The Affordable Care Act: Fear of
the Unknown
Virginia School Boards Association
June 7, 2013
Charlottesville, VA
BRADFORD A. KING, ESQUIRE
JESSICA ROGERS, ESQUIRE
Uninsured in Virginia
• Nearly 15 percent of Virginians under age 65 are without
medical insurance (14.6%).
• The majority of uninsured (69.6%) are part of working
families.
• Nearly half (47.4%) are part of families with at least one fulltime worker.
• 22.2% are in families with at least one part-time worker.
• More than 70% (70.6%) of Virginia’s uninsured had incomes
below 200% of the federal poverty limit (FPL).
• The uninsured in Virginia represent all racial/ethnic groups:
• 47 % are white, 24 % are black, 20 % are Hispanic, and 7 % are
Asian/Pacific Islanders.
• The vast majority of Virginia’s uninsured are US citizens
(78.6%).
Statistics from Virginia Health Care Foundation
The Affordable Care Act: Overview
Marketplace Reforms: Provide more access to
private insurance.
2. Medicaid Expansion: Increase eligibility to 138% of
federal poverty level for men, women, and children.
*Now OPTIONAL because of U.S. Supreme Court
decision.
3. Innovation and Reform: Improve health care
delivery system, find alternatives to fee for service
payment system.
1.
Medicaid Expansion in Virginia
 The General Assembly, in the 2013 Budget Bill,
created the Medicaid Innovation and Reform
Commission.
 This group will determine if certain requested
Medicaid reforms have been approved and
implemented; if so, Virginia will expand Medicaid.
 Under the Act, new Medicaid enrollees will be 100%
federally funded through 2016. The federal funding
then gradually decreases to 90% by 2020.
Overview: Insurance Reforms
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Pre-Existing Conditions Exclusions:
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Lifetime and Annual Limits:
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Eliminated for children in 2010.
Eliminated for everyone else in 2014.
No lifetime limits on essential health benefits, as of 2010.
Gradual phase out of annual limits on essential health benefits (completed in
2014).
Rescission/Cancellation:
Policies can only be rescinded for fraud or intentional misrepresentation of a
material fact.
• Can still be cancelled for lack of payment, with proper notice.
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Dependent coverage:
•
Plans that offer dependent coverage must offer such coverage for
dependents up to age 26 (2010).
Insurance Reforms, cont’d
 Preventive Services:
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Certain preventive services must be covered, with no cost-sharing
(2010).
For children, covered services include immunizations, several health
and mental health screenings, behavioral assessments, iron
supplements, etc.
For pregnant women, covered services include certain genetic
screenings, well visits, breastfeeding support, contraception,
domestic violence screening, etc.
For adults, covered services include immunizations, obesity
counseling, tobacco use cessation assistance, aspirin use, etc.
 Limits on out-of-pocket expenses:

In 2014, out-of-pocket expenses in qualified health plans cannot
exceed limits that currently apply to health savings account-related
high deductible spending plans.
Essential Health Benefits
 Categories that must be covered in qualified health
plans:
 Ambulatory Care
 Emergency Care
 Hospitalization
 Maternity & Newborn Care
 Mental Health Services and Substance Use Disorder Services
 Prescription Drug Coverage
 Rehabilitation & Habilitation Services
 Lab Tests
 Preventative & Wellness Care & Management of Chronic Diseases
 Pediatric Care, Including Oral and Vision Care
Insurance Reforms, cont’d
 Medical Loss Ratio (MLR) Rebates:
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As of 2011, insurers are required to rebate, to enrollees, premium
income in excess of a MLR of 85% (for the large group market) or
80% (for the individual and small group markets).
MLR is the premium revenue used for clinical services and activities
to improve health care quality divided by the total premium revenue.
 Temporary Reinsurance Program:
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By 2014, each state must have a three-year reinsurance program for
certain individuals with serious health conditions.
Reinsurance is intended to help stabilize premiums in the individual
market during the transition years.
The fee to support the program will be assessed on both insurance
issuers (fully-insured plans) and third-party administrators (selfinsured plans).
Individual Mandate
 Individual Mandate: Requires most citizens and
legal residents to have “minimum essential
coverage” or pay a penalty.
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Exemptions for people for whom bronze-level coverage is
unaffordable, those with incomes below the income tax filing
level, prisoners, those not lawfully present, members of
recognized Indian tribes, members of recognized religious
sects or health care sharing ministries, those residing
outside the US, and anyone the Secretary of HHS
determines has suffered a hardship.
Individual Mandate, cont’d
 The individual shared responsibility payment for
each adult without coverage will be the greater of:
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$95 in 2014, $325 in 2015, and $695 in 2016; or
The following percentage of income that is greater than the
federal income tax filing threshold ($9,350 for singles and
$18,700 for couples): 1 percent in 2014, 2 percent in 2015, 2.5
percent in 2016 and thereafter.
