2 PPACA: Affordable Care Act (ACA) The goal of ACA is to improve the quality of healthcare and lower healthcare costsBiggest regulatory change since the FLSA was passed in 1938Many requirements become mandatory in 2014Large Employers have until 2015 to consider “Play or Pay” strategyThe stated goals for the ACA are to improve the quality of healthcare and lower healthcare costs.It is the biggest regulatory change since the Fair Labor Standards Act was passed in And, although the argument about the law is ongoing, it is the law of the land.We want to share with you the number of requirements that become effective for your 2014 benefits plan year. One requirement delayed until 2015 is the employer responsibility provision, giving employers an additional year to consider their total rewards strategy and to make the changes each sees is necessary.
3 ACA Timeline March 23, 2010: Signed into law by President Obama June 28, 2012: Supreme Court ruled it was constitutionalOctober 1, 2013: Healthcare Exchanges OperationalJanuary 1, 2014: Majority of provisions become effectiveJanuary 1, 2015: Employer Mandate effectiveJanuary 1, 2018: Beginning of Cadillac taxStill putting the pieces of a moving target together… implementation of portions of ACA delayed 19 times since 2010 and last minute guidance being issued dailyPPACA = Patient Protection and Affordable Care ActGoal: Quality Affordable Health Care for All AmericansMarch 23, 2010: Signed into law by President ObamaJune 28, 2012: Supreme Court ruled it was constitutionalJanuary 2014: Majority of provisions become effectiveJanuary 2015: Employer Mandate effectiveJanuary 2018: Beginning of Cadillac tax
4 What Is The ACA? GOALS: Broaden marketplace Establish standard health planGuarantee coverageAllow for comparison shoppingFree preventative careFederal subsidies to low income citizensThe most significant government expansion and regulatory overhaul of the U.S. healthcare system since the passage of Medicare and Medicaid in The aim is to increase the rate of health insurance coverage for Americans and reducing the overall costs of health care. It provides a number of mechanisms—including mandates, subsidies, and tax credits—to employers and individuals to increase the coverage rate.
5 Key ProvisionsEssential Health Benefits: 10 benefits that must be included in every healthcare planMinimum Value: Plan must pay at least 60% of costsAffordable Coverage; no more than 9.5% annual incomeDependents covered to Age 26No exclusions due to pre-existing conditionsGuaranteed Coverage / RenewabilityAnnual and Lifetime Coverage Caps EliminatedEssential Health Benefits: 10 benefits that must be includedMinimum Value: Plan must pay at least 60% of costsAffordable CoverageDependents Covered to Age 26Guaranteed Issue: No exclusions due to pre-existing conditionsGuaranteed Coverage / Renewability
6 Key Provisions Maximum 90-Day Waiting Period Health Insurance Exchanges EstablishedPlay or Pay: Large employers (more than 50 employees) must offer healthcare benefits to full-time employeesIndividual Mandate: Everyone must have health insuranceSmall Business Tax CreditShared ResponsibilityWellness IncentivesAnnual and Lifetime Coverage Caps EliminatedMaximum 90 Day Waiting PeriodHealth Insurance Exchanges EstablishedPlay or Pay: Large employers (more than 50 employees) must offer healthcare benefits to full-time employeesIndividual Mandate: Everyone must have health insuranceShared ResponsibilityWellness Incentives
7 Program Overview How the ACA’s Goals are Accomplished: Reform insurance marketsEstablish new state-based exchangesImpose Individual and Employer MandatesImpose new taxes/“shared responsibility”Reporting and disclosure requirements
9 Reform Insurance Market Already Implemented Dependents can stay on parent’s coverage to age 26Lifetime maximums eliminated for “essential health” benefitsPremiums cannot be raised due to health condition changeChildren under age 19 cannot be denied coverage for pre-existing conditions
10 Reform Insurance Market What is coming? Qualified Health Plan – “QHP”10 Essential BenefitsAmbulatory patient servicesEmergency ServicesHospitalizationMaternity and newborn careMental health and substance abuse disordersPrescription drugsRehabilitative services and devicesLaboratory ServicesPreventive, wellness and chronic disease management servicesPediatric services, including oral and vision care
11 Reform Insurance Market What is coming Health Savings Account (HSA) and Flexible Spending Account (FSA) limitsHigh deductible limits on small employers (less than 50 FTEs)$2,000 (individual)$4,000 (family)Elimination of annual limits on Essential BenefitsElimination of 90+ day enrollment waiting periodsFull time defined as 30 or more hours per week (130 hrs/mo.) for ACA calculationsClear and understandable Summary of Benefit Coverage “SBC”
