What You Need to Know About the What You Need to Know About the Patient Protection and Affordable Patient Protection and Affordable

Care ActCare Act

By: Otto S. Shill, Attorney at LawBy: Otto S. Shill, Attorney at Law

ABOUT JACKSONWHITEABOUT JACKSONWHITEWe offer a full range of We offer a full range of legal services to assist legal services to assist individuals, families, and individuals, families, and businesses.businesses.

Founded in 1983.Founded in 1983.

The firm has grown The firm has grown steadily to include 24 steadily to include 24 highly experienced highly experienced attorneys. attorneys.

We are proud to be one We are proud to be one of the largest law firms in of the largest law firms in the East Valley. the East Valley.

Current Enforcement Current Enforcement EnvironmentEnvironment

• COBRA: 20 or more employeesCOBRA: 20 or more employees

• FMLA: 12 weeks job-protected, unpaid leave for birth & care of a child, care FMLA: 12 weeks job-protected, unpaid leave for birth & care of a child, care of immediate family member, or employeeof immediate family member, or employee’’s serious health condition. s serious health condition.

• TITLE 7: Prohibits employers from considering race, religion, color, TITLE 7: Prohibits employers from considering race, religion, color, nationality, or sex when making decisions regarding hiring, firing, pay, nationality, or sex when making decisions regarding hiring, firing, pay, benefits, etc.benefits, etc.

• RETIREMENT PLANS: Employee Retirement Income Security Act; DOL audits RETIREMENT PLANS: Employee Retirement Income Security Act; DOL audits are on the riseare on the rise

• FAIR LABOR STANDARDS ACT: Overtime (1.5 x base rate) payable to FAIR LABOR STANDARDS ACT: Overtime (1.5 x base rate) payable to employees working more than 40 hours per weekemployees working more than 40 hours per week

• NATIONAL LABOR RELATIONS ACT: Prevents employers from interfering NATIONAL LABOR RELATIONS ACT: Prevents employers from interfering with employees’ concerted activities to improve their employment with employees’ concerted activities to improve their employment situation.situation.

• OSHA / ADOSH: Regulates workplace safety standards OSHA / ADOSH: Regulates workplace safety standards

Government Audit PrioritiesGovernment Audit Priorities

Internal Revenue Service will focus Internal Revenue Service will focus on small business starting in 2014on small business starting in 2014

Department of Labor – overtime Department of Labor – overtime auditsaudits

National Labor Relations Board National Labor Relations Board Department of Health and Human Department of Health and Human

ServicesServices

Extended Coverage StandardsExtended Coverage Standards

Non-discrimination StandardsNon-discrimination Standards

Shared Responsibility StandardsShared Responsibility Standards

Extended Coverage Extended Coverage StandardsStandards

Dependents remain insured until age 26Dependents remain insured until age 26

Pre-existing conditions eliminated by 2014Pre-existing conditions eliminated by 2014

Lifetime coverage limitations eliminated by 2014Lifetime coverage limitations eliminated by 2014

deductibles of small group plans will be limited to deductibles of small group plans will be limited to $2,000 for individuals and $4,000 for families. $2,000 for individuals and $4,000 for families.

Nondiscrimination Nondiscrimination RequirementsRequirementsUnder the PPACA, all non-grandfathered plans will be Under the PPACA, all non-grandfathered plans will be

required to satisfy the nondiscriminatory required to satisfy the nondiscriminatory requirements under Internal Revenue Code Section requirements under Internal Revenue Code Section 105(h)(2). 105(h)(2).

A plan must not:A plan must not:• Discriminate in favor of highly compensated individuals Discriminate in favor of highly compensated individuals

(HCI) in regards to eligibility(HCI) in regards to eligibility• Favor HCI participants in regards to benefits offered Favor HCI participants in regards to benefits offered • Impose waiting periods that favor HCIsImpose waiting periods that favor HCIs• Provide more favorable employer contributions to HCIsProvide more favorable employer contributions to HCIs

A plan must:A plan must:• Provide identical employee/employer contributions at Provide identical employee/employer contributions at

each benefit leveleach benefit level• Provide the same types of benefits to HCIs and non-HCIsProvide the same types of benefits to HCIs and non-HCIs• Establish the same maximum benefit level and type of Establish the same maximum benefit level and type of

benefits for all ages, years of service, and compensationbenefits for all ages, years of service, and compensation

DISCRIMINATION TESTINGDISCRIMINATION TESTING

There are two sets of tests that must be satisfied to determine There are two sets of tests that must be satisfied to determine whether or not a plan is nondiscriminatory. whether or not a plan is nondiscriminatory.