The amount for children is half that for adults, but total
household penalty is capped at 3 times the adult penalty or the
national average premium for a bronze level plan for the
household.
 No criminal penalties.
Employer Shared Responsibility Payments
 The Act requires large employers, with 50 or more
full-time employees, to either (i) offer affordable
health care coverage with minimum value to all fulltime employees and their dependents, or (ii) pay a
penalty.
 There are two penalty scenarios:
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A penalty for offering NO coverage.
A penalty for offering coverage that is deemed unaffordable or
of inadequate value.
Penalties: No Coverage
 If a large employer offers NO health care coverage to
full-time employees (or offers coverage to less than
95% of full-time employees):
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Penalty = $2000/year for EACH full-time employee,
disregarding the first 30.
It is assessed monthly.
No penalty for full-time equivalents.
$2000 is for 2014; this amount will increase with inflation.
Penalties: Unaffordable or Inadequate Coverage
 If coverage is determined to be unaffordable, or does
not provide minimum value:
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Penalty is $3,000/year for each employee who receives a
subsidy through the exchange.
Assessed monthly.
This penalty is capped at the penalty amount for offering no
coverage.
Applicable Large Employer
 To be subject to penalties, an employer must have at
least 50 full-time employees, or the equivalent
thereof.
 A full-time employee works, on average, 30 or more
hours a week for the previous calendar year.
 Seasonal employees who work less than 120 days a
year are not counted.
Large Employer: Full-time Equivalents
 Part-time employees’ hours are aggregated in the
calculation of full-time equivalent positions (FTEs).
 Each month, the hours of all part-time employees
(but no more than 120 hours per part-time
employee) are added together and divided by 120.
This gives the number of FTEs for the month.
 If the number of full-time employees, plus the
number of FTEs for the year, divided by 12 is 50 or
more, penalties apply.
 There are special transition rules for 2013.
Controlled and Affiliated Service Groups
 The Act says that any employer treated as one
employer under IRC § 414(b)(c)(m) or (o) will be
treated as one employer for purposes of the Act.
 IRC 414 is generally applied to private entities; the
proposed regulations say that guidance for its
application to local governments is forthcoming. In
the meantime, local governments and school boards
should use a good faith interpretation of the statute.
IRC § 414
 This section deals with controlled groups and
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affiliated service groups.
Both definitions have to do with common ownership
and control.
Since school boards aren’t “owned,” it’s hard to see
how this provision will translate.
“Control” is more familiar; in Virginia, local school
boards have constitutional autonomy.
Until further guidance is issued, local governments
will not be penalized for a good faith determination
of who constitutes a single employer.
Aggregation for Penalty Assessment
 Why does this matter?
 A small locality in Virginia may not be subject to
penalties under the Act unless the school division
and locality are deemed to be members of a
controlled group.
 Each member of a controlled group is penalized
separately (remember, penalties are based on the
number of full-time employees).
 The 30 employees disregarded for penalty purposes
are split among controlled-group members.
What Must Be Offered?
 To avoid penalties, employers must offer minimum
essential coverage that is affordable and meets
minimum value requirements to all full-time
employees and their dependents.
 “Dependents” means children up to age 26, but not
spouses.
 Most employer sponsored plans will qualify as
minimum essential coverage – dental only plans, for
example, will not.
Affordability
 “Affordable” means no more than 9.5% of an
employee’s household income for employee-only
coverage.
 Since most employers won’t know their employees’
household incomes, they may use the gross pay from
W-2s.
 Note that employers must offer coverage to
dependents (children up to age 26, but not spouses),
but family coverage need not be affordable.
Minimum Value
 The plan offered must have the same minimum value
as the bronze level plans offered through the
exchange.
 The plan must cover 60% of the costs of health care,
with the employee paying the rest through co-pays,
co-insurance and deductibles.
 Premium costs are not included in this calculation.
Who Is a Full-time Employee?
 A full-time employee has 30 or more hours of service
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a week (or 130 hours a month).
Hours of service include paid leave.
Seasonal employees: employers may use a good faith
interpretation until the definition is clarified (note:
the 120 day rule does not apply here).
No penalty for not offering coverage to employees
working less than 30 hours a week.
There are special rules for employees of educational
institutions who work on an academic year schedule.
Special Rules for School Division Employees
 General Rule: if an employee works at least 30 hours
per week during the school year, he will be
considered a full-time employee.
 Winter and spring breaks are generally assumed to
be periods of paid leave; paid leave counts as hours
of service.
 If a school board employee works varying hours
(sometimes more than 30/week, sometimes less), his
hours will be averaged under the Variable Hour
Employee Analysis; there are special rules for
calculating hours during summer breaks.
Variable Hour Employee Safe Harbor
 If it cannot be determined, at date of hire, if an
employee will regularly work 30 or more hours a
week, then the variable hour analysis applies.
