The Affordable Care Act (ACA) What Now?

1. The Affordable Care Act (ACA) What Now?

2. Review Supreme Court decision Take a look back at the Act timelines What’s been implemented? What’s been repealed, suspended, delayed? What’s ahead? State exchanges The pay-or-play penalties Agenda

3. National Federation of Independent Business vs. Sebelius, Secretary of Health and Human Services Arguments heard March 26-28, 2012 Decision announced June 28, 2012 Court held the individual mandate was constitutional Rejected the Commerce Clause argument Ruled mandate is constitutional under Congressionalpower to tax Obligation of states to expand Medicaid eligibility or risk loss of all Medicaid funds was found unconstitutional Supreme Court Decision

4. Patient Protection and Affordable Care Act signed March 23, 2010 Amended March 30, 2010 by the Health Care And Education Reconciliation Act of 2010 Many provisions went into affect October 1, 2010, or at the following plan year renewal A Look Back

5. 2010 Small business tax credits offered (up to 35%) for qualified businesses offering health insurance – most employers not eligible Early retiree reinsurance program provides $5B to subsidize 80% of costs between $15K and $90K (indexed). Terminates December 31, 2013 or when funds are exhausted 10% tax imposed on tanning salons 2011 Over-the-counter drugs lost pre-tax status for FSA/HRA/HSA (unless prescribed) Ineligible HSA distributions subject to a 20% (from 10%) excise tax $2.5 billion in new fees on pharmaceutical companies What’s Been Implemented?

6. Coverage mandates for all plans Dependents can stay on parents’ plan up to age 26 Elimination of pre-existing condition exclusion for children under age 19 (no pre-x for any age in 2014) No lifetime or annual limits on “essential health benefits” What’s Been Implemented?

7. Grandfathered plans are exempt No cost-sharing on preventive services (women’s preventive services expand Aug. 1) Elimination of prior authorization for ER services. Out-of-network benefits cannot differ from in-network benefits for ER services New internal and external appeals procedures must be defined What’s Been Implemented?

8. Grandfathered plans are exempt Choice of pediatrician as child’s primary care provider No preauthorization for gynecological care Can’t establish eligibility rules that favor highly compensated employees (on hold until further guidance) What’s Been Implemented?

9. Delayed requirement preventing non-grandfathered plans from discriminating in favor of highly compensated individuals (December 2010) Employers who issued fewer than 250 Form W-2s could delay reporting value of employee benefits on Form W-2 due until Jan. 31, 2014 (March 2011) Employers not made to issue Form 1099 to any vendor where goods and services for the year exceeded $600 (April 2011) What’s Been Repealed, Suspended, Delayed?

10. Free-choice voucher repealed which would have allowed qualified employees to opt out of employer’s plan and use an employer-paid voucher to purchase insurance on the exchange (April 2011) Implementation of long-term care entitlement program (CLASS Act) was suspended (Sept 2011) Auto enrollment for groups of 200+ (Delayed until 2015) What’s Been Repealed, Suspended, Delayed?

11. 2012 Carriers must issue Medical Loss Ratio rebates to individual and group plans by Aug. 1. Plans that do not meet the MLR (85% and 80%) are entitled to a rebate Most groups should not expect rebates Rebates will likely be issued to employer in the form of check or reduction in current year premium. (Individual plan participants will receive check) Rebate is to be shared proportionately based on employer contribution formula There could be tax implications if premiums were paid pre-tax. Bukaty Companies will advise groups on how to manage MLR What’s Ahead?

12. 2012 Expansion of women’s preventive health services(First plan renewal after Aug 1, 2012) Religious organizations can apply for an exemption to cover contraceptive services One-year exemption for church-affiliated plans What’s Ahead?

13. 2012 Summary of Benefits & Coverage (SBC) required to all plan participants and beneficiaries following Sept 23, 2012 4-page summary of plan benefits Carriers will prepare for fully insured groups Self-insured groups work with Bukaty Companies and TPA Must still issue the Summary Plan Description What’s Ahead?

