The patient protection and affordable care act – what employers need to know

The Patient Protection and
Affordable Care Act –
What Employers need to know
Presented by:
Michael L Affleck
The Tetra Group Ltd.
This update is based on the known provisions of the
PPACA. This is not to be construed as legal or tax advice.
Copyright © 2013, Independent Insurance Agents of Texas. All rights reserved.

First things, first….
Clarification, through rule making, from several entities (HHS, DOL, IRS,
CCIIO) will take place quickly over the next 18-36 months.
Over 17,000 pages of regulation have already been issued – Over a million
pages are expected.
We can’t cover 100% of the rules today, this is an overview that will start
conversations with you and your broker.

Timeline – 2014, highlights
Expanded Medicaid Coverage Expands Medicaid to all individuals not
eligible for Medicare under age 65 (children, pregnant women, parents,
and adults without dependent children) with incomes up to 133% FPL
and provides enhanced federal matching payments for new eligibles.
Implementation: January 1, 2014 (states have the option to expand
coverage to childless adults beginning April 1, 2010)
Individual Requirement to Have Insurance Requires U.S. citizens and
legal residents to have qualifying health coverage (there is a phased-in tax
penalty for those without coverage, with certain exemptions).
Implementation: January 1, 2014

Timeline – 2014
Health Insurance Exchanges Creates state-based American Health Benefit
Exchanges and Small Business Health Options Program (SHOP) Exchanges,
administered by a governmental agency or non-profit organization, through which
individuals and small businesses with up to 100 employees can purchase qualified
coverage. Exchanges will have a single form for applying for health programs,
including coverage through the Exchanges and Medicaid and CHIP programs.
Health Insurance Premium and Cost Sharing Subsidies Provides refundable and
advance-able tax credits and cost sharing subsidies to eligible individuals.
Premium subsidies are available to families with incomes between 133-400% of
the federal poverty level to purchase insurance through the Exchanges, while cost
sharing subsidies are available to those with incomes up to 250% of the poverty
level. Implementation: January 1, 2014

Timeline - 2014
Guaranteed Availability of Insurance Requires guarantee issue and
renewability of health insurance regardless of health status and allows rating
variation based only on age (limited to a 3 to 1 ratio), geographic area,
family composition, and tobacco use (limited to 1.5. to 1 ratio) in the
individual and the small group market and the Exchanges. Implementation:
January 1, 2014
No Annual Limits on Coverage Prohibits annual limits on the dollar value of
coverage. Implementation: January 1, 2014
Employer Requirements Assesses a fee of $2,000 per full-time employee,
excluding the first 30 employees, on employers with more than 50 employees
that do not offer coverage and have at least one full-time employee who
receives a premium tax credit. Employers with more than 50 employees that
offer coverage but have at least one full-time employee receiving a premium
tax credit, will pay the lesser of $3,000 for each employee receiving a
premium credit or $2,000 for each full-time employee, excluding the first 30
employees.

Timeline – 2014
Essential Health Benefits Creates an essential health benefits package that
provides a comprehensive set of services, limiting annual cost-sharing to the
Health Savings Account limits ($5,950/individual and $11,900/family in 2010).
Creates four categories of plans to be offered through the Exchanges, and in the
individual and small group markets, varying based on the proportion of plan
benefits they cover. Implementation: January 1, 2014
Wellness Programs Permits employers to offer employees rewards of up to 30%,
potentially increasing to 50%, of the cost of coverage for participating in a wellness
program and meeting certain health-related standards; establishes 10-state pilot
programs to permit participating states to apply similar rewards for participating in
wellness programs in the individual market.
Implementation: Changes to employer wellness plans effective January 1, 2014;
10-state pilot programs established by July 1, 2014

Why will it cost more?
 Reinsurance Assessment - This per capita fee on medical plans will fund a three-year
reinsurance program designed to reimburse companies that insure high-cost individuals in the
individual health insurance market. The total amounts to be assessed are $12 billion in 2014,
$8 billion in 2015 and $5 billion in 2016. The estimated fee is approximately $63 per year
($5.25 per month) per covered individual in the first year; however, fees are expected to
decrease in subsequent years. The assessment applies to both insured and self-funded plans.
Insurance providers will pay the fee for insured plans while third-party administrators may pay
the fee on behalf of self-funded plans.
 Comparative Effectiveness Research Fee (CERF) – This is an annual fee imposed on all
insured and self-insured plans. The goal of the research is to determine which of two or more
treatments works best when applied to patients, thereby comparing different types of therapy
against each other. The initial annual fee is $1per year per health plan member (includes
dependents). The annual charge increases to $2 per member the following year and then
increases annually with inflation after that until it ends in 2019. Insurance providers will pay
the fee on behalf of insured plans, while employers with self-funded plans will need to
determine their liability and account for this fee in their own reporting.