Eligibility TestEligibility Test

An employer must pass one of the following:An employer must pass one of the following:•70% Test: plan must benefit at least 70% of all non-excludable 70% Test: plan must benefit at least 70% of all non-excludable employees.employees.•70%/80% Test: plan must benefit at least 80% of non-excludable 70%/80% Test: plan must benefit at least 80% of non-excludable employees if 70% of all non-excludable employees are eligible to employees if 70% of all non-excludable employees are eligible to participate in the plan.participate in the plan.•Reasonable Classification Test: Reasonable Classification Test:

• Non-discriminatory classification: the percentage of HCIs who benefit under the plan is Non-discriminatory classification: the percentage of HCIs who benefit under the plan is not significantly higher than the percentage of non-HCIs.not significantly higher than the percentage of non-HCIs.

• Reasonable Classification: the eligibility requirements for employees must be Reasonable Classification: the eligibility requirements for employees must be reasonable and based on objective business criteria—compensation, geographic reasonable and based on objective business criteria—compensation, geographic location, type of job.location, type of job.

Benefits TestBenefits TestOnce a plan satisfied the eligibility test, it must be determined Once a plan satisfied the eligibility test, it must be determined

whether or not the benefits offered favor HCIs. To satisfy this test, whether or not the benefits offered favor HCIs. To satisfy this test, all benefits to must be provided to all participants and all benefits all benefits to must be provided to all participants and all benefits provided to dependents must be the same for all participants. provided to dependents must be the same for all participants.

What are the Penalties for What are the Penalties for Discriminatory Plans?Discriminatory Plans?

The employer may be subjected to an excise tax of The employer may be subjected to an excise tax of $100 per day with respect to each related $100 per day with respect to each related individual. individual.

Effective Date delayed until regulations are Effective Date delayed until regulations are published.published.

GlossaryGlossaryHCI:HCI:

• One of the 5 highest paid officersOne of the 5 highest paid officers• A shareholder who owns more than 10% A shareholder who owns more than 10% • Among the highest paid 25% of all employees Among the highest paid 25% of all employees

Excludable Employee:Excludable Employee:• Employees under the age of 25Employees under the age of 25• Part-time or seasonal employeesPart-time or seasonal employees• Employees covered by a collective Employees covered by a collective

bargaining agreementbargaining agreement• Employees who have not completed Employees who have not completed

3 years of service3 years of service• Employees who are nonresident aliens and Employees who are nonresident aliens and

receive no earned income from the employer receive no earned income from the employer

that constitutes income from sources within the United Statesthat constitutes income from sources within the United States

SHARED SHARED RESPONSIBILITYRESPONSIBILITY

Employers

Employers with more than 200 employees will be required to automatically enroll all employees in their health insurance plans, allowing individual workers to opt-out.

Employers with 50 or more full-time workers that do not offer health insurance coverage will pay an assessment of $2,000 per full-time worker (not including the first 30 workers) if any of their employees obtains premium tax credits through the Exchange. Employers that offer unaffordable coverage or coverage that does not cover at least 60 percent of allowable costs will pay $3,000 for any employee that receives a tax credit in the Exchange up to a cap of $2,000 for every full-time employee.

Employers will be required to provide notice to their employees of their health insurance options, including coverage through the Exchange.

Effective Dated delayed until calendar year 2015.Effective Dated delayed until calendar year 2015.

Individuals

Individuals who can afford to purchase health insurance coverage and do not do so will face a penalty of the greater of $95 or one percent of income in 2014, $325 or two percent of income in 2015 and $695 or 2.5 percent of income in 2016, up to a cap of the national average bronze plan premium. Families will pay half the amount for children up to a cap of $2,250 for the entire family. After 2016, dollar amounts will increase by the annual cost of living adjustment.

This requirement is essential to keep the cost of health insurance premiums affordable. Without a coverage requirement, the market reforms that insurance companies will implement such as eliminating pre-existing condition requirements and requiring guaranteed issue would make the price of health insurance unaffordable for most Americans.

SHARED SHARED RESPONSIBILITYRESPONSIBILITY

INSURANCE COMPANIESINSURANCE COMPANIES

Must pay a premium excise tax annually on health insurance Must pay a premium excise tax annually on health insurance premium income in excess of $25,000,000.premium income in excess of $25,000,000.

Designed to Raise $102 Billion over the next 10 years.Designed to Raise $102 Billion over the next 10 years.

Does not apply to self-insured plans.Does not apply to self-insured plans.

