OBAMACARE IS HERE,
NOW WHAT?
Presented For:
AGC State Board of Directors Meeting
May 3, 2013
San Francisco, California
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
www.cavanaghlaw.com
Jennifer L. Sellers
The Cavanagh Law Firm, P.A.
602.322.4003
jsellers@cavanaghlaw.com
www.cavanaghlaw.com
Heidi Nunn-Gilman
The Cavanagh Law Firm, P.A.
602.322.4080
hnunngilman@cavanaghlaw.com
www.cavanaghlaw.com
Health Care Demographics
2
 There are approximately 265 million non-elderly
Americans
148.6 million w/ employer based coverage (55.8%)
 15 million w/ individual private insurance (5.7%)
 54.6 million w/ Medicaid or other State (20.5%)
 47.9 million are uninsured (18%)
 Nearly all elderly covered by Medicare, but still 690,000
uninsured in 2011

The Henry J. Kaiser Family Foundation, The Uninsured, A Primer: Key Facts About Americans Without Insurance
Coverage (Oct. 2012)
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
The Big Picture
3
 Major initiatives effective 2014
 Individuals must “enroll or pay” – carry coverage or
pay penalties

Individuals will have access to basic health coverage through:
Employer-sponsored group health plans
 Individual insurance policies offered through an Exchange
 Individual insurance policies offered on private market
 Government plan (Medicare, Medicaid, Veterans’ or CHIP)

 Employers must “pay or play” - offer medical coverage
to full-time employees or pay tax penalties
 Array of Federal subsidies for small businesses and
lower income individuals
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Employer Options
4
 March 23, 2010-January
 Post January 1, 2014:
1, 2014:
 Continue coverage that
existed as of 3/23/2010
(Grandfathered Plan)
 Other employer group
plan
 Continue Grandfathered


Insured
Self-funded

 No coverage



Julie A. Pace
The Cavanagh Law Firm, P.A.
Plan
Employer insured group
plan
Employer self-funded
plan
Offer Exchange plan
(when available)
No coverage
602.322.4046
jpace@cavanaghlaw.com
Grandfathered Health Plan
5
 “Grandfathered health plan” is defined as
 any group health plan or individual health insurance coverage
 in which an individual was enrolled on March 23, 2010
 Whether plan is “Grandfathered” is relevant to
determining the coverage obligations of the
employer and the plans, which may help control
costs of grandfathered plans.
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Grandfathered Health Plan
6
 “New employees” and their families may enroll in a
Grandfathered Health Plan after March 23, 2010
 Family members may enroll in Grandfathered
Health Plan after March 23 ,2010, if such enrollment
was permitted under the terms in effect as of March
23, 2010
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Non-Grandfathered Health Plans
7
 Employers may offer health plans other than
“grandfathered plans” before and after 2014
 All non-grandfathered plans, including self-insured
plans, are subject to additional coverage
improvement and reporting requirements
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Non-Grandfathered Health Plans
8
 Most requirements become effective for plan years
after September 23, 2010, unless otherwise noted
 After January 1, 2014, employer-sponsored coverage
must meet minimum coverage and affordability
standards to qualify for the pay-or-play exemption
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Collectively Bargained Agreements (CBAs)
9
 Insurance reforms do not apply to health coverage
maintained pursuant to CBA ratified before the
enactment date (3/23/10) until the date on which
the last of the CBAs relating to the coverage
terminates


Coverage requirements applicable to other Grandfathered
Plans, including dependent coverage, do not apply
Any CBA coverage amendment which amends coverage solely
to conform to any requirement added by the Act shall not be
treated as a termination of such CBA
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Coverage Requirements for Grandfathered and NonGrandfathered Plans
10
 For plan years beginning on or after
9/23/2010:
No pre-existing condition provisions may apply to
children < 19
 No lifetime limits on essential health benefits and
restrictions on annual limits

Regulations set out minimum annual limits through 2014
increasing each year
 Plan years after September 23, 2012-December 31, 2013 minimum
$2 million annual limits
 Total exclusion of essential benefits not prohibited by this rule

Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Coverage Requirements for Grandfathered and NonGrandfathered Plans
11
 For plan years beginning on or after
9/23/2010:
Must extend benefits to children up to age 26
 Must provide uniform benefits summary information
 May not rescind coverage, other than for fraud
 May not have “excessive” eligibility waiting period

Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Coverage Requirements for Grandfathered and NonGathered Plans
12
 Post 2014
Pre-existing condition exclusions prohibited for all
covered members
 No annual dollar value limits on benefits
 No eligibility waiting period greater than 90 days

Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Additional Coverage Requirements for NonGrandfathered Plans
13
 In addition to the coverage requirements that apply
to Grandfathered Plans, beginning with plan years
starting 9/23/10 non-Grandfathered coverage must:



Cover preventive health services without cost-sharing
requirements
Satisfy mandatory internal and external appeal process
requirements
Quality reporting annually to Health & Human Services (HHS)
Secretary
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Additional Coverage Requirements for NonGrandfathered Plans
14



Insured plans must account for claims/non-claim costs and
rebate to enrollees if non-claims costs too high
Non-discrimination based on salary to prevent highly
compensated employees from having more generous benefits
than other employees
Patient protections
No restriction on selection of pediatrician, primary care physician,
OB/GYN
 Unrestricted access to coverage for emergency treatment
 No prior authorization for obstetric/gynecological care

Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Preventive Health Benefits for Non-Grandfathered
Plans
15
 Health Plan must cover, without any cost-sharing
requirements, A & B rated evidence-based items and
services currently recommended by U.S. Preventive
Services Task Force





Immunizations
Pediatric preventive care and screenings
Women’s health preventive care and screenings including
breast cancer screening, mammography
Screenings for high blood pressure, diabetes, high cholesterol
etc.
Complete list at healthcare.gov website
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Non-Discrimination Requirements for NonGrandfathered Plans
16
 Self-insured plans already subject to separate non-
discrimination provisions (including self-insured
Grandfathered Plans)
 New non-discrimination rules will be “similar” to
rules for self-insured plans

Do not go into effect until after final guidance issued
 Employer plans cannot favor highly compensated
employees (HCE) re plan eligibility or benefits
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Non-Discrimination Requirements for NonGrandfathered Plans
17
 HCE is defined as:
 One of the five highest paid officers
 Top 25% highest paid employee
 Shareholder who owns more than 10% of Company stock
 Does not prohibit offering different benefits to PT
versus FT employees
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Non-Discrimination Requirements for NonGrandfathered Plans
18
 Two non-discrimination tests
 Eligibility – plan must meet one of the following requirements:
At least 70% of all employees are covered;
 At least 70% of all employees are eligible to participate in the plan
and at least 80% of eligible benefit are covered; or
 A non-discriminatory classification of employees is covered

