Health Care Law: Next Steps for Restaurateurs

Health Care Law:Next Steps for Restaurateurs

Jennifer B. Dunsizer614.464.5631 | [email protected]

Vorys, Sater, Seymour and Pease LLP

© Copyright 2013, Vorys, Sater, Seymour and Pease LLP. All rights reserved.

What will this presentation cover?

• Employer Penalties

― How is 50 Full Time Equivalent (FTE) test counted?

― Who must be offered coverage?

― What type of coverage must be offered?

• Why “small” employers (less than 50 FTEs) need to monitor these rules.


2014 - Exchanges

• By 1/1/2014, states will set up exchanges where individuals and small employers can buy insurance.

― Department of Health & Human Services (HHS) will administer an exchange if a state does not.

― “Small employer” can be defined as not more than 50 or not more than 100 employees (must be 100 starting in 2016).

― Small employer exchange (SHOP exchange) may be combined with the individual exchange.


“Large Employer” Penalties

• An employer with at least 50 “full-time equivalent” (FTE) employees that does not offer health coverage to almost all of its full-time employees and their “dependents” must pay a penalty (no-offer penalty).

• An employer with at least 50 “full-time equivalent” employees who are almost all offered coverage (for full-time employees and their “dependents”) that is not “affordable” and “adequate” coverage may still have to pay a penalty (unaffordable coverage penalty).


Overview of Employer Penalties

Applicable large employer?

→yes →Does employer member offer coverage to at least 95% of its FT employees (and their children)?

→ no →Does FT employee of employer member get premium assistance?

→yes → No offer penalty

no

NO PENALTY

yes

no

NO PENALTY

Is coverage affordable? → no →Does FT employee of employer member get premium assistance?

→yes →Unaffordable / inadequate coverage penalty

yes

no

NO PENALTY

Is coverage adequate? → no →Does FT employee of employer member get premium assistance?


yes

NO PENALTY

no

NO PENALTY


Are you an applicable large employer?

• No penalties if the employer (when aggregated with all of its controlled group / affiliated service group members) employs less than 50 full-time equivalent employees.

― Based on number of employees in the prior calendar year.

Special transition rule for 2014 and new employers.

― Each person who works more than 120 hours in a month counts as 1.

― Add together everyone else’s hours in the month and divide by 120 to calculate the number of additional FTEs.

DO NOT ROUND

― If the average monthly total of full time (FT) plus FTEs is more than 50, check the seasonal employee rule.


Seasonal Employee Rule

• If you employ less than 50 full-time employees for most of the year, the seasonal employee rule may let you avoid large employer status.

• You are still “small” if:

― You have more than 50 full-time employees for no more than 120 days or four calendar months during a calendar year.

― You go over the threshold due to seasonal employees.

Until further guidance is issued, employers may apply a reasonable, good-faith interpretation of “seasonal.”

― The days or months are not required to be consecutive.


Overview of Employer Penalties

Applicable large employer?

→yes →Does employer member offer coverage to at least 95% of its FT employees (and their children)?

→ no →Does FT employee of employer member get premium assistance?

→yes → No offer penalty

no

NO PENALTY

yes

no

NO PENALTY

Is coverage affordable? → no →Does FT employee of employer member get premium assistance?


yes

no

NO PENALTY

Is coverage adequate? → no →Does FT employee of employer member get premium assistance?


yes

NO PENALTY

no

NO PENALTY


Are any employees eligible for premium subsidies?

• The individual refundable tax credit (or an equivalent premium subsidy) is available for certain individuals:

― whose household income is between 100% and 400% of the Federal Poverty Level (FPL);

― who do not have access to “affordable” and “adequate” health insurance through their employer or a govern-mental program (e.g., Medicare, Medicaid, Children’s Health Insurance Plan ‘CHIP’); and

― who purchase insurance through a state exchange.

• The SCOTUS decision causes a potential eligibility gap because individuals with household income below 100% of FPL might not be eligible for either Medicaid or the premium subsidies.


Premium subsidy analysis, cont.

• Eligibility for subsidized insurance and how much someone has to pay toward an exchange policy depends on the number of household members and household income compared to the federal poverty level.

• 68% of U.S. households are estimated to have income below 400% of the federal poverty level.

Household size

100% 133% 138% 150% 200% 250% 300% 400%

1 11,490 15,282 15,856 17,235 22,980 28,725 34,470 45,9602 15,510 20,628 21,404 23,265 31,020 38,775 46,530 62,0403 19,530 25,975 26,951 29,295 39,060 48,875 58,590 78,1204 23,550 31,322 32,499 35,325 47,100 58,875 70,650 94,200



• How much you have to pay toward an exchange policy ranges from 2% to 9.5% of your household income, depending on your household income as a multiple of the federal poverty level.

