 4%

150 - 200% 4% - 6%

200 - 250% 6.3% – 8.05%

250 - 300% 8.05% - 9.5%

300 - 400% 9.5

Income Level (in terms of FPL)

Cost Sharing Limit

150 - 200% 6%

200 - 250% 13%

250 - 300% 27%

300 - 400% 30%

Income Level (in terms of FPL)

Out-of-pocket spending limits (Indiv./Family)

100 - 200% $1,983 / $3,967

200 - 300% $2,975 / $5,950

300 - 400% $3,987 / $7,973


Individuals purchasing a Qualified Health Plan (QHP) on an Exchange who are not:

• Covered by Medicare or Medicaid; • Covered by other government coverage, e.g.,

CHIP, TRICARE, VA, etc.; • Offered an affordable employer plan that

provides minimum value; • Enrolled in an employer plan (even if not

affordable).

Who Qualifies for PTCs?


Start: Employee Eligibility for ACA

Subsidy – Premium Tax Credit (PTC)

Is Employee’s Household Income

(MAGI) less than 400% of Federal Poverty

Limit?

Is Employee eligible for

coverage under Employer Plan? Does employer plan

provide minimum value?

Is the employer plan affordable (Employee-only

premium less than 9.5% of household

MAGI)?

STOP: Employee is NOT eligible for PTC.

Stop: Employee is eligible for PTC.

Yes

No

Yes

No

Yes Yes

No


• Employers are required to provide employees with written notices about Exchanges.

• Notices must be distributed to all employees, regardless of enrollment status or part-time or full-time status.

• Timing for providing notices: – Current employees: Must provide by 10/1/2013.

– New hires: Effective 10/1/2013, new hires must be provided notice within 14 days.

• Unclear what penalties apply for failure to provide notice.

Exchange Notice Requirement


Notice must inform employee: • of the existence of the Exchange, including a

description of the services provided by the Exchange;

• that the employee may be eligible for a premium tax credit if the employee purchases coverage through the Exchange; and

• that if the employee purchases coverage through the Exchange, the employee may lose any employer contribution to the employer’s health plan, and that all or a portion of the employer’s contribution may be excludible from income for federal income tax purposes.



• Notice requirement applies to all employers subject to Fair Labor Standards Act (“FLSA”).

• No special exception for churches or church-related organizations.

• Two coverage tests to determine whether an employer is subject to the FLSA: – enterprise coverage test; and

– individual coverage test.



• Both tests are based on facts and circumstances focusing on whether employer or any of employer’s employees are engaged in interstate commerce.

• Absent detailed analysis, it can be difficult to determine if FLSA applies; so probably advisable to just give notice.



• Effective 2014, there are penalties for large employers that offer no coverage or provide inadequate/unaffordable coverage.

• A large employer is one with 50 or more full-time equivalent employees (“FTEEs”).

• Penalties apply only if at least one full-time employee (“FT Employee”) participates in and receives subsidies from an Exchange.

Employer Mandate


• Penalties for large employers that fail to offer “minimum essential coverage”:

– Must pay excise tax for each FT Employee (after subtracting first 30 FT Employees).

– Excise tax = 1/12 of $2,000 for each month in which at least one FT Employee receives subsidies from exchange.

• “Minimum essential coverage” includes coverage under an “eligible employer-sponsored plan.”

Employer Mandate


• There are penalties for large employers that offer “inadequate” or “unaffordable” coverage.

• Excise tax = lesser of: – $3,000 for each FT Employee receiving subsidy; or

– $2,000 for each FT Employee (not including first 30 FTEs).

•Note: Part-time employees are not included in penalty calculation even though they are counted for purposes of determining if employer meets the 50 FTEE threshold.

Employer Mandate


No Penalty Do you have more

than 30 FT employees?

If plan is not affordable or does not provide minimum value – Pay monthly penalty, lesser of:

1/12 x $2,000 x (number of FT employees – 30)

1/12 x $3,000 x (number of FT employees receiving credits for exchange coverage)

Are any of your FT employees receiving premium credit for

exchange coverage?

Pay monthly penalty 1/12 x

$2,000 x (number of FT

employees – 30)

No Do you provide health

insurance?

Are you a large employer? (at least 50 FT equivalent workers)

Including FT (30+ hours/week) and PT workers (prorated) Excluding seasonal workers (up to 120 days per year)


• Full-time means an average of 30 hours per week; 130 hours per month is treated as equivalent to 30 hours per week

• Employees who are reasonably expected to be full-time employees must be offered coverage that could begin no later than the end of a 90-day waiting period

– If the coverage effective date is delayed beyond this date due to an employee taking additional time to enroll, the 90-day requirement is satisfied.

– No penalty would be imposed with respect to the employee’s first 3 calendar months of employment.

Determining Full-Time Employee Status


• Use of measurement/stability periods for determining FT Employee status of “variable hour” and seasonal employees is permitted.

• Variable hour employees – it cannot be determined that the employee is reasonably expected to work on average at least 30 hours per week based on facts and circumstances at the start date.

