Health Care Reform in 2013 and Beyond

Nicole Simpson, CPAPartnerRegier Carr & Monroe, LLP(520) 624-8229nsimpson@rcmllp.com

Jay Heydt and Chris GordonCrest Insurance(520) 784-7655jheydt@crestins.com

Agenda 2010

• Small Employer Health Insurance Credit

2012• Additional W-2 Reporting

2013• Additional Medicare Tax

.9% on earned income 3.8% on unearned income

2014• Insurance Requirements

Requirements of a small employer Requirements of a large employer The Exchanges: What Do They Mean to You.

Small Employer Health Insurance Credit

2010-2013: Eligible Small Employers that purchase health insurance for their employees.

2014-2015: Eligible Small Employers that purchase health insurance for their employees through the insurance exchange.

Small Employer Health Insurance Credit

Eligible employer:• 25 or fewer full-time equivalent employees (FTE)• Average annual wages of $50,000 or less per

FTE.• Pays at least 50% of the health insurance

premium costs.

The credit is up to 35% of the eligible employer paid health insurance premiums in 2010-2013. (50% for tax years beginning after 2013)

Additional W-2 Reporting Beginning in 2012, large employers must report

the aggregate cost of health insurance made available through a group plan.

Aggregate cost:• Portion paid by employer and portion paid by employee• Amount paid for any person covered under the plan

(spouse, dependents)

The cost is reported in box 12, using code DD

Penalty for not complying is up to $100 per W-2.

.9% Additional Medicare Tax Beginning in 2013, individuals must pay an

additional .9% Medicare tax on wages in excess of $200,000 single ($250,000 married filing jointly and $125,000 married filing seperate).

Employer: The employer must begin withholding the additional .9% in the pay period the wages exceed the $200,000.• $1 - $200,000 = 1.45%• $201,000 – unlimited = $2.35%

Employee: The employee is responsible for paying additional .9% if not withheld by employer or if self-employed.

.9% Additional Medicare TaxUnder-withheld Wages .9% withheld

Husband $200,000 $0

Wife $175,000 $0

Total Earned Income $375,000

Married Filing Jointly Threshold $250,000

Excess of Threshold $125,000 = $1,125

Over-withheld Wages .9% withheld

Husband $0 $0

Wife $245,000 $45,000 = $405

Total Earned Income $245,000

Married Filing Jointly Threshold $250,000

Excess of Threshold $0

.9% Additional Medicare Tax Self-Employed Individuals are also subject to

the .9% additional medicare tax.

Income from self-employment is added to Form W-2 wages in calculating amounts over thresholds.

Losses from self-employment do NOT reduce W-2 wages in calculating amounts over thresholds.

If multiple W-2s and multiple sources of self-employment income, then all W-2s are netted together and all self-employment is netted together.

.9% Additional Medicare TaxIncome From Self-

EmploymentWages .9% withheld

Husband – W-2 $200,000 $0

Wife – Schedule C $175,000 $0

Total Earned Income $375,000

Married Filing Jointly Threshold $250,000

Excess of Threshold $125,000 = $1,125Losses From Self-

EmploymentWages .9% withheld

Husband – W-2 $300,000 $100,000 = $900

Wife – Schedule C $(75,000)

Total Earned Income $300,000

Married Filing Jointly Threshold $250,000

Excess of Threshold $50,000 = $450

3.8 % Unearned Medicare Tax

Beginning in 2013, 3.8% Medicare tax is imposed to all or a portion of net investment income.

The tax is imposed when Adjusted Gross Income is over $200,000 single, $250,000 married filing jointly ($125,000 married filing separate)

This tax applies to individuals as well as trusts and estates.

3.8 % Unearned Medicare Tax

Individuals with income over the thresholds must pay 3.8 % Medicare tax on the LESSER:• Net investment income• Modified Adjusted Gross Income (MAGI) over the

threshold.

Trusts must pay the tax on the lesser of undistributed net investment income or excess of AGI over the highest tax bracket begins ($11,650 in 2012).

3.8 % Unearned Medicare Tax

MAGI $400,000 $260,000

Net Investment Income $50,000 $50,000

MAGI $400,000 $260,000

Married Filing Jointly Threshold $250,000 $250,000

Excess of Threshold $150,000 $10,000

Lesser of Excess of Threshold ORNet Investment Income

$50,000 $10,000

3.8 % Unearned Medicare Tax

Net Investment Income:• Net Income from:

interest, dividends, royalties and rents passive activity Net Gain from the disposition of nonbusiness

property or property held in passive activity Any income, gain or loss attributable to the

investment of working capital.• Does NOT include tax-exempt bond interest,

distributions from retirement plans, veterans’ benefits

3.8 % Unearned Medicare Tax

Medicare Tax

Wages (H&W) $270,000 $20,000 x .9% = 180

Capital Gain $100,000

MAGI $370,000

Married filing jointly threshold $250,000

Excess over threshold $120,000

Lesser of Excess of Threshold ORNet Investment Income

$100,000 $100,000 x 3.8%=$3,800

Total Additional tax paid $3,980

Agenda

• Components of Reform to Consider• Requirements of a small employer• Requirements of a large employer• The Exchanges – What do they mean?• Do we Pay or Play?

