FEDERAL HEALTHCARE REFORM

2013 AND BEYONDFor

301.214.7666www.thecapgroup.net

Small Group vs. Large Group

For Employer Responsibility and Exposure to Fines 50 or more employees

For Tax Credits Small Employer eligibility to 25 employees

For Exchange Eligibility Less than 50 employees In 2016 100+ at the discretion of the state After 2016 100+ or greater as defined by the

state

CurrentIssues

ForImmediate

Concern

Compliance 1

W- 2 Reporting

W-2 Reporting Employers will be required to include the value of group health

plan coverage on W-2’s issued after 1/1/2013 Do not have to report on early W-2’s for the 2012 tax year The requirements do not change the tax treatment of employer

coverage The reporting is for informational purposes only Employers are required to report the value of all “applicable

employer- sponsored coverage.” Generally, group health plans, including: Major medical, Mini-meds, On-site medical clinics, Medicare supplemental

coverage, Health FSA contributions (employer), Employee assistance & Wellness programs (with separate COBRA rates)

Optional Reporting IRS guidance permits employers to report the cost of coverage that is not

required to be reporting (e.g. multiemployer, HRA). For combined coverage, the employer can use any reasonable method to separate costs

Small Employer Exception Employers issuing fewer than 250 W-2 forms in the

preceding calendar year are exempt from the reporting requirements at least through 2014. Refers to the number of W-2’s, not employees

The regulation is unclear about when the exception applies to an entity rather than on a controlled group basis To tell, you need to refer back to the group’s electronic filing status. If the

group is not required to file electronically, they probably do not have to comply with the extra W-2 reporting

Filing is generally done by EIN UNLESS you use a common paymaster. So unless the affiliated groups use a common paymaster, they can probably count themselves separately for the purposes of this requirement

Groups with questions should consult with their CPA

Applies to all employers who provide applicable employer sponsored coverage

Reporting Aggregate Cost Must report the “aggregate cost” Include pre-tax and post-tax coverage Include employer and employee contributions

(e.g. employer premium contribution or employee cafeteria plan contributions)

An employer who uses a composite rate for active employees but not for COBRA beneficiaries may use either rate for determining the applicable cost to be reported, as long as it is used consistently

General Rule: Use cost of COBRA premium

Compliance 2

Uniform Summary of Benefits

Uniform Summary of Benefits All employers will have to give people who

apply for or enroll in employer-sponsored coverage a standardized summary of benefits and coverage that includes: Four page coverage summary Coverage terms glossary Coverage examples of two set medical scenarios Customer service and website information

Uniform Summary of Coverage RequirementsBeginning September 23, 2012 Applies to all plans, including grandfathered

plans and self-funded plans HIPAA excepted benefit plans (e.g., stand-

alone dental, specific diseases, etc.) do not have to comply

Changes for 2013 Notice of the Exchange effective October

1, 2013 Employers must notify employees

Of Exchange’s existence How to qualify for subsidies Loss of employer contribution if participating

Employer Size in 2014 Employers with over 200 EE’s that offer

coverage Must automatically enroll employees in

coverage But…provide opt-out opportunity

Compliance 3

FSA Cap in 2013

FSA Limitations Effective January 1, 2013, PPACA limits FSA

annual contributions to $2,500 In May 2012, the IRS issued Notice 2012-40,

which provides transition relief to non-calendar-year FSA plans. Clearly establishing that the requirements does not apply for plan years that begin before 2013

The term “taxable year” in the law refers to the plan year of the cafeteria plan as this is the period for which salary reduction elections are made

FSA Limitations (cont.)

Allows for “contributions exceeding the $2,500 limit that are due to a reasonable mistake”

Cap does not apply to certain employer flex credits, non-healthcare FSA contributions, HSAs, HRAs or health plan premium payments made under a Section 125 plan

Individuals who already made reduced FSA elections may not increase contributions for 2013 absent of another qualifying event

Compliance 4

Rebates

Who paid the premiums in 2012 If they were paid 100% by the employer, the

employer can retain 100% of the rebate If paid 100% by the employees, the employer

must turn 100% of the rebate over to the employee

If the premiums were paid partly by the employer and partly by the employees, the rebate must be split according to the contribution formula

If paid by a trust then they are deposited into the trust and used in accordance with the trust agreement

ERISA Groups Plan assets distributed for the exclusive benefit

of participants and beneficiaries in the following three ways: The rebate can be paid to the participants, under a

fair and equitable allocations method The employer can apply the rebate toward future

participant premium payments The employer could use the rebate to provide

enhanced benefits for the participants The DOL suggests that the second and third

options should be used only if distributing payments to participants is not cost effective

