Published on March 10, 2014
The Patient Protection and Affordable Care Act – What Employers need to know Presented by: Michael L Affleck The Tetra Group Ltd. This update is based on the known provisions of the PPACA. This is not to be construed as legal or tax advice. Copyright © 2013, Independent Insurance Agents of Texas. All rights reserved.
First things, first…. Clarification, through rule making, from several entities (HHS, DOL, IRS, CCIIO) will take place quickly over the next 18-36 months. Over 17,000 pages of regulation have already been issued – Over a million pages are expected. We can’t cover 100% of the rules today, this is an overview that will start conversations with you and your broker. Copyright © 2013, Independent Insurance Agents of Texas. All rights reserved.
Timeline – 2014, highlights Expanded Medicaid Coverage Expands Medicaid to all individuals not eligible for Medicare under age 65 (children, pregnant women, parents, and adults without dependent children) with incomes up to 133% FPL and provides enhanced federal matching payments for new eligibles. Implementation: January 1, 2014 (states have the option to expand coverage to childless adults beginning April 1, 2010) Individual Requirement to Have Insurance Requires U.S. citizens and legal residents to have qualifying health coverage (there is a phased-in tax penalty for those without coverage, with certain exemptions). Implementation: January 1, 2014 Copyright © 2013, Independent Insurance Agents of Texas. All rights reserved.
Timeline – 2014 Health Insurance Exchanges Creates state-based American Health Benefit Exchanges and Small Business Health Options Program (SHOP) Exchanges, administered by a governmental agency or non-profit organization, through which individuals and small businesses with up to 100 employees can purchase qualified coverage. Exchanges will have a single form for applying for health programs, including coverage through the Exchanges and Medicaid and CHIP programs. Implementation: January 1, 2014 Health Insurance Premium and Cost Sharing Subsidies Provides refundable and advance-able tax credits and cost sharing subsidies to eligible individuals. Premium subsidies are available to families with incomes between 133-400% of the federal poverty level to purchase insurance through the Exchanges, while cost sharing subsidies are available to those with incomes up to 250% of the poverty level. Implementation: January 1, 2014 Copyright © 2013, Independent Insurance Agents of Texas. All rights reserved.
Timeline - 2014 Guaranteed Availability of Insurance Requires guarantee issue and renewability of health insurance regardless of health status and allows rating variation based only on age (limited to a 3 to 1 ratio), geographic area, family composition, and tobacco use (limited to 1.5. to 1 ratio) in the individual and the small group market and the Exchanges. Implementation: January 1, 2014 No Annual Limits on Coverage Prohibits annual limits on the dollar value of coverage. Implementation: January 1, 2014 Employer Requirements Assesses a fee of $2,000 per full-time employee, excluding the first 30 employees, on employers with more than 50 employees that do not offer coverage and have at least one full-time employee who receives a premium tax credit. Employers with more than 50 employees that offer coverage but have at least one full-time employee receiving a premium tax credit, will pay the lesser of $3,000 for each employee receiving a premium credit or $2,000 for each full-time employee, excluding the first 30 employees. Implementation: January 1, 2015 Copyright © 2013, Independent Insurance Agents of Texas. All rights reserved.
Timeline – 2014 Essential Health Benefits Creates an essential health benefits package that provides a comprehensive set of services, limiting annual cost-sharing to the Health Savings Account limits ($5,950/individual and $11,900/family in 2010). Creates four categories of plans to be offered through the Exchanges, and in the individual and small group markets, varying based on the proportion of plan benefits they cover. Implementation: January 1, 2014 Wellness Programs Permits employers to offer employees rewards of up to 30%, potentially increasing to 50%, of the cost of coverage for participating in a wellness program and meeting certain health-related standards; establishes 10-state pilot programs to permit participating states to apply similar rewards for participating in wellness programs in the individual market. Implementation: Changes to employer wellness plans effective January 1, 2014; 10-state pilot programs established by July 1, 2014 Copyright © 2013, Independent Insurance Agents of Texas. All rights reserved.
