smart strategies for employers - littler...

December 12, 2013

The Affordable Care Act –

Smart Strategies for

Employers

Presented by:

Steve Friedman Littler Mendelson, P.C.

New York Office

[email protected]

212.583.2687

Russell Chapman Littler Mendelson, P.C.

Dallas Office

[email protected]

214.880.8177

Agenda

• The Play-or-Pay basics

• What is the impact of the

Play-or- Pay delay

• Play-or-pay: weighing

your options

• What are the new

requirements for the rest

of 2013 and 2014?

• A look ahead

Pay or Play Basics

No Health Care Coverage Offered Health Care Coverage Offered

That is Not Affordable or Does Not Provide Minimum Value

“A” PENALTY = $2,000 * (Total Number of Full-Time Employees – 30 Full Time Employees) *Penalty imposed if large employer does not offer full-time employees (and their dependents) an opportunity to enroll in minimum essential coverage and at least one of employer’s full-time employees received federal assistance to purchase insurance via a Marketplace.

“B” PENALTY = The lesser of: (a) $3,000 for each full-time employee receiving federal

assistance to purchase health insurance through a Marketplace or

(b) $2,000 * (Total Number of Full-Time Employees – 30 Full-Time Employees)

*Penalty imposed if the coverage offered is either (i) unaffordable because the employee’s required contribution is more than 9.5% of their W-2 wages for self-only coverage (or other safe harbor); or (ii) the actuarial value of the employer’s plan is less than 60%, meaning that the plan pays for less than 60% of the covered health care expenses.

Note: $2,000 and $3,000 annual tax levels will be adjusted for medical inflation (based on premium increases) in 2015

Pay or Play Basics

• Pursuant to IRS Code Sections 6056 and

6055, large employers are required to

report to the IRS:

– Information concerning the terms and

conditions of their healthcare coverage and

– Information concerning the employees

receiving minimum essential healthcare

coverage

– Also postponed to 2015

Pay or Play: The Delay

• On July 9th, The IRS issued IRS Notice 2013-

45, providing that the employer mandate

penalties and the mandatory employer and

insurer reporting requirements would be delayed

one year until January 1, 2015

• Employers have an extra year to decide whether

or not they are going to PAY or PLAY

2010 2011 2012 2013 2014 2015 2018

Small Business Tax

Credits

Funding for Small

Business Wellness

Programs

Summaries of Benefits

and Coverages FSA Limits Play or Pay Play or Pay Cadillac Tax

Adult Dependent

Coverage

Medical Loss Ratio

Rebates Medicare Tax Increase Automatic Enrollment

No Lifetime Limits No Part D Deduction 90-Day Max Waiting

Period

Restrictions on Annual

Limits PCORI Fee Individual Mandate

No Rescissions Except

Fraud

Notice to Employees of

Marketplace Insurance Exchanges

Individual Subsidies No Pre-Existing

Conditions for Children

Community Rating

No OTC Reimbursement

from FSA, HSA

Guaranteed Issue

External Review

Procedures

No Annual Limits

Full Coverage of

Preventive Benefits

New Wellness Rules

Patient Protections Nondiscrimination in

NGF Insured Plans

Out-of-Pocket Limits

Affordable Care Act

Implementation Timeline

Awaiting Regulations

Awaiting Regulations

The ACA’s Requirements: 2014

• Pre-existing condition exclusions prohibited for all

participants (all plans)

• Waiting periods cannot exceed 90 days (all plans)

• Annual limits prohibited (all plans)

• Health insurance exchanges go live

• New wellness regulations effective

• Individual mandate

• Employer Mandate/Play-or-Pay

IMPACT OF THE DELAY

The Affordable Care Act – Smart Strategies for Employers

Pay or Play: The Delay

• The ACA is not dead

• The individual mandate is still effective

• The Exchanges/Marketplace is still

effective

• The Pay-or-Play mandate has not been

repealed – only postponed

Effect of Delay

• Delay in Section 6056 Reporting means that

employers are not required to track terms and

conditions of their healthcare coverage until

2015 to prepare for implementation in 2015

and an initial required filing in early 2016

– Primary means by which IRS is planning to enforce

the employer mandate, and to reconcile amount of

premium tax credits paid to individuals

– How will Marketplaces/IRS verify eligibility for federal

subsidy?