SHARED SHARED RESPONSIBILITYRESPONSIBILITY

Complying with Employer Complying with Employer Shared ResponsibilityShared Responsibility

What Does What Does ““AffordableAffordable”” Mean? Mean?In order for a plan to be In order for a plan to be ““affordable,affordable,”” the self-only the self-only premiums must not exceed 9.5 percent of the premiums must not exceed 9.5 percent of the employees income (regardless of whether or not employees income (regardless of whether or not there are other wage earners in the employeethere are other wage earners in the employee’’s s household). household).

What is Minimum Essential What is Minimum Essential CoverageCoverage

• Emergency servicesEmergency services • Prescription drugs• Prescription drugs• HospitalizationHospitalization • Laboratory services• Laboratory services• Maternity and newborn careMaternity and newborn care • Pediatric services • Pediatric services

(oral & vision)(oral & vision)• Ambulatory patient servicesAmbulatory patient services • Rehabilitative • Rehabilitative

services and devicesservices and devices• Mental health & substance abuse servicesMental health & substance abuse services• Behavioral health treatmentBehavioral health treatment • Chronic disease • Chronic disease

managementmanagement• Preventative and wellness servicesPreventative and wellness services

Do you have at least 50 FTE employees? NODo you have at least 50 FTE employees? NO Penalties do not applyPenalties do not apply

YESYES

Do you offer coverage for your workers? NODo you offer coverage for your workers? NO Did at least one Did at least one

YESYES employee receive a employee receive a premium tax credit or premium tax credit or subsidy in an Exchange?subsidy in an Exchange?

Does your plan cover at least 60% ofDoes your plan cover at least 60% of YESYES

typically covered expenses? NOtypically covered expenses? NO

YESYES

Do any of your employees pay more than Do any of your employees pay more than

9.5% of their family income for employer9.5% of their family income for employer

Coverage? YESCoverage? YES Employees can choose to buy Employees can choose to buy coverage in coverage in

NONO an Exchange. an Exchange.

No penalty—the employer offers affordable coverage! No penalty—the employer offers affordable coverage!

A A penalty penalty of of $2,000 $2,000 per FTE per FTE employeemployee e (except (except the first the first 30).30).

A penalty of $3,000 per A penalty of $3,000 per FTE employee that goes FTE employee that goes to the state-run to the state-run exchange or qualifies for exchange or qualifies for subsidized insurance.subsidized insurance.

What is a Full-Time What is a Full-Time Employee?Employee?

A full-time employee is employed an average of at A full-time employee is employed an average of at least 30 hours per week. least 30 hours per week.

This can be calculated by looking back at least 3 This can be calculated by looking back at least 3 but no more than 12 consecutive months to but no more than 12 consecutive months to determine whether or not an employee has determine whether or not an employee has averaged at least 30 hours per week. averaged at least 30 hours per week.

Other Types of EmployeesOther Types of Employees• Part-Time EmployeesPart-Time Employees

Part-time employees work less than 30 hours per week. Large employers are Part-time employees work less than 30 hours per week. Large employers are not required to offer minimum essential coverage to these employees. not required to offer minimum essential coverage to these employees.

However, the hours of part-time employees will be converted into full-time However, the hours of part-time employees will be converted into full-time equivalent (FTE) employees. This is done by adding up all of the hours worked equivalent (FTE) employees. This is done by adding up all of the hours worked by non-full-time employees per week and dividing the total by 30. by non-full-time employees per week and dividing the total by 30.

(If 6 employees work 5 hours per week, that will equal one FTE employee).(If 6 employees work 5 hours per week, that will equal one FTE employee).

• Seasonal EmployeesSeasonal EmployeesAn employer is not considered An employer is not considered ““largelarge”” if they have 50 FTE employees for 120 if they have 50 FTE employees for 120 days or less during one calendar year. days or less during one calendar year.

Shared Responsibility ReportingShared Responsibility ReportingThe employer mandate of the PPACA will affect businesses differently depending on the following The employer mandate of the PPACA will affect businesses differently depending on the following factors:factors:

•Number of full-time employeesNumber of full-time employees

•Whether or not your employees qualify for government subsidiesWhether or not your employees qualify for government subsidies •Starting in 2014, businesses with more than 200 employees will be required to auto-enroll Starting in 2014, businesses with more than 200 employees will be required to auto-enroll employees into their coverage.employees into their coverage.

•Starting in 2013, businesses with more than 250 employees will be Starting in 2013, businesses with more than 250 employees will be required to report the aggregate required to report the aggregate cost cost of coverage under their employer-sponsored group plan to the IRS. of coverage under their employer-sponsored group plan to the IRS.

