The Impact of Health Care Reform on Large Businesses

THE IMPACT OF HEALTH CARE
REFORM ON LARGE EMPLOYERS
Michael P. James, JD, MBA, CSSGB
Phone: (517) 377-0823
(313) 237-7300
Email: mjames@fraserlawfirm.com
www.linkedin.com/in/MichaelJamesLaw
© 2013 Fraser Trebilcock
Davis & Dunlap, P.C.

The Patient Protection &
Affordable Care Act (ACA)
 Became law in March 2010.
 Supreme Court upholds constitutionality of ACA
June 2012.
 ACA creates:
 Individual Health Insurance Mandate; and
 Employer Responsibility Requirements.

ACA Individual Health
Insurance Mandate
 The individual health insurance mandate requires nearly all
Americans to purchase and maintain health insurance.
 Qualified coverage evidenced through tax returns.

Health Insurance
Marketplaces / Exchanges
 Health Insurance Marketplaces / Exchanges.
 Open enrollment: October 2013
 Plans go into effect: January 2014
 Michigan will have a federally-facilitated health insurance
marketplace.

ACA Employer Responsibility
Under 50 FTEs
 Employers do not have to
offer insurance.
 However, if health insurance
offered, must meet EHBs
and metals.
Over 50 FTEs
 Employers must offer
insurance.
 Must be offered to 95% of
full-time employees.

Pay or Play: Mandate
 1) Applies to employers with 50+ FTEs.
 2) Insurance must cover at least 60% of actuarial value.
 3) Employer must offer affordable coverage.
 Single employee premium contribution not to exceed 9.5% of
employee’s household income.
 4) Employer will be subject to penalties if any of its full-time
employees receives a tax credit on the individual marketplace.
 5) Reporting health insurance requirements.
 6) Penalties and reporting requirements delayed until 1/1/15.

Pay or Play: FTEs
 FTEs are calculated under the Pay or Play
Mandate as follows:
 Full-time employees averaging at least 130
hours/mo.
+
 Total monthly part-time hours / 120.
 Add up the 12 monthly calculations and
divide by 12; then
 Round down to the nearest whole number.

Pay or Play: Value Requirement
 Insurance must cover at least 60% of
actuarial value.
 The percentage of total average costs
for covered benefits that a plan will
cover.
 Large Group products do not need to hit
metals levels of exchange, just minimum
actuarial value of 60% to avoid penalties.

Pay or Play: Affordability Requirement
 Employer must offer affordable coverage.
 Single employee premium contribution not to
exceed 9.5% of employee’s household income.
 Safe Harbors
 W-2 Income:
 Box 1 income on W-2.
 Does not include 401(k), 403(b), 125 cafeteria plan.
 Rate of Pay:
 Hourly: 130 hours x hourly rate of pay.
 Salary: Monthly Salary.
 Contributions to 401(k), 403(b), 125 cafeteria plan
are not excluded from rate of pay calculation.

Pay or Play: Penalties - Two Options
 Large employer does not provide coverage:
 Penalty = $2,000 x (#full-time employees - 30)
 Large employer offers unaffordable or low
value coverage:
 Excise Tax = the lesser of:
 No coverage penalty; or
 $3,000 x (full-time employees receiving tax credits.

Pay or Play: Example
Employer has 220 employees. Employer offers
unaffordable health insurance to employees. As
a result, 40 full-time employees seek insurance
in the individual marketplace and receive a tax
credit. What is the penalty?
Penalty is the lesser of:
 (220 - 30) x $2,000 = $380,000
 40 x $3,000 = $120,000
 Penalty is $120,000

Pay or Play: Reporting Requirement
 Every Company that provides minimal
essential coverage to an individual during
a calendar year is required to make a
return to the IRS regarding individual
health coverage.
 Must also provide a written statement to
the covered individual.

