How Does the ACA Affect Employers’ Health Plans in 2014 and Beyond? Stacy Clark, Esq. Dan Taylor, Esq. © 2014, Alston & Bird, LLP

Challenges Facing Employers Compliance Costs –Health insurance reforms Additional benefits –Reporting Requirements E.g individual mandate E.g. W-2 reporting –Employer shared responsibility (50 or more FTEs in preceding year) –Cadillac Tax Added fees/taxes –Transitional Reinsurance (direct and indirect) –PCORI (direct and indirect) –Health Insurer Fee (indirect)

The Legal Landscape: Level Setting ACA has many parts that affect Employers –Health Insurance Reforms –Individual Mandate –Exchange Premium Subsidy –Employer Shared Responsibility –Taxes and Fees –Misc.

Health Insurance Reforms Reforms Not Applicable to GF Plans (2010/2014) –Nondiscrimination for fully insured plans –Preventive care coverage mandate –Patient Protections –Claims Procedures –Rating Requirements –Cost Sharing Limitations* Deductible limitation (small group market only) OOP –Requirement to provide essential health benefits (small group market only)* Reforms applicable to All Plans (2010/2014) –Lifetime/Annual Limit Prohibition* –“Child” coverage to age 26 –Rescissions –Uniform Explanation of Coverage –MLR –Wellness requirements –No waiting periods in excess of 90 days –No pre-existing condition exclusions

Health Insurance Reforms To which plans do the Health Insurance Reforms Apply? –All group health plans except Excepted benefits “Retiree-only” plans –Penalties for failing to comply: $100/per day/per affected beneficiary excise tax under 4980D Specific performance under ERISA $100 per day penalty under PHSA (governmental plans/insurers)

Health Insurance Reforms What is an excepted benefit? –The “Always” bucket Accident Disability Liability Workers Comp Onsite Health Clinics –Limited Non-integral dental/vision Health FSA that satisfies certain conditions –Non-coordinated Specified disease Fixed/hospital indemnity –Certain supplemental –EAPs (see proposed rules) –Wrap around coverage (see proposed)

Individual Mandate Beginning in 2014, all individuals must maintain minimum essential coverage or pay a tax What is minimum essential coverage? –All “group health plans” other than excepted benefits Policies issued in the group market Self-insured plans –Policies issued in the individual market Inside Exchange Outside the Exchange

Individual Mandate Is minimum essential coverage the same as “minimum value”? –No Does a plan have to comply with applicable health insurance reforms? –Presumably Will “skinny plans” qualify as minimum essential coverage?

Exchange All policies generally provide a “metallic” level of coverage All policies provide essential health benefits (whether you want them or not) All policies subject to certain rating requirements Special/annual enrollment ONLY –Cannot enroll any time you want! Certain individuals may qualify for a premium subsidy/cost sharing reduction in Exchange –Household income between 100% and 400% of poverty level and –Not “eligible” for employer sponsored MEC that is both affordable and provides minimum value OR –Not enrolled in employer sponsored MEC (regardless of whether it is affordable or provides minimum value)

Exchange How do employer coverage and Exchange coverage interact? –Eligibility for or enrollment in employer MEC does NOT affect eligibility for Exchange –Eligibility for employer MEC can affect eligibility for Subsidy Eligibility for COBRA and retiree coverage does not affect eligibility –Enrollment in employer MEC DISQUALIFIES employee/retiree from Subsidy

Employer Shared Responsibility Begins January 2015 Only applicable to “applicable large employers” (ALE) –50 or more full-time equivalents in the prior calendar year Full-time employees (average 30 hours of service per week in a month) Hours for part-time employees divided by 120 Determined on a controlled group basis If an ALE, then each controlled group member will pay an excise tax for any month that a “full-time” employee receives a subsidy in the Exchange