Household income multiple of the FPL

Applicable percentage

Up to 133% 2.0% to 2.0%133% up to 150% 3.0% to 4.0%150% up to 200% 4.0% to 6.3%200% up to 250% 6.3% to 8.05%250% up to 300% 8.05% to 9.5%300% up to 400% 9.5% to 9.5%



• Example: A single employee with household income of $11,500 (just over 100% of the FPL for 2013).

Employee’s premium cost to buy a policy on the exchange would = 2% of household income = $230 for the whole year’s premium ($19.17 per month).

That premium would purchase a policy that covered 94% of expected claims costs.

This employee would be financially better off under the exchange policy instead of most employer’s plans.


Premium assistance sweetened

• If an individual’s household income does not exceed 250% of the FPL, the federal government will pay to reduce the individual’s out-of-pocket costs for covered services.

― 200-250% of the FPL: 73% of costs covered;

― 150-200% of the FPL: 87% of costs covered; and

― 100-150% of the FPL: 94% of costs covered.


Individual Year-End Reconciliation

• The actual subsidy available depends on the total household income (a number an individual usually doesn’t know until after year-end).

• An individual can choose to estimate their household income and pay a discounted premium each month.

• BUT, if they underestimated their income, they will have to repay some (or all) of the subsidy they received.

Household income as % of FPL

Repayment cap

Less than 200% $600

Between 200% and 300% $1,500

Between 300% and 400% $2,500

More than 400% No cap


Is coverage offered to substantially all FT employees/dependents?

• Although 50 FTE test is done on the controlled group, the actual tax is imposed by tax-entity.

• Although statute requires coverage to be offered to all full-time employees and their dependents:

Dependents limited to children by birth/adoption, step-children and foster children under age 26; in some cases ages 28 & under.

No-offer penalty avoided so long as coverage is offered to at least 95% of FT employees.

Several safe-harbors for measuring whether an employee works at least 30 hours per week.


FT Safe Harbor Explained

• 3 Periods for variable hour employees:

― Measurement – Track hours worked or entitled to pay.

― Administrative – Average the hours worked and offer coverage if the average exceeded 30 hours per week.

― Stability – Continue to treat as FT or part time (PT) depending on calculated average hours, regardless of actual hours.

• Longer periods typically reduce the number of FT employees.


Is coverage “Affordable”?

• Coverage is “affordable” if the employee contribution for the lowest cost coverage does not exceed 9.5% of the employee’s household income.

― For premium subsidies, “affordability” is measured based on the employee’s estimated household income (not recalculated unless the employee provided incorrect information with reckless disregard for facts).

― For employer penalties, “affordability” is determined based on the cost of employee only coverage.


“Affordable” Safe Harbors

• For avoiding the employer penalties, the US Treasury has proposed a three safe harbors:

― Form W-2 – may justify higher employee premiums BUT need to be wary of impact of pre-tax deferrals and unpaid leaves of absence which could make coverage appear unaffordable.

― Rate of pay - usually the best choice.

― Federal poverty level - best for tipped employees making less than minimum wage.


“Affordable” safe harbor examples

• Assume an employee is paid $8.00 per hour, works 1,560 hours per year, and defers 5% of his pay into a 401(k) plan. The employee’s W-2 would show $11,856 of pay after the 401(k) deferral (95% x $8 x 1560).

• So long as the employee’s share of the monthly premium does not exceed $98.80, the coverage is deemed to be affordable and the unaffordable/inadequate coverage penalty is avoided (assuming the offered coverage is adequate).

Form W-2 Safe Harbor Rate of Pay Safe Harbor

FPL Safe Harbor

9.5% X ($11,856 ÷ 12) = $93.86

9.5% X $8.00 X 130 = $98.80

9.5% X ($11,440 ÷ 12) = $90.96


“Affordable” safe harbor examples

• For many low wage employees, cash is king and they will decline any offered coverage (so it may not cost you to offer the coverage).

• As low wage employees begin to understand the incredible subsidy, offering “affordable” coverage that is less advantageous (costs more and/or covers less) than the federally subsidized benefit may become a competitive disadvantage. WE AREN’T THERE YET.

• Remember, the employee’s actual eligibility for premium assistance to buy health insurance on an exchange will be based on the premium cost as a percentage of employee’s actual household income.


