Healthcare Reform:
It’s Not Over Yet—What Your
Company Needs to Know for 2015
Presented by:
Venable LLP
CareFirst BlueCross BlueShield
and Allegis Group, Inc.
State of Private Insurance
• Individual Market
• Changes in the Employer Market
• Private Exchanges
Purchasing Individual Health Insurance:
before and after the ACA
Before
After
• Harder to compare
benefit options and
premiums
• Pre-existing condition
exclusion
•
•
•
•
Individual Mandate
Consumer Protections
Access to Insurance
Affordability
3
Individual Mandate
• Generally, absent a few limited exceptions, all
Americans must have health insurance after January
1, 2014
• Individuals who fail to obtain coverage will be subject
to a tax penalty
o 2014: $95.00 or 1.0% of income (whichever is greater)
o 2015: $325.00 or 2.0% of income
4
Consumer Protections
• 10 Essential Health Benefits
• Standardization of health care plans
• No more pre-existing conditions/gender-based
denials
• Coverage until age 26
• Guaranteed issue and renewability
• Eliminating lifetime and annual limits
5
Essential Health Benefits
• Ambulatory patient
services
• Emergency services
• Hospitalization
• Maternity and newborn
care
• Mental health and
substance use disorder
services/behavioral
health treatment
• Prescription drugs
• Rehabilitative services
and devices
• Laboratory
services/testing
• Preventative services
• Pediatric dental and
vision
6
Standardization of Health Care Plans
Expense Paid by Metal Plans (Actuarial Value)
100%
90%
80%
70%
60%
50%
40%
Bronze Plan
Silver Plan
Gold Plan
Platinum Plan
30%
20%
10%
0%
7
Access to Insurance
• Exchanges
o Federally Facilitated Exchange (FFE) www.healthcare.gov
o State-Based Exchange (SBE)
o Partnership Exchange
• Open Enrollment Period (OEP)
o 2014 OEP was October 1, 2013 to March 31, 2014
o 2015 OEP is November 15, 2014 to February 15, 2015
• Special Enrollment Period (SEP)
8
Affordability
• Premium subsidies (APTC): 139%-400% FPL
• Cost-sharing subsidies (CSR): 139%-250% FPL
Income (Midpoint of Range)
FPL (2014)
Premium Cap as %
of Income
Estimated Subsidy
for Individual
Individual
Family of 4
138%-150%
$16,500
$33,900
3.65%
~ 80%
150%-200%
$20,100
$41,200
5.15%
~ 60%
200%-250%
$25,900
$53,000
7.18%
~ 40%
250%-300%
$31,600
$64,800
8.78%
0%
300%-400%
$40,200
$82,400
9.5%
0%
* Subsidy percentage varies by actual premium.
9
Changes in the Employer Market
• Employer Mandate – Large employers must offer
affordable coverage that has minimum essential
value
• Penalty for:
o Failure to offer minimum essential coverage

$2,000 per year times the total number of full-time employees (not
counting the first 30)
o Failure to offer affordable or minimum value coverage

$3,000 per year times the number of full-time employees who are
certified to receive, and purchase, subsidized individual health
insurance through an Exchange
10
Small Business Health Options Program
(SHOP)
• Open to small businesses with fewer than 50 full-time
employees
• Tax credit for small businesses with fewer than 25
employees
• Definition of small employer will change to 1-100 fulltime employees on January 1, 2016
11
Market Shifts Between Fully Insured and
Self-Insured for Employers
• Employers are dropping coverage because:
o no penalty for small employers
o providing coverage offers no mutual benefit
o decreases expenses and reduces burden
• Employers are shifting to self-insured plans with stoploss coverage which:
o decreases expenses
o creates reliance on stop-loss
12
Private Exchanges
• Managed insurance marketplace for large employer
groups
• Employer establishes amount it will pay toward
healthcare for its employees
• Employee uses the established credit from employer
to shop from a list of standard health plans from
different carriers
• E.g., Mercer and Aon Hewitt
13
Where Are We Headed?
