Advancing HR Strategies to Build Organizational Success © 2013, Washington Employers. All rights reserved Healthcare Reform: What Employers Need to Know.

Advancing HR Strategies to Build Organizational Success© 2013, Washington Employers. All rights reserved

Healthcare Reform: What Employers Need to Know

September 18, 2013

Kara M. Craig, Staff Counsel

Advancing HR Strategies to Build Organizational Success© 2013 Washington Employers. All rights reserved


PPACA: Affordable Care Act (ACA)

The goal of ACA is to improve the quality of healthcare and lower healthcare costs

Biggest regulatory change since the FLSA was passed in 1938

Many requirements become mandatory in 2014

Large Employers have until 2015 to consider “Play or Pay” strategy


ACA Timeline

March 23, 2010: Signed into law by President Obama June 28, 2012: Supreme Court ruled it was constitutional October 1, 2013: Healthcare Exchanges Operational January 1, 2014: Majority of provisions become effective January 1, 2015: Employer Mandate effective January 1, 2018: Beginning of Cadillac tax Still putting the pieces of a moving target together…

implementation of portions of ACA delayed 19 times since 2010 and last minute guidance being issued daily


What Is The ACA?GOALS:

• Broaden marketplace

• Establish standard health plan

• Guarantee coverage

• Allow for comparison shopping

• Free preventative care

• Federal subsidies to low income citizens


Key Provisions

Essential Health Benefits: 10 benefits that must be included in every healthcare plan

Minimum Value: Plan must pay at least 60% of costs Affordable Coverage; no more than 9.5% annual income Dependents covered to Age 26 No exclusions due to pre-existing conditions Guaranteed Coverage / Renewability Annual and Lifetime Coverage Caps Eliminated


Key Provisions

Maximum 90-Day Waiting Period Health Insurance Exchanges Established Play or Pay: Large employers (more than 50 employees)

must offer healthcare benefits to full-time employees Individual Mandate: Everyone must have health insurance Small Business Tax Credit Shared Responsibility Wellness Incentives


Program Overview

How the ACA’s Goals are Accomplished:

1. Reform insurance markets

2. Establish new state-based exchanges

3. Impose Individual and Employer Mandates

4. Impose new taxes/“shared responsibility”

5. Reporting and disclosure requirements


Subtitle Sample

Reform Insurance Market



Reform Insurance Market Already Implemented

Dependents can stay on parent’s coverage to age 26 Lifetime maximums eliminated for “essential health” benefits Premiums cannot be raised due to health condition change Children under age 19 cannot be denied coverage for pre-

existing conditions


Reform Insurance MarketWhat is coming?

Ambulatory patient services Emergency Services Hospitalization Maternity and newborn care Mental health and substance

abuse disorders Prescription drugs

Rehabilitative services and devices

Laboratory Services Preventive, wellness and

chronic disease management services

Pediatric services, including oral and vision care

Qualified Health Plan – “QHP”

10 Essential Benefits


Reform Insurance Market What is coming

Health Savings Account (HSA) and Flexible Spending Account (FSA) limits

High deductible limits on small employers (less than 50 FTEs)

• $2,000 (individual)

• $4,000 (family) Elimination of annual limits on Essential Benefits Elimination of 90+ day enrollment waiting periods Full time defined as 30 or more hours per week (130 hrs/mo.)

for ACA calculations Clear and understandable Summary of Benefit Coverage “SBC”


Subtitle Sample

Establish New State-based Health Exchanges



Health ExchangeWhat is it?

ONLINE one-stop marketplace to comparison shop and buy healthcare coverage

Objective: Drive lower prices Each state will have one Operational by October 1, 2013 Self-sustaining by 2015 through individual assessments or

user fees


Health ExchangeWho can use the Exchange?

2014 – individuals and small employers (< 50 FTEs) 2016 – employers (less than 100 FTEs) 2017 – all employers


Health ExchangeWhat 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 costs Silver = 70% coverage of total allowed plan costs Gold = 80% coverage of total allowed plan costs Platinum = 90% coverage of total allowed plan costs


Health ExchangeAdequate and Affordable

Those employed with “60%” health plan and “affordable” premium typically would not go to exchange

• Affordable – costs no more than 9.5% of household incomeExample: Single minimum wage earner makes $9.19 per hour. $9.19 x 130 hours (FT) = $1,194.70 per month. $1,194.70 x .095 = $113.50.“Affordable” if employee’s premium costs less than $113.50 per month.

