Public Sector Compliance with the Affordable Care Act July 31, - - PDF document

Public Sector Compliance with the Affordable Care Act

July 31, 2013

IRS Circular 230 Disclosure: To insure compliance with Treasury Regulations, we are required to inform you that any tax advice contained in this communication (including any attachments) was not intended or written by us to be used, and may not be used by you or anyone else, for the purpose of: (i) avoiding penalties imposed by the Internal Revenue Code; or (ii) promoting, marketing, or recommending to another party any tax-related matter addressed in this communication. Scott Wold and Hitesman and Wold, P.A. are not affiliated with Financial Concepts, Inc.

Welcome

2

Scott A. Wold Attorney Hitesman and Wold, P.A. James R. Sarych Principal Financial Concepts, Inc. Andrew C. Weitnauer Benefit Consultant Financial Concepts, Inc.

2

Today’s Agenda

 Delay of Play or Pay and Status of Other

Rules

 New Fees, Taxes, and Notices  Cafeteria Plan Elections  Update on HRA/VEBA Issues  Insurance and Health Plan Reform  Same Sex Spouses  Play or Pay Framework  Things to Consider

3 3

PPACA Timeline (Based Upon Legislation)

4

How the Pieces Fit Together

Subsidy Exchange Individual Mandate Play or Pay

All Interrelated*

5

Delay of Play or Pay (Employer Mandate)

 In July, 2013, IRS announced one-year

delay in enforcement of play or pay requirements under Section 4980H of the Code

 No penalties imposed on large employers

until 2015

 Limited only to Section 4980H penalties

and related information reporting requirements under Sections 6055 and 6056

 Does not impact:

 Individual mandate  Operation of exchanges  Availability of subsidies through exchanges  Employer’s exchange notice obligation  Insurance/plan mandates  Fees

6

PCOR Fee

 Will fund Patient Centered Outcomes

Research Institute that will research the effectiveness of medical treatments, procedures, drugs, and other strategies

 Paid by issuers for fully insured plans, and

plan sponsors for self funded plans

 Temporary Fee - applicable to policy and

plan years ending on or after Oct. 1, 2012 and before Oct. 1, 2019

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PCOR Fee

 Amount of PCOR fee?  Due date is July 31 following last day of the

plan year. Plan years ending in 2012 need to pay first fee by July 31, 2013. Plan years ending in 2013 pay fee in 2014.

 IRS Form 720, “Quarterly Federal Excise

Tax Return” is now available

Plan year ending between Amount of fee

• Oct. 1, 2012- Sept. 30,

2013 $1 times avg. number of covered lives

• Oct. 1, 2013- Sept. 30,

2014 $2 times avg. number of covered lives

• Oct. 1, 2014- Sept. 30,

2019 Fee will increase based on projected per capita amount

• f National Health

Expenditures

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PCOR Fee



Counting “covered lives” for most plans



Includes all lives (employee, spouse, dependents)



Two methods available for public sector: actual count and snapshot



Counting “covered lives” for HRAs (and non- excepted health FSAs):



Stand-alone HRAs. If the same sponsor has no other applicable self-insured health plans, the sponsor must pay the fee based on the average number of lives covered by the HRA, but counting only one life per participant.



HRAs integrated with insured coverage. If a plan sponsor has other coverage, but that coverage is fully insured, the plan sponsor must pay the fee with respect to the average number of lives covered by the HRA in addition to the fees that will be paid for the insured plan by the

• insurer. The HRA's covered lives will be determined using

the one life per participant rule.



HRAs integrated with self-funded coverage. If the same plan sponsor has another applicable self-insured health plan with the same plan year, then each person covered by both plans is only counted once. The individuals covered by both plans are counted using the counting method for the other plan (so the one life per participant rule does not apply to them). If the HRA covers anyone who is not also covered under the other plan, the sponsor must pay the fee for those individuals using the one life per participant rule.

