The Affordable Care Act: What You Can’t Afford To Ignore

1. The Affordable Care Act: What You Can’t Afford To Ignore Presented To: Association of Corporate Counsel April 24, 2013

2. Confidentiality Note: This presentation from the law office of Jackson Kelly PLLC is for the sole use of the intended viewers and contains confidential and privileged information. Any unauthorized review, use, disclosure, distribution, or other dissemination of this presentation and/or the information contained herein is strictly prohibited.

3. Affordable Care Act Quiz

4. 1. Will the Affordable Care Act (ACA) require nearly all Americans to have health insurance starting in 2014 or else pay a fine?

5. Yes. Starting in 2014, most U.S. citizens and legal residents will be required to obtain health coverage, or pay a penalty. Some exemptions will be granted, for example, for those with religious objections or where insurance would cost more than 9.5% of their income.

6. 2. Will the ACA establish a government panel to make decisions about end-of-life care for people on Medicare?

7. No. No such panels exist. While early versions of the law did contain provisions that would allow Medicare to reimburse physicians for voluntary discussions with patients about end-of-life planning, these provisions were dropped from the final legislation.

8. 3. Will the ACA give states the option of expanding their existing Medicaid program to cover more low-income, uninsured adults?

9. Yes. As enacted, the ACA calls for the expansion of state Medicaid programs beginning in 2014 to cover nearly all individuals under age 65 with incomes up to 138% of the federal poverty level. However, while the Supreme Court upheld the ACA, it limited the federal government’s ability to enforce the Medicaid expansion to low-income adults, effectively making the Medicaid expansion a state choice.

10. 4. Will the ACA allow undocumented immigrants to receive financial help from the government to buy health insurance?

11. No. Under the ACA, undocumented immigrants will remain ineligible for Medicaid and will be ineligible for the premium tax credits. They also will be prohibited from purchasing coverage through an exchange even at full cost.

12. 5. Will the ACA increase the Medicare payroll tax on earnings for higher-income Americans?

13. Yes. The law increases the Medicare Hospital Insurance (Part A) payroll tax on earnings for higher-income taxpayers (more than $200,000/individual and $250,000/couple) by 0.9 percentage points – up from 1.45% to 2.35%, beginning in 2013.

14. 6. Will the ACA cut benefits for people in the traditional Medicare program?

15. No. The law does not cut benefits for people in the traditional Medicare program. In fact, it improves certain benefits, such as coverage for preventive services, and closes the Medicare drug coverage gap known as the “donut hole.”

16. 7. Will the ACA provide financial help to low and moderate-income Americans who don’t get insurance through their jobs to help them purchase coverage?

17. Yes. Tax credits will be available to eligible U.S. citizens and legal immigrants who purchase coverage in the new health insurance exchanges and who have income up to 400% of the federal poverty level ($45,960 for an individual and $94,200 for a family of four in 2013).

18. 8. Will the ACA create a new government-run insurance plan to be offered along with private plans?

19. No. The law does not create a new government-run health insurance plan. The existing Medicaid program will be expanded to cover low-income people, government regulation of the health insurance industry will be increased, and tax credits will be provided to make private health insurance more affordable.

20. 9. Will the ACA create health insurance exchanges or marketplaces where small businesses and people who don’t get coverage through their employers can shop for insurance and compare prices and benefits?

21. Yes.

22. 10. Will the ACA require employers with 50 or more employees to pay a fine if they don’t offer health insurance?

23. Yes!

24. Relevant Questions • How many employees does your organization have? • Is your organization self-funded or insured? • How many of you are part of a multi-employer plan? • How many of you have a CBA governing benefits? • Does your organization have a third party administer your record-keeping or do you do it in-house?

25. Overview of ACA Health care reforms • 2 waves of reforms for group health plans Health care exchanges Individual mandate Employer play or pay mandate Tax provisions

26. Implementation Timeline • Immediate Health Care Reform - Wave #1 of Health Reforms • Changes effective 2010 • Change in “dependent” definition for purposes of health plan tax exclusions (“child” through age 26) • Changes effective January 1, 2011 • Limits on OTC benefits • W-2 reporting for cost of coverage (first report in 2012) • Changes effective January 1, 2013 • Loss of Medicare Part D retiree subsidy deduction • $2500 cap on FSA salary reductions • Changes generally effective January 1, 2014 - Wave #2 of Health Reforms • Individual mandate • Employer play or pay requirement • Employer Coverage Reporting (first report in 2015 for 2014) • Free Choice Vouchers • Exchange • Changes Effective in 2018 • “Cadillac Plan” 40% excise tax

27. Liability for failing to comply with reforms is same as violating HIPAA portability under ERISA/Code • Specific performance under ERISA • $100/day penalty under IRC and HIPAA • Mandatory Self-Reporting and excise tax for violations (Form 8928) • The reforms do not apply to: • Excepted Benefits (such as unbundled dental, vision, Health FSA) • Stand alone retiree plans

28. What happened to auto-enrollment for employers with more than 200 employees? Effective date? • Provision has no separate effective date, so general rule that effective date is date of enactment would seem to control • But FAQ guidance confirms that compliance is delayed until regulations are issued What plans does it apply to? • Excepted benefits? Likely not.

