1. health and fitness

HEALTH CARE REFORM UPDATE:
HOW TO PREPARE FOR 2014
Mary V. Bauman
www.millerjohnson.com
The materials and information have been
prepared for informational purposes only.
This is not legal advice, nor intended to create
or constitute a lawyer-client relationship.
Before acting on the basis of any information or
material, readers who have specific questions
or problems should consult their lawyer.
2
 Health Care Reform is an “equal
opportunity” law
 It applies to public employers in the same way
as private sector employers
 It generally applies to collectively-bargained
employees in the same manner as non-union
employees
3
Additional plan changes will be
required in the future
 Waiting Period – Beginning in 2014, health plans
may not impose a waiting period of longer than
90 days for newly eligible employees
 A first of the month after 90 days rule will not comply
 Coverage must be effective no later than the 91st day
 If an employee is in the waiting period on the first day
of the 2014 plan year, the old waiting period can’t
apply if it would exceed 90 days
4
New participant notices must be
provided
 Summary of Benefits and Coverage – The
most significant new participant notice
required under Health Care Reform is the
summary of benefits and coverage (SBC)
 The purpose of the SBC is to provide certain
information in a prescribed format to participants in
an employer’s health plan so participants can
easily compare the information to other plans they
may be eligible for, including the coverages which
will be offered on state exchanges
5
New participant notices must be
provided
 The SBC must be updated each year and
provided to participants in several situations
including upon initial eligibility, at annual open
enrollment and upon request
6
New participant notices must be
provided
 Notice of Exchange Availability –
Beginning in 2013 employers must provide
individuals with a notice regarding the
availability of the state exchanges which
must be in place by 2014, and the
premium credits and cost-sharing
subsidies available to low income
individuals if they enroll in coverage on the
exchange
7
Get ready for new taxes and fees
 PCORI Fee - For plan years ending on and after
October 1, 2012, a new fee will be assessed to
finance comparative clinical effectiveness
research through the Patient-Centered
Outcomes Research Institute (PCORI)
 For the first plan year the fee is based on the average
number of covered lives (employees and dependents)
under a health plan multiplied by $1
 The multiplier increases to $2 for the next plan year
ending on or after October 1, 2013
8
Get ready for new taxes and fees
 For plan years ending on or after October 1,
2014 the fee will be increased based on
national health spending
 The fee no longer applies for plan years
ending after October 1, 2019
 Fee is based upon number of covered lives,
so both employees and dependents are
counted
9
Get ready for new taxes and fees
 In the case of fully-insured plans, the fee is
payable by the insurer. In the case of selffunded plans, the fee is payable by the
employer
10
Get ready for new taxes and fees
 Temporary Reinsurance Program – A new
fee is imposed on group health plans to
fund reinsurance for insurers in the
individual market
 Fee is imposed during 2014, 2015 and 2016
 Goal is to raise $25 billion
11
Get ready for new taxes and fees
 Fee is front-end loaded – will raise $12 billion
in 2014, $8 billion in 2015 and $5 billion in
2016
 A state may also impose a supplemental
reinsurance fee on fully insured plans, but not
self-insured plans
 IRS proposed regulations issued in December
2012 estimate the fee for 2014 to be $63 per
covered person
12
Get ready for new taxes and fees
 If plan is fully-insured, the fee is paid by the
insurer – if the plan is self-insured, the fee is
imposed on the plan (but likely will be sent in
by the TPA)
13
Health benefit planning for 2014
 The centerpiece of the Health Care
Reform legislation is the establishment of
the state exchanges, the individual
mandate and the employer “pay or play”
penalty -- all which will take effect in 2014
14
Health benefit planning for 2014
 Exchanges - the first component of this new
structure will be that each state must maintain
an exchange to help individuals and groups
shop for health coverage in a more efficient
and comprehensive manner
 A state can form its own exchange or partner with
the federal government, or if the state does not
prefer either option, the federal government will
come in an establish and operate an exchange for
the state
15
Health benefit planning for 2014
 It appears that most states, including Michigan, will
not establish their own exchange and will look to
the federal government to establish an exchange
for the state
16
Health benefit planning for 2014
 Low income individuals (with household income
between 100% and 400% of the federal poverty
level) will receive assistance
 These individuals will be provided with
premium credits to reduce their cost to obtain
coverage on the exchange (capped at a
maximum percentage of their household
income)
17
Health benefit planning for 2014
 Employers will be required to interact with
the exchanges in each state where
employees reside to verify an employee’s
eligibility for employer group health
coverage in order to administer the
potential financial assistance for low
income individuals applying for exchange
coverage
18
Health benefit planning for 2014
 Individual mandate – individuals must obtain
health insurance with minimum essential
coverage or pay a penalty
 Minimum essential coverage is available through
public programs, the exchange or an employer
plan
19
Health benefit planning for 2014

