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OBAMACARE WEBINAREVERYTHING EMPLOYERS NEED TO KNOW

WELCOME

HARRY YOUTANGroup Executive Director, Phaidon International - Americas Region

PHAIDON INTERNATIONAL

Micro-Specialist Recruitment Group of 8 Specialist Recruitment Brands

AGENDA

– Affordable Care Act (ACA) Overview– The Many Phases of the ACA

– First Phase – Complete?– Second Phase – Current Challenges– Third Phase – On the Horizon

– Special Issues for the Employer Mandate– Fact or Fiction? The Application– Cost Reduction Strategies Being Considered by Some

Employers– Q&A

JOIN THE CONVERSATION

• Questions:

• Tweet us: #ObamaCare

@PhaidonIntl @ERISABryanCave

#ObamaCare

THE PANEL

CARRIE BYRNESEmployee Benefits & Executive Compensation AttorneyBryan Cave LLP, Chicago

CARRIE HERRICKEmployee Benefits & Executive Compensation AttorneyBryan Cave LLP, St. Louis

AFFORDABLE CARE ACT(ACA)OVERVIEW

#ObamaCare

WHO IS COVERED? WHO IS NOT?

#ObamaCare

KEY FEATURES

Mandated Coverage for Individuals A.K.A. the “Individual Mandate”•Taxes apply for non-compliance•Government subsidies (tax credits and cost sharing) will assist lower income individuals obtain coverage

#ObamaCare

KEY FEATURES

Expanded Coverage/Market Reforms •Coverage Limitations Restricted

– Insurers and, in many cases, self-funded plans must offer coverage without pre-existing conditions, annual or lifetime limits or other limitations

•Employer “Play or Pay”– Employers must provide affordable, minimum value coverage

or pay tax– Small employer exception (generally under 50 employees

(under 100 for 2015 if certain requirements met)) – Employers who provide coverage may still be subject to tax if

coverage is insufficient (i.e., unaffordable and/or not minimum value) and lower income employees obtain coverage through the exchange

#ObamaCare

KEY FEATURES

Expanded Coverage/Market Reforms Continued•Exchanges / Marketplace

– The Federal government and some States have implemented exchanges where individuals and employers can compare and purchase coverage on guaranteed issuance and blended rate basis

Revenue Raisers•Additional Medicare Tax

– 0.9% increase on wages or earnings above $200K (single filer) or $250K (married jointly)

#ObamaCare

EFFECTIVE DATE

Generally enacted in three phases

FIRST PHASE 2010-2012 Complete?

SECOND PHASE 2013-2015 Where we are today

THIRD PHASE 2018 Where we are going

THE MANY PHASES OF THE ACAFIRST PHASE – COMPLETE?

#ObamaCare

EFFECTIVE IN 2010

Large Employer Auto-Enrollment •For employers with more than 200 full-time employees, who offer enrollment in 1 or more health benefit plans, employees are automatically enrolled in coverage

– Subject to reasonable, approved waiting period•Must provide notice and opportunity for employees to opt out•Automatic re-enrollment for current employees •Compliance delayed until regulations issued (target date 2014?)

#ObamaCare

EFFECTIVE PLAN YEARS AFTER SEPTEMBER 23, 2010

Extension of Dependent Child CoveragePlans that cover dependents…•Must cover children until age 26•Whether child is married, a student and/or a tax dependent is irrelevant•Tax exclusion is extended to children who have not attained age 27 before the end of the taxable year and is effective immediately•Plans need not cover dependents of adult children•For insured plans, state mandates may require additional coverage

#ObamaCare


Lifetime Limits and Annual Limits•Prohibited on dollar value of “essential health benefits” (defined in regulations)•For plan years before 1/1/2014, annual limits on “essential health benefits” were allowed up to limit set by HHS regulation•May impose limits on non-essential benefits

#ObamaCare


Pre-existing Condition Exclusions•May not be imposed with respect to plan enrollment or coverage for specific conditions

New Summary of Benefits and Coverage (SBC)•Summary of the summary•Significant modifications must be communicated at least 60 days before the effective date of the change effective 2012•$1,000 per day for each willful failure•For self-insured plans, plan administrator is responsible; for fully insured, issuer is responsible

#ObamaCare


Preventive Services Mandates for Group Health Plans•Must provide coverage, without cost-sharing by participant, for certain preventive care services and screenings and certain immunizations•Plans must follow recommendations with respect to preventive care for children and women according to guidelines of Health Resources and Services Administration•Controversy over contraceptive coverage