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Transitional Reinsurance Contributions

 Reinsurance Program (Temporary Fee

2014-2016)

 HHS needs to collect $12.02 billion in

2014, $8 billion in 2015 and $5 billion in 2016

 Proposed national uniform contribution

rate of $63 per covered life ($5.25/month) for 2014

 2015 Estimate: $42  2016 Estimate: $26.25  Payable annually (rather than

quarterly)

 May also pay contributions from plan

assets as a plan expense under ERISA (per DOL)

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Transitional Reinsurance Contributions



Who pays the reinsurance contributions?



Fully insured major medical- insurers are liable for contributions



Self-insured major medical- the plan is ultimately responsible, although TPA can be used to remit contributions



Payable for active, COBRA, retiree-only, disabled or other employees where Medicare is not primary, pre-Medicare retirees, all covered dependents



HHS will collect contributions for all plans, even where a state is operating its own reinsurance program



Exceptions:

 Contributions not required from integrated HRAs or HSAs

(major medical plan associated would pay contributions)

 Not required for health FSAs, EAPs, disease management

• r wellness programs that do not provide major medical

coverage

 Not required for excepted benefits (stand-alone dental,

stand-alone vision, excepted health FSA and supplemental coverage) – exception does not include retiree-only

 Hospital indemnity, dread disease and stop-loss insurance

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Transitional Reinsurance Contributions

 Counting “covered lives”

 Contributions are made for all reinsurance

contribution enrollees, i.e. every enrollee in the plan

 Several methods for counting covered lives

(including dependent coverage), building on methods used for PCOR fee and taking into account all individuals of a family covered by the plan

 Plan sponsors that maintain two or more group

health plans (whether fully insured or self- insured) that collectively provide major medical coverage for the same covered lives will be treated as a single self-insured plan. This prevents double counting of lives across multiple plans.

 Use same general rules as PCOR fee with this in

mind

 Do not count individuals who have Medicare as

primary payer

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Health Insurance Tax

 Health Insurance Tax (HIT)

 Helps fund cost of ACA implementation and

exchanges

 Permanent Tax, due for each calendar year beginning

after Dec. 31, 2013

 Applies only to fully insured plans. Paid by insurance

carrier.

 Tax is based on specified amount of money needed

per year, apportioned among various insurers based

• n a ratio designed to reflect market share of the U.S.

health insurance business

 Insurance carrier estimates range from .75% to 2%

first year

 Amount of money HIT needs to collect:  2014: $8 billion  2015: $11.3 billion  2016: 11.3 billion  2017: 13.9 billion  2018: 14.3 billion  2019 and beyond: Preceding fee year amount

increased by rate of premium growth

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Exchange Notification

 New ongoing employer responsibility  All employees (part time and full time)  Originally by March 1, 2013; delayed  Now by October 1, 2013 for existing

employees; within 14 days for new hires

• n/after October 1, 2013

 DOL Tech. Rel. No. 2013-02 (May 8, 2013)

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Exchange Notification

 Model Notices

 Employer with health plan  Employer without health plan

 Content

 Existence of Exchange, contact information,

description of services available

 Information regarding premium tax credit  Impact on employer contributions towards

employer coverage if purchase through Exchange

 Delivery

 Written notice  Calculated to be understood by average

participant

 First class mail or DOL recognized method; hand

delivery

 Consider using to communicate other

important information

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Summary of Benefits and Coverage (“SBCs”)

 2012 first year for requirement; good faith

effort

 New FAQ and Updated Template issued

April 23, 2013

 New questions about MEC and MV

 Information needed for employee to determine

likelihood of subsidy

 Enforcement relief extended for additional

year

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Insurance and Health Plan Reform

 Effective upon first renewal or plan year in 2014  No annual limits on EHB for all group health

plans.

