ARTICLE
Audio (MP3) Listen in New Window Presentation (PDF) Open in new window Topics of Discussion: Patient Protection and Affordable Care Act a. In a nutshell b. Provisions that apply to employer-sponsored coverage PPACA: In A Nutshell 2010 US Census Bureau Statistics • 49.9 Million uninsured individuals in the United States in 2010 • Medicaid (“Aid the Poor”) provided coverage for 15.9% of Americans • Medicare (“Care for the Elderly”) provided coverage for 14.5% of Americans • Employment-based coverage provided to 55.3% (down from 56.1% in 2009; ) • Largest growth in uninsured: • Families • Incomes less than $50K • “Early retirees” ages 45 to 64 • The Patient Protection and Affordable Care Act (“PPACA” or “ACA”) was passed on March 23, 2010. • The ACA has 3 goals: • Reforming health insurance, • Ensuring a minimum levels of health benefits (essential health benefits), and • Increasing access to health coverage. • To increase access to health coverage, the ACA takes a four-prong approach: • Expanded coverage through the federal-state Medicaid and CHIP programs; • Establishment of health insurance exchanges; • Creation of premium tax credits; and • Simplified and Streamlined enrollment and renewal processes across Insurance Affordability Programs (“IAP”). Beginning January 1, 2014, the ACA: • Requires most individuals to have health coverage for themselves and their dependents or face paying a tax penalty. • Requires a Health Insurance Exchange to be operational in a state—either through a state-operated exchange, Federally-Facilitated Exchange, or a Hybrid.State of Okla. V. Sebelius, (E.D.OK., 2012)(No. CIV-11-030-RAW). • Allows states participating in the Medicaid program to expand coverage to individuals with annual family incomes to 133% (138%) of the federal poverty level (“FPL”). National Federation of Independent Business v. Sebelius, 132 S.Ct. 2566 (2012). Requires minimum level of benefits to be provided to all persons through “Essential Health Benefits” • Minimum Essential Coverage • Minimum Value PPACA: Employer Group Health Plan Requirements Postponed until January 1, 2015: • Employer Pay or Play Mandate (Transition Rules?) • Dependent Children Coverage Requirement****** (Transition year until 2016?) On HOLD: • Automatic Enrollment: Employers with more than 200 Employees: Auto-enrollment is not required until rules issued and DOL has stated that the rules are not to be issued in time for an effective date of January 1, 2014. Changes to Existing requirements—2014 (All Health Plans)Pre-Existing Condition Limitations: • The PPACA amends the HIPAA preexisting condition limitation rules to provide that a group health plan and a health insurance issuer offering group or individual health insurance coverage may not impose any preexisting limitation exclusion on any participants for Plan Years beginning on or after January 1, 2014. • Certificates of Creditable coverage required to be issued until December 31, 2014. Changes to Existing requirements— • Adult Children Coverage Requirement:Grandfathered Plans can no longer exclude otherwise eligible adult children (to age 26) from coverage through a parent due to the adult child having coverage available through his or her own employer’s health plan. • Annual Limits: For plan years beginning on or after January 1, 2014, group health plans and health insurance issuers are prohibited from imposing annual limits on the dollar value of essential health benefits. Note: Stand Alone Medical Reimbursement Plans no longer permitted 1-1-2014 NEW Requirements in 2014 • Prohibition on waiting periods longer than 90 days • In general, employers may not impose an eligibility period on an otherwise eligible employee that is longer than 90 days from the date the employee meets the eligibility requirements for coverage. • Variable-hour employees: If the employer cannot reasonably determine whether the newly hired employee will be eligible for coverage, the employer can use a measurement period, not to exceed 12 months to determine an employee’s eligibility. Coverage must be effective no later than 13 months after the employee’s start date plus till the beginning of the next month. • If Employer has a cumulative hours-of-service requirement: Hours of service requirements cannot exceed 1200 hours. 90 day waiting period must start when hours-of-service requirement is met. (Note: Employer may still be required to pay penalty for not providing coverage to FT employee). • Coverage must be offered no later than 90 days after employee becomes eligible. If 90th day falls on the weekend or holiday, coverage may begin prior to 90thday but cannot begin after 91st day to satisfy requirement. • Coverage for Clinical Trials • Beginning January 1, 2014, group health plans and insurers are prohibited from denying a “qualified individual” participation in an “approved clinical trial”; denying, limiting or imposing additional conditions on the coverage of routine patient costs for items or services furnished in connection with the “qualified individual’s” participation in the “approved clinical trial”; and discrimination against the qualified individual based upon his or her participation in the “approved clinical trial”. • Clinical trials covered for treatment, prevention, or detection of cancer or other life threatening disease or condition. • Coverage of out of network providers is otherwise subject to plan terms. Fees: • Patient-Centered Outcomes Research Fund: $2.00 times average number of members per year/ increased annually by a %. Assessed on fully insured and self funded. • Health Industry Fee: $8B per year (2014 and growing to $14.3B+ in 2018) divided amongst all health insurers (not self-insured) based on premiums • Reinsurance Assessment: 3 year temporary program to help fund high cost individuals on individual market ($12B in 2014; $8B in 2015; $5B in 2016). Assessed on fully insured and self-funded plans on a per covered person basis and expected to be b/t $63 per person in 2014. Individual Responsibility Mandate • Effective January 1, 2014, most US citizens and legal residents are required to purchase health