ACA: Post-Election ImplementationWhat Every Employer Needs to Know November 2012 Stacy H. Barrow [email protected] © 2012 Proskauer. All Rights Reserved.

ACA: Post-Election Implementation—What Every Employer Needs to Know

November 2012

Stacy H. Barrow

[email protected]

© 2012 Proskauer. All Rights Reserved.

2

About the Firm

• Proskauer is one of the country’s oldest and largest law firms

• 130 years of continuous service as a leading law firm

• More than 700 attorneys in the world’s major cities, including: Boca Raton, Boston, Chicago, LA, Newark, New Orleans, New York, Washington DC, London, Paris, São Paulo, Beijing and Hong Kong

• Our clients range from Fortune 500 Companies to technology-based public companies to entrepreneurial start-ups dependent on venture capital


3

About the Firm

• Proskauer’s results in the media spotlight include victories in numerous high-stakes cases on behalf of clients, including: the National Football League, National Hockey League, National Basketball Association, Time Warner Cable, the Metropolitan Transportation Authority, Condé Nast and Parade magazine, among many others

• Proskauer was recognized by the Financial Times as one of the top law firms in the United States in its 2011 “U.S. Innovative Lawyers” report

• Proskauer also won a landmark victory in the U.S. Supreme Court, changing 35 years of labor law


4

Widespread Recognition

• Chambers USA 2011 107 individuals & 44 practices ranked

Seven top-tier practice rankings

Fourteen practices ranked on national table, including ERISA

• The Best Lawyers in America 2012 109 lawyers recognized across all 8 national offices

• Proskauer has been named one of the top three national labor and employment practices by The American Lawyer


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Employee Benefits Practice

• Retirement Plans: We advise clients on every conceivable type of pension and retirement arrangement established under ERISA

• Health Plans: We also provide counsel on ADEA, ERISA, FMLA, HIPAA, Medicare, PPACA, Social Security and a host of other laws affecting our clients’ health and welfare plans

• For example, we advise on issues involving: Mergers and acquisitions (including post-transaction integration of benefit plans

and arrangements)

Acquiring and maintaining tax-qualification/correcting plan failures

Consumer-driven healthcare (cafeteria/flex plan/HSAs)

COBRA issues (we wrote the book on it!)

National Health Care Reform (we wrote the book on this, too!)

Participant claims and communications

Fiduciary issues


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Initial Observations

• Affordable Care Act is not Health Care Reform Cost of providing care is not addressed seriously in

ACA

• Costs Will Increase Direct Cost$ ► Premium Increases

► Taxes

► Penalties Indirect Cost$ ► Administrative Costs Unknown Cost$ ► Unrestrained Agency Action


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• Key Components: Individual Mandate (2014) Subsidies & Penalties

Insurance Mandates State Mandates Employer Mandates


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• Individual Mandate: In 2014, essentially all adults must have for themselves and

children insurance or pay a penalty

• Penalties: 2014: $95 per adult and $47.50 per child, up to a family

maximum of $285 or 1 percent of family income, whichever is greater

2015, $325 per adult and $162.50 per child, up to a family maximum of $975 or 2 percent of family income, whichever is greater

2016, $695 per adult and $347.50 per child, up to a family maximum of $2,085 or 2.5 percent of family income, whichever is greater


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• Subsidy: Income between 133% and 400% of federal poverty level

Between 100% and 400% in states that do not adopt “Medicaid Expansion”

In 2012, FPL = $23,050

Subsidy provided on a sliding scale, based on income Lower Income = Higher Subsidy


1010

Exchanges

• All states to establish an Exchange by January 1, 2014

• The American Health Benefit Exchange

• Small Business Health Options Program (SHOP) Exchange for individuals and small businesses

• States must demonstrate to federal government that efforts are underway by January 1, 2013

• Types of Exchanges:

• State Exchange

• Partnership Exchange

• Federally Facilitated Exchange

• BluePrints

States pursuing a State-based Exchange or a State Partnership for 2014 submit an Exchange Blueprint by November 16, 2012


1111

Exchanges

• Will the States Be Ready? 18 States are actively considering or established:

CA, CO, CT, DC, HI, KY, MA, MD, NV, NY, OR, RI, UT, VT, WA, WV & IL & AK (Planning for Partnership Exchange)

Another 16 are Studying Options: AL, AZ, DE, IN, IA, MI, MN, MS, MT, NE, NJ, NM, NC, PA, TN, VA

No Substantial Activity (10): GA, ID, KA, MO, ND, OH, OK, SD, WI, WY

States Declaring No Exchange (7): AL, FL, LA, ME, NH, SC, TX

• 50% of Uninsured Live in 6 States: CA, IL, NY, FL, GA, TX


Accurate as of October 2012

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Exchanges

• State Showdown What happens if states fail or refuse to establish an exchange?


