2. Overview of Today’s Discussion
• Where we are now
• Near-term compliance issues and
decision points for employers
• 2014 on the horizon – What it
means for employers
4. Small Business Tax Credits –
ONGOING!
• Eligibility – no more than 25 “full-time equivalent
employees” with average wages under $50,000
– Note: NAPEO colloquy
• Employer must pay a uniform percentage (at least 50%)
of employee-only premium cost for each employee
• Maximum credit
– 2010-2013 –35% of employer-paid premiums
– 2014 and later – Increases to 50% of employer-paid premiums
• Only for coverage purchased through an exchange
• Cannot claim for more than 2 consecutive years
• Tax credits are not refundable (i.e., need tax liability)
4
5. Small Business Tax Credits
2010-2013
• 2010-2013
• Maximum credit is 35%
of employer-paid
premiums
• 25% for non-profits
• Capped at State’s small
group average
benchmark premium
• No double dip, i.e., lose
deduction for premiums
that get credit
• 2014 and Later
• 50% credit
• 35% for non-profits
• Credit only for coverage
purchased through an
Exchange
• Benchmark is
Exchange’s average
small group premium
• Credit only available for
2 consecutive years
5
6. MLR Rebates
• Sub-regulatory rulemaking ongoing, much remains unclear
– Tax allocation
– Treatment of intra-company and third party reinsurance
• First round of rebates due out VERY soon
• ERISA implications
– DOL indicates rebate may be plan assets, depending on governing plan
documents
• Are there opportunities to modify small and large group contracts and plan
documents to make clear that some or all of the rebate is not a plan asset?
– Likely to raise thorny employer relations issues – especially given current
notice requirements
– Potential fiduciary and/or PT liability for the manner in which they calculate
their MLR rebates?
• State and federal audits likely
• Penalties?
7. Summary of Benefits and Coverage
• Technical content and form issues
– How to describe the plan coverage terms in the SBC format
• Especially with medical savings account plans that may not be excepted
(such as stand-alone HRAs)
• Inconsistency between instructions and sample form
• Limited space, e.g., for names of plan and plan sponsor
• Can deviate from requirements
– How to address carve-outs such as mental health, Rx
– Questions arising regarding reliability of SBC calculator outputs
• Notice requirements
– J&S liability on issuers and employers under general rules
• Asymmetry/incomplete information for issuers
• Sub-regulatory notice safe harbor for issuers
– Expanded e-delivery rule for group coverage where the SBC is
delivered “in connection with” online enrollment
• What if online enrollment is merely optional?
8. PCORI Fee
• Per capita fee applies to health insurers and sponsors of self-
insured group health plans (IRC sections 4375 and 4376)
– Generally excepts following insurance: HIPAA-excepted plans,
certain expatriate plans, stop-loss or indemnity reinsurance
– Generally excepts following self-insurance: HIPAA-excepted
coverage, EAPs, disease management and wellness if no
“significant” medical benefits
• Assessed for plan years ending after 9/30/12; not assessed for
plan years ending after 9/30/19
• Responsibility for payment
– If a group health plan is insured, the health insurer is responsible
for calculating and paying the fee.
– If the plan is self-insured, the plan sponsor is responsible.
• Double counting exception
– Only for self-funded plans, can aggregate plans that share same plan year
– What about insurance?
• Planning opportunities?
9. Form W-2 Reporting
• Effective date: optional for 2011, mandatory for 2012
– Transitional rule for small employers
• Employers filing fewer than 250 Forms W-2 for the preceding calendar year
are not subject to the reporting requirement
• Does not apply across the employer’s controlled group
– Exception for mid-year requests for Forms W-2
• Requires Form W-2 reporting of “aggregate cost” of all
“applicable employer-sponsored coverage”
– Generally use COBRA rates to determine “aggregate cost” and COBRA
definition of “group health plan”
– Applies to coverage paid with pre-tax and post-tax dollars
– Applies to nonspouse/nondependent coverage
• Applies only to those employees otherwise due a Form W-2
10. Informational Nature of Reporting
Requirement
• The guidance makes clear the new reporting
requirement to employees “is for their
information only . . . and does not cause [such
coverage] to become taxable”
The
stated
purpose
of
the
repor0ng
is,
“to
provide
useful
and
comparable
consumer
informa0on
to
employees
on
the
cost
of
their
health
care
coverage”
11. Informational Nature of Reporting
Requirement (Cont’d)
• When reporting, use “code DD” in Box 12
of the Form W-2
Insert
“DD”
Insert
“aggregate
cost”