13 Health Exchange What is it? ONLINE one-stop marketplace to comparison shop and buy healthcare coverageObjective: Drive lower pricesEach state will have oneOperational by October 1, 2013Self-sustaining by 2015 through individual assessments or user fees
14 Health Exchange Who can use the Exchange? 2014 – individuals and small employers (< 50 FTEs)2016 – employers (less than 100 FTEs)2017 – all employers
15 Health Exchange What is provided? Plans with at least 60% minimum actuarial value (plan’s share of total allowed costs of benefits provided under the plan must be at least 60 percent of such costs)4 health plan levels in metal rankings:Bronze = 60% coverage of total allowed plan costsSilver = 70% coverage of total allowed plan costsGold = 80% coverage of total allowed plan costsPlatinum = 90% coverage of total allowed plan costs
16 Health Exchange Adequate and Affordable Those employed with “60%” health plan and “affordable” premium typically would not go to exchangeAffordable – costs no more than 9.5% of household incomeExample: Single minimum wage earner makes $9.19 per hour. $9.19 x 130 hours (FT) = $1, per month. $1, x .095 = $“Affordable” if employee’s premium costs less than $ per month.But see W-2
17 Health Exchange Washington State WA State: Washington HealthplanfinderCurrently 7 insurers approved, offering 35 plans; awaiting federal certification of 8 additional plansTwo sides to exchange: Individual and Employer (SHOP – Small Business Health Options Program)Open enrollment is 10/1/13 for 1/1/14 coverage
18 Health Exchange Individual Side Individual Subsidies available to low income (between 133% and 400%) of federal poverty levelMust purchase coverage through exchange to receive2013 Federal Poverty Level
19 Health Exchange Small Employer Side Small Business Health Options Program (SHOP) - one plan available at this timeKaiser Family Health Plan of NWOnline assistance, call center, office of navigator or brokerCan only buy for full-time employees, not part-timeSmall Business Tax Credit in 2014Small Employer = Less than 25 FTEsPay average wages less than $50,000Pay at least 50% of premiumMaximum 50% credit; 35% for tax-exempt small employers
20 Health Exchange Small Employer Side Full 50% credit given to employers with less than 11 FTEs and pays average wages less than $25,000 (excludes owner)Must enroll in exchange to qualify for tax creditOnly available 2014 and 2015Can carry the credit back or forward to other tax yearsCan claim a business expense deduction for the premiums in excess of the credit
21 Health Exchange Notices ACA states that all employers SHALL provide all their employees by Oct. 1 of each year, and all new employees at the time of hire, a written notice informing them of the following:Information about government-run health care exchanges, including services provided and how employees may contact an exchange to request assistance.If employer does not offer a “60%” plan, workers may be eligible for a premium tax credit if they purchase a qualified health plan through an exchange.Employees who purchase a plan through an exchange may lose their employer’s contribution. All or a portion of this contribution may be excluded from income for federal income tax purposes.The PPACA has a $100-a-day penalty for noncompliance; BUT, as of September 13, 2013 the DOL has said, “there is no fine or penalty under the law for failing to provide the notice.”
23 Mandates IndividualMust buy at least “60%” minimum value coverage in or out of the exchange or pay penaltyExemptions:Religious groundsNative AmericansIncarceratedUndocumented immigrantsGap in coverage for less than 3 months in a yearCoverage costs more than 8% of income or below FPL
24 Mandates Employer Small Employer – NO MANDATE Large Employer must offer to 95% of its full-time employees (and their dependents) at least “60%” coverage AND it must be “affordable;” otherwise pay penalty.Large Employer = 50 or more Full-Time-Equivalents (FTEs)Full-time Employee = 30 hours or more per weekMonthly Full-time Equivalent = 130 hoursPart-time employees counted in fractional units to determine if large employer. Total hours worked divided by 120 hours.
25 Mandates EmployerSeasonal (non-leased) employees counted if they work more than 120 days in calendar year; 6 month look-back.Headcount excludes:Leased (temp) employeesSole proprietorIndependent contractorsPartners in partnership2% “S” Corporation shareholdersEmployees working outside the U.S.