Is coverage “Adequate”?

• Coverage is “adequate” if it is expected to cover at least 60% of standardized claims costs.

Most popular plan designs meet this standard.

There will be several ways for an employer to demonstrate that its plan passes this standard including pre-approved plan designs, a calculator, and actuary certification.


Impact on “small” employers

• Explanation of exchanges late summer/fall 2013.

• If you offer insurance to any employees, you will have to file a new IRS form regarding that coverage.

― No details yet about full content or timing.

• May receive information requests from the Exchange regarding employee insurance eligibility.

― Participating in an appeal is not required but might save employees from tax issues.

• May receive information requests from the IRS regarding potential penalty assessments.

― May need to prove “small” status.


IRS Reporting

• New IRS reporting requirements to enforce individual coverage mandate and employer play-or-pay penalties. ― Code section 6055 applies to every person (employer or

insurer) who provides health insurance coverage beginning 1/1/2014.

― Code section 6056 applies to applicable large employers beginning with the first plan year on or after 1/1/2014.

• IRS will:― Compare information provided by the employer (on a form

not yet drafted) and by the employee (on their 1040); and― Contact the employer with a preliminary notice of potential

employer no-offer or unaffordable/inadequate coverage penalties.

• Employer will have the opportunity to provide additional information before a penalty is assessed.

• The actual filing details (what information will be required to be provided and when), reconciliation and appeals process have yet to be defined.


What should you be doing now?

• Prepare for new requirements:

• Educating employees about exchanges (this summer/fall)

• Patient centered research fee

• Responding to HHS data requests

• New limits on health FSAs

• New taxes on high income persons

• New EDI certifications

• New 2014 coverage mandates • Individual Mandate tax

• New IRS reporting to enable verification of employee eligibility for exchange subsidies

• Plan for large employer tax penalties (no offer or unaffordable coverage)


2014 Mandates

Mandates for the First Plan Year after 1/1/2014

Mandates for All Plans Extra Mandates for Non-Grandfathered Plans

No pre-existing condition limitations (before 2014 plan year, pre-existing conditions banned for children under 19, but permitted for others).

Mandated coverage of clinical trial expenses related to cancer or other life-threatening diseases.

Must cover adult children up to age 26, even if the child is eligible for other (non-parental) employment-based coverage.

Exchange Plans Only - Deductibles limited to $2,000 for individual coverage and $4,000 for family coverage, plus health FSA contribution limit (all indexed for inflation).

New rules for standards-based wellness programs.

Exchange Plans Only - Cost-sharing limited to HSA-compatible HDHP out-of-pocket maximum ($5,950 for individual coverage and $11,900 for family coverage, indexed for inflation).

No waiting period in excess of 90 days.

Annual dollar limits on “essential benefits” fully phased out.


Another fee on group health plans

• Reinsurance.

― Paid by insurers and TPAs (on behalf of self-insured plans).

Per capita charge.

HHS will set the rate to collect an aggregate national amount.

― $63 per capita for 2014. Paid in 2014, 2015, and 2016.

― Paid to insurers that cover high-cost individuals.

• Risk corridor and risk adjustment fees also provide for shifting costs between insurers.


Useful Links and Caveats

• Links to government resources:

http://www.dol.gov/ebsa/healthreform/

• Link to Vorys health care reform webpage:

http://www.vorys.com/healthcarereform

• Link to Federal Web portal to compare up to 3 policies:

― www.healthcare.gov

Provides detailed pricing and benefit information about private insurance options from a variety of carriers including cost-sharing per service, deductible, premium cost, percentage of applicants charged higher rates, and percentage of applicants denied coverage.


Background

The following slides lay out some other information

that may be useful as you confirm that your plans

comply with the Affordable Care Act.


Overview of the ACA – What Should You Be Doing Already?

Verify Comply with 2011 Mandates (First PY after 9/23/2010)

Mandates for All Plans Extra Mandates for Non-Grandfathered Plans

Coverage of adult children to age 26 (may exclude kids with access to other coverage until 2014).

Coverage of adult children to age 26 (even if they have access to other coverage).

No pre-existing condition limits under age 19.

First dollar coverage of in-network preventative services.

No lifetime dollar limits on “essential benefits.”

Non-discrimination rules for insured plans (delayed enforcement until regulations are issued).

Annual dollar limits on “essential benefits” phased out.

Coverage of non-network emergency services on the same basis as in-network.

Insurers must report loss ratios and provide rebates.