Employer Shared Responsibility 2 penalty buckets (for each month, you are either in one or the other—but not both): –Sledgehammer- occurs if the employer fails to offer MEC to at least 95% of its full-time employees and 1 full-time employee receives a subsidy in the exchange 1/12 of $2000 ($166) x the total number of that controlled group member’s full-time employees, reduced by the employer’s allocable share of 30 –Tackhammer- occurs if the employer fails to offer affordable, minimum value MEC to 100% of its full-time employees and one or more full-time employees receives a subsidy in the Exchange 1/12 of $3000 ($250) x the total number of full-time employees receive the subsidy

Employer Shared Responsibility NOT A MANDATE TO PROVIDE COVERAGE! Many employers will choose to pay an excise tax/penalty as opposed to modifying coverage –Many employers will try to avoid sledgehammer but may choose to pay tackhammer A few concepts to consider: –ALEs not subject to excise taxes under employer shared responsibility for part-time employees –ALEs who merely want to avoid Sledgehammer need only offer MEC to 95% of their full-time employees

New Reporting Requirements Designed to help the IRS measure compliance with employer shared responsibility and individual mandate Two categories of reporting: –Report on MEC offered by “coverage providers” Employers for self-insured plans, and insurers for fully funded plans –ALEs (all members of controlled group) Reports provided to IRS and to covered individuals –Significant amount of information required to be reported Applies in 2015 – first reports due in early 2016

Taxes and Fees PCORI fee –Responsibility entity pays FEE x average number of covered individuals for plan years ending on or after October 1, 2012 and before October 1, 2018 Fee= –$1 for plan years ending on or after October 1, 2012 and before October 1, 2013 –$2 for 2013 –Adjusted annually thereafter Responsibility entity –Plan sponsor of self insured plans –Insurer of fully-insured plans Does not include “excepted benefit” plans

Taxes and Fees Transitional Reinsurance Fee –Contributing entity pays FEE x average number of covered individuals for calendar years Fee= –$63 for 2014 Responsibility entity –Self-insured plans –Insurer of fully-insured plans Does not include any plan that does not provide MINIMUM VALUE (as proposed) –Would not include excepted benefit plans

Taxes and Fees Cadillac Tax Beginning in 2018, PPACA imposes a 40 percent excise tax on: –“Coverage providers:” for the sum of months in which the aggregate value of employer sponsored health coverage for the employee exceeds: 1/12 of $10,200 for single coverage and $27,500 for family coverage –The higher family threshold applies to both single and family coverage offered under a multiemployer plan –These amounts are to be adjusted automatically if health costs increase by more than anticipated before 2018 –The thresholds are increased by CPI + 1 in 2019, and by CPI thereafter –An employer may make an adjustment to reduce the cost of plans when calculating the tax if the employer’s age and gender demographics are not representative of a national average The annual limit for retirees between ages 55 and 64, individuals engaged in certain high-risk professions is increased to $11,850 for individual coverage and $30,950 for family coverage

Miscellaneous Small employer tax credit W-2 Reporting –What coverage is required to be reported? –See Employer-Sponsored-Health-Coveragehttp:// Employer-Sponsored-Health-Coverage MOST excepted benefits exempt (special rule for pre-tax specified disease/hospital indemnity) Limitation on Health FSA salary reductions –Effective with plan years beginning in 2013 –$2500 limitation on salary reductions

Recent Non-ACA Issues FSA Carryover –Optional, but must be in place of grace period Mental health parity (final regulations) Wellness plans (final regulations) HIPAA Omnibus Rule –Affects HIPAA documents (Notice of Privacy Practice, Policies and Procedures) and Business Associate agreements

What Should You Be Doing Now? Plan ahead for Employer Shared Responsibility and associated reporting requirements –YOU SHOULD BE COLLECTING DATA NOW Make sure plan documents and Summary Plan Descriptions reflect recent changes –E.g., cost-sharing limits, restricted waiting periods, patient protections, enhanced claims procedures, revised mental health parity rules –Consider any eligibility changes to be made in 2015 (e.g., revised definition of “full-time” employees)

What Should You Be Doing Now? Don’t forget account-based plans –E.g., FSA limits, new HRA restrictions –Consider FSA carryover in place of grace period –HSA limits change annually Check your wellness plan for compliance Any 2013 changes you missed? –E.g., HIPAA Omnibus Rule, Marketplace Notice