#ObamaCare


Patient Protections•Plan enrollees must be allowed to select their own primary care provider or pediatrician, provided that physician is a participating provider•No preauthorization or increased cost sharing for emergency services (whether in or out of network)•No preauthorization or referral may be required for OB/GYN services

#ObamaCare


Extension of Code Nondiscrimination Rules•Code Section 105(h): cannot discriminate in favor of highly compensated individuals as to eligibility or benefits•Insured employer-sponsored group health plans will have to comply with the nondiscrimination requirements of Code Section 105(h)•Non-compliance penalty will be $100 per day excise tax, although historically, noncompliance triggers income inclusion of value of coverage or benefits•Regulations crafting/implementing nondiscrimination rules are in the works; until rules released and effective, nonenforcement

#ObamaCare

EFFECTIVE IN 2011

Over-The-Counter Drug Reimbursements•OTC drug expenses no longer qualified expenses under HRAs, health FSAs, HSAs, or Archer MSAs unless prescribed by a doctor•Exception – insulin

Non-Qualifying HSA and Archer MSA Distributions•Non-qualified distributions from these accounts subject to an increased penalty tax of 20%•Current penalty taxes are 10% for HSAs and 15% for Archer MSAs

#ObamaCare

EFFECTIVE IN 2012

Form W-2 Reporting (reporting in 2013 w/r/t 2012) •Employers must report aggregate “value” of health coverage on Form W-2•Employers issuing < 250 W-2 have transition relief

SECOND PHASEHEALTH REFORM

#ObamaCare

EFFECTIVE JANUARY 1, 2013

Health FSA Salary Reductions •Limited to $2,500 per year (adjusted for changes in cost of living)•$2,500 limit does not include employer non-elective contributions

Medicare Part D Subsidy •Deduction previously permitted for expenses allocable to prescription drug subsidy eliminated

#ObamaCare

EFFECTIVE OCTOBER 1, 2013

Marketplace Notice Requirement Employers must provide employees notice at time of hiring of:•Existence of Exchanges, including description of services offered and how to contact the Exchange for assistance•Employee’s eligibility for a tax credit under the Exchange if the plan’s share of total costs is less than 60%

#ObamaCare


Market Reforms•No pre-existing condition exclusions or annual limits•90-day maximum waiting period•Wellness program incentives increased from 20% to 30% of COBRA premium amount (50% for tobacco cessation incentives)•Out-of-pocket amounts cannot exceed those in effect for HDHPs

– 2014, $6,350 single and $12,700 family•Guaranteed availability and renewability of coverage

– Insurers must accept every individual and employer in the state and continue coverage by renewing if elected by the individual or employer

– HIPAA nondiscrimination requirements apply in the individual market•Mandated coverage of routine costs in connection with participation in clinical trials by “qualified individuals”

#ObamaCare

EFFECTIVE IN 2014

Health Benefit Exchanges (the “Marketplace”)• Individuals and small employers may purchase insurance

through the Exchange – These Plans available must offer essential health benefits– Participants not to pay more than 40% of the cost of benefits

under the plan– Exchanges may include large employers beginning January 1,

2017– Employer required to provide notice (described in prior slide)

regarding Exchange

#ObamaCare


Individuals must have health care coverage or pay a penalty•Penalties start small in 2014 and ramp up from there•Minimum penalty is $95 in 2014/ $695 in 2016

Certain individuals are not subject to the penalty•Those whose household income does not exceed the federal income tax return filing threshold •Those for whom coverage would cost more than 8% of their household income

#ObamaCare

EFFECTIVE JANUARY 1, 2015 (REPORTING IN Q1 2016)

Health Coverage Reporting• Employers with more than 50 full-time/FTE employees

generally must report to the government on health coverage, including:– certification of minimum essential coverage– name of each covered employee and dependent– number of full-time employees– length of any waiting period– monthly premium for the lowest cost option– employer’s share of the cost– option for which employer pays largest share of the cost and

share it pays for each enrollment option

• Government issued guidance and will provide form or mechanism for reporting

• Summary of the above report must be provided to employees

#ObamaCare

EFFECTIVE JANUARY 1, 2015 (REPORTING IN Q1 2016)

The Employer Mandate• Applies to “applicable large employers”

– Employers with 50 or more full-time employees and full-time equivalents (FTEs) in the last calendar year; FTEs based on part-timers’ hours

