Presenter: Lisa L. Carlson, J.D.
Area Senior Vice President,
Compliance Counsel
Gallagher Benefit Services, Inc.
• What do the Supreme Court Justices have to decide (based on
March 26-29, 2012 hearings)?
– Is the controversy “ripe” for decision?
– Is the individual mandate constitutional?
– If it isn’t, does the remainder of the law stand as is?
– Is the expansion of Medicaid permitted?
• Justice Scalia has a sense of humor!
• When will the decision be issued?
• The Commonwealth Fund Study (estimated 2010
rebates had MLR requirements been in place)
• If in place in 2010 – 1 Billion in premium would have
been rebated to small and large group market (an
additional 1B to individual market)
Medical Loss Ratios -- Specifics
• Applies to fully insured plans only
– Relates to 2011 block of business (not policy specific)
– Rebate will be prorated for partial year policies
• Large Group: 85% MLR
• Small Group (and individual): 80% MLR
• Equal medical claims and quality initiatives
• Rebates will be issued in August 2012
• A carrier, with approval from the state, may implement a “premium
holiday” to influence MLR
How will the rebate be refunded?
• An issuer may provide rebates in the form of:
– a premium credit
– lump-sum check
– if the enrollee paid the premium using a credit or debit
card, by returning the entire rebate to the account used to
pay the premium
– an alternative, such as a debit or credit card, is a
reasonable alternative as long as it is as convenient to use
as a check and meets certain conditions
Who gets the MLR Rebate?
• If the plan or trust is the policyholder, the rebate goes to that entity
and is a plan asset.
• If the employer is the policyholder:
– It will depend on how the policy is drafted
– If silent, it will depend on who pays the premium – employer vs.
employee
– Portions allocated to employee contributions are plan assets
– Portions paid by a trust are plan assets
– Portions paid by the employer may not be plan assets (unless
the policy provides otherwise)
– MLR Rebates that are plan assets should not be held for more
than 3 mos. or trust requirements may apply
What if the rebate is a plan asset?
• Plan sponsors will have to determine how and to whom to allocate
the rebate (reasonable method made solely in the interest of plan
participants and beneficiaries).
• The plan fiduciary may weigh the costs to the plan and the ultimate
plan benefit when deciding on an allocation method
– If the cost of calculating and distributing shares of the rebate to
former participants approximates (or exceeds) the amount of the
proceeds, permitted to limit the allocation to current plan participants.
– If it is not cost-effective to distribute payments to plan participants
(e.g., the amounts are de minimis, or would give rise to negative tax
consequences for plan participants), may utilize the rebate for other
permissible plan purposes (e.g., as a credit against future participant
premium payments or for benefit enhancements).
• Employers must begin including the cost of health care coverage for
the 2012 calendar year
– Impacts – Private, Governmental and Religious Orgs
• One year delay for employers that issued fewer than 250 W-2
Forms in prior calendar year
– Required to report on 2013 (W-2’s issued in January 2014)
• Only a reporting requirement
• No need to issue additional W-2s
W-2 Reporting: Health Coverage that must be
Included
• Most employer provided health coverage must be included
– Including medical, prescription drug, dental (integrated
with medical), vision (integrated with medical), hearing,
healthcare FSA (except salary reduction amount), wellness
benefits and EAP (if a health plan), etc.
• Not Included
– Healthcare FSA reduction amount, cost for self employed
individuals, HSA’s, certain HIPAA excepted coverage, etc.
• Certain coverage is not yet included, but stay tuned
– Stand-alone dental or vision, HRA, etc.
W-2 Reporting: Calculating the Cost
• Aggregate Cost
– Employer contributions and
– Employee pre-tax contributions and
– Employee after tax contributions
• COBRA cost minus 2% administration charge
• Includes cost of taxable coverage
– Domestic partner, same sex spouse, civil union,
older child, e.g. age 27
W-2 Reporting: How to Report
• Calendar Year Basis
– Not plan year
– Not policy year
• Sum of months of coverage
– 12 for full year
– Less for partial year (e.g., mid year new hire)
– May prorate partial month
• Mid year rate or status changes must be reflected
W-2 Reporting: Penalties
• No new or additional penalties
• Current penalties generally
– $100 per form, max $1.5 million ($500k certain
small businesses)
– Limited exceptions, e.g., reasonable cause
– Potential of $250 per form for intentional
disregard of requirements
The Comparative Effectiveness Research Fee!
