Health Care Reform: 2014 Overview The session will begin shortly Sound should come through your speakers when the session begins Verify that the volume is turned up on your computer You can listen through your computer or over the phone If there is no sound on your computer or you would like to call in directly, use the following information: Session phone number: (877) Access code:

November 2013 Health Care Reform 2014 Overview Erica Storm, Esq. Becca Kopps, Esq. Robert D. Reynolds, CIC,CPIA, AAM, AIS, AU Presented by:

About the presenters Erica Storm, Esq. Becca Koops, Esq. Robert D. Reynolds, CIC, CPIA, AAM, AIS, AU Employment and benefits attorney Expertise in health care reform and health plan issues Educates companies on compliance obligations Employment and benefits attorney Primary focus: health care reform Creates educational materials and compliance resources President & CEO Morris & Reynolds Insurance Insurance & Employee Benefit’s Broker For 30 Years Certified Healthcare Reform Expert

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Introduction

Health Care Reform Enacted in March 2010 Makes significant changes to health care system Implemented over several years Affordable Care Act Health care providers Government programs Health insurance issuers Employers/plan sponsors Individuals Provisions that impact: Most employers that offer health plans will be impacted in some way

The RuleDefinitionsExceptionSpecial Rule Partial delay More Special Rules Sub-special Rule Additional Special Rule Confusing Political Action Confusing Media Coverage How Health Care Reform Works

Recent Developments

Recent Guidance Health FSA rollovers permitted − Oct. 31, 2013: IRS relaxed “use-or-lose” rule for health FSAs − Participants can carry over up to $500 in unused funds to the next year − Plan cannot include both carryover and grace period − Does not impact $2,500 salary reduction limit − Written plan amendment required Cafeteria plan election change rules expanded for health care reform changes* New hardship exemption from individual mandate penalties for Exchange enrollees*

2013 Compliance Reminders

SBC and 60-Day Notice Rule Summary of Benefits & Coverage (SBC) Simple, concise explanation of plan benefits & costs Model chart available Applies to issuers and plan sponsors No duplication required Issuer can distribute on behalf of employer Provide to participants & beneficiaries effective Sept. 23, st day of 1 st open enrollment period 1 st day of 1 st plan year Other specific situations 60-Day Notice Rule Must notify in advance of any material modifications not in connection with renewal Describe in a summary of material modifications (SMM) or updated SBC At least 60 days BEFORE modification becomes effective Material modification: Enhancement of covered benefits/services Material reduction in covered benefits/ services More stringent requirements for receipt of benefits

Notice of Exchange Must include information about: Existence of Exchange and services provided Potential eligibility for subsidy under Exchange Risk of losing employer contribution New employees: within 2 weeks of hire date Employers subject to the FLSA must notify all employees of Exchange/Marketplace information Must provide in writing May provide by mail or electronically (DOL requirements apply) Model notices available

Notice of Exchange - Penalties Still unclear whether non-compliance can trigger: − Non-ACA penalties − DOL audit − Employee lawsuits Providing notice is still required by law, and can benefit employers − Can help answer employee questions DOL has said there are no fines or penalties for failing to provide notice

Health Plan Fees

2014 and beyond2013 plan year Patient-Centered Outcomes Research Institute (PCORI) Fees 2012 plan year $1 x average number of covered lives $2 x average number of covered lives Increase based on National Health Expenditures Paid by issuers and self-funded plan sponsors − Special rules multiple self-funded plans (including HRAs) Paid annually on Form 720 by July 31 each year − Apply for plan years ending on or after Oct. 1, 2012 − End with the 2018 plan year – do not apply for plan years ending on or after Oct.1, 2019 Amount of the fees:

Reinsurance Fees Transitional reinsurance program to operate − Fees imposed on health insurance issuers and self-funded plan sponsors of major medical plans (with some exceptions) − Exemption expected for some self-funded plans for Fees based on annual national contribution rate − 2014: $5.25/month ($63/year) x average number of covered lives Nov. 15 Submit enrollment count to HHS Dec. 15 (or 30 days) HHS notifies issuer/sponsor of amount due 30 days Payment due

