What Health Care Reform Means For Your Company

1
What Health Care Reform Means For Your Company
What Health Care Reform Means for Your Company
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What Health Care Reform Means for Your Company
Patient Protection and Affordable Care Act

• The past Health Reform Changes in 2010
• The present Changes Effective in 2011 and 2013
• The future Anticipating Changes Slated for 2014
  and Beyond

3
The past Health Reform Changes in 2010

• Affecting Plan Sponsors
• Impacting Businesses

4
2010 Changes Affecting Plan Sponsors

• Grandfathered plans
• Coverage for adult children
• Nondiscrimination rules for insured health
  plans
• Preventive care services
• Lifetime and annual limits
• Minimum loss ratios
• Preexisting condition exclusions
• Claims appeals processes
• Early retiree reinsurance program
• Expanding patient selection of providers
• Reviews of premium increases

5
Grandfathered Plans

• Two types of plans under health reform
• New health care plans
• Grandfathered plans
• Individuals who were enrolled in a group health
  plan or individual health coverage on March 23,
  2010, may not be required to terminate that
  coverage.
• Any group health plan or health insurance
  coverage to which this provision applies is
  considered a grandfathered health plan (Act
  Sec. 10103).
• Grandfathered plans in general are not subject to
  many of the insurance and market reforms of the
  health reform law. However, some important
  provisions do apply.

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Grandfathered Plans

• Grandfathered plans are not subject to the
  following
• compliance with nondiscrimination rules for
  insured plans
• requirement to provide preventive care services
• effective claims appeals requirement
• primary care provider requirements
• limits on insurance premium rates
• guaranteed availability and renewal
• prohibition on discrimination based on health
  status
• essential benefits coverage package
• HIPAA nondiscrimination rules still apply

7
Grandfathered Plans

• Individual and group grandfathered plans are
  subject to the following provisions
• extension of adult child coverage (Sept. 23,
  2010)
• prohibition on rescinding coverage (Sept. 23,
  2010)
• elimination of lifetime limits (Sept. 23, 2010)
• prohibiting excessive waiting periods (2014)
• requirements to provide uniform explanations of
  coverage and standardized definitions
• insurer requirements to provide loss-ratio
  reports and rebate premiums if loss ratios fall
  below 80

8
Grandfathered Plans

• Group grandfathered plans are subject to the
  following provisions
• elimination of annual limits (Sept. 23, 2010)
• elimination of preexisting condition exclusions
  (2014)
• Coverage of adult children until age 26

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Grandfathered Plans

• Family members may enroll in a grandfathered plan
  in which the employee is enrolled. This rule
  applies if the individual was enrolled in the
  grandfathered plan on the date of enactment and
  the coverage is later renewed.
• A grandfathered group health plan may provide for
  the enrollment of new employees and their
  families

10

Coverage for Adult Children
Two different provisions affect health coverage
for adult children. 1. Group health plans with
dependent child coverage must make available
coverage for the enrollees adult children who
are younger than age 26, regardless of whether or
not the dependent is married. Health plans or
health insurers are not, however, required to
cover a child of the adult child receiving
dependent coverage. Effective for plan years
beginning on or after Sept. 23, 2010 (Act Sec.
1004(a)).
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Coverage for Adult Children

• Plans may not terminate coverage for adult
  children based on any of these criteria
• financial dependency
• residency with the participant student status,
• employment,
• eligibility for other coverage other than for
  grandfathered plans before Jan. 1, 2014,
• married status,
• or any combination of these factors.

12

Coverage for Adult Children

• 2. Effective on March 23, 2010, reimbursements
  from a group health plan for children under the
  age of 27 are excluded from gross income.
• Applies to any child of the employee who as of
  the end of the tax year has not attained the age
  of 27.
• No longer necessary for the child of the
  employee to be a dependent of the employee in
  order for this exclusion to apply.

13
Nondiscrimination Rules for Insured Health Plans

• New insured group health plans must comply with
  existing nondiscrimination rules for self funded
  plans, including
• nondiscrimination rules for eligibility, and
• nondiscrimination rules for benefits (Act Sec.
  1001(5)).
• Grandfathered plans do not have to comply with
  these nondiscrimination rules.