 Special concern for HRAs  Cost-sharing limits for group health plans

(except grandfathered plans)

 Limit on annual deductible will be

$2,000/$4,000 (applies to small group and individual insurance only)

 Currently no offset for employer

contributions to HRA, FSA, or HSA

 Limit on overall out-of-pocket maximum will

be $6,350/$12,700 for 2014 (equal to HDHP IRS max) (applies to all group health plans)

 Guaranteed issue and guaranteed renewability

for insured plans (except grandfathered plans)

 New for large group market

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Insurance and Health Plan Reform

 No preexisting condition exclusions will be

allowed under any group health plan (individual health insurance costs expected to rise significantly)

 Rating limitations (individual and small group

• nly will be community rated):

 coverage category (e.g., whether the coverage is

individual versus family coverage);

 rating area (as established by states);  age (may not vary by more than 3 to 1 for adults);

and

 tobacco use (may not vary more than 1.5 to 1).

 No waiting periods of more than 90 days (all

group health plans, including grandfathered plans)

 Coverage of routine costs for clinical trial

• participants. Does not require coverage of

experimental treatments (exception for grandfathered plans)

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Insurance and Health Plan Reform

 Carriers in small and individual markets

required to offer EHB and meet actuarial values:

 60% bronze; 70% silver; 80% gold; 90%

platinum (+/- 2 points)

 EHB services include:

1.

Ambulatory patient services

2.

Emergency services

3.

Hospitalization

4.

Maternity and newborn care

5.

Mental health and substance use disorder services, including behavioral health treatment

6.

Prescription drugs

7.

Rehabilitative and habilitative services and devices

8.

Laboratory services

9.

Preventive and wellness services and chronic disease management

• 10. Pediatric services, including oral and vision care

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Annual Limits and HRA/VEBAs

 HRA/VEBAs are generally subject to rule

prohibiting annual limits

 If reimburse essential health benefits

 Waivers provided to all HRAs via regulatory

guidance in August, 2011

 Waivers expire at end of last plan year

beginning prior to 1/1/14

 Much discussion regarding whether stand

alone HRAs are viable in and after 2014

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Annual Limits and HRA/VEBAs

 Several exemptions available

 Post-employment  Reimbursements of expenses incurred after

employment terminates

 Limited Scope  Dental and vision expenses  HIPAA-excepted FSAs  Annual benefit does not exceed $500  HRA participants eligible for other coverage  Integrated  Enrolled in group medical plan  Impact of spend-down access  Flexible spending arrangements  Max benefit does not exceed 500% of value  Frozen  Amounts contributed prior to 1/1/14  Special rules for contributions in 2013 if terms

• f HRA did not prescribe a set contribution

amount

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Same Sex Spouses

 DOMA Unconstitutional (June 26, 2013)

 DOMA provided “marriage” limited to husband

and wife, opposite sex

 All federal laws using “marriage” or “spouse”

affected

 COBRA, cafeteria plan, health FSAs, DCAP,

HSAs, retirement plans, federal tax treatment in general

 FMLA, Immigration, Estate Planning  Does not create right to same sex marriage  Does not require one state to recognize marriage

in another state

 Minnesota to allow same sex marriage

beginning August 1, 2013

 May impact plan language  Will require administrative adjustments  Watch for guidance

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Play or Pay Environment

 Important: Employer not mandated to

provide coverage

 Large employer makes available certain

level of coverage (“plays”) or potentially faces a penalty (“pays”)

 Lots of areas still needing guidance/further

guidance

 Continue to get guidance of all shapes and

sizes

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“Large” Employer Status

 “Large” employer status determined on

calendar year basis

 Special transition rule for 2014 allowed use of

period of at least six months during 2013. May not apply due to delay of rules until 2015.

 “Large” employer employs at least 50

full-time (FT) plus full-time equivalents (FTEs) on business days during preceding calendar year

 Who counts for determining “large

employer” status is different than who counts for calculating penalty Remember: If not “large,” then not even under Play or Pay.

