What Health Care Reform Means For Your
Company
What Health Care
Reform Means for
Your Company
What Health Care Reform Means for
Your Company: Patient Protection
and Affordable Care Act
•The past: Health Reform Changes in 2010
•The present: Changes Effective in 2011 and 2013
•The future: Anticipating Changes Slated for 2014 and
Beyond
The past:
Health Reform Changes in 2010
•Affecting Plan Sponsors
•Impacting Businesses
2010 Changes Affecting Plan Sponsors
• Grandfathered plans
• Coverage for adult children
• Nondiscrimination rules for insured health plans
• Preventive care services
• Lifetime and annual limits
• Minimum loss ratios
• Preexisting condition exclusions
• Claims appeals processes
• Early retiree reinsurance program
• Expanding patient selection of providers
• Reviews of premium increases
Grandfathered Plans
Two types of plans under health reform:
• New health care plans
• Grandfathered plans
Individuals who were enrolled in a group health plan or individual
health coverage on March 23, 2010, may not be required to terminate
that coverage.
Any group health plan or health insurance coverage to which this
provision applies is considered a “grandfathered health plan” (Act Sec.
10103).
Grandfathered plans in general are not subject to many of the
insurance and market reforms of the health reform law. However,
some important provisions do apply.
Grandfathered Plans
Grandfathered plans are not subject to the following:
• compliance with nondiscrimination rules for insured plans
• requirement to provide preventive care services
• effective claims appeals requirement
• primary care provider requirements
• limits on insurance premium rates
• guaranteed availability and renewal
• prohibition on discrimination based on health status*
• essential benefits coverage package
*HIPAA nondiscrimination rules still apply
Grandfathered Plans
Individual and group grandfathered plans are subject to the following
provisions:
—extension of adult child coverage (Sept. 23, 2010)
—prohibition on rescinding coverage (Sept. 23, 2010)
—elimination of lifetime limits (Sept. 23, 2010)
—prohibiting excessive waiting periods (2014)
—requirements to provide uniform explanations of coverage and
standardized definitions
—insurer requirements to provide loss-ratio reports and rebate
premiums if loss ratios fall below 80%
Grandfathered Plans
Group grandfathered plans are subject to the following provisions:
 elimination of annual limits (Sept. 23, 2010)
 elimination of preexisting condition exclusions (2014)
 Coverage of adult children until age 26
Grandfathered Plans
 Family members may enroll in a grandfathered plan in which the
employee is enrolled. This rule applies if the individual was
enrolled in the grandfathered plan on the date of enactment and
the coverage is later renewed.
 A grandfathered group health plan may provide for the
enrollment of new employees and their families
Coverage for Adult Children
Two different provisions affect health coverage for adult children.
1. Group health plans with dependent child coverage must make available
coverage for the enrollee’s adult children who are younger than age 26,
regardless of whether or not the dependent is married. Health plans or
health insurers are not, however, required to cover a child of the adult
child receiving dependent coverage.
Effective for plan years beginning on or after Sept. 23, 2010 (Act Sec.
1004(a)).
Coverage for Adult Children
Plans may not terminate coverage for adult children based on any of these
criteria:
• financial dependency
• residency with the participant student status,
• employment,
• eligibility for other coverage [other than for grandfathered plans
before Jan. 1, 2014],
• married status,
• or any combination of these factors.
Coverage for Adult Children
2. Effective on March 23, 2010, reimbursements from a group health plan for
children under the age of 27 are excluded from gross income.
•
Applies to any child of the employee who as of the end of the tax
year has not attained the age of 27.
•
No longer necessary for the child of the employee to be a
dependent of the employee in order for this exclusion to apply.
Nondiscrimination Rules
for Insured Health Plans
New insured group health plans must comply with existing
nondiscrimination rules for self funded plans, including:
• nondiscrimination rules for eligibility, and
• nondiscrimination rules for benefits (Act Sec. 1001(5)).
Grandfathered plans do not have to comply with these
nondiscrimination rules.
Preventive Care Services
Group health plans are required to cover, without any cost-sharing,
certain adult preventive services and immunizations.
