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

1. IF THE AFFORDABLE CARE ACT HAS BEEN DELAYED, WHAT DO I NEED TO WORRY ABOUT NOW? William C. Potter, CPA, JD Postlethwaite & Netterville Baton Rouge, LA October, 2013

2. 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

3. 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

4. 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

5. 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

6. New Fees/Taxes • Tanning bed tax • DME tax • Prescription drug fee – other than orphan drugs • PCORI fee • Transitional reinsurance fee • Health insurance tax

7. 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

8. Individual Mandate

9. 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

10. 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

11. Subsidies - 2014

12. 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?

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. Parent-subsidiary • Control exists if parent owns more than 80% of the subsidiary • Could involve multiple subsidiaries

21. 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

22. Example

23. 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

24. 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

25. 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

26. 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

27. 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

28. 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

29. 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

30. 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

31. 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

32. 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

33. 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

34. 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

35. 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

36. 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

37. 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

38. 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

39. 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

40. QUESTIONS? Bill Potter bpotter@pncpa.com Brandon Lagarde blagarde@pncpa.com Steve Mehaffey smehaffey@pncpa.com www.healthcarereformlouisiana.com