p resented by d ebbie l. b lackwell o ctober 22, 2013 h ealth r eform i mplementation : w hat n ext...

PRESENTED BY DEBBIE L. BLACKWELL

OCTOBER 22, 2013

HEALTH REFORM IMPLEMENTATION: WHAT NEXT FOR EMPLOYER-SPONSORED HEALTH PLANS

© 2013 Conner & Winters, LLP

PREPARED FOR THE

OKLAHOMA CENTER FOR HEALTHCARE IMPROVEMENT

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A WORD ABOUT TERMINOLOGY

At a minimum, let’s identify a few essential ACA terms that sound alike, but have different functions -

• Essential Health Benefits (EHB) – a list of benefit categories provided in the ACA statute

• For insured plans offered on the exchange (so-called “Qualified Health Plans”), essential health benefits must be covered

• For larger insured plans and self-funded employer plans, any essential health benefits that are covered must not be subject to an annual or lifetime limit

• Minimum Essential Coverage (MEC) – includes Medicare, Medicaid and most employer-sponsored major medical plans, but not “excepted benefits” plans (e.g., stand-alone dental)

• An applicable large employer must offer MEC to substantially all full-time employees to avoid paying a $2,000/year penalty (the “a” penalty) for each full-time employee

• An individual must obtain MEC to avoid paying a tax penalty

• Minimum Value (MV) – an actuarial determination that a plan would pay at least 60% of covered benefits for a typical population. An applicable large employer must offer coverage with minimum value in order to prevent an employee from obtaining a subsidy from an exchange that could then result in the employer paying a $3,000/year penalty (the “b” penalty) for each full-time employee that obtained subsidized coverage from an exchange.

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CONTENTS OF PRESENTATION

• Brief review of recent developments

• Plan design and compliance requirements – applies to almost all employers

• New fees and taxes – applies to almost all employers

• Exchange features

• Individual mandate penalty

• Employer mandate penalty - applies to large employers with 50 or more employees

• Planning for 2013 and 2014

Additional information is provided for reference at the end of the presentation

• Addendum 1 – What plans are affected?

• Addendum 2 – Excise Tax Penalties

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RECENT DEVELOPMENTS AND UPCOMING DEADLINES

• U.S. Supreme Court ruled on June 26, 2013, that section 3 of the Defense of Marriage Act is unconstitutional. Many employer plans and employment policies will be affected.

• IRS guidance has adopted the “place of celebration rule” effective September 16, 2013. See IRS Revenue Ruling 2013-17.

• DOL/EBSA has also adopted the plan of celebration rule in Technical Release 2013-04 (Sept. 18, 2013).

• PCORI fee due by July 31 of the calendar year following a plan year that ends on or after October 1, 2012, on IRS Form 720. Insurer pays this fee for insured plans.

• HIPAA/HITECH final regulation compliance date is September 23, 2013. Updated privacy notice, policies and procedures are due. Additional time is available in some situations for distribution of the privacy notice to participants and to update business associate agreements that were in existence on January 25, 2013.

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Notice to Employees About Exchanges

• A notice about the exchanges or “marketplaces” must be provided to all employees of an employer that is subject to the Fair Labor Standards Act (e.g., the Federal minimum wage rules) by October 1, 2013. DOL Technical Release 2013-02 (May 8, 2013). The notice may be provided by mail or electronically if DOL standards for electronic notices are satisfied.

• Model notices are available on the EBSA website at http://www.dol.gov/ebsa/

• Two versions of model notices are available depending on whether the employer offers a plan or not. The first page of each notice has all of the required information except whether the coverage provides “minimum value” and is “affordable”, if a plan is offered.

• If eligibility information is added to the notice, then it is appropriate to refer to the Plan or SPD for full details about eligibility.

• No fine or penalty applies to an employer for failure to provide the notice according to a DOL FAQ released on September 11, 2013.

See http://www.dol.gov/ebsa/faqs/faq-noticeofcoverageoptions.html

2014 Summary of Benefits and Coverage (SBC)• New for 2014 is that the SBC identify whether the plan provides minimum value.

http://www.dol.gov/ebsa/

http://www.dol.gov/ebsa/faqs/faq-noticeofcoverageoptions.html

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ACA plan design requirements to address for plan years beginning on or after January 1, 2014:

• Waiting periods limited to no more than 90 days.

• Preexisting condition exclusions prohibited.

• Annual dollar limits prohibited for “essential health benefits”.

• A group health plan or health insurance issuer may not: (i) deny a “qualified individual” participation in an approved clinical trial; (ii) deny (or limit or impose additional conditions on) the coverage of routine patient costs in connection with participation in the trial; and (iii) discriminate against the individual on the basis of the individual's participation in such trial.

• For plan years beginning on or after January 1, 2014, the maximum out-of-pocket limit is limited to the out-of-

pocket limit applicable to high deductible health plans (HDHP). For 2014, this limit is $6,350 (for self-only coverage) and $12,700 (for non-self only coverage). Limited relief from this rule is available for some employers for 2014.

• Preventive services list may need to be updated or possibly limited if employer qualifies for the religious employer exemption. Note that the IRS recently stated that HDHP plans may cover the generally broader list of preventive services required under the ACA without application of the high deductible. See IRS Notice 2013-57.

• Apply new wellness incentive rules – generally more favorable that prior rules.

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• The IRS has delayed by one year • the employer shared responsibility penalty (for employers with 50 or more employees),

and • the related employer reporting requirements to be effective beginning January 1, 2015,

regarding• Minimum essential coverage (IRC § 6055), and• Offer of coverage that is minimum value and affordable coverage (IRC § 6056). IRS

Notice 2013-45.

• While this delay provides welcome relief, employers should continue to review health plan eligibility in relation to average hours of employees during 2013 and 2014 to address compliance with the employer mandate rule beginning in 2015.

• NOTE: Employers that use part-time and seasonal employees may want to measure hours for ongoing employees beginning as early as October 2013, to prepare for • the fall enrollment season in 2014, and • determining full-time status (and eligibility for coverage) for 2015

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• Under Code § 6055, providers of “minimum essential coverage” (including insurers and employer sponsors of self-insured plans) must:

• file an information return with the IRS that includes information about participants and the employer maintaining the plan; and

• provide a statement to each covered individual if the coverage constitutes “minimum essential coverage.”

• This reporting relates to plans of all sizes and will be utilized primarily to enforce the individual

mandate. The following information must be provided:• the name of each individual with MEC and the name and address of the responsible individual (for

example, a parent or spouse) who submits the application for coverage• the TIN for each covered individual (including children)• the months during which each individual was covered• for employer-provided coverage, the name, address, and EIN of employer plan sponsor and

whether coverage was provided through the SHOP• any other information specified in IRS guidance, forms or instructions

• Originally effective as of January 1, 2014, but for one year. The first information return and individual

statements for 2015 will be due in early 2016 – same as Form W-2 deadlines. The proposed regulation was published September 9, 2013, at 78 Fed. Reg. 54,986.

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• Under Code § 6056, each member of an “applicable large employer” or “ALE”(50 or more employees) is required to:

• file an information return reporting the terms and conditions of the health care coverage it offers; and

• provide individual statements to each full-time employee showing the information required to be included on the return.

• This reporting will be utilized to enforce the employer mandate (“pay or play”). The following

information must be provided by the ALE:• The ALE’s name, address, EIN, contact information• a certification as to whether the ALE member offered its full-time employees (and dependents) the opportunity

to enroll in MEC (by calendar months)• For each full-time employee, the months during the calendar year for which coverage was available• Each full-time employee’s share of the lowest monthly, self-only cost for “minimum value” coverage (by calendar

month)• The name, address and TIN for each full-time employee during the calendar year and the months, if any, during

which the employee was covered under the plan• Such other information required by the IRS

• Originally effective as of January 1, 2014, but for one year. The first information return and individual

statements for 2015 will be due in early 2016 – same as Form W-2 deadlines. The proposed regulation was published September 9, 2013, at 78 Fed. Reg. 54,996.

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IRS Notice 2013-54 (issued September 13, 2013) contains important new and very technical guidance relating to HRAs, defined contribution plan efforts and EAPs.

