Health Care Reform

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October 11, 2013

Simplifying The Confusion About The Employer Mandate Delay

August 13, 2013

After a year of debate, Congress passed health care reform legislation, although the complete legislation is not yet finalized. On March 21, 2010, the House of Representatives passed the Senate-version legislation, the Patient Protection and Affordable Care Act (H.R. 3590) (the “Affordable Care Act”).

Numerous state legislators are already passing laws to exempt their citizens from elements of the health care reform package, specifically the individual and employer mandates. Whether these laws are preempted by federal legislation will be an issue for the courts to address.

As the health reform legislation stands today, the issues affecting individuals and employers are outlined below in order of implementation deadline.

The US Department of Health and Human Services has launched a very helpful web site with a tremendous amount of information on the new Affordable Care Act. One of the greatest features of their site is the Timeline page. It allows you to understand what is changing and when at the click of your mouse! This interactive page will make learning about the changes ahead easy for you and your family.

For any information you cannot find online, please don’t hesitate to contact us! We are very knowledgeable on the new Affordable Care Act and looks forward to helping you understand it, too.

Six Months After Enactment

Healthcare Reform Image

Dependent Coverage

For plan years beginning six months after the date of enactment, grandfathered plans would be required to provide coverage for adult children up to age 26, if the adult child is not eligible to enroll in an employer-sponsored plan. The employer contributions for adult child coverage would still be included in gross income, unless the adult child qualifies as a federal income tax dependent.

No Rescissions

For plan years beginning six months after the date of enactment, grandfathered plans would be prohibited from rescinding coverage except in the case of fraud.

No Lifetime/Restrictive Annual Limits

For plan years beginning six months after the date of enactment, existing plans are prohibited from having lifetime limits on coverage or restrictive annual limits (as determined by the Health and Human Services Secretary).

Pre-Existing Conditions

For plan years beginning six months after the date of enactment, there can be no pre-existing limitation for coverage of children under age 19, however insurers could still reject those children outright for coverage in the individual market until 2014.

YEAR 2010

Small Employer Tax Credit

For years 2010 through 2013, businesses with fewer than 25 employees and average wages of less than $50,000 are eligible for a tax credit of up to 35 percent of the employer’s contribution toward the employee’s health insurance premium if the employer contributes at least 50 percent of the total premium cost or 50 percent of a benchmark premium.

Reporting on Medical Loss Ratio

Effective in 2010, health insurance plans are required to report the proportion of premium dollars spent on clinical services, quality, and other costs.

Medicare Prescription Drugs

The approximately 4 million Medicare beneficiaries who hit the so-called “doughnut hole” in the program’s drug plan will get a $250 rebate in 2010. Next year, their cost of drugs in the coverage gap will go down by 50 percent. In 2011, the bill would also begin phasing down the beneficiary coinsurance amount in the coverage gap so that it reaches the standard 25 percent beneficiary coinsurance by 2020. Preventive care, such as some types of cancer screening, will be free of co-payments or deductibles starting this year.

YEAR 2011

Medical Loss Ratio

Effective in 2011, insurers must provide rebates to consumers for the amount of the premium spent on clinical services and quality that is less than 85 percent for plans in the large group market and 80 percent for plans in the individual and small group markets. A process will be established for reviewing increases in health plan premiums and requiring plans to justify increases. States are required to report on trends in premium increases and recommend whether certain plan should be excluded from the Exchange based on unjustified premium increases.

YEAR 2013

Increase Tax for High-Income Taxpayers

Effective 2013, for single taxpayers with adjusted gross income (”AGI”) of $200,000 or more and joint filers with AGI of $250,000 or more, the Reconciliation Act would add a 3.8 percent tax on investment income from interest, dividends, annuities, royalties, rents and capital gains (“net gain from disposition of property”). The tax would not include income that is derived in the ordinary course of a trade or business that is not a passive activity. This 3.8 percent tax is in addition to the 0.9 percentage point increase in the Medicare payroll tax on earned income that is in H.R. 3590. This additional tax would not apply to qualified plan distributions under Code sections 401(a), 403(a), 403(b), 408 408A, or 457(b).