• Multiple court challenges pending
• Proposed changes through legislation
• Changes in political landscape over the next several
years
14
ACA Program Integrity Provisions
• ACA, “Financial Integrity”: §1313; 42 USC §18033
(2010)
• Apply to Exchanges and/or Issuers
• Accounting for Expenditures
o
o
o
o
o
o
General - (a)(1)
Investigations – (a)(2)
Audits – (a)(3)
Pattern of Abuse – (a)(4)
Protections Against Fraud and Abuse – (a)(5)
Application of the False Claims Act – (a)(6)
15
ACA Program Integrity Provisions
• General
o Exchanges required to keep accurate records
• Investigations
o Exchanges subject to investigations by IG, HHS
• Audits
o Exchanges subject to HHS annual audit
• Pattern of Abuse
o Exchanges or States may be subject to HHS payment withholds
if engaged in serious misconduct or noncompliance
16
ACA Program Integrity Provisions
• Protections Against Fraud and Abuse
o Secretary:
 ensures efficient and non-discriminatory administration of
Exchanges
 implements measures/procedures within authorities to reduce
fraud and abuse as determined appropriate
17
ACA Program Integrity Provisions
• Application of the False Claims Act (FCA)
o To payments made “by, through or in connection with” an
Exchange subject if any Federal funds
o Includes payments to issuers:
 Advance premium tax credits
 Advance cost-sharing reduction payments
 Risk adjustment, reinsurance and risk corridor payments (“3 Rs”)
18
ACA Program Integrity Provisions
• Application of the False Claims Act (FCA)
o Compliance with issuer Exchange participation requirements is
a material condition for entitlement to receive payments,
“including payments of premium tax credits and cost-sharing
reductions,” through the Exchange
o Participation requirements include:
 data reporting to Exchange, HHS, State
 state insurance marketing regulation compliance
 enrollment, coverage effective date and disenrollment compliance
19
ACA Program Integrity Provisions
• CMS issued 2 key program integrity regulations:
o 78 Fed. Reg. 54070 (Aug. 30, 2013)
o 78 Fed. Reg. 65046 (Oct. 30, 2013)
• Includes provisions on exchange oversight requirements,
premium tax credits, cost-sharing subsidies, 3 Rs,
administrative enforcement authorities, etc.
20
Key Federal Health Care Regulators
•
•
•
•
•
U.S. Department of Health and Human Services (“HHS”)
Centers for Medicare and Medicaid Services (“CMS”)
HHS Office of Inspector General (“OIG”)
Internal Revenue Service (“IRS”)
U.S. Government Accountability Office (“GAO”)
21
Program Integrity
• CMS Center for Program Integrity
o Focus is protecting government funds spent on federal health
care programs (e.g., Medicare, Medicaid, CHIP) and now the
Exchanges
• OIG Oversight and Enforcement
o #1 priority regarding oversight and enforcement of Exchanges is
payment accuracy (2014 OIG Work Plan)
o Other priorities include eligibility systems, contracts, and
security of data and consumer information
22
How QHP Issuers Are Paid on Exchanges
• Premium payments from enrollees
• Premium tax credit and cost-sharing subsidies
• Premium Stabilization Program payments
23
Premium Payments from Enrollees
• Individuals pay premiums to QHP issuers based on level
of coverage (bronze, silver, gold or platinum)
• More comprehensive QHPs have higher premiums, but
lower out-of-pocket costs
• Premiums may vary based on age and geographic
location
24
Premium Tax Credit
• Tax credit available to enrollees in QHP on an Exchange
with income between 100% and 400% of FPL
• Tax credit available through tax return or can be paid
directly to QHP issuer
25
Advance Payment of Premium Tax Credit
• QHP issuers receive periodic advance payments for
premium tax credits
• QHP issuer must reduce premium charged to enrollee by
amount of advance payment of tax credit
• Reporting obligations in billing statement to enrollee
• Notification and refund obligations if QHP issuer does
not reduce premium accurately
• Potential liability under Exchange enforcement
authorities and False Claims Act
26
Cost-Sharing Subsidies
• Subsidies available to enrollees in QHP on an Exchange
with income between 100% and 250% of FPL
• Government provides subsidies directly to QHP issuer
• QHP issuer applies lower cost-sharing amounts when
administering enrollee’s benefit
27
Cost-Sharing Subsidies
• QHP issuer must ensure that enrollee pays the lower
cost-sharing amounts
• Notification, reassignment and refund obligations if QHP
issuer assigns enrollee to wrong plan variation
• Annual reconciliation of advance payments of costsharing subsidies with CMS