 Penalties –
 excise tax of $100/day
 Civil action to compel it to provide non-discriminatory benefits
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Non-Discrimination Requirements for NonGrandfathered Plans
19
 Potential Strategy Option
 It is discriminatory to directly pay higher percentage of
premiums for managers than others.
 Can provide salary increase to key employees to in recognition
of higher premium costs – but cannot tie increase directly to
requirement that employee use it to pay insurance premiums
 Section 125 “Cafeteria Plan” would allow employees to
designate premium payments with before-tax dollars so that
increased wages do not increase taxes
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Coverage of Adult Children
20
 For plan years after September 23, 2010, insurance
plans, including Grandfathered Plans, that provide
dependent coverage must:


“Continue to make such coverage available” for an adult child
Until the child (unmarried or married) turns 26 years of age
 Plans not required to offer dependent coverage

Post-2014 employer plan must offer dependent coverage to avoid
“pay or play” penalty
 Child not required to be a dependent as defined by IRS
 Not required to cover a child of a child receiving coverage
 IRC amended to exclude expanded coverage from income
tax
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Coverage of Adult Children
21
 For plan years beginning prior to January 1, 2014,
Grandfathered health plans only required to
provide coverage for older dependent if child is not
eligible to enroll in an eligible employer-sponsored
health plan other than the parent’s grandfathered
plan
 Post-2014 Grandfathered health plans offering
dependent coverage must expand enrollment to all
dependents up to 26
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Coverage of Adult Children
22
 Health plan prohibited from offering dependent
health coverage for adult children on different terms,
including cost and coverage, than the terms provided
for minor children
 Employers must provide adult children under 26
opportunity to enroll in first plan year on or after
9/23/2010 – so all plans now covered


Provide notice to employees no later than first day of eligibility
Leave enrollment open minimum 30 days
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Claims and Appeals Procedures for NonGrandfathered Plans
23
 Non-grandfathered health plans must have internal
appeals process that:



Allows enrollees to appeal denial of claims or rescission of coverage
Provides enrollees detailed information about grounds for denial of
claims or coverage
Notifies employees of their appeal rights



Notices must include certain information required by regs.
Ensure full and fair review of denial
Provides expedited appeals processes in urgent cases –

claimant must be notified of coverage determination (adverse or not) for
“urgent care” within 72 hours
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Claims and Appeals Procedures for NonGrandfathered Plans
24
 Patients will also have the right to appeal some
denied claims to independent external review
according to state external appeals laws



Claims involving medical judgment
Claims involving rescission of coverage
Claims involving contractual or legal interpretation of
contract not subject to external review process
 States encouraged to adopt processes that meet
certain minimum standards – Uniform Health
Carrier External Review Model Act
 If state does not adopt standards, health insurance
issuers are required to implement external review
processes meeting standards set by HHS
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Claims and Appeals Procedures for NonGrandfathered Plans
25
 All notices required by appeals procedure must be
provided in “culturally and linguistically
appropriate manner.”



Required to provide notices in non-English language upon
request
Include in English version notice instruction on obtaining
notice in non-English language
Provide telephone assistance available in second language
 Required if 10% or more of population in
claimant’s county is literate only in same nonEnglish language
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Rebates for Excessive Non-Claim Costs
26
 PPACA sets maximum Medical Loss Ratio (MLR)
 Insurance carriers required to spend at least 80% of
their premium income on health care claims and
quality improvement efforts
 Large group plans require carrier to spend 85% of
premiums on health care claims
 Does not apply to self-insured plans
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Rebates for Excessive Non-Claim Costs
27
 Carrier who do not meet MLR standard required to
issue “rebates” to participants




Can be in form of payments to participant or reduction in
premiums or the costs of benefit enhancements
Can be paid only to current participants
Portion of refund attributable to employee contributions are
considered “plan assets” under ERISA
Portion of rebate attributed to employer contribution may be
used to reduce future employer contributions
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Rebates for Excessive Non-Claim Costs
28
 Rebate generally taxable to employee if employee
paid premium with pre-tax dollars
 Employers have 90 days from receipt of “rebate” to
make distributions
 Distributions to employees not required to exactly
reflect individual premiums paid—


employers allowed to consider the cost to the plan and the
ultimate plan benefits as well as the competing interests of
participants or classes of participants provided such method is
reasonable, fair, and objective.
Could be as simple as evenly dividing between all participants
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Market Reforms January 1, 2014
29
 Effective for plan years after January 1, 2014

Prohibition on discrimination on the basis of health status




Health and Wellness Program safe harbor
Allow incentives of up to 30% of premium (increased from 20%)
Proposed regulations allow additional 20% incentive for programs to
reduce or eliminate tobacco usage
Guaranteed availability and renewability (individuals over
age 19) – no preexisting condition exclusions
 Recall
that all plan years on or after 9.23.10 preexisting
condition exclusions for children under 19 are prohibited

Comprehensive coverage requirements to be established
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Post-2014 Options
30
 Continue Grandfather Plan
 Health Plan through Private Market

Not subject to essential benefit requirements
 Qualified health plan through an Exchange



Exchanges available for small employers beginning 2014
Available for largest of employers beginning 2017
Exchange Plans required to provide essential health benefits
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Max 90-Day Waiting Period for Enrollment
31
 PPACA prohibits plans from having more than 90-day
waiting period for enrollment
 Notice 2012-59 provides guidance
 Waiting period defined as the period that must pass before
the coverage for an employee or dependent who is
otherwise eligible to enroll under the terms of the plan can
become effective.
 Coverage must be provided within 90 days –


Providing coverage on first day of month after 90 days of
employment would violate Act
Requirement satisfied if coverage is offered—even if employee delays
enrollment
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Post-2014 Options
32
 Any employer or individual may enroll in a health
plan offered outside an Exchange (non-qualified
health plan)
Subject to State insurance law mandates
 May be subject to “pay or play” penalties if plan does not
meet affordability and minimum value requirements

Not affordable if employee premium for employee only plan is
greater than 9.5% of household income
 Employer may base analysis on employee’s own W-2 income
 Minimum value = covers 60% of costs

Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Post-2014 Options
33
 Employer may offer multiple plans and satisfy pay-
or-play if one plan meets affordability and
minimum value requirements