Effect of the Delay

• Open enrollment on Marketplace began

October 1, 2013

– Includes small employers

• Decide if you will voluntarily track coverage in

2014 and report to the IRS in 2015

– Cons: additional work, plans may not be in

place, possible detriment to employees

– Pros: may get to see if your systems work so not

starting cold in 2015

Effect of Delay

• On employers:

– Need not offer coverage to employees

– No penalties for 2014

– No need to adjust premiums for 2014 to meet

affordability

– No need to adjust design to meet minimum

value

Effect of Delay

• On individuals:

– Individual mandate is still in place for 2014

– Marketplace will determine subsidies based

upon individual income

– May be more subsidies given

• As employers chose to not offer coverage or

curtail coverage, may drive employees to the

Marketplace

Effect of Delay

• Major question remains as to how IRS plans to

reconcile premium subsidies from the

Marketplace

– Individuals with household income up to 400%

of federal poverty level may be eligible for federal subsidy

– IRS has no reliable tool in order to claw back improperly

paid premium tax credits

– Marketplace will have to verify on their own

• Federally-established Marketplace will use a sampling procedure

• State-based exchanges can accept applicant’s attestation without

sampling

Effect of Delay?

• Does the 6/12 transition relief rule apply

for 2015?

• Does the fiscal year plan transition relief

apply for 2015?

• Does the cafeteria plan “change in status”

relief apply for 2015?

PLAY-OR-PAY:

WHAT TO DO NOW?


Play or Pay Delay – Keep on Planning

• Keep on Planning

– Systems for tracking hours

– Designation/consideration of measurement,

administrative and stability periods

– Coverage offerings, such as “minimum value” (aka

qualifying coverage, or 60% value) coverage, and

“minimum essential coverage” (MEC)

– Wait on the final “play or pay” regulations

What to do NOW

• Beginning tracking hours in October for 12

month measurement period for variable

employees

– Check now to make sure you have data to

track hours at least back to 10/1/2013

– Measurement period of 10/1/2013 –

9/30/2014 (followed by administrative period

of 90 days) for open enrollment in fall of 2014

for plan year beginning 1/1/2015

Example: Ongoing Employees

2014 2015 2016

Initial Measurement Period

Standard Measurement Period

Stability Period

Adminstrative Period

SMP1

1. Standard Measurement Period (SMP) from Nov. 1 to Oct. 31 of each year. 2. Administrative Period (AP) from Nov. 1 to Dec. 31 of each year. 3. Stability Period (SP) from Jan. 1 to Dec. 31 of each year (following the preceding

SMP and AP). P.Reg. Sec. 54.4980H-3(c)12)

First Test Second Test

SP1

SMP2

SP3

SMP3

AP Third Test

SP2

SMP4

AP AP

What do we do in 2014?

• Same pay or play determination questions apply

– Who will be eligible for health benefits?

– Will you change the composition of your workforce?

– Will you use more “part-time” employees?

– Will you change your benefit plan structure?

– Will you self-fund? Private Exchange?

– Will you shift cost to employees?

– Will your plan be “affordable” and provide “minimum

value”?

What to do in 2014?

• Make decision about whether healthcare

will comply with ACA standards in 2014

– Will you provide minimum essential

healthcare coverage that provides minimum

value and is affordable to “test the waters?”

– Will you provide an interim plan in 2014?

• “Skinny” plan

• Wellness plans

Pay-or-Play: It’s Not a Simple Question

• If you terminate your healthcare plan:

– Will you increase wages so employees can purchase

health insurance on an Exchange?

– How much will an Exchange plan cost?

– Will you provide a Defined Contribution instead?

Play or Pay Delay – Pull the Plug?

• Pull the plug?

– Saves some money, most likely

– Saves some hassles

• Does it create coverage gaps

between the elimination of mini-med,

and the offer of other employer-based coverage? Will those

gaps violate nondiscrimination rules?

