Recently, Meritain Health offered a series of informational

seminars about the Patient Protection and Affordable Care

Act (ACA), also known as healthcare reform. The following

are frequently asked questions from others in your field,

broken out by topic.

The topics discussed in this document are:

n The Patient-Centered Outcomes Research Institute

n The Transitional Reinsurance Assessment Program

n Benefit related mandates

> Pre-existing limitations

> 90-day waiting period

> Automatic enrollment

n The individual mandate

n Exchanges

n Employer penalties

If you have any questions in addition to those answered

below, please contact your Meritain Health representative.

The PCORI Fee

Under the ACA, health insurance issuers and sponsors of

self-funded group health plans will be assessed an annual

fee to fund the PCORI. The fee is imposed for a limited

number of years, beginning in 2012 and ending in 2019.

The PCORI was created “to assist patients, clinicians,

purchasers and policy makers in making informed health

decisions by advancing the quality and relevance of

evidence concerning the manner in which diseases,

disorders and other health conditions can effectively and

appropriately be prevented, diagnosed, treated, monitored

and managed.”

How is the fee assessed?

The amount of the assessment is $1 times the average

number of covered lives under the plan for policy years or

plan years ending on or after October 1, 2012 (i.e.,

October 1, 2012, through September 30, 2013). The

assessment is $2 times the average number of covered

lives for plans ending after September 30, 2013, and then

is subject to adjustment for projected increases in National

Health Expenditures—an amount CMS has projected will

increase 6.6 percent to 7.0 percent per year for the years

2014–2019.

What is the definition of “covered lives”?

For purposes of the calculation, the term “covered lives”

includes all participants and beneficiaries (i.e., members)

that are residents of the United States and its possessions

(e.g., Puerto Rico, the U.S. Virgin Islands, Guam,

American Samoa and the Northern Marianas Islands).

Do any exclusions apply?

The fee does not apply to lives covered by exempt

governmental programs, including:

n Medicare Parts A, B, C and D.

n Medicaid.

n SCHIP.

n Federal programs covering members of the

armed forces and members of Indian tribes.

Additionally, the fee does not apply to lives covered

by excepted benefits.

Healthcare Reform FAQ

Throughout this document, various acronyms are used. While the

acronym is defined when first used in the document, to assist you

with understanding an acronym that may be used later in the

document, we have put together this short acronym list:

n ACA—The Patient Protection and Affordable Care Act

n CMS—The Centers for Medicare and Medicaid Services

n COBRA—Consolidated Omnibus Budget Reconciliation Act

(of 1985)

n FAQ—Frequently Asked Questions

n HHS—The Department of Health and Human Services

n IRS—Internal Revenue Service

n PCORI—The Patient-Centered Outcomes Research Institute

n SCHIP—State Children's Health Insurance Program

Acronym listing

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How are covered lives calculated?

There are three methods a self-funded plan sponsor can

use for calculating average lives covered:

n Actual count method—Count the total number of

lives covered for each day of the plan year and divide

by the total number of days in the plan year.

n Snapshot method—Add the total number of lives

covered on one date in each quarter of the plan year,

or more dates if an equal number of dates are used

for each quarter, and divide that total by the number

of dates on which a count was made.

> The particular date(s) used must be the same in each quarter (e.g., first day of each quarter, last day of each quarter, first day of each month). The date

used in the second, third and fourth quarters must be

within three days of the date that was used in the first

quarter. All dates must fall within the same plan year.

The 30th and 31st are both treated as the last day of

the month.

> Snapshot Factor Method—The number of lives on a date is equal to the sum of the number of participantswith self-only coverage, plus the number of participants with coverage other than self-only on thedate, multiplied by 2.35.

Note: This Snapshot Factor approach is

recommended for situations where it is difficult to

count covered dependents.

n Form 5500 Method—For self-only coverage, add the

average number of participants at the beginning of the

plan year with the total number of participants at the

end of the plan year, as reported on the Form 5500

(“Annual Return/Report of Employee Benefit Plan”),

and divide by two. In the case of plans with self-only

and other coverage, the average number of total lives

is the sum of the total participants covered at the

beginning and the end of the plan year, as reported on

the Form 5500.

Who is responsible for paying the assessment?

For self-funded plans, the plan sponsors are responsible.

For insured plans, the health insurance issuers are

responsible.

When is the assessment due and where must it be paid?

The assessment must be paid annually, on or before

July 31 of the calendar year following the last day of the

applicable plan year.

