State and HE Agency Benefit Coordinators Affordable Care Act Issues and Impact Presentation to the State and HE Agency Benefit Coordinators August 15, 2014 Patrice Steinhart & Melissa Wiseman Benefits Administration, State of Tennessee

Presentation Outline Affordable Care Act (ACA) – broad strokes Practical issues facing employers and health plan administrators ACA Impact TN Hours for Benefits

Stated Intent of the ACA To establish a mechanism to provide for health care coverage to uninsured individuals and families at affordable rates To provide that coverage through employer-sponsored plans or through competitive marketplaces To help ensure that pre-existing conditions would not be a barrier to health care To help ensure that the insurance coverage offered meets established standards

Affordable Care Act — Compliance Timeline 2011 Plan Year 2011 2012 2013 2014 2018 Lifetime dollar limits on Essential Health Benefits (EHB) prohibited Preexisting Condition Exclusions Prohibited for Children under 19 Overly restrictive annual dollar limits on EHB prohibited Extension of Adult Child Coverage to Age 26 Prohibition on Rescissions No Cost Sharing and Coverage for Certain In-Network Preventive Health Services Effective Appeals Process Consumer/patient protections Nondiscrimination requirements on fully insured plans (DELAYED) Certain Retiree Medical Claims Reimbursable (ERRP) Retiree Drug Plan FAS Liability Recognition Over-the-Counter Medicines Not Reimbursable Under Health FSA, HRAs, or from HSAs Without a Prescription, Except Insulin HSA Excise Tax Increase Public Long-Term Care Option (CLASS Act) –No Longer Supported by HHS Medicare Part D Discounts for Certain Drugs in “Donut Hole” Distribution of Summary of Benefits and Coverage to Participants (Ongoing) PCORI (Comparative Effectiveness) Fee Quality of Care Report (delayed) Medical Loss Ratio rebates (insured plans only) Employer Reporting of Health Coverage on Form W-2 (due January 31, 2013) Notice to Inform Employees of Coverage Options in Exchange Limit of Health Care FSA Contributions to $2,500 (Indexed) Addition of women’s preventive health requirements to No Cost Sharing and Coverage for Certain In-Network Preventive Health Services Elimination of Deduction for Expenses Allocable to Retiree Drug Subsidy (RDS) Individual Mandate to Purchase Insurance or Pay Penalty State Insurance Exchanges Employer Responsibility to Provide Affordable Minimum Essential Health Coverage*** Preexisting Conditions Exclusions Prohibited Annual Dollar Limits on EHB Prohibited Automatic Enrollment (DELAYED) Limit of 90-Day Waiting Period for Coverage Employer Reporting of Health Insurance Information to Government and Participants Increased Cap on Rewards for Participation in Wellness Program Cost-sharing limits for all group health plans, not just HDHPs/HSA (deductibles and OOP maximum) Coverage of routine patient costs for participants in approved clinical trials Transitional reinsurance contributions Excise Tax on High-Cost Coverage *** Applies to full time employees (e.g., 30 hours per week) and will require coverage that is affordable and satisfies a certain actuarial value to avoid the penalty. Employer Responsibility noted in RED above

Plan Compliance Requirements Extension of adult child coverage to age 26 Summary of Benefits & Coverage communication 100% coverage for preventive services W2 reporting of the value of coverage Elimination of pre-ex for children Final appeals moved to Independent Review Organization Marketplace notification Women’s preventive services

Plan Compliance Requirements Employer mandate to provide affordable minimum essential health coverage Preexisting conditions exclusions prohibited No annual dollar limits on essential health benefits Limit of 90-day waiting period for coverage Cost-sharing limits for all group health plans (deductibles and OOP maximum)

Employer Mandate (a.k.a. Shared Responsibility) Requires employers with 50 or more “full time employees” to offer “affordable health coverage” that provides a “minimum actuarial value” and “minimum essential coverage” to at least 95%* of their full-time employees and their eligible dependents, or else face a penalty Who is a “full-time employee”? What is “affordable coverage?” What is “minimum actuarial value”? What is “minimum essential coverage”? *70% in 2015

Health Care Reform Impact – Individual Responsibility Individuals have a responsibility to maintain minimal essential coverage or pay a penalty that is generally based on taxable income Payable on tax return for the year in which the penalty was incurred Individuals on Independent and Service Contracts will evaluate their own employment status to determine if they must maintain coverage

Key Questions How will we handle PT and seasonal employees and those who will not be considered FT under the ACA and who could trigger a penalty? How will we handle PT employees who work two positions? Are any of our PT or contractors considered to be common law employees according to IRS guidelines? What measurement period makes sense for our organization?

