Affordable Care Act/Healthcare Reform Legal Issues – What You Need to Know!! Rebecca Dobbs Bush SmithAmundsen LLC (630)

Patient Protection and Affordable Care Act (PPACA) General Disclaimer oAt the outset –note that the law is VERY confusing. oThere are many ambiguities where we are still awaiting relevant government agencies to issue detailed regulations.

2014 – Are you Ready? Mandates – Individual and Employer Automatic Enrollment (>200 FT Employees) oOn Hold – pending further guidance Insurer Fees/ Plan tax Benefit limits Premium Subsidies Maximum waiting period (90 days)

Insurer Fees/Plan Taxes Paid annually For insured plans: oWill be paid by insurance company oPassed on to employer – noted as separate charge on invoice oFor 2014, estimated to be $63 per enrollee per year For self-insured plans: oFor plan years ending on or after 9/30/12 oEach self-insured plan must pay to the IRS an annual fee of $2 per participant (reduced to $1 for the first plan year)

Benefit Limits Deductible limits applied to small group market oMaximum of $2,000 deductible for single coverage and $4,000 for other than single coverage Out-of-pocket limits applied to all size fully-insured and self-funded groups oCapped at HSA qualified plan limits ($6,250 single/$12,500 Family)

Premium Subsidies/Exchanges States will receive funding to establish health insurance exchanges Individuals and small employers can purchase coverage through an exchange Individuals can be eligible for tax credits oLimits on income and government program eligibility oEmployer plan is unaffordable and/or not of minimum value Three model options: oState-run facilitator* oState-run active purchaser oFederally run

Status of IL Exchange IL received approximately $39 million in establishment funds from Federal Government IL is only 10% complete – has asked for assistance from Federal Government in finalizing set up Illinois will use a Federal/State Partnership Model Supposed to be operational by October of 2013

Exchange: Plan Designs Four Levels of coverage oPlatinum – 90% oGold – 80% oSilver – 70% oBronze – 60% Other Factors: oGuaranteed availability and renewability of coverage oFair health insurance premiums (age-3:1; Tobacco; Family Size; Geography) oSingle statewide risk pools oCatastrophic plans (<30 years old; financial need) oRate review program (annual review process)

Individual Responsibility (and Premium Subsidies) Starting 1/1/14 – individuals, including children, must enroll in minimum essential coverage, or pay a penalty- tax Penalty Tax Amount: Greater of $ amount or a % of income o2014: $95 or 1% o2015: $325 or 2% o2016: $695 or 2.5% oFamily penalty capped at 300% of the adult flat dollar penalty or “bronze” level premium Assessed on a monthly basis

Premium Credit and Subsidies Those who don’t have access to affordable, minimum essential coverage may be entitled to a credit and/or subsidy based on income level.  Under 133% of Federal Poverty Level (FPL) driven to Medicaid (provision still unclear)  Between 133% and 400% of the FPL – For an individual, that is between $15,282 and $45,906 per year (2013) – For a family of four, that is between $31,322 and $94,200 per year (2013)

Employer Responsibility Provisions To Whom Does it apply? oEmployers with 50 or more full-time equivalent (FTE) employees  Initially for 2014, can use any consecutive six-month period during 2013 to measure  Employers that are part of a “controlled group” have to count total employees of “controlled group” – BUT, Pay or Play rule penalty generally applies separately with respect to each applicable large employer member of the “control group”

How do you count employees under the ACA? oA full-time employee is one who works 30 hours a week. oPart-time employees count as a fraction of an employee. oWhen employee thresholds are referenced – the reference is to a full-time equivalent employee (FTE).

Counting Employees:  To figure out if an employer meets the 50-employee threshold:  An employer would first count full-time employees.  If they do not have 50 full-time employees, they would then count part-time employees.  To count part-time employees:  Count the total number of part-time employees.  Then, count all the hours worked by those part-time employees in the month and divide them by 120 (30 x 4) to figure out how many FTEs the employer has.

Example:  A company has 35 full-time employees (30+ hours). In addition, the company has 20 part-time employees who all work 24 hours per week (96 hours per month).  These 20 part-time employees would be treated as equivalent to 16 full-time employees based on the following calculation:  20 employees x 96 hours / 120 = 1920 / 120 = 16  Thus, this employer would be considered a large employer with a total FTE count of 51 employees ( = 51).