Also required to be covered, without any cost-sharing, are certain
child preventive services.
Effective for plan years beginning on or after Sept. 23, 2010.
Grandfathered plans are not required to provide this coverage.
Preventive Care Services
Specific preventive care services covered include these:
• Evidence-based items or services that are currently recommended by
the U.S. Preventive Services Task Force;
• Immunizations that are currently recommended by the Centers for
Disease Control’s Advisory Committee on Immunization Practices;
• For infants, children, and adolescents, evidence-informed preventive
care and screenings provided for in the comprehensive guidelines
supported by the Health Resources and Services Administration.
Preventive Care Services
Special rules apply for preventive services provided to women:
•Additional preventive care and screenings for women must be
covered, without cost-sharing, as provided for in comprehensive
guidelines supported by the Health Resources and Services
Administration.
• For purposes of breast cancer screening, mammography, and
prevention, the current recommendations of the U.S. Preventive
Services Task Force are considered the most current, other than those
issued in November of 2009.
Health plans or issuers are not barred from providing coverage for
preventive care services beyond those recommended by the U.S.
Preventive Services Task Force.
Lifetime and Annual Limits
Group health plans cannot impose lifetime or annual benefit limits (Act
Sec. 1001(5)).
Lifetime limits prohibited, effective for plan years beginning on or after
Sept. 23, 2010.
Annual limits also barred, but there is an exception for pre-2014 annual
limits.
Lifetime and Annual Limits
Phase-in rule
Before Jan. 1, 2014, restricted annual limits may be applied to
“essential health benefits.”
Group health plans may continue to place annual or lifetime per
beneficiary limits on specific covered benefits that are not essential
health benefits.
Limits on nonessential health benefits still allowed.
Lifetime and Annual Limits
Annual limits before Jan. 1, 2014
$750,000, for a plan year beginning on or after Sept. 23, 2010, but
before Sept. 23, 2011;
$1,250,000, for a plan year beginning on or after Sept. 23, 2011, but
before Sept. 23, 2012;
$2,000,000, for plan years beginning on or after Sept. 23, 2012, but
before Jan. 1, 2014.
Minimum Loss Ratios
Insurers offering group or individual health insurance must maintain
certain minimum medical loss ratios (Act Sec. 1001(5)).
Ratio of the
incurred claims plus a loss adjustment expense
to
earned premiums
Effective for plan years beginning on or after Sept. 23, 2010.
Minimum Loss Ratios
If minimum loss ratios are not maintained, rebates must be provided to
health plan participants (effective Jan. 1, 2011).
• Large group loss ratio minimum: 85%
• Small group minimum loss ratio: 80%
Rebate equals
the amount by which the coverage fails to meet the minimum loss
ratio
multiplied by
the total amount of premium revenue.
Minimum Loss Ratios
Rebate example:
ABC Insurance Company earns $2.5 million on premiums for coverage
for Large Employer, Inc.'s 280 employees.
Incurred claims plus a loss adjustment expense total $2.05 million, which
results in a loss ratio of 82%. Thus, 3% is the amount by which the
coverage fails to meet the minimum loss ratio by the total amount of
premium revenue.
That 3% multiplied by $2.5 million results in a total annual rebate of
$75,000. This would produce an average pro rata rebate of $267.86
(75,000 divided by 280 employees) for each enrollee.
Preexisting Condition Exclusions
No group health plan nor any health insurance issuer may impose a
preexisting condition exclusion to limit or deny coverage, effective for
plan years beginning on or after Jan. 1, 2014.
For enrollees who are under 19 years of age, the provision becomes
effective for plan years beginning on or after Sept. 23, 2010 (Act Sec.
1201).
Claims Appeals Process
Group health plans and health insurers must implement an effective
process for appeals of coverage determinations and claims, including at a
minimum the following (Act Sec. 1001(5)):
– an established internal claims appeal process;
– a notice to participants of available internal and external appeals
processes; and
– a provision allowing an enrollee to review his or her file, to present
evidence and testimony as part of the appeals process.
