On March 1, 2013, the Internal Revenue Service (IRS) released proposed regulations that implement the ACA’s health insurance providers fee.

COVERED ENTITY

The health insurance providers fee applies to all “covered entities,” defined as any entity that provides health insurance for any United States health risk. The fee will be assessed on health insurers’ premium revenue above $25 million. Specifically, the fee applies to:

• Health insurers;
• Health maintenance organizations (HMOs);
• Providers of Medicare Advantage, Medicare Part D prescription drug coverage or Medicaid coverage; and
• Non-fully insured multiple employer welfare arrangements (MEWAs).

The term “health insurance” does not include coverage for specific diseases, accident or disability only, hospital indemnity or other fixed indemnity insurance. A “United States health risk” means the health risk of an individual who is a U.S. citizen, U.S. resident (whether or not located in the United States) or located in the United States, with respect to the period that the individual is located there.

Excluded Entities

The fee does not apply to companies whose net premiums written are $25 million or less. Additionally, the fee program specifically excludes all of the following entities:

• Self-insured employers;
• Governmental entities;
• Certain nonprofit entities; and
• Voluntary employees’ beneficiary associations (VEBAs).

Employers who provide retiree’s health care benefits under a self-insured arrangement generally would qualify for the exclusion for self-insured employers. The proposed regulations also clarify that a self-insured plan may use a third party, such as a commercial insurer, for administration and remain exempt from the fee, as long as there is no shifting of risk to the third party.

Although MEWAs that are not fully insured are subject to the fee, the proposed regulations note that a fully insured MEWA would not be subject to the fee even though it receives premiums, because it uses those premiums to pay an insurance company to provide the coverage being purchased. In this case, the insurance company is the covered entity because it, and not the MEWA, is providing health insurance.

Controlled Group Rule

To determine if a company is a “covered entity,” a controlled group rule applies for companies that are related or commonly owned. The proposed regulations define a “controlled group” as a group of two or more persons, including at least one person that is a covered entity, that are treated as a single employer under the Internal Revenue Code (Code) sections 52(a), 52(b), 414(m) or 414(o).

A controlled group is treated as a single covered entity for purposes of the health insurance providers fee. For those that leave or enter a controlled group, the proposed rules clarify that a person is treated as a member of the controlled group if it is a member of the group at the end of the day on Dec. 31 of the data year.

The proposed regulations require each controlled group to have a “designated entity” that will be responsible for filing and reporting the group’s net premiums written. For groups of entities filing consolidated returns, this will be the common parent of the group. In determining net premiums written of a controlled group, the controlled group generally must take into account the net premiums written for all members for the entire data year.

Although a single entity is responsible for the group’s filings and payment of the fee, all group members are jointly and severally liable for the final fee for a given fee year.

FEE AMOUNT

The aggregate annual fee for all covered entities (referred to as the “applicable amount”) is expected to be:

• $8 billion for calendar year 2014;
• $11.3 billion for calendar years 2015 and 2016;
• $13.9 billion for calendar year 2017; and
• $14.3 billion for calendar year 2018.

Beginning in 2019, the cost of the fee will increase based on the rate of premium growth. The applicable amount will be apportioned among the covered entities according to their respective market shares, as measured by net premiums written. This means that the IRS will assess a portion of the applicable amount to each covered entity based on the ratio of:

• The covered entity’s net premiums written during the preceding calendar year; to
• The aggregate net premiums of all covered entities during the preceding calendar year.

A covered entity’s net premiums written during the calendar year that are not more than $25 million are not taken into account when allocating the fee. With respect to a covered entity’s net premiums written that are more than $25 million but not more than $50 million, 50 percent are taken into account. One-hundred percent of net premiums written in excess of $50 million are taken into account.

REPORTING REQUIREMENTS AND PENALTIES

A covered entity will be required to report to the IRS the amount of its net premiums written for health insurance of United States health risks by May 1 of each fee year, using Form 8963. A covered entity with net premiums written under the $25 million threshold is not liable for the fee, but still must report its net premiums written.

