THE AFFORDABLE CARE ACT:AN OVERVIEW OF THE EMPLOYER MANDATE

Presented By: James W. Kaminski and Mark L. Phillips

Newby, Lewis, Kaminski & Jones, LLP916 Lincolnway

La Porte, Indiana 46350219-362-1577

jwkaminski@nlkj.commlphillips@nlkj.com

NLKJ

A History of Healthcare Leading to the

Affordable Care Act / The Basics of the

AffordableCare Act, including

the Employer Mandate

1776 to 1900

Few hospitals for those communities with hospitals, doctors often treat patients without charging a fee

Doctors are generalists; many also practice as veterinarians

Treatment of most illnesses at home No real diagnostic or disease management Doctors often paid through bartering

1900 to 1940 Before 1920, costs associated with health

care was not medical expenses, but loss of work wages due to illness (Bureau of Labor Statistics)

Technology and pharmacy breakthroughs begin with such things as: The invention of X-ray Penicillin Understanding of bacteria to develop

immunology technique Hospitals increase with understanding of

antiseptic treatments

1900-1940 People seek medical help at hospitals and

doctor’s homes / offices American Medical Association formed and lobby

for doctors Consumers recognize need to treat illness, and

with higher wages, consumers pay more for medical services on a fee for service basis (Journal of American Medical Association, 1922)

1930 – Dallas teachers’ contract with Baylor University for Health Insurance; Blue Cross-Blue Shield is born; pay fixed rate, per day, for hospital services

1900 to 1940 1939 – California Physicians Service is first

prepayment plan to cover physicians services; physician plans with a fixed fee for service payment system are incorporated into Blue Cross-Blue Shield (Monthly Labor Review, 1944)

American Medical Association opposes health insurance programs as “bureaucratic” and “freedom limiting”; strongly opposes President Theodore Roosevelt’s suggestion of a nationalized health insurance

1940 to 1960 During World War II, federal government implements

wage controls so many employers offer health insurance as an added benefit

Blue Cross-Blue Shield is not-for-profit and to uphold its charity status, must rate “community” – both sick and healthy to set rates on a payment by service

Commercial insurance is born; carriers can pick better risk pool and thus offer lower premiums than Blue Cross-Blue Shield, causing a “boom” of commercial insurance

President Truman’s plan for National Health Insurance for all citizens fails; criticized by American Medical Assc.

1960 to 2000 1965 – President Johnson signs into law Medicare,

provides federally funded health coverage for all citizens over age 65, regardless of health status; Part A – hospital services; Part B – physician

Medicaid, a federal/state program for impoverished also begins

Rates to providers charged by Medicare at “usual, customary and reasonable rate” from 1965 to 1983

1983 – Medicare adopts a prospective payment system based on diagnosis and type of treatment; pay fixed fee for diagnosed illness, not just paying a fee for each service encounter

1960 to 2000 1980 sees explosion of “private” health care

businesses (i.e., “for profit” entities) 1990 – cost of health care exploding,

managed care model developed to mitigate costs (HMOs)

By 2000, health care costs deemed a crisis by most employers

Medicare’s annual fee schedule increasingly ignores the actual costs Medicare providers incur while providing treatment

1960 to 2000 Trends Prescriptive drug and

diagnostics exploding, increasing cost of care

With costs of care increasing, all insurance premiums increased, leading to increase of uninsured population

Insurers decreasing coverage to manage risk

1960 to 2000 Trends Medicare reimbursement not

rising with costs; Medicare paying increasingly larger amount for care in the last year of life of participants

Cost shifting to private insurers by health care providers

Affordable Care ActGoals / Highlights

Cover more lives Extend coverage to “working Americans”

who otherwise would not be insured Poverty ridden citizens – stay on Medicaid Low income – 133% to 400% offered tax

credits to pay for private insurance and won’t pay more than 6.3% of income on premiums

If low income does not opt to participate, tax penalty assessed

Some employers mandated to provide coverage or pay penalty

Affordable Care ActGoals / Highlights

Provide more coverage terms to public:Insurance companies not allowed

to discriminate based on pre-existing conditions

Can rate based on age, family composition, tobacco use and rating area, but plans must offer basic health coverages

Individual Mandate Requires a taxpayer to obtain

“minimum essential coverage” for health insurance or else pay a “shared responsibility payment” (in the form of an excise tax)

Mandate begin 01/01/2014

Individual Mandate:Minimum Essential Coverage

To qualify, an individual must have coverage through: Employer sponsored coverage, including

COBRA, retiree coverage and health flex plans (Employer plans required to have)

Government sponsored programs, like Medicare / Medicaid, CHIP (Children’s Health Insurance Program)

Individual plans, including plans purchased on exchanges

Health plans certified by Health & Human Services

Individual Mandate:Exemptions from

Coverage Requirements If cost of minimum coverage exceeds 8% of

total household income or if income is so low that no return is required to be filed – exempt: Native Americans: exempt in federally

recognized tribes Certain religious objections: exempt and

must request exemption (i.e. Amish; Mennonites; etc)

Illegal immigrants People with coverage gaps lasting less than

3 consecutive months

General Board of Pension and Health Benefits

Individual Mandate:Penalties

Tax penalty which is the greater of: 2014: $95.00 per uninsured person (up to 3

individuals) in household or 1% of taxable income

2015: $325.00 per uninsured person or 2% of taxable income

2016: $695.00 per uninsured person or 2.5% of taxable income

Compliance will be monitored through federal tax returns.