For plan years ending on December 31, 2012, IRS Form

720 and related fees are due to the IRS by July 31, 2013.

For plan years ending June 30, 2013, IRS Form 720 and

related fee are due by July 31, 2014.

Transitional Reinsurance Assessment Program

Under the ACA, health insurance issuers and third party

administrators will pay an assessment to fund state non-

profit reinsurance entities for the purpose of establishing a

high-risk pool for the individual market. The assessment is

imposed for a limited number of years, beginning in 2014

and ending in 2016.

Does the reinsurance fee apply to both fullyinsured and self-funded groups?

Yes. Both health insurance issuers (on behalf of fully

insured group health plans) and third party administrators

(on behalf of self-funded group health plans) will pay the

assessment.

Are all these fees for everyone or only theemployers covering more than 50 employees?

The fees are applicable regardless of group size.

Is the fee based on number of employees or number of enrolled participants?

The fee is based on number of enrolled participants

(i.e., covered lives enrolled in the plan).

What is the fee amount for 2014 and how does the government know how much is owed?

The recently issued proposed regulations still leave many

procedural questions unanswered; but we do know the fee

for 2014 is estimated to be $63 per covered life. Plans will

receive a notice from Health and Human Services (HHS)

in November 2014 indicating the aggregate dollar amount

of the assessment, and the fee will be payable in

December.

Benefit-Related Mandates

Under the ACA, several benefit changes are going to be

needed by 2014.

Pre-existing limitation

Plans will be prohibited from imposing preexisting

exclusion limitations, regardless of age.

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This mandate applies whether a health plan is

grandfathered or non-grandfathered.

If an employee is offered coverage in 2014, theplan is prohibited from imposing a pre-existing limitation, even if the employee didn't have coverage in 2013, is this correct? Even if theycame from another employer and didn't electCOBRA, they would not have a gap in coverage.

That is correct. Beginning with the first day of the first plan

year starting in 2014, plans are prohibited from imposing a

pre-existing limitation on any individual enrolled in a group

health plan subject to healthcare reform, regardless of age.

90-day waiting period

Plans will be prohibited from imposing waiting periods that

exceed 90 days. This mandate applies whether the health

plan is grandfathered or non-grandfathered.

Does the waiting period for new participants, usually 31 to 59 days, have a negative impact? Is it subject to employer penalties?

This will not impact the employer mandate provision.

Does coverage have to begin on the 91st day, or can it still be the first of the month following90 days?

Waiting periods in excess of 90 days will be prohibited in

2014. Therefore, the first of the month following 90 days

will not comply with this requirement.

Automatic enrollment

The ACA requires employers—that offer health coverage—

with more than 200 full-time employees to automatically

enroll new full-time employees in a coverage option.

Employers must also automatically continue existing

elections from year to year for current full-time employees.

When are the automatic enrollment provisionseffective?

On December 23, 2010, HHS released an FAQ confirming

that employers are not required to comply with this new

provision until regulations are issued by the Secretary of

Labor. In Technical Release 2012-01, issued February 9,

2012, the Department of Labor reported that the

regulations will not be ready by 2014, and that employers

are not required to comply with the automatic enrollment

provision until final regulations are issued and become

applicable.

What is a full-time employee?

The ACA does not define full-time employee for purposes

of the automatic enrollment provision. However, for

purposes of ACA's employer mandate, a full-time

employee is an employee who performs, on average, at

least 30 hours of service per week. The agencies have

indicated that these two definitions will be coordinated.

How does the automatic enrollment provisionimpact compliance with state payroll laws?

Any applicable state laws regarding payroll, such as

permissible deductions of wages, will continue to be in

effect except to the extent the state laws prohibit

employers from implementing automatic enrollment.

What plan must a full-time employee beautomatically enrolled in? For example, the plan with the lowest premium?

This is unclear. It is expected that regulations will

clarify this issue.

May an employee opt out of coverage?

Yes. Employees must be given adequate notice regarding

automatic enrollment and the opportunity to opt out of

coverage.

Individual Mandate

Beginning in 2014, individuals must have health insurance

or potentially pay a penalty for noncompliance. Individuals

will be required to maintain minimum essential coverage

for themselves and their dependents. Some individuals

will be exempt from the mandate or the penalty, while

others may be given financial assistance to help pay for

the cost of health insurance.

What type of coverage satisfies the individualmandate?

Minimum essential coverage satisfies this mandate.

What is minimum essential coverage?