The IRS is considering making available to the public the information reported on Form 8963 (including the identity of the covered entity and the amount of its net premiums written) and invites comments on which information should be made publicly available.

Fee Determinations

Under the proposed regulations, the IRS will determine aggregate net premiums written for all covered entities based on reports submitted on Form 8963, and any other source of information available to the IRS. The IRS will send each covered entity a notice of preliminary fee calculation each fee year, and will allow for an error correction process prior to determining a covered entity’s final fee for a given fee year. The IRS will issue further guidance regarding the error correction process.

Penalties

A penalty will apply to each covered entity for failure to timely file Form 8963, unless it is shown that the failure is due to reasonable cause. The penalty, which applies in addition to the fee amount, will be $10,000 plus the lesser of:

• $1,000 per day while the failure continues; or
• The amount of the fee imposed for which the report was required.

A penalty will also apply for underreporting of a covered entity’s net premiums written. The penalty is equal to the amount of the fee that should have been paid in the absence of an understatement over the amount of the fee determined based on the understatement.

SHIFTING THE COST OF THE FEE

Some industry groups have raised concern over whether covered entities will try to shift the cost of the fee onto policyholders. The concern is that covered entities will try to recover a large portion of the fee from policyholders by raising insurance premiums by a corresponding amount.

The IRS acknowledged these concerns in the proposed rules, and will accept comments for 90 days following publication of the proposed rules.

ACA requires the Exchanges to become operational in 2014. Enrollment in the Exchanges for eligible individuals and small businesses is expected to begin on Oct. 1, 2013. This Legislative Brief describes the periods during which eligible individuals can enroll in a health plan through an Exchange.

INDIVIDUAL ELIGIBILITY

An individual will be eligible for enrollment in a “qualified health plan” (QHP) through an Exchange if he or she:

• Is a citizen, national or non-citizen lawfully present in the U.S., and is reasonably expected to remain so for the entire period for which enrollment is sought;

• Is not incarcerated; and

• Resides in the state covered by the Exchange.

Each Exchange will determine whether an individual meets the eligibility standards for enrollment. After the Exchange determines eligibility, the Exchange will provide the individual with a timely, written notice of his or her eligibility determination.

ENROLLMENT PERIODS

The ACA requires Exchanges to have an initial open enrollment period, an annual open enrollment period and certain special enrollment periods. Individuals will only be able to enroll in a QHP through an Exchange during one of the permitted enrollment periods.

Initial Enrollment Period

The initial open enrollment period is expected to run from Oct. 1, 2013, through March 31, 2014. Coverage must be offered effective Jan. 1, 2014, for qualified individuals whose QHP selections are received by the Exchange on or before Dec. 15, 2013. For selections received between the first and 15th day of January, February or March 2014, coverage must be provided effective the first day of the following month. For those received between the 16th day and the last day of any month between December 2013 and March 31, 2014, the Exchange must ensure coverage is effective the first day of the second following month.

Special Enrollment Periods

Qualified individuals and enrollees may be allowed a “special enrollment period” under certain circumstances (such as marriage or birth of a child), during which they could enroll in QHPs or change enrollment from one QHP to another. Each special enrollment period will be 60 days from the date of the triggering event. The effective date of any coverage elected during a special enrollment period follows rules similar to those applicable during initial enrollment. This means that coverage would be effective as of the first day of the month for elections made by the 15th of the preceding month, and on the first day of the second following month for elections made between the 16th and the last day of a given month. However, coverage would be effective on the date of birth, adoption or placement for adoption, when that is the special enrollment triggering event.

Annual Enrollment Periods

The annual enrollment period for 2015 and subsequent years will begin October 15 and extend through December 7 of the preceding calendar year. Starting in 2014, the Exchange must provide advance written notice to each enrollee about annual open enrollment no earlier than September 1, and no later than September 30.

The cost-sharing limits include both an overall annual limit, or an out-of-pocket maximum, and an annual deductible limit. On Feb. 20, 2013, the Department of Health and Human Services (HHS) issued a final rule on essential health benefits that addresses ACA’s cost-sharing limits for health plans.

