Affordable Care Act (ACA) Updates and Strategies

What Employers Need to Know for 2015 and Beyond

June 3, 2014

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Agenda

• Introduction• Employer Penalties – Pay or Play• Employer Responsibilities

– Affordability– Minimum Value

• Future Considerations• ACA Fees and Assessments• Other Considerations• Questions and Answers

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Introduction

• The “pay or play” provisions of the ACA will impact most “Applicable Large Employers” (ALEs) in 2015, generally on their health plan renewal date in 2015

• ALEs are employers whose total full time employees and full time equivalent employees (FTEs) are greater than 50 [100 for 2015 only]

• There are two “Assessable Payments” (Penalties) for employers to consider – the “pay” ($2,000) or “play” ($3,000); neither are tax deductible

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Employer Responsibility – Pay or Play

• If an employer does not offer Minimum Essential Coverage (MEC) to 95% of its full time employees (30+ hours per week) [after a maximum 90 day waiting period], the employer is subject to an Assessable Payment– Update – The standard for applicable large employers is to

offer minimum essential coverage to 70% of full-time employees and their dependents during their 2015 plan year, and this will increase to 95% for 2016 plan years and beyond

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Employer Responsibility – Pay or Play

• Assessable Payments of $2,000 annually [$166.67/month] per each full time employee– Calculation excludes first 30 full time employees– Update – For the 2015 plan year, the exclusion is 80 for

applicable large employers with 100 or more full-time employees

• In order for an Assessable Payment to be assessed, one full time employee must receive a premium credit or cost sharing reduction in the Marketplace

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Employer Responsibility – Pay or Play [2015]

• Example: If an employer does not offer Minimum Essential Coverage (MEC) to 70% of its full time employees and one full time employee receives a premium credit or cost sharing reduction in the Marketplace [exchange]

• Assuming 100 full time employees for the entire year– 100 full time employees– less the 80 employee exemption equals– 20 full time Assessable employees x $2,000 = $40,000– Penalty is not tax deductible

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Employer Responsibility – Pay or Play

• Minimum Essential Coverage (MEC)– An eligible employer-sponsored plan is any group health

plan other than a plan that provides only excepted benefits (e.g., stand alone vision or dental, hospital or fixed indemnity)

– MEC plans need to cover preventive services at 100%• Minimum Essential Coverage is not the same as

Minimum Creditable Coverage (MCC) or Essential Health Benefits (EHB) or Minimum Value (MV)

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Employer Responsibility – Pay or Play

• Key Clarifications and Considerations– If Minimum Essential Coverage (MEC) is offered, must be

offered to employees and “dependents” [children/adult children to age 26] – but no requirement to offer to spouse

– Transition rules require compliance beginning with the first plan year that begins on or after January 1, 2015• Generally if a health insurance plan was in place on February 9,

2014 [the date the regulations were issued], compliance begins first plan year that begins on or after January 1, 2015

• No plan changes can be made to further delay compliance

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Employer Responsibilities [Play]:Affordability & Minimum Value

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Affordability (IRS Notice 2011-73)

• If an employer offers a health insurance plan to 95% or more of its full time employees (70% in 2015), it may also be subject to an Assessable Payment if:– The health insurance plan is unaffordable, or– The health insurance plan does not meet minimum value;

and– One full time employee receives a premium credit or cost

sharing reduction in the Marketplace [exchange]• Assessable payment of $3,000 [$250/month] per full

time employee that is receiving premium tax credits or a cost sharing reduction

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Affordability (IRS Notice 2011-73)– Only those employees receiving reductions/credits are

assessable [Key difference from “Pay” penalty]– Total penalty amount limited to the “not offering” penalty

• Example: An employer [100 ees] offers health insurance that is either unaffordable or does not meet minimum value and 5 full time employees receive premium credits or cost sharing reductions for the entire year– 5 employees x $3,000 = $15,000 – Penalty not tax deductible

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Affordability (IRS Notice 2011-73)

• Full time employees must be offered a health insurance plan that is “affordable”, or the employer could be subject to a $3,000 per employee penalty for each employee that receives a premium credit or cost sharing reduction in a public marketplace

• Affordable – employee cost for a self-only health insurance plan is not greater than 9.5% of employee’s W-2 income on Box 1 (Total)– Gross income less pre-tax deductions

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Affordability (IRS Notice 2011-73)

• Lowest cost for self-only coverage is used– Can use a lower contribution if available for participation

in a wellness plan – but only those related to tobacco use• No affordability requirement for non self-only

coverage tiers (e.g., two person, family)• Affordability only an issue for employees who have a

household income at 400% of the Federal Poverty Limit (FPL) or lower– Employer can not be penalized if it offers (or does not

offer) an unaffordable or non minimum value plan to an employee with household income >400% of the FPL

