Obamacare: What Employers Need to Know

E l l a S . B a r b e r y a n d J o s e p h O . S m i t h e b a r b e r y @ r o e c a s s i d y . c o m ; j s m i t h @ r o e c a s s i d y . c o m w w w . r o e c a s s i d y . c o m

I. WHAT IS THE AFFORDABLE CARE ACT?

General Background and Legislative History

• Real Name- Patient Protection and Affordable Care Act Pub. L. 111-148, 124 Stat. 119, codified as amended at scattered sections of the Internal Revenue Code at 26 U.S.C.A. § 18091 • Signed into law March 23, 2011 • Commonly Known as “Obamacare”

• • •

Primary Goals of ACA

Increase quality and affordability of health insurance Reduce uninsured rate Reduce overall costs of healthcare • • •

Mechanisms to Accomplish Goals of ACA Subsidies Mandates Insurance Exchanges

Employer Health Benefits 2013 Annual Survey

Challenges to Obamacare

•

Numerous constitutional challenges from States and others

o o o Beyond scope of Congress’s enumerated powers Challenged expansion of Medicaid – asserting infringement of States’ rights Individual Mandate unconstitutional •

Appellate Courts reached varying conclusions

Nat’l Federation of Independent. Businesses, et al. v. Sebelius, et al., 132 S. Ct. 2566 (2012) •

U.S. Supreme Court June 28, 2012

• o

Upheld constitutionality of ACA, including individual mandate

Mandate = tax therefore within Congress’s enumerated powers to levy •

States cannot be forced to participate in Medicaid expansion under penalty of losing current Medicaid funding

II. G ENERAL S UMMARY OF ACA

(Over 2400 pgs. Divided into 10 Titles)

Title I. Quality Affordable Health Care for All Americans

The “Individual Mandate”

• Requires millions uninsured Americans (with some exceptions) to buy insurance or pay a penalty tax • Can keep current plan if it provides “minimum essential coverage” • Illegal immigrants not covered • o o Health insurance exchanges will be set up by either State or Federal government to allow everyone to: Compare health plans Determine if they are eligible for benefits such as Medicaid and other subsidies

Size Matters under Title I

• 50 or more employees – required to provide health insurance or pay an excise tax of $2,000 per employee except for the first 30 employees (employer mandate) • 2016 employers with fewer than 100 employees can use the exchanges • o 25 employees or less that provide health insurance can qualify for a tax credit of 35% Rises to 50% in 2014 • Businesses that offer health insurance to early retirees age 55-64 may also qualify for Federal aid

Other Requirements of Title I

 Parents can add children up to age 26 to their plans.

 Insurance companies are not able drop insureds if they get really sick.  Insurance companies are prohibited from placing a cap on lifetime coverage.  Insurance companies cannot deny coverage to adults and children with pre-existing conditions.

 New health insurance plans must cover 100% of wellness or pregnancy exams.

 Insurance companies must spend at least 80% of premiums on medical services, or rebate the rest back to policyholders.  Insurance companies must submit justification for any policy rate hikes to states for approval.

Title IX. Revenue Provisions

• Medicare taxes raised to 2.35% on incomes above $200,000 for individuals and $250,000 per family • This group would also pay 3.8% in Medicare taxes on the lesser of dividends, capital gains, rent and royalties or income above the limits stated • Idea to lower budget deficient by $143 billion over next 10 years • Some tax cuts for small business owners and families

Visit http://www.hhs.gov/healthcare for more detailed information regarding the provisions of the ACA and to also view the full text of the law.