Why will it cost more? Reinsurance Assessment - This per capita fee on medical plans will fund a three-year reinsurance program designed to reimburse companies that insure high-cost individuals in the individual health insurance market. The total amounts to be assessed are $12 billion in 2014, $8 billion in 2015 and $5 billion in 2016. The estimated fee is approximately $63 per year ($5.25 per month) per covered individual in the first year; however, fees are expected to decrease in subsequent years. The assessment applies to both insured and self-funded plans. Insurance providers will pay the fee for insured plans while third-party administrators may pay the fee on behalf of self-funded plans. Comparative Effectiveness Research Fee (CERF) – This is an annual fee imposed on all insured and self-insured plans. The goal of the research is to determine which of two or more treatments works best when applied to patients, thereby comparing different types of therapy against each other. The initial annual fee is $1per year per health plan member (includes dependents). The annual charge increases to $2 per member the following year and then increases annually with inflation after that until it ends in 2019. Insurance providers will pay the fee on behalf of insured plans, while employers with self-funded plans will need to determine their liability and account for this fee in their own reporting. Copyright © 2013, Independent Insurance Agents of Texas. All rights reserved.
Why will it cost more? Health Insurance Industry Fee – This annual fee affects all fully insured plans. The estimated cost of this tax will be $8 billion for 2014 and eventually increase to $14.3 billion by 2018. The tax is divided among health insurers and will likely be passed on to plan sponsors as an addition to premium. The Health Insurance Industry Fee has a much greater potential financial impact than either of the other two taxes because it is intended to help fund the cost-generating provisions of the PPACA. The fee will be divided among health insurance carriers based on each carrier’s share of the overall premium base and will only be assessed relative to insured health plans, inclusive of medical, dental and vision plans. Self-funded health plans and associated stop loss premium will not be included in the premium base. Fee is not deductible for federal income tax purposes. This substantially increases the cost impact, which is expected to be in the range of 2 percent to 2.5 percent of premium in 2014, increasing to 3 percent to 4 percent of premium in later years. Insurance companies will likely begin to reflect this additional cost in their premium rates in 2013 and/or 2014. Copyright © 2013, Independent Insurance Agents of Texas. All rights reserved. Copyright © 2013, Independent Insurance Agents of Texas. All rights reserved.
What size employer does PPACA impact? Get your calculator ready Generally speaking, only LARGE employers, over 50 full time equivalent workers* You must include full time (30 hours per week) and part time workers (prorated). Example: 25 full time employees 40 part time employees, working an average of 80 hours per month 35 seasonal employees working under 120 days* Full time employees: 25 Full time equivalents 26.6 TOTAL full time equivalents 51.6 40 part time employees x 80 hours per month = 3200 / 120 = 26.6
Group Size & Rules
Underwriting Considerations Community Rating — Zipcode — Tobacco use — Age Cannot charge the oldest person more than 3 times what they charge the youngest person. (3 rate bands) Tobacco use can be charged 50% than non tobacco users — No clear indication of how to determine tobacco use, honor system? — ONLY when a wellness program is in place — MOST carriers will NOT be asking about tobacco use Copyright © 2013, Independent Insurance Agents of Texas. All rights reserved.
Copyright © 2013, Independent Insurance Agents of Texas. All rights reserved. What will it cost?
Essential Health Benefits (EHB) The law requires health plans offered in the individual and small group markets, both inside and outside of the Exchanges , offer a comprehensive package of items and services, that include: Ambulatory patient services Emergency services Hospitalization Maternity and newborn care Mental health and substance use disorder services, including behavioral health treatment Prescription drugs Rehabilitative and habilitative services and devices Laboratory services Preventive and wellness services and chronic disease management, and Pediatric services, including oral and vision care No limit on these EHB Copyright © 2013, Independent Insurance Agents of Texas. All rights reserved.