• But see W-2


Health ExchangeWashington State

WA State: Washington Healthplanfinder Currently 7 insurers approved, offering 35 plans; awaiting federal

certification of 8 additional plans

Two sides to exchange: Individual and Employer (SHOP – Small Business Health Options Program)

Open enrollment is 10/1/13 for 1/1/14 coverage


Health ExchangeIndividual Side

Individual Subsidies available to low income (between 133% and 400%) of federal poverty level

Must purchase coverage through exchange to receive

2013 Federal Poverty Level


Health ExchangeSmall Employer Side

Small Business Health Options Program (SHOP) - one plan available at this time

• Kaiser Family Health Plan of NW• Online assistance, call center, office of navigator or broker• Can only buy for full-time employees, not part-time Small Business Tax Credit in 2014

• Small Employer = Less than 25 FTEs

• Pay average wages less than $50,000

• Pay at least 50% of premium

• Maximum 50% credit; 35% for tax-exempt small employers


Health ExchangeSmall 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 credit• Only available 2014 and 2015• Can carry the credit back or forward to other tax years• Can claim a business expense deduction for the premiums

in excess of the credit


Health ExchangeNotices

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.”


Subtitle Sample

Mandates



MandatesIndividual

Must buy at least “60%” minimum value coverage in or out of the exchange or pay penalty

Exemptions:

• Religious grounds

• Native Americans

• Incarcerated

• Undocumented immigrants

• Gap in coverage for less than 3 months in a year

• Coverage costs more than 8% of income or below FPL


MandatesEmployer

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 week

• Monthly Full-time Equivalent = 130 hours

• Part-time employees counted in fractional units to determine if large employer. Total hours worked divided by 120 hours.


MandatesEmployer

• Seasonal (non-leased) employees counted if they work more than 120 days in calendar year; 6 month look-back.

Headcount excludes:

• Leased (temp) employees

• Sole proprietor

• Independent contractors

• Partners in partnership

• 2% “S” Corporation shareholders

• Employees working outside the U.S.


MandatesEmployer

Measurement Periods Standard Measurement Period – to determine who is a full-

time employee; up to 12 months; use for ongoing Initial Measurement Period: between 3–12 months; use for

variable and seasonal employees Stability Period: at least 6 consecutive calendar months,

same length as Standard Measurement Period Administrative Period: up to 90 days between measurement

and stability period; use for eligibility determination, employee notification and enrollment


MandatesEmployerGrandfathered Plans:

Plan must have been in existence in 2010Part of collective bargaining agreementStill required to make additional changes for 2014:

o Offer dependent coverage through age 26o Eliminate annual aggregate benefit limitso Eliminate pre-existing condition limitationso Waiting period no greater than 90 days

May elect to comply with all ACA requirements Can lose grandfathered status


MandatesEmployer

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 26


Subtitle Sample

New Taxes or “Shared Responsibility”



New Taxes – Shared ResponsibilityIndividual

Individual Penalty per year, whichever is greater:

• 2014 - $95 per person or 1% of household income

• 2015 - $325 per person or 2% of household income

• 2016 & beyond - $695 per person or 2.5% of household income

For each dependent under 18 penalty is half Paid as a federal tax liability on income tax return Individuals who fail to pay not subject to criminal

penalties or prosecution, property liens or levies


New Taxes – Shared ResponsibilityFamily

Family Penalty per year, whichever is greater:

• 2014 - $285 per family or 1% of household income

• 2015 - $975 per family or 2% of household income

• 2016 & beyond - $2,085 per family or 2.5% of household income

Family 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 amount

The distinction is higher incomes pay higher penalties


New Taxes – Shared ResponsibilityLarge Employer

Large employer shared responsibility penalties and reporting requirements delayed until 2015

Must still comply with all other 2014 ACA provisions Large Employer Penalties if employer-offered coverage:

Is not affordable; Is not offered to 95% or more of eligible employees; or Does not meet minimum value (at least 60% of

healthcare costs covered or “bronze” plan)



Two Levels of “Play or Pay”

1. Do Not Play at All Offer no health coverage

Penalty Calculation: Number of FTEs – first 30 x $2,000

Example: Company has 70 employees and decides not to offer coverage.