• Effective for plan years beginning on or after Sept. 23, 2010.
• Grandfathered plans are not subject to these new claims appeals rules.
Claims Appeals Process
External claims appeals process — two options:
(1) Plans and insurers must comply with state external review requirements
that are binding and at a minimum include the consumer protections in the
Uniform External Review Model Act from the National Association of
Insurance Commissioners; or
(2) If state requirements do not meet minimums or if the plan is self-funded,
then the plan must implement an external review process that is similar to
that in the Uniform External Review Model Act and that meets standards
established by the Department of Health and Human Services.
Early Retiree Reinsurance
Beginning June 23, 2010, and ending on Jan. 1, 2014, a temporary
reinsurance program was established that reimbursed part of the claims
cost for participating employment-based plans that provide health
insurance coverage for early retirees (ages 55 to 65), eligible spouses,
surviving spouses, and dependents of such retirees.
The reimbursement was for 80 percent of plan claims that are between
$15,000 and $90,000 (Act Sec. 1102).
Due to funding issues, CMS stopped accepting new applications on
May 5, 2011, and denied health care claims incurred after December
31, 2011.
Expanding Patient Selection
of Providers
Health insurance plans must allow enrollees to select any participating
primary care provider available, including a pediatrician for children, and
to cover emergency services provided at a hospital emergency
department regardless of the hospital's participation in the plan preferred
provider network and without prior authorization requirements.
Female enrollees must be able to obtain obstetrical/gynecological
specialist services without a referral from another primary care provider
(Act Sec. 1001(5)).
Effective for plan years beginning on or after Sept. 23, 2010.
Reviews of Premium Increases
• An annual review process of “unreasonable increases” in
premiums for health insurance coverage.
• A health insurance issuer submits a justification for a premium
increase prior to implementing those increases (Act Sec. 1001(5)).
• Effective for the 2010 plan year.
2010 Changes
that Impacted Businesses
• Small employer health insurance credit
• Automatic health plan enrollment
Small Employer
Health Insurance Credit
Small employers receive a tax credit for nonelective contributions of at least
one-half the cost of health insurance premiums paid for participating
employees during tax year (Act Secs. 1421 & 10105(e)).
• Small employer means:
 25 or less FTE employees;
 average annual wages not greater than twice the applicable dollar
amount for tax year ($25,000 in tax years 2010 through 2013); and
 a qualified health care “arrangement” is in effect.
Small Employer
Health Insurance Credit
• Credit phases out as the number of FTEs increases to 25 and
average annual employee compensation increases to $50,000.
• FTE = total hours paid divided by 2,080 (only first 2,080 per
employee).
• Contribution “arrangement”:
 uniform percentage
 not less that 50% of premiums for qualified health plan
 not made through salary reduction
 after 2013 the insurance is offered through an Exchange
Small Employer
Health Insurance Credit
Credit for tax years 2010 - 2013 is 35% (25% for tax-exempt
employers) of the lesser of:
(1) total amount of nonelective contributions the employer makes on
behalf of its employees during the tax year, or
(2) total amount of nonelective contributions that would have been
made if each of those employees had enrolled in a qualified health
plan with a premium determined by HHS to be the average for the
small group market in the state – IRS Rev. Rul. 2010-13
(irs.gov/pub/irs-drop/rr-10-13.pdf).
Small Employer Credit after 2013
May be claimed during 2 consecutive tax year periods starting with
year in which 1 or more qualified health plans is offered through an
Exchange.
Credit amount is 50 % (35% for tax exempt employers) of the lesser
of:
(1) total amount of nonelective contributions for premiums for qualified
health plans offered to employees through an Exchange, or
(2) total amount of nonelective contributions that would have been
made if each employee had enrolled in a qualified health plan with the
average premium in the small group market in the rating area.
Small Employer
Health Insurance Credit
Credit phase-out calculation
The credit is reduced (but not below zero) by the sum of:
(1) The product of (a) the credit amount and (b) the number of the
employer's full-time equivalent employees for the tax year in excess of
ten, divided by 15; and
(2) The product of (a) the credit amount and (b) the employer's average
annual wages in excess of the applicable dollar amount for the tax
year ($25,000 in tax years beginning in 2010 through 2013) divided by
the applicable dollar amount.