Can offer plans that do not meet affordability requirements, as
long as one plan meets affordability and minimum value
May want one minimum value low cost plan to satisfy
requirement to offer affordable minimum value plan and other,
richer options can be made available at greater expense to the
employee
Affordability analysis is based on lowest cost option offered by
employer that meets minimum value requirements
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Requirement that Individuals Enroll or Pay Fine
34
 To avoid a penalty, individuals must have
acceptable coverage from one of the
following sources:
Employer-sponsored plan (including a grandfathered
plan)
 An individual policy (purchased through a private insurer
or through an Exchange)
 Government program (Medicare, Medicaid, Veterans,
CHIP)

Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Requirement that Individuals Enroll or Pay Fine
35
 Those without coverage face the greater of a dollar
penalty or a percentage of household income penalty


Dollar penalty equals ½ of the amount listed below for each
uninsured dependent under the age of 18
Total dollar penalty for a family is capped at 300% of the
individual penalty
 Penalties (per individual) phased in
 2014 $95 or 1.0% Income
 2015 $325 or 2.0% Income
 2016 (and after) $695 (indexed annually) or 2.5% Income
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Requirement that Individuals Enroll or Pay Fine
36
 Certain individuals are exempt from the fine for
failing to carry insurance







Individuals who are part of a religion opposed to acceptance of
benefits from a health insurance policy
Undocumented immigrants
Incarcerated individuals
Members of an Indian Tribe
Family income is below the threshold required for filing tax
return
Insurance would cost more than 8% of income, after taking
into consideration all employer contributions or tax credits
Individuals with short term (< 3 months) gap in coverage
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Subsidies for Individuals
37
 Modest income
individuals (between
100% and 400% of the
federal poverty level) are
eligible for subsidies to
pay premiums
 Family of 4 - 400% of
poverty level is over
$92,000 currently and
expected to be
approximately $95,000
in 2014
Julie A. Pace
The Cavanagh Law Firm, P.A.
 Modest income
individuals in Exchanges
eligible for three
subsidies



Limits on amount of
income paid for premiums
Cost-sharing (copays,
deductibles, etc) limits
Out-of-pocket spending
limits
602.322.4046
jpace@cavanaghlaw.com
Subsidies for Individuals
38
 Premium subsidy only available for purchase of
insurance through Exchange

Available to individuals eligible for employer coverage only if
employer coverage is not affordable or does not provide
required plan value
 Subsidy amount based on income and premium for
second lowest cost silver plan in exchange for area
 Subsidy can be calculated and provided in advance
and reconciled on tax returns
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Subsidies for Individuals
39
 Subsidies available to extent premium exceeds:
 Up to 133% FPL - 2% of income
 133-150% FPL 3 – 4% of income
 150-200% FPL 4 – 6.3% of income
 200-250% FPL 6.3 – 8.05% of income
 250-300% FPL 8.05 – 9.5% of income
 300-400% FPL 9.5% of income
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Employers Pay or Play – 2014 & Beyond
40
 Large ERs (=50 FT equivalent EEs)
 that do not offer health coverage to employees and
dependents and have at least one FT EE who receives
premium tax credit must pay a penalty


$2,000 per FT EE (excludes the first 30 EEs)
that do offer health coverage to employees and dependents
and have at least one FT EE who receives a premium tax
credit because employment-related health coverage does
not provide minimum value (covers less than 60% of costs)
or is not affordable (EE’s contribution to ER coverage >
9.5% of household income) must pay the lesser of
$3,000 per employee who is receiving a premium tax credit
 $2,000 for each FT EE

Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Employers Pay or Play
41
 To calculate penalty for failure to provide employer
sponsored health plan:


Per month - (1/12 x $2000) x (# of FT employees – 30)
Add together each month to obtain annual penalty
 To calculate penalty based on coverage that is not
affordable or does not meet minimum value requirements


Per month – (1/12 x $3,000) x # of full-time employees that
receive premium tax credit for insurance through an Exchange
Add together each month to obtain annual penalty
 Penalty amounts can be adjusted annually for inflation
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Employers Pay or Play
42
 For determining whether entity is “large employer” (50 or
more FTE) for “pay or play” purposes, employees are:



FT EEs (30 or more hours/week on average)
FT Equivalent Employees (total monthly part-time hours /
120)
Calculate the number of FT and FT Equivalent employees for
the prior calendar year—if 50 or more the employer is subject
to the “pay or play” rules
Calculate the number of FTEs each month. Add together and
divide by 12 to get annual total.
 Include fractions in monthly totals. In yearly total disregard
fractions. (49.8 would be 49)

Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Employers Pay or Play
43
 IRS has proposed transitional relief for 2014 for employers
to determine status as “large employer”
 Employer may determine its status as “large employer” by
reference looking at six month consecutive period in 2013
calendar year (as opposed to entire 2013 calendar year)
 E.g. can use period from April 1 to September 30 to
determine if employed 50 or more FTEs and period from
October 1 to December 31 to make adjustments to comply
with PPACA, if necessary.
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Employers Pay or Play
44
 If company not in business during preceding calendar year
but took over existing business, proposed regs require that
predecessor employer be considered in determining with
entity is covered “large employer”
 If company not in business for preceding calendar year, the
employer will be considered a “large employer” if it is
reasonably expected to employee 50 or more FTEs during
the current calendar year
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Employers Pay or Play
45
 Seasonal Worker Exception – exception to “large employer”
status for companies only covered due to seasonal workforce
 Available if the FT employees plus FT equivalents are greater
than 50 for less than 120 days or 4 months (not required to be
consecutive) and the excess over 50 are seasonal workers
 Seasonal workers – performs work that is ordinarily performed
at certain seasons or period of the year and which, from its
nature, may not be continuous or carried out throughout the year


E.g. agricultural, holiday retail sales, etc.
Employers can use “reasonable good faith interpretation” until more
guidance issued.
 Not available if non-seasonal workforce is 50 or more in any
month
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Employers Pay or Play
46
 To qualify under “pay or play” employer-sponsored health
plan must provide minimum essential coverage
 Employer must offer coverage to “dependents”



Dependents include children up to age 26
Dependent does not include spouse
Employer can require employee to pay 100% of coverage for dependents
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Employers Pay or Play
47
 Small ERs (< 50 FT equivalent EEs) are exempt from “pay
or play” penalties
 Group health plans offered by small employers exempt
from “pay or play” must still meet all of the coverage
improvements and market reforms of the Affordable Care
Act
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Employers Pay or Play
48
 In counting employees to determine coverage under the
Act, the Act applies IRS and ERISA controlled group
principles