III. H OW W ILL THE ACA A FFECT B USINESSES ?

S MALL & L ARGE

Specific Provisions Affecting Employers

The “Individual Mandate” (26 U.S.C.A. § 5000A)

 Citizens and legal residents must obtain qualifying health coverage by 2014  Can keep current plan if it provides “minimum essential coverage” or provides the following 10 essential health benefits: 1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

Outpatient Care Emergency Room Services Hospitalization Preventive and wellness visits, as well as chronic disease management Maternity and Newborn Care Mental and Behavioral Health Treatment Prescription drugs Services and devices to help people with injuries, disabilities, or chronic conditions Lab tests Pediatric care

The “Individual Mandate”

• o o o o o o ACA Recognizes as “qualified health plans” COBRA A retiree plan Medicare Medicaid CHIP; and Veteran health care programs. • If an individual had their private insurance policy in place prior to March 23, 2010, even though that plan does not provide essential coverage, it will be “grandfathered in”

The “Individual Mandate”

• Individuals without health insurance, or whose current health plan was not in existence before March 23, 2010: o Required to obtain health insurance by 2014 or otherwise make a “shared responsibility payment” for the months they lack coverage o Tax penalty is equal to $695 per year per individual up to a maximum of $2,085 per family or 2.5% of household income, whichever is greater • o o o The penalty will be phased-in according to the following schedule $95 or 1.0% of taxable income in 2014 $325 or 2.0% of taxable income in 2015 $695 or 2.5% of taxable income in 2016

The “Individual Mandate”

• Exceptions to tax penalty: 1.

2.

3.

4.

financial hardship (if the required contribution would cost more than 8%); individuals whose household income does not exceed the threshold for filing a federal income tax return; members of certain Indian tribes; those who have a gap in coverage for less than three months; 5.

6.

undocumented immigrants; and incarcerated individuals

Exchanges (42 U.S.C. § 18031) & Tax Credits (42 U.S.C. § 18081)

• October 1, 2013 exchanges open • ACA requires each state provide an online health insurance marketplace or exchange • Individuals and small businesses can compare qualified health plans and purchase coverage • Purpose of the exchange - provide a centralized place to compare health plans, determine eligibility for any tax credits or subsidies, and purchase insurance • Exchanges will also allow consumers to compare physicians, hospitals, nursing homes, home health agencies, and dialysis services

Exchanges (42 U.S.C. § 18031) & Tax Credits (42 U.S.C. § 18081)

Small Business Health Options Program (“SHOP”)

• Every exchange must establish a SHOP • Enable businesses with 50 employees or less to offer health insurance to their employees • Employers can designate how much they want to contribute toward employees’ coverage through exchanges • Exchange then handles back office functions • Allows employees to compare plans’ features and costs • SHOP implementation delayed for a month

Employer Mandate (26 U.S.C.A. § 4980H) Large Employers

• o “Applicable large employers” must offer “minimum essential coverage” “applicable large employer” - an employer who employed on average at least 50 full-time employees on business days during the preceding calendar year. • o o “full-time” employee - any employee who works an average of 30 hours per week or 130 hours per month The hours of service of part-time employees are considered in determining the number of full-time employees Example - an employer who has 49 full-time employees and 2 part-time employees that each work 60 hours a month would be considered a large employer for purposes of the ACA (60 + 60 = 120/120 = 1).

• o Employer must add all hours of service in a month for all part-time employees (including seasonal workers) and divide that aggregate number by 120. The result of that calculation is then added to the number of full-time employees during that month.

Employer Mandate (26 U.S.C.A. § 4980H) Large Employers

• Employer must offer coverage to employees’ dependents o o “Dependent” includes a child or young adult (whether biological, adopted, step child, or an eligible foster child) who is under the age of 26. Dependent does not include an employee’s spouse • Employer must offer an “affordable” plan that provides “minimum value” o “affordable” coverage - coverage for which the self-only premium paid by the employee does not exceed 9.5% of the employee’s household income o A health plan is deemed to provide “minimum value” if the plan’s share of the total allowed cost of benefits is at least 60%

Employer Mandate (26 U.S.C.A. § 4980H) Large Employers

• Large employer will pay a penalty tax for any month that it fails to offer health insurance to at least 95% of its fulltime employees and their dependent children AND • at least one of its employees has enrolled in a qualified health insurance program through an exchange for which he/she receives a premium tax credit or other cost-sharing reduction • Tax penalty: o $166.67 per month (or $2,000 per year) for each full-time employee, excluding the first 30 employees from the assessment OR o if coverage is offered but there is at least one full-time employee receiving a premium tax credit, the penalty will be $250 per month (or $3,000 per year) for each employee receiving a premium credit.

