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Update on the Affordable Care Act Mary Bauman. The materials and information have been prepared for informational purposes only. This is not legal advice,

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Presentation on theme: "Update on the Affordable Care Act Mary Bauman. The materials and information have been prepared for informational purposes only. This is not legal advice,"— Presentation transcript:

1 Update on the Affordable Care Act Mary Bauman

2 The materials and information have been prepared for informational purposes only. This is not legal advice, nor intended to create or constitute a lawyer-client relationship. Before acting on the basis of any information or material, readers who have specific questions or problems should consult their lawyer. 2

3  HPID identifies a health plan in a HIPAA standard transaction such as an electronic funds transfer or electronic remittance advice  Currently health plans use various identifiers such as NAIC codes, plan sponsor’s EIN plus plan number, etc.  Health Care Reform imposed requirements for the establishment of a unique identifier with a standard format to reduce inefficiencies and increase automation in processing standard transactions 3 Health Plan Identifier (HPID)

4  Health plans, including fully-insured and self-funded plans, are required to apply for an HPID  For fully-insured plans it appears that the insurer, rather than the plan sponsor, is required to apply for an HPID 4 Health Plan Identifier (HPID)

5  For self-funded plans it appears that the employer is required to apply for its own HPID and the application must be completed by November 5, 2014 for large plans and November 5, 2015 for small plans  A small plan is defined as a health plan with annual receipts of $5 million or less 5 Health Plan Identifier (HPID)

6  While a TPA can assist a plan sponsor in applying for an HPID, the HPID application must ultimately be submitted by the plan sponsor  This seems to be a meaningless requirement for the reason that if a self-funded plan uses a TPA, the TPA can be identified in standard transactions rather than the self-funded plan  We are waiting for clarification to see if this filing requirement will be waived or delayed for self-funded plans 6 Health Plan Identifier (HPID)

7  $2,500 cap on annual employee contributions  New optional rule to allow up to $500 carryover from prior plan year  Alternative to 2½ month grace period  Can design carryover to be “limited purpose” to prevent HSA ineligibility  Should amend flex plan to prohibit employees not eligible for employer’s group medical plan from participation to ensure medical FSA is an “excepted benefit” 7 Medical FSAs

8  Only permitted if:  Retiree only HRA;  Integrated with group medical plan; or  Reimburses limited expenses such as dental and/or vision 8 Health Reimbursement Arrangements (“HRAs”)

9  No longer required after December 31, 2014  Since pre-existing condition exclusions no longer permitted, the certificate is no longer needed to establish offsetting prior coverage 9 HIPAA Certificates of Creditable Coverage

10  Applies to non-grandfathered health plans beginning in 2014  Must consider all deductibles, copays and coinsurance  Can’t exceed prescribed annual amounts ($6,600/single and $13,200/two-person or family for 2015)  Maximums adjusted annually for changes in the cost of employer-provided coverage 10 Maximum OOP

11  Maximum aligned with HDHP maximum in 2014 but going forward HDHP maximum will be less because annual adjustment based on CPI (e.g., $6,450 / $12,900 for 2015)  Can split maximum OOP between medical and prescription drug benefits for 2015 and later 11 Maximum OOP

12  Certain routine patient costs associated with clinical trials (plan years starting in 2014)  First dollar coverage of certain breast cancer drugs (such as tamoxifin and raloxifene) for certain women at increased risk for breast cancer (plan years starting on or after September 24, 2014)  First dollar coverage of contraceptives previously required but now may not be required following the Hobby Lobby opinion for certain employers 12 Mandated Benefits for Non- Grandfathered Plans

13  The IRS published final regulations regarding the pay or play penalty on February 12, 2014  The new regulations modify proposed regulations issued more than one year earlier and subsequent IRS guidance Final Regulations – Pay or Play 13

14  The penalty applies to large employers with at least 50 full- time employees and full-time employee equivalents in the previous calendar year This determination is made separately for each year basedupon the average number of full-time employees during theprior year  This determination is made separately for each year based upon the average number of full-time employees during the prior year  The look back for 2015 can be shorter, only considering six consecutive months in the prior calendar year For this purpose, full-time means at least 30 hours a week  For this purpose, full-time means at least 30 hours a week The number of full-time employees is based upon thenumber of full-time employees plus full-time equivalentemployees  The number of full-time employees is based upon the number of full-time employees plus full-time equivalent employees 14 Pay or Play Penalty