Individual Mandate:Tax Credits

Individuals can get tax credits for premium payments if income is at 400% or less of federal poverty level; the more income – the smaller the credit. Example: In 2013, a family of 4 with

$35,000.00 household income would get a $10,742.00 tax credit to purchase insurance with $12,130.00 premium annually while the same family with $90,000.00 household income would get a $3,580.00 credit.

Tax credit paid directly to insurer.

Individual Mandate:Exchanges

Individuals will be able to purchase coverage through Health Insurance Exchanges or market places.

Exchanges will be run by states, federal government or partnership (Indiana is federal).

Essentially, an online purchasing site, operational October 1st of this year!

Individual Mandate:Exchanges

Exchanges will offer “essential health benefits” with 10 broad categories: Ambulatory patient services Emergency services Hospitalization Maternity and newborn care Mental health and substances disorder

services, including behavioral health treatment

Individual Mandate:Exchanges – Continued

Prescriptive drugs Rehabilitative and habilitative services

and devices Laboratory services Preventive and wellness and chronic

disease management Pediatric services, including oral and

vision care

Individual Mandate:Exchanges

Plan costs will vary based on “acturial value” or expected costs plan will cover. Coverages defined as bronze, silver, gold and platinum.

• Bronze will have lowest premium, but highest deductible.

• Bronze covers 60% of expected costs versus “platinum” which will cover 90% of expected costs.

THE EMPLOYER MANDATE

NOBODY KNOWS

HOPE AND

CHANGE

ACRONYMSPPACA - Patient Protection and

Affordable Care Act

 ACA - Affordable Care Act

 HCR - Health Care Reform

 OBAMACARE

 HOW ABOUT E-ANA?

CHANGES• Individual Mandates • Employer Mandates

• Creation of Insurance Exchanges

• Subsidized Health Insurance for Poor and Unemployed

 • Funding Through New “Taxes”

PRIMARY EMPLOYER MANDATE

 “AFFORDABLE” “MINIMUM VALUE” health insurance coverage to all “FULL TIME” employees and their dependents   OR Pay a penalty (the free rider tax)

COVERED EMPLOYERS MUST OFFER

SPOUSE OF EMPLOYEE NOT INCLUDED IN DEFINITION OF DEPENDENTS

WHO IS A COVERED EMPLOYER? 

To be covered by the Act, the Employer must meet the definition of “Large Employer” Large Employer means for a calendar year, an Employer who employed 50 or more “Full Time” employees on business days during the preceding calendar year.

“Full Time” Employee is one who works an

average of 30 hours or more per week or 130

hours or more per month

SOME NEW RULES,CONCEPTS, ANDTERMINOLOGY FOR COUNTING EMPLOYEES

AND HOURS WORKED

Hours worked by part-time employees can be added together to create one or more hypothetical FTE’s Example: two part-time employees who each regularly work two 8-hour days each work week become one “full time” employee for determining if employer is a “Large Employer.”

 -Determined on a month-to-month basis -Total hours of employees who are not full-time employees are added together each month and divided by 120 to determine the number of FTE’s for that month 

Additional Rules to be Used in Determining the Number of

Full-Time Employees:

-Number of FTE’s for each month are added together and divided by 12 to get average FTE’s for each month -Controlled group members are treated as single employer for purpose of defining employer as a “Large Employer.”

-By definition hours worked under ACA include hours not worked but for which employee is entitled to payment.  Example: Even if no work is performed, if employee is entitled to pay for holidays, vacations, illness, disability, layoff, jury duty, military leave or other approved leave, those hours count as hours worked under ACA. Special rules apply for worker’s comp. cases.

- For hourly paid workers, Employer must track and record actual hours of service, days worked equivalency, weeks worked equivalency.

- Additional classifications of employees are created by ACA. In addition to salaried or hourly, exempt or non-exempt, employees must now be classified as either a seasonal employee, a variable hour employee, or a deemed full-time employee

A Seasonal Employee is one who generally works in an agricultural position or is a retail employee hired exclusively for a holiday season.