for
all
subject
plans
12. What Plans Are Subject to Reporting?
• Applies generally to all “applicable
employer-sponsored coverage”
IN
Group
health
plans,
including:
•
Major
medical
•
“Mini-‐med”
•
On-‐site
medical
clinics
•
Medicare
supplemental
•
Medicare
Advantage
• Employer
flex
credits
into
an
IRC
§
125
health
flexible
spending
arrangement
(HFSA)
Likely
“in”
(at
least
a
por0on
thereof):
• EAPs
*
• Wellness
programs
*
*
Consider
whether
“incidental”
medical
or
bundled
with
major
medical
OUT
“Non-‐integrated”
dental
and
vision
Long-‐term
care
Amounts
salary
reduced
into
HFSAs
Health
Savings
Accounts
(HSAs)
Health
Reimbursement
Arrangements
(HRAs)
Accident,
disability
and
AD&D
Workers’
compensa0on
and
similar
coverage
Automobile
medical
payment
Government-‐provided
military
coverage
Employer
contribu0ons
to
mul0employer
plans
If
HIPAA-‐excepted
and
paid
on
aer-‐tax
basis:
•
Hospital
or
fixed
indemnity
insurance
•
Specified
disease
or
illness
insurance
Coverage
provided
by
governments
primarily
for
military
and
their
families
13. What Plans Are Subject to Reporting? (Cont’d)
• Special rule for “split” programs
– Where medical benefits are “incidental” to non-medical
benefits, no reporting required
• But, what is “incidental”? More than “de minimis”?
– Where non-medical benefits are “incidental” to medical
benefits, the non-medical portion may be reported
– Implications beyond the Form W-2 reporting
requirement?
– Example: LTD with medical benefit rider
Incidental?
Medical
component
15%
LTD
Component
85%
14. What Plans Are Subject to
Reporting? (Cont’d)
• Considerations for EAPs, wellness and on-site medical:
– Coverage is only required to be reported to the extent it is
applicable employer-sponsored coverage, i.e., a group health
plan
– Note: The Notice provides little meaningful assistance in determining what is
applicable employer-sponsored coverage
– If “split” program and some component thereof provides group
health plan coverage, is it “incidental” and can it be
disregarded?
– If not incidental, is separate reporting required?
– If a separate premium is not charged to COBRA beneficiaries for coverage
under EAPs, wellness programs, or on-site medical clinics, then not subject to
new reporting requirement
– If a separate premium is charged, then must separately report
– Note: The Notice does not address where COBRA coverage is not provided for
EAPs, wellness programs, or on-site medical clinics; negative implication is
that they are subject to COBRA
16. Form W-2 Reporting
• Don’t forget to report subject employer-
provided health care in 2012 Forms W-2 issued
in January 2013
– Unless small employer
17. PCORI Fee
• Don’t forget to pay PCORI Fee (due by July 1st
of 2013) with respect to certain self-funded
plans.
18. Health FSA Contribution Limit
• ACA Imposes a $2,500 limit on employee salary
reduction contributions to a health flexible
spending arrangement (“health FSA”)
– Note: The limit does not apply to the following:
• Employer “flex” credits, i.e., employer profit
sharing or matching contributions to employees’
health FSAs
• Contributions to dependent care FSAs
• The IRS recently clarified that the limit applies
on a plan year (versus taxable year) basis
– Thus, applies to plan years beginning on or after
January 1, 2013
– Resolves potentially thorny issues for employers with
non-calendar year plans.