Flexible Spending Arrangements (FSAs)

The Reconciliation Act would delay the effective date of the new annual limit on health flexible spending arrangements until 2013, at which time the FSA contribution would be capped at a maximum of $2500, indexed thereafter to general inflation.

YEAR 2014

Insurance Reforms

In 2014, the Reconciliation Act would prohibit pre-existing condition exclusions (for children, the exclusions are prohibited starting six months after enactment) and annual limits on coverage (which were restricted beginning six months after enactment).

Employer Mandate

Effective in 2014, employers with more than 50 employees that do not offer coverage and have at least one fulltime employee who receives a premium tax credit will be fined an amount equal to $2,000 per full-time employee, excluding the first 30 employees from the assessment. Employers with more than 50 employees that do offer coverage but have at least one full-time employee receiving a premium tax credit because coverage is “unaffordable,” will pay the lesser of $3,000 for each employee receiving a premium credit or $750 for each fulltime employee. Coverage would be considered “unaffordable” if the premiums for the class of coverage selected by the employee exceed 9.5 percent of family income (down from 9.8 percent in H.R. 3590). Employers with 50 or fewer employees are exempt from penalties. Employer penalties have been delayed until January  1, 2015.

Small Business Tax Credit

Small employers with no more than 25 employees and average annual wages of less than $40,000 that purchase health insurance for employees are provided with a tax credit. For 2014 and later, for eligible small businesses that purchase coverage through the Health Insurance Exchange, a tax credit is provided of up to 50 percent of the employer’s contribution toward the employee’s health insurance premium if the employer contributes at least 50 percent of the total premium cost. The credit will be available for two years. The full credit will be available to employers with 10 or fewer employees and average annual wages of less than $25,000.

Individual Mandate

Citizens and legal residents are required to have “qualifying health coverage” by year 2014. Those without coverage pay a tax penalty of the greater of $695 per year up to a maximum of three times that amount ($2,085) per family or 2.5 percent of household income. The penalty will be phased-in according to the following schedule: $95 in 2014, $325 in 2015, and $695 in 2016 for the flat fee or 1.0 percent of taxable income in 2014, 2.0 percent of taxable income in 2015, and 2.5 percent of taxable income in 2016. After 2016, the penalty will be increased annually by the cost-of-living adjustment. Exemptions will be granted for those for whom the lowest cost plan option exceeds 8 percent of an individual’s income, and those with incomes below the tax filing threshold (in 2009 the threshold for taxpayers under age 65 was $9,350 for singles and $18,700 for couples).

Individual Subsidies

Premium credits are made available to eligible individuals and families with incomes between 133 and 400 percent of the federal poverty level to purchase insurance through the Health Insurance Exchanges. The premium credits will be tied to the second lowest cost plan in the area and will be set on a sliding scale.

Benefit Design

Effective in 2014, an essential health benefits package is established that provides a comprehensive set of services, covers at least 60 percent of the actuarial value of the covered benefits, limits annual cost-sharing to the current law HSA limits ($6,250/individual and $12,500/family in 2013), and is not more extensive than the typical employer plan. Abortion coverage is prohibited from being required as part of the essential health benefits package. Effective in 2014, all qualified health benefits plans, including those offered through the Health Insurance Exchanges and those offered in the individual and small group markets (except grandfathered plans) are required to offer at least an essential health benefits package.

Expanded Medicaid Eligibility

States will have the option starting in 2014 to expand Medicaid eligibility to nonelderly, non-pregnant individuals who are not otherwise eligible for Medicare, with incomes up to 133 percent of the federal poverty level (FPL). From 2014 through 2016, the federal government will pay 100 percent of the cost of covering newly eligible individuals.

Health Insurance Exchanges

Effective in 2014, state-based Health Insurance Exchanges and Small Business Health Options Program (SHOP) Exchanges must be established, administered by a governmental agency or non-profit organization, through which individuals and small businesses with up to 100 employees can purchase qualified coverage. States are permitted to allow businesses with more than 100 employees to purchase coverage in the SHOP Exchange beginning in 2017. States may form regional Exchanges or allow more than one Exchange to operate in a state as long as each Exchange serves a distinct geographic area.