AFFECTED PLANS

Grandfathered plans are not subject to ACA’s limits on cost sharing. There has been some uncertainty regarding which types of non-grandfathered plans must comply with ACA’s cost-sharing limits that become effective in 2014. However, the final rule provides the following guidance on the types of health plans that must comply with each of these cost-sharing limits:

• Annual Deductible Limit: ACA states that the annual deductible limit applies to health plans offered in the small group market. In the final rule, HHS confirms that ACA’s annual deductible limit applies
only in the insured small group market. The small group market is defined under state law. Thus, the annual deductible limit does not apply to self-insured plans or large group market plans.

• Out-of-pocket Maximum: Unlike ACA’s annual deductible limit, which references health plans in the small group market, ACA’s out-of-pocket maximum broadly refers to “health plans.” The final rule provides that ACA’s out-of-pocket maximum applies to all non-grandfathered health plans. This would include, for example, self-insured health plans and insured health plans of any size.

COST-SHARING LIMITS

Annual Deductible

Effective for plan years beginning in 2014, the annual deductible for a health plan in the small group market may not exceed $2,000 for self-only coverage and $4,000 for family coverage.

For plans using provider networks, the final rule provides that an enrollee’s cost-sharing for out-of-network benefits does not count toward the annual deductible limit.

For plan years beginning after 2014, HHS will increase the annual deductible limits by the “premium adjustment percentage,” which is set by HHS and will be announced by HHS annually. The premium adjustment percentage is the percentage (if any) by which the average per capita premium for health insurance coverage for the preceding calendar year exceeds the average per capita premium for health insurance for 2013.

ACA permits, but does not require, contributions to flexible spending arrangements (FSAs) to be taken into account when determining the annual deductible. In the final rule, HHS standardizes the maximum deductible for all group health plans in the small group market and does not increase the deductible levels for amounts available under FSAs. According to HHS, the final rule does not increase the deductible levels to take into account FSA contributions due to operational complications with this type of determination. However, HHS notes that it will revisit this policy in later years.
Also, the final rule provides that a health plan’s annual deductible may exceed the ACA limit if a plan could not reasonably reach the actuarial value of a given level of coverage (that is, a metal tier – bronze, silver, gold or platinum) without exceeding the limit.

Out-of-pocket Maximum

Effective for plan years beginning on or after Jan. 1, 2014, ACA places annual limits on total enrollee cost-sharing for essential health benefits. Once the limitation on cost-sharing is reached for the year, the enrollee is not responsible for additional cost-sharing for essential health benefits for the remainder of the year. According to HHS, the annual limit on cost-sharing, or out-of-pocket maximum, ensures that health plans pay for significant health expenses and limits the risk of medical debt or bankruptcy for insured individuals.

Cost-sharing includes any expenditure required by or on behalf of an enrollee with respect to essential health benefits, such as deductibles, co-payments, co-insurance and similar charges. It excludes premiums and spending for non-covered services. Also, for plans using provider networks, the final rule provides that an enrollee’s cost-sharing for out-of-network benefits does not count toward the cost-sharing limit.

ACA’s cost-sharing limit is tied to the enrollee out-of-pocket maximum for HSA-compatible high deductible health plans (HDHPs). There are separate limits for self-only coverage and coverage other than self-only coverage (that is, family coverage). Because the HSA limits are adjusted annually for cost-of-living increases, the 2014 out-of-pocket maximums for HSA-compatible HDHP coverage are not currently available. However, for 2013, the HDHP out-of-pocket maximum cannot exceed $6,250 for self-only coverage and $12,500 for family coverage. Amounts for 2014 are expected to be released by the IRS in the spring of 2013.

For plan years beginning after 2014, HHS will increase the cost-sharing limits by the premium adjustment percentage, similar to increases in the annual deductible limit.

On Jan. 24, 2013, the Department of Labor (DOL) announced that employers will not be held to the March 1, 2013, deadline. They will not have to comply until final regulations are issued and a final effective date is specified.