• Defined contribution plan strategies addressed: Neither an HRA nor an “employer payment plan” may be used as a method for an employer to pay for or reimburse employee health premium costs for individual coverage (obtained through an exchange or otherwise by the individual) due to violation of the prohibition on annual limits under PHSA § 2711.

• Integration of an HRA: The Notice provides two methods of assuring that an HRA with a dollar limit is integrated with a major medical plan so that the combined program is compliant with the PHSA § 2711 annual limit prohibition and the PHSA § 2713 preventive services coverage. Under either method, the HRA that allows carryover of the account balance must allow the participant to opt out of the HRA balance coverage at least annually and upon employment termination. This opt-out will enable a participant to be considered without employer-provided coverage, and thus possibly qualify for an exchange subsidy.

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IRS Notice 2013-54 continued:

• EAPs: Future regulatory guidance will provide that an employee assistance program or EAP will be considered an “excepted benefit” if it does not provide significant benefits in the nature of medical care or treatment. The regulators will apply this standard until regulations are updated. Employers may apply a reasonable, good faith interpretation of whether an EAP provides significant medical benefits. This will enable employees who are not offered a major medical plan to possibly qualify for a subsidy at the exchange even though they have access to an EAP. Also, employers will not be penalized for providing EAP coverage that does not include required preventive coverage.

• Retiree-only HRAs: A stand-alone HRA for retirees only (fewer than two participants who are current employees) are not subject to the “market reform” requirements, such as the annual limit prohibition and the preventive coverage requirement. Such an HRA would be eligible employer-sponsored coverage or “minimum essential coverage” and thus would prohibit a participating retiree from qualifying for a subsidy through the exchange for any month in which funds are available in the HRA.

• Section 125 Cafeteria Plan qualified benefits: Effective after 2013, a cafeteria plan may not include a qualified health plan through an exchange unless the employer offers health coverage through the small employer part of the exchange, or SHOP. § 125(f)(3). The IRS will allow any cafeteria plan (that operates on a fiscal year as of 9/13/13) to continue to offer such coverage as a qualified benefit through the fiscal year that ends in 2014. However, employees with such coverage will not be eligible for a subsidy through the exchange during the months in 2014. This provides relief for programs in MA and perhaps other states that allowed such a provision and had an exchange.

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HEALTH EXPENDITURE PER CAPITA VARIES WIDELY ACROSS OECD COUNTRIES.FOR 2009, THE UNITED STATES SPENT ALMOST TWO-AND-A-HALF TIMES THE OECD

AVERAGE.Health at a Glance 2011: OECD Indicators – ©OECD 2011Total health expenditure per capita, public and private, 2009 (or nearest year)

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Public expenditure on health Private expenditure on health

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1. In the Netherlands, it is not possible to clearly distinguish the public and private share related to investments. 2. Health expenditure is for the insured population rather than the resident population.3. Total expenditure excluding investments.

Source: Organization for Economic Co-operation and Development (OECD) Health Data 2011; WHO Global Health Expenditure Database.

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• Plan design and compliance requirements – applies to almost all employers









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EMPLOYER HEALTH CARE REFORM TIMELINE – CALENDAR YEAR PLAN

2010 2011 2012 2013 2014

January 1, 2010• Small business tax credit• Adoption assistance

exclusion increased

1st Quarter, 2010• Accounting charge –

retiree drug subsidy becomes taxable

March 23, 2010• Auto enrollment required

(if more than 200 employees), effective pursuant to DOL regulations (not issued yet)

March 30, 2010 Income exclusion for

health plan coverage of any child through end of calendar year before attainment of age 27

June 2010• Temporary reinsurance

program for early retirees (ages 55-64) established

January 1, 2011• Lifetime dollar limits on

EHBs prohibited; restricted annual dollar limits

• Child coverage to age 26• Coverage of preventive

care services; no cost-sharing

• Pre-existing condition exclusions prohibited for children under 19 years of age

• Patient protections• OTC drugs ineligible for

FSA, HSA,HRA, other health plans

• External claim review process

• Nondiscrimination rules for insured plans (delayed until final regs)

• Taxes on drug makers• Medical loss ratio (MLR)

rules effective• HSA non-medical

withdrawal tax increased from 10% to 20%

January 1, 2012• Comparative effectiveness

research tax on plans begins• W-2 reporting of health

coverage cost for 2012 (generally due 1/31/13)

August 1, 2012• Rebates under medical loss

ratio rule due; Each Aug. 1 thereafter

September 23, 2012• Uniform explanation of

coverage required in 12 point font; 60-day advance notice of change required (PHSA § 2715)

October 2012• PCORI tax for plan years

ending after 10/01/12 and before 10/01/19

January 1, 2013• Health Care FSA

contributions capped at $2,500

• Women’s preventive health services covered with no cost sharing; Religious employer exemption

• Medicare Tax on income over $200,000 ($250,000 couples)

• Additional tax on net investment income – 3.8% if income over $200,000 ($250,000 couples)

• Taxes on durable medical equipment providers

Later 2013• Notice to employees

about exchanges, tax credit subsidy

January 1, 2014• Annual dollar limits on

EHBs prohibited• OOP limits • Deductible limits for

small group plans• Pre-existing condition

exclusions prohibited• Waiting periods limited

to 90 days• Pay or play: Individual

and employer (under 50 ee’s) mandates (delayed to 2015)

• Health insurance exchanges established

• Premium tax credit subsidy through exchange for low income individuals

• Required coverage of certain services related to clinical trials coverage for life-threatening diseases

• Transitional reinsurance tax begins (2014, 2015, 2016)

• Insurer tax begins

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2010/2011 – PLAN DESIGN MANDATES

Year Effective Requirement Applies to

GF planApplies to

non-GF plan

Plan years beginning on or after 9/23/10

Adult child coverage to age 26 subject to a limited other coverage exception for grandfathered plans Yes Yes

Lifetime limits prohibited for essential benefits Yes Yes

Annual limits for essential benefits allowed if “restricted” Yes Yes

Rescission prohibited except for fraud, misrepresentation Yes Yes

Pre-existing condition exclusions prohibited for enrollees under age 19 Yes Yes

Automatic enrollment for employers with more than 200 employees (if and when regulations issued) Yes Yes

Coverage of preventive services without cost sharing required No Yes

Nondiscrimination rules applied to insured plans (similar to IRC section 105(h) rules that apply to self-insured plans) – delayed until final regulations issued No Yes

Internal claims appeals process like ERISA rules required; external process based on state law or by future regulation No Yes

Certain “patient protections” required relating to choice of provider and emergency treatment paid on an in-network basis No Yes

Disclosures to federal government regarding health improvement programs (effective by regulation) No Yes

Disclosures to regulators and public to enhance transparency regarding claim practices, enrollee rights and cost sharing (effective date unclear) No Yes

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2012/2014 – PLAN DESIGN MANDATES

Year Effective Requirement Applies to GF

planApplies to

non-GF plan

2012 Uniform Summary of Benefits and Coverage (“SBC”) Yes Yes

Plan years beginning on or after 1/1/14

Waiting periods may not exceed 90 days Yes Yes

Annual limits prohibited for essential benefits Yes Yes

Pre-existing condition exclusions prohibited for all participants Yes Yes

Certain clinical trial coverage required; cost sharing limitations No Yes

New wellness incentive rules Yes Yes

Nondiscrimination rules regarding providers practicing within their scope of license No Yes

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PLAN CHANGES AND COMPLIANCE FOR 2012 & 2013

• Insured plans may not discriminate in favor of highly compensated individuals.

Rules and definitions similar to those in Code § 105(h) will apply.

“Highly compensated” generally means the top-paid 25% of employees.

Similar rules have been applied to self-insured plans since 1980, with loss of income exclusion for HCEs in a discriminatory plan.

• Penalties for discriminatory insured plans:

$100/day/individual discriminated against under IRC section 4980D.

Civil action to compel nondiscriminatory benefits for NHCEs under ERISA section 502.

• This rule has been delayed until final regulations are issued per IRS Notice 2011-1.

