ACA: Post-Election Implementation—What
Every Employer Needs to Know
November 2012
Stacy H. Barrow
sbarrow@proskauer.com
© 2012 Proskauer. All Rights Reserved.
About the Firm
• Proskauer is one of the country’s oldest and largest law firms
• 130 years of continuous service as a leading law firm
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capital
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About the Firm
• Proskauer’s results in the media spotlight include victories in
numerous high-stakes cases on behalf of clients, including: the
National Football League, National Hockey League, National
Basketball Association, Time Warner Cable, the Metropolitan
Transportation Authority, Condé Nast and Parade magazine,
among many others
• Proskauer was recognized by the Financial Times as one of the
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Lawyers” report
• Proskauer also won a landmark victory in the U.S. Supreme
Court, changing 35 years of labor law
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Widespread Recognition
• Chambers USA 2011
- 107 individuals & 44 practices ranked
- Seven top-tier practice rankings
- Fourteen practices ranked on national table, including ERISA
• The Best Lawyers in America 2012
- 109 lawyers recognized across all 8 national offices
• Proskauer has been named one of the top three national labor
and employment practices by The American Lawyer
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Employee Benefits Practice
• Retirement Plans: We advise clients on every conceivable type of pension and
retirement arrangement established under ERISA
• Health Plans: We also provide counsel on ADEA, ERISA, FMLA, HIPAA,
Medicare, PPACA, Social Security and a host of other laws affecting our clients’
health and welfare plans
• For example, we advise on issues involving:
- Mergers and acquisitions (including post-transaction integration of benefit plans and
arrangements)
- Acquiring and maintaining tax-qualification/correcting plan failures
- Consumer-driven healthcare (cafeteria/flex plan/HSAs)
- COBRA issues (we wrote the book on it!)
- National Health Care Reform (we wrote the book on this, too!)
- Participant claims and communications
- Fiduciary issues
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Initial Observations
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•
Affordable Care Act is not Health Care Reform
- Cost of providing care is not addressed seriously in
ACA
•
Costs Will Increase
- Direct Cost$
►
►
►
- Indirect Cost$ ►
- Unknown Cost$ ►
Premium Increases
Taxes
Penalties
Administrative Costs
Unrestrained Agency Action
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Initial Observations
• Key Components:
- Individual Mandate (2014)
- Subsidies &
- Penalties
- Insurance Mandates
- State Mandates
- Employer Mandates
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Initial Observations
•
Individual Mandate:
- In 2014, essentially all adults must have for themselves and
children insurance or pay a penalty
•
Penalties:
- 2014: $95 per adult and $47.50 per child, up to a family
maximum of $285 or 1 percent of family income, whichever is
greater
- 2015, $325 per adult and $162.50 per child, up to a family
maximum of $975 or 2 percent of family income, whichever is
greater
- 2016, $695 per adult and $347.50 per child, up to a family
maximum of $2,085 or 2.5 percent of family income,
whichever is greater
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Initial Observations
•
Subsidy:
- Income between 133% and 400% of federal poverty level
- Between 100% and 400% in states that do not adopt “Medicaid
Expansion”
- In 2012, FPL = $23,050
- Subsidy provided on a sliding scale, based on income
- Lower Income = Higher Subsidy
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Exchanges
• All states to establish an Exchange by January 1, 2014
• The American Health Benefit Exchange
• Small Business Health Options Program (SHOP) Exchange for individuals and small
businesses
• States must demonstrate to federal government that efforts are underway by January 1,
2013
• Types of Exchanges:
• State Exchange
• Partnership Exchange
• Federally Facilitated Exchange
• BluePrints
- States pursuing a State-based Exchange or a State Partnership for 2014 submit an
Exchange Blueprint by November 16, 2012
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Exchanges
• Will the States Be Ready?
- 18 States are actively considering or established:
- CA, CO, CT, DC, HI, KY, MA, MD, NV, NY, OR, RI, UT, VT, WA, WV
& IL & AK (Planning for Partnership Exchange)
- Another 16 are Studying Options: AL, AZ, DE, IN, IA, MI, MN,
MS, MT, NE, NJ, NM, NC, PA, TN, VA
- No Substantial Activity (10): GA, ID, KA, MO, ND, OH, OK, SD,
WI, WY
- States Declaring No Exchange (7): AL, FL, LA, ME, NH, SC, TX
• 50% of Uninsured Live in 6 States:
CA, IL, NY, FL, GA, TX
Accurate as of October 2012
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Exchanges
• State Showdown
- What happens if states fail or refuse to establish an exchange?