Employer Mandate (26 U.S.C.A. § 4980H) Small Employers

• • • Businesses and employers with less than 50 full-time employees Not subject to employer mandate therefore no penalty for failing to offer health insurance o o If small business offers coverage if may be eligible for a tax credit May be as much as 35% of premiums a small business pays to cover its workers Increase to 50% in 2014 • o o o Eligibility for credit Less than 25 full-time workers Pay less than $50,000 in annual wages and Cover at least 50% of cost of health coverage • Tax credit expires 2016

Other Notable ACA Provisions

• o o o Written notice must be given to all new hires and current employees about the: exchanges potential availability of a premium tax credit and other subsidies,

and

consequences of purchasing coverage through an exchange instead of employer-provided coverage (i.e., loss of an employer contribution to an employer-provided health benefit plan). • o Employers with more than 200 employees that are subject to the Fair Labor Standards Act and offer one or more health benefit plans must automatically enroll new full time employees into one of the health insurance plans offered by the employer Employee has the right to opt out of coverage

Other Notable ACA Provisions

• Prevents an employer from discharging or discriminating against any employee because the employee: 1.

2.

3.

has received a health insurance credit or subsidy; provides information relating to any violation of any provision of the ACA; or objects to, or refuses to participate in, any activity, policy, practice, or assigned task that the employee reasonably believed to be in violation of the ACA

IV. A

NTICIPATED

I

MPACT ON

B

USINESSES

• In reality the true impact of the ACA on businesses is unknown at this point • The answer really depends on who you ask “The difference between what the most and the least learned people know is inexpressibly trivial in relation to that which is unknown.” Albert Einstein

Some suggested scenarios include

: • Health insurance premiums will sky rocket in 2014 when the mandates take effect.

o o Due to requirement health insurers accept all applicants without charging more for those who have a pre-existing or serious medical condition.

As a result, large employers may not be able to afford to provide coverage and will ultimately pay out millions (possibly billions) of dollars in penalties over the next decade • Small businesses discontinue offering benefits due to rising costs o Or they may otherwise increase the cost of goods and products sold in an effort to pass the price increase on to their customers • Few will apply for the small business tax credit o Application for tax credit is time-consuming, complicated and lacks enough financial reward to make it attractive • Once the SHOP exchange takes effect, the small business tax credit is only available if coverage is purchased through the exchange • Definition of “dependent” does not include an employee’s spouse, so large employers may cut benefits available for spouses in an effort to save money

V. G

ENERAL

I

SSUES TO

C

ONSIDER

• Size of your business • Whether and how to provide group health coverage • How and when to communicate with exchanges • How and when to communicate with employees • What records to retain and for how long • Establishing new compliance protocols • Required communications • Required reports and tax returns.

• Plan document amendments • Document retention.

Calculating Full Time Employees

Total PT Hrs./month ___________________ = FT(2) 120 FT(1) + FT(2) = TFT FT(1) – Full time employees PT – Part time employees (including seasonal workers) FT(2) – Full time employee equivalent from part time hours TFT – Total Full Time  Remember “applicable large employer” an employer who employed

on average

at least 50 full-time employees

on business days

during the preceding calendar year o Means must have TFT = 50 or more TFT for the preceding 12 months to be a large employer

VI. T

IMELINE FOR

P

ROVISIONS

• October 1, 2013 – Exchanges • January 1, 2014 – Individual Mandate • January 1, 2015 – Employer Mandate • 2018 – “Cadillac Tax” • 2020 – Medicare donut hole completely phased out

PowerPoint Presentation available at: http://www.roecassidy.com/employment-and workers-compensation.php