YEAR 2018

Tax on Cadillac Plans

The Reconciliation Act delayed implementation of the tax on Cadillac Plans and increased the threshold above which the tax applies. Effective in 2018, an excise tax is imposed on insurers of employer-sponsored health plans with aggregate values that exceed $10,200 for individual coverage and $27,500 for family coverage. The tax is equal to 40 percent of the value of the plan that exceeds the threshold amounts and is imposed on the issuer of the health insurance policy, which in the case of a self-insured plan is the plan administrator or, in some cases, the employer. The aggregate value of the health insurance plan includes reimbursements under a flexible spending account for medical expenses (health FSA) or health reimbursement arrangement (HRA), employer contributions to a health savings account (HSA), and coverage for supplementary health insurance coverage, excluding dental and vision coverage. If health care costs increase more than expected, as determined by cost of an identified standard benefit option under the Federal Employees Health Benefits Program, then initial threshold will be automatically adjusted upwards. This provision also includes an adjustment for retirees ages 55-64 and for employees in high-risk jobs.

Health Care Reform Fees That Directly Impact Premium Rates – June 2013

ACA MANDATED HEALTH PLAN FEES PURPOSE EFFECTIVE DATE WHO DOES IT AFFECT? (Grandfathered and/or Non Grandfathered TAX DEDUCTIBLE INDIVIDUAL PLANS ‘2 – 50 EMPLOYEES (Fully Insured) ’51 – 99 EMPLOYEES (Fully Insured) ‘100+ EMPLOYEES (Fully Insured) SELF FUNDED
Patient Centered Outcomes Research Institute (PCORI) fees To help fund research that will be conducted by PCORI Plan years after 10-1-12, Ends 2020 GF and NGF Payble to IRS by Plan Sponsor Yes $.17 PMPM ** $.17 PMPM ** $.17 PMPM ** $.17 PMPM ** $.17 PMPM **
Risk Adjustment Fee Program assesses a charge on insurers that have low-cost enrolles to pay for high cost enrollees. Non Grandfathered plans – 2014 Benefit year NGF only ?? $.08 PMPM ** $.08 PMPM ** N/A N/A N/A
Transitional Reinsurance Program Fee Funds a 3 year reinsurance program to help reimburse companies that insure high-cost individuals Eff. 1/1/14 through 12/31/16 GF and NGF Yes $5.25 PMPM ** (expected to be reduced in 2015) $5.25 PMPM ** (expected to be reduced in 2015) $5.25 PMPM ** (expected to be reduced in 2015) $5.25 PMPM ** (expected to be reduced in 2015) $5.25 PMPM ** (expected to be reduced in 2015)
Annual Health Insurer Tax Help fund federal and state Exchanges (Marketplaces) Eff. 1/1/14, Permanent fee GF and NGF No 2.0 to 2.5% of premium (Will increase in future years) 2.0 to 2.5% of premium (Will increase in future years) 2.0 to 2.5% of premium (Will increase in future years) 2.0 to 2.5% of premium (Will increase in future years) N/A
Federally Facilitied Exchange Fees (Proposed) Support for a Federally Facilitied Exchange (may be amended) Eff 1/1/4 but only Proposed now ?? ?? Proposed for plans sold through the exchange but could be assessed by insurers on all policies sold in the state.

** Per Member Per Month (Means each employee and dependent insured on the plan not just an insured employee)

Key Differences in Small Group and Large Group once ACA begins 1-1-14

Small Group 2 – 49 (Changes to 2 – 100 as of 1-1-16) Large Group 50+ (Changes to 100+ as of 1-1-16) Self funded (Now can be as low as 5 employees)
Medical Loss Ratio (Carriers must spend at least this percent of premium on medical care or rebates are given each August.) 80% threshold 85% threshold N/A
Community Rating (Geographic rating area, individual or family, age and tobacco status only factors) Yes No No
Experience rated No Yes Yes
Composite Rates or Age banded rates Age Banded Composite Composite
Differences in premiums based on age (Ratio Young:Old) 3:1 5:1 To 7:1 5:1 To 7:1
Tobacco status impacting premiums Can apply Can apply Can apply
Employer can charge smokers more premium Yes Yes Yes
Gender differentiation in premiums No Yes Yes
Taxes and fees Applies Applies Fewer fees
Mandated benefit plans Yes Max OOP tied to HDHP, 60% Actuarial Value Max OOP tied to HDHP, 60% Actuarial Value
Maximum Plan deductibles Yes Max OOP tied to HDHP, 60% Actuarial Value Max OOP tied to HDHP, 60% Actuarial Value
Employer sponsored coverage cost on W-2s Yes, if write more than 250 W-2s per year. Yes, if write more than 250 W-2s per year. Yes, if write more than 250 W-2s per year.