• Seasonal employees are identified using a reasonable good faith interpretation.

• Maximum 90-day waiting period can run after the measurement period, but coverage cannot be delayed for more than 13 months.

Determining Full-Time Employee Status


Overview of Variable and Seasonal Employee Rule

* The initial measurement and administrative periods may not together extend beyond the first of the month following 13 months of employment.

Measurement Period Administrative Period

Stability Period

• At least 3 months

• No more than 12 months*

• No longer than 90 days*

• For FT employee, at least the longer of 6 months or measurement period

• For PT employee, no longer than the measurement period


Overview of Variable and Seasonal Employee Rule Illustration of 12 month measurement and stability periods

Ongoing Measurement Period

Admin. Period

Ongoing Stability Period

Ongoing Measurement Period

Admin. Period

Ongoing Stability Period

Initial Measurement Period

DOH

Admin. Period

Coverage date, if FTE

Initial Stability Period

Exis

ting

Empl

oyee

New

Em

ploy

ee

Controlled Group Rules


414(b) and 414(c) do not directly apply to not-for-profit entities:

• 414(b) – relies on controlling stock interest. • 414(c) – relies on controlling stock interest,

profits, capital interest or actuarial interest.

Statutory Provisions


Basic Rule Common control exists if: • 80% of the directors/trustees of one tax-exempt

organization are representatives of another tax-exempt organization.

• 80% of the directors/trustees of one tax-exempt organization are directly or indirectly controlled by another tax-exempt organization. (Note: General power to remove a trustee/director and designate a new trustee/director constitutes control.)

Final Regulations


Application to Church-Related Organizations • Rules do not apply to churches and QCCOS;

they do apply to non-QCCOs. • Revenue Procedure 2007-71 indicates that

churches and QCCOs are subject to reasonable, good faith standard in applying controlled group rules using special rules of Notice 89-23. Note: Revenue Ruling 2009-18 and the preamble to final 403(b) and 414(c) regulations also say that rules of Notice 89-23 apply.

Final Regulations


Common control exists if: • 80% of the directors/trustees of one organization are

representatives of another organization. • 80% of the directors/trustees of one organization are

directly or indirectly controlled by another organization. • One organization provides directly or indirectly at least

80% of another organization’s operating funds and there is a degree of common management or supervision between the entities (e.g., power to appoint or nominate officers/directors/senior management or involvement in “day-to-day operations” of the other entity).

NOTICE 89-23


Church Alliance legislation recently introduced in current Congress (S. 952/H.R. 2117) establishes a special controlled group rule for churches, QCCOs and non-QCCOs. • Eliminates “facts and circumstances” test for more

objective test.

• One organization provides directly or indirectly at least 80% of another organization’s operating funds and there is a degree of common management or supervision between the entities. (Note: This is same as third test used in Notice 89-23.)

Special Church Legislation

Employer Considerations


• Identify all entities within employer’s controlled group.

• Determine whether employer (the controlled group) is a large employer subject to pay or play provisions.

• If large employer, establish a process to identify FT Employees” (those that work on average at least 30 hours per week).

– What will be standard “measurement period” and “stability period”? How will it apply for new variable hour employees?

– Analyze independent contractor/common law employee status.

Pay or Play Considerations


• Will substantially all full-time employees be offered coverage? Will eligibility provisions and/or employment practices be modified?

• Will plan provide “minimum value” (plan pays at least 60% of covered services for a typical employee group)?

• Will employee-only coverage be “affordable”? If not, will employer’s subsidy of employee-only coverage be increased? Will employer’s dependent coverage subsidy be decreased?

• What is the competition doing for their employees?

Pay or Play Considerations


Plan Design, Compliance and Communications: • Will plan design changes be required to comply with

health reform requirements for 2014?

• Will plan design changes be implemented to control costs associated with broader coverage?

• For all changes, keep in mind: – Impact on grandfathered plan status. – Update requirements for “Summary of Benefits and

Coverage” when benefits change. – $100 per day penalty for failure to comply with health

reform requirements.

Other Considerations


Plan Design, Compliance and Communications: • Notice of exchange availability to be provided to

all employees. • Form W-2 reporting of health benefit value may

be potentially expanded to include employers that sponsor non-ERISA plans.

• Additional reporting with regard to coverage in coordination with the exchanges.

Other Considerations


• Possible expansion of eligibility and benefits • Possible “pay or play” penalty • New fees and taxes related to plan coverage

– Patient-Centered Outcomes Research Institute (“PCORI”) fee,

– Transitional reinsurance assessment fee

– For insured plans, insurer tax

Budget Impact

Q & A Time!

Danny Miller, Conner & Winters, LLP.


For More Information

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Date Topic Speakers

June 25 Results from the 1st Annual Nonprofit Fundraising Survey

Mark Dillon John Pearson

October 24 The Economy –Its Impact on Christ-centered Organizations Nathan Hutson

November 7 Setting Clergy Compensation and Benefits Richard Hammar


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Update on Health Care Reform Issues Update on Health Care … · Temporary Enforcement Safe Harbor...

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