Essential Health Benefits
Required Coverage
1) Ambulatory Patient Services
2) Emergency Services
3) Hospitalization
4) Maternity and Newborn Care
5) Mental Health & Substance Use Disorder Services; Behavioral
Health Treatment
6) Prescription Drugs
7) Rehabilitative and Habilitative Services and Devices
8) Laboratory Services
9) Preventative Wellness Services and Chronic Disease
Management
10) Pediatric Services, Including Oral and Vision Care

Pay or Play Reporting & Penalties: Delayed
 Will not be penalized in 2014 for not providing
coverage and/or reporting.
 New guidance on reporting requirements
expected out soon.
 Allow some employers to consider new options.
 What will effect be of individual and SHOP
marketplaces?
 Were you ready for reporting requirements?
 Do you have a compliance plan?

2012-13 Effective Mandates
 Cost of Employer-Sponsored Health Coverage on W-2
 For W-2s issued in January 2013; Code DD in Box 12.
 Does not apply to contributions to salary reduction contributions.
 Restricted Annual Benefit Limits
 The annual limit rule increases the minimum annual dollar limit on the value of benefits
for any participant or beneficiary with respect to the scope of essential health benefits
from $1.25 million to $2 million for 2013.
 Employer Annual Reporting Requirements Regarding Quality of Care
 Group health plans must annually submit, to the HHS and enrollees under a plan, a
report during each open enrollment period regarding wellness and prevention programs.
 Reporting requirement regulations still pending.
 Extension of Non-Discrimination Rules
 No eligibility rules or levels of coverage that favor high-wage employees.
 New under the ACA for fully-insured group health plans, except for 125 cafeteria plans.
 Has been delayed; still need to keep in mind when making design choices.

 Varying compliance dates for disclosure – generally went into
effect September 23, 2012.
 Group health plans must provide a summary of benefits and coverage that:
 In color or grayscale;
 Presented in a uniform format;
 Uses terminology understandable by average plan enrollee;
 Does not exceed four double-sided pages in length; and
 Does not include print smaller than 12-point font.
 Applies to self-funded and fully-insured group health plans.
Uniform Summary of Benefits and Coverage

 Two additional requirements for second round of SBCs:
 Whether the plan or coverage provides minimum essential coverage
(MEC).
 Whether the plan or coverage meets the minimum value (MV)
requirements.
 Not less than 60% of costs (actuarial value).
 Need to make sure that you SBC is updated.
Uniform Summary of Benefits and Coverage

 Patient-Centered Outcomes Research Institute
 The first fee is $1 per covered life for plan years ending on or
after October 1, 2012 and before October 1, 2013.
 Includes those on COBRA (or similar continuation coverage under other
federal or state law).
 Increases to $2 for the next plan year (10/1/13 to 10/1/14).
 Additional increases will incur until fee ceases for years ending or after
October 1, 2019.
 First PCORI fee payment due July 31, 2013!
PCORI FEE Payments

 Methodologies for calculating “covered lives” for fee:
 Actual Count:
 Total number of lives covered for each day, divided by number of days in plan yr.
 Snapshot Method:
 Calculate the covered lives on a quarterly basis.
 Form 5500 Method:
 Can only be used if filing before July 31st deadline.
 HRAs and Health FSAs:
 HRAs and health FSAs that are not excepted from reporting only must
count the covered participant and not the spouses and dependents.
PCORI FEE Payments

2013 Effective Mandates
 Flexible Spending Account Limit to $2,500
 The flexible spending account limit on salary deferral will be $2,500,
adjusted in future years for changes in the cost of living.
 Applies to plan years effective on or after January 1, 2013.
 Elimination of Deduction for Expenses Allocable to Medicare
Part D Subsidy
 The employer’s deduction for the amount of any Medicare Part D retiree
subsidy will be eliminated.

