Health Care Reform - Companies with Over 50 Employees

Over 50 Breakout Group

BancorpSouth Insurance Services/Wright & Percy

Regional President

Kerry Drake

Blue Cross Blue Shield Healthcare Economist Exchange Coordinator

Mike Bertaut

Postlethwaite & NeAerville, APAC Senior Tax Director

William PoAer

Taylor Porter Chair of the Health Care Prac:ce Team

Patrick Seiter

February 26, 2013

Patrick D. Seiter

Legal Overview

•  Who is an employee? o  Independent Contractors? o  Leased Employees?

•  What is full-time? •  How do I calculate the number of full-time equivalent

employees? •  Who is the employer? o  Brother/sister o  Affiliated service groups

01 Office: 225.381.0281 Email: [email protected]

(generally 50 FTEs for 6 consecutive months)

Am I an Applicable Large Employer?

02 Office: 225.381.0281 Email: [email protected]

Should I Pay or Play?

•  Offer “minimum essential benefits” to “substantially all” (95%) full-time employees – no penalties. ��

•  Offer coverage but not to 95% of full time employees or fail affordability and/or minimum value tests – if at least 1 employee purchases insurance through exchange and receives a subsidy (400% of FPL) – pay $3000 annually per subsidized employee. o  Affordable – generally 9.5% of household income o  Minimum value – generally 60% coverage

•  Don’t offer coverage – pay $2000 per employee over 30 employees.

•  Insured – more mandates, less flexibility, less risk

•  Self-insured – few mandates, more flexibility, more risk

If I Play, Should I Insure or Self-Insure?

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•  Dependent coverage to age 26

•  Coverage of preventative health services without cost-sharing (grandfathered plans exempt)

•  No rescissions of coverage except for fraud or material misrepresentation

•  No lifetime limits and, after 2014, no annual limits on essential health benefits

o  Lifetime and annual limits on non-essential benefits allowed as otherwise permitted under the State and Federal Law.

o  Note that State-imposed restrictions on self-insured plans would give rise to ERISA preemption issues.

•  Access to pediatric and ob/gyn care

•  Due process and appeal rights

Examples of ACA Requirements Applicable to Self-Insured Plans

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•  “Essential Health Benefits” requirements (individual and small markets only)

•  Annual limitations on deductibles

•  Nondiscrimination in favor of highly compensated employees

Examples of ACA Requirements ��Not Applicable to Self-Insured Plans

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Thank you Patrick D. Seiter

AAorney, Taylor Porter Chair of the Health Care PracIce Team

[email protected] 225.381.0281

February 26, 2013

Mike Bertaut

Time to Implement!��Moving Forward with Reform

01

All information in this presentation INCLUDING THE OPINIONS OF THE PRESENTER are solely for illustrative purposes. The information is based on certain assumptions, interpretations, and calculations that are not necessarily accurate with regard to provisions of PPACA, HCERA, HIPAA, COBRA, ERISA, and other rules, regulations, guidance and all other documents issued by relevant state and federal agencies with regard to these laws and any other relevant laws. The information provided should not be considered as legal, financial, accounting, planning, or tax advice. You should consult your attorneys, accountants, and other employees or experts of this type of this type of advice based on their own interpretations, calculations, and determinations of applicable laws, rules, regulations, guidance, and any other documents and information that they determine may be relevant. The authors make no guarantees or other representations as to the accuracy or completeness of the data in this presentation. BCBSLA expressly disclaims any liability for information obtained from use of this presentation by any BCBSLA employee or by any other person. No warranty of any kind is given with regard to the contents of the presentation.

Disclaimer

Office: 225-‐297-‐2719 [email protected]

02

•  Redefined Full Time Employee for health insurance purposes (typically 30 hr/wk avg)

•  Established rules for waiting periods for health benefits (nothing over 90 days)

•  Established rules for seasonal employment (no more than 120 days per year, true season)

•  Established counting methodology for the Applicable Large Employer standard.

IRS Bulletins 2012 – 58/59


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Am I an Applicable Large Employer? (ALE) FULL TIME PT HOURS /120 FTE TOTAL FTE AVERAGE

Jan 2013 22 3300 27.5 49.5

Feb 2013 23 2800 23.3 46.3

Mar 2013 23 3250 27.1 50.1

Apr 2013 23 3450 28.8 51.8

May 2013 24 3105 25.9 49.9

June 2013 22 3271 27.3 49.3

July 2013 23 3655 30.5 53.5

Aug 2013 24 3705 30.9 54.9

Sept 2013 25 3000 25.0 50.0

Oct 2013 26 3800 31.7 57.7

Nov 2013 27 3950 32.9 59.9

Dec 2013 30 4250 35.4 65.4 53


04

Common Law Definition of Employee

•  FOR THE ALE COMPUTATION, the common law definition of employee must be used:

•  Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.