This The VanDyke Group, Inc Legislative Brief details the expected timeline for the exchange notice requirements.

EXCHANGE NOTICE REQUIREMENTS

In general, the notice must:

• Inform employees about the existence of the Exchange and give a description of the services provided by the Exchange;

• Explain how employees may be eligible for a premium tax credit or a cost-sharing reduction if the employer’s plan does not meet certain requirements;

• Inform employees that if they purchase coverage through the Exchange, they may lose any employer contribution toward the cost of employer-provided coverage, and that all or a portion of this employer contribution may be excludable for federal income tax purposes; and

• Include contact information for the Exchange and an explanation of appeal rights.

This requirement is found in Section 18B of the Fair Labor Standards Act (FLSA), which was created by the ACA. The DOL has not yet issued a model notice or regulations about the employer notice requirement.

WHEN DO EMPLOYERS HAVE TO COMPLY WITH THE EXCHANGE NOTICE REQUIREMENTS?

Section 18B provides that employer compliance with the notice requirements must be carried out “[i]n accordance with regulations promulgated by the Secretary [of Labor].” Accordingly, the DOL has announced that, until regulations are issued and become applicable, employers are not required to comply with the exchange notice requirements.

The DOL has concluded that the notice requirement will not take effect on March 1, 2013, for several reasons. First, this notice should be coordinated with HHS’s educational efforts and IRS guidance on minimum value. Second, the DOL is committed to a smooth implementation process, including:

• Providing employers with sufficient time to comply; and

• Selecting an applicability date that ensures that employees receive the information at a meaningful time.

The DOL expects that the timing for distribution of notices will be the late summer or fall of 2013, which will coordinate with the open enrollment period for Exchanges.

The DOL is considering providing model, generic language that could be used to satisfy the notice requirement. As a compliance alternative, the DOL is also considering allowing employers to satisfy the notice requirement by providing employees with information using the employer coverage template as discussed in the preamble to the Proposed Rule on Medicaid, Children’s Health Insurance Programs and Exchanges.

Future guidance on complying with the notice requirement under FLSA section 18B is expected to provide flexibility and adequate time to comply.

On Nov. 30, 2012, the Internal Revenue Service (IRS) released proposed regulations on the Additional Hospital Insurance Tax, also known as the Additional Medicare Tax. Under the Affordable Care Act (ACA), effective Jan. 1, 2013, employers must withhold an additional tax of 0.9 percent on wages in excess of $200,000 that any of their employees receive in a calendar year.

The proposed regulations provide guidance for both employers and employees on the Additional Medicare Tax, including regulations relating to:

• Withholding and computation of the Additional Medicare Tax;

• The employer process for making adjustments of underpayments and overpayments of the Additional Medicare Tax; and

• The employer and employee processes for filing a claim for a refund of overpayment.

Although the regulations are not effective until final regulations have been published, the Additional Medicare Tax applies to all wages, compensation and self-employment income received in tax years beginning after Dec. 31, 2012. Taxpayers may rely on the proposed regulations until the final regulations are effective.

EMPLOYER WITHHOLDING REQUIREMENTS

The Additional Medicare Tax applies to individuals’ wages, other compensation and self-employment income over certain thresholds. Employers are responsible for withholding the tax on wages and other compensation in certain circumstances.

Although an employee’s liability for the Additional Medicare Tax depends on his or her filing status and compensation, the employer’s required actions are not affected by those things. An employer must withhold the Additional Medicare Tax from wages it pays to an employee in excess of $200,000 in a calendar year, regardless of the individual’s filing status or wages paid by another employer. Therefore, an employee may owe more than his employer withholds or may be able to claim credit for any withheld Additional Medicare Tax against his total tax liability once he files his income tax return.

Employers are not required to notify an employee when they begin withholding the Additional Medicare Tax and must begin withholding in the pay period in which they pay an employee wages in excess of $200,000 for that calendar year.