coverage for minimum essential benefits or be subject to an individual tax penalty • Must also purchase coverage for family members under age 18 • Penalty is gradually phased-in beginning in 2014 Individual Responsibility Mandate: Exemptions Individuals potentially exempt from this penalty: • Religious objectors • American Indians • Individuals without coverage for less than 3 months • Undocumented workers • Incarcerated individuals • Individuals who are below the income tax filing threshold, and • Individuals for whom the lowest cost option exceeds 8% of household income Amount of Individual Penalty • Penalty amount is phased-in beginning in 2014 as follows: • The greater of $95 per year (single) to a maximum of $285 (family) or 1% of household income in 2014 • The greater of $325 per year (single) to a maximum of $975 (family) or 2% of household income for 2015 • The greater of $695 per year (single) to a maximum of $2,085 (family) or 2.5% of household income in 2016 • Cost of living increases begin in 2017 Employer Responsibility – the “Play or Pay” Provisions • Beginning January 1, 2015, employers must choose between providing health coverage to full-time employees (FTEs) at minimum cost and benefit levels, or the assessment of a federal tax penalty • Only “applicable large employers” as defined in the PPACA are subject to the penalty assessment; employers with fewer than 50 FTEs are exempt Determining if an Employer is an Applicable Large Employer • Both full-time and part-time employees must be included in calculating employer size for application of penalty provisions • Employer size is based on average number of FTEs on business days in preceding calendar year • Employee is considered an FTE if regularly working 30 or more hours per week Calculating Employer Size • Part-time workforce counted fractionally based on total monthly hours worked divided by 120 • Example: employer’s part-time workforce averages 1200 hours in one month;1200 divided by 120 equals 10, so total part-time workforce for that month is equivalent to 10 additional FTEs • Calculate full-time equivalency and add to FTE total each month, then calculate average annual FTEs. If 50 or more FTEs in preceding calendar year, then penalty tax provisions apply • All commonly-owned businesses must be included in calculation; IRC §414 control group and affiliated service group rules apply • “Seasonal workers” excluded if employed for fewer than 120 days during the year and meet DOL definition of “seasonal” (including agricultural and retail workers) Penalty if Coverage Not Offered If an employer with 50 or more FTEs: • does not offer “minimum essential coverage” to FTEs (and dependents), and • at least one FTE employed by the employer is enrolled in a qualified health plan through the Exchange and is receiving a premium tax credit or cost-sharing reduction under the PPACA,then the employer will pay a monthly penalty of $166.67 per FTE ($2,000 per year) • First 30 FTEs are not counted for purposes of calculating penalty tax • First 30 FTEs are counted in determining whether employer is “applicable large employer” subject to penalty tax assessment • Guidance issued by DOL/ IRS, provides that an FTE = 130 hours or more per month Key Definitions • “Minimum essential coverage” includes coverage under any of the following: • a government-sponsored program (e.g. Medicare Part A, Medicaid, CHIP, TRICARE) • an “eligible employer-sponsored plan” (a group health plan offered by an employer to employees, cannot be limited to HIPAA “excepted benefits”) • a grandfathered health plan • a health plan offered in the individual market (note canceled policies provision), and • other health benefits coverage (such as a State high risk pool) as recognized by HHS Penalty May Be Imposed Even if Coverage Is Offered • Employers offering minimum essential coverage will still be subject to a penalty tax if coverage is “unaffordable” • Coverage is unaffordable if: • Employees opt out of employer coverage and obtain coverage through an exchange, and • Employee qualifies for premium credit or cost-sharing reduction for coverage in the exchange • Employee will qualify if his required contribution for employment-based coverage exceeds 9.5% of household income, or employer contributes less than 60% of total cost of employer’s plan Amount of Penalty Tax if Employer Offers “Unaffordable” Coverage • For each employee receiving premium credit or cost-sharing adjustment in the exchange, the penalty tax is equal to $250 per month ($3,000 annually), but is only assessed on the employees who decline employer coverage and receive a premium credit or cost-sharing adjustment through the exchange • This is higher than the penalty if no coverage is offered, but subject to a cap • Maximum penalty will be amount of penalty tax the employer would have been assessed if no coverage offered Penalty Tax Example: Employer Offering No Coverage An employer does not offer any health coverage and employed an average of 100 FTEs in calendar year 2014, and continues to employ 100 FTEs for each month in calendar year 2015: • Penalty tax assessment would be $2000 x 70 FTEs, totaling $140,000 for calendar year 2015 • The assessment is based on 70 FTEs because the first 30 FTEs are exempt for purposes of calculating the penalty tax • Penalty tax assessment is not deductible for federal income tax purposes Penalty Tax Example: Employer Offering “Unaffordable” Coverage An employer offers minimum essential coverage to its FTEs, employed an average of 100 FTEs in calendar year 2014, and continues to employ 100 FTEs for each month in calendar year 2016. However, based on annual income,10 of the employers FTEs would be required to pay more than 9.5% of their household income to participate in the employer’s plan. Each opts to purchase insurance through the exchange for the calendar year 2015, and receives a premium credit or cost-sharing adjustment for such coverage • Penalty tax assessment is $3000 x 10 FTEs, totaling $30,000 for calendar year 2014 • The assessment is based on 10 FTEs because that is the number of FTEs receiving subsidized coverage