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Employer Responsibility Requirement Section 4980H

•  Applies to all “Applicable Large Employers” (ALE) (including controlled or affiliated service groups)

•  3 Options:

1.  AVOID FINES - Must offer “affordable”, “minimum value” health coverage to 95% of all eligible employees. Must offer coverage to children under age 26 (but not spouse and subsidy not required).

2.  RISK SOME FINES - Offer coverage that fails one of the tests in #1 above. Employer is fined $250 per month per employee who “leaks” to the Exchange. Max fine is total fine computed under “3” below.

3.  PAY THE FINES - Offer no coverage at all, employer must pay $2,000 per year per uncovered employee minus first 30 lives.


To determine if ALE is in compliance:

•  Federal Poverty Line: o  Use 100% of FPL x 9.5% = affordable premium for all employees. o  In 2012, would be $11,170 x 9.5% = $1,061.15

•  Rate of Pay: o  Use hourly rate times 130/month to determine wages x 9.5% to compare to premium. o  At $10/hour, $1,300/month x 12 x 9.5% = $1,482.00

•  9.5% of Employee Box 1 W-2 income in premiums for employee-only coverage. o  Determined at end of calendar year, and on an employee-by-employee basis. o  Partial-year adjustments allowed for new employees who work part of a year. o  At $20,800/year ($10/hr, 40 hrs/week) = $1,976.00

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Affordability Safe Harbors


•  In general, an ALE must comply with the new rules or face fines by his RENEWAL DATE in 2014, not necessarily 1/1/2014

•  If a group today has a fiscal year plan, and offers it to less than 33% of their employees (part timers AND full timers) or currently cover less than 25% of employees, then they MUST comply with the new ALE standards for affordability/actuarial value/offer to 95%

•  Or fines will start on 1/1/2014, not on their renewal date.

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When do ALE’s have to comply?

BUT…


Thank you Michael R. Bertaut

Healthcare Economist

LINKED-IN Recommendations WELCOME!!!

[email protected]

Office: 225-297-2719 Cell: 225-573-2092

February 26, 2013 Kerry Drake

Healthcare Reform Paths

01

Health Care Reform Paths

PLAY

01

Are you subject to the penalty?

Start Penalties do not apply to

small employers.

no Does the employer have at least 50 full-

time equivalent employees?

Does the employer offer coverage to its

employees?

no Did at least one

employee receive a premium tax credit

or cost sharing subsidy in an Exchange?

yes Employer must pay a penalty

for not offering coverage

The penalty is $2,000 annually times the number of full-time employees minus 30.

The penalty is increased each year by the growth in insurance premiums

yes

Are you subject to the penalty? ye

s Does the insurance pay for at least

60% of the total allowed cost of benefits?

no Employees can choose to buy coverage in an

Exchange and receive a premium tax credit.

Do any employees have to pay more than 9.5% of household income for the

employer coverage?

no

Those employees can choose to buy coverage

in an Exchange and receive a premium tax

credit.

The employer is not required to pay

a penalty since it offers “affordable”

coverage.

The employer must pay a penalty for not offering “affordable”

coverage.

The penalty is $3,000 annually for each

fulltime employee receiving a tax credit up to a maximum of

$2,000 times the number of fulltime

employees minus 30.

The penalty is increased each year by the growth in insurance premiums

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How do you choose your path

Considerations

•  Lost tax advantages

•  Reporting burdens remain

•  Loss of social contract

•  Recruitment and retention challenges

•  Penalty increases

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Commitments to Play

•  Managing Eligibility o  Spousal carve-out

o  Dependent audit

o  Classifying employees

o  Restructuring workforce

•  Controlling Costs o  Plan design

o  Surcharges/incentives

o  Analytics

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•  Added HR Responsibility

•  Enrollment

•  Staying Compliant

•  Engaging Employees o  Wellness

o  Education and communication

Employer Scenario

ABC Company

• Employee Demographics • 300 Full-time employees��

(30+ hours) • 200 Enrolled on plan • 100 Not covered

• Medical Plan Overview • Dual Plan (HDHP & PPO) • 4-Tiers

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Scenario Outcomes Scenario 1 Status Quo - No Changes in enrollment, contributions, or plan offerings

