Healthcare Reform

Clayton & McKervey

The December CFO/Controller Roundtable outlined healthcare reform from the perspective of employers as a result of “Obamacare.” Kristopher F. Powell, CLU, LIC, CEO of HR PRO and BENEPRO based out of Royal Oak, Michigan, discussed strategy and planning as it relates to current reform and what awaits on the horizon for the American healthcare system.

Healthcare Coverage Mandates

Individual Mandate

• Currently in effect and requires all eligible Americans to have at least basic health coverage
• Penalties will be assessed for each month without coverage based on household income
  • 2014 – Greater of $95 or 1% of taxable income
  • 2015 – Greater of $325 or 2% of taxable income
  • 2016 – Greater of $695 or 2.5% of taxable income
  • 2017 and beyond – Annual adjustments

Employer Mandate

• Currently delayed until 2015/2016 and will require all businesses with over 50 full-time equivalent employees (FTE) to provide health insurance to those full-time employees or pay a per month Employer Shared Responsibility Payment on their federal tax return
  • An FTE is an employee that works 30+ hours per week
• The annual employer mandate fee is a per-employee fee for employers with over 50 FTEs who do not offer health coverage in the amount of $2,000 annually ($167 per month)
  • The first 30 FTEs are exempt
• The penalty could increase to $3,000 annually ($250 per month) if at least one full-time employee receives a premium tax credit because coverage is either unaffordable or does not cover 60 percent of total costs

Current Updated Timeline

• Small businesses with 50-99 full-time equivalent employees will need to start insuring workers by 2016
• Companies with 100 FTEs or more will need to start providing health benefits to at least 70% of their FTEs by 2015 and 95% by 2016
• 2015 – All employers with 200 or more full-time employees must automatically enroll new full-time employees in one of the employer’s available health benefits plan
• 2018 – Excise Tax on High Value Health Plans “Cadillac Plans”
  • Employers offering health plans that exceed a certain cost (total employee and employer cost) would be subject to a 40% excise tax on the amount above that value, known as the “Cadillac tax”
  • The threshold for individuals will be $10,200 and $27,500 for family
  • Certain high risk professions will have a higher cost threshold

Reporting Requirements

Section 6055 – Minimum Essential Coverage (MEC) Providers
Part A: Penalty for not offering coverage

• Every month a 30+ hour employee is not offered a MEC plan and the employee enrolls in the marketplace where they receive a premium subsidy, the employer must pay a penalty based on all FTEs
• Penalty is determined monthly and assessed at $167 per all full-time equivalent employees minus 30
• 6055 reporting will be completed by insurance carriers and employers with self-funded health plans
• Tax forms 1094-b and 1095-b

Section 6056 – Applicable Large Employer (ALE) Reporting
Part B: Penalty for offering coverage that does not meet minimum value and/or affordability

• Every month a 30+ hour employee is not offered minimum value and/or affordable coverage, enrolls in the marketplace and receives a premium subsidy, the employer must pay a penalty
• The penalty is determined monthly at $250 per affected individual employee, not all FTEs
• Less severe than the penalty associated with part A, as the analysis is primarily based on affordability
  • Affordability standard is 9.5% of annual taxable income per W-2 reporting
• 6056 reporting will be completed by all ALE employers that are self-funded
  • Tax forms 1094-C and 1095-C

Transitional Reinsurance Program Fee

Stabilizing the Individual Health Insurance Market

• The Transitional Reinsurance Fee has the goal in mind to secure the individual insurance market against high-risk individuals
• The fee is paid by “contributing entities”, which are health insurers and self-funded health plans during a limited time period
• It is expected these costs will be passed on to the employers and insured individuals
  • 2014 – $63 per covered individual per year
  • 2015 – Estimated $44 per individual per year
  • 2016 – Estimated $32 per individual per year

Important Dates

• November 15 – Submission of enrollment count to the U.S. Department of Health & Human Services (HHS)
• December 15 – Within 30 days, the HHS will notify the issuer/sponsor of the amount due
  • Payment must be remitted within 30 days of receipt for amount due

Affordable Care Act (ACA) Compliance

Health Benefits Security Project

• Established in 2012 to ensure compliance with the ACA and the Employee Retirement Income Security Act (ERISA)
  • The assumption is that 75-90% of employers are not in compliance
  • By 2018, it is expected that ERISA Compliance Audits will be performed on all employers
• It is essential that employers distribute their benefit plan to all employees (plan documents, Summary Plan Descriptions and annual notices)
  • Participants and beneficiaries may bring suit against employers to enforce ERISA compliance and potentially face substantial criminal and/or financial penalties

Strategy – Employer Options Designing Plans

• To comply, employers should think about the options and how each impacts their employees
• The employer needs to ensure they are providing “affordable” coverage to all employees.
  • Less than 9.5% of their employees’ household income
  • Use multiple plans – Pay key employees more to allow them to buy up from the base plan
• Fully Insured Plans – Employer pays a fixed monthly premium to the insurer providing medical benefits, which covers the expected claims and administrative costs
• Self-Funded Plans – Employer pays a fee to a plan administrator who performs functions such as processing claims and securing discounted services
  • Employer experiences the risk associated with claim fluctuation
• The driving factors for plan costs are taxes, administrative burdens, community ratings and age compression
• Companies with 200+ employees are more likely to go with self-funded plans that provide more flexibility, improved cash flow and potential financial savings
  • Plan Design Flexibility – Self-funded plans can be exempt from state mandates
  • Improved Cash Flow – Minimizes the time between employer funding and actual payments towards claims
  • Savings Potential – If claims during the plan period are lower than expected, the employer benefits and retains those savings

Stop Loss Insurance Option

• Enables employers that decide to provide self-funded plans a way of mitigating the associated risk
• Limits the employer’s liability to a pre-determined amount for each individual being covered on the plan for each policy year
• As a result, employers are less affected by fluctuation in claims and unexpected illnesses or accidents
• Specific Stop Loss – Specifically limits an employer’s liability per individual, known as a pooling point
  • Any claims in excess of the pooling point will be reimbursed to the employer
• Aggregate Stop Loss – Specifically limits an employer’s liability to a percentage of total expected claims
  • If paid claims exceed expected over the designated percentage factor, the employer is reimbursed for the difference

Private Exchanges

• Private exchanges are available marketplaces for healthcare benefits where employers can purchase health insurance, allowing their employees to choose health plans to best fit their needs
• Provides more flexibility and customization for the employer groups
• Offers more information and better educates both the employers and employees when choosing plans
• Increasing the choices for consumers and putting the decision in their hands generally results in the purchase of cheaper plans
• Group Market Exchanges – Provides the employer with the ability to set a define contribution amount for their employees to utilize on the private market to shop for coverage
  • Enables the employer to develop a budget
• Individual Market Exchanges – Based on multiple factors such as age, health, and dependents, individuals receive a rate that could be more or less than group coverage
  • Enables the individual to cut through to the public exchange market if they wish

Streamlining the Process

• The ACA is and will continue to drive the cost of healthcare up
• It is important for companies to control these costs and mitigate their potential liabilities the best they can through available alternatives:
  • Alternative funding
  • Private Exchanges
  • Wellness plans
  • Informed plan design
• Integrate your company’s systems and utilize the technology to its fullest:
  • Payroll
  • Healthcare benefits and enrollment
  • Automate data tracking and reporting requirements (6055 and 6056)

Additional Resources

• healthcare.gov
• dol.gov
• sba.gov/healthcare
• irs.gov/Affordable-Care-Act/Affordable-Care-Act-Tax-Provisions