29. 2013 Changes • Health FSA salary reductions limited to $2,500 each year • The cap is indexed to the CPI starting in 2014 • Deduction previously permitted for amounts allocable to the Medicare Part D subsidy for prescription drug plans is eliminated

30. 2014 Changes • No pre-existing condition exclusions or limitations are permitted • Prohibition on excessive waiting periods – i.e. no waiting period in excess of 90 days • No discrimination based on health status is permitted • Essentially, same rules as under HIPAA • Cost limitations • Out-of-pocket expenses do not exceed the amount applicable to coverage related to health savings accounts (HSAs) • Deductibles do not exceed $2,000 for single coverage and $4,000 for family coverage (as indexed) • Group and individual plans are required to cover routine costs of participation in certain clinical trials by qualified individuals

31. Effective January 1, 2014 – employer play or pay mandate #1 • An applicable large employer must offer minimum essential coverage to all full-time employees and their dependents. − An applicable large employer is any employer with 50 or more full-time equivalent employees. − Minimum essential coverage is coverage which offers a benefit in excess of 60% based upon an actuarial value. (Bronze level). − Proposed regulations provide that the employer is treated as offering coverage if such coverage is offered to all but 5% of its full-time employees. − Full-time is defined as 30 hours of service per week and 130 hours per month.

32. Effective January 1, 2014 – employer play or pay mandate #1 • Applicable large employers who fail to offer full-time employees and their dependents minimum essential coverage and has at least one full-time employee that has been certified as receiving a federal subsidy for enrolling in an exchange in any month. • The penalty is determined on a monthly basis and is the product of the total number of full-time employees of the employer (over 30) for that month and 1/12 of $2,000. • Whether several businesses must be considered one single employer for these purposes is determined under the same rules applicable to qualified retirement plans.

33. Effective January 1, 2014 – employer play or pay mandate #1 • To alleviate the administrative burden on employers in making this monthly determination, the regulations allow for a look-back/stability period. • An employer may elect a look-back period to determine who is a fulltime employee of between 3 to 12 months. • The employer is then permitted to treat those employees who qualified as fulltime during the look-back period as fulltime during the ensuing stability period, which must be the greater of 6 months or the look-back period. • For new employees, the employer must make a good-faith initial determination as to whether the employee will be fulltime.

34. Effective January 1, 2014 – employer play or pay mandate #2 • Even if an applicable large employer offers minimum essential coverage, the employer may still be subject to a penalty if such coverage is unaffordable. • For any full-time employee who is certified as having enrolled in the exchange and received a tax subsidy, the penalty is equal to the product of the total number of such employees who have received a tax subsidy and 1/12 of $3,000 (capped at 1/12 of $2,000 times the total number of full-time employees during such month). • Note: employees offered employer coverage are not eligible for a credit unless their required premium exceeds 9.5% of household income or the plan’s share of allowed costs is less than 60%

35. Effective January 1, 2014 – employer play or pay mandate #2 • Coverage is unaffordable if the cost charged to the employee for self-only coverage exceeds 9.5% of the employee’s household income. • There are three safe-harbors available to employers to make the determination of cost: (1) the w-2 safe harbor, (2) rate of pay safe harbor, and (3) the federal poverty line safe harbor. • The w-2 safe harbor allows the affordability coverage to be based upon actual w-2 reportable wages paid to the employee. • The rate of pay safe harbor is the hourly rate of pay multiplied by 130 hours per month. • Under the federal poverty line safe harbor the employee’s cost for self-only coverage may not exceed 9.5% of the FPL for a single individual.

36. Effective January 1, 2014 – employer play or pay general issues • Individual Mandate. At the heart of the legislation is the requirement that commencing in 2014 individuals must have “minimum essential health coverage” for themselves and their dependents. -- The calculation of the penalty is relatively complex with limitations based upon household income. Generally speaking, the penalty is as follows: 2014 -- $95 per adult 2015 -- $325 per adult 2016 -- $695.00.