Pay or Play Employers with 50 or more employees  The Sledge Hammer Tax -- Effective 2014, these Employers are not required to offer coverage, but where they do not (to at least 95% of their full-timers) AND they have at least one full-time employee receive a subsidy and purchase coverage in an exchange, they will be required to pay $2,000 per full-time employee annually ($167 per full time employee monthly).  The first 30 employees will be excluded.  Example:  So, an employer with 60 employees that does not offer health coverage will be required to pay $60,000.  [60 employees] less [first 30 employees] multiplied by $2,000 = $60,000.

The Sledge Hammer “Tax” vs. the Tack Hammer “Tax” oCoverage offered must be “affordable” and of “minimum value”  The Tack Hammer “Tax” -- For those employers offering “unaffordable” coverage that is not of “minimum value,” they will be assessed a $3,000 penalty for each full-time employee that receives a subsidy and purchases coverage in an exchange.

Criteria for assessing penalty – Coverage must be “Affordable” oCoverage offered must be “affordable”  For those employers offering “unaffordable” coverage, they will be assessed a $3,000 penalty for each full-time employee that receives a subsidy and purchases coverage in an exchange.  Coverage is “unaffordable” where:  The employee’s share of the premium exceeds 9.5% of family income.  Example: If you have a single employee working full-time at Illinois minimum wage ($8.25 as of July 1, 2010), coverage would be “unaffordable” if the employee has to pay more than $ per month.

Criteria for assessing penalty – Coverage must be of “Minimum Value” To be of “minimum value” oPlan must cover at least 60% of the total allowed cost of benefits that are expected to be incurred under the plan. o(i.e., actuarial value of the plan must be at least 60%) oNote: A minimum value calculator was made available by the IRS and the Department of Health and Human Services (HHS) on February 25, 2013

Penalty Amount Examples: 1. Employer does not offer coverage; or offers coverage to less than 95% of its FT employees, and at least one (1) of the FT employees receives a premium tax credit on the exchange.  $2,000 annual penalty (per full-time employee)  First thirty (30) FT employees are exempt oEXAMPLE: Acme, Inc. has 100 FT equivalent employees and 70 FT employees. They do not offer coverage and one employee receives a premium credit.  ANSWER: $2,000 x (70-30) = $80,000/year

Penalty Amount Examples: 2. Employer offers coverage to at least 95% of its FT employees; but at least one (1) of the FT employees receives a premium tax credit on the exchange. o$3,000 annual penalty oCalculated by taking the number of FT employees who receive the tax credit for that month multiplied by 1/12 of $3,000. oMaximum penalty is capped at the number of the employer’s FT employees for that month multiplied by 1/12 of $2,000 (i.e., the penalty they would have incurred for not offering coverage at all – and remember, the 1 st 30 are exempt)

When are the penalties effective? Generally effective for calendar months beginning January 2014.

Transition Rule Delayed effective date for some non-calendar year health plans oFirst transitional rule states that no penalty will be imposed against an employer with a non-calendar year plan with respect to any employees who are eligible to participate in a fiscal year plan under its terms as of December 27, 2012 (whether or not they take coverage) until the first day of the non-calendar year plan starting in oSecond transitional rule exists to allow a plan additional time to expand eligibility provisions and offer coverage to those who were not previously eligible.  If you offered to at least 1/3 of the FT and PT employees at the most recent open enrollment period  OR, if you covered at least ¼ of the total employees  Then, you are not subject to the penalty until the 1 st day of the plan year starting in 2014 provided that those FT employees will all be offered coverage no later than that date.  In determining whether you meet the 1/3 or ¼ test, you can look at any day between October 31, 2012 and December 27, 2012.

What else should we be thinking about to get ready for 2014? Should you lower eligibility criteria for your health plan to 30 hours per week to meet the “pay or play” sledge hammer “tax” requirements? Do you need to increase the amount you contribute towards premiums to meet the “pay or play” tack hammer “tax” affordability considerations? Do you need to schedule more employees to work less than 30 hours per week? How is guaranteed issue going to affect health care costs? Do you need to consider self-funding your health plan? Is it really an option to drop health insurance and just pay the penalty?

Questions??? Rebecca Dobbs Bush (630)