1313© 2012 Proskauer. All Rights Reserved.

Dear Secretary Sebelius:

In the ObamaCare plan, the federal government sought to force the states to expand theirMedicaid programs by - in the words of the Supreme Court - putting a gun to their heads. Nowthat the "gun to the head" has been removed, please relay this message to the President: I opposeboth the expansion of Medicaid as provided in the Patient Protection and Affordable Care Actand the creation of a so-called "state" insurance exchange, because both represent brazenintrusions into the sovereignty of our state.I stand proudly with the growing chorus of governors who reject the PPACA power grab. ThankGod and our nation's founders that we have the right to do so.Neither a "state" exchange nor the expansion of Medicaid under the Orwellian-named PPACAwould result in better "patient protection" or in more "affordable care." All that they would do ismake Texas a mere appendage of the federal government when it comes to health care.

*******Through its proposed expansion of Medicaid, the PPACA would simply enlarge a broken systemthat is already financially unsustainable.

*******I look forward to implementing health care solutions that are right for the people of Texas. Iurge you to support me in that effort. In the meantime, the PPACA's unsound encroachmentswill find no foothold here.

Sincerely,Rick PerryGovernor

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Exchanges

• “Essential Health Benefits” (EHB) to include:

1. Ambulatory patient services;

2. Emergency services;

3. Hospitalization;

4. Maternity and newborn care;

5. Mental health and substance use disorder services, including behavioral health treatment;

6. Prescription drugs;

7. Rehabilitative and habilitative services and devices;

8. Laboratory services;

9. Preventive and wellness services and chronic disease management; and

10.Pediatric services, including oral and vision care.


1515

Exchanges

• Prior to 2016, small employers are 100 or less but states may limit to 50 employees or less

• Prior to 2017, only small employers (100 employees or fewer) can participate

• Starting in 2017 and thereafter, states may allow all employers


1616

Exchanges

• Initial open enrollment period: October 1, 2013 through March 31, 2014.

• For benefit years in 2015 or later, the annual open enrollment period will be from October 15 to December 7

• Special enrollment provisions will be included


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Exchanges

• The Metals—Exchanges to Offer Four Levels of Coverage:

Bronze (60%)

Silver (70%)

Gold (80%)

Platinum (90%)

• And: a catastrophic plan for individuals under 30

• Insurers may offer separate health plan products outside of an Exchange, but they are prohibited from offering rates for those health plan products that are lower than those offered within the Exchange


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Pay or Play Mandates: 90 Day Requirement

• Effective first day of plan year on or after January 1, 2014

• Guidance Released August 31, 2012 if effective through 2014

• 90 days means 90 days within the first day they are eligible

• If employees can elect within 90 days but fail to elect within 90 days it is not a violation

• Employer may use a reasonable period to determine eligibility if (a) period is not designed to avoid the 90 day period, (b) individual becomes eligible within 90 days of being assessed eligible or, if earlier, within 13 months of start date (plus the days to the first day of the next calendar month if the employee’s start date is the middle of the month)


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Employer “Pay-or-Play” Mandate

• In 2014, the pay-or-play mandate requires employers of 50 FTE or more to offer quality, affordable health insurance coverage to full time employees (those working on average at least 30 hours per week) and their families

• Failure to offer such coverage potentially subjects the employer to taxes for a given month—if:

• (i) a full time employee (ii) receives a subsidy in (iii) a state exchange


2020

When is an Employer Subject to Pay-or-Play?

• For these purposes only, FTE employees are determined by taking the sum of the employer’s full time employees (using a 30 hour per week standard) and the number determined by dividing the hours of service of employees who are not full time employees by 120


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When is an Employer Subject to Pay-or-Play?

• Special rule for seasonal employees

• Seasonal workers are those who perform labor or services on a seasonal basis as defined by the DOL and retail workers employed exclusively during holiday seasons


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What are the Pay-or-Play Penalties?

• Employers who “opt out” of providing benefits

• Employers who do not provide health coverage to all full time employees (and their dependents) are penalized

• If at least one full time employee (30+hrs/wk or 130+ hrs/mo) is eligible for, or receives, a subsidy in a state exchange: the employer is subject to an annual penalty of $2,000 × all full time employees (except for the first 30) applies

• Penalty is assessed monthly (i.e., $167.67 per full time employee per month)


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What are the Pay-or-Play Penalties?