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Overview of 2012/2013 Requirements:

• Annual limit changes, if any

• MLR Rebates

• Summary of Benefits and Coverage (SBC) drafted and distributed

• $2,500 limit for health FSA coverage periods beginning in 2013

• Women’s preventive health services, including contraceptives, covered at 100%

• 2012 (and later years) Form W-2 – include the value of health coverage

• Notice of state exchange availability and tax credits to participants was to be provided by March 1, 2013, but a delay has been announced by DOL until October 1, 2013.

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• Annual limits on the dollar value of benefits are generally prohibited for “essential health benefits”.

• Restricted annual limits are permitted in the following amounts: Plan year beginning between 09/23/10 and 09/23/11:

$750,000

Plan year beginning between 09/23/11 and 09/23/12: $1,250,000

Plan year beginning between 09/23/12 and 01/01/14: $2,000,000

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“Essential health benefits” as defined in PPACA section 1302(b) include “at least” the following general categories and the items and services covered within those categories:

• 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• Pediatric services, including oral and vision care

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• The list of essential health benefits in the statute is quite vague, so HHS guidance provides that EHBs are determined by reference to a benchmark plan for each state.

• The Oklahoma benchmark plan according to a recently proposed HHS regulation is the BCBSOK BlueOptions PPO RYB05, which is the largest small group product in Oklahoma.

• Multistate plans will apparently be able to reference a national plan to determine EHBs, such as a plan offered under the Federal Employees Health Benefits Plan (FEHBP).

• Additional guidance is needed from OPM in this regard, but earlier indications are that the national benchmark will likely be a BlueCross and BlueShield product.

• Keep in mind: most employer plans need to know the definition of EHB for the purpose of the prohibition on annual and lifetime limits. Insurers need this information for qualified health plans offered on the exchanges.

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MLR rebates are due to be paid by August 1 of each following calendar year. Many employers have wrestled with how to handle the rebates for contributory plans. Various sources of guidance must be considered, depending on whether the plan is covered by ERISA.

DOL guidance:http://www.dol.gov/ebsa/newsroom/tr11-04.html

IRS guidance:http://www.irs.gov/newsroom/article/0,,id=256167,00.html

CCIIO guidance for nonfederal governmental plans:http://www.gpo.gov/fdsys/pkg/FR-2011-12-07/pdf/2011-31291.pdf

http://www.dol.gov/ebsa/newsroom/tr11-04.html

http://www.dol.gov/ebsa/newsroom/tr11-04.html

http://www.irs.gov/newsroom/article/0,,id=256167,00.html

http://www.irs.gov/newsroom/article/0,,id=256167,00.html

http://www.gpo.gov/fdsys/pkg/FR-2011-12-07/pdf/2011-31291.pdf

http://www.gpo.gov/fdsys/pkg/FR-2011-12-07/pdf/2011-31291.pdf

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• ACA requires health plans and issuers to provide a summary of benefits and coverage (“SBC”), along with a uniform glossary of terms, to potential enrollees upon request and before they buy coverage.

• The rules apply to: • open enrollment periods that begin on or after September 23, 2012, and • other enrollments for plan years that begin on or after September 23, 2012

(a six-month delay from the statutory deadline). • Final regulations and sample documents are available, at

http://www.dol.gov/ebsa/healthreform/ under the heading “Summary of Benefits and Coverage and Uniform Glossary”.

• For the 2014 SBC, an indication of whether the plan provides minimum value must be provided.

http://www.dol.gov/ebsa/healthreform/

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• SBC must be provided by the group health plan insurer or administrator to participants and beneficiaries:

when enrollment materials are distributed or the first date on which enrollment is allowed;

30 days prior to renewal (or prior to enrollment if such is required at renewal), and no later than 7 days after issuance of a new policy, if later;

for special enrollees, within 90 days of enrollment (same as SPD distribution rule);

at least 60 days prior to the effective date of a significant change to the terms of coverage in the SBC (or a notice of change to the SBC must be provided at least 60 days in advance); and

within 7 days of a request by a participant or beneficiary.

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• Fine of up to $1,000 can apply to a health plan or an insurer for each willful failure to distribute the SBC as required.

Further guidance is needed regarding the enforcement process for this fine.

In addition, a $100/day/failure excise tax under IRC § 4980D applies for most health plan requirements that have been imposed since HIPAA was enacted.

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• Women’s preventive health services without cost sharing (for non-grandfathered plans in plan years beginning on or after August 1, 2012)

Well-woman visits – generally annually

Screening for gestational diabetes – between 24 and 28 weeks of gestation and at first prenatal visit for women at high risk for diabetes

High risk HPV DNA testing beginning at age 30, every 3 years

Counseling for sexually transmitted infections – annually for sexually active women

Counseling and screening for HIV – annually for sexually active women

Contraception methods and counseling – as prescribed

FDA-approved contraceptive methods, sterilization procedures, and patient education and counseling for women with reproductive capacity

Breastfeeding support, supplies and counseling – during each pregnancy and following birth, including costs for renting breastfeeding equipment

Screening and counseling for interpersonal and domestic violence – annually

http://www.hrsa.gov/womensguidelines/



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• ACA requires employers to report the cost of coverage under an employer-sponsored group health plan on Form W-2.

Originally effective for 2011 Forms W-2, IRS Notice 2010-69 delayed the

required reporting until the 2012 Form W-2 (due in January 2013).

IRS Notices 2011-28 and 2012-9 provide information on how to report, what coverage to include and how to determine the cost of the coverage.

Reporting requirement generally applies to all employers that provide applicable employer-sponsored coverage, but does not apply to Federally recognized Indian tribal governments and tribally chartered corporations wholly owned by such governments.

Reporting on Form W-2 does not make the coverage taxable!

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• Transition Relief: Form W-2 reporting requirement does not apply for 2012 Forms W-2 (and will not apply for future calendar years until additional guidance is issued) for the following:

Employers filing fewer than 250 Forms W-2 for the previous calendar year.

Note: This transition rule may not apply in future periods, causing many more small employers to be subject to the this reporting rule.

Multiemployer plans (generally pooled plans maintained pursuant to collective bargaining).

Health reimbursement arrangements (“HRAs”). These may be included at employer’s option.

Dental and vision plans that are “excepted benefits” – as clarified in Notice 2012-9.

Self-insured group health plans that are not subject to any Federal COBRA requirements, such as self-insured church plans.

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• Employers are required to report on Form W-2 the total cost of all "applicable employer-sponsored coverage" provided to an employee. This includes EAPs unless the employer does not charge for the EAP in its COBRA premium.

• Certain types of coverage are excluded from this definition, including:

long-term care;

certain HIPAA "excepted benefits“ (such as accident-only and disability coverage), but no exception for on-site medical clinics (unless the employer does not charge for on-site services under COBRA); and

coverage only for a specified disease/illness and hospital or other indemnity insurance, if paid by employee on an after-tax basis.

• The following are also not required to be reported:

Archer MSA contributions

Health savings account contributions

Salary reduction contributions to a health care flexible spending account

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• The amount reported should include both the employer and employee portion of the cost, regardless of whether the employee paid for coverage on a pre-tax or after-tax basis. However, it should not include “excess reimbursement” amounts that are included in the taxable income of a highly compensated employee due to a discriminatory plan under IRC § 105(h).

• The cost of health care benefits will be reported in Box 12 of the Form W-2, with Code DD.

• Under the transition rules that apply until future guidance, if an employee requests the Form W-2 before the end of the calendar year, the employer is not required to report any amount of health benefits on the Form W-2.

• Employers are not required to issue a Form W-2 to retirees or other former employees to whom the employer does not normally issue a Form W-2.

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• An employer may calculate the cost of coverage for Form W-2 reporting under one of the following methods:

the cost of coverage as determined under the COBRA rules;

the “composite” cost used by the employer for non-COBRA purposes;

the premium charged by the insurer in a fully-insured plan; and

if the employer subsidizes the cost of COBRA coverage, a reasonable good faith estimate of the actual COBRA premium.

• If an employee begins, changes or terminates coverage during a year, the reportable cost must reflect the actual cost of coverage during the year.

• The reportable cost must be determined on a calendar year basis, based on information held as of December 31 (without regard to later adjustments).

