Healthcare Reform and

Compliance Overview

Prepared by: Edward ShayneJanuary 2013

Shayneinsurance.comEdward@shayneinsurance.com

AGENDA• Key Components of Affordable Care Act (ACA) • Initial Observations About ACA • Timeline • Check-up on Compliance—Quick Take A Ways • 90 Day Rule • The Pay or Play Penalty - Individual mandate - Exchanges - The Penalties • Certain Taxes

Key Components of Affordable Care Act (ACA)

Individual Mandate(2014)

• Subsidies • Penalties

Insurance Mandates

State Mandates

Employer Mandates

Initial Observations About ACA

• Costs Will Increase - Direct Cost$ Premium Increases ► ► Taxes ► Penalties - Indirect Cost$ Administrative Costs ► - Unknown Cost$ Unrestrained Agency Action ►

Timeline

•Initial Medical Loss Ratio (MLR) Reporting (for CY2011) and Rebate Issuance in August

•Women’s Preventive Services expanded (plans renewing on or after 8/1/2012)

•Summary of Benefits and Coverage (SBC) and 60-day advance notice of material modifications (plans renewing on or after 9/23/12)

•W-2 reporting of aggregate value of employer-sponsored coverage on 2012 W-2

•Patient Centered Outcomes Research Institute (PCORI) Fee (plans renewing on or after 10/1/2012 through 2018)

•FSA contributions limited to $2,500

•Medicare payroll tax rate increase for high income earners

•Notice to inform employees of Exchange provided by employer (March)

•Shared Responsibility •Definition of full-time equivalent (FTE) employees •Employer “Play or Pay” Mandate for large employers (50+ FTE) to provide Affordable Minimum Essential Health Coverage •Individual Mandate to purchase insurance or pay a penalty •Federal and State Insurance Exchanges, including Individual subsidies •Guaranteed issue: Pre-existing conditions prohibited •Essential Health Benefits (EHB)Coverage standardized for small group plans •No Annual dollar limits on Essential Health Benefits (EHB) in any plan •90-day limit on Waiting Periods •Employer annual reporting of employee coverage •Annual Insurer industry fee for fully-insured plans through 2018 •Reinsurer Fees through 2016 •Wellness Incentives •Deductible caps of $2k for individual and $4K for family for small group plans

•Increased penalties on individual mandate begin

•Excise Tax on high cost coverage (Cadillac Tax)

•States have the option to open Exchanges to all employers by 2017

2012 2013 2014 2015-18

Pay or Play Penalty—Is the Penalty Inevitable?

• Pay or Play - Applies to all Employers with over 50 FTE - Penalty if (1) Insurance is not offered or (2) Insurance is offered but ―Unaffordable and A Full-Time Employee Receives A Subsidy in an Exchange • Understanding Individual Mandate and Subsidies Is Key

Failure to offer such affordable coverage potentially subjects the employer to taxes for a given month—if:

Full time employee

Receives a subsidy in

A State exchange

Pay of Play: Brief Note On Counting As Part of a Controlled Group

EIN: 02-0000001 EIN: 02-0000002 EIN: 02-0000003

• All counting done on a “controlled group” basis • EIN is irrelevant

Pay of Play: Brief Note On Counting As Part of a Controlled Group

• Controlled group exists if the businesses have one of the following relationships:

– Parent-subsidiary – “Normal” rule is 80% ownership – Brother-sister – Same five or fewer owners own collectively or individually 80% or more with effective control of 50% or more – Combination of the above

Pay of Play: Brief Note On Counting As Part of a Controlled Group

Common Control: >80% Effective Control: ˂50%

• Attribution Rules Apply• Complex Analysis: Have You Preformed This Analysis?

Shareholder Company A Company B

A 80% 20%

B 10% 50%

C 5% 15%

D 5% 15%

Total: 100% 100%

Shareholder Company A Company B

A 80% 20%

B 10% 50%

C 5% 15%

D 5% 15%

Total: 40% --

When is an Employer Subject to Pay-or-Play?

• For these purposes only, FTE 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

When is an Employer Subject to Pay-or-Play?

• 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

Individual Mandate

• Beginning in 2014, ACA requires individuals to maintain health insurance for themselves and their dependents, with some exceptions

• Most individuals will be required to maintain “minimum essential coverage”, which includes employer coverage individual coverage grandfathered plans, and federal programs such as Medicare and Medicaid

• Those who do not maintain minimum essential coverage, and who are not exempt from the mandate, will be required to pay a tax penalty for noncompliance

Individual Mandate

• Annual Penalties: 2014: $95 per adult and $47.50 per child, up to a

family maximum of $285 or 1 percent of family income, whichever is greater

2015, $325 per adult and $162.50 per child, up to a family maximum of $975 or 2 percent of family income, whichever is greater

2016, $695 per adult and $347.50 per child, up to a family maximum of $2,085 or 2.5 percent of family income, whichever is greater

