1. HEALTHCARE REFORM
Employer Shared Responsibility
“Play or Pay”
December 6, 2013

2. These materials are intended to stimulate thought and discussion and to provide the reader with useful
ideas and guidance in the areas of healthcare reform. The materials do not constitute, and should not
be treated as, legal advice. Although we have made every effort to ensure the accuracy of these
materials, neither the authors nor Cox Smith Matthews Incorporated assumes any responsibility for
any individual’s reliance on the written information presented during this presentation. Laws and
regulations are subject to change at any time.
This PowerPoint presentation is an educational tool that is general in nature and for purposes of
illustration only. The materials in this presentation are not exhaustive, do not constitute legal advice
and should not be considered a substitute for consulting with legal counsel. Cox Smith has no
obligation to update the information contained in this presentation.
CIRCULAR 230 DISCLOSURE: Pursuant to Department of Treasury Circular 230, this presentation is
not intended or written to be used, and may not be used by the recipient, for the purposes of avoiding
any federal tax penalty which may be asserted.
2

3. PPACA – WHAT IS A HEALTHCARE
EXCHANGE?





“Marketplace”  supposed to look like Travelocity
Individuals and small businesses (< 50 employees) can
get health coverage
Subsidies available for individuals under 4x FPL and
some small businesses
Exchanges offer Qualified Health Plans (“QHP”)
Texas  Federally Facilitated Exchange (“FFE”)
3

4. PPACA – WHY GET INSURANCE?





Individual Mandate
Employer Mandate
Medical Loss Ratios
Penalties
Lawsuits: Healthcare Discrimination
4

5. 2013 PPACA TIMELINE

Amend Cafeteria Plan for $2,500 FSA limit

PCORI fees due for some plans (July)

Exchange Notice (October 1)

Exchange Open Enrollment (Fall)

Some plans to begin 12-month measurement period
5

6. 2014 PPACA TIMELINE

Annual limits prohibited

Cost-sharing limitations

90-day waiting period

Exchanges

PCE prohibition

Reinsurance fees

Individual mandate

Nondiscrimination for Healthcare Providers

HIPAA electronic operating rules. For 2014, the health
care electronic funds transfers (EFT) and remittance
advice operating rules are scheduled for employers to
be in compliance by 1/1/14
6

7. 2015 PPACA TIMELINE

Reporting of health insurance coverage (Code
§§ 6055 & 6056)

Pay or Play
7

8. 2014 PPACA TIMELINE – FOCUS ON COST
SHARING LIMITATIONS

Cost-sharing limitations. For all non-grandfathered group
health plans, out of pocket maximums for in-network
benefits are limited to the out-of-pocket expense limits for
self-only and family coverage for HSA-compatible highdeductible health plans (HDHPs) for taxable years
beginning in 2014. For 2014, the HDHP maximum outof-pocket expense limit (that is, the sum of the plan’s
annual deductible and other annual out-of-pocket
expenses (other than premiums) that the insured is
required to pay, such as co-payments and co- insurance
for an HDHP) cannot exceed $6,350 for self-only
coverage and $12,700 for family coverage.
8

9. 2014 PPACA TIMELINE – FOCUS ON COST
SHARING LIMITATIONS


2014 only can have separate OOP max for pharmacy
benefit
For individual and small group market insured plans only,
deductible is limited to $2,000 for self only and $4,000 for
family
9

10. 2015 PPACA – FOCUS ON “PLAY” OR “PAY”



Last month, the IRS unexpectedly delayed the Employer
Shared Responsibility penalties and reporting
requirements until 2015.
Prompted by concerns about the reporting requirements,
but this necessarily also delayed the penalties, because
reporting was critical to administration of penalties.
Reprieve, not a Pardon!
 Delay is only temporary
 May need to track hours as early as October 2013
10

11. 2015 PPACA – FOCUS ON “PLAY” OR “PAY”

NOTHING ELSE WAS DELAYED!
 No other changes to PPACA implementation timeline.
11

12. 2015 PPACA – FOCUS ON “PLAY” OR “PAY”



Who is an ALE?
Controlled group rules
Employer must offer “minimum essential coverage”
through an “eligible employer-sponsored plan”
12

13. 2015 PPACA – FOCUS ON EMPLOYER
PENALTIES

Penalties provided for in Code §§ 4980H(a) and (b)

Penalty is triggered, in general, if FT employee is
certified as enrolled for Exchange subsidy for a month

Subsection (a) penalty (or “no coverage” penalty)
applies if employer

Failed to offer substantially all FT employees (and
dependents) opportunity to enroll in EESP for a
month

Monthly Penalty = $2,000 X # of FT employees
minus 30 ÷ 12
13

14. 2015 PPACA – FOCUS ON EMPLOYER
PENALTIES

Subsection (b) (or “inadequate coverage”) penalty
applies if employer

Offered substantially all FT employees (and
dependents) opportunity to enroll in EESP for a month

But coverage is not affordable or fails to provide
Minimum Value (“MV”)