• Potential liability under Exchange enforcement
authorities and False Claims Act
28
Premium Stabilization Programs
• 3 interrelated programs:
o Risk Adjustment Program
o Reinsurance Program
o Risk Corridors Program
• Work together to stabilize insurance market by
redistributing funds from high-performing issuers to lowperforming issuers
• Issuers report certain data to CMS, CMS then calculates
necessary subsidies and payments
• Potential liability under Exchange enforcement
authorities and False Claims Act
29
Additional Compliance Obligations
for QHP Issuers on FFE
• Establish effective compliance plan
• Issuer attestations in QHP issuer application (potentially
used for FCA liability)
• Oversight of downstream and delegated entities
• Above requirements are similar to those in Medicare
Advantage/Prescription Drug programs
• Potential liability under Exchange enforcement
authorities and False Claims Act
30
Oversight and Enforcement
• QHP issuers on all Exchanges subject to audit and
oversight by HHS and OIG
• QHP issuers on FFE subject to compliance reviews by
HHS and OIG
o risk of administrative enforcement actions (i.e., civil money
penalties (CMPs) and decertification for non-compliance with
Exchange standards)
• Potential for False Claims Act liability (including as a new
target for qui tam actions)
31
Oversight and Enforcement
• GAO Report – “Preliminary Results of Undercover
Testing of Enrollment Controls for Health Care
Coverage and Consumer Subsidies Provided Under the
Act”, GAO-14-705T, July 23, 2014
o Subsidies and other costs represent a “significant, long-term
fiscal commitment of the Federal government”
o “CMS must rely on health insurance issuers to self-report
enrollment data reflecting individuals for whom CMS owes the
issuers the income-based subsidies arising from obtaining
coverage through the Marketplace”
32
Key Actions for QHP Issuers
• Institute internal controls to ensure accurate reporting of
data to CMS, record retention, documentation
• Report and return identified overpayments
• Anticipate and plan for future government audits
• Incorporate new requirements and risks into corporate
compliance programs
• Incorporate lessons from MA-PD program oversight
activities regarding compliance plans, oversight of
delegated and downstream entities, etc.
33
Employer Mandate (Generally Effective
January 1, 2015)
• A one-year delay; originally effective January 1, 2014
• Special rules for fiscal year plans
• The ACA imposes a mandate on large employers to
offer minimum essential coverage to their full-time
employees and their dependent children (up to age
26) or pay a penalty tax
• In addition, if that minimum essential coverage is
not affordable or does not provide minimum value,
the employer is subject to a penalty tax
34
Penalty Tax Trigger
• A penalty tax is due for any month in which at least one
full-time employee is certified to the employer as having
purchased health insurance through an Exchange with a
premium subsidy from the government for that coverage
• But an individual is NOT eligible for a premium subsidy
offered through the Exchange if he or she is eligible for
employer-sponsored coverage that is affordable and
provides minimum value
35
Applicable Large Employer
• Applies to “applicable large employers,” defined as “an
employer that employed an average of at least 50 full-time
employees (including full-time equivalent employees
(“FTEs”)) on business days during the preceding calendar
year”
o
o
o
Determined on a controlled group basis
Full-time means an average of 30 hours/week or 130 hours/month
Common law test used for identifying employees
Note – Special Transition Rule for 2015 – At Least 100 Full-Time
employees (including FTEs)
36
The “No Coverage” Penalty
• Penalty for Failure to Provide Coverage
o If more than 5% of full-time employees are not offered
coverage (that includes dependent children) and even ONE
full-time employee obtains a subsidy through an Exchange
 the no coverage penalty is triggered
Note – Special Transitional Rule for 2015 – if more than 30%
(not 5%)
37
The “No Coverage” Penalty
• Penalty for Failure to Provide Coverage
o Penalty = $2,000/year * TOTAL number of full-time
employees
 Assessed on a monthly basis ($166.67/employee/month)
 First 30 (80 for 2015) full-time employees are disregarded
• Penalty applies on an employer-by-employer basis
and not on a controlled group basis
• Be careful not to play AND pay
38
The “Unaffordability” Penalty
• Penalty for not providing affordable/minimum value
coverage
o Applies if:
 Employee’s share of the premium for lowest-cost employeeonly coverage would exceed 9.5% of the employee’s income,
or the affordable plan does not provide minimum value—pay
at least 60% of the allowed costs under the plan, AND
 The employee receives a subsidy through an Exchange
39
The “Unaffordability” Penalty
• Penalty for Providing “Unaffordable” coverage
o Penalty = $3,000/year/employee
o Assessed on a monthly basis ($250/employee/month)
o Applies only to employees who actually receive a premium
subsidy for coverage on an Exchange
40
The “Unaffordability” Penalty
• Safe harbors for determining if the cost of coverage
exceeds 9.5% of employee’s income
o Form W-2 compensation
o Rate of pay
o Federal poverty limit
• Minimum value
o Safe harbor plan designs
o Minimum value calculator
o Actuarial analysis
41
Transitional Reinsurance Program Fees
• Three year fee-to-fund transitional reinsurance pool (2014-2016)
• Uniform contribution rate of $63/year/covered life for 2014
($44/year/covered life for 2015)
• To be collected in two installments:
o Plan provides notice to HHS of the numbered of covered lives by
November 15 of each calendar year
o Each installment will be due within 30 days of HHS’ notice of the
amount of fee owed
 Notice that first installment due – HHS expected to provide this notice
in December of each year
 Notice that second installment due – HHS expected to provide this
notice during the 4th quarter of each year following the year for which
payment is being made
42
“Cadillac” Tax
• First applies in 2018
• 40% non-deductible tax on “excess benefits”
• Excess benefit = benefits provided in excess of
annual limit ($10,200/$27,500 for 2018)
43
Overview – Code Sections 6055 and
6056
• Calendar year basis (regardless of plan year)
• Effective for 2015, with initial reports due in early
2016
• Two overlapping sets of reporting requirements
o Code Section 6055 – Health insurance issuer/self-funded
plan sponsor – to facilitate compliance with the individual
mandate provisions
o Code Section 6056 – Employers subject to the coverage
mandate – to facilitate compliance with the Employer
Mandate and premium subsidies
o Our focus today is on the latter – Reports satisfying the
latter will also satisfy the former
44
Overview – Code Section 6056
• Defined terms and concepts from the Employer Mandate
• Each entity within a controlled group reports separately
• IRS will issue forms for reporting:
o Form 1095-C (one form for each full-time employee)
o Form 1094-C (aggregated data for all full-time employees of
the reporting entity)
o These forms (and their instructions) will fill in gaps left in the
regulations
• No 2015 reporting exemption for employers with between 50
and 99 full-time employees who qualify for the 2015 special
transitional rule
45
Content of Report to IRS (Primary
Method)
• Name, address and EIN of the reporting employer
• Name and phone number of contact person at the reporting
employer (or its third-party reporting agent)
• Calendar year to which report pertains
• For each full-time employee, certification of whether the full-time
employee (and dependents) were offered minimum essential
coverage (MEC), by calendar month
• For each full-time employee, months during the calendar year
for which MEC was available
• For each full-time employee, the full-time employee’s cost share
for the lowest cost monthly premium for self-only coverage
providing minimum value, by calendar month
46
Content of Report to IRS (Primary
Method)
• The number of full-time employees for each month during the
calendar year
• Name, address and TIN of each full-time employee during the
year, and the months, if any, during which the full-time
employee was covered
• Information about whether the coverage offered provides
minimum value and whether spouses were eligible
• The total number of employees, by month
• Whether an employee was subject to a permissible waiting
period, by month
• Whether the employer had no employees or otherwise credited
any hours of service during any particular month, by month
47
Content of Report to IRS (Primary
Method)
• Whether the reporting employer is a member of a
controlled group, and, if so, the name and EIN of
each controlled group member
• Certain additional information for governmental plans,
multiemployer plans and third-party reporting entities
• Any other information required by the Instructions to
the Forms 1094-C and 1095-C (to be determined)
48
Timing of Report to IRS
• Must be filed by March 31 following the calendar
year, if filed electronically