Rebate Taxation In general, if the individual or employee

receive a tax deduction on their contribution in anyway, the rebate is taxable

If the individual or employee paid their insurance contribution with after tax dollars, their rebate is NOT taxable

Exchanges

Role of the Exchange Instrumental in:

Medicaid Enrollment Tax Subsidy Qualification Tax Credit Qualification Platform for Qualifying health plans Much more…

New “insurance standards” apply to individual and small group plans sold inside AND outside of an Exchange

Insured plans must provide “essential health benefits” and are subject to limits on cost sharing

Premium rating rules prohibit rating based on health status Rates may only vary based on age, tobacco use, coverage tier

(i.e., family or individual) and rating area

WHAT IS AN EXCHANGE?

Demystifying the Health Care Exchanges

Exchanges will initially service individuals and families through the individual market and small employers

In 2017, states may elect to provide large employers access to their Exchange, but this is not required

EXCHANGES AND EMPLOYER HEALTH PLANS

Demystifying the Health Care Exchanges

State Exchanges & MedicaidRecent Developments

Exchange Development 18 - have declared Exchanges 7 - are Planning for Partnership Exchange 26 - intend to default to Federal Exchange

Medicaid 29 Supports 20 Opposes 2 Weighing Options

Medicaid in Neighboring Markets

Individual Incentives

For those between 139% - 400% FPL

Not eligible for “affordable” employer-sponsored plan

SHOP Incentives

Small employers < 25 employees

Average income below $50,000

Best for < 11 employees with income below $25,000

Exchange Incentive Summary

Let’s Examine the Individual Exchange

Incentives

Using the Kaiser Family Foundation Research for Individual Exchanges

Subsidy Calculator Estimates

How does this impact Employees?

The Requirement to Buy Coverage Under the Affordable Care Act Along with changes to the health insurance system that guarantee access to coverage to everyone regardless of pre-existing health conditions, the Affordable Care Act includes a requirement that many people be insured or pay a penalty. This simple flowchart illustrates how that requirement (sometimes known as an "individual mandate") works.

Individual Responsibility

Require U.S. citizen and legal residents to have qualifying health coverage.

o Those without coverage pay a tax penalty of the greater of $695 per year up to a maximum of three times that amount ($2,085)per family or 2.5% of household income.

o The penalty will be phased-in according to the following schedule: $95 in 2014, $325 in 2015, and $695 in 2016 for the flat fee or 1.0% of taxable income in 2014, 2.0% of taxable income in 2015, and 2.5% of taxable income in 2016.

The Requirement to Buy Coverage Under the Affordable Care Act Beginning in 2014

Start here

Do any of the following apply?• You are part of a religion opposed to acceptance of benefits from a health insurance policy.•You are an undocumented immigrant.•You are incarcerated.•You are a member of an Indian tribe.•Your family income is below the threshold requiring you to file a tax return ($9,350 for an individual, $18,700 for a family in 2010).•You have to pay more than 8% of your income for health insurance, after taking into account any employer contributions or tax credits.

There is no penalty for

being without health

insurance

Yes

No

The Requirement to Buy Coverage Under the Affordable Care Act Beginning in 2014 (cont)

Were you insured for the whole year through a combination of any of the

following sources?• Medicare.•Medicaid or the Children’s Health Insurance Program (CHIP).•TRICARE (for service members, retirees, and their families.•The veteran’s health program.•A plan offered by an employer.•Insurance bought on your own that is at least at the Bronze level.•A grandfathered health plan in existence before the health reform law was enacted.

The requirement to have health insurance is

satisfied and no penalty is assessed.

Yes

No

The Requirement to Buy Coverage Under the Affordable Care Act Beginning in 2014 (cont)

The requirement to

have health insurance is satisfied and no penalty is

assessed.

2014

Penalty is $95 per adult and $47.50 per child (up to $285

for a family) or 1.0% of family income, whichever is

greater.

2015

Penalty is $325 per adult and $162.50 per child (up to $975 for a family) or 2.0% of family income, whichever is greater.

2016 and beyond

Penalty is $325 per adult and $162.50 per child (up to $975 for a family) or 2.5% of family income, whichever is greater.

The penalty is pro-rated by the number of months without coverage, though there is no penalty for a single gap in coverage of less than 3 months in a year. The penalty cannot be greater than the national average premium for Bronze level coverage in an Exchange. After

2016 , penalty amounts are increased annually by the cost of living.

How does this impact Employers?