14
Preventive Care Services
Group health plans are required to cover, without
any cost-sharing, certain adult preventive
services and immunizations. Also required to be
covered, without any cost-sharing, are certain
child preventive services. Effective for plan
years beginning on or after Sept. 23,
2010. Grandfathered plans are not required to
provide this coverage.
15
Preventive Care Services

• Specific preventive care services covered include
  these
• Evidence-based items or services that are
  currently recommended by the U.S. Preventive
  Services Task Force
• Immunizations that are currently recommended by
  the Centers for Disease Controls Advisory
  Committee on Immunization Practices
• For infants, children, and adolescents,
  evidence-informed preventive care and screenings
  provided for in the comprehensive guidelines
  supported by the Health Resources and Services
  Administration.

16
Preventive Care Services

• Special rules apply for preventive services
  provided to women
• Additional preventive care and screenings for
  women must be covered, without cost-sharing, as
  provided for in comprehensive guidelines
  supported by the Health Resources and Services
  Administration.
• For purposes of breast cancer screening,
  mammography, and prevention, the current
  recommendations of the U.S. Preventive Services
  Task Force are considered the most current, other
  than those issued in November of 2009.
• Health plans or issuers are not barred from
  providing coverage for preventive care services
  beyond those recommended by the U.S. Preventive
  Services Task Force.

17
Lifetime and Annual Limits
Group health plans cannot impose lifetime or
annual benefit limits (Act Sec. 1001(5)).
Lifetime limits prohibited, effective for plan
years beginning on or after Sept. 23,
2010. Annual limits also barred, but there is an
exception for pre-2014 annual limits.
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Lifetime and Annual Limits

• Phase-in rule
• Before Jan. 1, 2014, restricted annual limits may
  be applied to essential health benefits.
• Group health plans may continue to place annual
  or lifetime per beneficiary limits on specific
  covered benefits that are not essential health
  benefits.
• Limits on nonessential health benefits still
  allowed.

19
Lifetime and Annual Limits

• Annual limits before Jan. 1, 2014
• 750,000, for a plan year beginning on or after
  Sept. 23, 2010, but before Sept. 23, 2011
• 1,250,000, for a plan year beginning on or after
  Sept. 23, 2011, but before Sept. 23, 2012
• 2,000,000, for plan years beginning on or after
  Sept. 23, 2012, but before Jan. 1, 2014.

20
Minimum Loss Ratios
Insurers offering group or individual health
insurance must maintain certain minimum medical
loss ratios (Act Sec. 1001(5)). Ratio of the
incurred claims plus a loss adjustment expense
to earned premiums Effective for plan years
beginning on or after Sept. 23, 2010.
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Minimum Loss Ratios

• If minimum loss ratios are not maintained,
  rebates must be provided to health plan
  participants (effective Jan. 1, 2011).
• Large group loss ratio minimum 85
• Small group minimum loss ratio 80
• Rebate equals
• the amount by which the coverage fails to meet
  the minimum loss ratio
• multiplied by
• the total amount of premium revenue.

22
Minimum Loss Ratios
Rebate example ABC Insurance Company earns 2.5
million on premiums for coverage for Large
Employer, Inc.'s 280 employees. Incurred claims
plus a loss adjustment expense total 2.05
million, which results in a loss ratio of 82.
Thus, 3 is the amount by which the coverage
fails to meet the minimum loss ratio by the total
amount of premium revenue. That 3 multiplied
by 2.5 million results in a total annual rebate
of 75,000. This would produce an average pro
rata rebate of 267.86 (75,000 divided by 280
employees) for each enrollee.
23
Preexisting Condition Exclusions
No group health plan nor any health insurance
issuer may impose a preexisting condition
exclusion to limit or deny coverage, effective
for plan years beginning on or after Jan. 1,
2014. For enrollees who are under 19 years of
age, the provision becomes effective for plan
years beginning on or after Sept. 23, 2010 (Act
Sec. 1201).