Automatic Health Plan Enrollment
Applies to employers with more than 200 full-time employees that offer
one or more health plans (Act Secs. 1511 & 1512):
•
new full-time employees automatically enrolled in one of the
plans
•
subject to any waiting period authorized by law
•
current employees continue to be enrolled
•
must give adequate notice and opportunity to opt out
Automatic Enrollment –
Notice of Exchange
Until regulations are issued, employers are not required
to comply with the automatic enrollment requirements.
The Department of Labor expects to complete its
rulemaking by 2014.
The present:
Changes Effective in 2011 and 2013
•Impacting Plan Sponsors
•Affecting Businesses
2011 Change Impacting Plan
Sponsors
• Benefits
summary standards
Benefits Summary Standards
• Federal standards for a summary of benefits and explanation of
coverage (by March 23, 2011).
• Uniform format, using easily understood language (Act Sec.
1001(5)).
By March 23, 2012, group health plans must provide a summary of
benefits and coverage explanation under these new rules.
Benefits Summary Standards
Summaries must include:
• Uniform definitions of standard insurance and medical terms
• A coverage description, including cost sharing for each of the
categories of essential health benefits coverage exceptions,
reductions, and limitations
• Cost-sharing provisions, including descriptions of deductibles,
coinsurance, and co-pays
• Renewability and coverage continuation provisions
• A “coverage facts label” that includes examples
• A statement as to whether the plan (1) provides minimum essential
coverage and (2) ensures that its share of the total allowed benefit
cost under the plan is no less than 60% of those costs
2011 Changes
Affecting Businesses
• W-2 health coverage disclosure
• Small employer “simple cafeteria plans”
• Over-the-counter medicines not reimbursable through HSAs &
HRAs
• Increased excise tax on HSA & HRA non-medical distributions
W-2 Health Coverage Disclosure
Beginning with 2012 tax year (Act Sec. 9002):
Aggregate cost of “applicable employer-sponsored health insurance”
coverage must be disclosed on employee's Form W-2 (in Box 12, Code
DD). This is for information only; the amount reported is not taxable.
The reporting requirement was scheduled to begin with Forms W-2 for
the 2011 tax year, but the IRS later made it optional for 2011. Small
employers (fewer than 250 Forms W-2 in 2011) are exempt for 2012.
Excludes:
 Contributions to an Archer medical savings account or Health
Savings Account of an employee or spouse
 Salary reduction contributions to a flexible spending arrangement
under cafeteria plan
W-2 Health Coverage Disclosure
“Applicable employer-sponsored coverage” is:
• Coverage under any group health plan made available by the employer
that is excludable from gross income under Code Sec. 106, or would be if
considered employer-provided coverage under Code Sec. 106
• Regardless of whether the employer or employee pays for it
• Does not include long-term care, accidents, or disability income
insurance, or coverage only for a specified disease or illness, hospital
indemnity, or other fixed indemnity insurance, the payment for which is not
excludable from gross income and deductible under Code Sec. 162(l)
Small Employer
“Simple Cafeteria Plans”
Beginning in 2011, certain small employers may provide a simple
cafeteria plan for their employees, under which the nondiscrimination
rules of a classic cafeteria plan are treated as satisfied (Act Sec.
9022).
A simple cafeteria plan is cafeteria plan established and maintained by
an eligible employer that meets certain contribution, eligibility and
participation requirements.
Small Employer
“Simple Cafeteria Plans”
Deemed as met by an employer establishing a simple cafeteria plan is
any nondiscrimination requirement applicable to:
• A classic cafeteria plan under Code Sec. 125(b);
• Group-term life insurance under Code Sec. 79(d);
• An accident and health plan under Code Sec. 105(h); or
• A dependent care assistance program under Code Sec. 129(d)(2),
(3), (4) or (8)
Small Employer
“Simple Cafeteria Plans”
Eligible employer:
• Average of 100 or fewer employees on business days during either of the 2
preceding years.
