1. Understanding PPACA

2. Intended to increase number of Americans with health coverage
Key Parts of PPACA
Intended to increase number of Americans with health coverage
Penalties for individuals without coverage
Encouragement for employers to offer coverage
Market reforms to improve access
Expanded Medicaid eligibility

3. Individual Obligation
Obtain “minimum essential coverage” through an employer, an exchange, an individual policy or the government (e.g. Medicare and Medicaid) or pay a penalty

4. Individual Obligation (continued)
Penalty is:
Greater of:
$95 or 1% of income in 2014
$325 or 2% of income in 2015
$695 or 2.5% of income in 2016
Dollar amount is indexed for 2017 and later (% remains at 2.5%)
Family maximum penalty of 3 times individual penalty

5. Individual Penalties (continued)
Penalty is paid as part of federal income tax
IRS has limited authority to enforce collection of the penalty
Supreme Court found this requirement constitutional under Congress’ power to tax

6. Employer Encouragement
Small employers (50 or fewer employees for 2014) may enroll in an exchange for small businesses (“SHOP”)

7. Employer Encouragement (cont.)
Employers are not required to offer medical coverage, but starting in 2015 a penalty applies to employers with 50 or more employees who do not offer “minimum essential” coverage, or who offer coverage but the coverage does not provide “minimum value” or is not “affordable”

8. When counting employees for the 50 employee threshold, consider both:
Employer Penalties
When counting employees for the 50 employee threshold, consider both:
Full-time employees (30 or more hours/week)
Part-time employees (“full-time equivalent employees”) on a pro-rata basis

9. Employer Penalties (continued)
Controlled group rules apply
Penalty is $2,000/year/full-time employee if minimum essential (basic) medical coverage is not offered to at least 95% of full-time employees and their dependent children
Exclude the first 30 employees
Penalty is calculated monthly
Basically, the controlled group rules say that if separate entities are owned or controlled by the same people, the companies need to be combined when counting employees.
Coverage does not have to be offered to spouses.
Penalty does not apply if NO employee receives a premium tax credit
Minimum essential coverage hasn’t been defined yet, but it appears that very basic coverage will suffice.

10. Employer Penalties (continued)
Example: Acme Corp. does not offer medical coverage to its employees. Acme has 80 full-time and 20 part-time employees in January. Acme’s penalty for January is: employees = 50 countable employees $2000/12 = $166.67/month 50 x $ = $8,333.50/month penalty
Note that part-time EEs are not counted for penalty purposes

11. Employer Penalties (continued)
If the employer offers a benefit, but it is not “affordable” or it does not provide “minimum value” a penalty of $3,000 is due for each full-time employee who receives a premium tax credit
If the “no offer” penalty is smaller, pay that instead

12. Employer Penalties (continued)
Example: Smith Bros. has 60 employees. It offers coverage that is not affordable. Nine employees decline Smith’s coverage and go into the exchange and 5 of those employees receive premium tax credits. Smith owes:
$3000/12 = $250/month x 5 = $1,250/month
Alternate penalty will rarely apply. 60 x (2000/12) = 10,000.20, which is greater than the 3,000/employee with a tax credit fee

13. Employer Penalties (continued)
Coverage is not “affordable” if the employee’s cost is more than 9.5% of household income
Employers may use any of three safe harbors to determine affordability
Affordability is based solely on the cost of single coverage, even if the EE covers his dependents.
For purposes of getting a tax credit, the measure is 9.5% of household income. Since employers don’t know that number, safe harbors will be available for the employer penalty.

14. Employer Penalties (continued)
Safe harbor is based on the cost of self-only coverage
Not more than 9.5% of:
W-2 income (box 1)
Rate of pay at start of year
Federal poverty level

15. Employer Penalties (continued)
Coverage provides “minimum value” if the actuarial value of the coverage is 60% or better
60% considers employee’s cost share (deductible, co-pays, coinsurance)
60% does not consider premium costs
All exchange plans (other than catastrophic) will provide “minimum value”

16. Employer Penalties (continued)
Large employer plans do not have to provide the 10 “essential health benefits,” but must provide minimum value coverage to avoid penalties
Safe harbor plan designs and calculator have been provided by government
Will be difficult to meet minimum value without covering most of the EHBs
Large employer here is > 50 employees until 2016, when it increases to Self-funded plans of any size don’t have to provide the 10 essential health benefits.

