1. Health Care Reform
H lth C R f
Presented by:
Jody Buyalos, Partner, The Insurance Exchange
Justin Reid, Senior Manager, Watkins Meegan
February 13, 2013

2. AGENDA
• Future of the Health Care Reform Law
• Reporting, Compliance and Fees
• Exchanges and 2014 Coverage Requirements
• Penalties – Employer and Employee
• On the Lookout
On the Lookout
• How Will This Impact My Business in 2014
• R
Resources
• Effective Strategies Going Forward
2

3. FUTURE OF THE HEALTH CARE REFORM LAW
FUTURE OF THE HEALTH CARE REFORM LAW
3

4. Effect of the Election
Effect of the Election
Election results:
Election results:
– President Obama re‐elected
– Senate: Democratic Party majority
–HHouse: Republican Party majority
R bli P t j it
Governor results:
– 30 Republicans
30 Republicans
– 19 Democrats
– 1 Independent
Implementation of health care reform continues as scheduled
State implementation of Exchanges varies (see above)
p g ( )
Proprietary and Confidential 4

5. What it Means for Health Care Reform
What it Means for Health Care Reform
Parts of health care reform law could be on the
bargaining table
– Premium subsidies?
– Expanded Medicaid eligibility?
– Implementation schedules?
p
– Tax benefits?
Health Care Reform continues to be fluid
Health Care Reform continues to be fluid
Proprietary and Confidential 5

6. REPORTING, COMPLIANCE AND FEES
REPORTING COMPLIANCE AND FEES
6

7. W 2 Reporting
W‐2 Reporting • Employers must report aggregate cost of
Employers must report aggregate cost of
group health plan coverage on each
employee’s Form W‐2
• Does not change the tax rules for health
coverage – coverage is still not taxable
• Mandatory for 2012 tax year
• BUT compliance delayed indefinitely for
BUT compliance delayed indefinitely for
small employers (filed fewer than 250 W‐2
Forms last year)
• Used to track costs for employee and family
coverage for the 2018 excise tax
7

8. Coverage to Report
Coverage to Report
YES NO OPTIONAL
Major medical Health FSA salary reduction Self‐funded benefits not
amounts subject to COBRA
(Church plans)
Health FSA contributions HSA/Archer MSA Separate dental/vision
(other than salary contributions (reported
reductions) separately)
EAP/on‐site medical
EAP/ i di l Excepted benefits
E db fi HRA contributions
HRA ib i
clinics/wellness programs
that provide medical care
Hospital indemnity or Military coverage or Indian Multiemployer plans
specified illness (pre‐tax or tribal government plans
employer contributions only)
Proprietary and Confidential 8

9. Increased Medicare Tax
Increased Medicare Tax
Medicare tax rate to increase for high‐earners
g
– 0.9 percent increase (from 1.45 percent to 2.35 percent)
High‐earner threshold
g
– Single: $200,000
– Married : $250,000
Employer responsibilities
– Withhold additional amounts from wages in excess of
$200,000
$200 000
– No requirement to match additional tax
– No requirement to notify employees
Proprietary and Confidential 9

10. Increased Medicare Tax (Continued)
Increased Medicare Tax (Continued)
Medicare tax on investment income – the
Unearned Income Medicare Contribution
– New 3.8 percent increase on unearned income for tax
years beginning after December 31, 2012
– Imposed on lesser of net investment income or MAGI
in excess of $200,000 ($250,000 for MFJ; $125,000 for
MFS)
• Net investment income includes interest, dividends,
annuities, royalties and rents, capital gains and gains on
home sales in excess of current exclusions
home sales in excess of current exclusions
Proprietary and Confidential 10

11. Affect on Business Owners’ Share of
Reportable Net Income
R t bl N t I
Type of Entity
of Entity .9% Medicare Tax 3.8% Unearned
Medicare Tax 3.8% Unearned
(Participation for High‐Earners Income Medicare
Level) Contribution
Partnership (Active)
Partnership (Passive)
S Corporation (Active)
S Corporation (Passive)
Proprietary and Confidential 11

12. Other Tax Changes
Other Tax Changes
For tax years beginning after December 31, 2012
y g g ,
– Threshold to claim an itemized deduction for
unreimbursed medical expenses increases from 7.5%
p
of AGI to 10% AGI
– Individuals 65 and older are exempt from increased
threshold
Proprietary and Confidential 12