If employer has more than 50 employees ≤ 120 days per year andIf more than 50 were seasonal then Employer is not a “Large Employer”

• Other new concepts, terms, and rules that have been created to “help” employers include:

1. Distinguishing between new employees and on-going employees and providing different rules for each

2. Defining start date for new employees -

3. Creating an “Initial Measurement Period” – at least 3 but not more than 12 months measured from individual worker’s start date - used to determine status of new employee

4. Creating a Stability Period – at least 6 months, but not less than Initial Measurement Period – to be used by employer under “look back” rules to determine status of employee

5. Creating an optional “Administrative Period” – a period of time not greater than 90 days after Initial Measurement Period and before the Stability Period to be used by employer to determine if employee averaged 30 or more hours per week during Initial Measurement Period.

6. Allowing different Initial Measurement Periods, Stability Periods, and Administrative Periods for employees in different union groups (mandatory subject of bargaining?), salaried versus hourly workers, and employees in different states.

Back to Employer MandateCovered Employer must offer

health coverage under employer’s health plan to a deemed full time employee within 90 days of Start Date or pay penalties.

If variable hour or seasonal employee averages 30 hours per week or 130 hours per month during his/her Initial Measurement Period s/he must be treated as a full time employee during the following Stability Period.

Employers with 50 or more FTE’s must offer “affordable” “minimum value” health insurance to at least 95% of their “full time” employees or pay an annual penalty (tax), but only if one or more of that employer’s employees purchases health insurance from a state or federal insurance exchange and receives a premium subsidy in order to purchase the insurance.

To be affordable, employee’s share of premium costs must not exceed 9.5% of employee’s household income.

Household income includes income of employee, employee’s spouse, and all household dependents.

Affordability test also subject to complex safe harbor rules that require, in some instances, an employer to obtain the opinion of an actuary.

“Experts” claim that to meet affordability test, an employer should offer at least one coverage option for a single employee that costs $90 or less per month.

Insurance plan must pay at least 60% of allowable costs to meet test of “Minimum Value” and provide certain minimum coverages, including abortions.

FREE RIDER PENALTIES

The free-rider penalty applies only to businesses that have more than fifty (50) full-time employees or full-time equivalents.

An employee is eligible for a premium subsidy if s/he meets both of these conditions:

(1) the employee’s total household income must be less than 400% of the federal poverty level. This poverty level varies with family size. For a family of four, 400% of the current federal poverty level equals $88,200.

Household income includes the income of the employee, the employee’s spouse, and all other dependent members of the household; and

(2) the employee’s portion of the insurance premiums on the employer’s plan must exceed 9.5% of the employee’s household income.

The amount of the employer’s free-rider penalty varies depending upon whether the business does or does not provide health insurance.

If the business does not provide health insurance, the annual penalty that the employer must pay equals $2,000 x the total number of the employees in the firm minus 30. For example, if the business does not provide health insurance, and employs 200 people, the annual free-rider penalty owed by the employer is $340,000 = ((200-30) x $2000).

If the business does provide health insurance, but the insurance is either not “affordable” or does not provide “minimum value”, its annual free-rider penalty equals the lesser of (1) the number of subsidized employees x $3,000, or (2) the number of employees in the firm minus 30 x $2000.  

In addition to the free-rider penalties that may be owed by an employer, beginning in 2018, an employer may also owe additional penalties if it provides a “Cadillac” plan. A Cadillac plan is defined as a health insurance plan where the annual cost for single coverage exceeds $10,200 or where the annual cost for family coverage exceeds $27,500.

Beginning in 2018, the law will begin imposing an excise tax on Cadillac plans in the amount of 40% of the costs that exceed the thresholds.

Example: In 2018, employer has 200 full-time employees on family plan and premium cost for family plan is $35,000. Employer’s “Cadillac” tax would be $600,000 per year.

$35,000 - $27,500 = $7,500 x .40 = $3,000 x 200 = $600,000

SOME SUGGESTED STRATEGIES

1. Know your workforce2. Restructure jobs – Be aware

of potential issues under ERISA –

Section 510 of ERISA makes it unlawful for an employer to discriminate against a participant by interfering with the attainment of any right under an employee benefit plan.

Under ERISA, the term participant means “any employee . . . who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer. . .”

Under case law, reclassification of a worker to deprive him of benefits under an employee benefit plan is a violation of ERISA. Isbell v. Allstate Ins. Co., 418 F.3d 788 (7th Cir. 2005)

Additional case law holds that changes in an employee’s employment status that emanate from benefit-based motivations violate ERISA.

Penalties for ERISA violations can include make whole remedies, injunctive relief, and cease and desist orders, plus payment of the employee’s legal fees and costs.

3. Pay closer attention to summer hires, project workers, and temps.

4. Adopt a 90-day waiting period for coverage

5. Adopt the maximum allowed initial measurement and stability periods

6. Review coverages to make certain yours are affordable and provide minimum value.

Final Strategy

Do what the labor unions are now

doing

HOPE