24
Claims Appeals Process
Group health plans and health insurers must
implement an effective process for appeals of
coverage determinations and claims, including at
a minimum the following (Act Sec. 1001(5)) an
established internal claims appeal process a
notice to participants of available internal and
external appeals processes and a provision
allowing an enrollee to review his or her file,
to present evidence and testimony as part of the
appeals process. Effective for plan years
beginning on or after Sept. 23, 2010.
Grandfathered plans are not subject to these new
claims appeals rules.
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Claims Appeals Process
External claims appeals process two
options (1) Plans and insurers must comply with
state external review requirements that are
binding and at a minimum include the consumer
protections in the Uniform External Review Model
Act from the National Association of Insurance
Commissioners or (2) If state requirements do
not meet minimums or if the plan is self-funded,
then the plan must implement an external review
process that is similar to that in the Uniform
External Review Model Act and that meets
standards established by the Department of Health
and Human Services.
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Early Retiree Reinsurance
Beginning June 23, 2010, and ending on Jan. 1,
2014, a temporary reinsurance program was
established that reimbursed part of the claims
cost for participating employment-based plans
that provide health insurance coverage for early
retirees (ages 55 to 65), eligible spouses,
surviving spouses, and dependents of such
retirees. The reimbursement was for 80 percent
of plan claims that are between 15,000 and
90,000 (Act Sec. 1102). Due to funding issues,
CMS stopped accepting new applications on May 5,
2011, and denied health care claims incurred
after December 31, 2011.
27
Expanding Patient Selection of Providers
Health insurance plans must allow enrollees to
select any participating primary care provider
available, including a pediatrician for children,
and to cover emergency services provided at a
hospital emergency department regardless of the
hospital's participation in the plan preferred
provider network and without prior authorization
requirements. Female enrollees must be able to
obtain obstetrical/gynecological specialist
services without a referral from another primary
care provider (Act Sec. 1001(5)). Effective for
plan years beginning on or after Sept. 23, 2010.
28
Reviews of Premium Increases

• An annual review process of unreasonable
  increases in premiums for health insurance
  coverage.
• A health insurance issuer submits a
  justification for a premium increase prior to
  implementing those increases (Act Sec. 1001(5)).
• Effective for the 2010 plan year.

29
2010 Changes that Impacted Businesses

• Small employer health insurance credit
• Automatic health plan enrollment

30
Small Employer Health Insurance Credit

• Small employers receive a tax credit for
  nonelective contributions of at least one-half
  the cost of health insurance premiums paid for
  participating employees during tax year (Act
  Secs. 1421 10105(e)).
• Small employer means
• 25 or less FTE employees
• average annual wages not greater than twice the
  applicable dollar amount for tax year (25,000 in
  tax years 2010 through 2013) and
• a qualified health care arrangement is in
  effect.

31
Small Employer Health Insurance Credit

• Credit phases out as the number of FTEs
  increases to 25 and average annual employee
  compensation increases to 50,000.
• FTE total hours paid divided by 2,080 (only
  first 2,080 per employee).
• Contribution arrangement
• uniform percentage
• not less that 50 of premiums for qualified
  health plan
• not made through salary reduction
• after 2013 the insurance is offered through an
  Exchange

32
Small Employer Health Insurance Credit

• Credit for tax years 2010 - 2013 is 35 (25 for
  tax-exempt employers) of the lesser of
• total amount of nonelective contributions the
  employer makes on behalf of its employees during
  the tax year, or
• (2) total amount of nonelective contributions
  that would have been made if each of those
  employees had enrolled in a qualified health plan
  with a premium determined by HHS to be the
  average for the small group market in the state
  IRS Rev. Rul. 2010-13 (irs.gov/pub/irs-drop/rr-10-
  13.pdf).

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Small Employer Credit after 2013

• May be claimed during 2 consecutive tax year
  periods starting with year in which 1 or more
  qualified health plans is offered through an
  Exchange.
• Credit amount is 50 (35 for tax exempt
  employers) of the lesser of
• (1) total amount of nonelective contributions for
  premiums for qualified health plans offered to
  employees through an Exchange, or
• (2) total amount of nonelective contributions
  that would have been made if each employee had
  enrolled in a qualified health plan with the
  average premium in the small group market in the
  rating area.