• A year is counted only if the employer existed throughout the year.
• If not in existence throughout the preceding year, still eligible if reasonably
expects to average 100 or fewer employees on business days during current
year.
• If 100 or fewer employees for any year & simple cafeteria plan is established
that year, requirement is met after that if more than 100 but less than 200
employees.
Small Employer
“Simple Cafeteria Plans”
Contribution requirements met if:
Employer is required by the plan, regardless of whether a qualified
employee makes any salary reduction contribution, to make a
contribution to provide qualified benefits on behalf of each qualified
employee, in an amount equal to:
(1) a uniform percentage (not less than 2%) of the employee’s
compensation for the year; or
(2) an amount not less than the lesser of: (a) 6% of the employee’s
compensation for the plan year, or (b) twice the amount of the salary
reduction contributions of each qualified employee.
Small Employer
“Simple Cafeteria Plans”
Option 2: If the employer chooses the second option it will be out of
compliance if the contribution rate for any salary reduction contribution of
a highly compensated or key employee is greater than that for any other
employee.
A “salary reduction contribution” is any amount contributed to the plan at
the election of the employee and not includable in the employee’s gross
income under the cafeteria plan provisions.
“Highly compensated employee" and "key employee" are defined as under
classic cafeteria plan provisions.
“Qualified employee" is any employee who is not a highly compensated or
key employee.
Small Employer
“Simple Cafeteria Plans”
Employee eligibility and participation requirements:
• All employees who had at least 1,000 hours of service for the
preceding plan year are eligible to participate.
• Each eligible employee may elect any benefit under the plan,
subject to terms and conditions applicable to all participants.
Small Employer
“Simple Cafeteria Plans”
Employees excludable even if 1,000 hour requirement is met:
• Not age 21 before the close of the plan year
• Less than 1 year of service as of any day during the plan year
• Covered under CBA if benefits covered under the plan were the
subject of good faith bargaining
• Nonresident alien working outside U.S. whose income did not
come from U.S. source
Over-the-Counter Medicines,
HSAs & HRAs
As of tax year 2011, the cost for a medicine or drug is a qualified medical
expense only if it’s a prescribed drug or insulin for purposes of
reimbursement through (Act Sec. 9003):
•
a health flexible spending arrangement;
•
a health reimbursement arrangement; or
•
a distribution from a health savings account or Archer medical
savings account.
As a result, reimbursements for over-the-counter medicines are not
excluded from an employee’s gross income, unless prescribed by
physician.
Excise Tax on Non-Medical
Distributions
Beginning with tax year 2011 (Act Sec. 9004):
• The excise tax on distributions made from HSAs not used for
qualified medical expenses increases from 10% to 20% of the
amount includible in gross income.
• The excise tax on distributions made from Archer MSAs not used
for qualified medical expenses increases from 15% to 20% of the
amount includible in gross income.
2013 Changes
Impacting Businesses
• Contributions to FSAs are limited to $2,500
• Excessive employee compensation limitations
• Medicare tax increases
• Medicare Part D subsidy deduction repealed
• Medical itemized deduction limit increases
Limits on FSA Contributions
Beginning with 2013 tax year (Act Secs. 9005 & 10902; Reconciliation
Act Sec. 1403):
• A health flexible spending arrangement is not a qualified benefit
under a cafeteria plan unless the plan has a $2,500 cap on the annual
salary reduction contribution.
• If the plan does not specifically prohibit salary reductions in excess of
$2,500, the benefit under the health FSA will not be qualified.
• As a result, employees will be subject to tax on distributions from the
health FSA, thus eliminating any tax benefits of the health FSA
contributions, including those under $2,500.
Excessive Employee
Compensation Limitations
In a disqualified tax year after Dec. 31, 2012, applicable individual
remuneration for services performed is not deductible above the
amount of $500,000 (Act Sec. 9014).
“Disqualified” tax year: any tax year for which the employer is a covered
health insurance provider.