Pre-authorizations prohibited for OB/GYN care and must allow selection of any primary care physician.

Rescission prohibited. New appeals standard.


What should you be doing now?

• Verify comply with 2012 Mandates:

• Prepare for new requirements:

• Educating employees about exchanges (this summer/fall)

• Patient centered research fee

• Responding to HHS data requests

• New limits on health FSAs

• New taxes on high income persons

• New EDI certifications

• New 2014 coverage mandates • Individual Mandate tax

• New IRS reporting to enable verification of employee eligibility for exchange subsidies

• Plan for large employer tax penalties (no offer or unaffordable coverage)

• W-2 reporting (if you issue more than 250 W-2s for a year )

• Issuing SBCs

• Dealing with Rebates


W-2 Reporting

• Form W-2’s will have to show the cost of health coverage starting with the 2012 calendar year (reported in January 2013).

― No reporting is required for:

Small employers (less than 250 Form W-2s issued for that year).

Coverage provided under a Taft-Hartley multi-employer plan.

Individuals who are not otherwise required to receive a W-2 (i.e. people who retired or terminated in a prior year, former spouses on COBRA, etc.).

W-2’s issued before a year ends.


Summaries of Benefits and Coverage “SBCs”

• Summary of Benefits & Coverage (SBC) is a new standardized explanation of medical benefits – does not replace the SPD or other employee communications.

― Formerly known as the “4-page summary.”

4 pages = 8 pages (and excludes 4 page standardized glossary).

• Intended to facilitate apples-to-apples comparisons when individuals shop for health insurance on state exchanges.


SBCs, cont.

• Distribution. Starting open enrollment or first plan year beginning after 9/23/2012:

― Initial enrollment.

― Annual enrollment.

― Special enrollment.

― Upon request.

― 60 days advance notice of mid-year changes.

Special 30 day rule for open enrollment.


Medical Loss Ratio Rebates

• Insurers whose claims payments are less than a specified portion of their premiums on claims must issue a rebate.

― The first rebates were issued in July 2012 based on 2011 premiums and claims.

― Many services, like claims and appeals processing, brokers fees and call center expenses, do not count as claims expenses under the MLR standard.

― This standard may cause carriers to reduce customer services that count as ineligible overhead.

• If you receive a rebate, you have a fiduciary obligation to use the portion of the rebate attributable to employee paid premiums for the benefit of employees through premium refunds, premium reductions or premium holidays. The Department of Labor (DOL) has indicated that you are not required to match the rebate to the employees whose premium payments resulted in the rebate.


Exchange Education Notice

• This summer or fall (after guidance is issued), and at date of hire thereafter, employers must provide all employees with:― an explanation of the state exchanges to purchase

insurance, with contact information; and― if the employer subsidy of the cost of coverage is less

than 60%, a summary of the individual tax credit.• Plans may be required to provide additional information to

HHS and the Government Accountability Office (GAO) in connection with studies of coverage, claims denials and potential conflicts of interest within self-insured plans.


Patient-Centered Outcomes Research Fee

• Fees fund Patient-Centered Outcomes Research Trust Fund created to study comparative effectiveness of various clinical treatments.

• Paid by self-insured (plan sponsor) and insured (carrier) plans.

• Applies to plan years ending on or after 10/1/2012 and before 10/1/2019 (seven years).

• $1 ($2 after first year, then indexed) per-covered-individual fee.

• For most plans, first payment due 7/31/2013.

• Annual payment made by filing IRS Form 720.


What’s Coming in 2013 – cont.

• In an attempt to move vendors toward greater compliance with the electronic data interchange (EDI) standards:

― Plans will be required to contract with all vendors to explicitly require compliance with EDI standards (with documentation).

― Plans must certify to HHS that all data and information systems comply with applicable EDI standards (including revisions).

― Plans must provide supporting documentation to HHS.

― Significant penalties for noncompliance ($1/day/covered life until complete certification filed – doubled if “knowingly” file an inaccurate or incomplete certification).


EDI Standards for 2013 and 2015

• Certification of compliance with electronic data interchange (EDI) standards (cont’d).

― Plans will be required to certify compliance for the following EDI standards:

By December 31, 2013 By December 31, 2015

Electronic fund transfers to pay providers

Health claims or equivalent encounter information

Health plan eligibility Enrollment/disenrollment

Health claims status Premium payments

Health care payments Health claim attachment

Remittance advices Referral certification

Authorizations


Legal Disclosure

This presentation is for general information only.

