2010 Patient Protection & Affordable Care Act: What

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2010 Patient Protection &
Affordable Care Act:
What Employers Need to Know
Presented By:
Diana M. Valdez
Patient Protection and Affordable Care Act
Background
On March 23, 2010, President Barack Obama
signed the Patient Protection and Affordable Care
Act into law.
The law puts in place comprehensive health
insurance reforms that will roll out over four years
and beyond, with most changes taking place by
2014.
Patient Protection and Affordable Care Act
Key Provisions
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A requirement that most individuals have health insurance
beginning in 2014 (“Individual Mandate”);
Medicaid expansion to 133% of the federal poverty level
($14,000 for an individual and $29,000 for a family of four in
2012) for individuals under the age of 65;
Creation of health insurance exchanges through which
individuals who do not have access to public coverage or
affordable employer coverage will be able to purchase
insurance with premium and cost-sharing credits available to
some people to make coverage more affordable;
New regulations on all health plans that will prevent health
insurers from denying coverage to people for any reason,
including health status, and from charging higher premiums
based on health status and gender;
Penalties to employers that do not offer affordable coverage
to employees, with exceptions for small employers.
Patient Protection and Affordable Care Act
U.S. Supreme Court Evaluates Constitutionality

As a result of the enactment of this law, a number of parties
filed suit in federal courts across the country, claiming that the
law was unconstitutional for various reasons.
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On November 14, 2011, the Supreme Court granted certiorari to
portions of three cross-appeals of the Eleventh Circuit's opinion:
one by the states (Florida v. U.S. Dept. of Health and Human
Svcs.), one by the federal government (U.S. Dept. of Health and
Human Svcs. v. Florida); and one by National Federation of
Independent Business (Nat'l Fed. of Independent Bus. v.
Sebelius).
These separate cases were merged into a single case titled
National Federation of Independent Business v. Sebelius.
Patient Protection and Affordable Care Act
U.S. Supreme Court Evaluates Constitutionality
"We do not consider whether the Act embodies
sound policies. That judgment is entrusted to the
Nation's elected leaders. We ask only whether
Congress has the power under the Constitution to
enact the challenged provisions."
- Chief Justice John Roberts
Patient Protection and Affordable Care Act
U.S. Supreme Court Evaluates Constitutionality

In Sebelius, the two key issues before the Court
were the constitutionality of:
1. the Act’s “individual mandate” which requires
virtually everyone in the U.S. to buy health
insurance beginning in 2014 or pay a penalty for
failing to do so; and
2. the Act’s requirement that states adopt new
standards that would have significantly increased
the number of Medicaid-eligible individuals
(“Medicaid Expansion”), or face a loss of federal
Medicaid funding.
Patient Protection and Affordable Care Act
U.S. Supreme Court Upholds Constitutionality

On June 28, 2012, the Supreme Court issued a landmark
decision to uphold the constitutionality of:

The “Individual Mandate”
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The “Medicaid Expansion” but with a significant limitation:
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In a 5 to 4 ruling, the Court held that the mandate is
unconstitutional under the commerce clause, but is
constitutional under Congress's taxing power
The Court held that it is unconstitutional for the government to
cut off pre-existing Medicaid funding for states that elect not to
participate in Medicaid Expansion
States that opt out will not qualify for enhanced Medicaid
funding that the Act provides for
All other requirements of the Act remain untouched and will
go into effect provided there are no other legislative
changes or a change in the Whitehouse
Patient Protection and Affordable Care Act
Summary of Changes
 Changes that became effective in 2010:
 Insurance companies barred from dropping people from
coverage when they get sick
 Lifetime coverage limits on essential benefits eliminated
 Use of annual dollar limits restricted for new plans in the
individual market and all group plans
 Insurance companies barred from excluding children under
the age of 19 for coverage because of pre-existing
conditions
 Uninsured adults with pre-existing conditions able to obtain
health coverage through a new program that will expire
once new insurance exchanges begin operating in 2014
 Adult children able to stay on parents’ health plans until the
age of 26
 All new plans must cover certain preventive services such
as mammograms and colonoscopies without charging a
deductible, co-pay or co-insurance
Patient Protection and Affordable Care Act
Summary of Changes
 Changes that became effective in 2010:
 Small business tax credits:
 Employers with fewer than 25 employees who provide
health insurance, may qualify for tax credit of up to 35%
(up to 25% for non-profits) to offset the cost of insurance
 Credit will increase in 2014 to 50% (35% for non-profits).