Parent, brother, and sister companies can be counted as one company,
depending on how the business are owned and arranged
 IRS proposed regulations would apply the penalty
separately to each member of controlled group
 The 30-employee reduction of full-time employees for
penalty is allocated among the members of the controlled
group on basis of number of employees employed by each
entity in the controller group
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Employers Pay or Play
49
 ER assessments are not tax deductible
 Law originally required ERs to offer vouchers for EE at less
than 400% of federal poverty level who choose Exchange,
but provisions was repealed on April 15, 2011 in 2011
budget bill
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Proposed Regulations re Transition Period
50
 IRS proposed regulations on 12/27/12 for transition
period to allow employers easier transition
 If before 12/27/12 employer had non-calendar plan
year, no penalty due for 2014 as long as offer coverage
by first day of 2014 plan year (rather than 1/1/14)
 Large employer on calendar plan year can use six
months of 2013 as look-back/measurement period to
determine status of full-time employees & have 12
month stability period
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Incentives for Small Employers to
Provide EE Benefits
51
 ER criteria for tax credits
 ER must pay at least 50% of EE health care coverage
 ER must have no more than 25 FT Equivalent EEs


Maximum credit for ERs with 10 or fewer FT Equivalent EEs
ER must pay average wage < $50K/year

Maximum credit available for ERs that pay average wage < $25,000
 Amount of tax credits
 Phase I (2011- 2013)


Credit up to 35% of ER contribution toward EE’s health insurance premium
Phase II (2014 and later)

Credit up to 50% of ER contribution toward EE’s health insurance premium
 Tax exempt entities are eligible for FICA credits
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Determining Full-Time Employees For Required
Health Coverage
52
 Employers are subject to a penalty only for full-time
employees who are not offered minimum essential coverage,
so it is imperative to understand who is considered full-time
 An employee is full-time under the PPACA for months in
which the employee averages 30 “hours of service” per week.

IRS regulations propose that 130 hour per month be considered full time.
 No obligation to cover part-time or leased employees
 No obligation to cover independent contractors


Must truly be independent contractor
In proposed regulations, employment relationship determined under
common-law control test
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Determining Full-Time Employees For Required
Health Coverage
53
 “Hours of Service” include both:



Hours for which the employee is paid or entitled to be paid for services
rendered for employer AND
Each hour for which an employee is paid or entitled to be paid by the
employer for time period in which no duties are performed due to vacation,
holiday, illness, disability, or other leaves of absence
Periods of special “unpaid leave” such as FMLA leave, leave for military duty,
or leave for jury duty cannot be counted against an employee to reduce his or
her average hours of service
 An employer may use different methods of calculating hours
for different employees if the classifications are reasonable
and consistently applies
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Determining Full-Time Employees For Required
Health Coverage – Rehired Employees
54
 If employee is rehired or returns from unpaid leave or are
rehired after a break of at least 26 weeks, the employer may
treat them as a new employee
 Employer may adopt “parity rule” for breaks in employment
(leave or separation) of less than 26 weeks


An individual can be treated as a new employee if the period of the break in
employment is at least four weeks long and is longer than the employee’s
period of employment preceding the break in service was shorter than the
break in service
For example, employee worked for six weeks, did not work for employer for
a period of 12 weeks, then returned to employer. The employee can be
treated as a new employee because the break in service is longer than the
amount of time that the individual was originally employed.
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Determining Full-Time Employees For Required
Health Coverage – Rehired Employees
55
 Rehire rule applies only for purposes of determining full-time
status under the look-back/measurement calculations
 If person does not qualify as new employee under this rule,
then they are considered a continuing employee and the
measurement and stability period that would have applied if
the employee had not had a break in service will apply upon
the employee’s resumption of service
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Determining Full-Time Employees For Required
Health Coverage – IRS Safe Harbor
56
 IRS proposed “Safe Harbor” for determining whether variable
hour employees are “full-time employees” for which the large
employer must pay a penalty if it does not provide adequate
employer-sponsored coverage
 Safe harbor is not required method of calculating whether
employees are full-time, but other methods may be challenged
by IRS or other and employees reclassified as full-time if
employer method disapproved by IRS
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Determining Full-Time Employees For Required
Health Coverage – IRS Safe Harbor Key Terms
57
 We will define several terms relating to the IRS
Safe Harbor with which employers should become
familiar





Variable Hour Employee
Standard Measurement Period (sometimes referred to as “look back”
period)
Stability Period
Administrative Period
Initial Measurement Period
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Determining Full-Time Employees For Required Health
Coverage-Existing Employees Standard Measurement Period
58
 Existing variable hour employees (those who cannot be
determined whether will work average of 30 hours per week
or more)



Employer may select “standard measurement period” (look back) of no less
than three and no more than 12 months
Standard measurement period is fixed calendar period, e.g. January 1 to
December 31 or January 1 to June 30 and July 1 to December 31
Employer determines average hours worked per week by dividing the total
hours worked during the standard measurement period by the total number
of weeks in the standard measurement period
 If employees hours of service = 30 hours per week or more (or
130 hours per month under IRS proposal), then the individual
is considered FULL-TIME for the “stability period”. If less
than 30 hours per week, then employee is PART-TIME for
stability period.
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Determining Full-Time Employees For Required Health
Coverage-Existing Employees Standard Measurement Period
59
 Existing variable hour employees (those who cannot be
determined whether will work average of 30 hours per week
or more)



Employer may select “standard measurement period” (look back) of no less
than three and no more than 12 months
Standard measurement period is fixed calendar period, e.g. January 1 to
December 31 or January 1 to June 30 and July 1 to December 31
Employer determines average hours worked per week by dividing the total
hours worked during the standard measurement period by the total number
of weeks in the standard measurement period
 If employees hours of service = 3o hours per week or more (or
130 hours per month under IRS proposal), then the individual
is considered FULL-TIME for the “stability period”. If less
than 30 hours per week, then employee is PART-TIME for
stability period.
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Determining Full-Time Employees For Required Health
Coverage-Existing Employees – Stability Period
60
 “Stability Period” must be equal to the standard measurement
period, but cannot be less than six months.
 Person considered “full-time” is required to be covered by
employer insurance coverage (or employer must pay penalty),
for the entire subsequent stability period, regardless of the
hours actually worked.
 Person found to be “part-time” is not required to be covered
by employer insurance (and no penalty) for the entire
subsequent stability period, regardless of hours actually
worked (unless employment changed, e.g.. became fixed 40hour employee).
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Determining Full-Time Employees For Required
Health Coverage—Existing Employees Example
61
EXAMPLE:
Company A elects to have a 12-month standard measurement period,
from November 1, 2012 to October 31, 2013. For each employee, the
Company must take the total hours of service and divide by 52 weeks.
The employees determined to be full-time by working an average of 30
hours per week (or 130 hours per month), must be provided with
health insurance for the stability period of January 1, 2014 to
December 31, 2014, regardless of the hours worked by the employee in
2014. The employees determined not to be full-time (work less than
30 hours per week or 130 hours per month), are not required to be
provided health insurance (and employer not liable for a penalty) for
the stability period of January 1, 2015 to December 31, 2015,
regardless of the hours worked (unless the employee actually obtains
some type of full-time status).
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Determining Full-Time Employees For Required Health
Coverage—Existing Employees Administrative Period
62
 Employers are permitted to have an “administrative period” of
no more than 90 days (NOT 3 months) between the “standard
measurement period” and the related “stability period” to
allow the employer to determine which employees are eligible
for coverage and to enroll employees