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PLAN CHANGES AND COMPLIANCE FOR 2014

2014 Cost-Sharing Limits for non-grandfathered plans:

Deductible limit (for small group insurance market) – $2,000 individual $4,000 family

Out-of-Pocket Maximum including the deductible (2014 HDHP limits) – $6,350 individual $12,700 family Limits apply with respect to in-network cost sharing. 45 CFR § 156.130(c) – guidance for plans

offered on the exchange.

The statutory list of “cost-sharing” items includes deductibles, coinsurance, copayments, or similar charges (noncompliance penalties?) and any other required medical expenditures; but not premiums, non-network balance billing, and non-covered services. ACA section 1302(c)(3).

For plan years beginning in 2014, a plan can apply a separate OOP limit with respect to major medical and other benefits (such as prescription drug) if separate vendors are used. DOL ACA FAQs Part XII (Feb. 20, 2013).

2014: 90 day limit on waiting periods Note: The 90 day limit means no more than 90 days. For example, a plan may not provide that coverage

starts on the first of the month following a 90 day or a 3 month waiting period.

33



• Plan design and compliance through 2014 – applies to almost all employers









34

NEW FEES AND TAXES

Patient-Centered Outcomes Research Institute (PCORI) trust fund fee under IRC §§ 4375 (insurers) and 4376 (self-insured plans) – applies to plans with two or more covered employees. The fee is intended to fund comparative effectiveness research for selected medical treatments.• Applicable for plan years ending after Oct. 1, 2012 and before Oct. 1, 2019 –

2012 through 2018 for calendar year plans. • Fee is equal to $2 ($1 for first year) multiplied by the average number of

covered lives for the policy or plan year. Fee is indexed based on health cost increases for plan years ending on or after October 1, 2014 – 2014 through 2018 for calendar year plans.

• PCORI fee is not applicable to “excepted” plans under IRC § 9832(c) or an EAP, disease management or wellness program that does not provide significant medical care. Traditional stop-loss coverage is also not subject to the fee.

• Retiree plans are subject to the PCORI fee.• The fee is generally payable by July 31 of the calendar year that immediately

follows the last day of the applicable policy or plan year.

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NEW FEES AND TAXES

• PCORI fee is payable by the plan sponsor by July 31 of the calendar year that immediately follows the last day of the applicable policy or plan year using IRS Form 720.

• The PCORI fee may not be paid from plan assets, such as from a VEBA trust, unless the plan is a multiemployer (bargained) plan.

• Average number of lives may be made based on one of several methods for self-insured plan sponsors:

• Actual count method using actual covered lives for each day of the plan year and divide by the number of days in the year.

• Form 5500 method if the Form 5500 is filed by the due date of the PCORI fee – add the total participants (not covered lives) at the beginning and end of the plan year and together do not divide by two. This method roughly accounts for dependents by double-counting participants.

• Snapshot method using covered lives counts on selected dates in each quarter (either (i) counting actual covered lives or (ii) adding the number of single coverage participants to the number obtained by multiplying the number of employees with more than single coverage by 2.35).

• For a first plan year subject to the PCORI fee that begins before July 11, 2012, the plan sponsor may determine the number of covered lives using any reasonable method.

• Fee is tax deductible. IRS OCC Memorandum (May 31, 2013).

36

NEW FEES AND TAXES

Transitional reinsurance program fee applies to insured plans (paid by insurer) and self-insured plans (paid by sponsor, possibly through its TPA) for calendar years 2014, 2015 and 2016. The fee is designed to repay the US Treasury for the early retiree reinsurance program ($5 billion) and for state reinsurance programs ($20 billion) available to insurers that offer coverage in the individual market. ACA § 1341.

• Fee amounts will be determined by HHS for each year expressed as a flat amount per covered person – to be collected by the state or HHS. The HHS estimate for 2014 is $63 per covered life ($5.25/month) to collect $12 billion. Assessments for 2015 ($8 billion) and 2016 ($5 billion) should be substantially lower per covered life.

• Applies to plans that are not “excepted” from ACA rules. See Addendum 1 for the definition of excepted plans. In addition, certain types of coverage, such as stop-loss policies, are not subject to the fee.

• Post-65 retiree coverage (secondary to Medicare) appears not to be subject to the fee.

• Manner of collection by TPAs for self-insured plans is unclear. The plan sponsor is ultimately responsible for payment of the fee.

• Amounts are to be paid to HHS. States can charge higher assessments to insured plans in their state.

• Only one assessment payment is made as a self-insured plan with respect to covered plans that use a combination of insurance and self-insurance to provide major medical benefits.

• For insured plans, the fee will not affect the MLR calculation.

37

NEW FEES AND TAXES

Transitional reinsurance program fee is paid during or soon after the calendar year of its application based on a particular method of counting covered lives. The fee applies to plans with two or more covered employees.• Annual enrollment count may be made based on one of several methods:

• Actual count method using actual covered lives for first 9 months of the calendar year

• Form 5500 method using the most recently filed Form 5500 for the plan• Snapshot method using covered lives counts on selected dates in the first 3

quarters (counting actual covered lives or multiplying the number of employees with more than single coverage by 2.35)

• By November 15 of the calendar year of the fee, the plan or issuer submits its annual enrollment count.

• By December 15, HHS notifies plan or issuer of the fee to be paid to HHS.• Fee is due to HHS within 30 days of HHS notice of amount of fee.• The fee is tax deductible.

38

NEW FEES AND TAXES

• Medicare Part A tax rate on wages increases by 0.9% (from 1.45% to 2.35%) on earnings over $200,000 for individuals and $250,000 for married couples filing jointly. The additional tax is imposed on the employee, but no additional tax applies to the employer.

• New 3.8% Medicare tax on investment income for taxpayers earning over $200,000 for individuals and $250,000 for married couples filing jointly.

• Other taxes of note:• New tax on health plan insurers beginning in 2014 – which will add to

the cost of health insurance.• Taxes on durable medical equipment and pharmaceutical companies.

39












40

STATE-BASED EXCHANGES

• By 1/1/2014, each state is supposed to establish an “exchange.” ACA § 1311.

• An exchange is an online market, like Travelocity for travel. An individual enters information, and the exchange indicates coverage options and prices.

• Federal government can establish and operate an exchange for the state if a state fails to do so. ACA § 1321(c).

• Most states are opting to have the Federal government run their exchanges initially.

• Some states, like Oklahoma, are challenging the status of the Federally run exchanges as a “state” exchange under which tax credit subsidies can be provided.

• “Qualified health plans” that cover “essential health benefits” can be offered on an exchange by licensed health insurers.

• Small employers (≤ 50 or 100 employees) will be able to offer coverage through exchange under the “SHOP” program. Proposed HHS regulations apply the 100 employee threshold, with the 50 employee level applicable if the state so elects.

• States may allow large employers (over 50 or 100 employees) to offer coverage on an exchange beginning 1/1/2017.

41

EXCHANGE COVERAGE

Exchanges must offer four coverage levels – based on “actuarial value” (share of health care expenses a “qualified health plan” is expected to cover for a typical group of enrollees).

Coverage Level Actuarial Value

Bronze 60%

Silver 70%

Gold 80%

Platinum 90%

Catastrophic (lower value) coverage may also be available to individuals under age 30 (the “young invincibles”) and for individuals who cannot afford any of the “metal” options.

43

SUBSIDIES FOR INDIVIDUALS IN EXCHANGES

• Subsidies are available under IRC § 36B for coverage from the exchange for individuals with household income between 100% and 400% of the Federal poverty line (FPL) guidelines.

• The tax credit subsidy is available to an individual if:

• The employer does not provide minimum essential coverage, or

• The employer provides minimum essential coverage, but

• The employee’s required contribution to the employer plan is unaffordable (exceeds 9.5% of household income); or

• The employer plan does not provide minimum value.