15 To convert the number of part-time employees to FTEs,determine the total hours worked during each month of theprior year by the employees who average less than 30 hoursper week during the month and divide by 120. After makingthis calculation, add the sum of full-time employees andFTEs for each month, and then divide by 12 to determine theaverage for the prior year  To convert the number of part-time employees to FTEs, determine the total hours worked during each month of the prior year by the employees who average less than 30 hours per week during the month and divide by 120. After making this calculation, add the sum of full-time employees and FTEs for each month, and then divide by 12 to determine the average for the prior year  If companies are under common ownership, they are treated as a single employer for purposes of determining whether there are 50 FTEs. So an employer cannot avoid the rules by dividing its company into multiple companies 15 Pay or Play Penalty

16  The pay or play penalty was set to take effect as of January 1, 2014  In July 2013, the IRS announced it was pushing back the effective date to January 1, Pay or Play Penalty

17  There are two different pay or play penalties:  $2,000 Penalty If a large employer doesn’t offer health coverage to at least 95% of its full-time employees and their dependent children and at least one low income full-time employee receives a premium credit, the employer must pay an annual penalty of $2,000 multiplied by all of the employer’s full-time employees, disregarding the first 30 full-time employees  Dependent children includes natural born and adopted children until the end of the month the child attains age 26 (transition relief is available in 2015 for employers taking steps to comply) 17 Pay or Play Penalty

18  $3,000 Penalty If a large employer does offer health coverage to at least 95% of its full-time employees but it is not “affordable” or is not of “minimum value” and a low income full-time employee receives a premium credit, the employer must pay an annual penalty of $3,000 for each such full-time employee. This penalty is capped at the maximum amount under the $2,000 penalty 18 Pay or Play Penalty

19  Affordable means the employee’s required contribution for single coverage under the employer’s least expensive medical option doesn’t exceed 9.5% of the employee’s “pay”  There are 3 safe harbor methods to determine affordability: W-2, rate of pay and federal poverty line  W-2 Safe Harbor -- The annual premium for single employee coverage under the employer’s lowest cost health option does not exceed 9.5% of the employee’s wages for that year (as defined for purposes of Box 1 on Form W-2) 19 Pay or Play Penalty

20  Rate of Pay Safe Harbor -- The employee’s monthly premium is compared to 9.5% of his or her hourly pay rate as in effect as of the beginning of the year, multiplied by 130 (the monthly FTE benchmark)  A similar safe harbor is available for salaried employees based on the employee’s monthly salary at the beginning of the year 20 Pay or Play Penalty

21  If an hourly employee’s rate of pay is reduced during the year the rate of pay safe harbor is applied separately to each month based on the employee’s hourly pay rate for that month  If a salaried employee’s pay is reduced during the year the rate of pay safe harbor is not available 21 Pay or Play Penalty

22  Federal Poverty Line Safe Harbor -- Under the federal poverty line safe harbor, coverage provided to an employee is affordable if the employee’s monthly cost for single only coverage under the plan does not exceed 9.5% of the federal poverty line for a single individual as in effect at the beginning of the year or as in effect 6 months before the beginning of the year  In 2014 this would allow a monthly employee contribution of a little over $92 22 Pay or Play Penalty

23  The 9.5% maximum will be increased in future years for premium growth rates  For 2015 the maximum is 9.56%  The cost of dependent coverage is disregarded under the affordability test 23 Pay or Play Penalty

24  Minimum value means the plan pays at least 60% of the total allowed cost of benefits provided under the plan 24 Pay or Play Penalty

25  Mid-size employers  The penalty is delayed until the first day of an employer’s 2016 plan year for employers with an average of 50 to 99 full-time employees and full- time employee equivalents in 2014 if the employer satisfies all of the following conditions:  The employer does not reduce its workforce during the period of February 9, 2014 to December 31, 2014 solely to qualify (reductions in workforce for “bona fide” business reasons are permissible);  For the period of February 9, 2014 until the end of the employer’s 2015 plan year, the employer does not eliminate or materially reduce any health coverage it offered as of February 9, 2014; and  The employer certifies that it satisfies these conditions on a form to be provided by the IRS 25 Transition Relief