Essential Health Benefits (EHB) Cost Sharing and deductible limits — Annual maximum out-of-pocket in 2014 — $6,350 self only $12,700 family coverage — Deductible (Applies to small groups, “reasonably” applied to large group) $2,000 self only $4,000 family coverage — Preventive services covered at 100% — No lifetime limits — No annual limits on the dollar value of essential benefits Copyright © 2013, Independent Insurance Agents of Texas. All rights reserved.
What will it cost? Small group: Average increase in Texas in 2013: 30% Small group: Average increase in Texas in 2014: 30-50% Will small employers groups continue to purchase coverage? **4 major carriers will provide data to help soon, make decision by mid to late summer, some no recessions. Use caution-feds are catching on. Copyright © 2013, Independent Insurance Agents of Texas. All rights reserved.
Ongoing “Variable Hour” Employees • Track number of hours worked by all employees to determine FTE count and who is working 30+ hours and now eligible • Can measure every 3 months up to every 12 months • Counting: How hours worked by “variable hour” employees during measurement period • Notify and Enroll: Get those newly eligible enrolled on health plan • Can last 30-90 days • Employees who work 30+ hours in measurement period must be covered during stability period • Must remain covered for at least six months (or length of measurement period, whichever is longer) regardless of number of hours worked in stability period Copyright © 2013, Independent Insurance Agents of Texas. All rights reserved.
What about common controlled companies? Independent Contractor (1099) — http://www.irs.gov/Businesses/Small-Businesses-&-Self- Employed/Independent-Contractor-(Self-Employed)-or-Employee%3F Common Controlled and Affiliated Groups: — http://www.irs.gov/pub/irs-tege/epchd704.pdf Copyright © 2013, Independent Insurance Agents of Texas. All rights reserved.
Penalty Examples Scenario A - The large employer does not offer coverage, but no full-time employees receive credits for exchange coverage. No penalty would be assessed. Scenario B - The large employer does not offer coverage, and one or more full-time employees receives credits for exchange coverage. The annual penalty calculation is the number of full-time employees minus 30, times $2,000. In this example (50 full-time employees), the penalty would not vary if only one employee or all 50 employees received the credit. The employer’s annual penalty in 2014 would be (50-30) X $2,000, or $40,000. Scenario C - The large employer offers coverage and no full-time employees receive credits for exchange coverage. No penalty would be assessed. Scenario D - The large employer offers coverage, but one or more full-time employees receives credits for exchange coverage. The number of full-time employees receiving the credit is used in the penalty calculation for an employer that offers coverage. The annual penalty is the lesser of: — The number of full-time employees, minus 30, multiplied by $2,000 – or $40,000 for the employer with 50 full-time employees; or — The number of full-time employees who receive credits for exchange coverage, multiplied by $3,000. Although the penalties are assessed on a monthly basis (with the dollar amounts above divided by 12), this example uses annual amounts, assuming the number of affected employees is the same throughout the year.
“Marketplace” Online eligibility Online comparison of plans $4.4 Billion to build (originally $2 billion) Only place to receive immediate individual subsidy Open enrollment starts Oct 1, 2013 – April 31, 2014 Enrollment can be done: online, in person, via mail or phone Marketplace assistors, agents, brokers, navigators SHOP Exchange (on hold-ish) Small employer option (2-50)* Only place for tax credit 2-25 ee’s, annual avg wages are less than $50,000 can get up to 50% tax credit Employee Choice (can be limited by the ER) THIS provision on hold till 2015 Exchange/Marketplace “Marketplace” Copyright © 2013, Independent Insurance Agents of Texas. All rights reserved.