44


Household Income Level(% of FPL)

Max. % of Household Income PaidToward Health Care

Coverage (Premium Subsidy)

Up to 133% 2%

133% - 150% 3% - 4%

150% - 200% 4% - 6%

200% - 250% 6.3% - 8.05%

250% - 300% 8.05% - 9.5%

300% - 400% 9.5%

45


2013 FEDERAL POVERTY GUIDELINES FOR THE 48 CONTIGUOUS STATESAND THE DISTRICT OF COLUMBIA (PUBLISHED JAN. 24, 2013)

Persons in family / household 100% of FPL

2%(Maximum mo.

contribution after subsidy)

400% of FPL9.5%

(Maximum mo. contribution after

subsidy)

1 $11,490 $19 $45,960 $364

2 $15,510 $26 $62,040 $491

3 $19,530 $33 $78,120 $618

4 $23,550 $39 $94,200 $746

5 $27,570 $46 $110,280 $873

6 $31,590 $53 $126,360 $1,000

7 $35,610 $59 $142,440 $1,128

8 $39,630 $66 $158,520 $1,255

For families/households with more than 8 persons, add $4,020 for each additional person.

Note: Higher amounts apply for residents of Alaska and Hawaii.

46


Reductions in Maximum Out-of-Pocket Limits and AV Requirements,by Household Income

Household Income Reduction in Maximum OOP Limit Plan AV Requirement

100 - 150% of FPL 2/3 94%

150 - 200% of FPL 2/3 87%

200 - 250% of FPL 1/5 73%

250 - 300% of FPL n/a 70%

300 - 400% of FPL n/a 70%

48












49

INDIVIDUAL MANDATE

Beginning in 2014, a “shared responsibility” penalty (tax) under IRC section 5000A applies to individuals:

• Who have household income above the amount required to file a tax return; and

• Who do not maintain minimum essential 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 a family, the penalty is capped at 300% of individual penalty rate.

50

INDIVIDUAL MANDATE

• The individual penalty tax does not apply to individuals who:

have religious objection to purchasing health insurance,

participate in a health care sharing ministry,

are not required to file a tax return,

have a short coverage gap (less than 3 consecutive months),

cannot afford any exchange options (more than 8% of household income),

are incarcerated,

are not legally present in the U.S.,

are a member of an Indian tribe.

51












52

EMPLOYER MANDATE – COUNTING TO 50

• Effective for 2015 (and all calendar years thereafter), penalties apply for applicable large employers that:

• fail to offer minimum essential coverage to substantially all full-time employees, or

• offer minimum essential coverage to substantially all full-time employees that is:• unaffordable, or • does not have minimum value.

• An “applicable large employer” has an average of 50 or more full-time and full-time equivalent employees in the preceding calendar year.

• Calculation is based on a monthly average calculation. • Certain seasonal employees (who are employed for no more than 120 days or

four months) who cause the employer’s count to exceed 50 in the preceding year can be disregarded.

• A full-time employee is an individual who works or is reasonably expected to work an average of 30 or more hours per week. An employee is a “common law” employee, based on the IRS list of 20 factors. See generally, IRS Form SS-8.

53

EMPLOYER MANDATE – COUNTING TO 50

Example: Calculation to determine “Applicable large employer” status with Full Time Equivalent Employees or FTEs*

Facts: During each calendar month of 2015, Employer L has 20 full-time employees each of who averages 35 hours of service per week, 40 employees each of whom averages 90 hours of service per month, and no seasonal workers.

Conclusion: Each of the 20 employees who average 35 hours of service per week count as one full-time employee for each month. To determine the number of full-time equivalent employees (FTEs) for each month, the total hours of service of the employees who are not full-time employees (but not more than 120 hours of service per employee) are aggregated and divided by 120.

The result is that the employer has 30 FTEs for each month (40 x 90 = 3,600, and 3,600 ÷ 120 = 30). Because Employer L has 50 full-time employees (the sum of 20 full-time employees and 30 FTEs) during each month in 2015, and because the seasonal worker exception is not applicable, Employer L is an applicable large employer for 2016.

* From §54.4980H-2(d), example 2 (emphasis added); the regulation uses the abbreviation of FTE for a full-time equivalent employee

54

LARGE EMPLOYER MANDATE

Key steps to penalty determination:

1. Identify “controlled group” of employer – IRC § 414 (b), (c), (m) and (o)

2. Determine if the controlled group employed an average of 50 or more full-time employees (counting part-time employees as full-time equivalent employees) on business days in the preceding calendar year.

3. If employer is applicable large employer, identify separate employer “member” entities (“CG member”) within the controlled group (for allocation among members of the “first 30 free” on a pro-rata basis, if necessary).

4. Identify all employees of each CG member as either full-time or part-time/variable hour employees. Important: evaluate potential common law status of contract and staffing industry workers.

5. Determine, for each CG member, whether the employer offers “minimum essential coverage” to substantially all full-time employees (and their children) to determine possible application of the “(a)” penalty.

6. Determine, for each plan, whether the coverage is affordable and provides minimum value to determine possible application of the “(b)” penalty.

7. If a Section 1411 Certification is received for any employees who received a subsidy from an exchange, respond to the IRS with evidence, if any, of applicable exemption from penalty.

55


If an employer is determined to be an applicable large employer (determined with respect to the controlled group of the employer), then two possible penalties can apply:

• The “(a)” penalty applies if the employer fails to offer minimum essential coverage to substantially all FT employees (and their dependents) and at least one FT employee obtains subsidized coverage from an exchange

• The “(b)” penalty applies if the large employer offers minimum essential coverage to substantially all FT employees (and their dependents), but such coverage:

• does not provide minimum value, or

• is unaffordable (costs more than 9.5% of employee’s household income).

• An employer that provides a minimum value plan may use one of three “safe harbors” to determine affordability: W-2 wages, rate of pay or FPL.

56

LARGE EMPLOYER MANDATE – PENALTY FLOW CHART

Applicable large

employer?

Start Here No penalty applies to

small employer

No employer penalty

Any FT ee get

exchange subsidy?

Any FT ee get

exchange subsidy?

Any FT ee get

exchange subsidy?

Employer offers MEC to all but

5% (or 5) of FT ees?

FT ees pay more than

9.5% of income* for single coverage?

Plan provides

“minimum value” ?

Employer pays “(a)”

penalty

Employer pays “(b)”

penalty

Employer with 25 or fewer ees may be

eligible for tax credit

$2,000/year times number of all FT ees

minus 30

$3,000/year times number of FT ees who

receive exchange

subsidy, not to exceed “(a)”

penalty

No employer penalty

Yes

No

No

Yes

No

Yes

No

No

Yes

Yes

NoNo

Yes

Yes

* Employer safe harbors if plan has MV: W-2, rate of pay or FPL

57


The “(a)” Penalty:

• Penalty for a large employer that fails to offer minimum essential coverage to substantially all FT employees (and their dependents) and at least one FT employee obtains subsidized coverage from an exchange:

Pay excise tax based on the number of 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-sponsored group health plans (other than “excepted benefits” plans) provide minimum essential coverage.

This is not the same as “minimum value.”

• The offer of coverage is treated as made to substantially all employees if the employer offers coverage to all but 5% of FT employees (or 5, if greater).

58


The (“b”) Penalty:

• Penalty for a large employer that offers minimum essential coverage to substantially all FT employees (and their dependents) that is:

Inadequate (does not provide “minimum value”), or

“unaffordable” (costs more than 9.5% of employee’s W-2 wages, rate of pay or FPL).

• Excise tax is:

$3,000 for each FT employee receiving subsidy; but not to exceed

$2,000 for each FT employee (not including first 30 FT employees).

Note: Part-time employees are not included in the (a) or (b) penalty calculation even though they are counted for purposes of determining if employer meets the 50 full-time equivalent employee threshold.

59

LARGE EMPLOYER MANDATE: PENALTY EXAMPLE 1

Employer has 70 full-time employees (60 salaried and 10 hourly) and 30 part-time employees. The employer is an applicable large employer.

Scenario 1: Employer offers minimum essential coverage to all full-time employees (and their dependents) that is affordable and has “minimum value”.

Neither penalty applies.

Scenario 2: Employer does not offer any health plan coverage and one full-time employee enrolls for subsidized coverage at the exchange.

Penalty: Monthly: $6,666.80 ((70 FT ee’s – 30) x $166.67) Annual: $80,000.00 ((70 FT ee’s – 30) x $2,000)

Scenario 3: The employer offers minimum essential coverage to all of the salaried FT employees, but not to the 10 hourly FT employees, and one hourly employee enrolls for subsidized coverage at the exchange.

Penalty: Same as Scenario 2, due to failure to offer to over 5% (or 5) of FT employees.