“Applicable individual”: officer, director, or employee of a covered health
insurance provider, or any individual who provides services for or on its
behalf.
There is a separate limitation for deferred deduction remuneration.
Excessive Employee
Compensation Limitations
A covered health insurance provider is:
Tax years after Dec. 31, 2009 and before Jan. 1, 2013: employer
that is a health insurance issuer and receives premiums from providing
health insurance coverage.
Tax years after Dec. 31, 2012: employer that is a health insurance
issuer that receives gross premiums from providing health insurance
coverage with not less than 25% of gross premiums from essential
health benefits coverage.
Medicare Tax Increases
In addition to the 1.45% employee portion of the HI (Medicare) tax
imposed on wages, a 0.9% Medicare tax is imposed on every taxpayer
(other than a corporation, estate or trust) who receives wages with
respect to employment during any tax year beginning after Dec. 31,
2012, in excess of $200,000 (Act Sec. 9015; Reconciliation Act Sec.
1502(b)).
• $250,000 in the case of a joint return
• $125,000 in the case of a married taxpayer filing separately
Medicare Part D
Subsidy Deduction Repealed
The rule that allows an employer, as a plan sponsor, to disregard the
value of any qualified retiree prescription drug plan subsidy in
calculating its business deduction for retiree prescription drug costs is
repealed, effective for tax years beginning after Dec. 31, 2012 (Act
Sec. 9012(b); Reconciliation Act Sec. 1407).
The amount otherwise allowable as a business deduction for retiree
prescription drug expenses is reduced by the amount of the
excludable subsidy payments received.
Medical Itemized Deduction Limit
For tax years beginning after Dec. 31, 2012, the threshold to claim
an itemized deduction for unreimbursed medical expenses is
increased to 10% of AGI for regular income tax purposes (Act Sec.
9013).
• Age 65 and older are exempt until Jan. 1, 2017
• Alternative minimum tax treatment of deduction is unchanged
The future:
Anticipating Changes Slated for
2014 and Beyond
•Affecting Plan Sponsors
•Impacting Businesses
Changes Affecting Plan Sponsors in
2014 and Later
• Guaranteed availability and renewal
• Preexisting condition exclusions *
• Minimum health coverage
• Limits on waiting periods
• Restrictions on premium rating
• Health insurance premium assistance credit
*covered earlier
Guaranteed Availability
and Renewal
Applies to health insurance issuers that offer health insurance coverage in
the individual or group market
•
Requirement is to accept every employer and individual in the state
that applies for coverage.
•
Enrollment in coverage may be restricted to open and special
enrollment periods (Act Sec. 1201).
•
Effective for the plan years beginning on or after Jan. 1, 2014.
Minimum Health Coverage
Health insurers offering coverage in the individual or small group health
insurance market must ensure that the coverage they offer includes the
essential health benefits package required under the health reform law,
and that the annual cost share under the plan does not exceed the
statutory limits (Act Sec. 1302).
Effective for plan years beginning on or after Jan. 1, 2014.
Minimum Health Coverage
Essential Benefit Package
Beginning in 2014, health insurance will be available for purchase through
state-based American Health Benefit Exchanges. Only "qualified health
benefit plans" may be sold via an Exchange.
The essential health benefits package offered by qualified health benefit
plans must include specific categories of benefits, meet certain costsharing standards, and provide certain levels of coverage. In the individual
and small group markets, the scope of benefits provided must equal
benefits provided under a "typical" employer-sponsored plan.
Minimum Health Coverage
Minimum items to be covered in the essential health benefits package:
•
•
•
•
•
•
•
•
•
•
Ambulatory patient services;
Emergency services;
Hospitalization;
Maternity and newborn care;
Mental health and substance use disorder services;
Prescription drugs;
Rehabilitative services and devices;
Laboratory services;
Preventive and wellness services; and
Pediatric services (including oral and vision care).
Limits on Waiting Periods
Group health plans may not impose any waiting period
exceeding 90 days before individuals may enroll in the
plan (Act Sec. 1201(4)).
