Employer Tactics: Affordable Care Act in 2014 and Beyond

Employer Tactics: Affordable Care Act in 2014 and Beyond

Consumer Perceptions

Overview Employer Mandate Fees/Plan Design Changes Reporting and Disclosure Strategies and Cost Containment

Employer Mandate “Pay or Play” Three important questions: • Are we subject to the mandate and have to offer insurance? • Do we have more than 50 FT + FTEs? • To whom do we have to offer coverage? • Full-time employees • Part-time employees • Variable/seasonal employees • Leased/temporary staffing employees • What kind of coverage do we have to offer? • Minimum value • “Affordable”

Question #1 – Are we a large employer? FT + FTE = Total employees for that calendar month Total PT hours= # of Full-Time Equivalents (FTEs) for 120 that calendar month (no rounding) Add 12 month totals= Average # of FT employees for that year 12 (round down)

Question #1 – Are we a large employer? Company A has 75 employees; 25 full-time employees and 50 part-time employees. The part-time employees each work three six-hour shifts a week (18 hours/week), for a total of 3,600 hours in May (18 X 50 X 4). 3,600 / 120 = 30 FTEs 25 FT + 30 FTE = 55 total full-time employees (for PPACA)

Question #1 – Are we a large employer? “Hour of Paid Service” “For employees paid on an hourly basis, employers must calculate actual hours of service from records of hours worked and hours for which payment is made or due for vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence.” “For employeesnot paid on an hourly basis, calculate under any of the following three methods: • counting actual hours of service [same as above]; • using a days-workedequivalency method whereby the employee is credited with eight hours of service for each day for which the employee would be required to be credited with at least one hour of service under these service crediting rules; or • using a weeks-worked equivalency of 40 hours of service per week for each week for which the employee would be required to be credited with at least one hour of service under these service crediting rules.” - 29 CFR 2530.200b-2(a) We are still awaiting guidance on issues with varying pay structures (i.e. – piece rate, commission, per-mile)

Question #1 – Are we a large employer? Remember! Seasonal Employee Exception 26 USCA § 4980H(c)(2)(B) (i) In general.--An employer shall not be considered to employ more than 50 full-time employees if-- (I) the employer's workforce exceeds 50 full-time employees for 120 days or fewer during the calendar year, and (II) the employees in excess of 50 employed during such 120- day period were seasonal workers. Definition of seasonal workers - labor is performed on a seasonal basis where, ordinarily, the employment pertains to or is of the kind exclusively performed at certain seasons or periods of the year and which, from its nature, may not be continuous or carried on throughout the year – employers may used “reasonable good-faith interpretation” of seasonal until further guidance is issued

Question #1 – Are we a large employer? Remember! Seasonal Employee Exception Controlled Group Rules (1) Parent-subsidiary controlled group - One or more chains of corporations connected through stock ownership with a common parent corporation if-- (B) the common parent corporation owns stock possessing at least 80 percent of the total combined voting power. (2) Brother-sister controlled group - Two or more corporations if 5 or fewer persons possessing more than 50 percent of the total combined voting power of all classes of stock entitled to vote (3) Combined group of parent-subsidiary and brother-sister 26 USCA § 414 26 USCA § 1563

Question #1 – Are we a large employer? Remember! Seasonal Employee Exception Controlled Group Rules Transitional Relief – 6 Month Look Back for 2015 Temporary/Leased Employees Union Employees 1099 Contractors When do we have to comply?

Question #1 – Are we a large employer? 2015 “Mid-Size” Employer Exemption • Applicable large employers that have fewer than 100 full-time employees will have an additional year, until 2016, to comply with the pay or play rules. Provided that: 1) The employer must employ a limited workforce of at least 50 full-time employees (including full-time equivalent employees, or FTEs) but fewer than 100 full-time employees (including FTEs) on business days during 2014; 2) During the period beginning on Feb. 9, 2014, and ending on Dec. 31, 2014, the employer may not reduce the size of its workforce or the overall hours of service of its employees in order to satisfy the workforce size condition; and 3) During the coverage maintenance period (that is, the period ending Dec. 31, 2015, or the last day of the plan year that begins in 2015), the employer may not eliminate or materially reduce the health coverage, if any, it offered as of Feb. 9, 2014. In addition, the employer must provide an appropriate certification stating that it meets all of the eligibility requirements.

