Decoding the Affordable Care Act An Employer’s Translation

Decoding the Affordable Care Act An Employer’s Translation By: Al Holifield Holifield & Associates, PLLC 11907 Kingston Pike Suite 201 Knoxville, TN 379234 aholifield@hapc-law.com Phone: (865) 566-0115 Fax: (865) 566-0119

Exchanges • “Essential Health Benefits” (EHB)to include: • Ambulatory patient services; • Emergency services; • Hospitalization; • Maternity and newborn care; • Mental health and substance use disorder services, including behavioral health treatment; • Prescription drugs; • Rehabilitative and habilitative services and devices; • Laboratory services; • Preventive and wellness services and chronic disease management; and • Pediatric services, including oral and vision care

Exchanges • Prior to 2016, small employers are employers with 100 or less employees but states may limit to 50 employees or less • Prior to 2017, only small employers (100 employees or fewer) can participate • Starting in 2017 and thereafter, states may allow all employers to participate

Exchanges • Initial open enrollment period for the 2014 benefit year: October 1, 2013 through March 31, 2014 • For benefit years in 2015 or later, the annual open enrollment period will be from October 15th through December 7th of the prior year • Special enrollment provisions will be included

Exchanges • The Metals – Exchanges to Offer Four Levels of Coverage: • Bronze (60%) • Silver (70%) • Gold (80%) • Platinum (90%) • And: a catastrophic plan for individuals under 30 • Insurers may offer separate health plan products outside of an Exchange, but they are prohibited from offering rates for those health plan products that are lower than those offered within the Exchange

Notice to Employees • Employers must issue notices to new employees with information about the Exchanges within 14 days of hire • What employers are included? • Any employer covered by the FLSA • Hospitals, schools, and institutions of higher learning • Governmental employers at the federal, state, and local level • Who receives notice? • All full time and part time employees • Dependents do notreceive a notice

What Must Be Included in the Notice? • The existence of the Exchange; • Contact information and description of services offered on the Exchange; • A statement that the individual may be eligible for a premium tax credit if the employee purchases a qualified plan on the Exchange • A statement that if the employee purchases a qualified plan on the Exchange, the employee may lose the employer contribution to any health benefit plan offered by the employer and all or a portion of employer contributions may be excluded from federal income

Pay-or-Play Mandates: 90-Day Waiting Period Requirement • Becomes effective on the first day of the plan year on or after January 1, 2015 unless employer meets new IRS transition relief requirements to delay mandate until January 1, 2016 • See E-Alert “IRS Issues Transitional Relief that Delays Employer Mandate – Again.” • Guidance released August 31, 2012 is effective through 2014 • 90 days means 90 days within the first day they are eligible • If employees can elect within 90 days but fail to elect within 90 days it is not a violation • Employer may use a reasonable period to determine eligibility if • (a) period is not designed to avoid the 90 day period limitation, • (b) individual becomes eligible within 90 days of being assessed eligible or, if earlier, within 13 months of start date (plus the days to the first day of the next calendar month if the employee’s start date is the middle of the month)

Employer “Pay-or-Play” Mandate • In 2015, the pay-or-play mandate requires employers of 50 full time employees or more – that do not meet the new transition relief requirements delaying the mandate to 2016 – to offer quality, affordable health insurance coverage to full time employees and their dependents (no spouses) • Full time employees: those employees working on average 30 hours or more per week • Failure to offer such coverage may subject the employer to a penalty for a given month if a full time employee receives a federal premium tax credit or cost-sharing reduction and is enrolled in coverage through a health insurance exchange

Who is an Employee? • Nationwide Mutual Insurance Company v. Darden 503 U.S. 318, 112 S.Ct. 1344 (1992)

Who is an Independent Contractor? Anyone who is not an Employee.

When is an Employer Subject to Pay-or-Play? • For these purposes only, full time employees are determined by taking the sum of the employer’s full time employees (using a 30 hour per week standard) and the number determined by dividing the hours of service of employees who are not full time employees by 120 (“full-time equivalents”).