19. Employer Notice Regarding
Exchanges
• Effective March 1, 2013
• Employers are required to provide to all new
employees at time of hire (and current
employees by no later than March 1, 2013) a
written notice:
– About the existence of the state exchanges post-2013;
– That the employee may be eligible for federal premium assistance
and cost-sharing reductions if the plan’s share of the cost of the
benefits is less than 60%; and
– That if the employee chooses coverage through a state exchange,
the employee may lose the employer’s contribution to coverage, all
or part of which might be excludable from the employee’s income
20. More Restrictive Rules Regarding Annual
Limits on Essential Health Benefits
• Effective for plan years beginning on or
after 9/23/10, the ACA imposes
restrictions on the use of annual dollar
limits on benefits that constitute essential
health benefits
– For plan year beginning on or after 9/23/10 -- $750,000
– For plan year beginning on or after 9/23/11 -- $1.25 million
– For plan year beginning on or after 9/23/12 -- $2 million
• THUS, annual dollar limit on essential health
benefits for upcoming year will increase to $2
million
21. More Restrictive Rules Regarding
Annual Limits on Essential Health
Benefits• Effective for plan years beginning on or after
9/23/10, the ACA imposes restrictions on the
use of annual dollar limits on benefits that
constitute essential health benefits
– For plan year beginning on or after 9/23/10 -- $750,000
– For plan year beginning on or after 9/23/11 -- $1.25 million
– For plan year beginning on or after 9/23/12 -- $2 million
• THUS, annual dollar limit on essential health benefits for
upcoming year will increase to $2 million
– Notes:
• Other quantitative limits remain permissible
• Limits do not apply to non-essential health benefits
24. Imposition of Additional Insurance Reforms
• No Pre-existing condition exclusions now applies to all
individuals (and not just minor-age individuals)
• Complete prohibition on use of annual and lifetime dollar limits
on essential health benefits
– Other quantitative limits remain permissible
– Limits do not apply to non-essential health benefits
• Imposition of new cost-sharing limitations
– Maximum out-of-pocket limits
– Maximum deductible limits ($2,000 for self/$4,000 for family with annual indexing)
– Questions remain regarding how they apply to large group and self-funded plans
• New nondiscrimination rules for insured group health plans
– Originally effective for 2011; but currently delayed
– Likely effective post-2013
– Nature of rules unclear – Statute requires them to be modeled on existing rules for self-
funded plans
• Likely will affect differential premium subsidies and eligibility restrictions
25. Imposition of Additional Insurance Reforms
• No Pre-existing condition exclusions now applies to all
individuals (and not just minor-age individuals)
• Complete prohibition on use of annual and lifetime dollar limits
on essential health benefits
– Other quantitative limits remain permissible
– Limits do not apply to non-essential health benefits
• Imposition of new cost-sharing limitations
– Maximum out-of-pocket limits
– Maximum deductible limits ($2,000 for self/$4,000 for family with annual indexing)
– Questions remain regarding how they apply to large group and self-funded plans
• New nondiscrimination rules for insured group health plans
– Originally effective for 2011; but currently delayed
– Likely effective post-2013
– Nature of rules unclear – Statute requires them to be modeled on existing rules for self-
funded plans
• Likely will affect differential premium subsidies and eligibility restrictions
26. • Individual and Employer Mandates
– Individuals are required to obtain qualifying coverage or pay
a penalty
– Employers with 50+ full-time employees (30+ hours/wk)
(“FTE”) are required to provide qualifying coverage or pay
penalty; if coverage is unaffordable could be liable for other
penalty
– Employers with 200+ FTEs are required to auto-enroll their
employees in coverage if they offer coverage
– NUMEROUS notice obligations on employers
• Exchanges and Subsidies
– Requires states to establish clearinghouses for purchase of
qualifying coverage
– Provides significant premium and cost-sharing subsidies for
individuals up to 400% of federal poverty
27. • Effective in 2014, U.S. citizens and legal residents
must have minimum essential coverage, otherwise
must pay penalty
– Very limited exceptions to this rule
– The penalty, which is subject to annual indexing after 2016,
is generally equal to the greater of (i) $695 per individual, up
to a maximum of $2,085 per family, or (ii) 2.5% of household
income
– Penalty is subject to initial phase-in regarding (i) and (ii)
above – only $95 and 1% in 2014
– Are penalty amounts sufficient
to compel healthy uninsureds to
go purchase coverage?
Many think not
28. • The Act provides for significant premium subsidies
for lower-paid individuals for whom their employer-
provided coverage is unaffordable
– Unaffordable = an employee with modified adjusted gross
income (i.e., adjusted gross income (“AGI”) with a few
modifications) (“MAGI”) at or below 400% of the federal
poverty level and who is required to contribute more than
9.5% of his MAGI to the cost of coverage
– Subsidy amount is determined based on an individual’s
MAGI (i.e., it increases as MAGI falls below 400% of the
federal poverty level, until MAGI reaches 100% of the
poverty level)
– Individuals who seek to use the premium subsidy can only
use it with respect to coverage purchased from a state
exchange
28
29. • Premium Subsidy Modeling*
– In 2014, a premium credit for a family of four at 100% of
poverty could be as much as $25,176 (based on fact that a
family of four at 100% of poverty is only responsible for paying
2% of their modified adjusted gross income towards the cost of
coverage). Thus, they would only be required to pay $509
towards coverage costing $25,685. The remaining $25,176
premium cost would be paid by the government in the form of
a premium subsidy to the family. For a family of four at 400%
of poverty the premium credit could be as much as $16,291.