To avoid gaps in coverage, the administrative period must overlap
with the previous stability period
Example:
Standard measurement period of November 1 to following October
31
Administrative period of November 1 to December 31
Stability period of January 1 to December 31
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Determining Full-Time Employees For Required Health
Coverage – IRS Proposed Transition Method
63
 IRS proposed regulations would allow employer who wants to use a 12-
month standard measurement period and stability period to use a
shorter period (no less than six months) in 2013 for determining 2014
coverage
 2013 standard measurement period must be at less 6 months long, start
no later than July 1, 2013, and end no earlier than 90-days before the
first plan year beginning on or after January 1, 2014

Employers using full 12 month measurement period to determine 2014 eligibility are not
subject to these requirements
 Employers likely need 2-3 months administrative time, so should be
planning for a 6-month standard measurement period in 2013 that
begins in April or May
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Determining Full-Time Employees For Required
Health Coverage—Differing Measurement Periods
64
 An employer may use stability and standard measurement
periods that are differ in length or in their starting or
ending dates for:




Collectively bargaining employees versus non-collectively bargained
employees;
Salaried employees versus hourly employees.
Employees of different entities.
Employees located in different states.
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Determining Full-Time Employees For Required
Health Coverage—New Employees
65
 If employee is reasonably expected at time of hire to work
an average of 30 hours or more per week, they are full-time
at the point of hire
 If it is not reasonably determinable at time of hire whether
employee will work average of 30 hours or more per week
at time of hire, they are variable hour employee
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Determining Full-Time Employees For Required Health
Coverage—New Employees Initial Measurement Period
66
 Employer selects “Initial Measurement Period” of no less
than three months and no more than twelve months
 No insurance requirement for the “initial measurement
period” plus administrative period of no more than 90
days, but the total of the initial measurement period and
administrative period cannot extend beyond the last day of
the first full calendar month beginning on or after the
employee’s first anniversary of employment.


E.g. employee hired January 5, 2014—insurance must be provided if
employee eligible by March 1, 2015
Allows employer selecting 12-month measurement period to forego
coverage for new variable hour employee for up to 13+ months
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Determining Full-Time Employees For Required Health Coverage—New
Employees Overlapping Standard Measurement Period
67
 Employer must include a new employee in the standard measurement
period with ongoing employees for the first full standard measurement
period that begins after the employee start date.
 For example, if an employee is hired on March 10, 2014 and the
employers standard measurement period is January 1 to December 31,
the employee would be included in the standard measurement period
that begins January 1, 2015.
 New employee who is full-time based on initial measurement period
must be treated as FT for the related stability period, even if the
employee is determined to be part-time based on overlapping standard
measurement period
 Employee determined not to be full-time based on initial measurement
period but determined to be full-time based on overlapping standard
measurement period must be treated as full-time employee during the
stability period associated with the standard measurement period
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Determining Full-Time Employees For Required
Health Coverage—IRS Examples
68
Example 1.
Facts. The employer uses a standard measurement period of 12
months beginning on October 15 and a stability period of 12months beginning January 1. For new variable hour employees,
Employer B uses a 12-month initial measurement period that
begins on the start date and applies an administrative period from
the end of the initial measurement period through the end of the
first calendar month beginning on or after the end of the initial
measurement period. Employer B hires Employee Y on May 10,
2014. Employee Y’s initial measurement period runs from May 10,
2014, through May 9, 2015. Employee Y works an average of 30
hours per week during this initial measurement period. Employer
B offers coverage to Employee Y for a stability period that runs
from July 1, 2015 through June 30, 2016.
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Determining Full-Time Employees For Required
Health Coverage—IRS Examples
69
 Conclusion. Employee Y works an average of 30 hours per week during
his initial measurement period and Employer B uses (1) an initial
measurement period that does not exceed 12 months; (2) an
administrative period totaling not more than 90 days; and (3) a
combined initial measurement period and administrative period that
does not last beyond the final day of the first calendar month beginning
on or after the one-year anniversary of Employee Y’s start date.
Accordingly, from Employee Y’s start date through June 30, 2016,
Employer B is not subject to any payment under § 4980H [the
Affordable Care Act] with respect to Employee Y, because Employer B
complies with the standards for the initial measurement period and
stability periods for a new variable hour employee. Employer B must
test Employee Y again based on the period from October 15, 2014
through October 14, 2015 (Employer B’s first standard measurement
period that begins after Employee Y’s start date).
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Determining Full-Time Employees For Required
Health Coverage—IRS Examples
70
Example 2
Facts. Same as Example 1, except that Employer B uses an 11-month
initial measurement period that begins on the start date and applies an
administrative period from the end of the initial measurement period
until the end of the second calendar month beginning after the end of the
initial measurement period. Employer B hires Employee Y on May 10,
2014. Employee Y’s initial measurement period runs from May 10, 2014,
through April 9, 2015. Employee Y works an average of 30 hours per week
during this initial measurement period. Employer B offers coverage to
Employee Y for a stability period that runs from July 1, 2015 through June
30, 2016.
Conclusion. Same as previous example.
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Determining Full-Time Employees For Required
Health Coverage—IRS Examples
71
Example 3
Facts. Same as Example 1, except that Employee Y works an average of
28 hours per week during the period from May 10, 2014 through May 9,
2015 and Employer B does not offer coverage to Employee Y in 2015.
Employer B tests Employee Y again based on Employee Y’s hours from
October 15, 2014 through October 14, 2015 (Employer B’s first standard
measurement period that begins after Employee Y’s start date).
Conclusion. From Employee Y’s start date through the end of 2015,
Employer B is not subject to any payment under § 4980H [the
Affordable Care Act], because Employer B complies with the standards for
the measurement and stability periods for a new variable hour employee
with respect to Employee Y.
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Determining Full-Time Employees For Required
Health Coverage—IRS Examples
72
Example 4
Facts: Employer uses a six-month standard measurement period,
starting each May 15 and November 15, with six-month stability periods
associated with those standard measurement periods starting January 1
and July 1. For new variable hour employees, Employer C uses a six
month initial measurement period that begins on the start date and
applies an administrative period that runs from the end of the initial
measurement period through the end of the first full calendar month
beginning after the end of the initial measurement period. Employer C
hires Employee Z on May 10, 2014. Employee Z’s initial measurement
period runs from May 10, 2014, through November 9, 2014, during which
Employee Z works an average of 30 hours per week. Employer C offers
coverage to Employee Z for a stability period that runs from January 1,
2015 through June 30, 2015
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Determining Full-Time Employees For Required
Health Coverage—IRS Examples
73
 Conclusion. Employer C uses (1) an initial measurement period that
does not exceed 12 months; (2) an administrative period totaling not
more than 90 days; and (3) a combined initial measurement period and
administrative period that does not last longer than the final day of the
first calendar month beginning on or after the one-year anniversary of
Employee Z’s start date. From Employee Z’s start date through June
30, 2015, Employer C is not subject to any payment under § 4980H
[the Affordable Care Act], because Employer C complies with the
standards for the measurement and stability periods for a new variable
hour employee with respect to Employee Z. Employer C must test
Employee Z again based on Employee Z’s hours during the period from
November 15, 2014 through May 14, 2015 (Employer C’s first standard
measurement period that begins after Employee Z’s start date).
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Determining Full-Time Employees For Required
Health Coverage—IRS Examples
74
Example 5
Facts. Same as Example 4; in addition, Employer C tests Employee Z
again based on Employee Z’s hours during the period from November 15,
2014 through May 14, 2015 (Employer C’s first standard measurement
period that begins after Employee Z’s start date), during which period
Employee Z works an average of 28 hours per week. Employer C
continues to offer coverage to Employee Z through June 30, 2015 (the end
of the initial stability period based on the initial measurement period
during which Employer C worked an average of 30 hours per week), but
does not offer coverage to Employee Z from July 1, 2015 through
December 31, 2015.
(ii) Conclusion. Employer C is not subject to any payment under §
4980H [the Affordable Care Act] with respect to Employee Z for 2015.
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Determining Full-Time Employees For Required
Health Coverage—2014 Transition Rule
75
 IRS proposed rules providing for transition rule for 2014
 Solely for purposes of 2014 stability period, employers may
select a stability period of 12 months and a shorter
measurement period if:
measurement period is not less than six months
 measurement period begins no later than July 1, 2013
 measurement period ends no earlier than 90 days before the first day of
the plan year beginning on or after January 1, 2014