14. 2013 FSA deduction limit set at $2,500 beginning Jan. 1 Small group employers (fewer than 250 employees) must prepare to report value of health care benefits on 2013 Form W-2s (Affects forms issued Jan 31, 2014) Employers are required to provide notice to employees informing them of their options on an exchange (March 2013) What’s Ahead?

15. 2013 Comparative Effectiveness Fee goes into effect for plans ending on or before October 1, 2012. Fee payable by July 31, 2013.(Collected through 2019) $1-per-participant fee (assessed on all members of plan) Fees assessed against carrier for fully insured groups. Carriers will likely collect via increased premium or tax Self-funded plans report fee on excise tax Form 720 HRA is considered a self-funded plan What’s Ahead?

16. 2013 Increase employee portion of Medicare tax from 1.45% to 2.35% on individual earnings over $200,000 ($250,000 for married couples) A new 3.8% Medicare contribution tax on unearned income for highly income individuals (dividends/interest) Tax deduction eliminated for employers who receive Medicare Part D retiree drug subsidy payments Excise tax of 2.4% on the sale of certain taxable medical devices Itemized medical deduction threshold increased from 7.5% to 10% of AGI What’s Ahead?

17. 2014 Waiting periods for group health insurance cannot exceed 90 days Wellness differential allowed to increase to 30% Self-insured plans and insurers must file an information return with the IRS identifying plan participants, coverage options and any other information requested by the Sec. of Treasury What’s Ahead?

18. 2014 Employers with 50+ FTEs must file an annual report with the IRS disclosing waiting periods, cost of plan options, employers’ share of benefit costs, number of employees on plan Medicaid eligibility expands to 133% of federal poverty level $8 billion in new fees assessed against health insurance companies, increasing in future years What’s Ahead?

19. 2014 No pre-existing condition exclusions for any age Guaranteed issue coverage Underwriting restricted in small group and individual market to age (3:1), geographic rating, family status, tobacco use (1.5:1) What’s Ahead?

20. 2014 Individual mandate requires U.S. citizens and legal residents to have qualifying health coverage of face tax penalty 2014: $95 or 1.0% of taxable income 2015: $325 or 2.0% of taxable income 2016: $695 or 2.5% of taxable income What’s Ahead?

21. 2014 State Health Insurance Exchanges must be ready for 2014 plan year (open enrollment begins Oct. 2013) Exchanges will serve small businesses up to 100 employees. States can limit pool to businesses up to 50 employees. Act allows for all businesses to have access to exchanges by 2017 What’s Ahead?

22. What’s Ahead? 2014 • State Health Insurance Exchanges activity: • 16 states have indicated that they intend to or have already passed health exchange legislation • 3 states announced they will not pass legislation • 14 states no significant activity (KS & MO) • 17 states are studying options • If states don’t implement an exchange the federal exchange will be implemented State updates as of June 18, 2012

23. 2014 Separate exchanges will exist for individual market and small employers - Small Business Health Options Program or “SHOP” Carriers may have plans in one exchange and not another Exchanges must offer plans with various actuarial values Bronze - 60% Silver -70% Gold - 80% Platinum - 90% What’s Ahead?

24. 2014 Pay-or-play penalties Requires employers with 50 or more full-time equivalent (FTE) employees (defined as 30 or more hours a week) to provide a minimum level of medical insurance for employees Large employers who do not provide health insurance will be subject to penalty, only if at least one of its full-time employees obtains coverage through an exchange and receives a premium credit What’s Ahead? Part-time workers are not included in penalty calculations (even though they are included in the determination of a “large employer”). An employer will not pay a penalty for any part-time worker, even if that part-time employee receives a premium credit.

25. Example A firm has 45 full-time employees (30+ hours). Also, the firm has 20 part-time employees who all work 24 hours per week (96 hours per month) Part-time employees’ hours treated as equivalent to 16 full-time employees, based on the following calculation: 20 employees x 96 hours /120 = 1920 / 120 = 16 FTEs Pay-Or-Play Penalties • Total FTEs 45 + 16 = 61 FTEs qualifies as a “large employer” Full-time seasonal employees who work less than 120 days during the year are excluded. The hours worked by part-time employees (those working less than 30 hours per week) are included in the calculation of a large employer, on a monthly basis, by taking their total number of monthly hours worked divided by 120.