Under the proposed regulations:

• Employees may ask their employers to withhold additional income tax on Form W-4 if they believe they will be subject to the Additional Medicare Tax liability, but they cannot designate a withheld amount specifically for the Additional Medicare Tax; and

• An employer cannot honor an employee’s request to cease withholding the Additional Medicare Tax even if the employee will not owe the tax because of his filing status.

If an employer does not properly withhold the Additional Medicare Tax and the employee subsequently pays the tax, the IRS does not collect the tax from the employer. However, the employer remains subject to any applicable penalties or additions for failure to withhold to the extent required.

The IRS plans to release draft revised tax forms for tax year 2013 to account for the Additional Medicare Tax.

EMPLOYEE LIABILITY FOR THE ADDITIONAL MEDICARE TAX

An employee is liable for Additional Medicare Tax on wages or compensation to the extent that tax is not withheld by his or her employer. The Additional Medicare Tax requires employees to pay an additional tax of 0.9 percent to the extent their wages exceed:

• $250,000 for a joint tax return;

• $125,000 for a married employee filing a separate tax return; or

• $200,000 in all other cases.

There is no employer portion corresponding to the amount payable by the employee. All wages that are currently subject to Medicare Tax are also subject to the Additional Medicare Tax, including noncash fringe benefits, tips and other noncash wages.

The Additional Medicare Tax and applicable thresholds also apply to the Railroad Retirement Tax Act compensation paid to railroad employees and employee representatives and to self-employment income. The Additional Medicare Tax payable by self-employed individuals is coordinated with any wages subject to the Federal Insurance Contributions Act (FICA), and threshold amounts of self-employment income are reduced by any wages the individual earns that are subject to FICA.

The VanDyke Group, Inc will continue to monitor progress of the health care reform law and its implementation and will keep you informed of important developments.

The Affordable Care Act (ACA) established three risk-spreading programs to provide payments to health insurance issuers that cover higher-risk populations and to more evenly spread the financial risk carried by issuers. These programs, which will be effective in 2014, are a transitional reinsurance program, a temporary risk corridor program and a permanent risk adjustment program.

The transitional reinsurance program is intended to help stabilize premiums for coverage in the individual market during the first three years of Exchange operation (2014 through 2016) when individuals with higher-cost medical needs gain insurance coverage. This program will impose a fee on health insurance issuers and self-insured group health plans.

On March 23, 2012, the Department of Health and Human Services (HHS) issued final regulations implementing ACA standards for reinsurance, risk corridors and risk adjustment programs.

On Dec. 7, 2012, HHS released proposed regulations to expand upon these standards. The proposed regulations describe how much issuers and sponsors of self-insured plans would be required to pay under the reinsurance program and provide other important program details. The regulations are only in the proposed stage, and will not be effective until after they are issued in final form.

WHO MUST PAY THE FEES?

For insured health plans, the issuer of the health insurance policy is required to pay fees to the reinsurance program. Although sponsors of fully insured plans are not responsible for paying the reinsurance fees, issuers will likely shift the cost of the fees to sponsors through premium increases. Issuers will not be required to pay the reinsurance fees until the end of each year, but they may want to collect the fees during the year. For example, issuers may include the fees in their 2014 insurance rates.

The proposed regulations would clarify that, for self-insured group health plans, the plan sponsor is liable for paying the reinsurance fees, although a TPA or administrative-services-only (ASO) contractor may be used to make the fee payment at the plan’s direction. For a plan maintained by a single employer, the employer would be the plan sponsor. A self-insured, self-administered group health plan without a TPA or ASO contractor would pay its reinsurance fees directly to HHS.

HOW MUCH ARE THE FEES?

The reinsurance program’s fees will be based on a national contribution rate, which HHS will announce annually. For 2014, HHS proposes a national contribution rate of $5.25 per month ($63 per year).

The proposed regulations provide that an issuer’s or plan sponsor’s reinsurance fee would be calculated by multiplying the average number of covered lives (employees and their dependents) during the benefit year for all of the entity’s plans and coverage that must pay contributions, by the national contribution rate for the benefit year. Thus, the annual contribution for a group health plan with 150 covered lives would be $9,450 per year (150 x $63 = $9,450).