(70 – 30 = 40) 40 x $2,000 = $80,000 per year



Second Level of “Play or Pay”

2. Do Not Play by the Rules Offer less than “60%” coverage AND an employee

goes to Exchange and receives subsidy Offer “60%” coverage, but plan is not “affordable” AND

an employee goes to Exchange and receives subsidy

Penalty Calculation:

Number of FTEs receiving subsidy times $3,000



“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


New Taxes Insurers

Cadillac Tax coming in 2018 – tax on rich benefit plans PCORI Fee (Patient-Centered Outcomes Research

Institute) to fund research on improving health care delivery

Reinsurance Program Fee to help stabilize individual market premiums (offset risk of high cost enrollees)


Subtitle Sample

Reporting and Disclosure



Reporting and Disclosure Employers

So far….

Effective 2015 Tax Year Report 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.


Subtitle Sample

Summary of 2014 Key Provisions



2014 Provisions Summary

Essential 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 costs Affordable Coverage (no more than 9.5% of income) Dependents covered to age 26 Guaranteed issue, coverage and renewability: No

exclusions due to pre-existing conditions High deductible plans for small employers cannot exceed

$2,000/$4,000


2014 Provisions Summary

Annual and Lifetime Coverage Caps Eliminated Maximum 90-Day Waiting Period Play or Pay: Large employers (more than 50 employees)

must offer healthcare benefits to full-time employees Shared Responsibility Increase in small business tax credits (SHOP) Individual Mandate: Everyone must have health insurance Wellness Incentives


Subtitle Sample

Employers: What To Do Now



What To Do NowEmployers

Calculate FTEs for 2013

For under 50 FTEs – check out the exchange or continue as usual

For under 25 FTEs – look into tax credit for 2014-2015 if using exchange

For 50 FTEs and over

1. If provide affordable health care, continue as usual. Adjust full-time definition and waiting periods by end of 2014



2. If new rules result in cost increases for over 50 employers:

a. Ask for “Play or Pay” analysis from broker

b. Consider cost stabilization measures:o 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).

o Offer coverage only to “hard to replace” workforce. Remaining use exchange and you pay penalty.

o Offer more than one level of coverage, based on job categories. Example: 60% for part-time and variable workforce and 80% for full-time.



o Vary employer contribution levels by income level to avoid “unaffordable” penalty.

o Allow lower-income employees to receive subsidies from the exchange and pay penalty.

o Increase deductibles, modify plan reimbursement levels or increase employee contributions.

o Cut work hours below 30? Be aware ERISA (Sec. 510) makes it unlawful to interfere with employee entitlements under employee benefit plan.



3. Stop providing health coverage and gross up salaries and pay penalty.

a. Caution: Employer and employee will no longer receive tax exemption on benefit costs.

4. Stop health coverage and pay penalties.

a. Only 6% of employers surveyed in 2012 planned to drop coverage; 9% in retail/hospitality industry. (Mercer Survey of 1,203 employers)

b. Caution: Employer and employee no longer will receive tax benefits.

c. Fallout: Can you still compete in the labor market?


What To ExpectEmployees

A more expensive price tag More options for coverage Consumer-driven health plans vs. HMOs Programs that promote health awareness and education More incentive opportunities for exhibiting healthy

behaviors New eligibility rules Personal responsibility!


What To Do NowCommunication

Once you make your decisions related to ACA compliance and healthcare, communicate with your employees:

Model Exchange Notice Mandated Plan Documents Current Benefits Offerings 2014 Changes to Benefits Offerings Possible 2015 Changes (if known) WHY Changes Are Being Made


Resources

Washington Healthplanfinder: wahbexchange.org

Kaiser Family Foundation: kff.org

U.S. Department of Health & Human Services: healthcare.gov

For More Information: www.sba.gov/healthcare www.irs.gov/aca www.dol/ebsa/healthreform http://www.wahealthplanfinder.org


Questions?

How to Reach Me:

Kara M. CraigStaff CounselWashington EmployersDirect Line: (206) [email protected]


Washington EmployersOverview of Services

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