Health Insurance Providers Fee Annual fee on health insurance providers − Effective in 2014 − Due Sept. 30 each year − Allocated according to market share: $8B in $14.3B in 2018 (based on premium growth in later years) Applies to: Covered Entities Including health insurance issuers and HMOs Does not apply to: Companies with $25M or less in net premiums Self-insured employers Government and non-profit entities VEBAs

2014 Health Plan Changes

Waiting Period Limits Waiting periods limited to 90 days for all plans − Beginning with 2014 plan year Strict 90 day limit 1st of the month following not permitted Other eligibility conditions permitted Can’t use to avoid 90-day limit Limits on cumulative hours of service requirement (1200 hours/one time only) Variable hour employees Measure hours for up to 12 months to determine FT status Offer coverage by end of 13 th month

Cost-Sharing Limits for Health Plans Limits for non-GF group health plans beginning with 2014 plan year Out-of- Pocket Limits All non-GF group health plans May not exceed HDHP limits for 2014 ($6,350 single/$12,700 family) Indexed for inflation Special rule for 2014 delays full compliance Deductible Limits Only insured small group non-GF plans May not exceed $2,000 (single coverage) or $4,000 (family coverage) Carriers may have flexibility Indexed for inflation

Plan Changes Prohibited on essential health benefits in 2014 plan year Essential health benefits determined according to state benchmark plan Annual limits eliminated Currently prohibited for children under age 19 Prohibited for everyone beginning with 2014 plan year Preexisting condition exclusions prohibited Must provide essential health benefits package Premium rating restrictions apply – limited to age, geographic location, family size and tobacco use Small group policies (non-GF plans)

Wellness Programs Changes Health-contingent wellness program reward limits increase in 2014 − Current limit: 20% of cost of coverage − General limit: 30% of cost of coverage − Tobacco program limit: 50% of cost of coverage Health contingent wellness programs divided into: − Activity-only programs − Outcome-based programs Nondiscrimination rules apply to health contingent programs (with slight differences) − Opportunity to qualify once/year − Must offer alternative means of qualifying − Outcome-based programs must offer reasonable alternative standard

Individual Mandate and Exchanges

Individual Mandate Rule for individuals: have health insurance coverage by 1/1/14 or else (pay a penalty) Penalty applies to taxpayers and their children who don’t have “minimum essential coverage” − Greater of dollar amount or % of income − Kids = half of adult penalty − Family penalty capped Annual penalty amounts − 2014 = $95 or 1% − 2015 = $325 or 2% − 2016 = $695 or 2.5%

Employer sponsored coverage Including COBRA and retiree coverage Individual coverage Government programs Medicare Medicaid Children’s Health Insurance Program (CHIP) coverage Some veterans’ health coverage TRICARE What is Minimum Essential Coverage?

Exemptions to the Mandate Available Exemptions o Low income or hardship* o Coverage is unaffordable (more than 8% of income) o Religious exemption o Incarcerated o Member of Indian tribe or health care sharing ministry o Not lawfully present o Short gap in coverage Exemptions claimed through Exchange or tax filing Individuals who lose exemption get special enrollment rights

Special Rule for Employees Eligible for Non-Calendar Year Plans Let employee elect employer coverage for Jan. 1 or leave employer plan to go to Exchange Optional, but plan must be amended (retroactive amendment ok) Extended to any employer with a non-calendar year cafeteria plan (not just large employers) Employers can amend Section 125 plan to allow mid-year election changes Employee will not be subject to penalties if they are not enrolled for plan year Relief available until the end of the 2013 plan year Relief for employees

American Health Benefits Exchange Public health insurance Exchange required by ACA Primarily online marketplace for purchasing health insurance (Qualified Health Plans) Run by state or federal government with consumer assistance from other entities For individuals and small employers (generally up to 50 employees)