37. Effective January 1, 2014 – employer play or pay general issues • An individual is eligible for a federal subsidy (a premium assistance credit) if the cost of insurance on the exchange exceeds the taxpayer’s household income multiplied by the applicable percentage. • The cost of insurance used is “the applicable second lowest cost silver plan” – 70% actuarial value. • The applicable percentage is on a sliding scale as follows: Up to 133% of poverty level: 2.0% 133% up to 150%: 3.0% up to 4.0% 150% up to 200%: 4.0% up to 6.3% 200% up to 250%: 6.3% up to 8.05% 250% up to 300%: 8.05% up to 9.5% 300% up to 400%: 9.5% See Q&A #7 from intro slides.

38. Effective January 1, 2014 – employer play or pay general issues • Employee Notice. An applicable employer must provide each employee at the time of hiring (or with respect to current employees, not later than March 1, 2013), a written notice: • Informing the employee of the existence of exchanges including a description of the services provided by the exchanges, and the manner in which the employee may contact exchanges to request assistance; • If the employer plan's share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs, that the employee may be eligible for a premium tax credit under section 36B of the Internal Revenue Code (the Code) if the employee purchases a qualified health plan through an exchange; and • If the employee purchases a qualified health plan through an exchange, the employee may lose the employer contribution (if any) to any health benefits plan offered by the employer and that all or a portion of such contribution may be excludable from income for Federal income tax purposes. Note, this requirement has been suspended until regulations are issued.

39. Effective January 1, 2014 – employer play or pay general issues • Small Business Tax Credit – Under new Code Section 45R, a tax credit is provided for a qualified small employer for non-elective contributions to purchase health insurance for its employees. -- A qualified small employer for this purpose generally is an employer with no more than 25 full-time equivalent employees employed during the employer’s taxable year and whose employees have annual full-time equivalent wages that average no more than $50,000.00. -- The tax credit is initially available for any taxable year beginning in 2010, 2011, 2012 or 2013. -- For taxable years beginning in years after 2014, the credit is only available to a qualified small employer that purchases health insurance coverage for its employees through a state exchange and is only available for a maximum coverage period of two consecutive tax years beginning with the first year in which the employer or any predecessor first offers one or more qualified plans to its employees through an exchange.

40. Effective January 1, 2014 – employer play or pay reporting issues • There are two major reporting requirements associated with ACA which will be combined into w-2 reporting for you employees: -- IRC 6055 – Requires “every person” who provides minimum essential coverage to file a return containing information about who was covered by the plan and during which months and certain cost related information (i.e. government benefits for funding the plan and the employer portion of the premium).

41. Effective January 1, 2014 – employer play or pay reporting issues (cont.) -- IRC 6056 – Requires every applicable large employer to file a return containing: (a) a certification as to whether the employer offers to its full-time employees (and their dependents) the opportunity to enroll in MEC (including length of any waiting period, months for which plan was available, monthly premium for the lowest cost option, and employers share of costs); and (b) information concerning who was covered under the plan and when, and the total number of full-time employees.

43. • What’s the name of the lowest cost self-only health plan the employee could enroll in? (Only consider plans that meet the “minimum value standard”) • Do you think the employer’s coverage is affordable?

44. Practical Suggestion • Create a committee or task force to oversee compliance • With representation from these departments: • HR Benefits • HR Labor/employment • Payroll • HR Information Systems • Tax/finance • Prepare for audit defense by implementing appropriate procedures.

45. Section 1558 : Whistleblower Complaints

46. Employees are protected from retaliation for: • reporting violations of Title I of the ACA • receiving a tax credit or a cost sharing reduction when enrolling in a qualified health plan

47. Covered employers and employees • Fair Labor Standards Act definitions • Applies to public and private sector employers

48. Protected Activity • Providing information relating to any violation of Title I, or any act the employee reasonably believed to be a violation of Title I, to: • the employer • the Federal Government • the attorney general of a state • Testifying, assisting, or participating in a proceeding concerning a violation of Title I • Objecting to or refusing to participate in any activity the employee reasonably believes to be in violation of Title I

49. Unfavorable Employment Actions • Firing or laying off, failure to hire or rehire • Blacklisting • Demoting • Denying overtime or promotion • Disciplining • Denying benefits • Intimidation • Making threats • Reassignment affecting prospects for promotion • Reducing pay or hours

50. Available Remedies OSHA interim final rule provides that successful claimants may be entitled to: • Reinstatement • Restoration of benefits • Back pay (and interest) • Compensatory damages (including attorney’s fees)