13. Health FSA Limits
Health FSA Limits
Prior to 2013
– No limit on salary reductions
– Many employers impose limit
y p y p
Beginning in 2013, limit is
$2500/year
– Limit is indexed for CPI for later years
Applies to plan years beginning on or after 1/1/13
pp p y g g / /
– This is a change from initial effective date
Does not apply to dependent care FSAs
oes not apply to dependent care FSAs
Proprietary and Confidential 13

14. New Health Plan Fees for Employer
Sponsored Plans
S d Pl
Comparative Effectiveness Research Fees
p
– Fully Insured and self‐funded plans sponsors
– PCOR/PCORI fees to fund research
– 2012‐2018 plan years
– 2012: $1 per covered life per year; 2013: $2 per covered life per year; beyond 2013: based on health expenditures
2012: $1 per covered life per year; 2013: $2 per covered life per year; beyond 2013: based on health expenditures
Transitional Reinsurance Program Fees
– To help stabilize individual market premiums
– Effective 2014‐2016
Effective 2014 2016
– Fully Insured and self‐funded plan sponsors
– $63 per covered life per year ($5.25 per month)
Health Insurance Tax (HIT)
Health Insurance Tax (HIT)
– Effective in 2014
– ACA imposes a HIT on the fully insured market
– Revenue projection; $8B – 2014, $11.3B – 2015 & 2016, $13.9B – 2017, $14.3B ‐ 2018
– HIT obligation divided amongst fully insured carries proportional on market share
HIT obligation divided amongst fully insured carries proportional on market share
Proprietary and Confidential 14

15. Employer Reporting
Employer Reporting
• Employers will have to report certain information
p y p
about health coverage to the government and
individuals
• Applies to:
– “Applicable large employers”
– “Offering employers” – employers that provide
coverage if employee cost exceeds 8% of income
• Applies to coverage offered after Jan. 1, 2014
• First returns to be filed in 2015
st etu s to be ed 0 5
Proprietary and Confidential 15

16. Information Employer is Required to Report
p y q p
• Employer identifying information
p y y g
• Whether employer offers health coverage to FT employees and dependents
• Number of FT employees for each month
N b f FT l f h th
• Length of any waiting period
• Monthly premium for lowest‐cost option in each enrollment category
• Employer’s share of cost of benefits
• Names and contact info of employees and months covered by employer’s
health plan
Proprietary and Confidential 16

17. EXCHANGES AND 2014 COVERAGE REQUIREMENTS
EXCHANGES AND 2014 COVERAGE REQUIREMENTS
17

18. Insurance Possibilities
Insurance Possibilities
Individual
Employer Sponsored
l d
Federal/State Exchange Penalty
Plan
Proprietary and Confidential 18

19. Health Insurance Exchanges
Health Insurance Exchanges
States Have 3 Options:
p
1. Establish State Exchange (Ex: MD, DC, CA)
2. Establish Partnership Exchange with HHS
3. Do nothing ‐ HHS will set up Federally‐facilitated
Exchange (Ex: VA, TX)
Deadlines
dl
– Intention and blueprint due: 12/14/12
– Determine whether will be operational: 1/1/13
Determine whether will be operational 1/1/13
– Open enrollment: 10/1/13
– Fully operational: 1/1/14
Fully operational: 1/1/14
Proprietary and Confidential 19

20. Health Insurance Exchanges
Health Insurance Exchanges
• Individuals and small employers can purchase
p y p
coverage through an Exchange
– Small employers = up to 100 employees until 2017
– Before 2016, states can define small employers as having
up to 50 employees
• In 2017 states can allow employers of any size to
In 2017, states can allow employers of any size to
purchase coverage through Exchange
• Individuals can be eligible for tax credits (subsidized
Individuals can be eligible for tax credits (subsidized
coverage) only if purchase coverage on public
Exchanges
Proprietary and Confidential 20