• Must be filed by February 28 following the calendar
year, if filed on paper
49
Statement to Participant (Primary Method)
• Must provide a Form 1095-C to each full-time
employee reported to the IRS
• All of the information reported to the IRS with respect
to such full-time employee
• By January 31 following the calendar year to which it
pertains
50
Alternative Reporting Methods
• Method #1: “Qualifying Offers”
o Coverage offer to one or more full-time employees
o Offer covers all months in the calendar year for which the
individual was a full-time employee (except months for
which there is a Section 4980H penalty exemption)
o Coverage provides minimum value
o Employee cost of employee-only coverage does not exceed
9.5% of the mainland single federal poverty level (which is
$1,108.65 – or 9.5% of $11,670, for 2014)
o Offer extends to dependents and spouse
51
Alternative Reporting Methods
• Method #1: “Qualifying Offers”
o Each full-time employee who received a “qualifying offer” for
all 12 months in the calendar year is eligible to be reported
using an abbreviated Form 1095-C
o Other full-time employees (who did not receive “qualifying
offers”) are reported using the “primary method”
52
Alternative Reporting Methods
• Method #2: “98% Offers”
o Reporting employer certifies that it offered coverage
qualifying for Section 4980H(b) penalty relief (i.e., minimum
value, affordable, to employee and dependents) to at least
98% of its employees who were full-time at any time during
the calendar year (and are therefore subject to Section 6056
reporting)
o Exempts the employer from identifying in its Section 6056
reporting whether a particular employee is a full-time
employee for one or more months during the year
o Exempts the employer from reporting its total number of fulltime employees for the year
53
Penalties for Non-Compliance
• $100 per late or incorrect return filed (or not filed)
with IRS (Code Section 6721)
• $100 per late or incorrect statement provided (or not
provided) to a participant (Code Section 6722)
• IRS may choose to waive penalties upon a showing
of reasonable cause
54
Contingent Workforce and PPACA
• Contingent workforce allows companies to have
flexibility in workforce
o Leaves and other absences
o Seasonal fluctuations and market fluctuations
o Skill shortages
• How should you think about your contingent
workforce as it relates to PPACA and your
interactions with staffing firms?
Contingent Workforce Concerns
• Concern that contingent workers will be considered
“employees” of client and since no offer of coverage
is made by client, client triggers “A” penalty (bigger
issue when coverage level is 95% in 2016)
• Staffing firms have always taken the position they are
the common law employer of the employees they
assign to clients
56
Common Law Employer
• Multi-factor test
• There can only be one (for tax and benefits purposes,
no such thing as “co-employment or “joint
employment”)
• Right to direct and control (does not have to be
actual)
• Origins of common law test are in tort law (basis of
recovery from the master for torts committed by
servant during servant’s employment)
57
Common Law Employer – Staffing Firms
• Staffing firms typically:
o
o
o
o
Recruit and screen potential employees
Hire employees and remit withholdings
Responsible for worker’s compensation and benefits
Right to control: Right to hire, discipline and fire;
right to assign and re-assign
o Behavior of the client and staffing firm are important
58
Dos and Don’ts – Staffing Firms/Clients
DO:
DON’T:
• Tell staffing firm you are
“ending the assignment”
• Let staffing firm handle
discipline and
performance issues
• Let staffing firm recruit
and screen (with limited
client input)
• “Terminate” a contingent
worker
• Discipline contingent
worker or address
performance issues
without involving staffing
firm
• Act like the employer
(e.g., evaluate screening
results, dictate wages or
benefits)
59
PPACA Final Rules – Discussion of
Staffing Firms
• Section in preamble regarding “temporary staffing firms” which
discusses such staffing firms making an offer of coverage to its
“employees”
• Preamble seems to use “temporary staffing firm” to mean a firm
that places employees in short-term, high-turnover assignments
• A “staffing firm” can be construed to mean any staffing firm that
does not place temporary workers (e.g., direct permanent
placement services, pay-rolling)
• Final rules also use “professional employer organization” and
“staffing firm” in section on offers of coverage (no explicit
definitions given for any of these terms)