60


• Employer has 70 full-time employees (60 salaried and 10 hourly) and 30 part-time employees.

• Employer offers minimum essential coverage to all full-time employees (and their dependents). It is affordable and has “minimum value” for salaried employees, but it is unaffordable for the 10 hourly employees.

If one hourly employee enrolls for a month of subsidized coverage from an exchange, the (b) penalty equals:

1 x $250 = $250 per month

If all 10 hourly employees enroll for subsidized coverage from an exchange for the whole year, the (b) penalty would be:

10 x $250 x 12 = $30,000 per year

• Note: No penalty arises if a part-time employee obtains subsidized coverage from the exchange.

61


• Restaurant employer has 20 full-time employees (5 are store managers, 3 are assistant store managers) and 100 part-time employees (each with monthly average hours of 90).

100 part-time EE’s = 75 FT employee equivalents (90/120) - causing the employer to be considered an “applicable large employer” with 50 or more employees.

• Restaurant employer “minimum value” health coverage to all FT employees, but it is unaffordable for the 3 assistant store managers.

If one of the assistant managers enrolls for a month of subsidized exchange coverage, the penalty equals:

1 x $250 = $250 per month

If all 3 assistant managers enroll for the full year of subsidized exchange coverage, the penalty for the year equals:

3 x $250 x 12 = $9,000 per year

62


Highlights of proposed “Shared Responsibility” regulation issued January 2, 2013:

• Application of penalty to controlled group member employer, not entire controlled group, if more than one member.

• Offer of “dependent” coverage must only be made to children up to age 26, not spouses.

• An employer can fail to offer minimum essential coverage to no more than 5% of FT employees (or 5 employees, if greater) and not be subject to the (a) penalty of $2000/year/FT employee.

• The affordability test applies only to self-only coverage, not to family coverage.

• Three “safe harbors” for affordability are available to employers that offer coverage with “minimum value.” The safe harbors allow the employer to rely on an affordability standard of 9.5% of the:

• Employee’s Form W-2 pay (Box 1),

• Employee’s rate of pay, or

• Federal poverty line.

• Under the proposed regulation, penalties for non-calendar year plans would not apply until the first day of the 2014 plan year, subject to certain conditions as to the scope of coverage offered prior to 2014. We do not know if this transition rule will apply in 2015 after the one-year delay.

• Special rules are provided for educational institutions.

63

LARGE EMPLOYER MANDATE – TRANSITION RULES

Transition Rules – in Preamble to proposed regulation are set forth below. We do not have guidance yet as to whether some or all of these rules will apply in 2015 after the one year delay of the employer mandate.• Plans with fiscal year plan years – the employer mandate penalty will not apply

prior to the beginning of the 2014 plan year if certain conditions are satisfied.• Salary reduction elections for accident and health plans provided through

cafeteria plans for cafeteria plan fiscal years beginning in 2013 – some additional election changes permitted for participants.

• Measurement periods for stability periods starting in 2014 – employers can use shorter measurement periods in 2013 in preparation for the first stability periods beginning in 2014.

• Applicable large employer members participating in multiemployer plans – penalties will not apply in 2014 with respect to employees participating in a multiemployer (bargained) plan if certain conditions are satisfied.

64

LARGE EMPLOYER MANDATE – TRANSITION RULES

Transition Rules – in Preamble to proposed regulation, con’t.• Applicable large employer determination for 2014 – can be made using a 6

month period in 2013 rather than the entire 2013 calendar year.• Coverage for dependents – plans that have not covered children may add the

coverage in 2015 if the plan is preparing to add it in 2014.• Variable hour employee definition – employers may take into account in 2014

the likelihood that a new hour employee will terminate employment soon in deciding to treat the new employee as a variable hour employee; in 2015 and later years, this may only be considered in the case of a seasonal employee.

65

DETERMINING FULL-TIME EMPLOYEE STATUS

• 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 (hereinafter “FTEs”) must be offered coverage that could begin no later than the end of a 90-day waiting period in order to avoid an employer mandate penalty.

• If the coverage effective date is delayed beyond this date due to an employee taking additional time to enroll, the 90-day waiting period limit is satisfied.

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

Recent Guidance: Proposed Shared Responsibility regulation, 78 Fed. Reg. 218 (Jan. 2, 2013).

66

DETERMINING FULL-TIME EMPLOYEE STATUS

Variable Hour and Seasonal Employees

• Employers may use “measurement” periods for determining FTE status of “variable hour” and “seasonal” employees. The determination made in the measurement period would apply for a “stability” period, so that fluctuations in hours do not result in frequent enrollment/disenrollment.

• An “administrative period” may apply between the measurement and stability periods for enrollment to occur.

• Variable hour employee – The employer cannot determine 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 employee - The employer identifies a seasonal employee using a reasonable good faith interpretation of existing guidelines.

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

Recent Guidance: Proposed Shared Responsibility regulation, 78 Fed. Reg. 218 (Jan. 2, 2013); and IRS Notice 2012-59 (90 day waiting period)

67

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

68

DETERMINING FULL-TIME EMPLOYEES

• Different rules apply for determining full-time status for “on-going” versus “new” employees.

• An “ongoing employee” generally means an employee who has been employed by the employer for at least one complete standard measurement period.

69


Illustration of 12 month measurement and stability periods

01/01/2017

10/15/2013

01/01/2014

Standard Measurement Period Admin. Period

10/15/2014

01/01/2015

Standard Stability Period

01/01/2016

10/15/2015



Ongoing Employee

70



03/01/2014

Initial Measurement Period

DOH

02/28/2015

Admin. Period

04/01/2015

Coverage date, if FTE

04/01/2016

Initial Stability Period

New Employee

71



01/01/2017

03/01/2014

01/01/2014


10/15/2014

01/01/2015


01/01/2016

10/15/2015



Initial Measurement Period

DOH

02/28/2015

Admin. Period

04/01/2015

Coverage date, if FTE

10/15/2013

04/01/2016

Initial Stability Period

Ong

oing

Em

ploy

ee

New

Em

ploy

ee

72


• Ongoing Employees:

The measurement period the employer chooses to apply to ongoing employees is referred to as the “standard measurement period.”

A standard measurement period must be not less than 3 but not more than 12 consecutive months, as chosen by the employer.

Employer can determine the months in which the standard measurement period starts and ends, which must be consistent for all employees in the same category.

Example: A 12-month standard measurement period can be the calendar year, a non-calendar plan year or a different 12-month period, such as one that ends shortly before the start of the plan’s annual open enrollment season.

73



If an employee averaged at least 30 hours per week during the standard measurement period, the employer treats the employee as an FTE during a subsequent “stability period”, regardless of the employee’s hours of service during the stability period.

A stability period must be a period of at least 6 consecutive calendar months that is no shorter than the standard measurement period and that begins after the standard measurement period and any applicable administrative period.

If the employee did not work full-time during the standard measurement period, the employer can treat the employee as not an FTE during the stability period that follows (which can be no longer than the standard measurement period).

Permitted categories for differing measurement and stability periods:

Collectively bargained employees and non-collectively bargained employees.

Salaried employees and hourly employees.

Employees of different entities.

Employees located in different states.

74



An “administrative period” may be utilized to provide time for an employer to determine which ongoing employees are eligible for coverage following a standard measurement period.

The administrative period runs between the standard measurement period and the related stability period.

An administrative period may neither reduce nor lengthen the measurement period or the stability period. It thus will overlap with the prior stability period.

An administrative period following the standard measurement period may last up to 90 days.

75


• Ongoing Employees – Example:

12-month stability period that begins January 1 and a 12-month standard measurement period that begins October 15.

Only an ongoing employee who works full-time (an average of at least 30 hours per week) during the standard measurement period is offered coverage during the stability period associated with that measurement period.

Administrative period between October 14 and January 1 to determine and notify eligible employees, and process enrollments.

Previously-determined FTEs already enrolled in coverage continue to be offered coverage through the administrative period.

Employee A worked full-time during the standard measurement period that begins October 15 of Year one and ends October 14 of Year two, and for all prior standard measurement periods.

Must be offered coverage for the entire Year 3 stability period (including the administrative period from October 15 through December 31 of Year three).

