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December 12, 2013
The Affordable Care Act –
Smart Strategies for
Employers
Presented by:
Steve Friedman Littler Mendelson, P.C.
New York Office
212.583.2687
Russell Chapman Littler Mendelson, P.C.
Dallas Office
214.880.8177
Agenda
• The Play-or-Pay basics
• What is the impact of the
Play-or- Pay delay
• Play-or-pay: weighing
your options
• What are the new
requirements for the rest
of 2013 and 2014?
• A look ahead
Pay or Play Basics
No Health Care Coverage Offered Health Care Coverage Offered
That is Not Affordable or Does Not Provide Minimum Value
“A” PENALTY = $2,000 * (Total Number of Full-Time Employees – 30 Full Time Employees) *Penalty imposed if large employer does not offer full-time employees (and their dependents) an opportunity to enroll in minimum essential coverage and at least one of employer’s full-time employees received federal assistance to purchase insurance via a Marketplace.
“B” PENALTY = The lesser of: (a) $3,000 for each full-time employee receiving federal
assistance to purchase health insurance through a Marketplace or
(b) $2,000 * (Total Number of Full-Time Employees – 30 Full-Time Employees)
*Penalty imposed if the coverage offered is either (i) unaffordable because the employee’s required contribution is more than 9.5% of their W-2 wages for self-only coverage (or other safe harbor); or (ii) the actuarial value of the employer’s plan is less than 60%, meaning that the plan pays for less than 60% of the covered health care expenses.
Note: $2,000 and $3,000 annual tax levels will be adjusted for medical inflation (based on premium increases) in 2015
Pay or Play Basics
• Pursuant to IRS Code Sections 6056 and
6055, large employers are required to
report to the IRS:
– Information concerning the terms and
conditions of their healthcare coverage and
– Information concerning the employees
receiving minimum essential healthcare
coverage
– Also postponed to 2015
Pay or Play: The Delay
• On July 9th, The IRS issued IRS Notice 2013-
45, providing that the employer mandate
penalties and the mandatory employer and
insurer reporting requirements would be delayed
one year until January 1, 2015
• Employers have an extra year to decide whether
or not they are going to PAY or PLAY
2010 2011 2012 2013 2014 2015 2018
Small Business Tax
Credits
Funding for Small
Business Wellness
Programs
Summaries of Benefits
and Coverages FSA Limits Play or Pay Play or Pay Cadillac Tax
Adult Dependent
Coverage
Medical Loss Ratio
Rebates Medicare Tax Increase Automatic Enrollment
No Lifetime Limits No Part D Deduction 90-Day Max Waiting
Period
Restrictions on Annual
Limits PCORI Fee Individual Mandate
No Rescissions Except
Fraud
Notice to Employees of
Marketplace Insurance Exchanges
Individual Subsidies No Pre-Existing
Conditions for Children
Community Rating
No OTC Reimbursement
from FSA, HSA
Guaranteed Issue
External Review
Procedures
No Annual Limits
Full Coverage of
Preventive Benefits
New Wellness Rules
Patient Protections Nondiscrimination in
NGF Insured Plans
Out-of-Pocket Limits
Affordable Care Act
Implementation Timeline
Awaiting Regulations
Awaiting Regulations
The ACA’s Requirements: 2014
• Pre-existing condition exclusions prohibited for all
participants (all plans)
• Waiting periods cannot exceed 90 days (all plans)
• Annual limits prohibited (all plans)
• Health insurance exchanges go live
• New wellness regulations effective
• Individual mandate
• Employer Mandate/Play-or-Pay
IMPACT OF THE DELAY
The Affordable Care Act – Smart Strategies for Employers
Pay or Play: The Delay
• The ACA is not dead
• The individual mandate is still effective
• The Exchanges/Marketplace is still
effective
• The Pay-or-Play mandate has not been
repealed – only postponed
Effect of Delay
• Delay in Section 6056 Reporting means that
employers are not required to track terms and
conditions of their healthcare coverage until
2015 to prepare for implementation in 2015
and an initial required filing in early 2016
– Primary means by which IRS is planning to enforce
the employer mandate, and to reconcile amount of
premium tax credits paid to individuals
– How will Marketplaces/IRS verify eligibility for federal
subsidy?