• Employers who provide “unaffordable” coverage

• Coverage is affordable only if the premium for single coverage under the employer’s lowest cost plan with at least a 60% “actuarial value” does not exceed 9.5% of household income (or W-2 wages)

• Annual penalty is the lesser of $3,000 for each full time full time employeeemployee who receives a subsidy through a state exchange, or $2,000 multiplied by all full time employeesfull time employees (subtracting first 30)

• Penalty is assessed monthly (i.e., $250 per subsidy-receiving full time employee per month)


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Variable Employees & Full Time Employee Status

• A Variable Employee: On start date, it cannot be determined whether employee is expected work on average at least 30 hours per week

• Initial Measurement Period of Between 3 and 12 months

Assess average during Initial Measurement Period

Assessment is then used for stability period that is the same as for ongoing employees

• Use of Administrative Period: can use an “administrative period” but total can not exceed 13 months (plus the remainder of the month if anniversary falls in middle of month)


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Possible Employer Action

• ACA specifically provides that tax applies if full time employee receives subsidy in state exchange

• ACA does not specifically provide that tax applies if full time employee receives subsidy in federal exchange

• IRS clarifies that tax applies if subsidy is received in either state or federal exchange Can IRS Legislate?


26 The Future of the Affordable Care Act26

Medicaid Expansion & Employers

• Medicaid Expansion Requirements:

New Medicaid class of beneficiaries

ACA required states to cover all individuals under age 65 with income below 133% of the poverty line

"Essential benefits" must be provided to all Medicaid recipients

• Failure to comply = loss of all federal funds

• Court struck down as Unconstitutional (7-2): putting a gun to the head of the states

• This may have an impact on employers


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Medicaid Expansion & Employers


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The ACA Litigation Minefield

DOL, IRS and HHS audits will increase

Already seeing audits of grandfathered status by DOL under the Act

DOL efforts focus on increasing employer compliance rather than assessing penalties in early years

Participant lawsuits may follow as participants seek to enforce benefit mandates


29 The Future of the Affordable Care Act29

The ACA Litigation Minefield

• Employee Claims Under the Act

Workforce Realignment

Retiree Medical Exit Strategy

Claims to Mandated Benefits

Whistleblower Actions


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Medical Loss Ratio Rebates

• Carriers must provide rebates if their MLR (percent of premium revenue spent on claims/medical care) is less than 85% (large groups) or 80% (small groups or individuals)

• Small group is defined as under 100 employees on average in prior year

States may define small group as under 50 until 2016

Starting in 2016, small group will be defined as under 100

• Rebates are to be provided no later than August 1 following the end of the MLR reporting year (which is the calendar year)

• MLR based on carrier's overall business by state and group size


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Medical Loss Ratio Rebates

• Rebates apportioned based on employer/employee contribution ratio

Employers may retain portion of rebate that is not a "plan asset" under ERISA

• Rebates that are plan assets must be used to benefit participants

Reduce premiums, enhance benefits

• Rebate must be used within three months of receipt by employer or ERISA's trust rules apply

• Consult with counsel if a trust is involved


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Summary of Benefits and Coverage

• The Basics

• Final Rule effective September 23, 2012

• SBC cannot exceed four double-sided pages in length and must be "culturally and linguistically appropriate"

• SBC must be accompanied by the "uniform glossary", available at www.healthcare.gov and www.dol.gov/ebsa/healthreform/

• HHS forms available http://cciio.cms.gov/resources/other/index.html#sbcug

• Upon renewal, an SBC need only be provided for the benefit option in which a participant is enrolled, unless SBCs for other options are requested

• SBC is in addition to Summary Plan Description requirement


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• The Basics (cont.)

• The SBC requirement applies jointly to plans and carriers Carrier responsible for developing SBC for insured plan Employer responsible for developing SBC for self-funded plan

• Failure to comply can result in significant penalties: a plan or carrier that willfully fails to provide an SBC is subject to a fine of up to $1,000 per offense Each failure with respect to a participant is a separate offense

• SBC may be included with other documents (e.g., summary plan description) as long as it is "prominently displayed"

• Premiums not required to be disclosed on SBC


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• Timing of Initial Distribution

• Based on participants' enrollment status

For participants who are enrolling or reenrolling at open enrollment (including late enrollees), the SBC must be provided before the first day of open enrollment beginning on or after September 23, 2012

For participants who enroll other than through open enrollment (including newly eligible employees and special enrollees), the SBC must be provided starting on the first day of the plan year beginning on or after September 23, 2012


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• Methods of Distributing the SBC The SBC requirement is satisfied if a single SBC is provided to an

employee and spouse known to reside at the same address The SBC requirement may be satisfied electronically, provided the

distribution complies with ERISA's electronic disclosure rules

• Changes to the SBC If a material modification is made mid-year that affects the content

of the SBC, and it's not reflected in the most recent SBC, the plan or carrier must provide enrollees 60 days' advance notice of the change