21. Exchange Qualified Health Plans
Exchange Qualified Health Plans
Must offer Essential Health Benefits package
p g
– Provide 10 essential benefits
– Limit cost‐sharing of deductibles and out of pocket maximums
– Provides 4 “metal” plans: Bronze, Silver, Gold or Platinum coverage
Provides 4 metal plans: Bronze Silver Gold or Platinum coverage
or catastrophic plan
Metal levels
– Bronze Plan: covers 60% of the actuarial value of covered benefits
– Silver Plan: covers 70% of the actuarial value of covered benefits
– Gold Plan: covers 80% of the actuarial value of covered benefits
– Platinum Plan: covers 90% of the actuarial value of covered benefits
This allows consumers to more easily compare plans but now fewer options
This allows consumers to more easily compare plans but now fewer options
Proprietary and Confidential 21

22. Insurance Reforms
Insurance Reforms
Insurance premium rating restrictions
p g
– Individual and small group only
– Higher rates based on health status/gender/other factors
prohibited
– Rates can be based only on age, geography, family size and
tobacco use
Guaranteed issue and renewability
– Individual and group market (small and large)
– Issuers must accept every employer and individual that
applies for coverage and renew coverage at option of
policyholder
Proprietary and Confidential 22

23. Notice of Exchange
Notice of Exchange
All Employers must notify new and current employees
p y y p y
of Exchange information
– Effective March 1, 2013 (delayed until Summer/Fall 2013)
– More guidance and model notice to be issued
Notice must include information about 2014 changes:
– Existence of health benefit exchange and services
provided
– Employee potential eligibility for subsidy under exchange
Employee potential eligibility for subsidy under exchange
– Risk of losing employer contribution if employee buys
coverage through an exchange
Proprietary and Confidential 23

24. PENALTIES – EMPLOYER AND EMPLOYEE
PENALTIES EMPLOYER AND EMPLOYEE
24

25. Individual Mandate
Individual Mandate
• Jan. 1, 2014: Individuals must enroll in coverage
, g
or pay a penalty
• Penalty amount: Greater of $ amount or a % of
y $
income $25,000 $50,000 $100,000
– 2014 = $95 or 1% $250 $500 $1,000
– 2015 = $325 or 2% $500 $1,000 $2,000
$635 $1,250 $2,500
– 2016 = $695 or 2.5%
• Employer Impact – Current waivers may join
your plan
Proprietary and Confidential 25

26. Will the Employer Pay a Penalty?
Will the Employer Pay a Penalty?
Employer‐Sponsored Plan: Employee Premium
Contribution as a Percent of Employee Income
Federal Poverty Level (FPL)
0.0%‐9.5% 9.5% +
401%
$45,961+ (Single) Not Eligible for Premium Subsidy
$94,201 (Family of 4)
139‐400%
$15,857‐$45,960 (Single) Not Eligible for Eligible for Premium Subsidy
$32,501‐$94,200 (Family of 4) Premium Subsidy
0‐138% Medicaid Eligible
$0‐ $15,856 (Single) No Employer Penalties for Medicaid‐Enrolled Employees
$0‐$32,500 (Family of 4)
Proprietary and Confidential 26

27. Employer Shared Responsibility Penalties
Employer Shared Responsibility Penalties
• Large employers subject to “Pay or Play” rule
g p y j y y
– Offer coverage of a certain Minimum Value or possibly pay a penalty
• Applies to employers with 50 or more full‐time “equivalent” employees
in prior calendar year
– FT employee: employed for an average of at least 30 hours of service per
week
• Penalties apply if:
– Employer does not provide coverage to all FT employees and any FT
employee gets subsidized coverage through Exchange OR
employee gets subsidized coverage through Exchange OR
– Employer does provide coverage and any FT employee still gets subsidized
coverage through exchange because either not affordable or does not meet
Minimum Value actuarial standard.
Proprietary and Confidential 27

28. Applicable Large Employers
Applicable Large Employers
Employee Category Used to determine “large employer” Employer subject penalty if a
status?
? premium credit received?
i di i d?
Full‐time Counted as one employee, based on a 30 Yes
hour or more work week
Part‐time Prorated (calculated by taking the hours No
worked by part‐time employees in a month
divided by 120)
Seasonal Not counted, for those working less than Yes, for the month in which a
120 days in a year seasonal worker is full‐time
Temporary Agency Generally, counted as working for the Yes, for those counted as
temporary agency (except for those working for the temporary
workers who are independent contractors) agency
Proprietary and Confidential 28