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“Large” Employer Status

 “Full-time” defined as averaging 30 or

more hours of service per week

 Determined on monthly basis  What hours count  Same definition, but determined differently than

under penalty provisions

 How to handle employees for whom hours are

not tracked

 “FTE” defined as aggregate part-time hours

per month divided by 120

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How to Calculate

 Sum of total number of “true” full-time

employees (including seasonal workers) for each calendar month in the preceding calendar year and the total number of FTEs (including seasonal workers) for each calendar month in the preceding calendar year, divided by 12.

 If = > 50, large employer unless seasonal

worker exception applies.

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 If the sum of an employer’s “true” full-time

employees plus FTEs exceeds 50 for 120 days or less during the preceding calendar year, then subtract out any of the employees included during that period that are “seasonal workers”

 “Seasonal worker” performs labor and

services on a seasonal basis based on good faith, reasonable interpretation

 Can use four calendar months instead of

120 days; not required to be consecutive Seasonal Worker Exception

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Example: Large Employer Calculation

 An employer has 35 full-time employees

(working at least 130 hours per month). Employer also has 20 part-time employees that work 24 hours per week. The part-time employees’ hours (480 per week) are the equivalent of 16 full-time employees [(20 x 24)/30=16]

 Employer has 51 FTEs [35+16=51]  The employer is considered a “large”

employer

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MINIMIZE! AVOID!

50 or more FTEs? Penalty Possible More than 30 full-time EEs? Any full-time EEs receive Exch. Sub.? Do you offer coverage? Coverage to “all”* full-time EEs? EE contribution too high? Plan pays less than 60% No penalty possible No penalty possible Penalty Calculation 1 No penalty calculation Penalty Calculation 2 No penalty possible 50 or more FTEs? More than 30 full-time EEs?

“LARGE” EMPLOYER ONLY

no no no no no

• r

yes no yes yes yes yes yes

* All but 5%, or if greater 5

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Play or Pay Chart at a Glance

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Planning Opportunity

Penalty Possibilities

 Two distinct categories of penalty

 Fail to offer coverage to substantially all

full-time employees

 Offer to all full-time employees but coverage is

“not enough” (cost or level of benefits) or offer to substantially all, but not all full-time employees

 “Full-time” definition same as for large employer

determination but no FTEs.

 Regardless of penalty category, must be one

full-time employee subsidized at Exchange to trigger calculation

 In general, eligible for subsidy if household

income between 133% (138% in MN) and 400%

• f federal poverty line (see handout)

 Other requirements include:  Not eligible for employer-sponsored

minimum essential coverage (as employee

• r dependent) that is affordable and provides

minimum value

 Not enrolled in any employer-sponsored

minimum essential coverage (unless mandatory)

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Federal Poverty Guidelines

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Penalty Category 1

 Employers subject to penalty must pay

$2,000 per year for each full-time employee in excess of 30 full-time employees

 No penalty assessed for first 30

 Based upon employer’s total number of

full-time employees (including those

• ffered coverage)

 Monthly calculation

[$2,000/12=$166.67 per month]

 Penalty for month during which at least

• ne full-time employee goes to Exchange

and receives a subsidy Where employer does not offer coverage to substantially all (all but 5%,

• f if greater 5) full-time employees.

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Penalty Category 1

 Does employer “offer” coverage?

 Minimum essential coverage under

employer-sponsored plan

 Generally, any group health plan sponsored

by employer except a HIPAA excepted benefit

 Union plans as employer-sponsored  Employee does not need to take coverage  Offered to full-time employees and their

dependents

 Children who have not attained age 26  Does not include spouses

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Where employer offers coverage to substantially all (all but 5%, of if greater 5) full-time employees but coverage is not enough.

Penalty Category 2

 “Not enough” – Employer coverage either

 “Unaffordable” – individual contribution toward

cost for self-only coverage for lowest cost option exceeds 9.5% of household income; or

 Not sufficient – plan pays less than 60% on

average of covered health expenses

Proposed regulations add category for the 5% or 5 not

• ffered if any one of them goes to Exchange and is

subsidized.