Monthly Penalty = lesser of

$2,000 X # of FT employees minus 30 ÷ 12 OR

$3,000 X # of FT employees with subsidy ÷ 12
14

15. 2015 PPACA – OTHER “PLAY” OR “PAY”
ISSUES






95% of FT employees and dependents to avoid
sledgehammer
Minimum value – 60% actuarial value
Affordability – 9.5% of W-2 income
Transition rule?
Tracking FT employees
Employer response to rule
15

16. OTHER LAWS YOU SHOULD PAY ATTENTION
TO IN 2013-2014



HIPAA – Compliance with new final omnibus regulations
required by September 23, 2013
DOMA – Big changes coming for same-sex benefits.
Waiting for guidance
Texas Medical Privacy - Relaxed training requirements
for those who are subject to the law.
16

17. COVERAGE MANDATE: EXAMPLES FOR “NO
COVERAGE” PENALTY

Cox Co. has 1,000 FT employees and does not offer an
EESP to any FT employees

1 FT employee enrolls in subsidized coverage for year

Annual Penalty = $2,000 X (1,000 − 30) = $1,940,000

Note: Result would be same even if Cox Co. offered
EESP to 94.99% of FT employees (and children up to
age 26)
17

18. COVERAGE MANDATE: EXAMPLES FOR “NO
COVERAGE” PENALTY

Smith Co., with 20 FT and 60 half-time (0.5) FTEs, does
not offer an EESP to substantially all FT employees

Treated as having 50 FT employees and, thus, subject
to rules

1 FT employee enrolls in subsidized coverage for year

Annual Penalty = $2,000 X (20 − 30) = 0

Smith Co. owes no penalty because only true FT
employees are counted (FTEs only count for ALE
status)
18

19. COVERAGE MANDATE: EXAMPLES FOR “NO
COVERAGE” PENALTY

Matthews Co. has 1,000 FT employees, offers affordable
plan with minimum value (“A/MV”) to ALL FT employees
but NO dependent coverage

Question: Whether penalty could apply under either
subsection (a) or (b) since it would appear that no FT
employee would be eligible for Exchange subsidy
(due to A/MV offer)
19

20. COVERAGE MANDATE: EXAMPLES FOR “NO
COVERAGE” PENALTY

Same as previous slide except Matthews Co. offers
A/MV plan to substantially all FT employees but NO
dependent coverage

Annual Penalty = $2,000 X (1,000 − 30) = $1,940,000

Can be triggered by one of the 4.99% of FT
employees who goes onto the Exchange and receives
a subsidy

Matthews Co. can then be penalized because no offer
of coverage to dependents
20

21. COVERAGE MANDATE: EXAMPLES FOR
“INADEQUATE COVERAGE” PENALTY

Sutin Co. has 1,000 FT employees and offers EESP to
substantially all (including children up to age 26)

If 200 FT employees enroll in subsidized coverage for
year

Annual Penalty = $600,000

Lesser of $2,000 X (1,000 − 30) = $1,940,000
(Example #1) OR

$3,000 X 200 = $ 600,000
21

22. COVERAGE MANDATE: EXAMPLES FOR
“INADEQUATE COVERAGE” PENALTY

If 647 (or more) enroll in subsidized coverage for year

Annual Penalty = $1,940,000 (same as Example #1)

Lesser of $2,000 X (1,000 − 30) = $1,940,000
(Example #1) OR

$3,000 X 647 = $1,941,000
22

23. COVERAGE MANDATE: EXAMPLES FOR
“INADEQUATE COVERAGE” PENALTY

Smith Co., with 20 FT and 60 half-time (0.5) FTEs, offers
EESP to substantially all FT employees

One FT employee goes onto Exchange and receives
a subsidy

“Inadequate coverage” penalty = $3,000 X 1


But can never be more than “no coverage penalty,”
which is $2,000 X (20 − 30) = 0
Penalty is still 0 under “lesser of” formula
23

24. COVERAGE MANDATE: HOW TO COMPLETELY
AVOID A PENALTY

No penalty possible with offer of an affordable plan that
provides MV to all FT employees (and children up to age
26)


FT employees offered this kind of plan are not eligible
for subsidized Exchange coverage and, therefore,
cannot trigger a penalty for the employer
When a plan provides MV and when a plan is considered
affordable discussed in next slides
24

25. COX SMITH MATTHEWS INCORPORATED
EMPLOYEE BENEFITS ATTORNEYS:
Mary M. Potter
William M. Fisher
L. Katherine Noll
Jillian L. Gordon
Erin H. Jansen
Joshua A. Sutin
112 E. Pecan Street, Suite 1800
San Antonio, Texas 78205
(210) 554-5500 tel
(210) 226-8395 fax
www.coxsmith.com
This PowerPoint presentation is an educational tool that is general in nature and for purposes of
illustration only. The materials in this presentation are not exhaustive, do not constitute legal advice
and should not be considered a substitute for consulting with legal counsel. Cox Smith Matthews
Incorporated has no obligation to update the information contained in this presentation.
© 2013 Cox Smith Matthews Incorporated
25