29. Employer Penalty Amounts
Employer Penalty Amounts
• Employers that do not offer coverage to all full‐
p y g
time employees:
– $2,000 per full‐time employee
– Excludes first 30 employees
• Employers that offer coverage:
Employers that offer coverage:
– $3,000 for each employee that receives subsidized
coverage through an exchange
g g g
– Capped at $2,000 per full‐time employee (excluding
first 30 employees)
Proprietary and Confidential 29

30. Penalty Potential
Penalty Potential
Not a large Large employer: 50 or more full-time equivalent employees
employer: Less
than 50 full-
th f ll
time
Does not offer coverage Offers coverage
equivalent
employees
Scenario A Scenario B Scenario C Scenario D
No full-time 1or more full-time No full-time employees 1or more full-time employees
employees
l employees receive
l i receive credits f
i dit for receive credits f exchange
i dit for h
receive credits for credits for exchange coverage coverage
exchange exchange
coverage coverage
No penalty No penalty Number of full-time No penalty Lesser of:
employees minus Number of full time employees
full-time
30 multiplied by minus 30, multiplied by $2,000.
$2,000
Number of full-time employees who
receive credits for exchange
coverage, multiplied by $3,000.
(Penalty is $0 if employer has 30 or
fewer full-time employees-because
penalty is based on the lesser of the
two calculations)
30

31. ON THE LOOKOUT
ON THE LOOKOUT
31

32. 2014 Plan Eligibility Rules
2014 Plan Eligibility Rules
• No excessive waiting periods
gp
– Waiting periods limited to 90 days
• Must offer health plan coverage to employees
working at least 30 hours per week
working at least 30 hours per week
• Oth B
Other Benefits Plans (dental, vision, life, etc.) can
fit Pl (d t l i i lif t )
still maintain higher per week hour requirements
Proprietary and Confidential 32

33. Nondiscrimination Rules Coming
for Fully‐Insured Plans
f F ll I d Pl
• Will apply to non‐grandfathered plans
Will apply to non grandfathered plans
• Discriminating in favor of highly‐compensated employees
(
(HCEs) will be prohibited
) p
– Eligibility test
– Benefits test
• HCEs
– 5 highest paid officers
– More than 10% shareholder
More than 10% shareholder
– Highest paid 25% of all employees
• Effective date delayed for regulations
Effective date delayed for regulations
Proprietary and Confidential 33

34. Automatic Enrollment Rules
Automatic Enrollment Rules
• Will apply to large employers that offer health benefits
Will apply to large employers that offer health benefits
– Applies to GF and non‐GF plans
– Large employer = more than 200 employees
• Must automatically enroll new employees and re‐enroll
current participants
• Adequate notice and opt‐out option required
• DOL:
– Regulations will not be ready to take effect by 2014
– Employers not required to comply until regulations issued and
pp
applicable
Proprietary and Confidential 34

35. More Costs
More Costs
• Jan. 1, 2014: Due to Individual Mandate, individuals must enroll in
, ,
coverage or pay a penalty and this plus Auto‐Enroll and other
provisions will potentially drive employees currently waiving coverage
to enroll in employer health plan
― Result: additional cost burden to employer
• Employers currently offer one composite rate/payroll deduction to
Employers currently offer one composite rate/payroll deduction to
employees but Exchanges will offer individuals “Age Banded” premiums
― Real danger here is that your young single healthy males leave
employer plan for the state Health Benefit Exchanges
― Leaves employer with older less healthy population
― Creates a death spiral towards higher & higher costs each renewal
C eates a deat sp a to a ds g e & g e costs eac e e a
Proprietary and Confidential 35

36. New Challenges in 2014
New Challenges in 2014
• Exchanges vary by state To be competitive
Exchanges vary by state. To be competitive
Employer will now need to keep track of
Exchange plans in each state.
• Need to have an analysis done to see if your
employer sponsored plans meet the new
p y p p
“Minimum Value” actuarial standard.
Proprietary and Confidential 36

37. Future Costs?
Future Costs?
• Employer penalty tax is low at $2,000 per ‐ could increase
Employer penalty tax is low at $2,000 per could increase
in future years to pay for cost of Health Care Reform
• 2018 Excise Tax on High Cost Coverages (Cadillac Tax):
2018 Excise Tax on High Cost Coverages (Cadillac Tax):
― 40% excise tax imposed on the value of health insurance
benefits exceeding a certain threshold:
 $10,200 for individual coverage
 $27,500 for family coverage
― Applies to both fully insured and self‐funded employer
Applies to both fully insured and self‐funded employer
plans.
― Tax is more likely for rich plans in high cost areas of U.S.
Proprietary and Confidential 37