When is an Employer Subject to Pay-or-Play? Examples: • Employer employs 40 full time employees and 20 part-time employees who each work 60 hours per month. • 50 FTE: 40 + (20 × 60 ÷ 120) = 50 • Employer employs 35 full time employees and 20 part-time employees who each work 96 hours per month • 51 FTE: 35 + (20 × 96 ÷ 120) = 51

When is an Employer Subject to Pay-or-Play? Seasonal Employees • Special rule for seasonal employees • Seasonal workers are those who perform labor or services on a seasonal basis as defined by the DOL and retail workers employed exclusively during holiday seasons

What are the Pay-or-Play Penalties? • Employers who “opt out” of providing benefits • Employers who do not provide health coverage to all full time employees (and their dependents (no spouses)) are penalized • If at least one full time employee (30+ hrs/wk or 130+ hrs/mo) is eligible for, or receives, a tax credit and enrolls in exchange coverage, the employer is subject to an annual penalty of $2,000 × all full time employees (except for the first 30) • Penalty is assessed monthly (i.e., $167.67 per full time employee per month)

What are the Pay-or-Play Penalties? • Example 1: No full time employee receives a tax credit • No penalty assessed • Example 2: One or more full time employees receive a tax credit • The annual penalty is calculated by taking the number of full time employees minus 30, multiplied by $2,000 • If there are 50 full time employees, the penalty would not vary if only one employee or all 50 employees received the credit; the employer’s annual penalty would be • (50-30) × $2,000 = $40,000

What are the Pay-or-Play Penalties? • Employers who provide “unaffordable” coverage • Coverage is affordable only if the premium for single coverage under the employer’s lowest cost plan with at least a 60% “actuarial value” does not exceed 9.5% of household income (or W-2 wages) • Annual penalty is the lesser of $3,000 for each full time employee who receives a tax credit and enrolls in exchange coverage, or $2,000 multiplied by all full time employees (subtracting first 30) • Penalty is assessed monthly (i.e., $250 per subsidy-receiving full time employee per month)

What are the Pay-or-Play Penalties? • Example 1: No full time employee receives a tax credit • No penalty assessed • Example 2: One or more full time employees receive a tax credit • For an employer with 50 full time employees, annual penalty is the lesser of: • The number of full time employees minus 30, multiplied by $2,000, or • The number of full time employees who receive tax credits multiplied by $3,000 • Assuming 10 full time employees received tax credits, the potential annual penalty on the employer would be $30,000 • However, if the employer had 30 full time employees who received tax credits, then the potential annual penalty on the employer would be capped at $40,000 (20 employees × $2,000) rather than $90,000 as calculated (30 employees × $3,000)

Determining Full Time Employee Status for Purposes of the Pay-or-Play Tax • Notice of Proposed Rulemaking (IRS), 78 Fed. Reg. 217 (01/02/13) – Shared Responsibility for Employers Regarding Health Coverage • Notice of Proposed Rulemaking (IRS), 78 Fed. Reg. 7314 (02/01/13) - Shared Responsibility Payment for Not Maintaining Minimum Essential Coverage • Proposed Rules (HHS/CMS), 78 Fed. Reg. 7348 (02/01/13) – Exchange Functions; Eligibility for Exemptions (shared responsibility payment); Miscellaneous Minimum Essential Coverage Provisions • Proposed Rules (IRS), 78 Fed. Reg. 16445 (03/15/13) – Shared Responsibility for Employers Regarding Health Coverage; Correction • Notice 2011-36 – Definitions of employee, employer, hours of service • Notice 2011-72 - Affordability of coverage • Notice 2012-17 – Determining “full time” employee • Notice 2012-58 – Interim guidance

Example of Full Time Employee Status • An employer elects to use a 6-month measurement period and a 6-month stability period for purposes of determining its full time employees • The first measurement period runs from January 1, 2014 through June 30, 2014 and the associated stability period runs from July 1, 2014 through December 31, 2014

Variable Hour Employees & Full Time Employee Status • A Variable Hour Employee (new employees only) • On start date, it cannot be determined whether employee is expected to work on average at least 30 hours per week • Initial Measurement Period of between 3 and 12 months • Assess average during Initial Measurement Period • Assessment is then used for stability period that is the same as for ongoing employees • Use of Administrative Period • Can use an “administrative period” but total of initial measurement period and administrative period cannot exceed 13 months (plus the remainder of the month if anniversary falls in middle of month)

Coordination with 90-Day Waiting Period Limit • An employer will not be subject to a penalty for the first 3 months following an employee’s date of hire • This coordinates with 90-day limit on waiting period

The ACA Litigation Minefield • DOL, IRS, and HHS audits will increase • Already seeing audits of grandfathered status by DOL under the Act • DOL efforts focus on increasing employer compliance rather than assessing penalties in early years • Worker misclassification

The ACA Litigation Minefield • Employee Claims under the Act • Workforce Realignment • IROs • Claims to Mandated Benefits • Whistleblower Actions

Wellness Programs • Final regulations were issued jointly by Department of Treasury, DOL, and HHS on June 3, 2013 • Final regulations apply to plan years beginning on or after January 1, 2014 • Types of Wellness Programs: • Participatory Wellness Programs • Health-Contingent Wellness Programs • Activity-Only Wellness Programs • Outcome-Based Wellness Programs