Effective for the plan years beginning on or after Jan. 1,
2014.
Restrictions on Premium Rating
Premium rates for an insured qualified health benefits plan may vary
only to account for age, rating area, individual or family enrollment,
and tobacco use (Sec. 1201(4)).
Effective for the plan years beginning on or after Jan. 1, 2014.
Health Insurance
Premium Assistance Credit
Beginning in 2014, taxpayers with household income between 100% and
400% of the federal poverty line can qualify for a refundable health
insurance premium assistance credit (Act Sec. 1401). Individuals who
enroll in a qualified health plan at the silver coverage level in an Exchange
may be eligible for cost-sharing reductions (i.e., subsidies) if their
household income does not exceed 400% of the poverty line.
Reductions decrease annual out-of-pocket limits and, for lower-income
individuals, further increase a plan’s share of total allowed benefits costs.
The federal government will pay plan issuers for the value of the
reductions they make (Act Sec. 1402).
Changes Impacting Businesses
2014 and Later
• Health Exchanges
• Employer shared responsibility assessments
• “Cadillac tax” on expensive employer-sponsored plans
Health Exchanges
By Jan. 1, 2014, states must establish American Health Benefit
Exchanges and Small Business Health Options Program (SHOP)
Exchanges to be administered by a governmental agency or non-profit
organization (Act Sec. 1311).
Individuals and small businesses with 100 or fewer employees can
purchase qualified coverage (after 2017, states may permit businesses
with more than 100 employees to purchase in the SHOP Exchange).
States may form regional Exchanges, or allow more than one Exchange to
operate in a state, as long as each Exchange serves a distinct geographic
area. States may also elect to have a single Exchange.
Employer Shared Responsibility
Assessments
Beginning after Dec. 31, 2013, an assessable payment is imposed on
large employers that (Act Sec. 1513; Reconciliation Act Sec. 1003):
• Do not offer full-time employees minimum essential coverage
under an eligible employer-sponsored plan for any month and have
at least one full-time employee enrolled that month in a qualified
health plan (state exchange-offered plan) for which a premium tax
credit or cost-sharing reduction is allowed or paid.
• Assessable payment: 1/12 of $2,000 for any month
($166.67/month) multiplied by the number of full-time employees
for the month, reduced by 30.
Employer Shared Responsibility
Assessments
Example:
In 2014, Gama Corp. fails to offer minimum essential coverage and
has 90 full-time employees, 10 of whom receive a premium tax credit
for the year for enrolling in a state exchange offered plan. For 60 of its
full-time employees (90 full-time employees, less 30), Gama owes
$2,000 per employee, for a total assessable payment of $120,000
($2,000 x 60 full-time employees), which is assessed on a monthly
basis.
Employer Shared Responsibility
Assessments
There is also an assessable payment imposed on large employers that:
• Do offer full-time employees minimum essential coverage under an
eligible employer-sponsored plan for any month, but have one or more
full-time employees who enrolled for the month in a qualified health plan
(a state exchange-offered plan) for which a premium tax credit or costsharing reduction is allowed or paid.
• Assessable payment: Number of full-time employees receiving the
premium tax credit/cost-sharing subsidy for the month, reduced by 30,
and multiplied by 1/12 of $3,000 for any month ($250 per month). The
aggregate amount is limited to the applicable payment amount (1/12 of
$2,000 per month) times the number of full-time employees that month.
Employer Shared Responsibility
Assessments
Example:
In 2014, Omega Corp. offers health coverage and has 100 full-time employees,
10 of whom receive a tax credit for the year for enrolling in a state exchangeoffered plan. For each employee receiving a tax credit, Omega owes $3,000, for a
total assessable payment of $30,000 ($3,000 x 10 employees). The maximum
amount of the assessable payment for Omega is capped at the amount of the
assessable payment that it would have been assessed for a failure to provide
coverage, or $140,000 ($2,000 x 70 full-time employees (100 full-time employees,
less 30)). Since the calculated assessable payment ($30,000) is less than the
overall limitation ($140,000), Omega owes the $30,000 assessable payment,
which is assessed on a monthly basis.