26  Large employers  Large employers with 100 or more full-time employees are subject to the pay or play penalty in 2015  However, large employers benefit from two transition rules for the first year:  The $2,000 penalty can be avoided for 2015 if the employer offers coverage to 70% (vs. 95%) of its full-time employees  If the employer is subject to the $2,000 penalty it may disregard the first 80 full-time employees (vs. 30) when calculating the penalty amount for Transition Relief

27  Non-calendar year plans  The final regulations provide for a delayed effective date for employers with non-calendar year plans (from January 1, 2015 to the first day of the 2015 plan year) under 3 transition rules  In order to qualify under each transition rule the plan must have been in existence on a non-calendar year basis as of December 27, 2012 and must not have been amended to move the start of the plan year to a later calendar year date 27 Transition Relief

28  Transition rule #1 – With respect to employees eligible for or enrolled in the employer’s non-calendar year plan under its terms as in effect on February 9, 2014, the penalty will generally not apply until the first day of the employer’s 2015 plan year 28 Transition Relief

29  Transition rule #2 - However, if the employer doesn’t offer group health coverage to all employees working at least 30 hours per week, transition rule #1 may not apply to those ineligible employees who will be considered full-time. As a result, under transition rule #2, the postponed effective date is available for all employees provided that:  At least ¼ of all of the employer’s employees were covered as of any date from February 10, 2013 to February 9, 2014; or  At least 1 / 3 of all of the employer’s employees were offered coverage during the most recent open enrollment period that ended before February 9, Transition Relief

30  Transition rule #3 – If an employer can’t satisfy transition rule #2, transition relief is available for all full-time employees provided that:  At least 1 / 3 of all of the employer’s full-time employees were covered as of any date from February 10, 2013 to February 9, 2014; or  At least ½ of all of the employer’s full-time employees were offered coverage during the most recent open enrollment period that ended before February 9, Transition Relief

31  The final regulations provide two methods for employers to determine whether an employee is full-time — a monthly measurement period and a look back measurement period with a stability period  Under the monthly measurement period, an employer will be required to offer coverage to any employee with at least 130 hours for the month  Under the look back measurement period / stability period, an employer may determine which employees are full-time for a future period based on their hours of service during a look back period  There may be a measurement period / stability period for certain new hires and a measurement period / stability period for all ongoing employees 31 Measurement Period

32  New Hires  Full-time employees  Employees who are employed, on average, at least 30 hours per week  Hours counted across all applicable large employer members  If a new hire is reasonably expected to be full-time upon start date, coverage must be offered no later than the first day of the month following the employee’s first three months of employment  No exceptions for employees on short term assignments 32 Measurement Period

33  Newly-hired variable hours, seasonal and part-time employees  Variable hours employees – employer can’t determine on start date whether employee is reasonably expected an average of 30 or more hours per week  Factors to determine include:  Whether the employee is replacing a full-time or variable hours employee;  The hours of employees in the same or comparable positions; and  Whether the job was advertised or communicated as full-time or variable hours 33 Measurement Period

34  Seasonal employees – work in a position for which the customary annual employment period is six months or less, with the employment period beginning at approximately the same time each year  Part-time employees – employer reasonably expects on start date that employee will be employed, on average, less than 30 hours per week  Newly-hired variable hours, seasonal and part-time new hires can be subjected to an initial measurement period of 3 to 12 months during which the employee must be credited with an average of 30 or more hours per week before health coverage is required to be offered under the pay or play 34 Measurement Period

35 35 Example: Seasonal employee hired 5/14/14 Initial measurement period: 6/1/14 – 5/31/15 -also could start on DOH or first day of first payroll period on or after DOH Administrative period: 6/1/15 – 6/30/15 -can’t extend beyond the last day of the calendar month beginning on or after the anniversary date Stability period: 7/1/15 – 6/30/16 -must be at least 6 months and as long as the measurement period

36  Ongoing employees  All ongoing employees (including variable hours, seasonal, part-time and full-time) may be subject to a measurement period in order to qualify for coverage for the immediately following stability period 36 Measurement Period