Plans are not required to distribute a new SBC 60 days in advance of changes made in connection with the renewal


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• Providing the SBC

• SBC must be provided at the following times:

Upon request (ASAP, but no later than 7 days)

Within 90 days of enrolling under a HIPAA special enrollment

With open enrollment materials (or, if no materials are provided, by the date the participant is eligible to enroll)

If the SBC cannot be timely provided because the plan terms have not been finalized, the SBC must be provided within 7 days of finalizing the plan terms


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W-2 Reporting of Health Costs

• Beginning with 2012 Forms (i.e., Forms issued in January 2013), employers must report aggregate cost of health coverage

• Small Employer Exception: those issuing less than 250 W-2's in prior year exempt until further guidance issued

• Reportable cost includes the entire cost of the coverage (without any reduction for employee contributions)

• Cost of coverage is determined under rules similar to those for determining COBRA premiums (excluding 2% administrative charge)


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$2,500 Health FSA Limit

• Effective for plan years beginning in 2013 Limits annual employee contributions to $2,500 Indexed to the CPI starting in 2014 Does not limit employer contributions

• To Do: Communication to begin in 2012 (2nd half) Plan amendments recommended by start of 2013 plan year

However, despite the cafeteria plan rule that amendments must apply prospectively, an amendment adopted by December 31, 2014 may apply retroactively if the plan complied with the $2,500 limit starting with plan years beginning in 2013


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Select Taxes: Comparative Effectiveness Fee

• Effective for plan years ending after September 30, 2012 and before October 1, 2019

• $2 fee per member per year

Paid by insurers if insured plan

Paid by plan sponsor if self-funded plan

• Fee reduced to $1 for plan years ending before October 1, 2013

• For plan years beginning after September 30, 2014, fee increases based on national health expenditures

• Fee supposed to sunset after 2019


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• Fee applies to group health plans and HMOs, regardless of grandfathered status, including "retiree-only" plans

• Excludes the following types of plans:

HIPAA-excepted benefits (which include most health FSAs and stand-alone dental/vision plans)

Plans intended to primarily cover expatriate employees

EAPs, disease management programs, or wellness programs, if the program does not provide significant medical benefits


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• Fee applies separately to insurers and plan sponsors

This means that an HRA that is integrated with an insured group health plan is subject to the fee, as is the insurer, even though the HRA and the insured group health plan are maintained by the same plan sponsor

• Insurers and plan sponsors must report and pay these fees once per year on Form 720, which will be due by July 31 of each year

• A return will generally cover policy or plan years that end during the preceding calendar year

• Form 720 may be filed electronically


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• Permissible methods used to count participants

Actual count method (insured and self-funded)

Snapshot method (insured and self-funded)

Member months method (insured only)

State form method (insured only)

Form 5500 method (self-funded only)


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Select Taxes: Transitional Reinsurance Program

• Assessment on carriers and TPAs (on behalf of self-funded plans)

• Generally applies to all group health plans – no exceptions for non-ERISA plans (e.g., governmental or church plans)

• Applies on a per-member basis

• Does not apply to HIPAA-excepted benefits

• Applies to 2014-2016 plan years

• Intended to stabilize premiums in the individual markets

• Additional employer recordkeeping and cost requirements


44

Non-Discrimination Rules

• Delayed Until Guidance Released Now That The Election Is Over, Guidance Will Follow

• Will apply to non-grandfathered, fully-insured plans after release (already apply to self-insured)

• Prohibits discrimination in favor of “highly compensated employees” with respect to eligibility & benefits

Note: Testing Performed on a Controlled Group Basis

• Penalty: up to $500,000 Under ACA


The information provided in this slide presentation is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the firm, our lawyers or our clients. No client-lawyer relationship between you and the firm is or may be created by your access to or use of this presentation or any information contained on them. Rather, the content is intended as a general overview of the subject matter covered. Proskauer Rose LLP (Proskauer) is not obligated to provide updates on the information presented herein. Those viewing this presentation are encouraged to seek direct counsel on legal questions. © Proskauer Rose LLP. All Rights Reserved.


ACA: Post-Election Implementation—What Every Employer Needs to Know

November 2012

Stacy H. Barrow

[email protected]

ACA: Post-Election ImplementationWhat Every Employer Needs to Know November 2012 Stacy H. Barrow [email protected] © 2012 Proskauer. All Rights Reserved.

Documents

national offices proskauer

exchange blueprints

statebased exchange

wy states

united states

clients health

percent of family income

national health care