– Annual assessment on insurers and group health plans to
fund a Patient-Centered Outcomes Research Institute
(PCORI).
– PCORI will assist patients, clinicians, purchasers and policymakers in making informed health decisions by advancing
comparative clinical effectiveness research.
What plans does the fee apply to?
• Fully insured and self-funded medical plans covering U.S.
residents; expatriate plans are excluded.
• Applies to retiree-only plans.
• HRAs linked to a self-insured health plan are exempt; the
employer will pay one fee.
• If HRA is linked to an insured health plan, the employer will
pay the fee for the health plan and the carrier will pay for the
insured plan – two fees will be collected.
• Does not apply to Medicare, HSAs or excepted benefits (e.g.,
dental and vision).
How much do we have to pay and how do we
report it?
• Effective for plans with plan or policy years ending after 9/30/12
– i.e., plan year start dates of 10/1/11 or later
• The fee:
– $1 per participant for first year
– $2 per participant for subsequent years (indexed) through 2019
• Reporting and payment using IRS Form 720 is required by July 31 of
the calendar year immediately following the last day of the policy or
plan year.
• Example: the fee for the plan year ending on 12/31/ 2012 must be
filed by July 31, 2013. Liability for a plan year ending on 1/31/2013
must be filed by July 31, 2014.
How do you count participants?
• A self-funded plan may:
– Actually count the number of covered individuals each day
and divide the total by the number of days in the year;
– Take a snapshot approach that uses information from
particular days each quarter to develop the average; or
– Use data from Form 5500 to develop the average
• Any reasonable method for year one
• Summary of Benefits and Coverage
Employer
– Must provide summary of benefits using HHS
disclosure
format
requirement
– In addition to any ERISA SPD requirements
– Limited to 4 pages, 12-point font
– Must be provided at time of initial enrollment and
at annual enrollment by insurer or plan administrator
– Must be provided 60-days prior to plan changes
– Timeframe is reduced for changes at renewal
– Penalties up to $1,000 per willful failure
• Effective first day of the first open enrollment period that begins on or
after September 23, 2012
•
•
•
•
•
•
•
Grandfathered plans
are not subject to
this requirement
Well woman exams
Domestic violence screenings
HPV DNA testing for women 30 years and older
Sexually-transmitted infection counseling
HIV screening and counseling
Breastfeeding support, supplies, and counseling
FDA-approved contraception methods and contraceptive
counseling
– Birth control prescriptions (not abortifacients)
Plan years
– Birth control devices
beginning on or
after 8/01/2012
– Surgical sterilization for women
How can we manage preventive care costs?
• Medical management is permitted
– Example: If medically appropriate, limit coverage
of contraceptives to generic versions (if available)
– Example: If medically appropriate, require
mammograms to be obtained from a free standing
facility rather than a hospital setting
• Talk to your carriers about their medical
management initiatives
• Annual contributions to FSA
limited to $2,500
Effective in
2013
– If off-calendar year plan year, plan
ahead and limit for the 2012/2013
plan year
– Communication to employees is
critical
– Modify plan documents/ SPDs
Addressing FSA Limit – Offer an HSA Option
• 2013 FSA Limit is $2,500
• 2013 HSA Funding Limits:
– $3,250 Individual
– $6,450 Family
– Participants over 55 can contribute an additional $1,000
• A participant in an HSA may participate in a limited benefit medical
care FSA up to $2,500 (dental and vision) without affecting HSA
eligibility
• This would effectively allow a participant with family coverage to
save up to $8,950 (or $9,950 if over 55) to pay for eligible medical
expenses (tax favored)
Addressing FSA Limit – Short Plan Year
• The limit is in effect for 2013 tax year
• If plan year is not calendar, create a short plan year for the year
beginning in 2012, thus allowing participants to contribute a greater
amount in 2012
– Example: Plan Year is July 1 – June 30
– Create a short plan year July 1 – December 31, 2012 (no $2,500
limit)
– Subsequent plan years will then be January 1 – December 31
($2,500 limit applies as of January 1, 2013)
Grandfathered
plans
Grandfathered
plans
subject
areare
notnot
subject
to to
requirement
thisthis
requirement
• Fully-insured plans must not discriminate in favor of highly
compensated
– Similar to IRC section 105(h) nondiscrimination rules
– Delayed effective date until further guidance
• Nondiscrimination rules currently apply to self-funded plans
• Considerations:
Effective date
– Possible increased regulatory attention
delayed until
further guidance
– Effect on plans for executives
– Result of discrimination – taxable benefits
Do we have 50 or more employees?