34
Small Employer Health Insurance Credit

• Credit phase-out calculation
• The credit is reduced (but not below zero) by the
  sum of
• The product of (a) the credit amount and (b) the
  number of the employer's full-time equivalent
  employees for the tax year in excess of ten,
  divided by 15 and
• (2) The product of (a) the credit amount and (b)
  the employer's average annual wages in excess of
  the applicable dollar amount for the tax year
  (25,000 in tax years beginning in 2010 through
  2013) divided by the applicable dollar amount.

35
Automatic Health Plan Enrollment

• Applies to employers with more than 200 full-time
  employees that offer one or more health plans
  (Act Secs. 1511 1512)
• new full-time employees automatically enrolled
  in one of the plans
• subject to any waiting period authorized by law
• current employees continue to be enrolled
• must give adequate notice and opportunity to opt
  out

36
Automatic Enrollment Notice of Exchange
Until regulations are issued, employers are not
required to comply with the automatic enrollment
requirements. The Department of Labor expects to
complete its rulemaking by 2014.
37
The present Changes Effective in 2011 and 2013

• Impacting Plan Sponsors
• Affecting Businesses

38
2011 Change Impacting Plan Sponsors

• Benefits summary standards

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Benefits Summary Standards

• Federal standards for a summary of benefits and
  explanation of coverage (by March 23, 2011).
• Uniform format, using easily understood language
  (Act Sec. 1001(5)).
• By March 23, 2012, group health plans must
  provide a summary of benefits and coverage
  explanation under these new rules.

40
Benefits Summary Standards

• Summaries must include
• Uniform definitions of standard insurance and
  medical terms
• A coverage description, including cost sharing
  for each of the categories of essential health
  benefits coverage exceptions, reductions, and
  limitations
• Cost-sharing provisions, including descriptions
  of deductibles, coinsurance, and co-pays
• Renewability and coverage continuation
  provisions
• A coverage facts label that includes examples
• A statement as to whether the plan (1) provides
  minimum essential coverage and (2) ensures that
  its share of the total allowed benefit cost under
  the plan is no less than 60 of those costs

41
2011 Changes Affecting Businesses

• W-2 health coverage disclosure
• Small employer simple cafeteria plans
• Over-the-counter medicines not reimbursable
  through HSAs HRAs
• Increased excise tax on HSA HRA non-medical
  distributions

42
W-2 Health Coverage Disclosure

• Beginning with 2012 tax year (Act Sec. 9002)
• Aggregate cost of applicable employer-sponsored
  health insurance coverage must be disclosed on
  employee's Form W-2 (in Box 12, Code DD). This is
  for information only the amount reported is not
  taxable.
• The reporting requirement was scheduled to begin
  with Forms W-2 for the 2011 tax year, but the IRS
  later made it optional for 2011. Small employers
  (fewer than 250 Forms W-2 in 2011) are exempt for
  2012.
• Excludes
• Contributions to an Archer medical savings
  account or Health Savings Account of an employee
  or spouse
• Salary reduction contributions to a flexible
  spending arrangement under cafeteria plan

43
W-2 Health Coverage Disclosure

• Applicable employer-sponsored coverage is
• Coverage under any group health plan made
  available by the employer that is excludable from
  gross income under Code Sec. 106, or would be if
  considered employer-provided coverage under Code
  Sec. 106
• Regardless of whether the employer or employee
  pays for it
• Does not include long-term care, accidents, or
  disability income insurance, or coverage only for
  a specified disease or illness, hospital
  indemnity, or other fixed indemnity insurance,
  the payment for which is not excludable from
  gross income and deductible under Code Sec.
  162(l)

44
Small Employer Simple Cafeteria Plans
Beginning in 2011, certain small employers may
provide a simple cafeteria plan for their
employees, under which the nondiscrimination
rules of a classic cafeteria plan are treated as
satisfied (Act Sec. 9022). A simple cafeteria
plan is cafeteria plan established and maintained
by an eligible employer that meets certain
contribution, eligibility and participation
requirements.
45
Small Employer Simple Cafeteria Plans

• Deemed as met by an employer establishing a
  simple cafeteria plan is any nondiscrimination
  requirement applicable to
• A classic cafeteria plan under Code Sec. 125(b)
• Group-term life insurance under Code Sec. 79(d)
• An accident and health plan under Code Sec.
  105(h) or
• A dependent care assistance program under Code
  Sec. 129(d)(2), (3), (4) or (8)

46
Small Employer Simple Cafeteria Plans

• Eligible employer
• Average of 100 or fewer employees on business
  days during either of the 2 preceding years.
• A year is counted only if the employer existed
  throughout the year.
• If not in existence throughout the preceding
  year, still eligible if reasonably expects to
  average 100 or fewer employees on business days
  during current year.
• If 100 or fewer employees for any year simple
  cafeteria plan is established that year,
  requirement is met after that if more than 100
  but less than 200 employees.