– Transition rule for employers with 50-99 FTEs during 2014

• Employer determination based on controlled group status

• Requires applicable large employers to offer affordable health care coverage which provides minimum value to full-time employees or pay substantial penalties– Affordable = EE cannot pay > 9.5% of his/her income for self-only

coverage

– Minimum value = Coverage must pay at least 60% of allowed costs

– Full-time = 30 or more hours/week or 130 or more hours/month

#ObamaCare

Failure to Offer Coverage to Full-Time Employees

Sledgehammer Tax•$2,000/yr x # full-time employees (less 30 or, for 2015 only, 80)•This kicks in for a failure to OFFER coverage to one or more full-time employees or dependents•“Margin of Error Exception” (5% generally, 30% for 2015)

Failure to Offer Affordable or Minimum Value Coverage

Tack Hammer Tax•$3,000/yr x # full-time employees who enroll in exchange and get subsidy•Applies only for each full-time employee who gets a subsidy

THE PAY OR PLAY PENALTIES

#ObamaCare

THE PAY OR PLAY PENALTIES

• Penalties are not deductible and are subject to increases

• Amount of adjustments unknown – will correspond to health insurance inflation

THIRD PHASE HEALTH REFORM

#ObamaCare


Cadillac Plan Tax• Excise tax of 40% on cost of coverage over:

– $10,200 for individual coverage– $27,500 for other coverage– Limits will be adjusted if health care costs increase more than

expected before 2018 (55%)

• Limits increased by $1,650 and $3,450 respectively for:– Retirees age 55 or older who are not eligible for Medicare– Plans with majority of participants in certain high-risk professions– Increase limited to $1,650/$3,450 even if both conditions apply

• Limits may be increased by age and gender characteristics

• Limits increase by CPI-U + 1% in 2019 and by CPI-U thereafter

#ObamaCare


Cadillac Plan Tax, continued• Liability for Tax

– Coverage providers taxed on applicable share of excess benefit• Insurers (insured plans)• Employers (HSAs and MSAs)• Plan administrators (self-funded plans, FSAs and HRAs)

– Excess benefit is allocated among coverage providers in same ratio that cost of each coverage provider’s coverage bears to total cost of all employer-sponsored coverages

• Employer Responsibilities– Calculation and allocation of excess benefit– Notification of coverage providers and IRS

SPECIAL GLOBAL ISSUESFOR EMPLOYER MANDATE

#ObamaCare

HOURS OF SERVICE

• Hours attributable to compensation from sources outside the U.S. (which, for this purpose, includes only the States and DC) are not counted as “hours of service” for ACA purposes

• Residency and citizenship is irrelevant for this purpose

#ObamaCare

EMPLOYMENT TRANSFERS

Transfer between U.S. and foreign employer:•An employee who transfers his or her employment from a domestic to a foreign “applicable large employer” member may be treated as having terminated employment, but only if:

– the position is anticipated to continue indefinitely or for at least 12 months and

– substantially all of the compensation received following the transfer is foreign-source income

•An employee who transfers from a foreign member to a domestic member will be treated as a new hire, if the employee had no prior hours of service with the domestic member

#ObamaCare

EMPLOYMENT TRANSFERS

Transfer between U.S. and foreign employer continued:•If the same transfer occurs with respect to an employee who did have prior hours of service, the period at the foreign applicable large employer member may be treated as a period for which no hours of service are earned under the ACA’s rehire rules

– I.e., if that period is at least 13 weeks in length, the employee is treated as a newly hired employee of the domestic member

#ObamaCare

EXEMPTION FOR FOREIGN STATES AND INT’L OPERATIONS IN THE U.S.

• Certain operations of foreign states and international organizations are not subject to the employer “pay or play” rules due to the application of U.S. laws and treaty obligations

FACT OR FICTION? THE APPLICATION

#ObamaCare

CONTROLLED GROUP

Large employers are subject to ACA play or pay rules•50 or more full-time employees and equivalents (based on hours of part-time employees) in the previous calendar year

– 50-99 FTE exception for 2015 – if no reduction to evade ACA

•Determined on a controlled group basis - businesses under common control must be aggregated

#ObamaCare

FACT OR FICTION?

All employees in the global controlled group count for ACA purposes

FICTION!

•For purposes of determining whether an employer is an applicable large employer, an employer generally takes into account only work performed in the United States

•E.g., if a foreign employer has a large workforce worldwide, but fewer than 50 full-time employees (including full-time equivalents) in the United States, the foreign employer generally would not be subject to the Employer Shared Responsibility provision

#ObamaCare

FULL-TIME MEANS FULL-TIME

If company is an applicable large employer: •Full-timers (and their dependents) must be offered coverage starting January 1, 2015

– No requirement to offer coverage anyone who is not a full-time employee – could offer coverage to such employees (and charge any amount up to the entire cost)

– Transition rule for 2015 – no need to offer dependent coverage if you did not do so in 2013 and 2014

#ObamaCare

FACT OR FICTION?

