IF THE AFFORDABLE CARE ACT HAS BEEN DELAYED, WHAT DO I NEED TO WORRY

ABOUT NOW?William C. Potter, CPA, JDPostlethwaite & Netterville

Baton Rouge, LAOctober, 2013

What’s Been Deleted or Delayed

• 1099 reporting - deleted• Free choice vouchers – deleted• CLASS Act - deleted• Automatic enrollment - delayed• Nondiscrimination testing - delayed• Employer mandate and reporting - delayed• Income verification – delayed• SHOP – delayed• MSPP - delayed

Delay of the Employer Mandate

• All other provisions continue on:– Individual mandate – expected to leave

about 1 million people scrambling to get insurance

–Monetary caps on annual out–of–pocket maximums

– Elimination of lifetime and annual limits– New wellness plan rules– Notice of exchange options

Grandfathered Plan

• Plan in existence on March 23, 2010 and employer has maintained the status quo

• Only about 27% are GF plans• Don’t have to:– Offer free preventive services– Satisfy nondiscrimination– Enhance review and appeals process–Meet cost sharing restrictions

Additional Medicare Tax

• Starts January 1, 2013• Wages - an additional 0.9% employee only• Threshold amounts - $250,000 MFJ,

$125,000 MFS, $200,000 all others• Net Investment Income – an additional 3.8%• Same thresholds and applies to trusts• Statute – a couple of paragraphs• Proposed regs – 100+ pages• Planning for trusts and estates• S Corps

New Fees/Taxes

• Tanning bed tax• DME tax• Prescription drug fee – other than orphan

drugs• PCORI fee• Transitional reinsurance fee• Health insurance tax

New Regulations

• You pay a fine if your spouse or dependent is not covered

• Minimum essential coverage– Pretty much any group health plan meets

this–Watch for proliferation of “skinny plans”

• Small fines will incentivize more people to go without coverage– Particularly since no issue with pre-existing

condition

Individual Mandate

YEAR Applicable Dollar Amount

2014 Penalty is $95 per adult and $47.50 per child (up to $285 for a family) or 1.0% of family income, whichever is greater

2015 Penalty is $325 per adult and $162 per child (up to $975 for a family) or 2.0% of family income, whichever is greater.

2016 Penalty is $695 per adult and $347.50 per child (up to $2,085 for a family) or 2.5% of family income, whichever is greater.

Individual Mandate

• Exemptions:• coverage is unaffordable (exceeds 9.5% of household income); • Not required to file an income tax return ; • Native Americans - eligible for IHS or participates in a healthcare

sharing ministry; • short lapse in coverage = less than three months; • suffered a hardship – 11 listed events, such as, eviction and bankruptcy; • dependent; • Qualify for the foreign earned income exclusion• People who have no plan options in their states health insurance

exchange• Religious conscience – member of a recognized religious sect (Amish)

or meets the requirements of Section 1402(g)(1) which requires an annual application

Subsidies for Individuals

• Three types for insurance purchased through an Exchange– Premium limits– Cost-sharing limits (co-pays, deductibles, co-

insurance)– Out-of-pocket spending

• Subsidy amount is dependent on income with respect to Federal Poverty Level (FPL)

• For 2012, 400% of FPL is $44,680 for an individual and $92,200 for a family of 4

Subsidies - 2014Income Level in terms of FPL

Max % of Income Paid for Insurance

Income Level in terms of FPL

Cost sharing Limit

Up to 133% 2% 150 – 200% 6%

133 – 150% 3 – 4% 200 – 250% 13%

150 – 200% 4 – 6.3% 250 – 300% 27%

200 – 250% 6.3 – 8.05% 300 – 400% 30%

250 – 300% 8.05 – 9.5% Income Level in terms of FPL

Out-of-pocket Spending Limits

300 – 400% 9.5% 100 – 200% $2,016(I)/$4,033(F)

200 – 300% $3,025(I)/$6,050(F)

300 – 400% $4,033(I)/$8,067(F)

Large Employer Mandate

• Delayed until 2015• Questionable whether Obama could delay it• Applicable large employer– Employees exceed 50 full-time– Full-time: average of at least 30 hours per week

• Big issues with definitions:– Employee – common law test– Seasonal– Who is an employer?