37 37 Example: Large employer group health plan operates on a calendar year plan year basis Standard measurement period 11/1/13 – 10/31/14 -also could start on the first day of a payroll period Administrative period: 11/1/14 – 12/31/14 -can’t exceed 90 days Stability period: 1/1/15 – 12/31/15 -must be at least 6 months and as long as the measurement period -first stability period for employers with 100+ full-time employees should start on the first day of the 2015 plan year

38  Transition rule  For stability periods beginning in 2015, the look back measurement period can be less than 12 months as long as:  It begins by July 1, 2014;  Is at least 6 months long; and  Ends no earlier than 90 days before the start of the 2015 stability period 38 Measurement Period

39 39 Example: Rather than first measurement period for ongoing employees in above example running from 11/1/13 to 10/31/14 it could run from 5/1/14 to 10/31/14

40  One size may not fit all  The final regulations permit measurement and stability period differences in terms of length and starting and ending dates for the following groups of employees:  Salaried vs. hourly  Employees working in different states  Union vs. non-union  Union vs. union  Large employer member by member 40 Measurement Period

41  Transfers  From variable hours, seasonal or part-time to full-time  If during initial measurement period, must offer coverage by 1st day of 4 th month after transfer  Otherwise may wait until 1 st stability period as of which employee is eligible based on look back measurement period 41 Measurement Period

42  From full-time to less than 30 hours / week  Continue eligibility until 1 st stability period as of which employee isn’t eligible based on look back measurement period; or  If employee initially offered coverage within 3 months of hire and later switches to less than full-time status, employer may apply a monthly measurement period mid-year to establish the reduction and terminate coverage before the end of the stability period 42 Measurement Period

43  Hourly – actual hours including:  Paid and worked  Paid but not working (e.g., vacation)  Unpaid leave due to FMLA, USERRA or jury duty 43 Hours of Service

44  Salaried  Same as hourly (actual) or equivalency method (either 8 hours for each day credited with one hour or 40 hours for each week credited with one hour)  Can use different methods for different reasonable categories of employees 44 Hours of Service

45  Rehired Employees The final regulations change the rules for determining whether a rehired employee is treated as a new employee. An employee will generally be treated as a new employee only if the employee is absent from work for 13 weeks  However, there is an exception for educational organizations. An employee of an educational organization is required to have a 26-week break in service period to be treated as a new employee  In addition, the rule of parity permitted by the proposed regulations may continue to be used, but is not required. This rule permits a rehired employee to be treated as a new employee if the employee’s period of absence is at least four weeks and exceeded the length of the employee’s prior employment 45 Hours of Service

46  Another challenge facing large employers subject to the pay or play penalty is how to treat employees leased through a temporary staffing agency  If the employer has the right to direct and control the workers, the workers will be considered to be the common-law employees of the customer-employer as opposed to the temporary staffing agency for purposes of the pay or play 46 Leased Employees

47  The regulations allow the administrative services agreement between the employer and the temporary staffing agency to be modified to require the temporary staffing agency to offer group health coverage to the employee  If coverage is offered and the temporary staffing agency charges the customer-employer an additional amount with respect to each employee who actually enrolls in that coverage it is considered to be an offer of coverage by the customer-employer for purposes of avoiding the $2,000 penalty 47 Leased Employees

48  In order for large employers to take advantage of this option it should identify all temporary staffing agencies it utilizes and review the administrative services agreement with each agency  If this approach is taken it does not necessarily relieve the customer-employer from liability under the $3,000 penalty unless the offered coverage constitutes minimum value coverage which is affordable 48 Leased Employees

49  If the employer hires a leased employee, service through the temporary staffing agency may need to be considered in applying the waiting period under the employer’s group health plan; otherwise, a pay or play penalty may be triggered 49 Leased Employees

50  In March 2014, final regulations were issued regarding the employer reporting requirements imposed by Health Care Reform  There are two types of reporting which will be required  Section 6055 reporting (individual mandate reporting)  Section 6056 reporting (pay or play reporting) 50 Final Reporting Regulations

51  Section 6055 requires health insurers and employers (regardless of size) to annually report to the IRS and “responsible individuals” whether coverage constitutes minimum essential coverage  If the plan is fully-insured, the insurer will assume this reporting requirement on the employer’s behalf  If the plan is self-funded, the employer is responsible for the 6055 reporting 51 Final Reporting Regulations