Employer Mandate “Pay or Play” Three important questions: • Are we subject to the mandate and have to offer insurance? • Do we have more than 50 FT + FTEs? • To whom do we have to offer coverage? • Full-time employees • Part-time employees • Variable/seasonal employees • Leased/temporary staffing employees • What kind of coverage do we have to offer? • Minimum value • “Affordable”

Question #2 – Who gets offered coverage? To fall within the PPACA safe harbor, you are required to set a specific schedule of when you will (1) measure employee hours, (2) review measurements, and (3) offer insurance regardless of hours worked during that period.

Question #2 – Who gets offered coverage? Full-time Employees • Employees expected to work more than 30 hours/week must be offered coverage and cannot have more than a 90-day waiting period before coverage takes effect. • - Standard Measurement Period (look-back) • - Administrative Period • - Stability Period

Your Insurance Cycle Ongoing Employees Combined • The periods overlap so that employee FT status is continually being monitored for the following Stability Period • Renewal stays at the same date from year to year • All periods must be uniform for employees within the same category • You may distinguish EE categories based on • Collectively bargained EEs and non-collectively bargained; • Salaried EEs and hourly EEs; • EEs of different entities (parent/subsidiary); • EEs located in different states.

Question #2 – Who gets offered coverage? Full-time Employees Variable Hour/Seasonal Employees What if we don’t know how many hours the employee will work? - Initial Measurement Period - Administrative Period - Stability Period (same as ongoing employees) - Standard Measurement Period Crossover

Unsure if new hire will be FT or PT? ↑New Hire Becomes Ongoing EE New Hire Average hours during IMP > 30/wk or 130/month? - No? Then no coverage offered and hours will be reevaluated at the end of SMP 2 - Yes? The coverage must be offered and begin before the first calendar month beginning on or after the 1st anniversary of the EE’s start date. Coverage must last through ASP regardless of EE status at the end of SMP 2

Question #3 – What kind of coverage do we have to offer? Minimum Value 60% or “Bronze” plan – tested actuarially Coverage must be “affordable” No more than 9.5% of household income for self-only coverage* Safe Harbors *Employers must offer dependent coverage, but there is no “ “affordability” test attached & no requirement to offer spouse/family coverage - W-2 – Do premiums exceed 9.5% of W-2 Box 1 income? - Rate of Pay – Do premiums exceed 9.5% of EEs rate of pay multiplied by 130 hours (as of the first day of coverage)? - Federal Poverty Level – Do premiums exceed 9.5% of the FPL divided by 12?

Penalties (non-tax deductible)* • $2,000 per full time employee (minus first 30) • Employer does not offer coverage to all, or substantially all (>95%), of full time employees and their dependents • AND at least one full time employee receives federal insurance subsidies • $3,000 per subsidized full time employee • Employer offers coverage but it is “unaffordable” or does not meet the 60% minimum value test • AND at least one full time employee receives federal insurance subsidies • Lesser of: • $3,000 per FTE receiving subsidy • or • $2,000 per FTE (minus first 30) • *(annual penalties calculated monthly and pro-rated across controlled groups)

Penalties (non-tax deductible) Transitional Relief for 2015 • $2,000 per full time employee (minus first 80) • Employer does not offer coverage to all, or substantially all (>70%), of full time employees and their dependents • AND at least one full time employee receives federal insurance subsidies

Fees All Plans 60

2014 Plan Design Changes All Plans* • $6,350/$12,700 maximum out of pocket • Now includes ALL mechanisms of cost-sharing • Clinical trials (only have to pay for “routine services”) • The term “approved clinical trial” is defined in the statute as a clinical trial that is conducted in relation to the prevention, detection, or treatment of cancer or other life-threatening disease or condition and is one of the following: • A federally funded or approved trial • A clinical trial conducted under an FDA investigational new drug application • A drug trial that is exempt from the requirement of an FDA investigational new drug application • No pre-existing condition exclusions • No lifetime or annual limits on Essential Health Benefits • Maximum 90 Day waiting period • Automatic Enrollment (Only if 200+ EEs – delayed indefinitely) *Applies on renewal date in 2014 64

Plan Design Changes Small Groups* • Composite rating (can only ask age, location, tobacco use) 3:1 Age bands • Plan must cover essential health benefits (EHB) – includes pediatric dental and vision • $2,000/$4,000 maximum deductible (REPEALED – 4/1/14!) *Applies on renewal date in 2014