Also would have been offered coverage for the entire Year two stability period (including the administrative period from October 15 through December 31 of Year 2).

76


• Ongoing Employees – Example (continued):

Employee B also worked full-time for all prior standard measurement periods, but is not an FTE during the standard measurement period that begins October 15 of Year one and ends October 14 of Year two.

Not required to be offered coverage for the stability period in Year three (including the administrative period from October 15 through December 31 of Year three).

Would have been offered coverage for the entire Year two stability period (including the administrative period from October 15 through December 31 of Year two).

Employer complies with applicable requirements because:

Measurement and stability periods are no longer than 12 months.

Stability period for ongoing employees who work full-time is not shorter than standard measurement period.

Stability period for ongoing employees who do not work full-time is not longer than the standard measurement period.

Administrative period is not longer than 90 days.

77


• New Employee – Reasonably Expected to Work Full-Time:

If an employee is reasonably expected at his or her start date to work full-time, an employer that offers coverage to the employee at or before the conclusion of the employee’s initial three calendar months of employment will not be subject to the employer responsibility payment under Code § 4980H by reason of the employer’s failure to offer coverage to the employee for up to the initial 3 calendar months of employment.

78


• New Employee – Variable Hour and Seasonal Employees (continued):

Variable hour employee: A new employee for whom, based on the facts and circumstances at the start date, it cannot be determined that the employee is reasonably expected to work on average at least 30 hours per week.

A new employee who is expected to work initially at least 30 hours per week may be a variable hour employee if, based on the facts and circumstances at the start date, the period of employment at more than 30 hours per week is reasonably expected to be of limited duration and it cannot be determined that the employee is reasonably expected to work on average at least 30 hours per week over the initial measurement period. Example: A retail worker hired at more than 30 hours per week for the holiday

season who is reasonably expected to continue working after the holiday season but is not reasonably expected to work at least 30 hours per week for the portion of the initial measurement period remaining after the holiday season, so that it cannot be determined at the start date that the employee is reasonably expected to average at least 30 hours per week during the initial measurement period.

Seasonal employee: Employers are permitted to use a reasonable, good faith interpretation of the term “seasonal employee” until further guidance is issued.

79



Employers may use an “initial measurement period” (IMP) of between 3 and 12 months to determine whether the employee completed an average of 30 hours of service per week. The stability period must be the same length as the stability period for ongoing employees.

If an employee is determined to be an FTE during the IMP, the stability period must be a period of at least 6 consecutive calendar months that is no shorter than the IMP and that begins after the IMP (and any associated administrative period).

If an employee is determined not to be an FTE during the IMP, the employer can continue to treat the employee as not an FTE during the stability period that follows the IMP.

An employee or related individual is not considered eligible for minimum essential coverage under the plan (and therefore may be eligible for a premium tax credit or cost-sharing reduction through an exchange) during any period when coverage is not offered, including any measurement period or administrative period prior to when coverage takes effect.

80



After a new employee has been employed for an entire standard measurement period, the employee must be tested for full-time status, beginning with that standard measurement period, at the same time and under the same conditions as other ongoing employees.

Example: Employer uses calendar year standard measurement period and a 1-year initial measurement period beginning on the employee’s start date.

Employee’s start date is February 12.

Test for FTE status based on initial measurement period (February 12 through February 11 of the following year).

Test again based on calendar year standard measurement period, beginning on January 1 of the year after the start date.

81



Employer may apply an administrative period that does not exceed 90 days. However, the initial measurement period and administrative period together cannot extend beyond the last day of the 1st calendar month beginning on or after the 1st anniversary of the employee’s start date.

Example: Employer uses a 12-month initial measurement period for a new variable hour employee, and begins that initial measurement period on the 1st day of the 1st calendar month following the employee’s start date.

The period between the end of the initial measurement period and the offer of coverage to a new variable hour employee who works full time during the initial measurement period must not exceed 1 month.

82



An employee determined to be an FTE during an initial measurement period or standard measurement period must be treated as an FTE for the entire associated stability period, even if the employee is determined to be an FTE during the initial measurement period but not during the overlapping or immediately following standard measurement period.

In that case, the employer may treat the employee as not an FTE only after the end of the stability period associated with the initial measurement period.

If the employee is determined not to be an FTE during the initial measurement period, but is determined to be an FTE during the overlapping or immediately following standard measurement period, the employee must be treated as an FTE for the entire stability period that corresponds to that standard measurement period (even if that stability period begins before the end of the stability period associated with the initial measurement period).

83

DETERMINING FULL-TIME EMPLOYEES: COUNTING HOURS

Counting Hours of Service – to determine if 30 or more hours per week are worked

• Generally, paid hours are counted.

• Hourly employees – employer must calculate actual hours based on its records.

• Non-hourly employees – employer must use one of the following methods:

• Actual hours, if recorded.

• Days-worked equivalency – credit employee with 8 hours worked for each day for which the employee is paid for working at least one hour.

• Weeks-worked equivalency – credit employee with 40 hours worked for each week for which the employee is paid for working at least one hour.

• Use of an equivalency method is prohibited if the result would substantially understate the employee's hours of service.

• For example, an employer should not apply the days-worked equivalency to an employee who works three 10-hour shifts per week (resulting in only 24 hours per week being credited).

84


Counting Hours of Service – after a termination or other absence

• Generally, an employee who resumes service with an employer after an absence or termination (when no hours of service are credited) of at least 26 weeks may be treated as a “new” employee for the purpose of the penalty calculation (and application of an initial measurement period).

• Rule of Parity: The employer may choose to apply a shorter period of at least 4 consecutive weeks that exceeds the number of weeks of service performed by the employee prior to the period of no credited hours of service.

• Averaging method for “Special Unpaid Leave” and “Employment Break Period” - for these periods of absence, the employer must either:

• Disregard the period of absence in calculating the average hours of an employee during a measurement period, or

• Credit the employee with the same rate of average weekly hours in the absence period (not to exceed 501 hours per absence, for an Employment Break Period) as earned during the remainder of the measurement period.

• Special Unpaid Leave for all employers means the following unpaid leaves: FMLA leave, USERRA leave or jury duty leave.

• For employers that are educational organizations, an Employment Break Period is a period of at least 4 consecutive weeks during which an employee is not credited with an hour of service (other than Special Unpaid Leave). The IRS is considering application of this rule to all employers.

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Counting Hours of Service – areas of special concern

• Counting hours for certain types of employees will be particularly difficult or not representative

• Commissioned sales employees

• Adjunct faculty

• Pilots and other transportation workers with hours restrictions

• Similar professions

• The IRS requests further comments and suggestions for appropriate methods of measuring full-time work for these types of individuals. The comment deadline is March 18, 2013.

• The Preamble to the regulation discusses possible measures for adjunct faculty of an educational organization, such as counting 3 hours of work each week for every credit hour or hour of classroom time, or comparing the adjunct faculty member’s credit hours to a typical full-time faculty’s credit hours load.

• Until further guidance is provided, employers of these employees must use a reasonable method of counting hours. The Preamble indicates that counting only the classroom hours of an adjunct faculty member would be unreasonable.

• An anti-abuse rule applies to prevent the counting or application of very limited hours in a period that would otherwise be an Employment Break Period for an educational organization.

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EMPLOYER CONSIDERATIONS

Pay or Play Considerations:

• Identify all entities within the employer’s “controlled group”.• Determine whether the employer (the controlled group) is an “applicable large

employer”.• If an applicable large employer, establish a process to identify “full-time employees”

(those that work on average at least 30 hours per week). What will be the employer’s standard “measurement period” and “stability

period”? How will it apply for new variable hour employees? Analyze independent contractor/common law employee status.

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

• Will the 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 the employer’s subsidy of employee-only coverage be increased? Will the employer’s dependent coverage subsidy be decreased?

• What is the competition doing for their employees?

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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. See Appendix 2.• Notice of exchange availability must be provided to all employees by October

1, 2013.• Form W-2 reporting of health benefit value expanded to more employers?• Additional reporting with regard to coverage in coordination with the

exchanges .

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Budget Impact:

• 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

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MEDICAID EXPANSION ISSUES FOR EMPLOYERS TO CONSIDER

• Key expansion is for nondisabled adults under age 65 with income below 133% of FPL.