Minimum essential coverage is defined as:

n Coverage under certain government-sponsored plans.

n Employer-sponsored plans, with respect to any

employee.

n Plans in the individual market.

n Grandfathered health plans.

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n Any other health benefits coverage, such as a state

health benefits risk pool, as recognized by the HHS

secretary.

Minimum essential coverage does not include health

insurance coverage consisting of excepted benefits, such

as dental-only coverage.

How does minimum essential coverage differfrom essential health benefits?

Essential health benefits are required to be offered by

certain plans starting in 2014 as a component of the

essential health benefit package. They are also the

benefits that are subject to the annual and lifetime dollar

limit requirements.

This is different than minimum essential coverage, which

refers to the coverage needed to avoid the individual

mandate penalty. Coverage does not have to include

essential benefits to be minimum essential coverage.

What is the penalty for noncompliance?

The penalty is the greater of:

n $95 per uninsured person or 1 percent of household

income over the filing threshold (for 2014).

n $325 per uninsured person or 2 percent of household

income over the filing threshold (for 2015).

n $695 per uninsured person or 2.5 percent of household

income over the filing threshold (for 2016 and beyond).

There is a family cap on the flat dollar amount (but not the

percentage of income test) of 300 percent, and the overall

penalty is capped at the national average premium of a

bronze-level plan purchased through an exchange. For

individuals under 18 years of age, the applicable per-

person penalty is one-half of the amounts listed above.

Beginning in 2017, the penalties will be increased by the

cost-of-living adjustment.

Who will be exempt from the mandate?

Individuals who have a religious exemption, those not

lawfully present in the United States and incarcerated

individuals are exempt from the minimum essential

coverage requirement.

Are there other exceptions to whom the penalty may apply to?

Yes. A penalty will not be assessed on individuals whom:

1. Cannot afford coverage based on formulas contained

in the law.

2. Have income below the federal income tax filing

threshold.

3. Are members of Indian tribes.

4. Were uninsured for short coverage gaps of less than

three months.

5. Have received a hardship waiver from the Secretary

of HHS, or are residing outside of the United States,

or are bona fide residents of any possession of the

United States.

How is the penalty paid by the individual?

The penalty is paid at the end of the year through the

individual’s tax return process.

Exchanges

What are exchanges?

Exchanges are online marketplaces where consumers can

go to shop for health insurance. On these sites,

consumers can compare the plans available to them and

then purchase health insurance online.

Who creates and maintains the exchanges?

n Each state has the option to create and operate its

own exchange.

n If the state opts not to offer an exchange, a federal

exchange will be available.

n Outside of the government, private exchanges may

also exist.

How many states have indicated they will operatetheir own state-based exchange program?

Eighteen states have opted to run state-based exchanges.

Those states are: California, Colorado, Connecticut,

District of Columbia, Hawaii, Idaho, Kentucky, Maryland,

Massachusetts, Minnesota, Nevada, New Mexico, New

York, Oregon, Rhode Island, Utah, Vermont and

Washington.

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Who can shop on an exchange?

Starting on October 1, 2013, the federal and state-based

exchanges, for those states that choose to participate, will

be available for small employers and individuals shopping

for health insurance. Visit our exchange timeline to learn

more about other dates key to the development and

operation of exchanges.

Do exchanges help address the cost of healthinsurance?

For individuals who meet certain criteria, two new

elements can help make health insurance affordable for

them:

1. Subsidies

2. Tax credits

What kind of plans will be available on anexchange?

To participate on an exchange, health plans will need to

meet specific criteria. While some of these are still being

defined, here are the basics that a plan must meet to be

considered an exchange-based plan:

n Essential health benefits

n Network requirements

n Qualified health plan

n Coverage levels

When are we required to provide notice to ouremployees about the exchanges?

Originally, this notice was required by March 1, 2013;

however, this notice has been delayed until further

guidance is received to assist employers with this

requirement.

Employer Penalties

Employer penalties for not offering coverage, or for

providing unaffordable coverage to full-time employees

and their dependents, will go into effect in January 1,

2014.

When do the employer penalties go into effect?

Based on current guidance, these penalties are slated to

go into effect with a firm date of January 1, 2014, and will

not be based on the first plan year after January 1, 2014,

as with the benefit provisions that are slated to take place

in 2014.

What is a large employer for purposes of thesepenalties?

n In determining whether an employer is a large

employer subject to these penalties, the employer

must employ 50 or more full-time or full-time-equivalent

employees during the preceding calendar year.