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Affordability (IRS Notice 2011-73)

• Three safe harbors for affordability– Federal Poverty Limit (FPL) for an individual

• Approximately $92 monthly for 2014 (cost for self-only coverage for lowest cost plan employee is eligible for)

– Rate of Pay• Cost of Coverage can not exceed 9.5% of rate of pay x

130 hours for the month– W-2 Income (Box 1)

• Annual income less pre tax deductions (e.g., 401k, medical, dental)

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Minimum Value (IRS Notice 2012-31)

• Full time employees must be offered a health insurance plan that has a “minimum actuarial value” of 60% or the employer could be subject to a $3,000 per employee penalty for each employee that receives a premium credit or cost sharing subsidy in a public marketplace [penalty works the same as Affordability]

• Minimum Value - the plan’s share of the total allowed costs of benefits provided under the plan is 60 percent or greater of such costs

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Minimum Value (IRS Notice 2012-31)

• Methods for Determining Minimum Value– Health and Human Services (HHS) online Minimum Value

(MV) or Actuarial Value (AV) calculators– Completion of a plan design checklist– Certification by an outside Actuary

• Online calculator available at HHS website• Essential Health Benefits (EHB) or Minimum Essential

Coverage (MEC) are not the same as Minimum Value (MV) requirements

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Waiting Periods (IRS Notice 2012-59)

• Public Health Service (PHS) Act section 2708, as added by the Affordable Care Act, provides that, in plan years beginning on or after January 1, 2014, a group health plan or group health insurance issuer shall not apply any waiting period that exceeds 90 days (90 days is NOT three months)

• Waiting Period - the period that must pass … before the individual is eligible to be covered for benefits under the terms of the plan

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Waiting Periods (IRS Notice 2012-59)

• Waiting period will also be integrated into the determination of part time/full time employee status for variable hour employees

• Waiting periods may also have to comply with non-discrimination provisions

• Waiting periods are different than eligibility criteria – For example, attainment of a license, part time employees

working a certain number of hours in a period of time before becoming eligible

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Notices – Updates

• On May 2, 2014 HHS updated COBRA and CHIPRA notices based on Marketplaces now being operational

• New versions should be used going forward• COBRA: www.gol.gov/ebsa/cobra.html• CHIPRA:

www.dol.gov/ebsa/compliance_assistance.html

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Future Considerations

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Future Provisions

• Employer Reporting in 2016 for coverage offered on or after January 1, 2015. Due February 28th [March 1 in 2016] or March 31st if filed electronically– Waiting period– Lowest cost employee premium for self only coverage– Whether the plan met Minimum Value (MV)– Employee information (name, address, ss#)– Months covered by the plan– Similar to 1099-HC for MA health care reform– Employer summary reporting required as well

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Future Provisions

• Employer Reporting Details– Fully insured checklist– Self-insured checklist

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Future Provisions – (Delayed “Indefinitely”)

• Automatic enrollment of employees in health plans– For employers with 200+ full time employees

• Non-discrimination rules for fully-insured plans– Similar to existing Section 105(h) rules for self insured

plans– This could eliminate different plans for different classes of

employees• Already prohibited in Massachusetts under insurance regulations

from its 2006 health care reform law

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Cadillac Tax

• Scheduled to be effective 2018• 40% excise tax on the excess total premium over

– $10,200 for self only coverage– $27,500 for family coverage

• No guidance issued yet for other coverage tiers or payment methods and timing

• Many plans at current rates and an 8% annual trend rate will exceed these limits– Example: 2014 rates of $625 self only and $1,690 family

would reach the limit in 2018 at an 8% annual trend

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Fees and Assessments

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PCORI Fees

• ACA requires the payment of a Patient Centered Outcomes Research Institute (PCORI) fee for plan years that end after October 1, 2012 through 2019 [health plans]– $1.00 per average covered life (member) 10/13– $2.00 per average covered life (member) 10/14– Indexed in subsequent years– Paid by July 31st of following year (on IRS Form 720)

• First payment was due July 31, 2013

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PCORI Fees

• For fully insured plans, fee paid by insurer (included in premiums)

• For self insured plans, including Health Reimbursement Arrangements (HRAs) fee paid by plan sponsor (employer)

• Health Reimbursement Arrangements (HRAs)– If coupled with fully insured plan – two fees

• One paid by insurer, one paid by plan sponsor– If integrated with self-insured plan – one fee