60
Staffing Industry – Staffing Firms and
PEOs
• Traditional staffing firms:
o Historically have always
been viewed as the
common law employer of
employees they assign to
clients
o Recruit employees
• PEOs (Professional
Employer Organization):
o IRS Notice 2002-21: PEO
retirement plans are
multiple employer plans
(client is the common law
employer)
o 3/1/06 DOL Information
Letter: PEO welfare plan
is a MEWA
o Generally do not recruit
employees
61
PPACA Final Rules – Offers of Coverage on
Behalf of Other Entities (Treas. Reg
§54.4980H-4(b)(2))
•
•
This section was meant to cover multi-employer, single-employer TaftHartley, MEWAs and “other similar arrangements”
“If certain conditions are met, an offer of coverage to an employee
performing services for an employer that is a client of a professional
employer organization or other staffing firm (in the typical case in
which the professional employer organization or staffing firm is not the
common law employer of the individual)…made by the staffing firm on
behalf of the client employer under a plan established or maintained by
the staffing firm, is treated as an offer of coverage made by the client
employer for purposes of 4980H….only if the fee the client employer
would pay to the staffing firm for an employee enrolled in health
coverage under the plan is higher than the fee the client employer
would pay to the staffing firm for the same employee if the employee
did not enroll in health coverage under the plan”
62
Offer of Coverage by Other Entities Issues
• Troubling that the Final Rules included “or other
staffing firm,” as it creates confusion
• Many clients want to pay something more to staffing
firms only for those employees who get benefits in
case the clients gets deemed the common law
employer to avoid the “A” penalty issue
o This means the client is saying they are the common law
employer, which likely isn’t the case
o Creates MEWA issue for staffing firm
63
Risks of Paying Extra for Health Care Per
Employee
• Disfavoring employees who elect benefits because
the cost is higher (not in line with spirit of PPACA)
• Privacy issues
• Client typically hasn’t acted as the common law
employer for payroll taxes or otherwise acted as the
common law employer – inconsistent to say client is
the common law employer
• MEWA issue for staffing firms (staffing firms are not
treating plans as MEWAs because they view all
employees as employees of staffing firm and not the
clients)
64
What should clients do?
• Require staffing firms to comply with PPACA and get
an indemnity for the staffing firm’s failure to comply
(staffing firm may exclude claims where client’s
actions lead to claim – i.e., client taking steps to
cause client to be the common law employer)
• Make sure contracts with staffing firms state the
staffing firm reserves the right to control and direct
the employees assigned (and expressly state staffing
firm is common law employer)
65
What should clients do?
• Consider whether you want to require in contract
that staffing firm must provide Minimum Value and
Affordable Coverage (PPACA requires pay or play,
so why require play?). Keep in mind:
o Some smaller staffing firms may not have to provide
Minimum Value, Affordable Coverage or may decide it’s
in best interests of employees to not provide it so
employees can get subsidies on exchanges
o Limits the accessible talent pool
o Make sure both client and staffing firm are following the
right steps for staffing firm to be the common law
employer – coupled with indemnity, should be sufficient
to cover risk
66
Staffing Firms – Costs of PPACA
• Many staffing firms may need to pass on the costs
associated with PPACA to clients
o Traditionall, staffing firms were not providing any subsidies
toward coverage (costs to make coverage affordable)
o Obtaining coverage for contingent workforce employees is
difficult and expensive (underwriting is a challengeunpredictable workforce, high turnover)
o Many staffing firms were providing mini-meds or similar-type
limited indemnity plans that are no longer allowed under
PPACA, but they were significantly cheaper than plans that
comply with PPACA
67
Thank you.
Contact Information:
Meryl Burgin, Executive Vice President, General Counsel &
Corporate Secretary, CareFirst BlueCross BlueShield
Meryl.Burgin@CareFirst.com
Maureen Dry-Wasson, Assistant General Counsel, Allegis Group,
Inc.
mdry@allegisgroup.com
Thora Johnson, Partner, Venable LLP
TAJohnson@Venable.com
Brenda Tranchida, Counsel, Venable LLP
BJTranchida@Venable.com
www.Venable.com/healthcare/
68