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Dear Secretary Sebelius:
In the ObamaCare plan, the federal government sought to force the states to expand their
Medicaid programs by - in the words of the Supreme Court - putting a gun to their heads. Now
that the "gun to the head" has been removed, please relay this message to the President: I oppose
both the expansion of Medicaid as provided in the Patient Protection and Affordable Care Act
and the creation of a so-called "state" insurance exchange, because both represent brazen
intrusions into the sovereignty of our state.
I stand proudly with the growing chorus of governors who reject the PPACA power grab. Thank
God and our nation's founders that we have the right to do so.
Neither a "state" exchange nor the expansion of Medicaid under the Orwellian-named PPACA
would result in better "patient protection" or in more "affordable care." All that they would do is
make Texas a mere appendage of the federal government when it comes to health care.
*******
Through its proposed expansion of Medicaid, the PPACA would simply enlarge a broken system
that is already financially unsustainable.
*******
I look forward to implementing health care solutions that are right for the people of Texas. I
urge you to support me in that effort. In the meantime, the PPACA's unsound encroachments
will find no foothold here.
Sincerely,
Rick Perry
Governor
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Exchanges
• “Essential Health Benefits” (EHB) to include:
1. Ambulatory patient services;
2. Emergency services;
3. Hospitalization;
4. Maternity and newborn care;
5. Mental health and substance use disorder services, including behavioral
health treatment;
6. Prescription drugs;
7. Rehabilitative and habilitative services and devices;
8. Laboratory services;
9. Preventive and wellness services and chronic disease management; and
10.Pediatric services, including oral and vision care.
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Exchanges
• Prior to 2016, small employers are 100 or less but states
may limit to 50 employees or less
• Prior to 2017, only small employers (100 employees or
fewer) can participate
• Starting in 2017 and thereafter, states may allow all
employers
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Exchanges
• Initial open enrollment period: October 1, 2013 through
March 31, 2014.
• For benefit years in 2015 or later, the annual open
enrollment period will be from October 15 to December 7
• Special enrollment provisions will be included
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Exchanges
• The Metals—Exchanges to Offer Four Levels of Coverage:
- Bronze (60%)
- Silver (70%)
- Gold (80%)
- Platinum (90%)
• And: a catastrophic plan for individuals under 30
• Insurers may offer separate health plan products outside of an
Exchange, but they are prohibited from offering rates for those
health plan products that are lower than those offered within the
Exchange
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Pay or Play Mandates: 90 Day Requirement
• Effective first day of plan year on or after January 1, 2014
• Guidance Released August 31, 2012 if effective through 2014
• 90 days means 90 days within the first day they are eligible
• If employees can elect within 90 days but fail to elect within 90
days it is not a violation
• Employer may use a reasonable period to determine eligibility if
(a) period is not designed to avoid the 90 day period, (b)
individual becomes eligible within 90 days of being assessed
eligible or, if earlier, within 13 months of start date (plus the days
to the first day of the next calendar month if the employee’s start
date is the middle of the month)
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Employer “Pay-or-Play” Mandate
• In 2014, the pay-or-play mandate requires employers of
50 FTE or more to offer quality, affordable health
insurance coverage to full time employees (those working
on average at least 30 hours per week) and their families
• Failure to offer such coverage potentially subjects the
employer to taxes for a given month—if:
• (i) a full time employee (ii) receives a subsidy in (iii) a
state exchange
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When is an Employer Subject to Pay-orPlay?
• For these purposes only, FTE employees are determined
by taking the sum of the employer’s full time employees
(using a 30 hour per week standard) and the number
determined by dividing the hours of service of employees
who are not full time employees by 120
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When is an Employer Subject to Pay-orPlay?
• Special rule for seasonal employees
• Seasonal workers are those who perform labor or services
on a seasonal basis as defined by the DOL and retail
workers employed exclusively during holiday seasons
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What are the Pay-or-Play Penalties?
• Employers who “opt out” of providing benefits
• Employers who do not provide health coverage to all full
time employees (and their dependents) are penalized
• If at least one full time employee (30+hrs/wk or 130+
hrs/mo) is eligible for, or receives, a subsidy in a state
exchange: the employer is subject to an annual penalty
of $2,000 × all full time employees (except for the first
30) applies
• Penalty is assessed monthly (i.e., $167.67 per full time
employee per month)
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What are the Pay-or-Play Penalties?