20
The penalty is the greater of a flat dollar amount
or a percentage of household income
 The flat dollar amount is $95 for 2014, $325
for 2015 and $695 for 2016. For later years,
the flat dollar amount will be increased for
changes in the cost-of-living
 The percentage of household income is 1%
for 2014, 2% for 2015 and 2.5% for 2016 and
later years
Health benefit planning for 2014

Employer mandate – large employers will
be required to offer health coverage to their
employees and their dependents (see
below) or pay a “free rider” penalty

21
For this purpose a large employer is an employer
with 50 or more full-time employees
 A full-time employee is an employee who
works, on average, 30 or more hours per
week
Health benefit planning for 2014


22
Part-time employees are counted on an
equivalency basis toward the 50 full-time
employee threshold
The hours of all part-time employees are
added together and divided by 120 to arrive
at the full-time employee equivalency
Health benefit planning for 2014

23
Seasonal employees are counted
 However, if the only reason an employer
is a large employer (50 or more FTEs) is
because of seasonal employees and the
seasonal employees cause the employer
to exceed the threshold for no more than
120 days or four months per year, the
seasonal employees will not cause the
employer to be a large employer
Health benefit planning for 2014


24
The determination of whether an employer is
a large employer is made on a calendar year
basis (beginning in 2014) looking back at the
average number of employees during
business days in the preceding calendar year
There is a special transition rule for 2014 to
allow the snapshot for 2013 to be a sixconsecutive month period
Health benefit planning for 2014

25
How does an employer determine if an employee
works, on average, 30 or more hours per week?
 One option is to treat employees who work
130 hours per month as full-time
Health benefit planning for 2014

26
IRS proposed regulations offer employers safe
harbor options to determine which employees
will be considered full-time for purposes of the
penalty:
 If a new hire is reasonably expected to work
full-time, the employer will not be subject to
the pay or play penalty with respect to that
individual if he or she is offered health
coverage on or before the conclusion of the
employee’s initial three calendar months of
employment
Health benefit planning for 2014

27
If a new hire is a variable hours employee or
seasonal employee, the employee is not
required to be offered health coverage unless
the employee actually works, on average, at
least 30 hours per week during a
“measurement period” of between 3 and 12
months
 Proposed regulations outline the
permissible methods of counting hours for
purposes of the measurement period for
new hires and ongoing employees (see
below)
Health benefit planning for 2014
 Employees should receive credit for
all hours they are paid or entitled to
be paid for the performance of
duties plus each hour for which an
employee is paid or entitled to be
paid on account of a period of time
during which no duties are
performed (such as due to vacation,
illness, layoff, etc.)
28
Health benefit planning for 2014