38. Why is the Cadillac Tax an Issue?
Why is the Cadillac Tax an Issue?
2018 Cadillac Tax Cost Example:
2018 Cadillac Tax Cost Example:
Assumes Health Plan Renewal of +7.5% each year
Current 2013 2014 2015 2016 2017 2018 Cadillac
Monthly Annual Annual Annual Annual Annual Annual Tax
Premium Cost Cost Cost Cost Cost Cost Threshold
Single
Premium $600 $7,200 $7,740 $8,321 $8,945 $9,615 $10,337 $10,200
Family
y
Premium $1,600 $19,200 $20,640 $22,188 $23,852 $25,641 $27,564 $27,500
Proprietary and Confidential 38

39. HOW WILL THIS IMPACT MY BUSINESS IN 2014?
HOW WILL THIS IMPACT MY BUSINESS IN 2014?
39

40. Real World Example
Real World Example
Current Year:
Assumptions:
Monthly Single Coverage $ 460
Monthly Family Coverage $ 1,425
Total Employees
Total Employees 150
Employees in Health Plan
100
Employer provides 75% coverage for single employees
Employer provides 60% coverage for family coverage
Proprietary and Confidential 40

41. Real World Example
Real World Example
Current Year:
EE Paid ER Paid EE Paid ER Paid
Health Health Health Health
EE Receiving Insurance Insurance Insurance Insurance
Health lh Premiums Premiums Premiums Premiums per
Salary Headcount Benefits per Month per Month per Year Year
CEO $ 225,000 1 1 $ 570 $ 855 $ 6,840 $ 10,260
CFO 175,000 1 1 570 855 6,840 10,260
Program Manager 12 000
125,000 23 8 5700 8
855 6 8 0
6,840 10 260
10,260
Lead Developer 100,000 32 17 570 855 6,840 10,260
Analyst II 70,000 31 18 570 855 6,840 10,260
Analyst 45,000 30 28 115 345 1,380 4,140
Staff Developer
S ff D l 32 500
32,500 32 27 115 345 1 380
1,380 4 140
4,140
150 100
Proprietary and Confidential 41

42. Real World Example
Real World Example
2014:
Assumptions:
Monthly Single Coverage $ 495
Monthly Family Coverage $ 1,532
Total Employees
p y 150
Employees in Health Plan
115
Employer provides 75% coverage for single employees
Employer provides 60% coverage for family coverage
Employer provides 60% coverage for family coverage
Proprietary and Confidential 42

43. Real World Example
Real World Example
2014:
EE Paid ER Paid EE Paid ER Paid
Health Health Health Health
Receiving Insurance Insurance Insurance Insurance
Health
Health Premiums
Premiums Premiums
Premiums Premiums
Premiums Premiums per
Premiums per
Salary Headcount Benefits per Month per Month per Year Year
CEO $ 230,625 1 1 $ 613 $ 919 $ 7,353 $ 11,030
CFO 179,375 1 1 613 919 7,353 11,030
Program Manager
P M 128 125
128,125 23 14 613 919 7 353
7,353 11 030
11,030
Lead Developer 102,500 32 23 613 919 7,353 11,030
Analyst II 71,750 31 19 613 919 7,353 11,030
Analyst 46,125 30 29 124 371 1,484 4,451
Staff Developer
St ff D l 33 313
33,313 32 28 124 371 1 484
1,484 4 451
4,451
150 115
Proprietary and Confidential 43

44. Real World Example
Real World Example
Two Year Comparison:
p
Increase/
2013 2014 (Decrease)
( )
Health Insurance Expense $ 689,400 $ 893,390 $ 203,990
Fringe Rate 26.20% 27.97% 1.77%
Net Margin 7.50% 6.71% ‐0.79%
Proprietary and Confidential 44

