Federal healthcare reform 2013 and beyond

1. Federal healthcare reform2013 and beyond For 301.214.7666 www.thecapgroup.net

3. Small Group vs. Large Group • For Employer Responsibility and Exposure to Fines • 50 or more employees • For Tax Credits • Small Employer eligibility to 25 employees • For Exchange Eligibility • Less than 50 employees • In 2016 100+ at the discretion of the state • After 2016 100+ or greater as defined by the state

4. Current Issues For Immediate Concern

5. Compliance 1 W- 2 Reporting

6. W-2 Reporting • Employers will be required to include the value of group health plan coverage on W-2’s issued after 1/1/2013 • Do not have to report on early W-2’s for the 2012 tax year • The requirements do not change the tax treatment of employer coverage The reporting is for informational purposes only • Employers are required to report the value of all “applicable employer- sponsored coverage.” Generally, group health plans, including: • Major medical, Mini-meds, On-site medical clinics, Medicare supplemental coverage, Health FSA contributions (employer), Employee assistance & Wellness programs (with separate COBRA rates) • Optional Reporting • IRS guidance permits employers to report the cost of coverage that is not required to be reporting (e.g. multiemployer, HRA). For combined coverage, the employer can use any reasonable method to separate costs

7. Small Employer Exception • Employers issuing fewer than 250 W-2 forms in the preceding calendar year are exempt from the reporting requirements at least through 2014. Refers to the number of W-2’s, not employees • The regulation is unclear about when the exception applies to an entity rather than on a controlled group basis • To tell, you need to refer back to the group’s electronic filing status. If the group is not required to file electronically, they probably do not have to comply with the extra W-2 reporting • Filing is generally done by EIN UNLESS you use a common paymaster. So unless the affiliated groups use a common paymaster, they can probably count themselves separately for the purposes of this requirement • Groups with questions should consult with their CPA • Applies to all employers who provide applicable employer sponsored coverage

8. Reporting Aggregate Cost • Must report the “aggregate cost” • Include pre-tax and post-tax coverage • Include employer and employee contributions (e.g. employer premium contribution or employee cafeteria plan contributions) • An employer who uses a composite rate for active employees but not for COBRA beneficiaries may use either rate for determining the applicable cost to be reported, as long as it is used consistently • General Rule: Use cost of COBRA premium

9. Compliance 2 Uniform Summary of Benefits

10. Uniform Summary of Benefits • All employers will have to give people who apply for or enroll in employer-sponsored coverage a standardized summary of benefits and coverage that includes: • Four page coverage summary • Coverage terms glossary • Coverage examples of two set medical scenarios • Customer service and website information

11. Uniform Summary of Coverage RequirementsBeginning September 23, 2012 • Applies to all plans, including grandfathered plans and self-funded plans • HIPAA excepted benefit plans (e.g., stand-alone dental, specific diseases, etc.) do not have to comply

12. Changes for 2013 • Notice of the Exchange effective October 1, 2013 • Employers must notify employees • Of Exchange’s existence • How to qualify for subsidies • Loss of employer contribution if participating

13. Employer Size in 2014 • Employers with over 200 EE’s that offer coverage • Must automatically enroll employees in coverage • But…provide opt-out opportunity

14. Compliance 3 FSA Cap in 2013

15. FSA Limitations • Effective January 1, 2013, PPACA limits FSA annual contributions to $2,500 • In May 2012, the IRS issued Notice 2012-40, which provides transition relief to non-calendar-year FSA plans. Clearly establishing that the requirements does not apply for plan years that begin before 2013 • The term “taxable year” in the law refers to the plan year of the cafeteria plan as this is the period for which salary reduction elections are made

16. FSA Limitations (cont.) • Allows for “contributions exceeding the $2,500 limit that are due to a reasonable mistake” • Cap does not apply to certain employer flex credits, non-healthcare FSA contributions, HSAs, HRAs or health plan premium payments made under a Section 125 plan • Individuals who already made reduced FSA elections may not increase contributions for 2013 absent of another qualifying event

17. Compliance 4 Rebates

18. Who paid the premiums in 2012 • If they were paid 100% by the employer, the employer can retain 100% of the rebate • If paid 100% by the employees, the employer must turn 100% of the rebate over to the employee • If the premiums were paid partly by the employer and partly by the employees, the rebate must be split according to the contribution formula • If paid by a trust then they are deposited into the trust and used in accordance with the trust agreement