17. Strategies include: Employer Strategies
Maintain current program (e.g., if need for retention, recruitment)
Reduce benefits to minimum value
Restructure contribution levels
Base contribution on pay?

18. Employer Strategies (continued)
Discontinue coverage and rely on the exchanges
Will that cause employees to demand additional, less tax-advantaged compensation?
Would this strategy still be viable if the penalty amount increased?

19. Exchanges/Marketplaces
Intended to make it simpler for individuals and small employers to purchase health insurance
Exchange will not provide insurance directly

20. Exchanges (continued)
Exchange will:
Provide information on plan benefits and costs to make comparing options easier
Oversee the plans health insurers offer through the exchange
Operate the exchange website and a toll-free call center
Determine eligibility for the exchange and for premium and cost-sharing subsidies, and coordinate with Medicaid and CHIP
The exchange can either accept all insurers/plans that meet the guidelines, or be an “active purchaser” of coverage and negotiate with insurers who wish to participate in an exchange

21. Exchanges (continued)
Plans in exchange (and outside exchange in individual and small group markets) must meet requirements for essential health benefits, metal levels and cost-sharing

22. Exchanges (continued)
Essential health benefits are:
Ambulatory (outpatient) care
Emergency services
Hospitalization
Maternity and newborn care
Mental health and substance abuse
Prescription drugs
Rehabilitative and habilitative services
Laboratory services
Preventive and wellness care, including chronic disease management
Pediatric care, including dental and vision
Rehabilitative and habilitative services are things like speech, physical and occupational therapy. It’s rehab if the person could do it before, and lost the ability due to illness or an accident. Habiitative is if the person never could, for instance, speak. This means coverage for developmental delays would be covered.

23. Exchanges (continued)
Coverage to be available at several actuarial levels:
Platinum – cover 90% of costs
Gold – cover 80% of costs
Silver – cover 70% of costs
Bronze – cover 60% of costs
May offer catastrophic coverage to age 30

24. Exchanges (continued)
Cost-sharing limits:
Deductible may not exceed $2,000 single or $4,000 family (some states are allowing higher deductibles, however)
Out-of-pocket (deductible, coinsurance and copays) may not exceed $6,350 single and $12,700 family

25. Exchanges (continued)
Each state has its own exchange
If state chose not to create an exchange, the federal government will run the exchange on behalf of the state
18 states and D.C. will have a state exchange in 2014; the rest have a partnership or federally facilitated exchange
States may have regional exchanges if they prefer. Exchanges may not overlap. As of 1/21/13 Alabama, Alaska, Arizona, Florida, Georgia, Indiana, Kansas, Louisiana, Maine, Missouri, Montana, Nebraska, New Hampshire, New Jersey, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, Wisconsin and Wyoming will have a federally facilitated exchange. Arkansas, Delaware, Illinois, Iowa, Michigan, North Carolina, and West Virginia will have a partnership exchange. California, Colorado, Connecticut, Hawaii, Idaho, Kentucky, Maryland, Massachusetts, Minnesota, Mississippi, Nevada, New Mexico, New York, Oregon, Rhode Island, Vermont, Washington, and Washington, DC and West Virginia will have state exchanges. Utah is state for SHOP and federal for individual.

26. Exchanges (continued)
A person may enroll in an exchange even if they have access to employer-provided coverage
Annual open enrollment is generally each fall for a January 1 coverage date (but October 2013 – March 2014 for 2014)
Special enrollment available mid-year with life events
Access to affordable, minimum value employer coverage means cannot get a premium tax credit

27. Exchanges (continued)
Individual is eligible for a premium tax credit if these conditions are met:
Income is between 100% and 400% of Federal Poverty Level
2014 FPL (except Alaska and Hawaii):
Single person is $11,670
Family of four is $23,850
Amount of credit reduces as income approaches 400% of FPL
2014 FPL due out in late Jan. 2014

28. Exchanges (continued)
Have purchased coverage through the exchange
Do not have access to employer provided coverage that is affordable and provides minimum value
Do not have minimum essential employer-provided coverage
Not eligible for Medicaid
If have employer-provided coverage that is not affordable or is below minimum value, are not eligible for the premium tax credit

