4 January 2013 | The Self-Insurer © Self-Insurers’ Publishing Corp. All rights reserved.

by Joseph Berardo Jr., CEO and President, MagnaCare

Are You Ready? Understanding – and Preparing for – the Impact of Healthcare Reform

© Self-Insurers’ Publishing Corp. All rights reserved. The Self-Insurer | January 2013 5

Now that the Affordable Care Act (ACA) has become a fixture of the uS healthcare system,

many experts have concluded that there will be more uninsured individuals in response to the administrative and financial demands placed on employers. The reason: employers, particularly middle market businesses, will find market exit and penalty payment more economical than compliance, while their employees will find they cannot afford the exchanges. Fortunately, self-insured healthcare provides a viable option against this consequence and, unlike the traditional, fully insured approach, self-insurance is cost-effective at a time when experts predict that insurance rates will continue to climb as a direct result of the ACA.

Whether self-insured or considering this option, it’s important to understand the ACA’s key compliance dates and statutory obligations.

Preparing for aca Obligations

Reporting the Cost or “Value” of Employer Provided Health Coverage

Commencing January 1, 2013, employers must report the cost or “value” of employer provided healthcare coverage. Beginning with 2012 W-2 forms (required for calendar year 2012 given to employees by the end of January 2013), employers must report the aggregate cost of all applicable employer-provided coverage. IrS Notice 2012-9 provides 23 pages of guidance. This supplements a previous 19 pages of guidance on this topic issued in IrS Notice 2011-28. The IrS Notices provide a series of fact-specific applications and some exceptions to the reporting requirement. The Notices also include

instructions for calculating the cost of the coverage. employers should be taking the steps needed to conform to this provision of the ACA within the time required to avoid penalties for non-compliance.

New Limitation of Flexible Spending AccountsThe ACA has reduced maximum employee contributions to Flexible Spending

Accounts (FSA) from $5,000 to $2,500. Employers sponsoring an FSA benefit on a calendar year basis must meet this new requirement by January 1, 2013. Certain non-calendar year-based plans that begin before 2013 have a later effective date. The IrS has issued Bulletin 2012-26 and Notice 2012-40 outlining deadlines and other requirements. granting a small degree of slack, the ACA provides that any plan amendments required to establish the $2,500 cap may be made retroactively before the end of 2014.

Withholding and Reporting Increased Taxes for Highly Compensated EmployeesThe ACA increases Medicare taxes for “highly compensated” employees. Wages,

defined to include non-cash fringe benefits, in excess of $200,000 will be subject to an additional 0.9 percent tax (an increase from 1.45 percent to 2.35 percent) per year for taxable years commencing on or after January 1, 2013. employers are required under the ACA and the IrS regulations to identify the point at which an employee meets the reporting threshold, withhold the higher tax, and comply with the new reporting requirements.

The IrS Form 941, employer’s Quarterly Federal Tax return and the W-2 will each have to set forth the amounts withheld. Again, this additional .9 percent tax is not a first-dollar tax, but imposed on amounts above $200,000.

Notification to Employees of Health ExchangeAnother rapidly approaching deadline with a dearth of federal guidance is

the obligation to provide employees, with written notice no later than March 1, 2013, about the health insurance exchanges in their state. The notice is mandated to include information about how the exchanges operate and the circumstances under which an employee may obtain coverage through the exchange. The notice must have information on the eligibility for tax credits and the possible loss of the employer’s contribution toward coverage if an employee elects to obtain health insurance from the exchange.

6 January 2013 | The Self-Insurer © Self-Insurers’ Publishing Corp. All rights reserved.

Play-or-Pay MandateThe ACA’s most significant

impact on employers is the play-or-pay mandate, which becomes effective January 1, 2014. As of that date, employers with more than 50 employees will face substantial penalties if health coverage is not offered to full-time employees or the coverage offered is “unaffordable” or “not comprehensive.” Where an employer with more than 50 employees does not offer any health benefits, the employer faces potential penalties of $2,000 per employee (with an exemption for the first 30 employees). If coverage is offered by the employer but is determined to be “unaffordable” or “not comprehensive,” the statutory penalty is $3,000 per employee receiving a subsidy for coverage obtained through an exchange.

There are various components of the play-or-pay employer mandate.

An employer subject to play-or-pay

should begin its analysis as soon as

possible. Ramifications, including cost

and employee retention, determining

whether to keep, add or eliminate

employer-sponsored group health

coverage in light of this provision of

the ACA, must be scrutinized. By way

of example, a penalty of $100,000

(80 employees less the exception

for the first 30 = 50 x $2,000) may

be far less expensive then providing

healthcare coverage to 80 employees.

This situation will result in a financial

disincentive to offer employer-

sponsored health coverage.

Once employers understand the

cost and coverage of any current plan,

they will be in a better position to

decide how to proceed. A company

may choose to leave an existing health

plan in place if it meets the required

“minimum essential coverage” and is

affordable under the Act. . Or it could

decide to increase existing coverage to make it “qualified and affordable.” In some cases, based on the cost benefit analysis, a company may realize savings if it stops offering coverage and subjects itself to the tax penalties set forth in the federal law.