Effect of the Delay
• Open enrollment on Marketplace began
October 1, 2013
– Includes small employers
• Decide if you will voluntarily track coverage in
2014 and report to the IRS in 2015
– Cons: additional work, plans may not be in
place, possible detriment to employees
– Pros: may get to see if your systems work so not
starting cold in 2015
Effect of Delay
• On employers:
– Need not offer coverage to employees
– No penalties for 2014
– No need to adjust premiums for 2014 to meet
affordability
– No need to adjust design to meet minimum
value
Effect of Delay
• On individuals:
– Individual mandate is still in place for 2014
– Marketplace will determine subsidies based
upon individual income
– May be more subsidies given
• As employers chose to not offer coverage or
curtail coverage, may drive employees to the
Marketplace
Effect of Delay
• Major question remains as to how IRS plans to
reconcile premium subsidies from the
Marketplace
– Individuals with household income up to 400%
of federal poverty level may be eligible for federal subsidy
– IRS has no reliable tool in order to claw back improperly
paid premium tax credits
– Marketplace will have to verify on their own
• Federally-established Marketplace will use a sampling procedure
• State-based exchanges can accept applicant’s attestation without
sampling
Effect of Delay?
• Does the 6/12 transition relief rule apply
for 2015?
• Does the fiscal year plan transition relief
apply for 2015?
• Does the cafeteria plan “change in status”
relief apply for 2015?
PLAY-OR-PAY:
WHAT TO DO NOW?
The Affordable Care Act – Smart Strategies for Employers
Play or Pay Delay – Keep on Planning
• Keep on Planning
– Systems for tracking hours
– Designation/consideration of measurement,
administrative and stability periods
– Coverage offerings, such as “minimum value” (aka
qualifying coverage, or 60% value) coverage, and
“minimum essential coverage” (MEC)
– Wait on the final “play or pay” regulations
What to do NOW
• Beginning tracking hours in October for 12
month measurement period for variable
employees
– Check now to make sure you have data to
track hours at least back to 10/1/2013
– Measurement period of 10/1/2013 –
9/30/2014 (followed by administrative period
of 90 days) for open enrollment in fall of 2014
for plan year beginning 1/1/2015
Example: Ongoing Employees
2014 2015 2016
Initial Measurement Period
Standard Measurement Period
Stability Period
Adminstrative Period
SMP1
1. Standard Measurement Period (SMP) from Nov. 1 to Oct. 31 of each year. 2. Administrative Period (AP) from Nov. 1 to Dec. 31 of each year. 3. Stability Period (SP) from Jan. 1 to Dec. 31 of each year (following the preceding
SMP and AP). P.Reg. Sec. 54.4980H-3(c)12)
First Test Second Test
SP1
SMP2
SP3
SMP3
AP Third Test
SP2
SMP4
AP AP
What do we do in 2014?
• Same pay or play determination questions apply
– Who will be eligible for health benefits?
– Will you change the composition of your workforce?
– Will you use more “part-time” employees?
– Will you change your benefit plan structure?
– Will you self-fund? Private Exchange?
– Will you shift cost to employees?
– Will your plan be “affordable” and provide “minimum
value”?
What to do in 2014?
• Make decision about whether healthcare
will comply with ACA standards in 2014
– Will you provide minimum essential
healthcare coverage that provides minimum
value and is affordable to “test the waters?”
– Will you provide an interim plan in 2014?
• “Skinny” plan
• Wellness plans
Pay-or-Play: It’s Not a Simple Question
• If you terminate your healthcare plan:
– Will you increase wages so employees can purchase
health insurance on an Exchange?
– How much will an Exchange plan cost?
– Will you provide a Defined Contribution instead?
Play or Pay Delay – Pull the Plug?
• Pull the plug?
– Saves some money, most likely
– Saves some hassles
• Does it create coverage gaps
between the elimination of mini-med,
and the offer of other employer-based coverage? Will those
gaps violate nondiscrimination rules?
• Can the employee go to a public health insurance exchange?
• What if an employee goes to an Exchange for 2014, but then
you offer affordable, minimum value coverage 2015? Are you
creating an employee relations nightmare?
