Health Care Reform: 2014 Overview

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November 2013

Health Care Reform 2014 Overview

Erica Storm, Esq. Becca Kopps, Esq.Robert D. Reynolds, CIC,CPIA, AAM, AIS, AU

Presented by:

About the presenters

Erica Storm, Esq. Becca Koops, Esq. Robert D. Reynolds, CIC, CPIA, AAM, AIS, AU

• Employment and benefits attorney

• Expertise in health care reform and health plan issues

• Educates companies on compliance obligations

• Employment and benefits attorney

• Primary focus: health care reform

• Creates educational materials and compliance resources

• President & CEO Morris & Reynolds Insurance

• Insurance & Employee Benefit’s Broker For 30 Years

• Certified Healthcare Reform Expert

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Introduction

Health Care Reform

• Enacted in March 2010• Makes significant changes to health care system• Implemented over several years

Affordable Care Act

• Health care providers• Government programs• Health insurance issuers• Employers/plan sponsors• Individuals

Provisions that impact:

Most employers that offer health plans will be impacted in some way

The Rule

Definitions

Exception Special Rule

Special Rule

Partial delay

More Special Rules

Sub-special Rule

Additional Special

Rule

Confusing Political Action

Confusing Media

Coverage

How Health Care Reform Works

Recent Developments

Recent Guidance

• Health FSA rollovers permitted−Oct. 31, 2013: IRS relaxed “use-or-lose” rule for health

FSAs−Participants can carry over up to $500 in unused funds to

the next year−Plan cannot include both carryover and grace period−Does not impact $2,500 salary reduction limit−Written plan amendment required

• Cafeteria plan election change rules expanded for health care reform changes*

• New hardship exemption from individual mandate penalties for Exchange enrollees*

2013 Compliance Reminders

SBC and 60-Day Notice Rule

Summary of Benefits &Coverage (SBC)

Simple, concise explanation of plan benefits & costs• Model chart available

Applies to issuers and plan sponsors• No duplication required• Issuer can distribute on behalf of

employer

Provide to participants & beneficiaries effective Sept. 23, 2012• 1st day of 1st open enrollment period• 1st day of 1st plan year• Other specific situations

60-Day Notice Rule

Must notify in advance of any material modifications not in connection with renewal • Describe in a summary of material

modifications (SMM) or updated SBC• At least 60 days BEFORE modification

becomes effective

Material modification:• Enhancement of covered

benefits/services• Material reduction in covered benefits/

services• More stringent requirements for receipt of

benefits

Notice of Exchange

Must include information about:Existence of

Exchange and services provided

Potential eligibility for subsidy under

Exchange

Risk of losing employer

contribution

Compliance deadline: Oct. 1, 2013New employees: within 2 weeks of hire date

Employers subject to the FLSA must notify all employees of Exchange/Marketplace informationMust provide in

writingMay provide by mail or

electronically (DOL requirements apply)

Model notices available

Notice of Exchange - Penalties

• Still unclear whether non-compliance can trigger:−Non-ACA penalties−DOL audit−Employee lawsuits

• Providing notice is still required by law, and can benefit employers−Can help answer employee questions

DOL has said there are no fines or penalties for failing to provide notice

Health Plan Fees

2014 and beyond

2013 plan year

Patient-Centered Outcomes Research Institute (PCORI) Fees

2012 plan year

$1 x average number of covered

lives

$2 x average number of covered

lives

Increase based on National Health Expenditures

• Paid by issuers and self-funded plan sponsors−Special rules multiple self-funded plans (including HRAs)

• Paid annually on Form 720 by July 31 each year−Apply for plan years ending on or after Oct. 1, 2012−End with the 2018 plan year – do not apply for plan years

ending on or after Oct.1, 2019

• Amount of the fees:

Reinsurance Fees

• Transitional reinsurance program to operate 2014-2016− Fees imposed on health insurance issuers and

self-funded plan sponsors of major medical plans (with some exceptions)