Therefore, an employer’s employee population

in 2013 will determine whether it will be subject to the

employer penalties in 2014. The employer aggregation

rules set forth in Section 414 of the Internal Revenue

Code apply.

n An employer will not be considered to employ more

than 50 full-time employees if (a) its workforce exceeds

50 full-time employees for 120 days or fewer during the

calendar year, and (b) the employees in excess of

50 employed during the 120-day period were seasonal

workers.

Who is counted as a full-time employee and a full-time equivalent employee?

n A full-time employee is one who works an average of

at least 30 hours per week or 130 hours monthly.

Part-time employees are counted as full-time-

equivalent employees. Seasonal workers are excluded,

unless they work for an employer for more than

120 days.

n To determine the total number of full-time and full-time-

equivalent employees for a particular month for

purposes of determining if the employer is a “large

employer,” the employer must add together (a) the total

number of full-time employees for the month, plus

(b) a number that is equal to the total number of hours

worked in a month by part-time employees, divided

by 120.

Do these penalties apply to part-time employees?

Part-time employees are counted as full-time equivalent

employees for purposes of determining whether an

employer is a large employer subject to these penalties.

However, part-time employees are not counted for

purposes of calculating the actual penalty amount. An

employer will not pay a penalty for any part-time

employee, even if that employee receives subsidized

coverage through an exchange.

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What is the penalty for not offering minimumessential coverage?

n Beginning in 2014, if a large employer does not offer

minimum essential coverage to its full-time employees

(and their dependents), the employer will be subject to

a monthly penalty if any full-time employee receives

subsidized coverage through an exchange. Generally,

an employee may qualify for subsidized coverage

through an exchange if his or her household income is

less than 400 percent of the Federal Poverty Level

(currently, that level is set at $88,200 per year for a

family of four and $43,320 for an individual).

n The monthly penalty is equal to $2,000 divided by 12,

multiplied by the number of full-time employees

employed during the applicable month, not counting the

first 30 full-time employees. Only full-time employees

(not full-time equivalents) are counted for purposes of

calculating the penalty. After 2014, the penalty amount

may be indexed.

What is the penalty for providing minimumessential coverage that is not affordable?

n If a large employer offers its full-time employees (and

their dependents) the opportunity to enroll in coverage,

the employer will be subject to a penalty if the

employer-sponsored coverage does not provide

“minimum value” or is “unaffordable” and one or more

full-time employees receive subsidized coverage

through an exchange.

n Generally, employees who are eligible for employer-

sponsored coverage are not eligible to receive

subsidized coverage through an exchange. However,

an employee may qualify for subsidized coverage

through an exchange if his or her household income is

less than 400 percent of the Federal Poverty Level

(currently, that level is set at $88,200 per year for a

family of four and $43,320 for an individual) and (a) the

employer does not pay at least 60 percent of the

allowed costs under the employer-sponsored plan

(the coverage does not provide “minimum value”), or

(b) the employee’s required contribution for coverage

exceeds 9.5 percent of the employee’s household

income (i.e., the coverage is “unaffordable”).

n The monthly penalty is equal to $3,000 divided by 12,

for each full-time employee receiving subsidized

coverage through an exchange for the month.

However, the penalty will not be greater than the

monthly penalty that would apply if the employer

offered no coverage at all ($2,000 divided by

12, multiplied by the number of full-time employees

employed during the applicable month, not counting the

first 30 full-time employees). Only full-time employees

(not full-time equivalents) are counted for purposes of

calculating the penalty. After 2014, the penalty amount

may be indexed.

Are employers required to offer dependentcoverage?

Yes, coverage will be required to be offered to dependent

children, but there is no requirement that coverage must

be offered to spouses.

Can an employer tier premiums based onsalaries so that lower-paid employees are payingless then highly paid employees?

Yes, this is permissible as long as their highly

compensated employees are not receiving a richer benefit

then their lower-compensated employees, which should

not be the case if higher-paid employees are required to

pay more.

As long as an employer offers minimumcoverage that is affordable, there are nopenalties if the employee uses the exchange toobtain cheaper family coverage?

Correct. As long as the employer meets the requirement

described above, there will not be a penalty.

Are the penalties an employer may have to paytax deductible?

No, the penalties are not tax deductible.

Is there an instance where both penalties mayapply with one plan?

No. The employer will either be penalized for not offering

coverage or penalized for providing coverage that is

deemed unaffordable, but will not be assessed twice.

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