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Planning Opportunity

Penalty Category 2

 Affordability safe

harbors – instead of household income

 W-2 from that employer  Box 1 – does not include

pre-tax contributions

 Rate of pay  Salaried employees – monthly salary  Hourly employees – hourly rate times 130  Federal Poverty Line (FPL) for single individual

[$90.96]

 What is taken into account?

 Wellness incentives provided under programs

related to tobacco use

 HRA contributions if they can be used to pay

premiums

 Cash in lieu?

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Penalty Category 2

 Employers subject to penalty must pay

$3,000 per year for each full-time employee actually receiving subsidy at Exchange

 Monthly calculation [$3,000/12=$250 per

month]

 Only pay penalty for those that actually go to

Exchange and receive subsidy [different than Penalty Category 1]

 Penalty capped at amount would have to

pay if didn’t offer a health plan at all (i.e., Penalty Category 1)

 If less than 30 “true” full-time employees,

penalty is $0 Where employer offers coverage to substantially all (all but 5%, of if greater 5) full-time employees but coverage is not enough.

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Full-Time Employee Safe Harbors

 General rule – real time counting

 Monthly after the fact

 Safe harbor offers longer periods of time and

ability to determine in advance

 General Concepts

 Measurement period (initial and standard)  Administrative period  Stability period  Periods chosen by employer  Can have different periods for following groups:  Separate collectively bargained groups  Collectively bargained and non-bargained

groups

 Salaried and hourly  State by state 37 37

New Employee Safe Harbor

 Reasonably expected to average 30 hours

• f service or more per week

 “Not penalty assessable” if offered

coverage at end of waiting period (assuming waiting period complies with PPACA)

 Safe harbor for new variable hour and

seasonal

 Initial measurement period

 Not less than 3 but not more than 12 consecutive

calendar months

 Starts between DOH and 1st of month following

 Optional administrative measurement

period of up to 90 days

38 38

Caution: Initial plus administrative cannot extend beyond last day of first calendar month on or after one year anniversary of start date (a/k/a 13 month rule).

New Employee Safe Harbor

 Stability period

 Must be same as stability period for ongoing

employees

 If determined to be full-time during

measurement, stability must at least 6 consecutive calendar months, but no shorter than length of initial measurement period

 If determined not to be full-time during

measurement, stability must not be more than

• ne month longer than initial measurement

period and cannot exceed remainder of standard measurement period (plus administrative period) in which initial measurement period ends

 If average 30 hours of service during

measurement period, then treated as full- time during next following stability period, provided remains an employee

39 39

Ongoing Employee Safe Harbor

 Ongoing employee - employed for full

standard measurement period

 Standard measurement period

 Not less than 3 but not more than 12

consecutive calendar months

 Optional administrative measurement

period of up to 90 days

 Stability period

 If determined to be full time during

measurement, stability must be at least the greater of 6 consecutive calendar months or the length of standard measurement period

 If determined not to be full time during

measurement, stability cannot be longer than standard measurement period

 If average 30 hours of service during

measurement period, then treated as full-time during next following stability period, provided remains an employee

40 40

Numerous “Special” Counting Rules

 Transition from new to ongoing  Rehired employees and resuming

employees

 “Special unpaid leave” recognized but

limited to FMLA, USERRA, and jury duty; special treatment when occurs in look back measurement period

 Use of payroll periods  Salaried and other non-hourly employees

41 41

Example: Ongoing Employee Safe Harbor

 See handout  The employer offers health plan coverage

• nly to full-time employees (and their

dependents)

 The employer has chosen to use:

 12-month standard measurement period for

• ngoing employees of October 15 through

October 14

 12-month stability period associated with that

standard measurement period starting January 1 (i.e., Plan Year)

 Administrative period from October 15 through

December 31 of each calendar year

42 42

Example: Ongoing Employee Safe Harbor

 Employees who are determined to be

full-time during measurement period are

• ffered coverage for entire stability period

(i.e., Plan Year) following close of measurement period if remain employed

 Employees who are determined to not be

full-time during measurement period are not

• ffered coverage for entire stability (i.e.,

Plan Year) following close of measurement period

 Change in status (i.e., increase or decrease

in hours worked) during stability period has no impact

43 43

Example: New Variable Employee

 See handout  Employer offers health plan coverage only

to full-time employees (and their dependents)

