Obama care 2013 updated 3 7-13

ExpertQuote Insurance Services, Inc.

HealthCare Reform:
a.k.a. PPACA, ACA, ObamaCare

IMPACT ON EMPLOYERS
2013 & Beyond

By: Raj Singh

ExpertQuote Insurance Services, Inc. — Your Experts in Health & 401K™ © 2013 Confidential Raj Singh

Disclaimer

There are many parts of this legislation and a majority of the many specifics have yet to be
worked out. Many are awaiting procedural guidelines from various government agencies.

This document is intended for informational purposes only, and by no means should replace
or substitute other legal documents (governmental or non-governmental) reflecting similar
content or advice, and should not be construed as legal advice. In addition, this new law is
expected have on-going updates. If you have any questions concerning your situation or the
information provided, please consult with an attorney or an HR Professional.

Guidelines and requirements are being updated on a weekly basis via press releases from
HHS (Health Human Services).

Effective dates are subject to the rules and regulations process both at the state and federal
levels – which could alter the intended timing of implementation.

Employers are encouraged to consult with their legal and tax advisors before acting on any
information presented in following with this disclaimer.


(PPACA) (ACA) (Obamacare)

ACA Act is the largest change to the American Medical landscape since 1965, when
Medicare was implemented

PPACA became law on March 23, 2010

What does Obamacare mean for your business?
It depends – on the size of your work force, employee salaries, how much employees
are required to contribute.
For some firms the new mandates will lead to penalties for other firms nothing at all


How ACA Counts Employees

Full Time: Any one person working 30 hours or more per work week for 120 days during a
year or more

Hour of service: Each hour for which an employee is paid or entitled to payment for the
performance of duties, including vacation, leave, holiday, illness, incapacity, layoff, jury
duty, military duty or other leave of absence

Part –Time/ Variable Employee: Less then 30 hours a week

A full-time equivalent is when part-time or seasonal employees equate to a full-time
employee. Take total number of hours worked by non-full time employees during the
month and divide by 120

All full-time equivalent employees within a Controlled Group or an Affiliated Service Group
must be counted


Small Group - Large Group Defined

Current 2013 2014-2015 2016 forward

California Small Group 2-50 Small Group 1-50 Small Group 1-100

Large Group 51+ Large Group 51+ Large Group 101+


ACA Waiting Periods Timeframe

Effective January 1, 2014

Small Group: California employers NOT to exceed 60 days

Large Group: California employers NOT to exceed 90 days


The Exchange

In 2014 California Exchange will be up and running by Q4!!!
Called “Covered California” for Individuals
Individual making apx. $43,000 or family of four making $88,000 will be eligible for tax
subsidies http://www.coveredca.com/
Exchange Called “SHOP” for Companies with 1-50 employees
In 2016, SHOP will have plans available to Large Groups (firms with 100+ employees)

Will the plans in the SHOP Exchange be a viable option? We do not have visibility yet. There
will be more options outside the Exchange

By Summer 2013 Employers must provide notice regarding California Exchange to
employees & new hires : subsidy, employer penalty, etc…


Employer Tax Credits

Annual average wages below $50,000

Pay at least 50% of the employee premium

Must have fewer than 25 full-time equivalent employees

Any shareholder with 2% or any owners of more than 5% not counted

Current tax credit is 35% of business employees’ premiums (2010-2013)

In 2014, tax credit increases to 50%, but only if insurance purchased via SHOP

Not for Profit: 25% tax credit


Employer Tax Credits

Employer claims the “tax credit” as part of general business tax credit and uses it to offset
actual tax liability

If no tax liability, may carry “tax credit” forward or back to offset tax liabilities for other years

When claiming “tax credit”, employer may deduct insurance expenses on any tax return
minus the amount of the “tax credit”

“Tax credit” may be claimed for up to 6 years, if insurance purchased through “Exchange”,
may claim “tax credit” for additional two years. (Commenced 2010)


Affordability & Dependents

Employee Contribution must be 9.5% or less of their monthly/annual salary

Calculation: Employer to take lowest compensated employee on the company-
sponsored plan