29
For hourly employees, employers must
credit based on actual hours of service
For salaried employees, employers are
permitted to calculate the number of hours
of service based on actual hours or based
on one of two equivalency methods (8
hours for each day the employee would
be credited with at least one hour of
service or 40 hours for each week the
employee would be credited with at least
one hour of service)
Health benefit planning for 2014
 There are special rules to credit hours
while on an unpaid leave due to FMLA,
USERRA or jury duty
30
Health benefit planning for 2014
 If a variable hours employee or
seasonal employee works the required
number of hours during the
measurement period, the worker must
be treated as full-time during a
subsequent “stability period” which
must be a period of at least 6 months
and no shorter than the initial
measurement period
31
Health benefit planning for 2014


32
If a variable hours employee or seasonal employee
does not satisfy the full-time requirement during the
measurement period, his or her stability period may
not be more than one month longer than the initial
measurement period
During the stability period, the employer will not be
subject to the pay or play penalty with respect to such
a variable hours employee or seasonal employee if he
or she is not provided with health coverage, even if the
individual works, on average, at least 30 or more hours
per week
Health benefit planning for 2014

33
An employee is a variable hours employee if, as
of his or her hire date, it can’t be determined
whether the employee is reasonably expected to
work, on average, at least 30 hours per week
 For 2014 only, a variable hours employee
also includes an employee whose
employment is expected to be of limited
duration
Health benefit planning for 2014

34
The guidance does not include a definition of seasonal
employee for this purpose but does allow employers to use
a reasonable good faith interpretation which would appear
to include retail workers employed during holiday seasons,
agricultural workers and ski instructors
 Proposed regulations indicate the IRS is considering a
specific time limit, such as not more than 6 months per
year to qualify as a seasonal employee
Health benefit planning for 2014


35
Example: Employer adopts a 12-month
measurement period for newly-hired
variable hours employees
Variable hours employee A is hired on
May 9 of year 1 and works, on average,
at least 30 hours per week during his
initial measurement period
Health benefit planning for 2014


36
Variable hours employee A must be treated as
a full-time employee for the subsequent
stability period (which must be for a period of
at least 12 months) regardless of whether he
works less than full-time during the stability
period
Variable hours employee B is hired on May 9
of year 1 and does not work, on average, at
least 30 hours per week during her initial
measurement period
Health benefit planning for 2014

37
Variable hours employee B is not
required to be treated as full-time for the
subsequent stability period (which may
not be longer than 13 months after the
month in which she was hired) even if
she works on a full-time basis during the
stability period
Health benefit planning for 2014


38
Employers can also apply a similar
measurement period/stability period test for
ongoing employees
If an ongoing employee doesn’t satisfy the “on
average, at least 30 hours per week” test for a
measurement period, the employer will not be
subject to a penalty if it does not offer the
employee health coverage for the subsequent
stability period (which can’t be longer than the
measurement period)
Health benefit planning for 2014
 The employer may adopt a
“administrative period” of up to 90 days in
between the measurement period and the
stability period under the safe harbor for
ongoing employees
 The purpose of the administrative period
is to give employers time to determine
when ongoing employees are eligible for
coverage and to notify and enroll
employees
39
Health benefit planning for 2014
 Example: The employer’s plan operates
on a July 1 – June 30 plan year
 The employer adopts a 12-month
measurement period beginning on May 1
of year one and ending on April 30 of year
two
40
Health benefit planning for 2014
 Instead of immediately beginning the
stability period on May 1 of year two, the
employer adopts an administrative period
(May and June) and begins the 12-month
stability period on July 1 of year two
 There is a similar, shorter administrative
period available with respect to newlyhired variable hours employees and
seasonal employees
41
Health benefit planning for 2014
 Example: the employer’s plan operates
on a January 1 - December 31 plan year
 The employer adopts a 12-month
measurement period beginning on
November 1 of year one and ending on
October 31 of year two
42
Health benefit planning for 2014
 Instead of immediately beginning the
stability period on November 1 of year
two, the employer adopts an
administrative period (November and
December) and begins the 12-month
stability period on January 1 of year three
43
Health benefit planning for 2014

Proposed regulations published on January
2, 2013 provide two key transition rules:

Special measurement period for 2013

44
The measurement period and stability period
rules for ongoing employees create time
constraints for employers who want to use a 12month stability period for 2014 (because the
measurement period must also then be 12
months), particularly for employer health plans
operating on a calendar year basis (because the
12-month measurement period must begin by
January 1, 2014)
Health benefit planning for 2014


45
Consequently, the IRS has introduced a
special transition rule for 12 month stability
periods beginning in 2014
Employers may adopt a measurement period
shorter than 12 months as long as certain
requirements are satisfied:
 First, the measurement period must be at
least six months long
 Second, it must begin no later than July 1,
2013 and end no earlier than 90 days
before the first day of the 2014 plan year
Health benefit planning for 2014

Delay in penalty effective date for
non-calendar year plans
 The pay or play penalty takes effect on
January 1, 2014
 The proposed regulations provide a
delayed effective date for employers with
non-calendar year plans that are in effect
on December 27, 2012 if certain
requirements are met
46
Health benefit planning for 2014
 If the employer does not offer a health plan
and at least one full-time employee enrolls in
health coverage through the exchange and
becomes eligible for the premium credit, the
employer must pay a penalty of $2,000 per
full-time employee per year
 The first 30 full-time employees are disregarded
 The penalty is determined and assessed on a
monthly pro rata basis
47
Health benefit planning for 2014


48
The penalty will not apply as long as the employer offers
coverage to at least 95% of its full-time employees or if
greater, all but 5 of its full-time employees
For 2014, the penalty is avoided if the employer offers
health coverage to its full-time employees
 For 2015 and later, the employer must also offer health
coverage to dependent children to age 26 to avoid the
penalty
Health benefit planning for 2014

If the employer does offer health coverage but
has at least one full-time employee who is
enrolled in health coverage through the
exchange and receives the premium credit, the
employer is subject to a penalty of $3,000 per
individual receiving the credit (or $2,000 per
full-time employee disregarding the first 30, if
less)

49
Low income employees who are eligible for
employer health coverage can only qualify for
the premium credit if the employer’s health
coverage doesn’t provide minimum value or
isn’t affordable
Health benefit planning for 2014
 The employer’s plan doesn’t provide
minimum value if it doesn’t cover at
least 60% of the total allowed benefits
under the plan
 Focus is on deductible and other out-ofpocket costs
 Employer HSA and HRA contributions for
the current year can be included in
determining minimum value
50
Health benefit planning for 2014


51
The employer’s plan isn’t affordable if the
employee’s required premium exceeds 9.5% of
the employee’s household income
The IRS has provided 3 safe harbors where the
employer’s plan will be considered affordable for
purposes of avoiding the $3,000 penalty for a
year
 W-2
 Rate of pay
 Federal poverty line
Considerations in “playing” or
“paying”
52
Considerations in "paying”
or “playing”
 Should an employer consider offering health
coverage to 100% of its employees working 30
or more hours a week or a lesser percentage (as
long as it is at least 95%)?
 Should an employer offer “affordable” health
coverage to 100% of its full-time employees or
should it consider making full-time coverage
affordable to less than all of its full-time
employees?
53
Considerations in “paying”
or “playing”
 Should an employer consider leasing
employees or converting employees to
independent contractors?
 Should an employer reduce the hours of
its employees to prevent them from
qualifying as “full-time”?
 Risk of ERISA Section 510 violation
54
Considerations in “paying”
or “playing”
 Can an employer address the pay or play
penalty by offering a lower cost medical
option that still satisfies the minimum value
test?
 Can an employer offer certain medical
options and/or more favorable employee
contribution rates only to employees
previously classified as full-time?
55
Mary V. Bauman
Phone: 616.831.1704
[email protected]
Calder Plaza Building
250 Monroe Ave. NW, Suite 800
Grand Rapids, MI 49503-2250
56
Radisson Plaza Building
100 W Michigan Ave, Suite 200
Kalamazoo, MI 49007-3960
www.millerjohnson.com