Employer Shared Responsibility
Assessments
An applicable large employer, with respect to a calendar year, is an
employer who employed an average of at least 50 full-time employees
on business days during the preceding calendar year.
A full-time employee with respect to any month is an employee who is
employed on average at least 30 hours of service per week.
The ACA provides that an assessable payment is not imposed on an
offering employer for any month with respect to any employee to whom
the employer provides a free choice voucher – however, the free choice
voucher provision has been repealed.
Employer Shared Responsibility
Assessments
A Medicaid-eligible individual can choose to leave the employer’s
coverage and enroll in Medicaid – an employer will not be subject to
an assessable payment for employees enrolled in Medicaid.
There is an exemption that applies to seasonal workers.
After 2014, the $2,000 amount used in determining the applicable
payment assessment for large employers not offering coverage, and
the $3,000 used in determining the assessable payment imposed on
large employers to do offer coverage, will be increased for inflation.
“Cadillac Tax” on Expensive
Employer-Sponsored Plans
Starting in 2018, a 40% excise tax will be imposed on health coverage
providers to the extent that the aggregate value of employersponsored health coverage for an employee exceeds a threshold
amount (Act Secs. 9001 & 10901; Reconciliation Act Sec. 1401(b)).
The excise tax amount is 40% of the “excess benefit.”
This is the tax on so-called "Cadillac" health plans.
“Cadillac Tax” on Expensive
Employer-Sponsored Plans
Excess benefit: The tax is on the excess benefit, which is the sum of
the monthly excess amounts during the tax period. A monthly
excess amount is the excess of:
(a) the aggregate cost of the applicable employer-sponsored
coverage of the employee for the month, over
(b) an amount equal to 1/12 of the annual limitation for the calendar
year in which the month occurs.
“Cadillac Tax” on Expensive
Employer-Sponsored Plans
The annual limitation for any calendar year is the statutory dollar limit
for that year as adjusted for inflation and for certain other factors.
The dollar limits for determining the tax thresholds are:
• $10,200 (for 2018) multiplied by the health cost adjustment
percentage for an employee with self-only coverage, and
• $27,500 (for 2018) multiplied by the health cost adjustment
percentage for an employee with coverage other than self-only
coverage.
“Cadillac Tax” on Expensive
Employer-Sponsored Plans
The $10,200 and $27,500 amounts are just starting points for
determining the thresholds for taxing excess benefits.
The health cost adjustment percentages, which are applied to the
$10,200 and $27,500 amounts, are designed to capture upward
deviations in the rise of the cost of good health care coverage between
2010 and 2018 as compared to an expected change (i.e., 55%).
“Cadillac Tax” on Expensive
Employer-Sponsored Plans
The percentage equals 100% plus:
The excess (if any) of the percentage by which the per employee cost
for providing coverage under the Blue Cross/Blue Shield standard
benefit option under the Federal Employees Health Benefits Plan for
plan year 2018 (determined by using the benefit package for such
coverage in 2010) exceeds such cost for plan year 2010, over 55%.
“Cadillac Tax” on Expensive
Employer-Sponsored Plans
Example:
Suppose the per-employee cost of the Blue Cross/Blue Shield
standard benefit option under the Federal Employees Health Benefits
Plan for self-only coverage goes up by 80% between 2010 and 2018
(controlling for the same 2010 benefits package). The adjustment
percentage for coverage under self-only plans is 135% (100 + (80 –
55)).
“Cadillac Tax” on Expensive
Employer-Sponsored Plans
There are employer-specific age and gender adjustments to the
threshold amounts so that an employer with a workforce that is more
expensive to insure due to age or gender characteristics will not be
placed at a disadvantage.
More generous thresholds will also apply for coverage of retirees and
high-risk professions.
For More Information
CCH's Law, Explanation and Analysis of the Patient Protection
and Affordable Care Act provides comprehensive and practical
guidance for professionals who need to understand this historic
legislation.
For more information about the book and other solutions from
Wolters Kluwer Law & Business, please visit hr.cch.com.