Employer must offer dependents opportunity to enroll in employer-sponsored plan


Affordability: Plan Deductible & Out-Of-Pocket Maximums

January 1, 2014 requirement

Small group and non-grandfathered group plans may not:
Impose annual deductibles greater than $2,000 for single coverage
Impose annual deductible greater than $4,000 for family coverage
Impose annual max-out-of-pocket greater than $3,100 for single
coverage
Impose annual max-out-of-pocket greater than $6,250 for family
coverage
Co-Insurance not to exceed 60% of benefits

Employer may contribute accordingly to reduce such amounts
Further guidance is expected to clarify this requirement


2013 Requirements

Flexible Spending Account Limits: limit amount employees can contribute to flexible
spending account for medical expense to maximum $2,500 per year (this is half from
current limit)
IRS is considering some changes that would either minimize or do away with the “use-it-
or-lose-it” rules wherein dollars left in a FSA are forfeited. As of today, no final rule has
been issued as the IRS reviews comments solicited through August 2012.
The $2,500 maximum does not apply to employer contributions


Summary of Benefits & Coverage (SBC)

SBC (Summary of Benefits Coverage) Employers to provide employees with a document
provided by the carrier in a specific, standardized, government-approved format that further
explains their plans in a simple manner
Definitions of medical and health coverage
Description of coverage, cost sharing, deductibles, co-insurance and co-payments,

Must be provided to each participant and beneficiary for each benefit package offered

Must be furnished within 90 days for newly-covered participants

Provided at time of enrollment and/or if plan is amended

Must be provided within 120 days for new plans

Can be distributed electronically, SBC Penalty: $1,000 each person


Sample of SBC


Auto-Enrollment Provision

Effective January 1, 2014 (either at that time or that year)

Employers with 200+ full-time employees will be required to auto-
enroll their full-time employees (those working 30 hours or more);
employees can opt out


2014 Employer Mandate

Beginning in 2014, large employers may be subject to an excise tax/penalty if the employer:
a) Offers coverage to full-time employees (and their dependents) that:
1) Does NOT meet the law’s affordability standard (employee’s cost for self-only
coverage must not exceed 9.5% of family income), or
2) Coverage does not meet minimum-value standards
b) Fails to offer any coverage to full-time employees and their dependents

The penalty is triggered under situation (a) or (b) if at least one full-time employee whose
household income is between 100% and 400% of the federal poverty level is able to qualify
for, and receive, a premium tax credit for Exchange coverage.


2014 Points & Employer Penalty

Employer excluded on first 30 employees for this penalty (FTE = 30 hours or more per week)

Employers are not required to offer coverage to part-time employees (those who work less
than 30 hours per week, per month) even though they are part of the calculation to determine
large group status

Penalty consists of:
Monthly penalty for employers who do not provide insurance is:
(1/12) x $2,000 x ((number of full-time employees) – 30)

Monthly penalty for employers who provide coverage (but coverage is not considered
minimal essential coverage) is the lesser of:
(1/12) x $3,000 x each full-time employee who receives a premium credit, or
(1/12) x $2,000 x ((number of full-time employees) – 30)


Premium Variation – Community Rating

Effective January 1, 2014

Risk Adjustment Factors (RAF) will not be taken into account

Variation of premiums will be limited to :
Age Bands: 0-20 age-band, 21-64 age band, 65+ age-band
Family Size
Geographic Area (California has 19 rating regions)


Informational IRS Reporting
Annual Reports. Effective for January 1, 2014, employers (with 50 or more full-time
employees) must file an informational return (due in 2015) in a form to be established by the
Secretary of the Treasury containing:

Employer’s name, employer identification number, and company waiting period ;

Attestation whether or not the employer allows full-time employees (and their
dependents) to enroll in minimum-essential coverage under an eligible employer-
sponsored plan;

Number of full-time employees for each month during the calendar year;

Name, address, tax identification number, and the months of health plan coverage for
each full-time employee during the calendar year; and

Monthly premiums and lowest cost option.

Note: The employer must provide employees a written report including the name and contact
information for the person filing the return and the information required to be shown on the
return.