Plan Design Changes Small Groups PPACA In connection with a group health plan, the term “small employer” means an employer who employed on average at least 1 but not more than 100 employees on business days during the preceding calendar year and who employs at least 1 employee on the first day of the plan year. (The term “large employer” means, in connection with a group health plan, an employer who employed an average of at least 101 employees on business days during the preceding calendar year and who employs at least 1 employee on the first day of the plan year.) - For plan years beginning before January 1, 2016, a state has the option of defining a small employer as an employer who employed on average at least 1 but not more than 50 (instead of 100) employees and defining a large employer as an employer who employed on average at least 1 but not more than 51 (instead of 101) employees. Texas Senate Bill 1332 amended Texas law to allow the inclusion of part-time employees to classify businesses as large or small employers. It allowed the definitions to be based on total number of employees instead of the previous “eligible” employees, which were those who worked at least 30 hours per week. This brought the state in line with federal definitions regarding how businesses are sized for the Affordable Care Act & HIPAA. The change in law applies only to health benefit plans delivered, issued for delivery, or renewed on or after January 1, 2014.

Disclosure Requirements By October 1, 2013, all employers subject to the FLSA should have provided Exchange notices to their employees, and, moving forward, must do so to all new employees within 14 days of hire. In general, the Exchange notices must: • Inform employees about the existence of the Exchange and describe the services provided by the Exchange and the manner in which the employee may contact the Marketplace to request assistance; • Explain how employees may be eligible for a premium tax credit or a cost-sharing reduction if the employer's plan does not meet certain requirements; • Inform employees that if they purchase coverage through the Exchange, they may lose any employer contribution toward the cost of employer-provided coverage, and that all or a portion of this employer contribution may be excludable for federal income tax purposes; and • Include contact information for the Exchange and an explanation of appeal rights. • Employers may distribute the notice electronically, provided that they use the DOL’s Electronic Distribution Safe Harbor provisions. • Model Notices are available on the EBSA website

Reporting Requirements According to Section 6056 (6055 for issuers or self-funded plans), large employers will have to report certain information to the IRS including: • The employer’s name, address and EIN, the name and telephone number of the employer’s contact person and the calendar year for which the information is reported; • A certification as to whether the employer offered its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan by calendar month; • The number of full-time employees for each month during the calendar year; • For each full-time employee, the months during the calendar year for which coverage under the plan was available; • Each full-time employee’s share of the lowest-cost monthly premium (self-only) for coverage providing minimum value offered to that full-time employee, by calendar month; and • The name, address and TIN of each full-time employee during the calendar year and the months the employee was covered under an eligible employer-sponsored plan.

The Future Employer Strategies Assessing your risks/liabilities • Are you currently offering insurance? • Will you be required to in 2015? • Will there be transitional relief for fiscal year plans? • How many employees will be eligible? • Does it pass the affordability and minimum value tests? • What is the income level of your employee base? • Between 100% and 400% of FPL? • Would you pass nondiscrimination testing if it were in effect today? • Will you be subject to the “Cadillac” tax?

The Future Employer Strategies Plan for the future • Pay? • Penalties (non-deductible) • Cost shift to employees • Increased compensation • Employee recruitment/retention • Play? • Budget for new costs (participation “penalty”) • Change in plan structure (Bronze or MEC Plan) • Penalties • Limit potential liabilities • Reduce claims/costs • Spectate? • <50 full-time employees (early renewal up until 10/1/14?)

Reducing Cost Employer Strategies Partially Self-Funded/Level Funding Source: JP Farley

Reducing Cost Employer Strategies Partially Self-Funded/Level Funding Source: Cigna

Reducing Cost Employer Strategies CDHP with Patient Advocacy Program Source: Compass Case Study of 6000 Life Group

Reducing Cost Employer Strategies Minimum Essential Coverage (MEC) or “Skinny” Plans • Self-funded to avoid state/federal mandates • Usually only cover preventative care with some doctor’s visits • May offer RX co-pays • Often sold alongside voluntary hospital indemnity plans • May or may not be offered alongside full medical plans Source: Pan American Life

Reducing Cost Employer Strategies Defined Contribution/Private Exchanges Source: The Horton Group

Reducing Cost Employer Strategies • Two kinds of wellness programs: • Participatory wellness programs • Health-contingent wellness programs (outcomes-based) • Regulations have increased the maximum reward under a health-contingent wellness program from 20% to 30% of the cost of coverage and further increased the maximum reward to 50% for wellness programs designed to prevent or reduce tobacco use

Resources www.dol.gov/ebsa/healthreform/ www.healthcare.gov/ www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions

Employer Tactics: Affordable Care Act in 2014 and Beyond