19. ERISA Groups • Plan assets distributed for the exclusive benefit of participants and beneficiaries in the following three ways: • The rebate can be paid to the participants, under a fair and equitable allocations method • The employer can apply the rebate toward future participant premium payments • The employer could use the rebate to provide enhanced benefits for the participants • The DOL suggests that the second and third options should be used only if distributing payments to participants is not cost effective

20. Rebate Taxation • In general, if the individual or employee receive a tax deduction on their contribution in anyway, the rebate is taxable • If the individual or employee paid their insurance contribution with after tax dollars, their rebate is NOT taxable

21. Exchanges

22. Role of the Exchange • Instrumental in: • Medicaid Enrollment • Tax Subsidy Qualification • Tax Credit Qualification • Platform for Qualifying health plans • Much more…

23. WHAT IS AN EXCHANGE? Demystifying the Health Care Exchanges • New “insurance standards” apply to individual and small group plans sold inside AND outside of an Exchange • Insured plans must provide “essential health benefits” and are subject to limits on cost sharing • Premium rating rules prohibit rating based on health status • Rates may only vary based on age, tobacco use, coverage tier (i.e., family or individual) and rating area

24. EXCHANGES AND EMPLOYER HEALTH PLANS Demystifying the Health Care Exchanges • Exchanges will initially service individuals and families through the individual market and small employers • In 2017, states may elect to provide large employers access to their Exchange, but this is not required

25. State Exchanges & MedicaidRecent Developments • Exchange Development • 18 - have declared Exchanges • 7 - are Planning for Partnership Exchange • 26 - intend to default to Federal Exchange • Medicaid • 29 Supports • 20 Opposes • 2 Weighing Options

26. Medicaid in Neighboring Markets

27. Individual • Incentives • For those between 139% - 400% FPL • Not eligible for “affordable” employer-sponsored plan • SHOP • Incentives • Small employers < 25 employees • Average income below $50,000 • Best for < 11 employees with income below $25,000 Exchange Incentive Summary

28. Let’s Examine the Individual Exchange Incentives Using the Kaiser Family Foundation Research for Individual Exchanges Subsidy Calculator Estimates

31. How does this impact Employees?

32. The Requirement to Buy Coverage Under the Affordable Care Act Along with changes to the health insurance system that guarantee access to coverage to everyone regardless of pre-existing health conditions, the Affordable Care Act includes a requirement that many people be insured or pay a penalty. This simple flowchart illustrates how that requirement (sometimes known as an "individual mandate") works.

33. Individual Responsibility • Require U.S. citizen and legal residents to have qualifying health coverage. • Those without coverage pay a tax penalty of the greater of $695 per year up to a maximum of three times that amount ($2,085)per family or 2.5% of household income. • The penalty will be phased-in according to the following schedule: $95 in 2014, $325 in 2015, and $695 in 2016 for the flat fee or 1.0% of taxable income in 2014, 2.0% of taxable income in 2015, and 2.5% of taxable income in 2016.

34. The Requirement to Buy Coverage Under the Affordable Care Act Beginning in 2014 • Do any of the following apply? • You are part of a religion opposed to acceptance of benefits from a health insurance policy. • You are an undocumented immigrant. • You are incarcerated. • You are a member of an Indian tribe. • Your family income is below the threshold requiring you to file a tax return ($9,350 for an individual, $18,700 for a family in 2010). • You have to pay more than 8% of your income for health insurance, after taking into account any employer contributions or tax credits. There is no penalty for being without health insurance Start here Yes No

35. The Requirement to Buy Coverage Under the Affordable Care Act Beginning in 2014 (cont) • Were you insured for the whole year through a combination of any of the following sources? • Medicare. • Medicaid or the Children’s Health Insurance Program (CHIP). • TRICARE (for service members, retirees, and their families. • The veteran’s health program. • A plan offered by an employer. • Insurance bought on your own that is at least at the Bronze level. • A grandfathered health plan in existence before the health reform law was enacted. The requirement to have health insurance is satisfied and no penalty is assessed. Yes No

36. The Requirement to Buy Coverage Under the Affordable Care Act Beginning in 2014 (cont) The requirement to have health insurance is satisfied and no penalty is assessed. 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. 2016 and beyond Penalty is $325 per adult and $162.50 per child (up to $975 for a family) or 2.5% of family income, whichever is greater. 2015 Penalty is $325 per adult and $162.50 per child (up to $975 for a family) or 2.0% of family income, whichever is greater. The penalty is pro-rated by the number of months without coverage, though there is no penalty for a single gap in coverage of less than 3 months in a year. The penalty cannot be greater than the national average premium for Bronze level coverage in an Exchange. After 2016 , penalty amounts are increased annually by the cost of living.