*
Assuming
2011
family
PPO
coverage
costs
$17,691,
health
care
costs
increase
at
tradiOonal
8.9%
and
federal
poverty
level
increases
at
historic
2.9%
30. 1. Must provide qualifying coverage to full-time
employees
– An employer with 50+ FTEs must provide qualifying
“minimum essential coverage”
• If self-insured, may be able to avoid certain benefits and
still qualify as “minimum essential coverage”
• Remember: FTE = > 30 hours per week
– Failure to comply with these rules generally results in a
penalty equal to $2,000 per FTE who enrolls in exchange
coverage (question re: eligibility/enrollment)
• First 30 FTEs are disregarded
• Mandate and penalty appear to apply across controlled
group
30
31. 2. Coverage must be affordable and provide “minimum value”
– Requirements
• Affordable = Must cost less than 9.5% of an FTE’s MAGI
• Minimum value = ?
– Otherwise, must pay $3,000 penalty for each FTE for whom
the coverage is unaffordable that is eligible for a premium
subsidy (or $750 per all FTE, if less)
– Considerations:
• Technically, only needs to be affordable for subsidy-eligible individuals; although
nondiscrimination rules likely require that the coverage be made affordable for all FTEs
• Appears to be based on coverage for FTE and his/her dependents
• Employers with lower-wage workers are likely to have greater difficulty satisfying this
rule
• Can increase employer premium contributions, but that is costly
• If plan is self-insured, may be able to skinny down coverage or increase copays and
deductibles, but these would need to apply to all employees
32. 4. The Act amends the Fair Labor Standards Act to
require employers with 200+ FTEs to auto-enroll
employees if offer coverage, unless FTEs opts-out
– Effective date appears to be as established by
regulations to be published by the Secretary of Labor
– Likely will apply for 2014, when exchanges are up and
running, but possible could see this sooner
– Multiple tax and employee relations issues
are likely to arise
32
34. • Fact specific determination based on wage and hour
characteristics of employer’s workforce and nature of coverage
– Higher wages = less likely the coverage offered will be unaffordable
– An employer with a large part-time workforce could avoid the
penalties to a large extent versus employer with FTEs
– If self-insured versus insured coverage, may have more flexibility to
make coverage more affordable (possibly through reduced coverage
or increased cost-sharing)
• Also, will need to wait and see what happens with the
exchanges and whether they have adequate pooling of risk
– Concern is that state exchanges will become loaded with bad risk
through anti-selection
– Therefore, if send employees to exchange, might need to increase
wages to make employees “whole” for increased health costs (also
issue of loss of cafeteria plan access as discussed on next slide)
34
35. • To the extent an employer ceases providing coverage, it
appears employees will lose the ability to pre-tax premiums
through an employer’s cafeteria plan
– This has the effect of increasing the cost of coverage for
employees
– Would seem that employers might need to provide additional
wages to make employees “whole”
• Issues of non-plan incentives and workplace management
– To what extent can employers provide incentives to employees
to forego employer-provided coverage and get exchange-based
coverage? Unclear, but wise to be cautious here
– To what extent will we see employers moving to more contingent
and part-time workforces, leased employees, etc?
37. High-Cost “Cadillac” Plan Excise Tax
• A new 40% excise tax on value of
employer-provided coverage exceeding
certain dollar thresholds (with increased
thresholds available to select groups)
– Generally applies to all health coverage provided and/or sponsored
by an employer regardless of whether paid by employer, through
pre-tax salary reduction by employee, or by employee on after-tax
basis
– If value exceeds thresholds, then must be reported to appropriate
parties
– Responsible parties (i.e., plan administrators and/or insurers) must
then pay a 40% excise tax on their share of excess
– The tax is NOT deductible for federal income tax purposes
37
38. Please send any questions to
info@gnapartners.com
IRS CIRCULAR 230 NOTICE: Any tax advice contained in this document
was not intended or written to be used, and cannot be used by the recipient
or any other person, for the purpose of avoiding any Internal Revenue Code
penalties that may be imposed on such person. Recipients of this document
should seek advice based on their particular circumstances from an
independent tax advisor.
Thank You