• These individuals are often not covered by employer insurance. Those without insurance access health care through the hospital emergency room.

• Federal government provides 100% funding of expanded Medicaid benefits for 2014 – 2016, reducing gradually to 90% in 2020 and thereafter.

• Medicaid disproportionate share (DSH) payments to hospitals are reduced by $500 million in 2014, with increasing reductions reaching $4 billion for FY 2020.

• Premium subsidies through the exchanges are generally available to individuals with household income at least 100% of FPL and who are not eligible for Medicaid.

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CONNER & WINTERS, LLPRESOURCES FOR HEALTH REFORM

Debbie L. [email protected]

Allison M. [email protected]

Steven W. [email protected]

G. Daniel [email protected]

Eric S. [email protected]

mailto:[email protected]





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RESOURCES FOR HEALTH REFORM INFORMATION

Department of Human Services –

HHS website devoted to HHS implementation of GHP and insurance market reformshttp://cciio.cms.gov

HHS website devoted to insurance market informationhttp://www.healthcare.gov/

HHS website devoted to privacy and security of health informationhttp://www.hhs.gov/healthprivacy/index.html

Department of Labor – EBSA webpage for health reform information

http://www.dol.gov/ebsa/healthreform/

Internal Revenue Service – IRS webpages for ACA updates and guidance

http://www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions-Homehttp://www.irs.gov/newsroom/article/0,,id=222814,00.html

Kaiser Family Foundation - website includes summaries of the legislation plus national health care resources

http://www.kff.org/

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ADDENDUM 1 -WHAT GROUP HEALTH PLANS ARE AFFECTED?

• GHPs sponsored by employers, unions, employee organizations with 2 or more employees NOTE: The two or more employee rule is the basis for excluding retiree-only plans

from the new reforms. This “two or more” language was removed from the PHSA coverage provision but not from ERISA or IRC. The Preamble to the grandfather regulations indicates that the regulators will continue to observe the retiree-only plan exemption.

• Excepted benefits – plans not affected by ACA changes (or HIPAA portability) per ERISA § 733(c)

Blanket exception for certain benefit types coverage only for accidents (including accidental death and

dismemberment (AD&D) coverage); disability income coverage; liability insurance, including general liability and auto liability insurance; coverage issued as a supplement to liability insurance; workers' compensation or similar coverage;

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• Excepted benefits (continued): Blanket exception for certain benefit types (cont.)

automobile medical payment insurance; credit-only insurance; coverage for on-site medical clinics; and other similar coverage under which benefits for medical care are secondary

or incidental to other insurance benefits (such as salary reduction only health FSAs).

Limited-scope benefits under separate policy/contract are not an integral part of the group health plan (such as a separate election of and premium for dental or vision benefits)

limited-scope dental benefits; limited-scope vision benefits; benefits for long-term care, nursing-home care, home health care,

community-based care, or any combination thereof; and other similar, limited benefits specified in regulations.

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• Excepted benefits (continued): Certain independent, noncoordinated benefits – HIPAA’s insurance market rules do

not apply to: (a) coverage only for a specified disease or illness; and (b) hospital indemnity or other fixed indemnity insurance, provided that:

such coverage is provided under a separate policy, certificate, or contract of insurance;

no coordination exists between the provision of such benefits and any exclusion under any plan maintained by that employer; and

benefits are paid for an event regardless of whether benefits are provided for the same event under any group health plan maintained by the same plan sponsor.

Medicare and TRICARE supplemental insurance. Other similar supplemental insurance coverage. An employee assistance program or EAP that does not provide significant benefits in

the nature of medical care or treatment, per IRS Notice 2013-54 (Sept. 13, 2013).

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ADDENDUM 2 – EXCISE TAX PENALTIES

Group Health Plan Excise Taxes – Background

• Code § 4980B imposes an excise tax of $100 per day per qualified beneficiary for a failure to comply with COBRA.

• Code § 4980D imposes an excise tax of $100 per day per affected individual for a failure to comply with various requirements under chapter 100 of the Code (generally § 9801 et seq.).

HIPAA portability and nondiscrimination

GINA

Mental health parity

Newborns’ and Mothers’ Health Protection Act

Michelle’s Law

Health reform requirements incorporated into chapter 100 of the Code

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Group Health Plan Excise Taxes – Background

• Code § 4980G imposes an excise tax equal to 35% of the aggregate amount contributed to HSAs of employees for a failure to make comparable contributions to the HSAs of its employees.

• Code § 4980E imposes an excise tax equal to 35% of the aggregate amount contributed to Archer MSAs of employees for a failure to make comparable contributions to the Archer MSAs of its employees.

• Prior to 2009, there were no regulations or forms describing how to report and pay these excise taxes.

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Excise Tax Regulations

• On September 8, 2009, final regulations were issued by the IRS which provide guidance regarding the payment of excise tax under Code §§ 4980B, 4980D, 4980E and 4980G. 74 Fed. Reg. 45994 (September 8, 2009).

The regulations also contain guidance regarding comparable contributions to health savings accounts.

• The regulations provide guidance on the excise tax that applies to any compliance failures on or after January 1, 2010.

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Excise Tax Regulations

• Basic Rule: Any person liable for tax under Code §§ 4980B, 4980D, 4980E or 4980G must file a Form 8928 to report and pay the applicable tax.

• Form 8928 is used for these excise tax returns, and is due in the year following the year in which any failure occurred or was not corrected

• Form 8928 and the instructions are available online at:http://www.irs.gov/app/picklist/list/formsInstructions.html

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Due Dates

Code Section Person Responsible Due Date

4980B (COBRA)

Employer or other person responsible for providing or administering benefits (insurer or TPA)

Due date for person’s income tax return. Extension of income tax return does not extend due date.

Multiemployer plan Last day of seventh month following end of plan year.

4980D(HIPAA and other group health plan requirements)

EmployerDue date for employer’s income tax return. Extension of income tax return does not extend due date.

Multiemployer plan or multiple employer plan

Last day of seventh month following end of plan year.

4980E and 4980G (HSA and Archer MSA comparability)

EmployerFifteenth day of fourth month following calendar year in which noncomparable contributions were made.

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Due Date and Late Filing Penalties

• An automatic six-month extension of time is available by filing Form 7004. Form 7004 does not extend the time to pay excise taxes due.

• Penalties:

For late filing of return: 5% of the unpaid tax for each month the return is late, up to 25% of the unpaid tax.

For late payment of tax is ½% of the unpaid tax for each month the tax is not paid, up to 25% of the unpaid tax.

• Interest is charged on taxes not paid by the due date, even if an extension of time is granted, and on penalties.

• Failure to file presumably delays commencement of the three-year statute of limitations on tax assessment.

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• Generally, the excise tax is $100 per day for each day in the “noncompliance period” for each individual.

• If the failure is not corrected before the employer receives a Notice of Examination from the IRS, the minimum tax is $2,500 per each affected individual ($15,000 if the violations are more than de minimis).

• If the failure is due to reasonable cause and not willful neglect, the maximum excise tax for a single employer health plan is the lesser of $500,000 or 10% of the amount paid or incurred during the current year to provide medical care.

• Query if an obvious nondiscrimination failure will be considered willful?

Excise Tax Amounts for COBRA, HIPAA and other Group Health Plan Violations

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• No excise tax is due under Code §§ 4980B and 4980D if:

it is established to the satisfaction of the IRS that no one liable for the tax knew, or exercising reasonable diligence would have known, that the failure occurred; or

the failure was due to reasonable cause and not due to willful neglect and the failure was corrected during the 30-day period beginning on the first date anyone liable for the tax knew, or exercising reasonable diligence should have known, that the failure existed.

Correction: The failure is retroactively undone to the extent possible and the affected person is placed in a financial position which is as good as such person would have been in had the failure not occurred.

Exceptions

The foregoing presentation is a summary of various components of the health reform legislation and subsequent guidance. As with any summary, some details are omitted.

This summary should not be relied upon for legal or tax advice for particular situations.

p resented by d ebbie l. b lackwell o ctober 22, 2013 h ealth r eform i mplementation : w hat n ext...

Documents

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