Plan Enrollment Exchange

Enrollment Premium Cost HCR Penalties

Government Subsidy

Employee Cost Employer Cost

2013 200 0 $970,454 $0 $0 $385,358 $585,096

2014 200 0 $1,048,090 $0 $0 $416,187 $631,904

Scenario 2 Same as Scenario 1, but with 50% waivers joining the plan in 2014 due to the individual mandate


Enrollment Premium Cost HCR Penalties

Government Subsidy


2014 250 0 $1,321,065 $0 $0 $528,026 $793,039

Scenario 3 Do not offer healthcare coverage starting in 2014, and do not increase employee salaries


Enrollment Exchange��

Premium Cost HCR Penalties

Government Subsidy


2014 0 250 $1,321,065 $540,000 $585,974 $919,901 $817,564

Scenario 4 Do not offer healthcare coverage starting in 2014, but increase employees salaries to compensate


Enrollment Exchange��

Premium Cost HCR Penalties

Government Subsidy


2014 0 250 $1,321,065 $540,000 $490,472 $499,927 $1,451,935

ER COST $631,904

ER COST $793,039

ER COST $817,564

ER COST $1,451,935

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Thank you Kerry Drake

Regional President

[email protected]

Office: 225-336-3238

February 26, 2013 William C. PoAer

Definition of Control Groups and Penalties Faced by Large Employers

•  Businesses organized in multiple forms may be considered as a single employer

•  Controlled groups can be parent-subsidiary, brother-sister, combinations or affiliated service groups

01

Determination of Full-time Employees in a Controlled Group


•  Control exists if parent owns 80% of the subsidiary

•  Could involve multiple subsidiaries

Parent - Subsidiary Controlled Group


02

•  Where the same five or fewer individuals own 80% of the related entities, AND

•  Effectively control more than 50% (identical ownership)

•  Attribution

Brother – Sister Controlled Group


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Example


Percentage of Ownership

Member A Corp B LLC Effective

A 80% 20% 20%

B 10% 50% 10%

C 5% 15% 5%

D 5% 15% 5%

Total 100% 100% 40%

04

•  The four owners have more than 80% of A and B, so that requirement is satisfied. But identical ownership is only 40% so they fail the 50% test. They are two separate employees

•  Subjective determination

•  Related entities may or may not have ownership relationships

•  Performing services to or on behalf of the other entity, and when capital is not a material income producing factor

Affiliated Service Groups


05

•  Effective in 2014 for employers with at least 50 full time employees

•  Large employer must offer full time employees (FTE) and their dependents the opportunity to enroll in minimum essential coverage under an eligible employer sponsored plan

•  FTE must generally not be asked to pay more than 9.5% of their modified household income for coverage

•  Exceptions for new employees

Large Employer Penalties


06

•  Employer not offering coverage

•  Employer offering coverage whose employee receives a credit

Penalty for Non-Compliance


07

•  Such employers are subject to a penalty if one or more FTE is certified to the employer as being covered by an Exchange and received a premium tax credit

•  Penalty for any month is an amount equal to the number of FTE’s in excess of 30 times 1/12th of $2,000

•  Regardless of the number of FTE’s who are enrolled in the Exchange and received a premium credit

Employers Not Offering Coverage


08

•  One FTE of a large employer who does not offer health coverage enrolled in an exchange

•  Suppose the employer has 70 FTE’s

•  The monthly penalty would be:

70 – 30 = 40 x ($2,000 / 12) = $6,667

•  If the employer offered no coverage all year, the penalty would be:

$6,667 x 12 = $80,004

Example


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•  Large employer not offering coverage may not be liable for penalties

•  If employer has no FTE whose income would qualify him or her for a subsidy through an Exchange

Note


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•  Some employers who offer health insurance coverage to FTE’s may be subject to a penalty

•  Penalty can apply based on the number of FTE’s who purchase coverage through an Exchange and receive a credit or cost-sharing reduction

Employers Offering Coverage


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•  For each FTE in the Exchange, the monthly penalty each month is 1/12th of $3,000 or $250

•  If 25 employees are in the Exchange, penalty per month would be $6,250

•  Penalty is limited

•  Assume 50 FTE’s. Penalty is:

50 – 30 = 20

20 x 1/12 of $2,000 = $3,333

Penalty Calculation


12

Thank you William C. PoAer Senior Tax Director

[email protected]

Office: 225-922-4600

BancorpSouth Insurance Services/Wright & Percy

Regional President

Kerry Drake

Over 50 Breakout Group

Blue Cross Blue Shield Healthcare Economist Exchange Coordinator

Mike Bertaut

Postlethwaite & NeAerville, APAC Senior Tax Director

William PoAer

Taylor Porter Chair of the Health Care Prac:ce Team

Patrick Seiter