Early Retiree Reinsurance Program
 Goal: help employers maintain health coverage for
early retirees between age 55 and 64, who do not yet
qualify for Medicare. Employers and unions accepted
into the program will receive reimbursement for medical
claims for early retirees, spouses, surviving spouses, and
dependents.
 Program has a fixed $5 billion fund and will end on
January 1, 2014.
Patient Protection and Affordable Care Act
Summary of Changes
 Changes that became effective in 2011:

Prescription Drug Discounts for Seniors
• Seniors who reach coverage gap receive a 50% discount
when buying Medicare Part D covered brand-name
prescription drugs

Preventative Care for Seniors on Medicare
• Includes annual wellness visits and personalized prevention
plans

Health Care Premiums
• 85% of premium dollars collected by insurance companies for
large employer plans and at least 80% for plans sold to
individuals and small employers, must be spent on health care
services and health care quality improvement

W-2 forms
• Optional for employers to disclose the cost of employer-sponsored
coverage on employees’ W-2 tax forms
Patient Protection and Affordable Care Act
Summary of Changes
 Changes effective in 2012:
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Physician payment reforms are implemented in Medicare
to enhance primary care services and encourage doctors
to form “accountable care organizations” to improve
quality and efficiency of care
An incentive program Value-Based Purchasing program
(VBP) is established in Medicare for acute care hospitals to
improve quality outcomes
Transition relief from the W-2 reporting requirement is
available for some employees with regard to certain types
of coverages
Group health plan sponsors and insurers must issue
summaries of benefits and coverage (“SBC”), effective
September 23, 2012
Patient Protection and Affordable Care Act
Summary of Changes
 Changes that become effective in 2013:

Payment Bundling:
• national pilot program to encourage hospitals, doctors, and
other providers to work together to improve coordination and
quality of care
• hospitals, doctors, and providers paid a flat rate for an episode
of care rather than the current system where each service is
billed separately to Medicare

Increased Medicare Payments for Primary Care Doctors
• primary care physicians will be paid no less than 100% of
Medicare payment rates in 2013 and 2014 for primary care
services
• increase is fully funded by federal government

Additional Funding for the Children’s Health Insurance
Program
• states will receive two more years of funding to continue
coverage for children not eligible for Medicaid
Patient Protection and Affordable Care Act
Summary of Changes
 Changes that become effective in 2014:
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State health insurance exchanges for small businesses
and individuals open
Most people will be required to obtain health insurance
coverage or pay a penalty if they fail to do so
Healthcare tax credits become available to help people
with incomes between 100% to 400% of poverty line
purchase coverage
Second phase of small business tax credit goes into
effect--up to 50% of the employer’s contribution to
provide health insurance for employees and up to a 35%
credit for small non-profit organizations
Medicaid expansion to include those who earn less than
133% of the poverty level (approximately $14,000 for an
individual and $29,000 for a family of four)
No pre-existing condition exclusions
Patient Protection and Affordable Care Act
Individual Mandate
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U.S. citizens and legal residents will be required to have
minimum essential coverage for themselves and their
dependents
Minimum essential coverage is defined as:
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Coverage under certain government-sponsored plans
Employer-sponsored plans, with respect to any employee
Plans in the individual market
Grandfathered health plans; and
Any other health benefits coverage, such as a state health
benefits risk pool, as recognized by the HHS Secretary
Minimum essential coverage does not include health
insurance coverage consisting of excepted
benefits, such as dental-only coverage
Patient Protection and Affordable Care Act
Individual Mandate