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PCORI Fees

• In order for the “one fee” to apply for the self insured health plan and HRA– HRA and Health Plan must have the same plan year– HRA and Health Plan must be established by the same plan

sponsor• HRAs set up by an employer who participates in a consortium or

other joint purchase arrangement would need to pay a separate fee [consortium pays the other fee and includes in “premiums”}

• For employers with fully insured plans and an HRA– “Covered Lives” can be employee or “participant” count,

not member count

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PCORI Fees

• IRS Form 720• http://www.irs.gov/pub/irs-pdf/f720.pdf• PCORI is on Line 133 under Part II• Enter # of covered lives and calculate the total due

(fee is pre printed, although form needs to be updated)

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Transitional Reinsurance Program Fees

• ACA created a “Transitional Reinsurance Program” to stabilize premium rates during the period 2014-2016

• Payment for this program will come from insurers and Third Party Administrators (TPAs) [employers]

• The 2014 fee will be $63 per member [covered life] per year

• The 2015 fee will be $44 per member [covered life] per year

• The 2016 fee has not yet been announced

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Transitional Reinsurance Program Fees

• For fully insured plans, fee paid by insurer (included in premiums)

• For self insured plans, fee paid by plan sponsor (employer)

• Health Reimbursement Arrangements (HRAs) that are integrated with a medical plan (fully or self insured) are exempt from this fee– Integrated – covers only those enrolled in the plan that

meets ACA annual limit requirements

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Transitional Reinsurance Program Fees

• Self insured employers need to register with HHS– Health Insurance Oversight System (HIOS) and obtain a

HIOS ID number– http://www.hhs.gov/cciio/gatheringinfo/index.html

• Enrollment counts sent to HHS by November 15th

• HHS sends invoice within 30 days or by December 15th, payment due 30 days from invoice

• Payment made in two installments:– $52.50 in January 2015 [$33 in 2016]– $10.50 in late fourth quarter (Oct -Dec) 2015 [$11 in 2016]

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Health Insurance Industry Assessments

• Assessments on health insurers and certain dental insurers to pay for ACA implementation– $8 Billion total in 2014– $14.3 Billion total in 2018– Increases annually– Amount of carrier assessment is related to the individual

carrier’s share of total premiums• Applies to fully insured plans only

– Assessment is added to the premium rates– Assessments have ranged from 1.5% - 6% of premiums

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Other Considerations

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Individual Responsibility – 2014

• Individuals are covered by Minimum Essential Coverage (MEC) health plan or pay a penalty – Annual individual penalty is the greater of $95 [flat

dollar penalty capped at 3x for a family] or 1% of household taxable income for 2014• Capped at the national average Bronze level premium

– Penalty is assessed on federal tax return and either added to tax or subtracted from refund (similar to MA)• Employer/carrier reporting provides the backup

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2014 – Credit and Subsidy Eligibility Table

Household Size

2014 HHS Poverty

Guidelines

133% of FPL

138% of FPL

200% of FPL

300% of FPL

400% of FPL

1 $11,670 $15,521 $16,105 $23,340 $35,010 $46,6802 $15,730 $20,921 $21,707 $31,460 $47,190 $62,9203 $19,790 $26,321 $27,310 $39,580 $59,370 $79,1604 $23,850 $31,721 $32,913 $47,700 $71,550 $95,4005 $27,910 $37,120 $38,516 $55,820 $83,730 $111,6406 $31,970 $42,520 $44,119 $63,940 $95,910 $127,8807 $36,030 $47,920 $49,721 $72,060 $108,090 $144,1208 $40,090 $53,320 $55,324 $80,180 $120,270 $160,360

add for each additional

person

$4,060 $5,400 $5,603 $8,120 $12,180 $16,240

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Determining Full Time Employees

• Determination of “Full Time” employee– New Employees: at hire date, it can be reasonably

determined the employee is expected to work an average of 30 hrs/week over the initial “Measurement Period”

– Variable Hour Employee: at hire date, it can not be reasonably determined the employee is expected to work an average of 30 hrs/week over the initial Measurement Period

– Part Time Employee: An employee that is neither a Full Time or Variable Hour Employee

• Special rules for measuring Variable Hour Employees

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Determining Full Time Employees

• Variable Hour Employees– Employers can utilize a “Measurement Period” for new

and ongoing Variable Hour Employees to determine Full Time status of the employee

– Measurement Period can be between 3 and 12 consecutive months• Used to determine if employee averaged 30 hours per

week and therefore considered “Full Time” for Assessable Payments or health insurance eligibility

• Stability period must be equal to or greater than Measurement period

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Questions and Answers

Contact:Pat Haraden

Longfellow Benefitspat_haraden@ajg.com

www.lf-ben.com617-351-6054