ESR – Determining covered employees – special considerations -Seasonal employees expected to work less than 6 months per year – not full time -Volunteers – not full time -Student work-study programs – not full time -Educational employees - not part time simply because school is closed or operating on limited schedule during summers -Adjunct faculty – final regulations allow crediting 2.25 hours of service in addition to each of hour of teaching or classroom time

Look-Back Measurement Safe Harbor DETERMINING FULL-TIME EMPLOYEE STATUS Time Periods under Proposed IRS Guidelines Only pay 4980H penalty during stability period if required Ongoing Employees Standard Measurement Period 12 months to determine if full time Admin Period up to 90 days Stability Period 12 months Measurement & Stability Periods repeat New Variable Hour and Seasonal Employees Initial Measurement Period 12 months to determine if full time Admin Period 30 days Stability Period 12 months Cannot exceed 13 months for new EE Then use the Measurement Period for Ongoing employees Source: Congressional Research Services (CRS) based on IRS Notice 2012-58 Determining Full-time Employees for Purposes of Shared Responsibility for Employers Regarding Health Coverage.

Employer Responsibility Flow Chart Sources: Kaiser Family Foundation, Segal

Employer Mandate & Penalties delayed “No Coverage Penalty” (Code section 4980H(a)) Employer does not offer Minimum Essential Coverage (“MEC”) to all eligible FTEs and eligible dependents and at least one FTE enrolls in Exchange and receives Federal subsidy Penalty equals $2,000 per year for all FTEs (minus first 30 FTEs), regardless of whether the FTE elected employer-provided health care coverage Applies if less than 70% of FTEs (and their eligible dependents) are offered coverage in 2015 (95% in future years) OR “Inadequate Coverage Penalty” (Code section 4980H(b)) Employer offers MEC to FTEs but coverage is either “Unaffordable,” or Does not provide “minimum actuarial value” (State plans exceed this threshold) Penalty equals $3,000 per year per each FTE who enrolls in an Exchange insurance product and receives a Federal subsidy Not more than the No Coverage Penalty Also applies to the excluded 5% above

Not Just About Insurance Not a new employment issue - new financial risks State of Tennessee created a working group of financial, insurance, human resource, and procurement staff to Identify risk Communicate this risk to relevant parties Develop a solution to mitigate the risk going forward

Solutions to Mitigate Risk Part-Time report for managers to monitor hours worked Decision model to hire an employee, obtain independent contractor, or temporary employee Simple questionnaire for hiring managers to determine whether to hire an employee or contractor using IRS 20 Common Law questions Contract language for agencies to use for RFPs Master contract that includes contractor relationships and defines employer responsibilities http://intranet.tn.gov/dohr/hr/acquiring-hr.html

ESR – Liability for payment -IRS will review the credits paid to individual taxpayers -Employers will be sent notice that they may be liable for an ESR payment -Earliest notices would be issued in 2016 -Employers should research and dispute liability if appropriate -Payment will be $2,000 per full time employee

Regs Require Employer Offered Coverage Regulations only require that employers provide information about offers of coverage Decision guide mailed to all eligible members State will require proof that newly hired employees declined coverage Using ESS is the preferred approach Enrollment form

Current Eligible not Enrolled 4,000 State employees who are eligible but not enrolled These employees will receive a letter in mid-September notifying them that they are eligible for coverage and can enroll during Open Enrollment this year.

Key Administrative Employer Requirements W-2 reporting Summary of Benefits and Coverage (SBC) Employer Exchange-related notices Reporting to IRS starting in 2015 Automatic enrollment (not yet issued)

IRS Reporting Two reporting requirements; single report: Form 1095-C Employer-sponsored coverage provided to full-time employees Employer-sponsored minimum essential coverage Statements to employees notifying them of the information reported to the IRS (on for before 2/1/16) File electronic returns to the IRS on or before 3/31/16

Key Questions How will we handle PT and seasonal employees and those who will not be considered FT under the ACA and who could trigger a penalty? How will we handle PT employees who work two positions? Are any of our PT or contractors considered to be common law employees according to IRS guidelines? What measurement period makes sense for our organization?

Questions?

TN Hours for Benefits Report Standard Measurement period Individual Measurement period