26 Mandates Employer Measurement Periods Standard Measurement Period – to determine who is a full-time employee; up to 12 months; use for ongoingInitial Measurement Period: between 3–12 months; use for variable and seasonal employeesStability Period: at least 6 consecutive calendar months, same length as Standard Measurement PeriodAdministrative Period: up to 90 days between measurement and stability period; use for eligibility determination, employee notification and enrollmentHere are the definitions of each type of measurement period:Standard Measurement Period: up to 12 months; use for ongoing employeesInitial Measurement Period: between 3 – 12 months; use for variable and seasonal employeesStability Period: at least six consecutive calendar months, same length as Standard Measurement PeriodAdministrative Period: up to 90 days between measurement and stability period; use for eligibility determination, employee notification and enrollmentStill with me? Let’s do a calculation next….
27 Mandates Employer Grandfathered Plans: Plan must have been in existence in 2010Part of collective bargaining agreementStill required to make additional changes for 2014:Offer dependent coverage through age 26Eliminate annual aggregate benefit limitsEliminate pre-existing condition limitationsWaiting period no greater than 90 daysMay elect to comply with all ACA requirementsCan lose grandfathered statusOnly about 10% of all healthcare plans in existence in 2010 are still grandfathered.How many in this room? How many don’t know?Next: The changes that would cause you to lose grandfathered status
28 Mandates Employer A Word about COBRA… All COBRA provisions (including notifications) remain intactDon’t assume COBRA will go awayCOBRA coverage may cost less than plans in the ExchangeCOBRA useful if more than 3 month gap that would incur an individual penaltyCOBRA is better option if annual deductible already metDependent COBRA coverage up to 36 months, or age 29 after losing dependent eligibility at age 26And just a few words about how this all affects COBRA:All provisions (including notifications) remain intactDon’t assume COBRA will go awayCOBRA coverage may cost less than in the ExchangeCOBRA useful if more than 3 month gap that would incur an individual penaltyCOBRA is better option if already met annual deductible – example: if employee is laid off in SeptemberDependent COBRA coverage up to 36 months, or age 29 after losing dependent eligibility at age 26
30 New Taxes – Shared Responsibility Individual Individual Penalty per year, whichever is greater:$95 per person or 1% of household income$325 per person or 2% of household income2016 & beyond - $695 per person or 2.5% of household incomeFor each dependent under 18 penalty is halfPaid as a federal tax liability on income tax returnIndividuals who fail to pay not subject to criminal penalties or prosecution, property liens or levies
31 New Taxes – Shared Responsibility Family Family Penalty per year, whichever is greater:$285 per family or 1% of household income$975 per family or 2% of household income2016 & beyond - $2,085 per family or 2.5% of household incomeFamily Penalty capped at 3 times Individual Penalty.Example: Married couple with 2 children under 18, a single parent with 4 children under 18 and larger families all subject to same flat dollar maximum amountThe distinction is higher incomes pay higher penalties
32 New Taxes – Shared Responsibility Large Employer Large employer shared responsibility penalties and reporting requirements delayed until 2015Must still comply with all other 2014 ACA provisionsLarge Employer Penalties if employer-offered coverage:Is not affordable;Is not offered to 95% or more of eligible employees; orDoes not meet minimum value (at least 60% of healthcare costs covered or “bronze” plan)Delay for large employer shared responsibility penalties until 2015Reporting requirement for whether healthcare coverage was offered also delayed until 2015Per the IRS: Voluntary reporting in 2014 is encouragedMust still comply with all other 2014 ACA provisions: ideal for taking a strategic look at all your benefits
33 New Taxes – Shared Responsibility Large Employer Two Levels of “Play or Pay”Do Not Play at AllOffer no health coveragePenalty Calculation: Number of FTEs – first 30 x $2,000Example: Company has 70 employees and decides not to offer coverage.(70 – 30 = 40) 40 x $2,000 = $80,000 per year
34 New Taxes – Shared Responsibility Large Employer Second Level of “Play or Pay”Do Not Play by the RulesOffer less than “60%” coverage AND an employee goes to Exchange and receives subsidyOffer “60%” coverage, but plan is not “affordable” AND an employee goes to Exchange and receives subsidyPenalty Calculation:Number of FTEs receiving subsidy times $3,000
35 New Taxes – Shared Responsibility Large Employer “Adequate” AND “Affordable” Example:Company has 70 employees. It offers 60% minimum value coverage, but the employee-only premium cost is greater than 9.5% of W-2 income for 10 employees and all seek coverage through the exchange and receive a subsidy.10 x $3,000 = $30,000 per year
36 New Taxes InsurersCadillac Tax coming in 2018 – tax on rich benefit plansPCORI Fee (Patient-Centered Outcomes Research Institute) to fund research on improving health care deliveryReinsurance Program Fee to help stabilize individual market premiums (offset risk of high cost enrollees)
38 Reporting and Disclosure Employers So far….Effective 2015 Tax YearReport cost of coverage under an employer-sponsored group health plan on an employee’s W-2 in Box 12.Amount is not taxed; reporting is for informational purposes only, to show employees the value of their health care benefits.Large Employers must identify FTEs covered and report cost of benefits on Section 6056 Form – guidance to be issued.