Avoiding the FinesPenalties for Employers Not Offering Affordable Coverage Under the Affordable Care Act Beginning in 2014

Start Here

Does the employer have a least 50 full-time

equivalent employee?

Penalties do not apply to small

employers.

If the employer has 25 or fewer employees and average wage up to $50,000, it may be eligible for a health insurance tax credit.

No

Does the employer offer coverage to

its workers?

Did at least one employee receive

a premium tax credit or cost

sharing subsidy in an Exchange?

The employer must pay a penalty for not

offering coverage.

The penalty is $2,000 annually times the number of full-time employees minus 30. The penalty is increased each year by the growth in insurance premiums.

No Yes

Yes

Yes

Avoiding the Fines (cont)Does the

coverage offered meet MEC

requirements?

Employees can choose to buy coverage in an Exchange and

receive a premium tax credit.

Do any employees have to pay more

than 9.5% of individual income for the employer

coverage?

Those employees can choose to buy

coverage in an Exchange and

receive a premium tax credit.

The employer must pay a penalty for not

offering affordable coverage.

There is no penalty payment required of the employer since it

offers affordable coverage.

The penalty is $3,000 annually for each full-time employee receiving tax credit, up to a maximum of $2,000 times the number of full-time employees minus 30. The penalty is increased each year by the growth in insurance premiums.

No

Yes

No

Yes

Employer ResponsibilitiesGroups of 50+ employees

Provide “affordable care” Minimum essential coverage Safe Harbor

Employee contribution < 9.5% of income; Employer sponsored plan pays at least 60% of the

actuarial value of the benefits provided Alternately pay penalties

If an employee receives tax subsidies for coverage through the Exchange

Employer ResponsibilitiesEmployers with at least 50 FTEq’s

Not Offering minimum essential coverage (MEC) If any EE receives federal assistance, then $2,000 fine per FTEe after the first 30

If offering MEC and an any employee receives federal assistance (presuming the employer contribution does not qualify them as providing “affordable coverage” ) Lesser of:

$3,000 fee for each FTEe receiving assistance, or The above fine for non-offering employers

Multi-State IssuesEssential Health Benefits – Small Group

National Standard has been abandoned

States to select EHBs independently Numerous benefit sets will exist and

vary by state but likely more complex

Minimum Essential Value – large group

Small Group Plan Requirements Platinum = 90% of EHB value

Very low out of pocket… $300 Gold = 80% of EHB value

$1,000 Silver = 70% of EHB value

$2,000 Bronze = 60% of EHB value

$3,000 Young Invincible

Employer Group Size(s) For purposes of Small Employer Tax Credits

<25 Full-Time “equivalent” Employees using 2080 hours excluding family and family attribution

For purposes of the SHOP Exchange Up to 50 (possibly 100 in some states, 100 or more in 2016)

Full-time equivalent using 30 hours for Full-time, and dividing part times hours by 120 per month to determine “FT equivalents”

For purposes of the Employer Responsibility to Provide Affordable Coverage (the Mandate) >50 Full-time equivalent employees using 30 hours for Full-

time and 120 hours per month for “FT equivalent”

Evaluating Your Plan DesignLIMITATION ON WAITING PERIODS Effective for plan years beginning on

or after January 1, 2014 Plans may not apply a waiting period

that exceeds 90 days “Waiting Period” = the period of time

that must pass before coverage becomes effective for an employee or dependent who is otherwise eligible to enroll in the plan

Rule is not violated if an employee fails to elect coverage within 90 days

Evaluating Your Plan DesignLIMITATION ON WAITING PERIODS To be “otherwise eligible” means that

all other substantive eligibility criteria have been met (e.g., job classification or full-time status)

Eligibility criteria that are not based solely on the passage of time are still permitted—so long as they are not designed to circumvent the 90-day limit on waiting periods

Evaluating Your Plan DesignLIMITATION ON WAITING PERIODS One day = One day

The 90-day period is calculated based on calendar days

Weekends and holidays are counted If the 91st day falls on a weekend or holiday

plan may provide coverage sooner Waiting periods that will no longer work

Three months 1st of the month or 1st payroll period

following 90 days of employment

Your Action Plan Now Make Pay or Play Decision Develop waiting period/eligibility criteria

for 2014 plan year Build tracking systems necessary to

monitor employee hours and document eligibility determinations

Implement standardized and verifiable process for making coverage offers

America’s Most Popular Teamin Post 2014 Health Care

Summary

Questions and Answers

Thank you for giving The Capital Group the opportunity

to serve you.

P. 301-214-7666 F. 301-581-4111 www.thecapgroup.net6903 Rockledge Drive Suite 950 Bethesda, MD 20817