 Ex: Employer with fiscal year plan beginning April 1 could use
measurement period of July 1, 2013 to December 31, 2013 and
administrative period ending March 31, 2014
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Determining Full-Time Employees For Required
Health Coverage—Employer Considerations
76
 Composition of workforce – whether more stable full-time
or more variable hour employees – should be considered in
determining standard measurement period and stability
period.
 Rate of turnover may influence standard measurement
period
12 month standard measurement likely better for industries with many
variable hour employees and high turnover

 Size of workforce may influence administrative period—
larger workforce may require longer administrative period
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Proposed Substantial Compliance Provision
77
 IRS released proposed regulations on the employer pay-or-
play requirements on December 28, 2012
 Generally follows guidance previously issued regarding
calculating full-time employees
 Proposed regulations add a potential “substantial
compliance” provision


Employers satisfy the pay-or-play requirements if they offer minimum
essential coverage to 95% of their full-time employees, i.e. no more than
5% of full-time employees (or no more than 5 employees if 5 is greater
than 5%) are not offered affordable minimum essential coverage
This would allow employers some room for error when calculating fulltime employees
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
IRS Proposed Anti-Abuse Rule
78
 Would impose penalty on employers who attempt to structure
their workforce to avoid being covered by ACA “pay or play”
requirements

For example, employer hires employees directly for 20 hours per
week and leases employees through leasing Company for 20 hours
per week
 If worker performs same services directly for the employer
and through an employee leasing company, then all hours are
attributed to the employer for purposes of the “pay or play”
penalty
 If employee provides services to the same employer through
two or more employee leasing companies, all hours are
attributed to the client employer if employer controls work
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Minimum Value of Employer-Sponsored Plan
79
 Employer plan must provide “minimum value” to avoid
“pay or play” penalties.
 Actuarial value must be at least 60%.
 Actuarial value of a health plan is the measure of the
percentage of health care costs that the plan is expected to
cover.

HHS study found 98% of individuals currently covered by employer
plan are in plan with actuarial value in excess of 60%
 IRS Notice 2012-31 – Requests comments on various
approaches to determining whether employer health plan
provides “minimum value” of 60% of costs
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Minimum Value of Employer-Sponsored Plan
80
 IRS Notice 2012-31 – Proposals for determining actuarial value



Actuarial value calculator (“AV Calculator”) or minimum value
calculator (“MV Calculator”) provided by HHS and Treasury
Department – ER input information
Safe harbor checklists that do not use calculations or assistance of
actuary
For plans with non-standard features that makes use of AV
calculator or MV calculator impossible, the certification of a certified
actuary
 Actuarial value could be based on four core categories:




Physician and mid-level practitioner care
Hospital and emergency room services
Pharmacy benefits
Laboratory and imaging services
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Affordability Safe Harbor
81
 PPACA generally requires employer to pay tax penalty if
full-time employee receives federal subsidy because the
employer coverage is either not affordable or does not
provide minimum value
 Coverage is affordable if the employee’s required
contribution to the plan does not exceed 9.5% of the
employee’s household income
 Household income = modified adjusted gross income of
employee and any member of employee’s family
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Affordability Safe Harbor
82
 Employer not necessarily aware of employee’s household
income, so may not be able to determine if coverage offered
is affordable
 IRS proposes safe harbor where affordability of employer
coverage is satisfied if the premium meets one of the
following:



W-2 Safe Harbor – EE’s annual premium contribution does not exceed
9.5% of EE’s wages reported in box 1 of W-2
Rate of Pay Safe Harbor – EE’s monthly premium contribution does not
exceed 9.5% of EE’s hourly rate of pay x 130 or (for salaried EE) their
monthly salary
Federal Poverty Limit (FPL) Safe Harbor – EE’s annual premium
contribution does not exceed 9.5% of federal poverty level
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Union/Multiemployer Plans After 2014
83
 Definition of multi-employer plan

Plan that is maintained pursuant to a collective bargaining agreement
and has a joint board of trustees that represents the employees and
employers.
 Government has requested comments on how the “pay or
play” requirements should apply to employers in multiemployer plans
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Union/Multiemployer Plans After 2014
84
 2014 Safe Harbor – employer in union plan will not be
treated as having failed to offer coverage if:



The employer is required by a CBA to make contributions to a multiemployer plan for the employee
Coverage under the multiemployer plan is offered to the full-time
employees
The coverage offered to the employees meets the affordability and
minimum value standards
 The multiemployer plan must comply with the 90-day
limitation on waiting period
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
What is a Health Care Exchange?
85
 A marketplace of health insurance issuers
(traditional, for-profit insurance companies and
non-profit cooperatives) that will offer QHPs to
individuals/small ERs

Exchanges will be operational by January 1, 2014 for
individuals and small employers
Open enrollment set to start October 1, 2013
 “Small employer” defined by the State for state exchange


Large employers (100 or more employees) may be eligible to
purchase coverage through Exchanges in 2017
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Who Creates an Exchange?
86
 Each state must create an Exchange (funded by
$6 billion in federal grants)



Establish one or more state or regional Exchange
Partner with the federal government to create Exchange
Merge with other state Exchanges
 Exchange must be a government agency (existing
or new) or non-profit established by the state
 If state does not create exchange, federal
government create exchange for the state
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Who Creates an Exchange?
87
 States wishing to create Exchange required to
obtain approval from HHS
 States required to disclose their plans to HHS by
December 14, 2012
17 states plus DC are pursing State-created Exchange
 7 states are pursuing a state/federal partnership
 26 states do not intend to create state exchange

Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
What is the Goal of an Exchange?
88
 Enhance consumer choice
 Creation of single risk pools
 “Apples to apples” comparison of health insurance
coverage
 Create competition for customers on equal terms to lower
premiums
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
What are the Features of an Exchange?
89
 Issuers must be certified by the Exchange
 Issuers must offer at least one silver plan and one
gold plan
 Issuers must agree to charge the same rates whether
plan is sold in Exchange or outside of the Exchange
 Rating system based on quality and price
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Additional Features of an Exchange
90
 Enrollee satisfaction system
 Insurers barred from basing premiums on health
status, gender and other factors. Premiums may vary
based on age, with the spread constrained to a 3:1
ratio, and based on tobacco use up to a 1.5:1 ratio.
Premiums may also vary by geographic area and
family size
 Each plan must offer “essential benefits”
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Multi-tier Exchange with
Different Levels of Coverage
91




Every tier covers essential benefits
% of covered benefits costs ranges 60% to 100%
Out-of-Pocket limit for all tiers capped at $6,250
(individual)/$ 12,500 (family) (indexed annually)
Tiers labeled Bronze, Silver, Gold, Platinum, and Catastrophic





Bronze = covers 60% of full value of plan benefits
Silver = 70%
Gold = 80%
Platinum = 90%
Catastrophic = minimum plan available to people under 30 or
otherwise exempt from pay or plan mandate
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Exchanges – Essential Benefits
92
 Essential benefits include
 Ambulatory patient services
 Emergency services
 Hospitalization
 Maternity and newborn care
 Mental health and substance abuse
 Prescription drugs
 Rehabilitative and habilitative services and devices
 Laboratory services
 Preventative and wellness services
 Pediatric services, including oral and vision care
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Exchanges – Essential Benefits
93
 Essential benefits include
 Ambulatory patient services
 Emergency services
 Hospitalization
 Maternity and newborn care
 Mental health and substance abuse
 Prescription drugs
 Rehabilitative and habilitative services and devices
 Laboratory services
 Preventative and wellness services
 Pediatric services, including oral and vision care
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Excise Tax on “Cadillac Plans”
94
 Cadillac Plan is any plan whose costs, i.e.
premiums exceed established threshold
Premium of $10,200/year for single-only coverage (as
adjusted annually)
 Premium of $27,500/year for family coverage (as
adjusted annually)
 For qualified retirees and those in high-risk jobs threshold
is $11,850/$30,950 (as adjusted annually)

 High
Julie A. Pace
risk professions include firefighters, police, and miners
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Excise Tax on “Cadillac Plans”
95
 Tax = 40% of “excess benefit”

Excess benefit is the aggregate value of the health plan in excess of the
established threshold
 Paid by “coverage provider,” i.e. insurance company for
insured plans and employer for self-funded plans
 Effective January 1, 2018
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Retiree Provisions – Medicare Part D
96
 Medicare Part D

No ER deduction for retiree drug subsidy beginning 2013

Closing the “Donut Hole” on prescription coverage

The “Donut Hole” is the amount Medicare enrollees spend on
prescriptions after exceeding the coverage limit but before
reaching a level that qualifies them for catastrophic coverage
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Retiree Provisions – ER Subsidies
97
 Subsidy for group plans providing medical coverage
to early retirees (55-64) and their spouses



Applies June 1, 2010 to January 1, 2014
Plan sponsor must apply to Health and Human Services and
HHS must certify plan before ER eligible for subsidy
Plan sponsor eligible for reimbursement of 80% of claims by
retiree and family between $15,000 and $90,000
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
HSA/FSA Changes
98
 Effective January 1 2011, most over the counter
medications and drugs not covered by
FSA/HRA/HSA unless individual has a prescription


Medical devices and supplies that are not medications
continue to be covered
Insulin continues to be covered without prescription
 Beginning for plan years starting January 1, 2013, or
later, FSA contributions will be limited to $2,500

IRS reconsidering use-it-or-lose it for FSA
 Excise tax on non-medical HSA distributions
increased from 10% to 20%
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Notice to Employees
99
 Employers subject to FLSA must provide written
notice to current and new employees




Identify the Exchange and how to contact
If employer’s health plan is not sufficiently valuable, notify of
the existence of premium subsidies and cost-sharing
reductions
If the employee enrolls in an Exchange plan, indicate that the
employee may lose any employer subsidy in the employer plan
Effective date originally March 13, 2013 – delayed until further
regulations or guidance issued
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Notice to Employees
100
 Summary of Benefits and Coverage
 Required beginning in plans years starting on or after
September 23, 2012
 Must contain minimum information regarding health plan
benefits and coverage identified in regulations
 DOL EBSA has created template for notice to be customized by
employer/plan
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Auto Enrollment
101
 Large employers (200+ FTEs) must automatically
enroll new employees in the lowest cost health plan
when the employee becomes eligible if the employer
offers a health plan
 Employees may opt out; advance notice of
enrollment and opt out is required
 Not effective until after regulations are issued by
DOL