Count full-time employees working an average of 30
hours per week
Count part-time employees
• Use full-time equivalency of 30 hpw
(total # of hours per month/130*)
• Count part-time employees only to determine
whether employer meets shared responsibility
threshold
Calculate from prior calendar year
Controlled group rules apply
Seasonal employees working less than 120 days
* IRS seeking public comment.
excluded
Does not constitute guidance yet.
Employer Shared Responsibility
“Full Time Employee” for Penalty Calculation
Effective January 1, 2014
A FTE is defined as:
• Worked an average of at least
30 hours/week
Part-time and seasonal employees
working less than 30 hpw –
no penalty
Temporary and seasonal employees
working at least 30 hpw – pending
guidance
Employer with at least 50 full time employees
Offer Coverage to FTEs?
Does plan pay at least 60% of
covered expenses?
Does any employee ‘s cost for
self-only coverage exceed 9.5%
of household income?
No penalty applies!
$2,000 penalty per
FTE (minus first 30)
If at least one
FTE receives tax
credit*
Penalty = lesser of:
•$3,000 per FTE
receiving tax credit*
or
•$2,000 per FTE
(minus first 30)
* Only applies to FTEs
with household
incomes of 400% of FPL
or less
Employer must provide written explanation of the
Exchange as of March 2013 including:
Employer
disclosure
requirement
– Existence of Exchange
– Eligibility for subsidy
– Availability of premium assistance if plan value is
below 60% of total benefit cost
– Employee purchase of policy through Exchange
results in loss of employer’s contribution to group
health plan
Individual Penalty
Year
Penalty
• 2014
• 2015
• 2016
• After 2016
Penalty amount is the greater of*:
Flat Dollar Amount**
(max of 300 % for family)
• $95
• $325
• $695
• $695, indexed for
inflation in $50
increments
% of Household
Income
• 1.0
• 2.0
• 2.5
• 2.5
*Capped at the national average of the annual cost of a bronze level health insurance plan, for the family size, offered through the state
exchange.
**Halved for dependents under age 18 (but do not halve when determining 300% cap on dollar amount for those NOT insured by
taxpayer)
Silver Plan
Gold Plan
Platinum Plan
Exchanges - Plans
CONSISTENT MARKET RULE BASE
CHOICE POOL
Bronze Plan
Catastrophic Plan
Qualified Plans Available on the Exchange
Must offer “essential health benefits package”
Offer at least one gold and one silver plan
Guarantee issue and guarantee renewal
Have only four coverage tiers:
•
•
•
•
Individual
Individual plus spouse/domestic partner
Individual plus children
Family
Exchanges – Rates
Rates will vary only by:
•
•
•
•
Individual vs. Family Coverage
Geographic area
Age (no more than 3 to 1)
Tobacco use (no more than 1.5 to 1)
Actual rates won’t be determined
until closer to 2014
Exchange will determine eligibility
for premium assistance credit to
help pay premiums
Exchanges – Qualifying for Premium Assistance
To qualify for premium assistance credit, an
individual must:
Premium
Assistance
• Not be eligible for an “affordable” employersponsored plan
• Have a household income between 133% and 400% of
the Federal Poverty Level
• Not receive benefits through Federal health plans
• Be a citizen or legal immigrant
• Be a resident of the state where the Exchange is
located
• Not be claimed as a dependent on anyone’s tax return
• Purchase a qualified health plan through the Exchange
(not including a catastrophic plan)
Will Your Employees Obtain Premium Assistance?
When might your employee be eligible for
premium assistance resulting in an employer
penalty?
• If your employee makes between 133% - 400%
of FPL
• If you do not offer health coverage, or do not
offer coverage to all FTEs
• If your employer-sponsored coverage does not
provide the minimum required value (60% of
actuarial value)
• If your employer-sponsored coverage is not
affordable (premiums for employee-only
coverage of the lowest cost plan exceeds 9.5% of
* Proposed regulations
the employee’s income*)
* Proposed regulations
QUESTIONS?
Thank You!
The intent of this analysis is to provide you with general
information regarding the provisions of the current
healthcare reform legislation. It does not necessarily fully
address all of your organization’s specific issues. It should
not be construed as, nor is it intended to provide, tax or legal
advice. Questions regarding specific issues should be
addressed by your organization’s general counsel or an
attorney who specializes in this practice area or your tax
advisor.