•Whether or not you were already offering minimal essential coverageWhether or not you were already offering minimal essential coverage•Does your business have a Does your business have a waiting period waiting period before full-time employees are eligible for coverage?before full-time employees are eligible for coverage?

1. More than 50 employees, not offering health care to FTE 1. More than 50 employees, not offering health care to FTE employees, one or more of them are receiving subsidies.employees, one or more of them are receiving subsidies.

$2,000 fine per FTE employee (minus the first 30).$2,000 fine per FTE employee (minus the first 30).

2. Less than 50 FTE employees, not offering health care.2. Less than 50 FTE employees, not offering health care.

No penaltyNo penalty..

3. More than 50 employees, offering health care, one or more 3. More than 50 employees, offering health care, one or more employees are receiving subsidies because offered care is employees are receiving subsidies because offered care is above 9.5%.above 9.5%.

$3,000 penalty per employee receiving subsidies, or $2,000 per $3,000 penalty per employee receiving subsidies, or $2,000 per FTE employee (minus the first 30). FTE employee (minus the first 30).

4. More than 50 employees, offering 4. More than 50 employees, offering affordableaffordable health care, no health care, no FTE employees receiving subsidies.FTE employees receiving subsidies.

No penaltyNo penalty. .

Shared Responsibility - What Penalties Apply?

Key Planning OpportunitiesKey Planning Opportunities Effective Dates and Grandfathered PlansEffective Dates and Grandfathered Plans Review Company Ownership – Who is the employer?Review Company Ownership – Who is the employer?

– Controlled and Affiliated Service Group AggregationControlled and Affiliated Service Group Aggregation– Ownership Attribution rules (particularly affect families)Ownership Attribution rules (particularly affect families)

Determine total number of full-time employeesDetermine total number of full-time employees– Measuring 30 hours per weekMeasuring 30 hours per week– Impact of DOL audit – waiting timeImpact of DOL audit – waiting time– Employees vs. Independent ContractorsEmployees vs. Independent Contractors

Determine total number of full-time equivalent employeesDetermine total number of full-time equivalent employees Determine plan affordability and minimum essential coverage complianceDetermine plan affordability and minimum essential coverage compliance Review non-discrimination complianceReview non-discrimination compliance

– Employee vs. Independent ContractorEmployee vs. Independent Contractor

Review compliance calendarReview compliance calendar– Reporting deadlines – The next one is July 31, 2013 for insurers, self-insuring employers and employers with cafeteria plansReporting deadlines – The next one is July 31, 2013 for insurers, self-insuring employers and employers with cafeteria plans– Compliance deadlines – shared responsibility postponed until 2015; non-discrimination postponed until regulations are publishedCompliance deadlines – shared responsibility postponed until 2015; non-discrimination postponed until regulations are published– Start now to avoid compliance problemsStart now to avoid compliance problems

Review company audit profileReview company audit profile Self-insured vs. insured plansSelf-insured vs. insured plans Methods of shifting costs to employeesMethods of shifting costs to employees

– Premiums, deductibles, co-paysPremiums, deductibles, co-pays– Who will sign up?Who will sign up?– Who will use the exchange and claim a credit – employee demographicsWho will use the exchange and claim a credit – employee demographics

Union PlansUnion Plans

How do I Use My Advisors?How do I Use My Advisors? Legal CounselLegal Counsel

– Compliance IssuesCompliance Issues Employee ClassificationEmployee Classification Overtime ComplianceOvertime Compliance Company Ownership StructureCompany Ownership Structure Plan components, eligibility and participationPlan components, eligibility and participation Number of employees / FTE employeesNumber of employees / FTE employees

– Strategic PlanningStrategic Planning Corporate ReorganizationCorporate Reorganization Changes in Employee WorkforceChanges in Employee Workforce Costs and Risks of non-complianceCosts and Risks of non-compliance Plan design IssuesPlan design Issues

AccountantAccountant– Costs of compliance / Penalties of non-complianceCosts of compliance / Penalties of non-compliance– Corporation ReorganizationCorporation Reorganization– Reporting issuesReporting issues– Number of employees / FTE employeesNumber of employees / FTE employees– Available credits for individuals and small businessAvailable credits for individuals and small business

Insurance AdvisorInsurance Advisor– Plan Design IssuesPlan Design Issues– Timing of RenewalsTiming of Renewals– Plan Coverage CompliancePlan Coverage Compliance– Rate StructureRate Structure– Self-Insurance OptionsSelf-Insurance Options