Proposed Regulation:
Who is an “Employee”?
IRS uses “common law” standard:
“right to control and direct the individual who
performs the services, not only as to the result
to be accomplished by the work but also as to
the details and means by which that result is
accomplished”
Proposed Regulation:
Who is a Full-Time Employee?
• Full-time = 30 hours/week average
(130 hours/month)
• Hours of service include any paid leave,
and FMLA/USERRA
• Lookback/Stability Period
– Employer can “look back” over a period of
three to 12 months to determine full-time
status for subsequent stability period
Workforce Restructuring “Silver Bullets”
– Will They Work?
• 29-Hour Work Week
• Workforce Rotation/Tenure Limits
• Job- or Employee-sharing
• Hiring Insured People
• Disaggregation of Corporate Group Plans
- Separate entities
More “Silver Bullets” – Will They Work?
• “Independent Contractors”
– “Microsoft” amendment
– Misclassification
• Outsourcing to Staffing Firms
– To stay below large employer status (>49 full-timers)
– To shed uninsured positions under discrimination rules
– To use small placement firms’ under-50 exemptions
– Job-sharing arranged by Vendor Management Systems
– Incubators (to use two years of penalty exemption)
– Same risks as “independent contractors”
• Franchising/Subcontracting
Workforce Restructuring Risks
• ERISA Section 510 bars employers from
discriminating or taking an adverse
employment action against a plan
participant or beneficiary:
– for exercising their rights under ERISA plans,
– to interfere with participants' or beneficiaries'
attainment of rights under the plan or ERISA,
and
– in retaliation for giving information or testifying
in any inquiry or proceeding under ERISA.
Workforce Restructuring Risks
• ACA Whistleblower Protections
• Section 1558 of the ACA amends the
Fair Labor Standards Act (FLSA) to
protect employees from retaliation for
– reporting alleged violations of Title I of the
ACA, or
– for receiving a health insurance tax credit
or federal subsidy to purchase health
insurance on an exchange
Workforce Restructuring Risks
• Labor relations implications
• EEO implications
– Adverse impact?
2013 AND 2014 REQUIREMENTS
The Affordable Care Act – Smart Strategies for Employers
Health Reform – Benefit Mandates (PY Beginning in 2014)
• No Annual Dollar Maximums on Essential Health Benefits (EHBs)
• Cost-Free Preventive Care (non-grandfathered plans)
• Clinical Trials – Must Cover Routine Patient Costs (non-
grandfathered plans)
• Maximum OOP Limit for In-Network Care (non-grandfathered plans)
– Tied to OOP max under HSA-qualifying HDHPs (e.g., for 2013, $6,250/12,500)
– Transition Rule
• 90-Day Max Waiting Period
– Not “1st of the month after 90 days”
– Satisfaction of reasonable substantive conditions (e.g., a training requirement)
can result in a waiting period longer than 90 calendar days
– Cumulative Hours requirement (up to 1,200) ok
• New wellness regulations
Wellness – ACA Final Regulations
• Final ACA regulations effective for plan years beginning
on/after January 1, 2014 – replacing existing HIPAA wellness
regulations
• Wellness programs divided into two main types:
– Participatory Wellness Programs
• Participation only, no requirement related to a health factor
• Example: Complete a biometric screen to receive premium discount – discount not
based on answer to outcome of any diagnostic test
– Health-Contingent Wellness Programs: Two Types
• Activity-Only Wellness Programs
– Requires activity such as exercise, but no health outcome
• Outcome-Based Wellness Programs
– Requires a health outcome
– Tobacco use, blood pressure, BMI, etc.,
– Generally determined on the basis of test,
measurement or screening
Participatory Wellness Programs
• Only requirement: Must apply uniformly to all
“similarly situated” participants
– No change to prior regulations regarding “similarly situated”
– No limit on wellness reward
• Examples:
– Filling out health risk assessment
– Biometric screening (blood testing,
blood pressure, BMI, etc.)