Large Employee Mandate (cont.)

• Measurement periods• Stability period• Coverage• Importance of HR records• Penalties– Offering no coverage– Offering coverage but fail to cover at least one

qualifying employee

• To be subject to the penalty at least one employee must go on the Exchange and get tax subsidies

Collecting the Individual Mandate or Excess Subsidies

• No teeth – no fines, no levies, no interest• Can withhold from refund or SS payment• Can sue, but recovery limited to 2xs

penalty

New W-2 Rules

• Guidance from Notice 2012-9• Regulations to come• Reporting starts in 2013 for 2012 W-2s• Exempt from filing: < 250 W-2s in the

preceding year including those issued by a PEO, Indian tribal governments, and self-insured church plans not subject to COBRA, mutliemployer plans

W-2 Rules

• No reporting required for a terminated employee requesting their W-2 before year end

• Coverage included: Major medical, EAP if a group health plan, individual policies if considered a group, indemnity policies (AFLAC) purchased on a pretax basis, on-site clinic subject to COBRA, Er flex credits applied to FSA in limited situations

PCORI Fee

• Funds the Patient Centered Outcomes Research Trust Fund – which pays for the Patient Centered Outcomes Research Institute to promote evidenced based medicine

• Insured and self-insured plans to pay a poll tax based on the average number of lives covered

• Plan years ending on or after 10/1/12 and before 10/1/19 - $1/head/12; $2/head/after

PCORI Fee

• Applies to most governmental plans• Applies separately to HRAs• Applies to FSAs that are not HIPAA

excepted• Form 720 – calendar year plan due 7/31• Plan sponsor responsible for filing for

self-funded plans

Controlled Group

• Even if employer mandate is not resurrected these rules will be applicable to nondiscrimination

• Businesses organized in multiple forms may be considered as a single employer

• Controlled groups can be parent-subsidiary, brother-sister, combinations, or affiliated service groups

• Existing tax law applies to corporations, this brings in partnerships, LLC’s

Parent-subsidiary

• Control exists if parent owns more than 80% of the subsidiary

• Could involve multiple subsidiaries

Brother – sister controlled group

• The same five or fewer individuals own more than 80% of the related entities, AND

• Effectively control more than 50% (identical ownership)

• Must consider the rules of attribution and community property

Example

Percentage of OwnershipMember A Corp B LLC Effective

A 80% 20% 20%

B 10% 50% 10%

C 5% 15% 5%

D 5% 15% 5%

Total 100% 100% 40%

The four owners have more than 80% of A and B, so that requirement is satisfied. But identical ownership is only 40% so they fail the 50% test. They are two separate employers.

Affiliated Service Groups

• Related entities may or may not have ownership relationships

• Performing services to or on behalf of the other entity, and when capital is not a material income producing factor

• Can be a subjective determination, particularly since the proposed regulations were pulled in 1993

Indirect Employment Taxes

• PCORI fee• Funds the Patient Centered Outcomes

Research Trust Fund – which pays for the Patient Centered Outcomes Research Institute to promote evidenced based medicine

• Insured and self-insured plans to pay a poll tax based on the average number of lives covered

• Plan years ending on or after 10/1/12 and before 10/1/19 - $1/head/12; $2/head/after

Transitional Reinsurance Fee

• $25 billion collected from 2014 -2016 from insured and self-insured plans to stabilize the individual market

• $5 billion to repay ERRP• $12 in 14, 8 in 15, and 5 in 16• Expected to be $63.50 per covered life in 14• Tax deductible and can be paid from plan assets• Submit info by 11/15 receive bill within 15 days

Health Insurance Tax

• Annual fee imposed on health insurance companies; including, multiple employer self-funded plans not using a VEBA

• Exceptions:– Self-insured single employer– Governmental entity– VEBA

Health Insurance Tax

• Fees to be collected:– 2014 $8 billion– 2015 $11.3 billion– 2016 $11.3 billion– 2017 $13.9 billion– 2018 $14.3 billion– 2019 thereafter indexed