SHOP Exchange For 2009-2013, the small business health insurance tax credit is based on 35% (25% for tax- exempt orgs) of non-elective contributions the business makes on behalf of its employees for insurance premiums. To be eligible, the small business must have 25 or fewer employees and average annual wages of less than $50,000. Employers with 10 or fewer employees and average wages of less than $25,000 get 100% of the credit. Phase-outs reduce the credit as the number of employees goes over 10 (up to 25) and the average wages exceeds $25,000 (up to $50,000). The phase-outs cause many of our clients to be ineligible or make the credit so small it's not worth the effort to compute. For example, if average employee count (FTE) is 20 and averages wages is $30,000, tax credit is only 5% of the employer-paid health insurance costs. If average employer-paid premium per employee is $150/month (20 * $150 * 12 * 5%), then tax credit is $1800. If employee count is 20 and average wages is $35,000, credit phases out to -0-. For 2014 and forward, the full credit (before phase-outs) increases to 50% (35% for tax-exempt orgs), but its available only if insurance is purchased through the state exchanges. Copyright © 2013, Independent Insurance Agents of Texas. All rights reserved.
Individual Mandate Penalties Taxes begin in 2014 and rise in years following. In each year, the tax consists of the higher of a dollar amount or a percentage of household income. For a given household, the tax applies to each individual, up to a maximum of three. Following is the schedule of taxes: 2014: The higher of $95 per person (up to 3 people, or $285) OR 1.0% of taxable income. 2015: The higher of $325 per person (up to 3 people, or $975) OR 2.0% of taxable income. 2016: The higher of $695 per person (up to 3 people, or $2,085) OR 2.5% of taxable income. After 2016: The same as 2016, but adjusted annually for cost-of-living increases. Copyright © 2013, Independent Insurance Agents of Texas. All rights reserved.
To see what the subsidy amounts look like: http://healthreform.kff.org/SubsidyCalculator.aspx Copyright © 2013, Independent Insurance Agents of Texas. All rights reserved.
Questions for your company I must have a qualified broker Do I have to pay or play? — Penalty vs. offering insurance? — Will I retain quality employees if I don’t offer a health plan? Calculate FTE Establish Measurement Periods for Variable Hour EE’s Budget for potential rate increase in 2014 Copyright © 2013, Independent Insurance Agents of Texas. All rights reserved.
What are larger businesses considering? Drop employer coverage completely — Pay the $2,000 penalty and absorb productivity issues Keep existing coverage and not add other populations — Pay $3,000 per non-covered employee penalty Reduce number of hours worked by certain employees to stay below 30 hours each week
Reference Material Links to guidance we talked about today: ►Definition of full-time employee ► http://www.irs.gov/pub/irs-drop/n-12-58.pdf ► http://www.irs.ustreas.gov/pub/irs-drop/n-12-17.pdf ► http://www.irs.ustreas.gov/pub/irs-drop/n-11-36.pdf ►90-day waiting period limitation ► http://www.irs.gov/pub/irs-drop/n-12-59.pdf ►Affordability ► http://www.irs.ustreas.gov/pub/irs-drop/n-11-73.pdf ►Minimum value ► http://www.irs.ustreas.gov/pub/irs-drop/n-12-31.pdf W2 Guidance: ► http://www.irs.gov/uac/Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage ► http://www.irs.ustreas.gov/pub/irs-drop/n-12-09.pdf ►The IRS in April 2012 issued requests for comments on how to facilitate compliance with IRC §§ 6055 and 6056. ► http://www.irs.ustreas.gov/pub/irs-drop/n-12-32.pdf ► http://www.irs.ustreas.gov/pub/irs-drop/n-12-33.pdf http://www.dol.gov/ebsa/faqs/main.html http://www.dol.gov/ebsa/healthreform/ http://www.cms.gov/cciio/index.html http://www.healthcare.gov/ http://www.hhs.gov/partnerships/aca_act_and_community/index.html http://www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions Copyright © 2013, Independent Insurance Agents of Texas. All rights reserved.
Thank you! Presented by: Michael L Affleck This update is based on the known provisions of the PPACA. This is not to be construed as legal or tax advice. Copyright © 2013, Independent Insurance Agents of Texas. All rights reserved.
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