40 2014 Provisions SummaryEssential Health Benefits: 10 benefits that must be included with no annual limits (still may have visit limits)Minimum Value: Plan must pay at least 60% of costsAffordable Coverage (no more than 9.5% of income)Dependents covered to age 26Guaranteed issue, coverage and renewability: No exclusions due to pre-existing conditionsHigh deductible plans for small employers cannot exceed $2,000/$4,000
41 2014 Provisions Summary Annual and Lifetime Coverage Caps Eliminated Maximum 90-Day Waiting PeriodPlay or Pay: Large employers (more than 50 employees) must offer healthcare benefits to full-time employeesShared ResponsibilityIncrease in small business tax credits (SHOP)Individual Mandate: Everyone must have health insuranceWellness Incentives
43 What To Do Now Employers Calculate FTEs for 2013For under 50 FTEs – check out the exchange or continue as usualFor under 25 FTEs – look into tax credit for if using exchangeFor 50 FTEs and overIf provide affordable health care, continue as usual. Adjust full-time definition and waiting periods by end of 2014
44 What To Do Now Employers If new rules result in cost increases for over 50 employers:Ask for “Play or Pay” analysis from brokerConsider cost stabilization measures:Restrict part-timers to 29 hours per week or move part-timers (eg. 30 to 34 hours) to represent 5% of workforce. (Use safe harbor rule).Offer coverage only to “hard to replace” workforce. Remaining use exchange and you pay penalty.Offer more than one level of coverage, based on job categories. Example: 60% for part-time and variable workforce and 80% for full-time.
45 What To Do Now Employers Vary employer contribution levels by income level to avoid “unaffordable” penalty.Allow lower-income employees to receive subsidies from the exchange and pay penalty.Increase deductibles, modify plan reimbursement levels or increase employee contributions.Cut work hours below 30? Be aware ERISA (Sec. 510) makes it unlawful to interfere with employee entitlements under employee benefit plan.
46 What To Do Now Employers Stop providing health coverage and gross up salaries and pay penalty.Caution: Employer and employee will no longer receive tax exemption on benefit costs.Stop health coverage and pay penalties.Only 6% of employers surveyed in 2012 planned to drop coverage; 9% in retail/hospitality industry. (Mercer Survey of 1,203 employers)Caution: Employer and employee no longer will receive tax benefits.Fallout: Can you still compete in the labor market?
47 What To Expect Employees A more expensive price tag More options for coverage Consumer-driven health plans vs. HMOsPrograms that promote health awareness and education More incentive opportunities for exhibiting healthy behaviors New eligibility rules Personal responsibility!
48 What To Do Now Communication Once you make your decisions related to ACA compliance and healthcare, communicate with your employees:Model Exchange NoticeMandated Plan DocumentsCurrent Benefits Offerings2014 Changes to Benefits OfferingsPossible 2015 Changes (if known)WHY Changes Are Being MadeModel Exchange Notice: Must distribute by October 1, 2013 (just over six weeks from now!) Model employee notice handout in your packet.Must issue to all employeesMust issue to new hires within 14 days of hireNotice explains:- Existence of exchange (WA Healthplanfinder)- Description of services- Manner in which employee makes contact for helpClear and understandable Summary of Benefit Coverage “SBC”- Only 4 double sided pages, 12 point font or larger- Goal is to provide side by side comparison- Provided by insurance companies
49 Resources For More Information: Washington Healthplanfinder: wahbexchange.orgKaiser Family Foundation: kff.orgU.S. Department of Health & Human Services: healthcare.govFor More Information:
50 Questions? How to Reach Me: Kara M. Craig Staff Counsel Washington EmployersDirect Line: (206)Here is my contact information if you want to reach me with questions, etc. I am very active on LinkedIn, so please feel free to connect with me! And I will be here after we are finished if you have a question.