in the exchange; the exemption for the first 30 FTEs does not apply • Assume 40 FTEs received subsidized coverage in the exchange; the penalty tax ($3000 x 50) is $150,000 under this formula; however, the penalty cap applies and a $140,000 penalty is assessed ($140,000 is the maximum penalty if the employer offered no coverage – see prior example) • Penalty tax assessment is not deductible for federal income tax purposes Determining Who Are Your Full Time Employees: Hours of Service • Penalties are calculated based on the number of “full-time employees”. • Imperative that an employer understand which of its employees are considered “full-time” and for which months. • Statute defines a full-time employee as an employee who was employed on average at least 30 hours of service per week or 130 hours of service per calendar month. • What is an hour of service? • Each hour for which the employee is paid, or entitled to payment, for the performance of duties for the employer; AND • Each hour for which the employee is paid, or entitled to payment, on account of a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty military duty, or leave of absence (uncapped except in case of employer that is an educational organization, in which case cap is 501 hours) • must also credit certain unpaid leaves of absence • FMLA, USERRA, jury duty (averaging method) • Hourly Employees • Must calculate actual hours of service from records of hours worked and for non-worked hours for which employee entitled to payment Hours of Service • Non-Hourly Employees • 3 options 1. same as hourly employees 2. equivalency method of 8 hours of service for each day the employee is entitled to payment (hours worked or not worked such as vacation, etc.) 3. equivalency method crediting 40 hours of service per week for each week the employee is entitled to payment (hours worked and not worked such as vacation, etc.) Determining Who Are Your Full Time Employees: Hours of Service • May apply different methods for different classifications of non-hourly employees so long as classifications are reasonable and consistently applied. • May change method for each calendar year. • IRS has stated that an employer may not use an equivalency method if the result is to substantially understate an employee’s hours of service in such a way as to cause an employee not to be treated as full-time. • Example: nurse works three days (12 hours per day) a week, actual hours are 36 per week, using 8 hours for each day results in only 24 hours which is less than the 30 for full-time status. NOTE: All hours of service performed for all entities treated as a single employer under the controlled and affiliated service group rules must be taken into account. • Additional guidance expected – IRS has requested comments on how to determine full-time status where an employee’s hours are limited (airline pilots), not coordinated with hours worked (commissioned sales people) or untracked (adjunct professors). Until more guidance issued must use a reasonable method. IRS has stated that it would be unreasonable to not consider class preparation time for adjunct professors and travel time for a traveling salesman compensated on commission. Measurement Periods • Applicable Time Periods • Impracticable to determine which employees are “full-time” in real time for purpose of providing qualified health coverage - so IRS came up with system using a measurement, administrative and stability period for purpose of determining whether an employee is full-time for the purpose of the penalties. Determining Who Are Your Full Time Employees: Measurement Periods • Look-back period during which you calculate an employee’s hours of service and determine whether they averaged 30 or more hours per week during that period. • Must be 3 to 12 consecutive calendar months in length. • New employees who are reasonably expected at their start date to be employed an average of 30 hours of service per week must be offered coverage at or before the conclusion of the employee’s initial 3 months of employment in order for the employer to avoid being subject to a penalty for that 3-month period. • Initial Measurement Period for new variable hour and seasonal employees who have not been employed for one full standard measurement period. • Requirement: • Must begin between the employee’s start date and the first day of the next month. • The IMP and the administration period combined cannot extend beyond the last day of the first month following the employee’s 1-year anniversary (13 months and a fraction of a month). • Standard Measurement Period for on-going employees who are employees who have been employed for at least one full standard measurement period. • Stability Period • Period for which an employee’s status as a full-time or part-time employee, based on hours during the measurement period, is locked-in. • Status cannot be changed during this period regardless of the number of hours the employee works during the stability period. • Stability period begins at the end of the measurement or administrative period. • Employee averages 30 or more hours per week: • Stability period must be the longest of: (a) 6 months; (b) length of the initial measurement period; or (c) the length of the standard measurement period. • Length must be the same for new employees and ongoing employees. • Employee averages less than 30 hours per week: • Stability period for ongoing employees can be no longer than the standard measurement period. • Stability period for new employees (VH and Seasonal) can be no longer than the initial measurement period and the employee’s status must be redetermined during the first overlapping standard measurement period. • Administrative Period • Optional – not required to have one. • Begins at the end of the measurement period and ends before the beginning of the next stability period. • The period of time during which an employer calculates the number of hours during the measurement period, provides enrollment materials and conducts the open enrollment process. • Cannot exceed 90 days. Kristen L. Gentry kgentry@kdlegal.com 317-238-6288