• Employers who provide “unaffordable” coverage
• Coverage is affordable only if the premium for single
coverage under the employer’s lowest cost plan with at
least a 60% “actuarial value” does not exceed 9.5% of
household income (or W-2 wages)
• Annual penalty is the lesser of $3,000 for each full time
employee who receives a subsidy through a state
exchange, or $2,000 multiplied by all full time employees
(subtracting first 30)
• Penalty is assessed monthly (i.e., $250 per subsidyreceiving full time employee per month)
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Variable Employees & Full Time Employee
Status
• A Variable Employee: On start date, it cannot be determined
whether employee is expected work on average at least 30 hours
per week
• Initial Measurement Period of Between 3 and 12 months
- Assess average during Initial Measurement Period
- Assessment is then used for stability period that is the same
as for ongoing employees
• Use of Administrative Period: can use an “administrative period”
but total can not exceed 13 months (plus the remainder of the
month if anniversary falls in middle of month)
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Possible Employer Action
• ACA specifically provides that tax applies if full time employee
receives subsidy in state exchange
• ACA does not specifically provide that tax applies if full time
employee receives subsidy in federal exchange
• IRS clarifies that tax applies if subsidy is received in either state or
federal exchange
- Can IRS Legislate?
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Medicaid Expansion & Employers
• Medicaid Expansion Requirements:
- New Medicaid class of beneficiaries
- ACA required states to cover all individuals under age 65 with income below
133% of the poverty line
- "Essential benefits" must be provided to all Medicaid recipients
• Failure to comply = loss of all federal funds
• Court struck down as Unconstitutional (7-2): putting a gun to the head of
the states
• This may have an impact on employers
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The Future of the Affordable Care Act
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Medicaid Expansion & Employers
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The ACA Litigation Minefield
- DOL, IRS and HHS audits will increase
- Already seeing audits of grandfathered status by DOL under the
Act
- DOL efforts focus on increasing employer compliance rather
than assessing penalties in early years
- Participant lawsuits may follow as participants seek to enforce
benefit mandates
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The ACA Litigation Minefield
• Employee Claims Under the Act
- Workforce Realignment
- Retiree Medical Exit Strategy
- Claims to Mandated Benefits
- Whistleblower Actions
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The Future of the Affordable Care Act
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Medical Loss Ratio Rebates
• Carriers must provide rebates if their MLR (percent of premium
revenue spent on claims/medical care) is less than 85% (large
groups) or 80% (small groups or individuals)
• Small group is defined as under 100 employees on average in
prior year
- States may define small group as under 50 until 2016
- Starting in 2016, small group will be defined as under 100
• Rebates are to be provided no later than August 1 following the
end of the MLR reporting year (which is the calendar year)
• MLR based on carrier's overall business by state and group size
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Medical Loss Ratio Rebates
• Rebates apportioned based on employer/employee
contribution ratio
- Employers may retain portion of rebate that is not a "plan
asset" under ERISA
• Rebates that are plan assets must be used to benefit
participants
- Reduce premiums, enhance benefits
• Rebate must be used within three months of receipt by
employer or ERISA's trust rules apply
• Consult with counsel if a trust is involved
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Summary of Benefits and Coverage
• The Basics
• Final Rule effective September 23, 2012
• SBC cannot exceed four double-sided pages in length and must be
"culturally and linguistically appropriate"
• SBC must be accompanied by the "uniform glossary", available at
www.healthcare.gov and www.dol.gov/ebsa/healthreform/
• HHS forms available
http://cciio.cms.gov/resources/other/index.html#sbcug
• Upon renewal, an SBC need only be provided for the benefit option in
which a participant is enrolled, unless SBCs for other options are
requested
• SBC is in addition to Summary Plan Description requirement
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Summary of Benefits and Coverage
• The Basics (cont.)