 If a new employee is expected to work 30 or more
hours a week, he must be offered coverage within 90
days (or penalties apply).
 Employees hired to work 30 or more hours per week
for a limited duration do not have to be considered
full-time.
Variable Hour Employee Analysis: Standard
Measurement Period
 Employers may choose a Standard Measurement
Period (SMP) between 3 and 12 months.
 Employers may use different SMPs for different
classes of employees (hourly vs. salaried, collectively
bargained vs. not).
 During the SMP, employers track hours of variable
hour employees. If average for SMP is 30 or more
hours/week, the employee is deemed full-time for
following Stability Period.
Variable Hour Employee Analysis: Stability
Period
 Employers choose a Stability Period (SP), which must be at least
6 months AND at least as long as the SMP.
 Employees found to be full-time during the SMP must be
treated as full-time (offered coverage) throughout SP, regardless
of how many hours they actually work during the SP.
 Employees found NOT to be full-time during SMP, do not need
to be offered coverage for entire SP (unless they cease to be
variable hour employees and become full-time).
 Employees found not to be full-time are not eligible for
employer-coverage; they will be eligible for subsidies through
the exchange during this period, if they meet other criteria.
Variable Hour Employee Analysis:
Administrative Period
 Employers may also use an Administrative Period
(AP) for purposes of tabulating hours and enrolling
employees.
 AP can be up to 90 days, and must overlap with the
Stability Period. In other words, anyone previously
found to be full-time must retain coverage during the
AP.
Variable Hour Employee Analysis: New
Employees
 New variable hour employees’ hours will be
measured during an Initial Measurement Period
(IMP).
 If found to be full-time, they must be treated as such
throughout an Initial Stability Period (ISP).
 New employees’ hours will also be measured
beginning the first SMP of employment, regardless
of whether that period overlaps with the IMP or ISP.
 The IMP plus an Administrative Period must end by
the end of the month following the new employee’s
one year anniversary (just over 13 months).
Variable Hour Employee Analysis: Educational
Employees
 For school board employees expected to return the
following school year, special rules apply for
calculating hours during employment breaks.
 An employment break is at least 4 weeks, during
which the employee is not credited with a single hour
of service.
 Two choices for calculating hours during
employment breaks:
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Calculate average hours for school year, and use that average
for the entire measurement period; or
Credit employees with average number of hours during school
year for weeks during employment break.
Variable Hour Employee Analysis: Transition
Rules (2013 only)
 Employers with a fiscal year plan (as of December
27, 2012) do not need to comply with the coverage
requirements until the first day of their plan year in
2014.
 If you plan to use a 12 month SMP and 12 month SP,
you can use a SMP as short as 6 months in 2013, but
it must begin by July 1, 2013 (and can be followed by
a 90 day administrative period).
Variable Hour Employee Analysis: Example
 Employer plan year: January 1 - December 31
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SMP: October 15 — October 14
AP: October 15 — December 31
SP: January 1 — December 31 (same as plan year)
 For 2013, SMP: April 15 – October 15, 2013
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AP: October 15 — December 31, 2013
SP: January 1 – December 31, 2014
 New employee hired February 16, 2014:
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IMP: February 16 – February 15, 2015
AP: February 15, 2015 – March 31, 2015
ISP: April 1, 2015 – March 30, 2016
Hours are also measured during SMP beginning October 15, 2014
Other Provisions
 Patient-Centered Outcomes Research Institute
(PCORI) Fee:
This is a fee paid by insurers, based on lives insured, for
plan years from 2012 – 2019.
 The fee is $1 per covered life for 2012, $2 per covered
life for 2013, and then will increase based on medical
inflation.
 Self-insured plans also pay this fee.
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 Auto Enrollment:
 Beginning on January 1, 2014, employers with 200 or more
employees who offer coverage must automatically enroll/reenroll employees, with ample opportunity to opt-out.
Other Provisions, cont’d
 Notice/Reporting Requirements:
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A requirement to notify employees of options and subsidies
available through the exchange has been delayed.
Employers are required to report the cost of employersponsored coverage for employees (2011).
Additional reporting requirements:
 Whether employer offers coverage to full-time employees.
 Monthly premiums and the employer’s share of the total
costs of benefits.
 Number of full time employees per month.
 Identifying information on each full-time employee covered
under the plan.
SHOP Exchange
 Small Business Health Options Program: a
marketplace for small businesses to purchase health
insurance for their employees.
 SHOP exchanges will eventually offer small
businesses a choice of plans, from which their
employees may choose, all administered through the
exchange.
 Full implementation has been delayed until 2015.
Questions?
Jess Rogers
Sands Anderson, PC
Richmond, VA
(804) 783-7260
jrogers@sandsanderson.com
Brad King
Sands Anderson, PC
Richmond, VA
(804) 783-7263
bking@sandsanderson.com