2013 Effective Mandates
 An employer is required to provide notice of the availability of
the Exchange, informing employees that:
 1) the existence of the Marketplace;
 2) that employees may be eligible for a subsidy under the Marketplace if the
employer’s share of the aggregate cost of benefits is less than 60%; and
 3) that if the employee purchases a policy through the Marketplace, he or
she will lose the contribution to any health benefits offered by the employer.
 Notice must be provided to each employee at the time of hiring.
 For existing employees, the notice must be give no later than
October 1, 2013.
Health Insurance Marketplace Notice

2014 & Beyond
 Prohibition on Annual Benefit Limits
 Beginning in 2014, annual limits on the dollar value of benefits for any
participant or beneficiary will no longer be allowed.
 However, group health plans may still place annual or lifetime limits on
specific covered benefits that are not essential health benefits.
 Automatic Enrollment for Large Employers Offering Coverage
 An employer with more than 200 full-time employees that offers employees
enrollment in one or more health benefits plans must automatically enroll new,
full-time employees in one of its plans and to continue the enrollment of
current employees in a health benefits plan offered through the employer.
 Subject to waiting period authorized by law.
 Requires adequate notice and the opportunity to opt out of coverage.
 Effective date is unclear; Department of Labor says regulations by 2014.

2014 & Beyond
 Prohibition on Excessive Waiting Periods
 Group health plans and a health insurance issuer offering group or
individual health insurance coverage are prohibited from applying any
waiting period that exceeds 90 days.
 Waiting Period = the period that must pass before coverage begins for an employee
or dependent who is otherwise eligible to enroll under the terms of a group health
plan.
 Check your plan!
 Many are changing waiting period.

2014 & Beyond
 Two Types of Employee / Wellness Programs Allowed Post 2014
 1) Health Contingent Wellness Programs
 Activity Only – must perform or complete an activity related to a health factor.
 Example: 10k steps per day.
 Alternative must be provided.
 Outcomes Based – must attain or maintain a specific health outcome.
 Example: Maintain a body-mass index <30.
 Alternative must be provided if member cannot achieve outcome (walking if BMI > 30).
 Reward cannot exceed 30% of the cost of coverage; rewards for tobacco
allowed to add an additional 20%.
 2) Participatory Wellness Programs
 Available to all employees regardless of health status.
 Example: awards to employees who attend health-related seminars.
 No alternative required.
 No limit on potential reward employee can receive.

2014 & Beyond
 Coverage for Clinical Trials
 Group health plans are prohibited from:
 1) denying the individual participation in a clinical trial;
 2) denying (or limiting or imposing additional conditions on) the coverage of routine
patient costs for items and services in connection with participation in the trial (there
are some exceptions); and
 3) discriminating against the individual on the basis of the individual’s participation
in such trial.

2014 & Beyond
 Excise Tax on Cadillac Plans
 Effective date 2018.
 A 40% nondeductible excise tax will be imposed on high-cost health coverage.
 If the coverage is insured, the health insurance issuer is responsible for
paying the tax.
 If the coverage is HSA or Archer MSA contributions, the employer is
responsible for paying the tax.
 For over coverage, the plan administrator is responsible for paying the tax.
 There are substantial penalties for miscalculating the tax payment:
 100% of the amount due to miscalculation, plus interest.

Grandfathered Health Plans
Grandfathered Health Plans
 Group health plan in existence prior to ACA.
 Protected from certain ACA mandates.
 Very difficult for a company to maintain a
grandfathered health plan.
 Must provide notice to enrollees.
 Must keep records to substantiate status.
 Minimal changes allowed:
 Add new beneficiary; change terms to comply with
law; adopt consumer protects not required by law;
modest adjustments to benefits or cost sharing;
raise premiums; add new members; and renew.

What do Businesses Do?
Provide
Health
Insurance
Send
Employees
to Exchange

What do Businesses Do?
Develop a Compliance Plan

Fraser Trebilcock Davis & Dunlap, P.C.
124 W. Allegan Street, Suite 1000
Lansing, Michigan 48933
www.fraserlawfirm.com
Phone: (517) 482-5800
Fax: (517) 482-0887
Fraser Trebilcock Davis & Dunlap, P.C.
One Woodward Avenue, Suite 1550
Detroit, Michigan 48226
www.fraserlawfirm.com
Phone: (313) 237-7300
Fax: (313) 961-1651
Michael P. James, JD, MBA, CSSGB
Phone: (517) 377-0823
(313) 237-7300
Email: mjames@fraserlawfirm.com
www.linkedin.com/in/MichaelJamesLaw
© 2013 Fraser Trebilcock
Davis & Dunlap, P.C.

The Impact of Health Care Reform on Large Businesses

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