• The SBC requirement applies jointly to plans and carriers
- Carrier responsible for developing SBC for insured plan
- Employer responsible for developing SBC for self-funded plan
• Failure to comply can result in significant penalties: a plan or
carrier that willfully fails to provide an SBC is subject to a fine of
up to $1,000 per offense
- Each failure with respect to a participant is a separate offense
• SBC may be included with other documents (e.g., summary plan
description) as long as it is "prominently displayed"
• Premiums not required to be disclosed on SBC
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Summary of Benefits and Coverage
• Timing of Initial Distribution
• Based on participants' enrollment status
- For participants who are enrolling or reenrolling at open
enrollment (including late enrollees), the SBC must be
provided before the first day of open enrollment beginning
on or after September 23, 2012
- For participants who enroll other than through open
enrollment (including newly eligible employees and special
enrollees), the SBC must be provided starting on the first
day of the plan year beginning on or after September 23,
2012
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Summary of Benefits and Coverage
• Methods of Distributing the SBC
- The SBC requirement is satisfied if a single SBC is provided to an
employee and spouse known to reside at the same address
- The SBC requirement may be satisfied electronically, provided the
distribution complies with ERISA's electronic disclosure rules
• Changes to the SBC
- If a material modification is made mid-year that affects the content
of the SBC, and it's not reflected in the most recent SBC, the plan
or carrier must provide enrollees 60 days' advance notice of the
change
- Plans are not required to distribute a new SBC 60 days in advance
of changes made in connection with the renewal
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Summary of Benefits and Coverage
• Providing the SBC
• SBC must be provided at the following times:
- Upon request (ASAP, but no later than 7 days)
- Within 90 days of enrolling under a HIPAA special
enrollment
- With open enrollment materials (or, if no materials are
provided, by the date the participant is eligible to enroll)
- If the SBC cannot be timely provided because the plan
terms have not been finalized, the SBC must be provided
within 7 days of finalizing the plan terms
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W-2 Reporting of Health Costs
• Beginning with 2012 Forms (i.e., Forms issued in January 2013),
employers must report aggregate cost of health coverage
• Small Employer Exception: those issuing less than 250 W-2's in
prior year exempt until further guidance issued
• Reportable cost includes the entire cost of the coverage (without
any reduction for employee contributions)
• Cost of coverage is determined under rules similar to those for
determining COBRA premiums (excluding 2% administrative
charge)
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$2,500 Health FSA Limit
• Effective for plan years beginning in 2013
- Limits annual employee contributions to $2,500
- Indexed to the CPI starting in 2014
- Does not limit employer contributions
• To Do:
- Communication to begin in 2012 (2nd half)
- Plan amendments recommended by start of 2013 plan year
- However, despite the cafeteria plan rule that amendments must
apply prospectively, an amendment adopted by December 31,
2014 may apply retroactively if the plan complied with the $2,500
limit starting with plan years beginning in 2013
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Select Taxes: Comparative Effectiveness
Fee
• Effective for plan years ending after September 30, 2012 and
before October 1, 2019
• $2 fee per member per year
- Paid by insurers if insured plan
- Paid by plan sponsor if self-funded plan
• Fee reduced to $1 for plan years ending before October 1, 2013
• For plan years beginning after September 30, 2014, fee increases
based on national health expenditures
• Fee supposed to sunset after 2019
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Select Taxes: Comparative Effectiveness
Fee
• Fee applies to group health plans and HMOs, regardless
of grandfathered status, including "retiree-only" plans
• Excludes the following types of plans:
- HIPAA-excepted benefits (which include most health FSAs
and stand-alone dental/vision plans)
- Plans intended to primarily cover expatriate employees
- EAPs, disease management programs, or wellness
programs, if the program does not provide significant
medical benefits
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Select Taxes: Comparative Effectiveness
Fee
• Fee applies separately to insurers and plan sponsors
- This means that an HRA that is integrated with an insured group
health plan is subject to the fee, as is the insurer, even though the
HRA and the insured group health plan are maintained by the same
plan sponsor
• Insurers and plan sponsors must report and pay these fees once
per year on Form 720, which will be due by July 31 of each year
• A return will generally cover policy or plan years that end during
the preceding calendar year
• Form 720 may be filed electronically
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Select Taxes: Comparative Effectiveness
Fee
• Permissible methods used to count participants
- Actual count method (insured and self-funded)
- Snapshot method (insured and self-funded)
- Member months method (insured only)
- State form method (insured only)
- Form 5500 method (self-funded only)
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Select Taxes: Transitional Reinsurance
Program
• Assessment on carriers and TPAs (on behalf of selffunded plans)
• Generally applies to all group health plans – no exceptions
for non-ERISA plans (e.g., governmental or church plans)
• Applies on a per-member basis
• Does not apply to HIPAA-excepted benefits
• Applies to 2014-2016 plan years
• Intended to stabilize premiums in the individual markets
• Additional employer recordkeeping and cost requirements
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Non-Discrimination Rules
• Delayed Until Guidance Released
- Now That The Election Is Over, Guidance Will Follow
• Will apply to non-grandfathered, fully-insured plans after
release (already apply to self-insured)
• Prohibits discrimination in favor of “highly compensated
employees” with respect to eligibility & benefits
- Note: Testing Performed on a Controlled Group Basis
• Penalty: up to $500,000 Under ACA
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© 2012 Proskauer. All Rights Reserved.
ACA: Post-Election Implementation—What
Every Employer Needs to Know
November 2012
Stacy H. Barrow
sbarrow@proskauer.com
The information provided in this slide presentation is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it
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© 2012 Proskauer. All Rights Reserved.