SHOP Exchange Small Business Health Option Program (SHOP) – Exchange for small employers Small employers can offer employees enrollment in a QHP through a SHOP − Can offer benefits through a cafeteria (Section 125) plan − Exchange sets contribution methods States can limit size to up to 50 employees 2016 States must increase size to up to 100 employees 2017 States can let any size employer participate

Employee-Choice Feature Delay Employers have the option to offer employees all QHPs at a certain level of coverage Employer chooses level of coverage and a contribution amount Employees choose the plan they want Employee-choice model: 2014 implementation optional for state Exchanges Most state Exchanges will offer employee choice in 2014 Employee choice model delayed until 2015 for FFE SHOPs Employers will have to choose a plan Employees won’t be able to choose from all plans right away Exchanges still planned to be operational

Qualified Health Plans Offered by an approved insurer Certified to meet Exchange requirements Offers essential health benefits Meets cost-sharing limitations Priced like plans outside the Exchange Provides bronze, silver, gold or platinum coverage (or catastrophic plan for young individuals) Apples to apples...

QHP Metal Levels 90% of benefit costs covered 80% of benefit costs covered 70% of benefit costs covered 60% of benefit costs covered

Exchange Eligibility Individuals Citizen or legal resident Not incarcerated Reside in state covered by Exchange (Not be enrolled in Medicare) Separate from subsidy eligibility rules Small Employers (SHOP Exchanges) Qualify as a small employer based on size Offer QHP coverage to at least all FT employees Use SHOP in primary office location or employee’s primary worksite location Most individuals can shop for Exchange coverage (even if eligible for employer coverage)

Exchange Enrollment Individuals Initial enrollment: Oct. 1, 2013-March 31, 2014 Must enroll by Dec. 15 for Jan. 1 coverage but: no penalties for anyone who enrolls during initial open enrollment period Annual open enrollment: Oct. 15-Dec. 7 Special enrollment for qualifying events Small Employers Can buy coverage for employees any time after Oct. 1, month plan year required Annual election periods apply Special enrollment for employees with qualifying events Restrictions apply to timing of enrollment to prevent adverse selection

Exchange Subsidies Provide assistance to low income individuals: 100%-400% of federal poverty level Not eligible for government programs that cover health care To help pay premiums or reduce cost-sharing Not available to individuals who are: Eligible for affordable, minimum value employer coverage or Enrolled in an employer plan

Employer Mandate (Delayed Until 2015)

Employer Shared Responsibility Rules (Pay or Play) No requirement to offer coverage Can get tax credits for providing coverage Small Employers (fewer than 50 FT/FTE employees) Must offer coverage to FT employees and dependents to avoid penalties Coverage must be affordable and provide minimum value Penalties delayed until 2015 Large Employers (50+ FT/FTE employees) Employer penalties triggered if any full-time employee receives subsidized coverage in an Exchange

Determining Large Employer Status for Pay or Play Penalties

Who is a Large Employer? Average 50+ full- time employees In the prior calendar year Including full-time equivalent employees Common ownership rules apply Special rule for 2014: can count 6 consecutive months in 2013 Will this apply for new 2015 effective date?

Full-Time Employee With respect to a calendar month An employee who is employed on average at least 30 hours of service per week 130 hours of service in a calendar month = the monthly equivalent of 30 hours of service/week

Full-Time Equivalent Employees Add hours of service in a month for PT employees (up to 120 hours/person) Divide total hours by 120 Result: Number of FTEs for the month

Counting Employees Add full-time employees (including seasonal) for each calendar month in prior calendar year Add FTEs (including seasonal) for each calendar month in prior calendar year Add full-time employees and FTES together for each month of prior calendar year Add 12 monthly totals and divide by 12 * Special rule for 2014: can use 6 consecutive months in 2013