47
Small Employer Simple Cafeteria Plans

• Contribution requirements met if
• Employer is required by the plan, regardless of
  whether a qualified employee makes any salary
  reduction contribution, to make a contribution to
  provide qualified benefits on behalf of each
  qualified employee, in an amount equal to
• a uniform percentage (not less than 2) of the
  employees compensation for the year or
• an amount not less than the lesser of (a) 6 of
  the employees compensation for the plan year, or
  (b) twice the amount of the salary reduction
  contributions of each qualified employee.

48
Small Employer Simple Cafeteria Plans
Option 2 If the employer chooses the second
option it will be out of compliance if the
contribution rate for any salary reduction
contribution of a highly compensated or key
employee is greater than that for any other
employee. A salary reduction contribution is
any amount contributed to the plan at the
election of the employee and not includable in
the employees gross income under the cafeteria
plan provisions. Highly compensated employee"
and "key employee" are defined as under classic
cafeteria plan provisions. Qualified employee"
is any employee who is not a highly compensated
or key employee.
49
Small Employer Simple Cafeteria Plans

• Employee eligibility and participation
  requirements
• All employees who had at least 1,000 hours of
  service for the preceding plan year are eligible
  to participate.
• Each eligible employee may elect any benefit
  under the plan, subject to terms and conditions
  applicable to all participants.

50
Small Employer Simple Cafeteria Plans

• Employees excludable even if 1,000 hour
  requirement is met
• Not age 21 before the close of the plan year
• Less than 1 year of service as of any day during
  the plan year
• Covered under CBA if benefits covered under the
  plan were the subject of good faith bargaining
• Nonresident alien working outside U.S. whose
  income did not come from U.S. source

51
Over-the-Counter Medicines, HSAs HRAs

• As of tax year 2011, the cost for a medicine or
  drug is a qualified medical expense only if its
  a prescribed drug or insulin for purposes of
  reimbursement through (Act Sec. 9003)
• a health flexible spending arrangement
• a health reimbursement arrangement or
• a distribution from a health savings account or
  Archer medical savings account.
• As a result, reimbursements for over-the-counter
  medicines are not excluded from an employees
  gross income, unless prescribed by physician.

52
Excise Tax on Non-Medical Distributions

• Beginning with tax year 2011 (Act Sec. 9004)
• The excise tax on distributions made from HSAs
  not used for qualified medical expenses increases
  from 10 to 20 of the amount includible in gross
  income.
• The excise tax on distributions made from Archer
  MSAs not used for qualified medical expenses
  increases from 15 to 20 of the amount
  includible in gross income.

53
2013 Changes Impacting Businesses

• Contributions to FSAs are limited to 2,500
• Excessive employee compensation limitations
• Medicare tax increases
• Medicare Part D subsidy deduction repealed
• Medical itemized deduction limit increases

54
Limits on FSA Contributions

• Beginning with 2013 tax year (Act Secs. 9005
  10902 Reconciliation Act Sec. 1403)
• A health flexible spending arrangement is not a
  qualified benefit under a cafeteria plan unless
  the plan has a 2,500 cap on the annual salary
  reduction contribution.
• If the plan does not specifically prohibit
  salary reductions in excess of 2,500, the
  benefit under the health FSA will not be
  qualified.
• As a result, employees will be subject to tax on
  distributions from the health FSA, thus
  eliminating any tax benefits of the health FSA
  contributions, including those under 2,500.