• Can the employee go to a public health insurance exchange?

• What if an employee goes to an Exchange for 2014, but then

you offer affordable, minimum value coverage 2015? Are you

creating an employee relations nightmare?

Proposed Regulation:

Who is an “Employee”?

IRS uses “common law” standard:

“right to control and direct the individual who

performs the services, not only as to the result

to be accomplished by the work but also as to

the details and means by which that result is

accomplished”

Proposed Regulation:

Who is a Full-Time Employee?

• Full-time = 30 hours/week average

(130 hours/month)

• Hours of service include any paid leave,

and FMLA/USERRA

• Lookback/Stability Period

– Employer can “look back” over a period of

three to 12 months to determine full-time

status for subsequent stability period

Workforce Restructuring “Silver Bullets”

– Will They Work?

• 29-Hour Work Week

• Workforce Rotation/Tenure Limits

• Job- or Employee-sharing

• Hiring Insured People

• Disaggregation of Corporate Group Plans

- Separate entities

More “Silver Bullets” – Will They Work?

• “Independent Contractors”

– “Microsoft” amendment

– Misclassification

• Outsourcing to Staffing Firms

– To stay below large employer status (>49 full-timers)

– To shed uninsured positions under discrimination rules

– To use small placement firms’ under-50 exemptions

– Job-sharing arranged by Vendor Management Systems

– Incubators (to use two years of penalty exemption)

– Same risks as “independent contractors”

• Franchising/Subcontracting

Workforce Restructuring Risks

• ERISA Section 510 bars employers from

discriminating or taking an adverse

employment action against a plan

participant or beneficiary:

– for exercising their rights under ERISA plans,

– to interfere with participants' or beneficiaries'

attainment of rights under the plan or ERISA,

and

– in retaliation for giving information or testifying

in any inquiry or proceeding under ERISA.


• ACA Whistleblower Protections

• Section 1558 of the ACA amends the

Fair Labor Standards Act (FLSA) to

protect employees from retaliation for

– reporting alleged violations of Title I of the

ACA, or

– for receiving a health insurance tax credit

or federal subsidy to purchase health

insurance on an exchange


• Labor relations implications

• EEO implications

– Adverse impact?

2013 AND 2014 REQUIREMENTS


Health Reform – Benefit Mandates (PY Beginning in 2014)

• No Annual Dollar Maximums on Essential Health Benefits (EHBs)

• Cost-Free Preventive Care (non-grandfathered plans)

• Clinical Trials – Must Cover Routine Patient Costs (non-

grandfathered plans)

• Maximum OOP Limit for In-Network Care (non-grandfathered plans)

– Tied to OOP max under HSA-qualifying HDHPs (e.g., for 2013, $6,250/12,500)

– Transition Rule

• 90-Day Max Waiting Period

– Not “1st of the month after 90 days”

– Satisfaction of reasonable substantive conditions (e.g., a training requirement)

can result in a waiting period longer than 90 calendar days

– Cumulative Hours requirement (up to 1,200) ok

• New wellness regulations

Wellness – ACA Final Regulations

• Final ACA regulations effective for plan years beginning

on/after January 1, 2014 – replacing existing HIPAA wellness

regulations

• Wellness programs divided into two main types:

– Participatory Wellness Programs

• Participation only, no requirement related to a health factor

• Example: Complete a biometric screen to receive premium discount – discount not

based on answer to outcome of any diagnostic test

– Health-Contingent Wellness Programs: Two Types

• Activity-Only Wellness Programs

– Requires activity such as exercise, but no health outcome

• Outcome-Based Wellness Programs

– Requires a health outcome

– Tobacco use, blood pressure, BMI, etc.,

– Generally determined on the basis of test,

measurement or screening

Participatory Wellness Programs

• Only requirement: Must apply uniformly to all

“similarly situated” participants

– No change to prior regulations regarding “similarly situated”

– No limit on wellness reward

• Examples:

– Filling out health risk assessment

– Biometric screening (blood testing,

blood pressure, BMI, etc.)