29. Exchanges (continued)
PPACA planned to expand Medicaid for all to 133% of FPL but Supreme Court ruled that Congress exceeded its authority About half the states have said they will not expand Medicaid eligibility

30. Plan changes: 2014 Obligations
No annual limits on essential health benefits
No pre-existing condition limitations for anyone
Eligibility waiting periods cannot exceed 90 days
Maximum out-of-pocket limit
First of the month after 90 days will not be allowed

31. 2014 Changes
Insured plans in exchanges and individual and small employer markets must follow:
Guaranteed issue and renewal
Modified community rating
Age (maximum of 3:1)
Tobacco use (maximum of 1.5:1)
Family composition
Geographic region
Community rating limitations are limited to the 4 categories and maximum ratings listed

32. HRAs must be integrated with a group medical plan
2014 Changes (continued)
Maximum wellness incentive increased to 30% of cost of coverage (to 50% for non-use of tobacco)
HRAs must be integrated with a group medical plan
Current maximum is 20%

33. Upcoming Employer Obligations
Transitional Reinsurance Fee
Due for
Annual fee for 2014 is $63 per covered person
Fee will reduce to $44 for 2015 and approximately $32 for 2016
First report due November 2014; first payment January 2015
Insurer files/pays for insured plans; employer files/pays for self-funded plans

34. Upcoming Employer Obligations
2015
Reporting whether an individual has minimum essential coverage
In early 2016 based on 2015 coverage
Insurer reports on insured coverage and plan sponsor reports on self-funded coverage
Large employer reporting on offers of affordable, minimum value coverage
First due in 2016 based on 2015 plan

35. Nondiscrimination Automatic enrollment Pending Obligations
Effective date delayed for insured plans
Pre-dates PPACA for self-funded plans
Automatic enrollment
Will apply if over 200 employees
Effective sometime after 2014
Virtually no details yet on automatic enrollment

36. Cadillac tax 2018 Obligation 2018 effective date
40% non-deductible excise tax if plan too generous
Total cost exceeds $10,200 for single coverage and $27,500 for family

37. Plan changes Already Effective
No lifetime maximums on essential health benefits
Restrictions on annual limits on essential benefits
No pre-existing condition limitations on children
Coverage of dependent children to age 26
Generally may not retroactively rescind coverage

38. Plan changes (not applicable to grandfathered plans)
Already Effective
Plan changes (not applicable to grandfathered plans)
Expanded claims and appeals rules
Required direct access to pediatricians, OB-GYNs
Required levels of coverage for emergency department care
Required first dollar coverage for preventive care
Required coverage for various women’s services, including contraception, has been added

39. Grandfathered plans Already Effective
Made extremely limited plan changes since March 23, 2010
Made limited cost sharing changes since March 23, 2010
Must provide notice to participants
Must maintain records to prove only minimal, allowable changes have been made
Compared to their coverage in effect on March 23, 2010, grandfathered plans:
• cannot significantly cut or reduce benefits
• cannot raise co-insurance percentages
• cannot raise co-payment by more than the greater of $5 (adjusted annually for medical inflation) or a percentage equal to medical inflation plus 15 percentage points
• cannot raise deductibles by more than medical inflation plus 15 percentage points
• cannot lower employer contribution percentage by more than 5 percentage points
• cannot add or tighten an annual limit on an essential health benefit

40. Other obligations Already Effective
May not reimburse over-the counter drugs without a prescription (FSA, HSA, HRA)
Distribute medical loss ratio rebate, if one was received
Distribute Summaries of Benefits and Coverage

41. Other obligations (continued)
Already Effective
Other obligations (continued)
Health FSA contribution capped at $2,500
Amend plan by 12/31/2014
W-2 reporting of health benefits
Not required if issued fewer than 250 W-2s issued in prior calendar year
Informational only (does not create a tax liability)
Include both employer and employee contributions in W-2 reporting

42. Other obligations (continued)
Already Effective
Other obligations (continued)
Patient-Centered Outcomes (PCORI) fee
$1 - $2 per covered life
Due each July 31
Additional FICA withholding on employees earning $200,000+
Notice of exchange availability

43. Questions?
Contact
This information is general and is provided for educational purposes only. It reflects UBA's understanding of the available guidance as of the date shown and is subject to change. It is not intended to provide legal advice. You should not act on this information without consulting legal counsel or other knowledgeable advisors.