Health Insurance Tax

• Annual fee to be paid by each insurer is apportioned– Numerator = net premiums underwritten in

prior year, with some exclusions– Denominator = aggregate of net premiums

Risk Adjustment

• A permanent program• Applies to non-grandfathered individual

and small group plans• Modeled after Medicare• Transfers funds between health plans

based on the relative risk of the insureds• Designed to compensate for adverse

selection

Risk Corridor

• Temporary 2014 – 2016• Used to mitigate pricing risk with

movement to community rating• Limits insurers gains and losses • Modeled after Medicare Part D• Plans will set an income target, if income

is within 3%, the plan keeps all; between 3-8% 50% to/from gov’t; over 8% 80% to/from gov’t

Notice of Exchange Options

• All employers subject to FSLA must provide the notice to all employees by October 1

• Provide to all new employees upon hire, within 14 days from date of hire will be deemed timely for 2014

• Two versions of the notice– Notice for employers offering coverage– Notice for employers not offering coverage

Notice of Exchange Options

• Employers offering coverage – page 3 is optional but matches Marketplace Employer Coverage Tool and should the employer mandate come into play in 2015 this will impact the penalty for affordability and MEC

• Includes revised COBRA notice• May want to add to mini-COBRA notice• Electronic delivery of the notice must follow

ERISA standards

Form 8928

• Excise taxes for the failure to comply with group health plan mandates

• Due date? Same as the employer’s income tax return without extension

• How much? Varies with the mandate, but generally $100 per individual, per day

• Exceptions? Yes, where exercising reasonable diligence or reasonable cause and it is timely corrected

• Correction? Restoration to the extent that the failure had not occurred

Group Health Plan Mandates

• COBRA – is the cafeteria plan FSA included in the notice?• HIPAA portability, access, renewability, nondiscrimination

– this includes Special Enrollment Rights• CHIPRA notice • Genetic Information Nondiscrimination Act (GINA)• Mental Health Parity• Newborn’s and Mother’s Health Protection Act• Michelle’s Law – coverage of dependent students on

medical leave for up to 12 months• Health Savings Account contribution comparability

requirements – does not apply to employer contributions through a cafeteria plan

• Archer MSA contribution comparability requirements

ACA adds §9815

• Incorporates by reference a portion of the PHSA, for non-grandfathered plans:– Nondiscrimination– Summary of Benefits and Coverage– Appeals process– 90 day waiting period– FT employees– Participation in clinical trials

SBC

• Provided to participant and beneficiaries• Due at open enrollment, special enrollment, and

upon request within 7 business days• Needed for standalone HRAs and for EAPs• Can be used in connection with Summary of

Material Modification due 60 days prior to change

• Modified for 2014 to address whether minimal essential coverage and the minimum value standards are met

Nondiscrimination

• Does not apply to grandfathered plans• Compliance not required until regulations

issued and time for compliance allowed• Imports definition of Highly Compensated

Individuals applied to self-insured plans– The five highest paid officers; or– More than 10% owner; or– The highest paid 25% of all employees

Litigation Risks

• Thinking of workforce realignment?• Interference under ERISA §510 and/or ACA

Whistleblower• Whistleblower – no adverse action against an

employee for receiving a premium tax credit, this may include a reduction in hours

• Complaint filed with OSHA under the Consumer Product Safety Improvement Act

• Damages – reinstatement, back pay with interest and special damages for discharge or discrimination

ERISA §510

• Unlawful to interfere with present and future entitlements

• No adverse action for exercising rights available under the plan

• No adverse action with the attainment of any right which may be come available

• Limiting new hire hours may be viewed differently than cutting current employee hours

• Business decision to limit ACA penalties should not infer intent to interfere

QUESTIONS?

Bill Potter

bpotter@pncpa.com

Brandon Lagarde

blagarde@pncpa.com

Steve Mehaffey

smehaffey@pncpa.com

www.healthcarereformlouisiana.com