Changes Already in EffectRate Review (2010)Grandfathering (2009)Small business Tax Credits (2010)“Patient Bill of Rights” (2010)• Network access – PCP Choice• Independent appeals process• No pre-ex for kids <19• Coverage for dependents up to age 26• 100% coverage for wellness/prevention• No Rescissions• No Annual and lifetime limitsMedical Loss Ratios – MLR (2010) • Defines “maximum” insurance company profits• 15% Large groups• 20% small groups• Requires refunds to groups is profit is too high

Pre-Existing Condition Insurance Plan

National high risk pool (PCIP)

Established by HHSStarted July 2010. Ends

2014.$5B set aside

https://www.pcip.gov/

2013 – We’re Already Here• Health FSA Accounts

• Contribution Limits• Plan Amendments

• Increases in Medicare Payroll Taxes

• Increases in Medicare Contribution Tax

• Mandatory Form W-2 Reporting (100+ ee’s)

• Health Care Exchange Notices

Coming Soon to a Policy Near You

Guaranteed Issue - Insurers must issue a policy to any applicant, regardless of health condition. No pre-existing condition limitations.

Community Rating – Everyone is charged essentially the same amount for insurance. Variations for geography, smoking and age (3:1), was 7:1.

The Individual Mandate

All individuals must have coverage. If not through work or the government, then through the Individual market.

The Individual’s Penalty• For not having “minimum essential coverage”• Not more than the price of the lowest coverage option• Some exceptions

Flat Fee (per person)• Set at $95 for 2014• $325 in 2015• $695 in 2016• 2017 tied to inflation (CPI)

Percent of Income• 0.5% for 2014• 1% in 2015• 2.5% in 2016

Dangerous Equation

Bad News for Insurance Rates

• Bracing for rate double digits increase in 2014. (20%-60%)

• What’s gives? It’s the policymakers. It’s ObamaCare… • Premium hikes are a consequence of policies.• Premiums will rise because, in the end, everything has a price.

• Prohibition of traditional underwriting is a major and costly provision.

• Washington can try to force health plans to price insurance below cost, but then health plans will lose money and move out of markets.

• To keep the insurers whole, and accommodate the new rules, the cost of insurance must go higher. • That re-pricing is what’s coming this fall.

Preparing for 2014• Is your plan Grandfathered?

• Are you Compliant with the law?

• How many FT employees do you have?

• Are you a large or small employer?

• Exchanges – Lots still unknown

• Decision Time – Do we Pay or Play?

Grandfathered Health Plans

Not required to comply with various components of Health Care

Reform:

• Non-discrimination• Clinical Trials (self funded plans)• Preventative health services• Choice of Primary Care Physician• Dependent Coverage (until 2014)

DiscriminationAre your benefits currently:

• Different by class of employee?• Management Carve Out

• Have different contributions by class?• Management Vs. “Others”

• Different waiting periods by class?• Management Vs. “Others”

If your answer is “YES” to any of these…then you will not be compliant with the law

in 2014

What is a FT Employee?

• Minimum of 30 hours per week = Full Time Employee• Or 130 hours per month

• Full Time Equivalent Employee (FTE)• Total PT hours worked per month / 120 = #

of FTE

• Seasonal: - A worker who performs labor or services on a

seasonal basis, as defined by the Secretary of Labor and retail workers employed exclusively during holiday seasons.

How Many FT Employees do I have?• Minimum of 30 hours per week = Full Time

Employee• Or 130 hours per month

• Full Time Equivalent Employee (FTE)• Total PT hours worked per month / 120 = #

of FTE

Calculating FTE - Example• You employ 35 regular FT employees & 30 PT

employees• In total…PT employees work 2,400 hours in a

month• 2,400 / 120 = 20 FTE’s• 35 FT employees + 20 FTE employees = 55

Total FTEs

• Under PPACA • If you have 50+ FTEs you seen as a large employer• If you have less than 50 FTEs you are seen as a small

employer

PPACA & the Small Employer• Mandate does Not Apply to Employers with < 50

FTEs

• Plans must have:• $2,000 Max Deductible • $6,500 Maximum Out of Pocket• Details still emerging

• No waiting period in excess of 90 days

• Qualified Health Plan

• HIPAA bona fide wellness program

• Will be able to purchase group plans through the exchange

A Large Employer = 50+ FTEs

Shared Responsibility Penalty(Penalty for not offering health coverage)

• If an employer fails to provide its full-time equivalent employees (and their dependents) the opportunity to enroll in “minimum essential coverage,”

• Employer penalty is $2,000 annually for each full-time equivalent employee in the workforce (in excess of 30).