IRS CIRCULAR 230 DISCLOSURE: In order to ensure compliance with requirements imposed by the U.S. Internal Revenue Service, we inform you that any federal tax information contained in this communication is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of (i) avoiding penalties that may be imposed under the U.S. Internal Revenue Code or (ii) promoting, marketing, or recommending to another person, any transaction or other matter addressed herein.

Jay Hazelbaker, PresidentJay Hazelbaker, President

TAH BenefitsTAH Benefits

Health Care Health Care

ReformReform: :

Insurance Insurance Considerations Considerations for the Small for the Small Business OwnerBusiness Owner

Agenda

• Employer’s Choices Under ‘Pay or Play’

• Every Employer Will Choose 1 of 3 Paths

• Options Available to Individuals

I Am a Large Employer.

What Are My Choices Under ‘Pay or Play’?

If I Choose NOT to Offer a Plan

• Employer is subject to penalty of $2,000 per employee, per year, for each FT employee who would be eligible for coverage, minus the first 30.

Example: Nellie Noodles has 35 FT employees. If she chooses NOT to offer a compliant plan, she would be required to pay a penalty of $10,000 for that year.

[35 FT employees – 30] x $2,000 = $10,000

If I Choose to Offer a Plan

• Plan must meet specific criteria:

−Plan must be offered to substantially all FT employees

−Plan must satisfy the Minimum Value (MV) requirement and be considered an Eligible Employer Sponsored Plan (EESP)

−Plan must be considered Affordable− Employee premium contribution for employee-only

coverage cannot exceed 9.5% of employee’s household income, where “household income” is defined as that employee’s W-2 income.

What If My Plan Is NOT Compliant?

• Employer is subject to a $3,000 penalty for each FT eligible employee who receives subsidized coverage through the Public Exchange.*

− Example: Nellie charges $1,951 per year for employee-only coverage. Her 5 lowest paid FT employees make $20,000 / year [9.5% of their W-2 income = $1950]. Because their contribution exceeds the 9.5% threshold, if 3 of them obtain subsidized coverage through the Public Exchange, Nellie will owe a penalty of $9,000 [3 x $3,000].

(*) Affordability penalty cannot exceed the amount the employer would have paid had they not offered any plan.

OH, NELLIE !!!

Employers - Choosing 1 of 3 Paths

Large & Small Employers Alike Will Have to Choose

1) Offer Nothing− Employees will have to find coverage elsewhere –

through a spouse’s Employer plan, Public Exchange, or Private Exchange

− Small Employers – no penalties

− Large Employers – subject to penalties

− Pro: Employers have more $$ with which to operate; direct into other employee appreciation programs

− Con: Could become difficult to attract / retain employees


2) Offer a Plan− Fully insured or self-funded

− Small Employers

− All fully insured plans will have to meet the Minimum Essential Benefit requirements

− Large Employer

− Plans must be considered eligible employer sponsored plans

− Plans will have to meet the Minimum Value (MV) requirement

− Plans will have to be considered Affordable (employee contribution for single coverage cannot exceed 9.5% of employee’s W-2 wages for employee only coverage)


3) Defined Contribution− Employer will not offer / manage one given plan, but

will provide financial support for employees to purchase individual plans on a Private Exchange

− Pro: Allows both Employer and Employee the ability to continue using qualified / pre-tax $$ to purchase insurance coverage

− Con: Employer’s financial support of individual plans will not be considered sufficient to avoid penalties for large employers

− May not be enough $$ after penalties to put any meaningful contribution into the plan

Options Available to Individuals

Individual Options

• Beginning in 2014, all individuals will be required to have insurance coverage, with a few notable exceptions

− If cost of employee only coverage under an employer sponsored plan exceeds 8% of household income, then individual requirement is waived

−Employer Sponsored Plan− Continue to participate in an Employer plan, if available.− Employer’s plan or spouse’s employer’s plan

−Private Exchange− Shop among plans and use personal funds to pay premiums.− Use Employer funds and personal funds to purchase a plan

(Defined Contribution Model)

Individual Options

−Public Exchange

− Individuals can shop for coverage− Only method available to receive tax credits / premium subsidies

− Individuals whose “household” income falls below 400% of the Federal Poverty Level (FPL) may be eligible for premium subsidies− If cost for employee only coverage exceeds 9.5% of employee’s

household (W-2) income, then employee and family members are eligible for tax credit / premium subsidy

− If cost for employee only coverage is less than 9.5% of employee’s household (W-2) income, then neither employee nor family members are subsidy eligible

Questions?

Documents

Health Care Law: Next Steps for Restaurateurs