Special Rules Seasonal Employees An employer is not a large employer if: (1) the employer's workforce exceeds 50 full- time employees for 120 days (4 months) or fewer during the calendar year and (2) the employees in excess of 50 employed during that period were seasonal workers New Employers Use average number of full-time employees the employer is “reasonably expected to employ” on business days in the current calendar year

Providing Coverage to Full- Time Employees

Employer Shared Responsibility Penalties Penalties may apply if the employer: Fails to offer minimum essential coverage to FT employees (and dependents) Offers coverage that is not affordable or does not provide minimum value Penalties triggered if any FT employee gets subsidized coverage through Exchange Not offered employer coverage or offered coverage that is unaffordable not of minimum value (and doesn’t enroll) Not eligible for government programs (Medicare, Medicaid) Income below 400% of federal poverty level Enrolling in Exchange coverage without subsidy will not trigger penalties

Affordability and Minimum Value Affordable Coverage Minimum Value Coverage Employee’s cost for self-only coverage does not exceed 9.5% of household income Employer can generally compare cost of coverage to W-2 income, rate of pay or federal poverty level Plan covers at least 60% of costs of covered benefits and services for average person HRA/HSA amounts may be included HHS-approved methods for calculation Some HRA amounts may be included Most wellness incentives cannot be taken into account

Potential Penalties Employer did not offer coverage to substantially all FT employees and dependents (children) $2,000 x (all FT employees – 30) Penalty A Employer offered coverage to substantially all FT employees/dependents But not all OR coverage is not affordable or does not provide minimum value $3,000 x each employee who gets subsidized coverage (capped at Penalty A amount) Penalty B

49 Penalty Potential Not a large employer: Less than 50 full-time equivalent employees Large employer: 50 or more full-time equivalent employees Does not offer coverage to substantially all FT employees (and dependents) Offers coverage to substantially all FT employees (and dependents) Scenario A No full-time employees receive credits for exchange coverage Scenario B 1or more full-time employees receive credits for exchange coverage Scenario C No full-time employees receive credits for exchange coverage Scenario D 1or more full-time employees receive credits for exchange coverage No penalty Number of full- time employees minus 30 multiplied by $2,000 No penaltyLesser of: Number of full-time employees minus 30, multiplied by $2,000. Number of full-time employees who receive credits for exchange coverage, multiplied by $3,000. (Penalty is $0 if employer has 30 or fewer full-time employees- because penalty is based on the lesser of the two calculations)

Offering Coverage Must be offered to substantially all FT employees and dependents Substantially all − 95% general rule − May fail to offer to up to 5% (or 5, if greater) − Does not have to be inadvertent Children up to age 26 must be offered coverage − Not spouses − Dependent coverage does not have to be affordable Opportunity to elect must be offered once per year − Employee must be able to opt out of coverage that is unaffordable/not MV

Measuring Full-Time Status

Statutory Requirement Employers would have to determine full-time status on a monthly basis − Would have to know status to offer coverage Administrative issues − Not an issue for employers/employees with standard schedules − Problematic for variable hour employees

Employees Expected to Work Full-Time Employer must offer coverage by the end of the first 3 full calendar months of employment Applies to an employee who is “reasonably expected at his or her start date to be a full- time employee (and is not a seasonal employee)” If coverage is not offered by the deadline, penalties can apply for: − The first 3 calendar months − Any subsequent months where coverage is not offered

Safe Harbor for Variable Hour/Seasonal Employees Stability Period Coverage provided (or not) – length depends on type of employee and whether FT or not Administrative Period Time for enrollment/disenrollment (Up to 90 days) Measurement Period Counting hours of service (3-12 months)

Look Back Measurement Method Measurement Period Admin Period Stability Period Nov. 1 Dec 31 Jan 1Nov. 1Dec 31 Jan 1 Dec Measurement Period cont.

Questions?

For more information about Health Care Reform visit: Morris & Reynolds Insurance South Dixie Highway, Miami, FL Telephone | Fax

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