Penalty cannot exceed national average for bronze exchange plans

Premium Assistance Tax Credit

• Federal subsidies—payments to insurance companies to subsidize coverage for lower-income individuals in the state-based Exchanges

• Potentially more than 50% of U.S. households could qualify (based on Bureau of Labor Statistics (BLS) estimates)

• Depending on the income, age and family size, the subsidy can be substantial

Exchanges

• All states to establish an Exchange by January 1, 2014 The American Health Benefit Exchange - Small Business Health Options Program (SHOP) Exchange for

individuals and small businesses • States must demonstrate to federal government that

efforts are underway by January 1, 2013• Types of Exchanges

State Exchange Partnership Exchange Federally Facilitated Exchange

• Blue Prints States pursuing a State-based Exchange must advise HHS by

November 16, 2012 and submit Blueprint by December 14

Exchanges

• Prior to 2016, small employers are 100 or less 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

Exchanges

• Initial open enrollment period: October 1, 2013 through March 31, 2014.

• For benefit years in 2015 or later, the annual open enrollment period will be from October 15 to December 7

• 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

2014: 90 Day Enrollment Requirement

• Effective first day of plan year on or after January 1, 2014 • 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, (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)

2014: 90 Day Enrollment Requirement

• If clearly eligible, must be enrolled on or before 90th day

• If not clearly eligible upon employment, employer may use a reasonable period to determine eligibility if: Period of assessment not subterfuge; Individual is eligible by earlier of: (a) 90 days of

being determined eligible or (b) 13th month from start date – (plus days to 1st of month if hire date was in middle of month)

Employer ―Pay-or-Play‖ Mandate

• In 2014, the pay-or-play mandate requires employers of 50 FTE or more to offer quality, affordable health insurance coverage to full time employees (those working on average at least 30 hours per week) and their families

• Failure to offer ANY COVERAGE or AFFORDABLE COVERAGE potentially subjects the employer to taxes for a given month—if:

• (i) a full time employee (ii) receives a subsidy in (iii) a state exchange

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) are penalized – If at least one full time employee (30+hrs/wk or 130+

hrs/mo) is eligible for, or receives, a subsidy in a state exchange: the employer is subject to an annual penalty of $2,000 × all full time employees (except for the first 30) applies

– Penalty is assessed monthly (i.e., $167.67 per full time employee per month)

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 subsidy through a state exchange, 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?

˂50 FTE

No Penalty:Pay or PlayMandateDoes Not

Apply

˃50 FTE

Does Not Offer Coverage Offers Coverage That is Not Affordable

No Full-Time Employee Receives

Subsidized overage in Exchange

At Least One Full-Time Employee

Receives Subsidized Coverage in the

Exchange

No Full-Time Employee Receives

Subsidized CoverageIn Exchange

At Least One Full-Time Employee

Receives SubsidizedCoverage in the

Exchange

-0-$2,000 x Each Full-

Time Employee(reduced by first 30)

-0-

Lesser of:(i) $3,000 x EachFull-Time Employee

Who Receives Subsidy or (ii)

$2,000 x Each Full-Time Employee

(reduces by first 30)

Variable Employees & Full Time Employee Status

• A Variable Employee: On start date, it cannot be determined whether employee is expected 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 can not exceed 13 months (plus the remainder of the month if anniversary falls in middle of month)

Final Note: New Taxes & Fees to Increase CostsProvision Description Effective Date Fee Who’s Impacted?

•PCORI Fee (Patient CenteredOutcomes Research Institute Fee)

•Health Insurer Fee

•(Federal guidance pending)

•Reinsurance Fee (federal and state notices of payment rules pending)

•Excise Tax on High Value Plan (Cadillac Tax – federal guidance pending)

Premiums expected

•Will be used to help fund clinical outcomes effectiveness research

•Charged to all insurers, based on market share, to fund health insurance exchange subsidies

•Transitional fees to stabilize individual market (e.g. high-risk pool)

•Imposes and excise tax on insurers and employers who offer rich benefit coverage

to increase 2-3%

•10/1/12 (Temporary, through 2018)

•1/1/2014

•(Permanent Fee)

•1/1/2014Temporary, through 2016)

•1/1/2008

•(Permanent Tax)

going forward just on

•$1 PMPY (Per Member Per Year) in Year 1

•$2 PMPY in Year 2

•Industry fee of $8B in 2014, increasing to $14.3B in 2018, and each year thereafter at the rate of premium growth.

•Industry target of $25B through 2016.

•Plans that cost more than $10,200 (single) or $27,500 (family) are subject to a 40% excise tax on the amount above the limits, indexed by cost of living in subsequent years

Health Insurer Fee

•Fully Insured and Self Funded:

•Group / Individual segments

•Fully Insured;

•Group / Individual segments

•Fully Insured and Self Funded;

•Group Segment

•Fully Insured and Self Funded;

•Group Segment

along, reported by NFIB

Healthcare Reform and

Compliance Overview

Prepared by: Edward ShayneJanuary 2013

Shayneinsurance.comEdward@shayneinsurance.com