Wellness Programs • A wellness program is a program of health promotion or disease prevention • 1996: HIPAA added provisions to the IRC, ERISA, and PHS Act prohibiting group health plans and group health insurers from discriminating against individual participants and beneficiaries in eligibility, benefits, or premiums based on a health fact • Exception: Premium discounts or rebates or modification to otherwise applicable cost sharing (including copayments, deductibles, or coinsurance) in return for adherence to certain programs

Wellness Programs • 2006 – Final regulations were issued implementing HIPAA nondiscrimination and wellness provisions • 2010 – ACA amended the PHS Act (but not ERISA or IRC) • Added nondiscrimination and wellness provisions which largely reflected the 2006 regulations and extended HIPAA nondiscrimination protections to the individual market • Wellness program exception to prohibition on discrimination applies with respect to group health plans (and any health insurance coverage offered in connection with such plans) but does not apply to coverage in the individual market

Participatory Wellness Programs • Programs that either do not provide a reward or do not include any conditions for obtaining a reward that are based on an individual satisfying a standard that is related to a health factor • No changes under final regulations • Still must be made available to all similarly situated individuals regardless of health status • Examples: • Filling out a health risk assessment or having a diagnostic test performed • Attending a monthly, no-cost health education seminar • Program that reimburses employees for all or part of the cost of membership in a fitness center

Health-Contingent Wellness Program • A program that requires an individual to satisfy a standard related to a health factor to obtain a reward (or requires an individual to undertake more than a similarly situated individual based on a health factor in order to obtain the same reward) • Two types: • Activity-only wellness programs • Outcomes-based wellness programs • Five requirements for health-contingent wellness programs • Opportunity to Qualify • Size of Reward • Reasonable Design • Uniform Availability • Notice of Alternative Standard

Activity-Only Wellness Program • A type of health-contingent wellness program that requires an individual to perform or complete an activity related to a health factor in order to obtain a reward but does not require the individual to attain or maintain a specific health outcome • Examples: • Walking • Diet • Exercise programs

Outcomes-Based Wellness Program • A type of health-contingent wellness program that requires an individual to attain or maintain a specific health outcome in order to obtain a reward • Examples • Not smoking • Attaining certain results on biometric screenings

Opportunity to Qualify • Health-contingent wellness programs must provide individuals who are eligible for the program with an opportunity to qualify for the reward at least once per year

Size of Reward • The total amount of the reward for health-contingent wellness programs with respect to a plan, whether offered alone or coupled with the reward for other health-contingent wellness programs is limited to 30% of the total cost of employee-only coverage under the plan • Cost of coverage = employer and employee contributions towards the cost of coverage for the benefit package under which the employee is (or the employee and any dependents are) receiving coverage • The 30% limit increases to 50% where the additional 20% is in connection with a program designed to prevent or reduce tobacco use • Plans and issuers have flexibility to determine apportionment of the reward among family members, as long as the method is reasonable

Reasonable Design • Health-contingent wellness programs must be reasonably designed to promote health or prevent disease • Health-contingent wellness programs are reasonably designed if it: • Has a reasonable chance of improving the health of, or preventing disease in, participating individuals, and • Is not overly burdensome, • Is not a subterfuge for discrimination based on a health factor, and • Is not highly suspect in the method chosen to promote health or prevent disease

Reasonable Design • Outcomes-Based Wellness Programs • Must provide a reasonable alternative standard to qualify for the reward, for all individuals who do not meet the initial standard that is related to a health factor, in order to be reasonably designed

Uniform Availability & Reasonable Alternative Standards • The full reward under a health-contingent wellness program must be available to all similarly situated individuals • The same full reward must be available to individuals who qualify by satisfying a reasonable alternative standard as is provided to individuals who qualify by satisfying the program’s otherwise applicable standard • In lieu of providing a reasonable alternative standard, a plan or issuer may always waive the otherwise applicable standard and provide the reward

Uniform Availability & Reasonable Alternative Standards • All facts and circumstances are considered in determining whether an alternative standard is reasonable • Some factors considered: • Completion of educational program – plan or issuer must make the educational program available or assist employee in finding such a program and may not require individual to pay for the cost of the program • Time commitment required must be reasonable • Diet program – plan or issuer must pay any membership or participation fee, but not required to pay for cost of food

Uniform Availability & Reasonable Alternative Standards • Second Reasonable Alternative Standard • If an individual’s personal physician states that the reasonable alternative standard is not medically appropriate for that individual, the plan must provide a second reasonable alternative standard that accommodates the recommendations of the individual’s personal physician with regard to medical appropriateness • Normal cost sharing can be imposed for medical items and services furnished pursuant to the physician’s recommendations