37. How does this impact Employers?

38. Avoiding the Fines Penalties for Employers Not Offering Affordable Coverage Under the Affordable Care Act Beginning in 2014 Does the employer have a least 50 full-time equivalent employee? If the employer has 25 or fewer employees and average wage up to $50,000, it may be eligible for a health insurance tax credit. Penalties do not apply to small employers. No Start Here Yes The penalty is $2,000 annually times the number of full-time employees minus 30. The penalty is increased each year by the growth in insurance premiums. Did at least one employee receive a premium tax credit or cost sharing subsidy in an Exchange? The employer must pay a penalty for not offering coverage. Does the employer offer coverage to its workers? No Yes Yes

39. Avoiding the Fines (cont) Employees can choose to buy coverage in an Exchange and receive a premium tax credit. Does the coverage offered meet MEC requirements? No The penalty is $3,000 annually for each full-time employee receiving tax credit, up to a maximum of $2,000 times the number of full-time employees minus 30. The penalty is increased each year by the growth in insurance premiums. The employer must pay a penalty for not offering affordable coverage. Yes Do any employees have to pay more than 9.5% of individual income for the employer coverage? Those employees can choose to buy coverage in an Exchange and receive a premium tax credit. Yes No There is no penalty payment required of the employer since it offers affordable coverage.

40. Employer Responsibilities Groups of 50+ employees • Provide “affordable care” • Minimum essential coverage • Safe Harbor • Employee contribution < 9.5% of income; • Employer sponsored plan pays at least 60% of the actuarial value of the benefits provided • Alternately pay penalties • If an employee receives tax subsidies for coverage through the Exchange

41. Employer Responsibilities Employers with at least 50 FTEq’s • Not Offering minimum essential coverage (MEC) • If any EE receives federal assistance, then • $2,000 fine per FTEe after the first 30 • If offering MEC and an any employee receives federal assistance (presuming the employer contribution does not qualify them as providing “affordable coverage” ) • Lesser of: • $3,000 fee for each FTEe receiving assistance, or • The above fine for non-offering employers

42. Multi-State Issues Essential Health Benefits – Small Group • National Standard has been abandoned • States to select EHBs independently • Numerous benefit sets will exist and vary by state but likely more complex Minimum Essential Value – large group

43. Small Group Plan Requirements • Platinum = 90% of EHB value • Very low out of pocket… $300 • Gold = 80% of EHB value • $1,000 • Silver = 70% of EHB value • $2,000 • Bronze = 60% of EHB value • $3,000 • Young Invincible

44. Employer Group Size(s) • For purposes of Small Employer Tax Credits • <25 Full-Time “equivalent” Employees using 2080 hours excluding family and family attribution • For purposes of the SHOP Exchange • Up to 50 (possibly 100 in some states, 100 or more in 2016) Full-time equivalent using 30 hours for Full-time, and dividing part times hours by 120 per month to determine “FT equivalents” • For purposes of the Employer Responsibility to Provide Affordable Coverage (the Mandate) • >50 Full-time equivalent employees using 30 hours for Full-time and 120 hours per month for “FT equivalent”

45. Evaluating Your Plan Design • Effective for plan years beginning on or after January 1, 2014 • Plans may not apply a waiting period that exceeds 90 days • “Waiting Period” = the period of time that must pass before coverage becomes effective for an employee or dependent who is otherwise eligible to enroll in the plan • Rule is not violated if an employee fails to elect coverage within 90 days LIMITATION ON WAITING PERIODS

46. Evaluating Your Plan Design • To be “otherwise eligible” means that all other substantive eligibility criteria have been met (e.g., job classification or full-time status) • Eligibility criteria that are not based solely on the passage of time are still permitted—so long as they are not designed to circumvent the 90-day limit on waiting periods LIMITATION ON WAITING PERIODS

47. Evaluating Your Plan Design • One day = One day • The 90-day period is calculated based on calendar days • Weekends and holidays are counted • If the 91st day falls on a weekend or holiday  plan may provide coverage sooner • Waiting periods that will no longer work • Three months • 1st of the month or 1st payroll period following 90 days of employment LIMITATION ON WAITING PERIODS

48. Your Action Plan Now • Make Pay or Play Decision • Develop waiting period/eligibility criteria for 2014 plan year • Build tracking systems necessary to monitor employee hours and document eligibility determinations • Implement standardized and verifiable process for making coverage offers

49. America’s Most Popular Teamin Post 2014 Health Care

50. Summary Questions and Answers