DOL does not expect to have regulations finalized by 2014
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Taxes on High Income Individuals
102
 Increases the health insurance (HI-Medicare)
portion of the FICA tax from 1.45% to 2.35% on
wages in excess of $200,000 ($250,000 for a joint
return, $150,000 for married filing single)
 Additional 3.8% tax on lesser of:


net investment income (interest, dividends, royalties, rents,
passive income)
Modified adjusted gross income in excess of $200,000
($250,000 for a joint return, $150,000 for married filing
singly)
 Both provisions are effective on January 1, 2013
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Taxes on High Income Individuals
103
 No employer match on the 0.9% increase in HI
(Medicare) Tax that applies January 1, 2013
 Individuals are liable for additional tax if earning
$200,000 filing singly or $250,000 married filing
jointly
 Additional tax is only on the income earned above
the threshold
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Additional Medicare
Taxes on High Income Individuals
104
 Employer must withhold if it pays individual more
than $200,000, regardless of individual's filing
status
 Employees whose have additional Medicare tax
withheld from pay but do not owe tax due to filing
status can obtain refund from federal government
 Employer cannot honor request not to withhold
additional Medicare tax


Employer who does not withhold is liable for tax if employee
does not pay it
IRS proposed regulations to allow employers to correct errors
in withholding
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
W-2 Reporting Requirements
105
 Employers required to report the total cost of the
health insurance plan they sponsor on the
employee’s W-2



Includes the employer and employee contribution
Informs employees of cost of their health care
Does not make benefit taxable income
 Large employers required to report on 2012 W-2
(provided to employees in 2013)
 Small employers (fewer than 250 employees) not
required to comply with requirements until 2014 or
until further guidance is issued
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Employer Action Items
106
 Determine if your company has 50 full time employees
under the full time employee equivalent test
 Consider budgets, and whether it would make more
sense to discontinue offering group health plans and pay
the penalty for all full time employees if a single
employee decides to obtain health insurance either
through private insurance or an exchange and receives a
tax credit.
 If the company intends to continue to provide a
grandfathered plan, talk to the company’s current insurer
to ensure that any plan modifications comply with new
requirements.
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Employer Action Items
107
 Consider offering different plans with different levels
of benefits with each plan providing minimum
essential coverage and the least expensive plan being
affordable under the affordability test.
 Review and update plan document and summary
plan description as necessary.
 Review and update FSA and HSA plan documents as
necessary.
 Review and update handbook policies
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Employer Action Items
108
 Develop talking points for meetings with employees
to discuss health benefit options.
 Develop a waiver form for any employees who decide
not to participate in the company's sponsored health
insurance.
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Handbook & Plan Document Revisions
109
 Define full-time and part-time in handbook
 Define variable hour employee
 Review benefits policies, Summary Plan Descriptions
and Plan Documents to determine if new definitions
needed
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Plan Amendments
110
 Complying with certain provisions of the Affordable
Care Act may require amendments to current health
plans.
 Employers should work with counsel and insurance
companies to ensure plan and plan documents
comply with Affordable Care Act requirements
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
QUESTIONS??
111
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
www.cavanaghlaw.com
Jennifer L. Sellers
The Cavanagh Law Firm, P.A.
602.322.4003
jsellers@cavanaghlaw.com
www.cavanaghlaw.com
Heidi Nunn-Gilman
The Cavanagh Law Firm, P.A.
602.322.4080
hnunngilman@cavanaghlaw.com
www.cavanaghlaw.com
1634142
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
Julie A. Pace
112
Julie A. Pace
The Cavanagh Law Firm, P.A.
602.322.4046
jpace@cavanaghlaw.com
www.cavanaghlaw.com
Julie Pace has been interviewed and quoted on immigration and employment law in news media across the nation,
including ABA Journal, Forbes, Wall Street Journal, Business Week, The New York Times, CNN, NPR, Associated Press,
USA Today, L.A. Times, CBS News, Fox News, and Arizona publications.
Ms. Pace is a frequent speaker and author on a variety of employment topics. She is Co-Editor-in-Chief of three books on
immigration and employment law -- Employment Verification: An Employer's Guide to Immigration, Form I-9 and EVerify; Arizona Human Resources Manual; Model Policies and Forms for Arizona Employers, all published by American
Chamber of Commerce and Industry HR Compliance Library.
Ms. Pace is a recipient of Arizona Business Magazine’s 2008 Centers of Influence Award, which recognizes the ten leading
attorneys, accountants, and bankers in Arizona. Ms. Pace is also a Fellow of the Litigation Counsel of America. She has
served as Judge Pro Tem for the Arizona Court of Appeals and is a former judicial law clerk to the Honorable Joe W.
Contreras of the Arizona State Court of Appeals. Ms. Pace is a fourth generation Arizonan.
Julie A. Pace
P.A.
The Cavanagh Law Firm,
602.322.4046
Julie A. Pace
113
JULIE A. PACE is a partner in the Phoenix office of The Cavanagh Law Firm PA. Ms. Pace’s practice is concentrated in
representing companies in immigration compliance, commercial litigation, construction, and employment law, with
particular emphasis in the defense of sexual harassment, employment discrimination, wrongful discharge suits, EEOC and
ACRD charges, matters involving OSHA, ICE, OFCCP, DOL, DOT, NLRB, ADA, FMLA, ERISA, I-9s, E-Verify, Davis-Bacon,
wage and hour laws, conducting sexual harassment investigations, and providing training to managers and employees. She
also counsels employers on noncompete contracts, confidentiality agreements, employee discipline, drug testing,
accommodation of disabled individuals, safety policies, affirmative action plans, wage conformances and wage
determinations, and other related human resource policies and procedures.
Ms. Pace also handles issues involving the Affordable Health Care Act and addresses the changes and options it presents to
companies. Her Davis-Bacon and prevailing wage practice includes counseling and training on state and federal prevailing
wages and benefits requirements, coverage and applicability of prevailing wage laws, coverage exemptions, worker
classification and pay issues, addressing wage determinations, wage surveys, and representation of employers before the
Department of Labor Wage and Hour Division and similar state agencies.
Ms. Pace has been described by Arizona Business Magazine as the "go to" lawyer in Arizona for businesses on immigration
issues. She has handled hundreds of I-9 audits, addresses E-Verify issues, and has provided I-9 and immigration
compliance training for thousands of supervisors. She has chaired the Immigration Committee of the Arizona Chamber of
Commerce and Industry.
For over the past two decades, Ms. Pace has regularly represented companies in OSHA proceedings. She has been working
on fall protection issues since the fall protection standard went into effect in 1995. She has handled hundreds of OSHA
matters and numerous fatalities in the workplace.
She received her J.D. degree, cum laude, from Arizona State University, where she was also Symposium and Articles Editor
of the Arizona State Law Journal. She received her B.S. degree in Business Administration, magna cum laude, from
Arizona State University. Ms. Pace can be reached at 602.322.4046 or jpace@cavanaghlaw.com.
Julie A. Pace
P.A.
The Cavanagh Law Firm,
602.322.4046