− Exemption expected for some self-funded plans for 2015-2016

• Fees based on annual national contribution rate− 2014: $5.25/month ($63/year) x average

number of covered lives

Nov. 15 Submit

enrollment count to HHS

Dec. 15 (or 30 days) HHS

notifies issuer/sponsor of amount due

30 daysPayment due

Health Insurance Providers Fee

• Annual fee on health insurance providers−Effective in 2014−Due Sept. 30 each year−Allocated according to market share: $8B in 2014 - $14.3B

in 2018 (based on premium growth in later years)

Applies to:

Covered Entities

Including health insurance issuers and HMOs

2014 Health Plan Changes

Waiting Period Limits

• Waiting periods limited to 90 days for all plans −Beginning with 2014 plan year

Strict 90 day limit

• 1st of the month following not permitted

Other eligibility conditions permitted

• Can’t use to avoid 90-day limit

• Limits on cumulative hours of service requirement (1200 hours/one time only)

Variable hour employees

• Measure hours for up to 12 months to determine FT status

• Offer coverage by end of 13th month

Cost-Sharing Limits for Health Plans

• Limits for non-GF group health plans beginning with 2014 plan year

Out-of-Pocket Limits

• All non-GF group health plans• May not exceed HDHP limits for 2014 ($6,350

single/$12,700 family)• Indexed for inflation• Special rule for 2014 delays full compliance

Deductible Limits

• Only insured small group non-GF plans• May not exceed $2,000 (single coverage) or $4,000

(family coverage)• Carriers may have flexibility• Indexed for inflation

Plan Changes

Annual limits eliminated

• Prohibited on essential health benefits in 2014 plan year• Essential health benefits determined according to state benchmark plan

Preexisting condition exclusions prohibited

• Currently prohibited for children under age 19• Prohibited for everyone beginning with 2014 plan year

Small group policies (non-GF plans)

• Must provide essential health benefits package• Premium rating restrictions apply – limited to age, geographic location, family size and

tobacco use

Wellness Programs Changes

• Health-contingent wellness program reward limits increase in 2014− Current limit: 20% of cost of coverage− General limit: 30% of cost of coverage− Tobacco program limit: 50% of cost of coverage

• Health contingent wellness programs divided into:− Activity-only programs− Outcome-based programs

• Nondiscrimination rules apply to health contingent programs (with slight differences)− Opportunity to qualify once/year− Must offer alternative means of qualifying− Outcome-based programs must offer reasonable alternative

standard

Individual Mandate and Exchanges

Individual Mandate

• Rule for individuals: have health insurance coverage by 1/1/14 or else (pay a penalty)

• Penalty applies to taxpayers and their children who don’t have “minimum essential coverage”−Greater of dollar amount or % of income−Kids = half of adult penalty−Family penalty capped

• Annual penalty amounts−2014 = $95 or 1%−2015 = $325 or 2%−2016 = $695 or 2.5%

Employer sponsored coverage Including COBRA and retiree

coverage

Individual coverage

Government programs Medicare Medicaid Children’s Health Insurance

Program (CHIP) coverage Some veterans’ health coverage TRICARE

What is Minimum Essential Coverage?

Exemptions to the Mandate

• Available Exemptionso Low income or hardship*o Coverage is unaffordable

(more than 8% of income)

o Religious exemptiono Incarceratedo Member of Indian tribe or

health care sharing ministry

o Not lawfully presento Short gap in coverage

• Exemptions claimed through Exchange or tax filing

• Individuals who lose exemption get special enrollment rights

Special Rule for EmployeesEligible for Non-Calendar Year Plans

•Let employee elect employer coverage for Jan. 1 or leave employer plan to go to Exchange •Optional, but plan must be amended (retroactive amendment ok)•Extended to any employer with a non-calendar year cafeteria plan (not just large employers)

Employers can amend Section

125 plan to allow mid-year

election changes

•Employee will not be subject to penalties if they are not enrolled for 2013-2014 plan year•Relief available until the end of the 2013 plan year

Relief for employe

es

American Health Benefits Exchange

Public health insurance Exchange required by ACA

Primarily online marketplace for purchasing health insurance

(Qualified Health Plans)

Run by state or federal government with consumer assistance from

other entities

For individuals and small employers (generally up to 50

employees)