HOW WILL THE FEES BE DETERMINED AND COLLECTED?

Under the proposed regulations, HHS would collect the reinsurance fees from issuers and plan sponsors in all states, including states that elect to operate their own reinsurance programs.

These collections by HHS would be made based on a national, uniform calendar. If a state imposes an additional contribution on top of the federal contribution rate, issuers would be required to make those payments in a manner specified by the state.

The proposed regulations would require issuers and plan sponsors to submit an annual enrollment count to HHS no later than Nov. 15 of 2014, 2015 and 2016. Within 15 days of this submission or by Dec. 15, whichever is later, HHS would notify each issuer or plan sponsor of the amount of its required reinsurance contribution. The issuer or plan sponsor would be required to remit this amount to HHS within 30 days after the date of HHS’ notification.

The VanDyke Group, Inc will continue to provide updated information on health care reform developments as it becomes available.

While opponents of the law have called for its repeal, health care reform’s supporters consider the legislation to be the major achievement of Obama’s first term. Obama’s re-election, along with continued Democratic control of the Senate, means that implementation of the law will now continue without additional roadblocks.

WHAT DO EMPLOYERS HAVE TO DO NEXT?

With the landscape of employer-provided health care potentially changing over the next few years, employers should consider their future plans related to their role in employee health care. They may have to make some big decisions about whether to continue providing coverage to their employees. The “pay or play” penalties provide some incentive for employers to continue coverage, since they will be at risk for significant penalties if they do not. However, employers may decide that paying the penalty is more cost-effective than continuing to pay the ever-increasing costs of health care for employees and their families.

On the other hand, uncertainty among employees about the quality and cost of individual health coverage continues to make employer-provided health coverage an attractive recruiting and retention tool. Because of these advantages, most employers plan to continue offering coverage for now. The additional uncertainty for employers, with compliance obligations hinging on court decisions and the political process, has made many companies hesitant to make any large-scale changes.

Whatever their future decisions may be, employers that will continue to sponsor group health plans for the near future must prepare for upcoming deadlines. Significant health care reform provisions with looming effective dates include:

• Summary of Benefits and Coverage. Health plans and issuers must provide an SBC to participants and beneficiaries that includes information about health plan benefits and coverage in plain language. The deadline for providing the SBC to participants and beneficiaries who enroll or re-enroll during an open enrollment period is the first open enrollment period that begins on or after Sept. 23, 2012. The SBC also must be provided to participants and beneficiaries who enroll other than through an open enrollment period (including individuals who are newly eligible for coverage and special enrollees) effective for plan years beginning on or after Sept. 23, 2012.

• 60-Days’ Notice of Plan Changes. A health plan or issuer must provide 60 days’ advance notice of any material modifications to the plan that are not related to renewals of coverage. Notice can be provided in an updated SBC or a separate summary of material modifications. This 60-day notice requirement becomes effective when the SBC requirement goes into effect for a health plan.

• $2,500 Limit on Health FSA Contributions. The health care law will limit the amount of salary reduction contributions to health flexible spending accounts to $2,500 per year for plan years beginning on or after Jan. 1, 2013.

• W-2 Reporting. Beginning with the 2012 tax year, employers that are required to issue 250 or more W-2 Forms must report the aggregate cost of employer-sponsored group health coverage on employees’ W-2 Forms. The cost must be reported beginning with the 2012 W-2 Forms, which are issued in January 2013.

• Preventive Care for Women. Effective for plan years beginning on or after Aug. 1, 2012, non-grandfathered health plans must cover specific preventive care services for women without cost-sharing requirements. Calendar year plans must comply effective Jan. 1, 2013.

• Employee Notice of Exchanges. Effective March 1, 2013, employers must provide a notice to employees regarding the availability of the health care reform insurance exchanges. HHS has indicated that it plans on issuing model exchange notices in the future for employers to use.