Those without coverage will pay a tax penalty. The penalty
will be phased-in according to the following schedule:
 2014: $95 per individual ($47.50 per child) or 1 percent of
household income over the filing threshold
 2015: $325 per individual ($162.50 per child) or 2
percent of household income over the filing threshold,
and
 2016: $695 per individual ($347.50 per child) up to a
maximum of three times that amount ($2,085) per family
or 2.5% of their household income
 2017 and beyond: the penalty will be increased annually
based on cost-of-living adjustment
Patient Protection and Affordable Care Act
Individual Mandate
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Exemptions
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religious objections
American Indians
those with coverage gap of less than three
months
undocumented immigrants
incarcerated individuals
financial hardship (those for whom the lowest cost
plan option exceeds 8% of an individual’s income)
those with incomes below the tax filing threshold
Patient Protection and Affordable Care Act
Individual Mandate
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Flat dollar amount for individuals: $95 in 2014; $325 in 2015;
and $695 in 2016; increases indexed to inflation after that,
subject to a cap.
 For example: An uninsured family of three (two parents
and one child under 18), not exempt from the mandate,
would have a flat dollar penalty of $1,737 in 2016.
Percentage of individual taxable income: fixed
percentage of household income in excess of tax filing
threshold – 1% in 2014; 2% in 2015; 2.5% in 2016.
 For example: An uninsured, non-exempt individual with
household income of $50,000 would be forced to pay 1%
of the difference between $50,000 and the tax threshold
(let’s say $10,000 for an individual in 2014), or roughly $400.
Since $400 is greater than $95, this individual would have to
pay $400.
*Courtesy of Blue Cross Blue Shield
Patient Protection and Affordable Care Act
Employer Mandate
 Applies to employers with 50 or more full-time employees
 Full-Time: Average of 30 or more hours per week
 Whether an employer has 50 or more full-time employees is
determined based on average number of employees in
2013
 Full-time equivalent employees (“FTEE”) count toward
determining the number of full-time employees for calendar
year 2013
 FTEE is determined based on total number of hours
worked each month by part-time employees divided
by 120:
 500 hours/120=4.1 FTEE
 47 Full-Time employees + 4 FTEE = 51 Employees
Patient Protection and Affordable Care Act
Employer Mandate
 Employers who meet the threshold must offer minimum
essential coverage to employees
 Ten required benefits of all health plans:
 Ambulatory patient services
 Emergency services
 Hospitalization
 Maternity and newborn care
 Mental health and substance abuse
 Prescription drugs
 Rehabilitative and habilitative services and devices
 Lab services
 Preventative and wellness services and chronic disease
management
 Pediatric care, including oral and vision
Patient Protection and Affordable Care Act
Employer Mandate
Question:
What if an employer chooses to outsource
employee functions to a third-party
vendor providing independent
contractors in an effort to reduce its
employee census below 50?
Will that protect the employer from the
mandate?
Patient Protection and Affordable Care Act
Employer Mandate
Answer:
NO!
 Those individuals could be counted if they
could be reclassified as employees.
Patient Protection and Affordable Care Act
Employer Mandate
Question:
What if an employer creates a separate entity
to employ administrative staff in an effort to
reduce its employee census below 50?
Will that protect the employer from the
mandate?
Patient Protection and Affordable Care Act
Employer Mandate
Answer:
Maybe Not
 Common ownership of business may result in
employee aggregation and all employees
counted as “single” employer.
Patient Protection and Affordable Care Act
Employer Mandate
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Common ownership:

“Parent-subsidiary” controlled group exists where a parent
organization owns 80% or more of the equity in subsidiary
organization
• For corporations, the 80% + test is based on attaining that level of
voting power or total value based on all classes of stock
• For partnerships, the 80% + test is based on attaining that level of profits
interest or capital interest; for trusts and estates, actuarial interests are
used

“Brother-sister” common control group exists where same 5 or
fewer persons (counting individuals, estates and trusts as "persons")
• collectively own 80% or more of the equity in two separate trades or
businesses, and
• taking into account the level of ownership each of those 5 persons
holds in each of the two organizations (using a lowest common
denominator approach) collectively own more than 50% of the equity
in both of the trades or businesses

“Affiliated service group” exists wherever several organizations
regularly collaborate in the services they provide to the public
(typically, integrated services), and the several organizations are
linked by a material level of cross-ownership.
Patient Protection and Affordable Care Act
Employer Mandate

If you have more than 50 employees AND do not offer health
insurance AND have at least one full-time employee who
obtains a tax credit to obtain health insurance, you will be
assessed a premium tax credit fee of $2,000 per full-time
employee.
 The first 30 employees are not counted for the fine.
 EXAMPLE:
• Let’s say you have 75 employees. You do not offer your
employees health insurance. As a result, only one of your fulltime employees seeks govt. assistance and obtains a tax
credit to buy health insurance. What is your tax penalty?
75 employees
-- 30 employees
45 employees
$2,000 employee
x 45 employees
$90,000
Patient Protection and Affordable Care Act
Employer Mandate

If you have more than 50 employees AND offer health
insurance BUT have at least one full-time employee who
obtains a tax credit to obtain health insurance, you will be
assessed a premium tax of the lesser of:
 $3,000 for each employee receiving a premium credit or

the number of full-time employees minus 30, multiplied by $2,000—
or $40,000 for the employer with 50 full-time employees (i.e., 50
minus 30, multiplied by $2,000)
• EXAMPLE:
Let’s say you have 50 employees. You do offer your employees health
insurance. However, three of your full-time employees seek govt.
assistance and obtain a tax credit to buy health insurance. What is
your tax penalty?
$3,000
x 3 employees
$9,000
$2,000.00
x 20 employees
$40,000
Patient Protection and Affordable Care Act
Small Business Tax Credit

If you have 25 or fewer full-time employees (as well as full-time
equivalents) AND your average annual wages for employees is
less than $50,000, you qualify for a tax credit of up to 35%
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The tax credit will be up to 35% of the employer’s contribution
toward the employees’ health insurance premium
The employer must contribute at least 50% of the health insurance
premium to qualify
This will only apply for tax years 2010 through 2013
For tax years 2014 and later, small businesses that purchase
coverage will get a tax credit of up to 50% of the employer’s
contribution
• Example: Auto Repair Shop
Employees: 10
Wages: $250,000 total, or $25,000 per worker
Employer Health Care Costs: $70,000
2010 Tax Credit: $24,500 (35% credit)
2014 Tax Credit: $35,000 (50% credit)
QUESTIONS?
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