26. Example Employer with 61 FTEs that does not provide health insurance will be subject to the penalty, but part-time workers are not included in the penalty 61 FTEs but only 45 are full-time employees Penalty calculation: 45 (full time) - 30 (exempt) = 15 FT 15 X $2,000 = $30,000 (not deductible as a business expense) Pay-Or-Play Penalties Employer is a “large employer” but penalty only applies to 45 actual full-time employees (penalty doesn’t apply to 20 part-time employees).

27. If employer coverage does provide minimal insurance but coverage doesn’t provide minimal value or isn’t affordable then employer could face penalty Minimal value: Plan is expected to pay at least 60% of allowed charges Affordable: Employees’ share of self-only premium cost cannot exceed 9.5% for lowest-cost coverage of employee’s household income (Treasury indicated employers could use W-2 wages for employee wage determination -Notice 2011-73) Employer penalty only applies if an employee goes to the exchange and receives a premium credit Pay-Or-Play Penalties

28. Employee is only eligible for premium credit if: Employee share of self-only premium for lowest-cost coverage is greater than 9.5% of household income (i.e., employee W-2 wages -Notice2011-73) Employee’s income is between 133% and 400% of federal poverty level (FPL) 45 full-time employees and 4 employees qualify for premium credit on the exchange 4 X $3,000 = $12,000 Penalty for employers who do offer insurance is capped so that it can never be more than the penalty for not providing insurance. Pay-Or-Play Penalties

29. Premium Credits • Employees eligible for premium credits will have insurance costs on exchange reduced so that premium is no more than X% of employee’s household income Credit applies to cost of “silver” (70%) coverage. Premium credits are technically advanceable, refundable tax credits paid in advance, directly to the health insurer.

30. Pat has an income in 2014 that is 250% of FPL (about $28,735) and is eligible for the exchange The cost of the second lowest cost silver plan in the exchange in Pat’s area is projected to be about $5,733 Under ACA, Pat would not be required to pay more than 8.05% (250% FPL premium credit value) of income, or $2,313, to enroll in the second lowest cost silver plan $28,735 X .0805 = $2,313 (Pat’s premiums on exchange cannot exceed) The premium credit available to Pat would be $3,420 ($5,733 premium minus the $2,313 limit on what Pat must pay) $5,733 – $2,313 = $3,420 (amount of Pat’s premium credit) Premium Credits

31. Provide cost-sharing subsidies to eligible individuals and families. The cost-sharing credits reduce the cost sharing amounts and annual cost-sharing limits and have the effect of increasing the actuarial value of the basic benefit plan to the following percentages of the full value of the plan for the specified income level: 100-150% FPL: 94% 150-200% FPL: 87% 200-250% FPL: 73% 250-400% FPL: 70% Cost-SharingSubsidies

32. Out-of-pocket costs for qualified individuals cannot exceed out-of-pocket maximums that apply to high deductible health plans (HDHP) For 2012, this is $6,050 for an individual and $12,100 for a family, The cost-sharing subsidies considerably reduce this out-of-pocket maximum for low-to-middle income persons, OOP limit reduced by 2/3 for persons below 200% FPL, OOP limit reduced by 1/2 for persons below 300% FPL OOP limits reduced by 1/3 for persons below 400% FPL Cost-SharingSubsidies

33. While there is still a lot of ambiguity and other legal challenges are expected to emerge, employers should plan to meet the upcoming notice and reporting requirements Prepare to issue 4-page SBCs Adjust FSA limits to $2,500 Work with payroll provider to collect data for Form W-2 reporting (Bukaty payroll can collect data) Work with Bukaty Companies to consider impact of pay-or-play penalty Advice For Employers

34. Consider self-funding as a means to contain costs Make sure your house is in order – DOL, HHS, IRS audits expected to increase (Bukaty HR consulting services available) Make sure workforce realignment plans can’t be viewed as an effort to bypass providing benefits Advice For Employers

35. We will continue to… Analyze the surrounding issues and provide consultation to our clients Prepare regular Health Care Reform Bulletins with updates on regulatory outcomes Ensure you and your employees have the answers you need Bukaty Companies Commitment

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