45. Fiscal Year 2013 Fiscal Year 2014
Revenue $ 21,902,026 $ 22,668,597
Direct Labor 9,890,550 10,137,814
Subcontractors
5,523,557
5,827,353
Other Direct Costs 895,692 944,955
Total Direct Costs
16,309,799
16,910,121
Indirect Expenses
Fringe Expense
Health Insurance 689,400 893,390
Paid Time Off 768,450 787,661
Profit Sharing 513,328 526,161
FICA 718,659 736,625
Total Fringe Expenses
2,689,836
2,943,836
Overhead Expenses
Overhead Labor 169,200 173,430
Depreciation 153,477 155,777
Rent 323,610 333,318
Utilities
74,982
78,731
Insurance
33,667
35,350
Total Overhead Expenses
754,936
776,607
General and Administrative
Administrative Labor 206,800 211,970
Marketing
47,500
45,325
Rent
81,496
83,941
Utilities
15,663
16,446
Accounting
55,798
56,255
Legal
97,546 102,423
Total General and Administrative
504,803
516,360
Other Expense
‐
‐
Net Income
Net Income $ 1 642 652
$ 1,642,652 $ 1 521 672
$ 1,521,672
45

46. RESOURCES
46

47. The Insurance Exchange Resources
The Insurance Exchange Resources
• Legislative Briefs:
– HCR: Form W‐2
Reporting Requirements
– HCR: IRS Q&As on Form
W‐2 Reporting
– HCR T
HCR: Types of Coverage
fC
Subject to Form W‐2
Reporting
• HCR: W‐2 Reporting
Requirements (video)
47

48. The Insurance Exchange Resources
The Insurance Exchange Resources
Preventive Care for Women
– HCR: Preventive Care Coverage Guidelines
– HCR: Preventive Care Guidelines for Women
– HCR: Compromise on Contraceptive Coverage for Religious Employers
HCR: Compromise on Contraceptive Coverage for Religious Employers
– Federal Courts Temporarily Block Contraceptive Mandate
Medicare Tax
– Proposed Rules on the Additional Medicare Tax
– Questions and Answers on Additional Medicare Tax
Health FSA Limits
Health FSA Limits
– HCR: Changes to Health Accounts
– HCR: IRS Provides Guidance on $2500 Health FSA Limit
Proprietary and Confidential 48

49. The Insurance Exchange Resources
The Insurance Exchange Resources
Legislative Briefs:
g
– Health Care Reform: Comparative Effectiveness
Research Fees
– Standards for Reinsurance, Risk Corridors and Risk
Adjustment
More to come…
Proprietary and Confidential 49

50. The Insurance Exchange Resources
The Insurance Exchange Resources
― Health Care Reform Timeline
― Temporary Guidance Issued on 90‐day Waiting Period Limit
― Interim Final Rules on Patient's Bill of Rights ‐ Lifetime and Annual
Limits
― Proposed Rule on Essential Health Benefits, Actuarial Value and
Accreditation Standards
Accreditation Standards
― Interim Final Rules on Patient's Bill of Rights ‐ Pre‐existing Condition
Exclusions
― HCR: Proposed Rules on Workplace Wellness Programs
― Insurance Market Nondiscrimination Reforms for 2014
Proprietary and Confidential 50

51. The Insurance Exchange Resources
The Insurance Exchange Resources
― HCR: Health Insurance Exchanges
g
― HCR: Potential Penalties for Employers Under the "Pay or Play" Rules
― HCR Will the Emplo er Pa a Penalt ? (chart)
HCR: Will the Employer Pay a Penalty? (chart)
― HCR: IRS Guidance on Minimum Value and Reporting Requirements
― IRS Issues Guidance on Employer Penalties ‐ Full‐time Status and Using
W‐2 Wages
― Health Care Reform Pay or Play Calculator
Proprietary and Confidential 51

52. EFFECTIVE STRATEGIES GOING FORWARD
EFFECTIVE STRATEGIES GOING FORWARD
52

53. Contact Us
Contact Us
8000 Towers Crescent Drive 9713 Key West Ave., Suite 401
Tysons Corner, VA 22182 Rockville, MD 20850
www.WatkinsMeegan.com www.tie‐inc.com
GovConInsurance.com
Justin Reid, Senior Manager
Justin Reid Senior Manager Jody Buyalos, Partner
Jody Buyalos Partner
(703) 847‐4425 (301) 545‐1583
Justin.Reid@WatkinsMeegan.com buyalos.j@tie‐inc.com