• Waiver for penalty for the first 30 FTEs• Ex. – 300 FTEs then penalty for 270 FTEs ($540k)• Ex. - 100 FTEs then penalty for 70 FTEs ($140k)• Ex. – 60 FTEs then penalty for 30 FTEs ($60k)

• This penalty is non-deductible.• Penalty does not offset the cost of employee

coverage.

Large Employer Unaffordable Coverage Penalty

Assuming an employer offers minimal essential coverage to all FTE employees and dependents

When…• One or more full-time employees enrolls for

coverage in an exchange and qualifies for a premium tax credit or cost-sharing reduction because:

• Employee’s share exceeds 9.5% of W2 income

Then…• Employer Penalty = $3,000 per employee

receiving tax credit at the exchange

Calculating Safe Harbor LimitsEmployee Only Rate $325.00

Hourly Wage 80% 70% 60% 50%$7.65 6.54% 9.80% 13.07% 16.34%$8.15 6.13% 9.20% 12.27% 15.34%$8.65 5.78% 8.67% 11.56% 14.45%$9.15 5.46% 8.20% 10.93% 13.66%$9.65 5.18% 7.77% 10.36% 12.95%

$10.15 4.93% 7.39% 9.85% 12.32%$10.65 4.69% 7.04% 9.39% 11.74%$11.15 4.48% 6.73% 8.97% 11.21%$11.65 4.29% 6.44% 8.58% 10.73%$12.15 4.12% 6.17% 8.23% 10.29%$12.65 3.95% 5.93% 7.91% 9.88%$13.15 3.80% 5.70% 7.60% 9.51%$13.65 3.66% 5.49% 7.33% 9.16%$14.15 3.53% 5.30% 7.07% 8.83%

Employer Contribution

2014 Safe Harbor LimitsEmployee Only Rate $455.00

Hourly Wage 80% 70% 60% 50%$7.65 9.15% 13.73% 18.30% 22.88%$8.15 8.59% 12.88% 17.18% 21.47%$8.65 8.09% 12.14% 16.18% 20.23%$9.15 7.65% 11.48% 15.30% 19.13%$9.65 7.25% 10.88% 14.51% 18.13%$10.15 6.90% 10.34% 13.79% 17.24%$10.65 6.57% 9.86% 13.15% 16.43%$11.15 6.28% 9.42% 12.56% 15.70%$11.65 6.01% 9.01% 12.02% 15.02%$12.15 5.76% 8.64% 11.52% 14.40%$12.65 5.53% 8.30% 11.07% 13.83%$13.15 5.32% 7.98% 10.65% 13.31%$13.65 5.13% 7.69% 10.26% 12.82%$14.15 4.95% 7.42% 9.89% 12.37%$14.65 4.78% 7.17% 9.56% 11.95%$15.15 4.62% 6.93% 9.24% 11.55%$15.65 4.47% 6.71% 8.95% 11.18%$16.15 4.33% 6.50% 8.67% 10.84%$16.65 4.20% 6.31% 8.41% 10.51%$17.15 4.08% 6.12% 8.16% 10.20%$17.65 3.97% 5.95% 7.93% 9.92%$18.15 3.86% 5.79% 7.71% 9.64%

Employer Contribution** Represents 40% increase in 2014

When Penalties Don’t Apply

• Employee is in their waiting period (less than 90 days)

• Variable Hour employee in their measurement period or has worked less than 30 hours per week on average.

The Exchanges

The only place that tax credits and cost-sharing subsidies will be

available.

• Tax credits to 400% of Federal Poverty Level (FPL)

• Subsidies to 250% of FPL

• Tax Credits from 250% to 400% of FPL

• Medicaid does not entitle an individual to a subsidy or tax credit

2014 – Exchange Subsidies

2012 Federal Poverty Levels:• Single Person $11,170• Family of 4 $ 23,050

2014…Decisions…DecisionsPay or Play?

How will this change your business?

We can help to answer some big questions for you…1. Is my plan as it is today in compliance?2. What is the real net cost of my plan today?3. What will it cost me if I cancel my plan and send my

employees to the exchanges?4. What penalties am I subject to based on my plan today?5. How much will it cost me to make the changes necessary

to get into compliance?

Chris Gordon & Jay Heydt(520) 881-5760 officecgordon@crestins.comjheydt@crestins.com

Locally Owned and Operated Since 1975 (Mueller Insurance)

Employee BenefitsProperty & Liability Insurance

Individual Medical/Life/DisabilityBonds

AviationHome and Auto