• Reward may not be based on
outcome of any measurement,
test or screening
Activity-Only Wellness Programs
• Example: Walking program
• Must be available to all similarly situated individuals
• Monetary reward limited to 30% of applicable cost of coverage for eligible coverage
tier
• Reasonable design (not overly burdensome, reasonable chance of improving health,
not highly suspect in method chosen)
• Uniform availability and reasonable alternative standard
– Reasonable alternative standard must be offered if due to a medical condition it would be unreasonably
difficult or medically dangerous to comply with the standard
– Plan may require medical certification if reasonable to do so
– Must provide full reward while R.A.S. is pending
– Plan must locate and pay for R.A.S. such as a health class
– May not impose unreasonable conditions such as time limits
– Must accommodate recommendations of personal physician
– If R.A.S. is itself an activity-only program, R.A.S. must comply
• Notice of availability of R.A.S.
Outcome-Based Wellness Programs
• Same requirements as activity-only programs, plus:
– Reward limit for programs aimed at tobacco reduction or
cessation increased to 50%
– Must automatically provide reasonable alternative standard
– No “unreasonably difficult or medically inadvisable” standard,
so plan may not require medical verification
– Example: Plan may not actually require participant to
stop smoking to receive wellness reward
– Plan must accommodate recommendations of participant’s
personal physician re: R.A.S.
– Plan must give participant entire year to meet the standard,
provide reward retroactively for entire coverage period if the
participant complies by end of coverage period
A LOOK AHEAD
The Affordable Care Act – Smart Strategies for Employers
ACA and Congress
• 40-hour work week legislation
• Defunding efforts
OVERALL, DO YOU THINK THE AFFORDABLE CARE ACT IS GOING TO BE
GOOD FOR YOUR BUSINESS, BAD FOR YOUR BUSINESS, OR HAVE NO
IMPACT ON YOUR BUSINESS?
Copyright © 2013 Gallup, Inc. All rights reserved.
4%
48%
39%
9%
0% 20% 40% 60% 80% 100%
Don't Know/Refused
Bad For Business
No Impact On Business
Good For Business
Overall
Total
HAVE YOU CONSIDERED DROPPING HEALTH INSURANCE COVERAGE
FOR YOUR EMPLOYEES AS A SPECIFIC RESULT OF THE AFFORDABLE
CARE ACT OR NOT?
Copyright © 2013 Gallup, Inc. All rights reserved.
1%
22%
53%
24%
0% 20% 40% 60% 80% 100%
Don't Know/Refused
Does Not Apply/Do Not Have Or Plan ToHave Employees (vol)
No
Yes
Overall
Total
HAVE YOU REDUCED THE HOURS OF EMPLOYEES TO PART-TIME AS A
SPECIFIC RESULT OF THE AFFORDABLE CARE ACT OR NOT?
Copyright © 2013 Gallup, Inc. All rights reserved.
9%
73%
18%
0% 20% 40% 60% 80% 100%
Does Not Apply/Do Not Have Or Plan ToHave Employees (Vol)
No
Yes
Overall
Total
Healthcare Reform Next Steps
1. Don’t ignore the ACA
2. Determine if you are in compliance with current and
upcoming ACA requirements (DOL Plan Audits)
3. Determine if you are a “large” employer subject
to the play-or-pay mandate
4. Identify full-time employees and
how you will track hours of service
5. Will you provide health coverage
to full-time employees and children?
Healthcare Reform Next Steps
5. Is your coverage affordable?
6. Does it provide minimum value?
7. Weigh “cost” of paying v. playing in 2015
8. Is your wellness program compliant with new regulations?
9. Stay tuned for new regulations and guidance
10.Communicate with employees
Healthcare Reform Strategies: Littler Healthcare Reform Consulting Group
• Healthcare reform strategy is an
individual assessment
• Review options and determine strategy that is
right for your organization
• Consider all employment,
labor and benefits law
implications of strategy
Littler Healthcare Reform Advisor:
How to Get There
Just go to
Littler.com,
and click
here
Healthcare Reform Strategies:
Littler Healthcare Reform Consulting Group
Questions & Answers
The Affordable Care Act
– Smart Strategies for
Employers
December 12, 2013
Steve Friedman Littler Mendelson, P.C.
New York Office
212.583.2687
Russell Chapman Littler Mendelson, P.C.
Dallas Office
214.880.8177