An employer can define “full-time” as it desires (or as it has historically) for ACA purposes and for offering coverageFICTION!

•The ACA definition of “full-time” controls; for purposes of determining full-time employee status

•130 hours of service in a calendar month is treated as the monthly equivalent of at least 30 hours of service per week

#ObamaCare

FACT OR FICTION?


•Possible design alternatives:1. Offer coverage only to full-time employees

2. Offer coverage to all part-time and full-time employees; exclude seasonal/variable hour

3. Offer coverage to everyone

#ObamaCare

FACT OR FICTION?


PROS CONS

• Least costly • Risk that any excluded individual is, in fact, full-time (for ACA purposes)

• Need to track full-time status (or pay potential penalties)

• Consistent treatment of seasonal/variable hour (e.g., if they are not benefit eligible)

• Risk that any excluded individual is full-time• Need to track full-time status (or pay

potential penalties)

• Ensures no one is improperly excluded

• Possible inconsistent treatment for benefit purposes

• More costly (if cost is subsidized)

#ObamaCare

AFFORDABLE AND MINIMUM VALUE COVERAGE

• Coverage is affordable if the employee’s share of premium for self-only coverage does not exceed 9.5% of his household income (HHI)

#ObamaCare

FACT OR FICTION?

If an employer does not know the employee’s HHI, then it can just use the employee’s rate of payFACT!

•To avoid play or pay penalties, client must offer affordable coverage which provides minimum value

•Coverage is affordable if the employee’s share of premium for self-only coverage does not exceed 9.5% of his household income (HHI)

– Three permissive “safe harbor” affordability tests:• W-2• Rate of Pay• Federal Poverty Line

#ObamaCare

FACT OR FICTION?

If an employer does not know the employee’s HHI, then it can just use the employee’s rate of payFACT!

•Coverage provides minimum value if it pays at least 60% of allowed costs (as determined by HHS)

– Employers with insured plans will rely on insurers to determine minimum value (includes co-payments, deductibles, out of pockets – NOT premiums)

– For self-insured plans – potential ways to assess:• Calculator (http://www.cms.gov/CCIIO/Resources/Regulations-and-

Guidance/Downloads/mv-calculator-methodology.pdf)- may require assistance from consultant

• Design-based “safe harbor” checklist • Actuary can certify

COST REDUCTION STRATEGIES BEING CONSIDERED BY SOME EMPLOYERS

#ObamaCare

WORKFORCE

• Limit health plan eligibility to full-time employees

• Hire part-time employees to limit number of employees entitled to coverage

#ObamaCare

PRICING

• Eliminate spousal coverage or eliminate the employer subsidy for such coverage

• Eliminate the employer subsidy for dependent child coverage

#ObamaCare

COVERAGE CHOICES

• Impose 90-day waiting period before an employee can become eligible for coverage

• Select measurement and stability periods based on greatest reduction in the number of employees that must be offered coverage

• Reduce or eliminate benefits, but within the scope of ACA mandates (summarized below):

– No-cost preventive services– Lifetime and annual limits prohibitions– Total cost-sharing cannot exceed the annual out-of-pocket limit

applicable to an HSA-qualified HDHP

#ObamaCare

OUTSOURCING

• Leased employees need not be offered coverage, but make sure leased employee is not your common law employee– Employee performs services for a recipient through a leasing organization– If employee is your common law employee and is full-time, offer coverage

or ensure fee paid to leasing organization includes charge for provision of coverage

• Anti-abuse rule for use of temporary staffing agencies– Where employer seeks to use temporary staffing agencies to avoid

application of the play or pay mandate– Example: client employs the employees for only part of the week, such as

20 hours, and then hires the same employees through a temporary staffing agency for the remaining hours of the week

• Consider benefits issues associated with use of leasing organizations (and reclassification as common law employees)

#ObamaCare

IRS CIRCULAR 230 DISCLOSURE:

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of:(i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein

Q&AQUESTIONS & ANSWERS

#ObamaCare

QUESTIONS & ANSWERS

CARRIE BYRNESEmployee Benefits & Executive Compensation AttorneyBryan Cave LLP, Chicago

CARRIE HERRICKEmployee Benefits & Executive Compensation AttorneyBryan Cave LLP, St. Louis

#ObamaCare

Bryan Cave

www.benefitsbryancave.com

@ERISABryanCave

Phaidon International

www.phaidoninternational.com

@PhaidonIntl

CONTACT DETAILS

PHAIDON INTERNATIONAL

www.phaidoninternational.com @PhaidonIntl

[email protected]

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