52  Section 6056 reporting only applies to large employers with 50 or more full-time employees and full-time equivalent employees  The purpose of the 6056 reporting is to assist the IRS to enforce the employer pay or play penalty and to assist full-time employees determine whether they are eligible for a premium credit 52 Final Reporting Regulations

53  If the large employer’s plan is fully-insured the employer will only be responsible for 6056 reporting  If the large employer’s plan is self-funded, the employer will be responsible for both 6055 and 6056 reporting but a consolidated statement may be used (All parts of 1095-C) 53 Final Reporting Regulations

54  Reporting is required annually during the first quarter of the calendar year after the calendar year to which the reporting relates  The first year for which reporting is required is 2015 so the initial reporting will be due in the first quarter of Final Reporting Regulations

55  The statement must be provided to employees by no later than January 31 and can be provided with the W-2 or can be provided separately  Then, the employer must batch all of the employee statements and transmit them to the IRS  If the employer has at least 250 employees the transmittal to the IRS must be submitted electronically by no later than March 31  If the employer is smaller the transmittal to the IRS may be filed electronically by March 31, or by mail by no later than February 28  The first reports are required for 2015 and are due in early Final Reporting Regulations

56  In July 2014 the IRS forms were released in draft form  6055 reporting forms  1095-B (employee statement)  1094-B (transmittal form)  6056 reporting forms  1095-C (employee statement)  1094-C (transmittal form)  Draft instructions were published in August Final Reporting Regulations

57  Pay or play reporting for a large employer under the general method must include employee specific information on a month-by-month basis  The new regulations provide for simplified reporting with respect to the pay or play reporting for full-time employees who receive a “qualifying offer” of coverage for all 12 months of the year 57 Final Reporting Regulations

58  A “qualifying offer” is where the employer offers:  Employee-only coverage which is affordable (using 9.5% of the mainland federal poverty line) and of minimum value; and  Coverage to the employee’s spouse and dependents 58 Final Reporting Regulations

59  For 2015 only, if the employer certifies to the IRS that it has made a qualifying offer, as described above, to at least 95% of its full-time employees and their spouses and dependents there is additional simplified reporting relief with respect to employees covered less than the entire year 59 Final Reporting Regulations

60  An additional simplified reporting method is available if a large employer certifies to the IRS that it offers coverage which is of minimum value and affordable (using any affordability safe harbor) to at least 98% of its full-time employees 60 Final Reporting Regulations

61  Large employer should think about how these reporting requirements will intersect the employer’s planned recordkeeping with respect to the pay or play penalty  There is a good faith standard for imposing 2015 reporting penalties for incorrect or incomplete filings 61 Final Reporting Regulations

62  Unclear when the IRS will issue nondiscrimination regulations with respect to fully-insured non- grandfathered plans  The requirement that large employers with more than 200 full-time employees automatically enroll new full-time employees in group medical coverage does not take effect until after final regulations are issued 62 What’s Still Missing?

63  Determine whether the employer is a small, mid-size or large employer  If small plan, prepare to collect data to evidence  If mid-size or large, determine effective date for pay or play and applicability of transition rules 63 What Should Be An Employer’s Next Steps?

64  If the pay or play penalty may apply will the employer offer:  Coverage to at least 95% (70% for 2015) of full-time employees?  Will the coverage be affordable?  Will the coverage meet the minimum value test? 64 What Should Be An Employer’s Next Steps?

65  Consider whether the employer will adopt a look back measurement period / stability period  Establish look back measurement / stability periods for new hires  Establish look back measurement / stability periods for ongoing employees  Consider transition rule for first year  Will the employer maintain different rules for different employee groups? 65 What Should Be An Employer’s Next Steps?

66  Develop a method for capturing hours  Hourly employees  Salaried employees 66 What Should Be An Employer’s Next Steps?

67  Modify health plan and SPD  Definition of eligible employee  Communicate any measurement period/stability period  Definition of dependent child  Prepare for reporting to IRS and employees 67 What Should Be An Employer’s Next Steps?

68 Calder Plaza Building 250 Monroe Ave. NW Suite 800 Grand Rapids, MI Radisson Plaza Building 100 West Michigan Avenue Suite 200 Kalamazoo, MI Mary V. Bauman


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