SHOP Exchange

• Small Business Health Option Program (SHOP) – Exchange for small employers

• Small employers can offer employees enrollment in a QHP through a SHOP− Can offer benefits through a cafeteria (Section 125) plan− Exchange sets contribution methods

2014-15

• States can limit size to up to 50 employees

2016

• States must increase size to up to 100 employees

Employee-Choice Feature Delay

Employee-choice model:

• Employers have the option to offer employees all QHPs at a certain level of coverage • Employer chooses level of coverage and a contribution amount• Employees choose the plan they want

Employee choice model delayed until 2015 for FFE SHOPs

• 2014 implementation optional for state Exchanges• Most state Exchanges will offer employee choice in 2014

Exchanges still planned to be operational

• Employers will have to choose a plan• Employees won’t be able to choose from all plans right away

Qualified Health Plans

Offered by an approved insurer

Certified to meet Exchange requirements

Offers essential health benefits

Meets cost-sharing limitations

Priced like plans outside the Exchange

Provides bronze, silver, gold or platinum coverage (or catastrophic plan for young individuals)

Apples to apples...

QHP Metal Levels

90% of benefit costs covered80% of benefit costs covered70% of benefit costs covered60% of benefit costs covered

Exchange Eligibility

Individuals

•Citizen or legal resident•Not incarcerated•Reside in state covered by Exchange•(Not be enrolled in Medicare)•Separate from subsidy eligibility rules

Small Employers (SHOP

Exchanges)•Qualify as a small employer based on size•Offer QHP coverage to at least all FT employees•Use SHOP in primary office location or employee’s primary worksite location

Most individuals can shop for Exchange coverage

(even if eligible for employer coverage)

Exchange Enrollment

Individuals

• Initial enrollment: Oct. 1, 2013-March 31, 2014

• Must enroll by Dec. 15 for Jan. 1 coverage but: no penalties for anyone who enrolls during initial open enrollment period

• Annual open enrollment: Oct. 15-Dec. 7

• Special enrollment for qualifying events

Small Employers•Can buy coverage for employees any time after Oct. 1, 2013•12 month plan year required•Annual election periods apply•Special enrollment for employees with qualifying events

Restrictions apply to timing of enrollment to prevent adverse selection

Exchange Subsidies

Provide assistance to low income individuals:• 100%-400% of federal poverty level• Not eligible for government programs that

cover health care

To help pay premiums or reduce cost-sharing

Not available to individuals who are:• Eligible for affordable, minimum value

employer coverage or• Enrolled in an employer plan

Employer Mandate (Delayed Until 2015)

Employer Shared Responsibility Rules (Pay or Play)

• No requirement to offer coverage• Can get tax credits for providing

coverage

Small Employers (fewer than 50

FT/FTE employees)

• Must offer coverage to FT employees and dependents to avoid penalties

• Coverage must be affordable and provide minimum value

• Penalties delayed until 2015

Large Employers (50+ FT/FTE employees)

Employer penalties triggered if any full-time employee receives subsidized coverage in an

Exchange

Determining Large Employer Status for Pay or Play Penalties

Who is a Large Employer?

Average 50+ full-time employees

In the prior calendar year

Including full-time equivalent employees

Common ownership rules apply

Special rule for 2014: can count 6 consecutive months in 2013 Will this apply for new 2015 effective date?

Full-Time EmployeeAn employee who is employed on average at least 30 hours of service per week

130 hours of service in a calendar month = the monthly equivalent of 30 hours of service/week

Full-Time Equivalent Employees

Add hours of service in a

month for PT employees (up to

120 hours/person)

Divide total hours by 120

Result: Number of FTEs for the

month

Counting Employees

Add full-time employees (including seasonal) for each calendar month in prior calendar year

Add FTEs (including seasonal) for each calendar month in prior calendar year

Add full-time employees and FTES together for each month of prior calendar year

Add 12 monthly totals and divide by 12

* Special rule for 2014: can use 6 consecutive months in 2013

Special RulesSeasonal Employees

An employer is not a large employer if:

(1) the employer's workforce exceeds 50 full-time

employees for 120 days (4 months) or fewer during the

calendar year and (2) the employees in excess of

50 employed during that period were seasonal workers

New EmployersUse average number of full-time employees the

employer is “reasonably expected

to employ” on business days in the current

calendar year

Providing Coverage to Full-Time Employees

Employer SharedResponsibility Penalties

Penalties may apply if the employer:• Fails to offer minimum essential coverage to FT

employees (and dependents)• Offers coverage that is not affordable or does

not provide minimum value

Penalties triggered if any FT employee gets subsidized coverage through Exchange•Not offered employer coverage or offered coverage that is unaffordable not of minimum value (and doesn’t enroll)•Not eligible for government programs (Medicare, Medicaid)•Income below 400% of federal poverty level

Enrolling in Exchange coverage without subsidy will not trigger penalties

Affordability and Minimum Value

Affordable Coverage

Minimum Value Coverage

• Employee’s cost for self-only coverage does not exceed 9.5% of household income

• Employer can generally compare cost of coverage to W-2 income, rate of pay or federal poverty level

• Plan covers at least 60% of costs of covered benefits and services for average person

• HRA/HSA amounts may be included

• HHS-approved methods for calculation

• Some HRA amounts may be included

• Most wellness incentives cannot be taken into account

Potential Penalties

Penalty A

• Employer did not offer coverage to substantially all FT employees and dependents (children)

• $2,000 x (all FT employees – 30)

Penalty B

• Employer offered coverage to substantially all FT employees/dependents• But not all OR coverage is not affordable or does not provide minimum value• $3,000 x each employee who gets subsidized coverage (capped at Penalty A amount)

49

Penalty Potential

Not a large employer: Less than 50 full-time equivalent employees

Large employer: 50 or more full-time equivalent employees

Does not offer coverage to substantially all FT employees (and dependents)

Offers coverage to substantially all FT employees (and dependents)

Scenario ANo full-time employees

receive credits for exchange

coverage

Scenario B1or more full-

time employees receive credits for exchange

coverage

Scenario CNo full-time

employees receive credits for

exchange coverage

Scenario D1or more full-time employees receive credits for exchange

coverage

No penalty No penalty Number of full-time employees minus 30 multiplied by $2,000

No penalty Lesser of: Number of full-time employees minus 30, multiplied by $2,000.

Number of full-time employees who receive credits for exchange coverage, multiplied by $3,000.

(Penalty is $0 if employer has 30 or fewer full-time employees-because penalty is based on the lesser of the two calculations)

Offering Coverage

• Must be offered to substantially all FT employees and dependents

• Substantially all − 95% general rule− May fail to offer to up to 5% (or 5, if greater)− Does not have to be inadvertent

• Children up to age 26 must be offered coverage− Not spouses− Dependent coverage does not have to be

affordable

• Opportunity to elect must be offered once per year− Employee must be able to opt out of coverage

that is unaffordable/not MV

Measuring Full-Time Status

Statutory Requirement

• Employers would have to determine full-time status on a monthly basis−Would have to know status to offer coverage

• Administrative issues−Not an issue for employers/employees with standard

schedules−Problematic for variable hour employees

Employees Expected toWork Full-Time

• Employer must offer coverage by the end of the first 3 full calendar months of employment

• Applies to an employee who is “reasonably expected at his or her start date to be a full-time employee (and is not a seasonal employee)”

• If coverage is not offered by the deadline, penalties can apply for:−The first 3 calendar months−Any subsequent months where

coverage is not offered

Safe Harbor for Variable Hour/Seasonal Employees

Look Back Measurement Method

Measurement Period

Admin Period

Stability Period

Nov. 1 Dec 31

Jan 1 Nov. 1 Dec 31

Jan 1 Dec 31

2013

2014

2015

Measurement Period cont.

Questions?

For more information about Health Care Reform visit: www.morrisandreynolds.com/health-reform/

Morris & Reynolds Insurance14821 South Dixie Highway, Miami, FL 33176Telephone 305.238.1000 | Fax 305.255.9643

Thank you!

This presentation is current as of the date presented and is for informational purposes only. It is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Please contact legal counsel for legal advice on specific situations. This presentation may not be duplicated or redistributed without permission. © 2012-2013 Zywave, Inc. All rights reserved.