Uniform Availability & Reasonable Alternative Standards • Activity-only wellness program • Must allow a reasonable alternative standard (or a waiver thereof) for obtaining the reward for any individual for whom, for that period, it is either unreasonably difficult due to a medical condition to meet the otherwise applicable standard, or for whom it is medically inadvisable to attempt to satisfy the otherwise applicable standard. • A plan or issuer may seek verification, such as a statement from the individual’s personal physician, that a health factor makes it unreasonably difficult for the individual to satisfy, or medically inadvisable for the individual to attempt to satisfy, an otherwise applicable standard if reasonable under the circumstances

Uniform Availability & Reasonable Alternative Standards • Outcome-based wellness program • Program must allow a reasonable alternative standard (or waiver thereof) for obtaining the reward for any individual who does not meet the initial standard based on a measurement, test, or screening • Thus allows plans and issuers to conduct screenings and employ measurement techniques to target wellness programs effectively • Plans and issuers cannot require verification by the individual’s physician that a health factor makes it unreasonably difficult for the individual to satisfy, or medically inadvisable for the individual to attempt to satisfy, the otherwise applicable standard as a condition of providing a reasonable alternative to the initial standard

Notice of Availability of Reasonable Alternative Standard • Plans and issuers must disclose the availability of a reasonable alternative standard to qualify for the reward (and, if applicable, the possibility of waiver of the otherwise applicable standard) in all plan materials describing the terms of a health-contingent wellness program • Outcome-based wellness programs must also include this notice in any disclosure that an individual did not satisfy an initial outcome-based test • What must be included: • Contact information for obtaining the alternative • Statement that recommendations of an individual’s personal physician will be accommodated

Health Contingent Wellness Program Requirements

Internal Claims and Appeals and External Review • ACA addresses two types of claims procedures • Internal claims and appeals • External reviews • ACA general rule • Comply with all the requirements applicable to group health plans under 29 CFR 2560.503-1, except as modified by ACA regulations • Meet the additional standards of the PPACA regulations • Only non-grandfathered health plans must comply with these new procedures

Internal Claims and Appeals and External Review • New procedures create significant compliance obligations • Change existing internal claims and appeals • Add external reviews • Effective dates • Plan years beginning on or after September 23, 2010 • Certain provisions have later effective dates

Internal Claims and Appeals and External Review • Types of plans affected • Insured • Self-insured • Responsible parties • Insured plans = insurer • Self-insured plans = plan administrator • Plan sponsors affected • Private sector • Public plans must comply with the original DOL Claims Procedures in place for ERISA-covered plans since 2002 • Public sector (nonfederal governmental) • Multiemployer

Internal Claims and Appeals ACA changes and additions: 1) Effective for plan years on or after Sept. 23, 2010 • Rescission (retroactive termination of coverage) can be appealed • Claimant is entitled, free of charge, to additional evidence considered, or any new or additional rationale • Claims administrator must avoid conflicts of interest 2) Effective for plan years on or after July 1, 2011 • Denial notices must be updated to include additional content • Model notices atwww.dol.gov

Internal Claims and Appeals 3) Effective for plan years on or after January 1, 2012 • Urgent care claims must be decided within 72 hours, and the plan must defer to attending provider regarding whether claim is urgent • Denial notices must be provided in culturally and linguistically appropriate manner • Denial notices must inform claimants of their right to request the applicable diagnosis and treatment codes, and their corresponding meanings • Strict adherence standard applies, but there is a very limited de minimisexception

Internal Claims and Appeals Culturally and linguistically appropriate denials • “Applicable non-English language” • For any address in a U.S. county where a notice is sent, a non-English language statement is required if 10% or more of the population residing in the county is literate only in the same non-English language • Spanish, Tagalog, Chinese, Navajo • DOL guidance at: http://webapps.dol.gov/FederalRegister/PdfDisplay.aspx?DocId=25131 • Include statement of how to access language services • Oral language services in any applicable non-English language • Provide, upon request, notice in any applicable non-English language

Internal Claims and Appeals – Action Items • Self-Insured Plan • Confirm that the plan is complying with the original DOL claims procedures • Revise the plan documents and SPDs to include the ACA updates • Prepare and update denial notices (initial and final) to account for the ACA updates • Determine whether any of the claimants reside in counties that would require culturally and linguistically appropriate notices, and if so, prepare to meet that requirement • Determine which functions or obligations will be delegated to a TPA

Decoding the Affordable Care Act An Employer’s Translation