Why will it cost more?
 Health Insurance Industry Fee – This annual fee affects all fully insured
plans. The estimated cost of this tax will be $8 billion for 2014 and
eventually increase to $14.3 billion by 2018. The tax is divided among
health insurers and will likely be passed on to plan sponsors as an
addition to premium. The Health Insurance Industry Fee has a much
greater potential financial impact than either of the other two taxes
because it is intended to help fund the cost-generating provisions of the
PPACA. The fee will be divided among health insurance carriers based on
each carrier’s share of the overall premium base and will only be assessed
relative to insured health plans, inclusive of medical, dental and vision
plans. Self-funded health plans and associated stop loss premium will not be
included in the premium base. Fee is not deductible for federal income tax
purposes. This substantially increases the cost impact, which is expected
to be in the range of 2 percent to 2.5 percent of premium in 2014,
increasing to 3 percent to 4 percent of premium in later years. Insurance
companies will likely begin to reflect this additional cost in their premium
rates in 2013 and/or 2014.
Copyright © 2013, Independent Insurance
Agents of Texas. All rights reserved.

What size employer does PPACA impact?
Get your calculator ready
 Generally speaking, only LARGE employers, over 50 full time equivalent workers*
 You must include full time (30 hours per week) and part time workers (prorated).
Example:
 25 full time employees
 40 part time employees, working an average of 80 hours per month
 35 seasonal employees working under 120 days*
Full time
employees:
25
Full time
equivalents
26.6
TOTAL full
time
equivalents
51.6
40 part time employees x 80 hours per month = 3200 / 120 = 26.6

Underwriting Considerations
 Community Rating
— Zipcode
— Tobacco use
— Age
 Cannot charge the oldest person more than 3 times what they charge the
youngest person. (3 rate bands)
 Tobacco use can be charged 50% than non tobacco users
— No clear indication of how to determine tobacco use, honor system?
— ONLY when a wellness program is in place
— MOST carriers will NOT be asking about tobacco use

What will it cost?

Essential Health Benefits (EHB)
 The law requires health plans offered in the individual and small group markets, both
inside and outside of the Exchanges , offer a comprehensive package of items and
services, that include:
 Ambulatory patient services
 Emergency services
 Hospitalization
 Maternity and newborn care
 Mental health and substance use disorder services, including behavioral health
treatment
 Prescription drugs
 Rehabilitative and habilitative services and devices
 Laboratory services
 Preventive and wellness services and chronic disease management, and
 Pediatric services, including oral and vision care
No limit on
these EHB

Essential Health Benefits (EHB)
 Cost Sharing and deductible limits
— Annual maximum out-of-pocket in 2014
— $6,350 self only
 $12,700 family coverage
— Deductible (Applies to small groups, “reasonably” applied to large group)
 $2,000 self only
 $4,000 family coverage
— Preventive services covered at 100%
— No lifetime limits
— No annual limits on the dollar value of essential benefits

What will it cost?
 Small group: Average increase in Texas in 2013: 30%
 Small group: Average increase in Texas in 2014: 30-50%
Will small employers groups continue to purchase coverage?
**4 major carriers will provide data to help soon, make decision by mid to late
summer, some no recessions. Use caution-feds are catching on.

Ongoing “Variable Hour” Employees
• Track number of
hours worked by
all employees to
determine FTE
count and who is
working 30+
hours and now
eligible
• Can measure
every 3 months
up to every 12
months
• Counting: How hours worked by “variable hour”
employees during measurement period
• Notify and Enroll: Get those newly eligible enrolled
on health plan
• Can last 30-90 days
• Employees who work 30+ hours in measurement period
must be covered during stability period
• Must remain covered for at least six months (or length
of measurement period, whichever is longer) regardless
of number of hours worked in stability period

What about common controlled
companies?
 Independent Contractor (1099)
— http://www.irs.gov/Businesses/Small-Businesses-&-Self-
Employed/Independent-Contractor-(Self-Employed)-or-Employee%3F
 Common Controlled and Affiliated Groups:
— http://www.irs.gov/pub/irs-tege/epchd704.pdf

Penalty Examples
 Scenario A - The large employer does not offer coverage, but no full-time employees receive credits for exchange
coverage. No penalty would be assessed.
 Scenario B - The large employer does not offer coverage, and one or more full-time employees receives credits for
exchange coverage. The annual penalty calculation is the number of full-time employees minus 30, times
$2,000. In this example (50 full-time employees), the penalty would not vary if only one employee or all 50
employees received the credit. The employer’s annual penalty in 2014 would be (50-30) X $2,000, or $40,000.
 Scenario C - The large employer offers coverage and no full-time employees receive credits for exchange
coverage. No penalty would be assessed.
 Scenario D - The large employer offers coverage, but one or more full-time employees receives credits for
exchange coverage. The number of full-time employees receiving the credit is used in the penalty calculation for
an employer that offers coverage. The annual penalty is the lesser of:
— The number of full-time employees, minus 30, multiplied by $2,000 – or $40,000 for the employer with 50
full-time employees; or
— The number of full-time employees who receive credits for exchange coverage, multiplied by $3,000.
 Although the penalties are assessed on a monthly basis (with the dollar amounts above divided by 12), this
example uses annual amounts, assuming the number of affected employees is the same throughout the year.