W-2 Reporting
Employers required to file 250 or more W-2 forms will be responsible for reporting to
employees the total cost of their group health benefit plan coverage on their W-2
forms. Employers with less W-2’s may be required in near future--prepare now

This requirement is effective with the 2012 W-2 forms distributed to employees in
January 2013 (Box 12, Code DD)

This amount includes both the employer-paid and employee-paid costs--regardless if
employee paid via post-tax contributions

This requirement is informational only and does not mean that employer-provided
coverage will be subject to income tax (hmmm…)

This requirement is only for the medical portion of the benefits plan

Report employee annual premium, excluding any H.R.A. claims-funding expenditures
2013 year, reported on 2014 W-2 – Required for all employers


Who Pays for it?: Patient Centered Outcome
Research Institute (PCORI) Fee

For Policy years ending on or after October 1, 2012 with first fee due July 31st of 2013

Phasing out in 2019

The fee will be paid annually by July 31st on IRS form 720

For fully-insured health plans, the insurer pays the fee

For HRA health plans, the plan sponsor pays the fee

The fee will apply each plan year and is the average number of covered lives:
October 1, 2012 and before October 1, 2013 = $1 fee (PEPY)
October 1, 2013 and before October 1, 2014 = $2 fee
October 1, 2014, going forward, fee will be increased based on medical inflation


Who Pays for it?: Taxes & Fees

Effective in 2010:
Annual tanning tax: 10% tax on indoor tanning services ($2.7 B)

Effective in 2011:
Annual pharmaceutical industry fee: Begins at $2.5 billon per year ($27 B)

Effective in 2012:
Annual medical device manufacturer fee: Excise tax of 2.3% on the sale of any taxable medical device
($20 B)

Effective in 2013:
Annual Medicare tax on high earners and unearned income: 0.9% increase in payroll tax. Unearned
income tax of 3.8% ($210.2 B)

Effective in 2014:
Annual insurer fee: Applies to fully-insured business ($60.1 B)

Effective in 2018:
Annual high-cost insurance tax: 40% excise tax on “Cadillac” plans ($32 B)


Who Pays for it?: The 3.8% Tax

Effective 1-1-2013

This 3.8% unearned income tax applies to the lesser of:
Net investment income, or
The excess of Modified Adjusted Gross Income over the threshold
$250,000 for married couples filing jointly
$200,000 for individual
$125,000 for married filing separately


Who Pays for it?: Limited Medical Deductions

Effective 1-1-2013

Itemized medical expenses income tax deductions increases to 10% from 7.5% of AGI


Who Pays for it?: Individual Mandate Penalty

2014: Penalty is $95 per adult and $47.50 per child up to $285 per family or 1% of family
income, whichever is greater

2015: Penalty is $325 per adult and $162.50 per child up to $975 per family or 2% of family

2016: Penalty is $695 per adult and $347.50 per child up to $2,085 per family or 2.5% of family


Who Pays for it?: Medicare Tax Increase

Medicare Tax Increase: High end wage earners will experience their first tax increase with
ACA. Medicare tax on wages will increase by 0.9% (from 1.45% to 2.35%) on employee
FICA earnings
$250,000 married filing jointly
$125,000 married filing separately
$200,000 all others


Will Premiums Continue To Rise?
To fund several of the changes mandated by the Health Care Reform law:
New fees will apply to health insurance issuers. The fees fund patient-centered outcomes
research, the Transitional Reinsurance Program
Premium tax subsidies for individuals in Exchanges
Mandated medical plan enhancements: removal of Lifetime Plan Maximums and
incorporating robust preventive care services at no cost to the employee
Based on the government rule and industry analysis which anticipates an increase in
premiums by about 3.8%.

The government is also projecting as more individuals enter the insurance buying pool, that
more buyers will help lower premiums for everyone

EQ believes rates will continue to increase predominately because ACA has failed to address
lifestyle and macro-issues that are the core inflation driver of medical premiums

Healthcare fraud costs $180M per day
Approximately 30% of the U.S. population or 70M are obese, and users of extensive medical
services
10,000 Americans turn 65 every day, the senior population in the U.S. will reach 72M by 2030


Obama care 2013 updated 3 7-13

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