Key advantages of self-Insurance in today’s reform environment

Self-insured plans are not specifically subject to a number of significant encumbrances and obligations imposed by the ACA on insurance-based plans. For instance, the healthcare law does not place self-insured health plans under the jurisdiction or authority of the states, while insurance-based plans must comply with the varying coverage mandates, insurance statutes and regulations of the 50 states. Furthermore, self-insured plans continue to be exempt from state

© Self-Insurers’ Publishing Corp. All rights reserved. The Self-Insurer | January 2013 7

mandates and regulation by virtue of the employee retirement Income Security Act’s (erISA) preemption of state action in connection with self-insured health and welfare benefit plans. For the most part, self-insured plans are not subject to litigation in state courts or the appeal and complaint procedures of the insurance departments of each state.

Self-insured plans are also exempt from these key provisions:

• Essential Health Benefits Requirements - Self-insured plans are not required to provide the 10 mandated benefits set forth in Section 1302 of the healthcare law. Despite this, the majority of health plans will likely cover these benefits as part of basic coverage. Also, under other provisions of the ACA, self-insured plans will have to maintain certain levels of coverage in order to meet the threshold of a “qualified” health plan. The key advantage here is the flexibility it provides to self-insured plans in plan design.

• Comprehensive Coverage for Health Benefits Package -- Insurance-based plans will be required to provide essential health benefits as defined by the Secretary of health and human Services (hhS), and provide either a “bronze, silver, gold, or platinum level of coverage” as defined in the ACA and established via the state exchanges. Self-insured plans are not included in this section of the ACA. hhS will develop an alternate means of determining benchmarks for measuring the benefits and values in self-insured plans based on prior data. This aspect also provides greater flexibility to employers providing coverage via a self-insured plan.

• ensuring that Consumers get value for Their Dollars -- This provision authorizes the Secretary of hhS and state insurance departments to

investigate the reasonability

of premiums of insurance-

based plans. The statute does

not empower the Secretary

to investigate the value or

reasonableness of the level

of contribution required for

self-insured plans. As state

insurance commissioners

have no jurisdiction over such

plans, self-insured plans do not

have to bear the costs and

administrative burdens attendant

to investigations and scrutiny by

regulatory agencies.

Self-insurance is a cost-effective

alternative to the traditional, fully

insured health plan approach that,

when combined with Stop loss

insurance to alleviate the risks

associated with catastrophic claims,

offers an effective solution for middle-

market employers striving to be in

compliance with the new healthcare

For additional information, please contact: Phone: 800.800.4007ExcessWorkersComp@midman.commidlandsmgt.com

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Stop Loss / Disability Income / Life / Limited Benefi t Medical

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8 January 2013 | The Self-Insurer © Self-Insurers’ Publishing Corp. All rights reserved.

law while continuing to offer healthcare coverage. What’s more, self-insured health

plans offer employers less complex administration and greater flexibility in plan

design, which often translates into cost savings. In addition, self-insurance gives

employers the ability to customize plan designs that encourage employees to use

“Provider Preferred” physicians and services that enable patients to receive richer

benefits and lower cost sharing when they go to an inner network provider. When

partnered with a healthcare services company, this micro-network of physicians

creates a competitive and unique product with a focus on service, care coordination

and overall health improvement.

Maximizing the Benefits of Self-InsuranceA health plan management firm that specializes in self-insurance can play

an important role in helping employers get the most out of their self-insurance

plan, walking them through the complexities and nuances of today’s healthcare

environment. What’s more, some health plan management firms have forged long-

term relationships with Stop loss carriers, allowing them to provide competitive

rates. Generally, health plan management firms oversee the self-insured plan and

assume responsibility for :

• Maintaining eligibility

• Customer service

• Adjudicating and paying claims

• Preparing claim reports

• Negotiating, obtaining and renewing stop-loss placement

• Conducting enrollment information meetings

• Arranging managed care services, such as access to preferred provider

networks, coverage for alternative treatment programs including acupuncture

and chiropractic services, prescription drug card programs that offer cost-

saving opportunities and utilization review

In particular, employers should partner with a health plan management

firm that offers secure data analytics for both remote and real-time care, while

providing an inexpensive vehicle for coordinating online tools that identify at-risk

members, their patterns and treatments for various ailments – from diabetes to

heart conditions. robust data analytics allow self-insured employers to evaluate

employee information, including age, chronic illness, risk factors and gaps in care,

and update medical conditions, compare previous costs to projected expenditures,

and intervene with optimal prevention and wellness programs. This approach

enables middle-market employers to align their focus with the ACA’s emphasis

on accountability, evidence-based results, and provider integration, while providing

current employees – and attracting new talent – with access to cost-effective,

quality healthcare. n

Joseph Berardo, Jr. currently serves as CEO and president of MagnaCare. In this capacity,

Mr. Berardo is responsible for the management of all of MagnaCare’s day-to-day

activities and the strategic initiatives of the company. Mr. Berardo originally joined the

company as vice president of Sales and Marketing in January of 2003.