 “Marketplace”
 Online eligibility
 Online comparison of plans
 $4.4 Billion to build (originally $2 billion)
 Only place to receive immediate individual subsidy
 Open enrollment starts Oct 1, 2013 – April 31, 2014
 Enrollment can be done: online, in person, via mail or phone
 Marketplace assistors, agents, brokers, navigators
 SHOP Exchange (on hold-ish)
 Small employer option (2-50)*
 Only place for tax credit
 2-25 ee’s, annual avg wages are less than $50,000 can get up to 50% tax
credit
 Employee Choice (can be limited by the ER) THIS provision on hold till 2015
Exchange/Marketplace
“Marketplace”

SHOP Exchange
 For 2009-2013, the small business health insurance tax credit is based on 35% (25% for tax-
exempt orgs) of non-elective contributions the business makes on behalf of its employees for
insurance premiums. To be eligible, the small business must have 25 or fewer employees and
average annual wages of less than $50,000. Employers with 10 or fewer employees and average
wages of less than $25,000 get 100% of the credit. Phase-outs reduce the credit as the number of
employees goes over 10 (up to 25) and the average wages exceeds $25,000 (up to $50,000).
 The phase-outs cause many of our clients to be ineligible or make the credit so small it's not
worth the effort to compute. For example, if average employee count (FTE) is 20 and averages
wages is $30,000, tax credit is only 5% of the employer-paid health insurance costs. If average
employer-paid premium per employee is $150/month (20 * $150 * 12 * 5%), then tax credit is
$1800. If employee count is 20 and average wages is $35,000, credit phases out to -0-.
 For 2014 and forward, the full credit (before phase-outs) increases to 50% (35% for tax-exempt
orgs), but its available only if insurance is purchased through the state exchanges.

Individual Mandate Penalties
 Taxes begin in 2014 and rise in years following. In each year, the tax consists of the higher of a
dollar amount or a percentage of household income. For a given household, the tax applies to
each individual, up to a maximum of three. Following is the schedule of taxes:
 2014: The higher of $95 per person (up to 3 people, or $285) OR 1.0% of taxable income.
 2015: The higher of $325 per person (up to 3 people, or $975) OR 2.0% of taxable income.
 2016: The higher of $695 per person (up to 3 people, or $2,085) OR 2.5% of taxable income.
 After 2016: The same as 2016, but adjusted annually for cost-of-living increases.

To see what the subsidy amounts look like:
http://healthreform.kff.org/SubsidyCalculator.aspx

Questions for your company
 I must have a qualified broker
 Do I have to pay or play?
— Penalty vs. offering insurance?
— Will I retain quality employees if I don’t offer a health plan?
 Calculate FTE
 Establish Measurement Periods for Variable Hour EE’s
 Budget for potential rate increase in 2014

What are larger businesses considering?
 Drop employer coverage completely
— Pay the $2,000 penalty and absorb productivity issues
 Keep existing coverage and not add other populations
— Pay $3,000 per non-covered employee penalty
 Reduce number of hours worked by certain employees to stay below 30
hours each week

Reference Material
Links to guidance we talked about today:
►Definition of full-time employee
► http://www.irs.gov/pub/irs-drop/n-12-58.pdf
► http://www.irs.ustreas.gov/pub/irs-drop/n-12-17.pdf
►90-day waiting period limitation
► http://www.irs.gov/pub/irs-drop/n-12-59.pdf
►Affordability
►Minimum value
W2 Guidance:
► http://www.irs.gov/uac/Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage
►The IRS in April 2012 issued requests for comments on how to facilitate compliance with IRC §§ 6055 and 6056.
http://www.dol.gov/ebsa/faqs/main.html
http://www.dol.gov/ebsa/healthreform/
http://www.cms.gov/cciio/index.html
http://www.healthcare.gov/
http://www.hhs.gov/partnerships/aca_act_and_community/index.html
http://www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions

Thank you!
Presented by:
Michael L Affleck
This update is based on the known provisions of the
PPACA. This is not to be construed as legal or tax advice.

The patient protection and affordable care act – what employers need to know

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