55
Excessive Employee Compensation Limitations
In a disqualified tax year after Dec. 31, 2012,
applicable individual remuneration for services
performed is not deductible above the amount of
500,000 (Act Sec. 9014). Disqualified tax
year any tax year for which the employer is a
covered health insurance provider. Applicable
individual officer, director, or employee of a
covered health insurance provider, or any
individual who provides services for or on its
behalf. There is a separate limitation for
deferred deduction remuneration.
56
Excessive Employee Compensation Limitations
A covered health insurance provider is Tax
years after Dec. 31, 2009 and before Jan. 1,
2013 employer that is a health insurance issuer
and receives premiums from providing health
insurance coverage. Tax years after Dec. 31,
2012 employer that is a health insurance issuer
that receives gross premiums from providing
health insurance coverage with not less than 25
of gross premiums from essential health benefits
coverage.
57
Medicare Tax Increases

• In addition to the 1.45 employee portion of the
  HI (Medicare) tax imposed on wages, a 0.9
  Medicare tax is imposed on every taxpayer (other
  than a corporation, estate or trust) who receives
  wages with respect to employment during any tax
  year beginning after Dec. 31, 2012, in excess of
  200,000 (Act Sec. 9015 Reconciliation Act Sec.
  1502(b)).
• 250,000 in the case of a joint return
• 125,000 in the case of a married taxpayer
  filing separately

58
Medicare Part D Subsidy Deduction Repealed
The rule that allows an employer, as a plan
sponsor, to disregard the value of any qualified
retiree prescription drug plan subsidy in
calculating its business deduction for retiree
prescription drug costs is repealed, effective
for tax years beginning after Dec. 31, 2012 (Act
Sec. 9012(b) Reconciliation Act Sec. 1407). The
amount otherwise allowable as a business
deduction for retiree prescription drug expenses
is reduced by the amount of the excludable
subsidy payments received.
59
Medical Itemized Deduction Limit

• For tax years beginning after Dec. 31, 2012, the
  threshold to claim an itemized deduction for
  unreimbursed medical expenses is increased to 10
  of AGI for regular income tax purposes (Act Sec.
  9013).
• Age 65 and older are exempt until Jan. 1, 2017
• Alternative minimum tax treatment of deduction
  is unchanged

60
The future Anticipating Changes Slated for 2014
and Beyond

• Affecting Plan Sponsors
• Impacting Businesses

61
Changes Affecting Plan Sponsors in 2014 and Later

• Guaranteed availability and renewal
• Preexisting condition exclusions
• Minimum health coverage
• Limits on waiting periods
• Restrictions on premium rating
• Health insurance premium assistance credit
• covered earlier

62
Guaranteed Availability and Renewal

• Applies to health insurance issuers that offer
  health insurance coverage in the individual or
  group market
• Requirement is to accept every employer and
  individual in the state that applies for
  coverage.
• Enrollment in coverage may be restricted to open
  and special enrollment periods (Act Sec. 1201).
• Effective for the plan years beginning on or
  after Jan. 1, 2014.

63
Minimum Health Coverage
Health insurers offering coverage in the
individual or small group health insurance market
must ensure that the coverage they offer includes
the essential health benefits package required
under the health reform law, and that the annual
cost share under the plan does not exceed the
statutory limits (Act Sec. 1302). Effective for
plan years beginning on or after Jan. 1, 2014.
64
Minimum Health Coverage
Essential Benefit Package Beginning in 2014,
health insurance will be available for purchase
through state-based American Health Benefit
Exchanges. Only "qualified health benefit plans"
may be sold via an Exchange. The essential
health benefits package offered by qualified
health benefit plans must include specific
categories of benefits, meet certain cost-sharing
standards, and provide certain levels of
coverage. In the individual and small group
markets, the scope of benefits provided must
equal benefits provided under a "typical"
employer-sponsored plan.
65
Minimum Health Coverage

• Minimum items to be covered in the essential
  health benefits package
• Ambulatory patient services
• Emergency services
• Hospitalization
• Maternity and newborn care
• Mental health and substance use disorder
  services
• Prescription drugs
• Rehabilitative services and devices
• Laboratory services
• Preventive and wellness services and
• Pediatric services (including oral and vision
  care).