• Reward may not be based on

outcome of any measurement,

test or screening

Activity-Only Wellness Programs

• Example: Walking program

• Must be available to all similarly situated individuals

• Monetary reward limited to 30% of applicable cost of coverage for eligible coverage

tier

• Reasonable design (not overly burdensome, reasonable chance of improving health,

not highly suspect in method chosen)

• Uniform availability and reasonable alternative standard

– Reasonable alternative standard must be offered if due to a medical condition it would be unreasonably

difficult or medically dangerous to comply with the standard

– Plan may require medical certification if reasonable to do so

– Must provide full reward while R.A.S. is pending

– Plan must locate and pay for R.A.S. such as a health class

– May not impose unreasonable conditions such as time limits

– Must accommodate recommendations of personal physician

– If R.A.S. is itself an activity-only program, R.A.S. must comply

• Notice of availability of R.A.S.

Outcome-Based Wellness Programs

• Same requirements as activity-only programs, plus:

– Reward limit for programs aimed at tobacco reduction or

cessation increased to 50%

– Must automatically provide reasonable alternative standard

– No “unreasonably difficult or medically inadvisable” standard,

so plan may not require medical verification

– Example: Plan may not actually require participant to

stop smoking to receive wellness reward

– Plan must accommodate recommendations of participant’s

personal physician re: R.A.S.

– Plan must give participant entire year to meet the standard,

provide reward retroactively for entire coverage period if the

participant complies by end of coverage period

A LOOK AHEAD


ACA and Congress

• 40-hour work week legislation

• Defunding efforts

OVERALL, DO YOU THINK THE AFFORDABLE CARE ACT IS GOING TO BE

GOOD FOR YOUR BUSINESS, BAD FOR YOUR BUSINESS, OR HAVE NO

IMPACT ON YOUR BUSINESS?

Copyright © 2013 Gallup, Inc. All rights reserved.

4%

48%

39%

9%

0% 20% 40% 60% 80% 100%

Don't Know/Refused

Bad For Business

No Impact On Business

Good For Business

Overall

Total

HAVE YOU CONSIDERED DROPPING HEALTH INSURANCE COVERAGE

FOR YOUR EMPLOYEES AS A SPECIFIC RESULT OF THE AFFORDABLE

CARE ACT OR NOT?


1%

22%

53%

24%

0% 20% 40% 60% 80% 100%

Don't Know/Refused

Does Not Apply/Do Not Have Or Plan ToHave Employees (vol)

No

Yes

Overall

Total

HAVE YOU REDUCED THE HOURS OF EMPLOYEES TO PART-TIME AS A

SPECIFIC RESULT OF THE AFFORDABLE CARE ACT OR NOT?


9%

73%

18%

0% 20% 40% 60% 80% 100%

Does Not Apply/Do Not Have Or Plan ToHave Employees (Vol)

No

Yes

Overall

Total

Healthcare Reform Next Steps

1. Don’t ignore the ACA

2. Determine if you are in compliance with current and

upcoming ACA requirements (DOL Plan Audits)

3. Determine if you are a “large” employer subject

to the play-or-pay mandate

4. Identify full-time employees and

how you will track hours of service

5. Will you provide health coverage

to full-time employees and children?

Healthcare Reform Next Steps

5. Is your coverage affordable?

6. Does it provide minimum value?

7. Weigh “cost” of paying v. playing in 2015

8. Is your wellness program compliant with new regulations?

9. Stay tuned for new regulations and guidance

10.Communicate with employees

Healthcare Reform Strategies: Littler Healthcare Reform Consulting Group

• Healthcare reform strategy is an

individual assessment

• Review options and determine strategy that is

right for your organization

• Consider all employment,

labor and benefits law

implications of strategy

Littler Healthcare Reform Advisor:

How to Get There

Just go to

Littler.com,

and click

here

Healthcare Reform Strategies:

Littler Healthcare Reform Consulting Group

Questions & Answers

The Affordable Care Act

– Smart Strategies for

Employers

December 12, 2013

Steve Friedman Littler Mendelson, P.C.

New York Office

[email protected]

212.583.2687

Russell Chapman Littler Mendelson, P.C.

Dallas Office

[email protected]

214.880.8177

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