Employer Mandate Delay – what you should know – July 15, 2013

On July 2, 2013 the Department of the Treasury and the White House used their blogs to announce that the employer reporting requirements, and the employer shared responsibility/play or pay penalty, are being delayed until 2015.  The Treasury said that it will provide a formal announcement and additional details next week. In the meantime, we want to share with you the most important elements employers need to know right now.

The employer shared responsibility/play or pay requirement provides that employers with 50 or more full-time or full-time equivalent employees must offer affordable, minimum value coverage to most full-time (30+ hours/week) employees or pay a penalty.  That requirement was scheduled to take effect Jan. 1, 2014, although employers that met transition requirements could delay compliance until the start of the employer’s 2014 plan year.

In addition, extensive reporting was expected to be required regarding the coverage offered to employees.  The blogs state that (1) the reporting requirements will be provided later this summer; (2) reporting will not be required until 2015; and (3) since it is not possible to assess or enforce employer penalties without reporting, the play or pay mandate also will be delayed until 2015.

1. What’s been delayed?

The play or pay provision requires employers with 50 or more employees to do the following to avoid penalties:

1.  Offer minimum essential coverage to 95 percent of full-time employees

2.  Offer minimum value (60 percent) coverage to full-time employees

3.  Offer affordable (less than 9.5 percent of income) coverage to full-time employees

4.  Consider employees who average 30 or more hours per week full-time for purposes of their health plan

5.  Count employees’ hours to determine whether they average 30 or more hours work per week

6.  Because of the delay, employers will not need to meet these requirements for 2014.

2. What is still required?

The delay in the play or pay requirement does not affect the insurance market reforms.  This means that these requirements are still scheduled to go into effect as of the start of the 2014 plan year (with penalties of up to $100 per person per day for non-compliance).  These requirements apply to all plans except as noted:

1.  Waiting periods cannot be more than 90 days from the date the employee becomes eligible. (We recommend a 1st of the month following 60 days new hire effective date.)

2.  All pre-existing condition limitations must be removed.

3.  The out-of-pocket maximum cannot exceed $6,350 for individual and $12,700 for family coverage.

4.  Essential health benefits may not have annual dollar limits.

5.  Grandfathered plans must cover dependent children to age 26 even if the child has access to his/her own employer-provided coverage.

6.  The new wellness program requirements.

7.  For small insured plans, whether in or outside the exchange/marketplace, coverage must include the essential health benefits, at the bronze, silver, gold or platinum level, with a deductible of not more than $2,000 for individual and $4,000 for family coverage

8.  For small insured plans, whether in or outside the exchange/marketplace, modified community rating (rating classes are limited to age, tobacco use, family size and geographic area), guaranteed issue and guaranteed renewal (with some limitations) will apply.

3. What other ACA requirements must employers also meet?

1.  Reporting and payment of the PCORI fee by July 31, 2013 for plans that ended Oct. 1, 2012 through Dec. 31, 2012.

2.  Timely distribution of any MLR rebates the plan may receive.

3.  Providing a Summary of Benefits and Coverage (SBC) as part of open enrollment.

4.  Distributing the DOL notice regarding the exchange by Oct. 1, 2013.

5.  Reporting health care costs on the employee’s W-2 (the exemption for employers that issued fewer than 250 W-2s in the prior year or that contribute to a multiple employer plan will continue for the 2013 W-2)

6.  Paying the transitional reinsurance fee, due in January 2015

4. What’s next?

The government stated in the delay announcements that the exchanges are still expected to begin open enrollment on Oct. 1, 2013.  It is unclear at this point how the delay of the play or pay requirement will affect determination of employee eligibility for subsidies.  Presumably the official guidance that Treasury has promised to provide next week will address this issue.