66
Limits on Waiting Periods
Group health plans may not impose any waiting
period exceeding 90 days before individuals may
enroll in the plan (Act Sec. 1201(4)). Effective
for the plan years beginning on or after Jan. 1,
2014.
67
Restrictions on Premium Rating
Premium rates for an insured qualified health
benefits plan may vary only to account for age,
rating area, individual or family enrollment, and
tobacco use (Sec. 1201(4)). Effective for the
plan years beginning on or after Jan. 1, 2014.
68
Health Insurance Premium Assistance Credit
Beginning in 2014, taxpayers with household
income between 100 and 400 of the federal
poverty line can qualify for a refundable health
insurance premium assistance credit (Act Sec.
1401). Individuals who enroll in a qualified
health plan at the silver coverage level in an
Exchange may be eligible for cost-sharing
reductions (i.e., subsidies) if their household
income does not exceed 400 of the poverty
line. Reductions decrease annual out-of-pocket
limits and, for lower-income individuals, further
increase a plans share of total allowed benefits
costs. The federal government will pay plan
issuers for the value of the reductions they make
(Act Sec. 1402).
69
Changes Impacting Businesses 2014 and Later

• Health Exchanges
• Employer shared responsibility assessments
• Cadillac tax on expensive employer-sponsored
  plans

70
Health Exchanges
By Jan. 1, 2014, states must establish American
Health Benefit Exchanges and Small Business
Health Options Program (SHOP) Exchanges to be
administered by a governmental agency or
non-profit organization (Act Sec. 1311).
Individuals and small businesses with 100 or
fewer employees can purchase qualified coverage
(after 2017, states may permit businesses with
more than 100 employees to purchase in the SHOP
Exchange). States may form regional Exchanges,
or allow more than one Exchange to operate in a
state, as long as each Exchange serves a distinct
geographic area. States may also elect to have a
single Exchange.
71
Employer Shared Responsibility Assessments

• Beginning after Dec. 31, 2013, an assessable
  payment is imposed on large employers that (Act
  Sec. 1513 Reconciliation Act Sec. 1003)
• Do not offer full-time employees minimum
  essential coverage under an eligible
  employer-sponsored plan for any month and have at
  least one full-time employee enrolled that month
  in a qualified health plan (state
  exchange-offered plan) for which a premium tax
  credit or cost-sharing reduction is allowed or
  paid.
• Assessable payment 1/12 of 2,000 for any month
  (166.67/month) multiplied by the number of
  full-time employees for the month, reduced by 30.

72
Employer Shared Responsibility Assessments
Example In 2014, Gama Corp. fails to offer
minimum essential coverage and has 90 full-time
employees, 10 of whom receive a premium tax
credit for the year for enrolling in a state
exchange offered plan. For 60 of its full-time
employees (90 full-time employees, less 30), Gama
owes 2,000 per employee, for a total assessable
payment of 120,000 (2,000 x 60 full-time
employees), which is assessed on a monthly basis.
73
Employer Shared Responsibility Assessments

• There is also an assessable payment imposed on
  large employers that
• Do offer full-time employees minimum essential
  coverage under an eligible employer-sponsored
  plan for any month, but have one or more
  full-time employees who enrolled for the month in
  a qualified health plan (a state exchange-offered
  plan) for which a premium tax credit or
  cost-sharing reduction is allowed or paid.
• Assessable payment Number of full-time
  employees receiving the premium tax
  credit/cost-sharing subsidy for the month,
  reduced by 30, and multiplied by 1/12 of 3,000
  for any month (250 per month). The aggregate
  amount is limited to the applicable payment
  amount (1/12 of 2,000 per month) times the
  number of full-time employees that month.