 Employer uses a 12-month initial

measurement period for new variable hour employees and seasonal employees that begins on the start date

 Employer applies an administrative period

from the end of the initial measurement period through the end of the first calendar month beginning after the end of the initial measurement period

44 44

Example: New Variable Employee

 Employer hires employee on May 10, 2014  Employee’s initial measurement period runs

from May 10, 2014, through May 9, 2015

 Employee works an average of 30 hours

per week during this initial measurement period

 Employer offers coverage to employee for a

stability period that runs from July 1, 2015 through June 30, 2016

 Employee gets coverage during that period

even if hours drop below 30 hours per week

45 45

Look-Back Method Considerations

 Interplay with plan eligibility and termination

• f coverage language

 Interplay with plan operations (open

enrollment(s), COBRA, etc.)

 Interplay with nondiscrimination

requirements (Code and HCR)

 Interplay with collective bargaining

agreements, personnel policies, employment contracts, etc.

 Impact on OPEB calculations  Impact on Pay Equity  Others ???

46 46

Things to Consider

 Confirm if a “large” employer; recommend

that you document process

 Inventory workforce

 Look at demographics of work force (part time,

seasonal, second incomes, etc.)

 Employees by label and in reality  Who are “full-time” employees?

 Inventory current plan language, agreement

language, CBA language, personnel policy language, etc.

 Current eligibility requirements  Current contributions; how shared

 Look at who is eligible and who actually

participates

47 47

Things to Consider

 Consider adding bare bones tier of

coverage

 Consider shifting employer contributions  Consider employee contribution cap

 Employee cost is lesser of 9.5% or $X  Employee cost is no more than 9.5% of lowest

W2 employee

 Employee cost is no more than 9.5% of the

lowest subsidy-eligible income level (138% of FPL in MN)

 Employee cost is $0

 Consider changes to workforce

 Reorganize/reduce hours  Outsource

 Consider not offering coverage  Run some numbers; identify hot spots;

consider options

48 48

Things to Consider for Small Employer

 Are we a small employer based on the

calculation?

 What is our renewal date and risk factor?

 Consider pros/cons of moving renewal date to

take advantage of transition to community rates.

 What is our current single and family

deductible?

 If deductible is greater than $2,000/$4,000, we

may have to lower it in 2014, which will increase premium costs.

 What is our current waiting period?

 If greater than 90 days (including 1st of month

following 90 days), need to lower it.

49

Things to Consider

 Do we have a self funded plan like an HRA? If

so, need to determine if we need to pay the PCOR and Transitional Reinsurance Fees (possibly by July 31st).

 Are we in a position to look at self-funding?

New taxes on fully insured plans and community rates offer more incentives for small employers to consider self funding (direct or indirect via a service cooperative)

 Are we in a position to set up a health

contingent wellness program? Incentives can be as much as 30% or higher in some cases in 2014.

 What is our plan for communicating the ACA

and Minnesota Exchange to employees? If we

• ffer coverage that meets the requirements, the

employee should know that they will not eligible for subsidies when they are comparing options.

50

Questions

51 51

Thank you!

James R. Sarych, Principal Financial Concepts, Inc. 9655 Schmidt Lake Road Plymouth, MN 55442 Ph 763.450.1842 jsarych@fci-benefits.com Scott A. Wold, Attorney Hitesman & Wold, P.A. 12900 63rd Avenue North Maple Grove, MN 55369 Ph 763.503.6620 scott@hitesmanlaw.com Andrew C. Weitnauer, Benefit Consultant Financial Concepts, Inc. 9655 Schmidt Lake Road Plymouth, MN 55442 Ph 763.450.1817 aweitnauer@fci-benefits.com

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