74
Employer Shared Responsibility Assessments
Example In 2014, Omega Corp. offers health
coverage and has 100 full-time employees, 10 of
whom receive a tax credit for the year for
enrolling in a state exchange-offered plan. For
each employee receiving a tax credit, Omega owes
3,000, for a total assessable payment of 30,000
(3,000 x 10 employees). The maximum amount of
the assessable payment for Omega is capped at the
amount of the assessable payment that it would
have been assessed for a failure to provide
coverage, or 140,000 (2,000 x 70 full-time
employees (100 full-time employees, less 30)).
Since the calculated assessable payment (30,000)
is less than the overall limitation (140,000),
Omega owes the 30,000 assessable payment, which
is assessed on a monthly basis.
75
Employer Shared Responsibility Assessments
An applicable large employer, with respect to a
calendar year, is an employer who employed an
average of at least 50 full-time employees on
business days during the preceding calendar year.
A full-time employee with respect to any month
is an employee who is employed on average at
least 30 hours of service per week. The ACA
provides that an assessable payment is not
imposed on an offering employer for any month
with respect to any employee to whom the employer
provides a free choice voucher however, the
free choice voucher provision has been repealed.
76
Employer Shared Responsibility Assessments
A Medicaid-eligible individual can choose to
leave the employers coverage and enroll in
Medicaid an employer will not be subject to an
assessable payment for employees enrolled in
Medicaid. There is an exemption that applies to
seasonal workers. After 2014, the 2,000 amount
used in determining the applicable payment
assessment for large employers not offering
coverage, and the 3,000 used in determining the
assessable payment imposed on large employers to
do offer coverage, will be increased for
inflation.
77
Cadillac Tax on Expensive Employer-Sponsored
Plans
Starting in 2018, a 40 excise tax will be
imposed on health coverage providers to the
extent that the aggregate value of
employer-sponsored health coverage for an
employee exceeds a threshold amount (Act Secs.
9001 10901 Reconciliation Act Sec. 1401(b)).
The excise tax amount is 40 of the excess
benefit. This is the tax on so-called
"Cadillac" health plans.
78
Cadillac Tax on Expensive Employer-Sponsored
Plans

• Excess benefit The tax is on the excess benefit,
  which is the sum of the monthly excess amounts
  during the tax period. A monthly excess amount is
  the excess of
• the aggregate cost of the applicable
  employer-sponsored coverage of the employee for
  the month, over
• an amount equal to 1/12 of the annual limitation
  for the calendar year in which the month occurs.

79
Cadillac Tax on Expensive Employer-Sponsored
Plans

• The annual limitation for any calendar year is
  the statutory dollar limit for that year as
  adjusted for inflation and for certain other
  factors.
• The dollar limits for determining the tax
  thresholds are
• 10,200 (for 2018) multiplied by the health cost
  adjustment percentage for an employee with
  self-only coverage, and
• 27,500 (for 2018) multiplied by the health cost
  adjustment percentage for an employee with
  coverage other than self-only coverage.

80
Cadillac Tax on Expensive Employer-Sponsored
Plans
The 10,200 and 27,500 amounts are just starting
points for determining the thresholds for taxing
excess benefits. The health cost adjustment
percentages, which are applied to the 10,200 and
27,500 amounts, are designed to capture upward
deviations in the rise of the cost of good health
care coverage between 2010 and 2018 as compared
to an expected change (i.e., 55).
81
Cadillac Tax on Expensive Employer-Sponsored
Plans
The percentage equals 100 plus The excess (if
any) of the percentage by which the per employee
cost for providing coverage under the Blue
Cross/Blue Shield standard benefit option under
the Federal Employees Health Benefits Plan for
plan year 2018 (determined by using the benefit
package for such coverage in 2010) exceeds such
cost for plan year 2010, over 55.
82
Cadillac Tax on Expensive Employer-Sponsored
Plans
Example Suppose the per-employee cost of the
Blue Cross/Blue Shield standard benefit option
under the Federal Employees Health Benefits Plan
for self-only coverage goes up by 80 between
2010 and 2018 (controlling for the same 2010
benefits package). The adjustment percentage for
coverage under self-only plans is 135 (100 (80
55)).
83
Cadillac Tax on Expensive Employer-Sponsored
Plans
There are employer-specific age and gender
adjustments to the threshold amounts so that an
employer with a workforce that is more expensive
to insure due to age or gender characteristics
will not be placed at a disadvantage. More
generous thresholds will also apply for coverage
of retirees and high-risk professions.
84
For More Information
CCH's Law, Explanation and Analysis of the
Patient Protection and Affordable Care Act
provides comprehensive and practical guidance for
professionals who need to understand this
historic legislation. For more information
about the book and other solutions from Wolters
Kluwer Law Business, please visit hr.cch.com.