• Additional Medicare Tax for High-wage Workers. In 2013, health care reform increases the hospital insurance tax rate by 0.9 percentage points on wages over $200,000 for an individual ($250,000 for married couples filing jointly). Employers will have to withhold additional amounts once employees earn over $200,000 in a year.

WHAT GUIDANCE WILL WE SEE?

Regulations on a number of issues remain outstanding. The regulatory agencies responsible for implementation and enforcement of the health care reform law—the Departments of Labor, Treasury and Health and Human Services—began issuing additional guidance once the Supreme Court upheld the law. Additional guidance is expected now that the election is over.

Issues that will likely be addressed in future guidance include:

• Employer Pay or Play Mandate. The agencies are expected to, and have indicated that they will, issue more guidance for employers to help them determine how to comply with the shared responsibility provisions of the law.

• Automatic Enrollment. The Department of Labor is required to issue regulations implementing the rule requiring large employers that offer health coverage to automatically enroll new employees in the health plan (and re-enroll current participants).

• Nondiscrimination Rules for Fully-insured Plans. Under health care reform, non-grandfathered fully-insured plans will not be able to discriminate in favor of highly-compensated employees with respect to their health benefits. The IRS delayed the effective date of this rule for additional regulations, which have yet to be issued.

State governments may also take further steps to establish the health insurance exchanges required by the health care reform law. The federal government will step in and set up exchanges for states that fail to establish their own exchanges. Many states have delayed implementation and will need to accelerate their efforts if they want to run their own exchanges.

CHALLENGES FOR IMPLEMENTATION

As we get closer to full implementation of the health care reform law, questions linger about whether the framework is in place for all pieces to be operational by their deadlines. Insufficient staffing of the responsible agencies is one potential issue, along with employer and state government hesitation or inability to implement certain parts of the law. Compliance efforts are likely to pick up now that the election is over.

The VanDyke Group, Inc will continue to monitor progress of the health care reform law and its implementation and will keep you informed of important developments.

ACA is a federal law, which means that federal agencies, namely the Departments of Labor, Health and Human Services and Treasury, are primarily responsible for the law’s overall enforcement. However, ACA also creates significant responsibilities for state governments. A number of ACA’s key health care reforms will be carried out at the state level.

This VanDyke Group, Inc. Employment Law Summary provides a high-level overview of selected ACA reforms to be implemented by state governments, and highlights the progress being made in Illinois.

HEALTH INSURANCE EXCHANGES

ACA requires each state to have a health insurance exchange (Exchange) to provide a competitive marketplace where individuals and small businesses will be able to purchase affordable private health insurance coverage, effective Jan. 1, 2014. According to the Department of Health and Human Services (HHS), the Exchanges will make it easier for individuals and small businesses to compare health plan options, receive answers to health coverage questions, determine eligibility for tax credits for private insurance or public health programs and enroll in suitable health coverage.

Individuals and small employers with up to 100 employees will be eligible to participate in the Exchanges. However, states may limit employers’ participation in the Exchanges to businesses with up to 50 employees until 2016. Beginning in 2017, states may allow businesses with more than 100 employees to participate in the Exchanges. Enrollment in the Exchanges is expected to begin on Oct. 1, 2013.

States have three options with respect to their Exchanges. A state may:
• Establish its own state-based Exchange;
• Have HHS operate a federally facilitated Exchange (FFE) for its residents; or
• Partner with HHS so that some FFE Exchange functions can be performed by the state.

States that intend to pursue a state-based Exchange or a state partnership Exchange must submit a blueprint to HHS by Nov. 16, 2012. The blueprint must contain a declaration letter signed by the state’s governor and an application describing readiness to perform Exchange activities and functions. If a state does not move forward with its Exchange or select the partnership model, HHS will operate the FFE in the state and will also perform the Exchange-related functions of risk adjustment and reinsurance.

Illinois has done some preliminary work on its Exchange and is studying its options. It has received federal grants to help plan and establish the Illinois Exchange. In July 2011, Governor Quinn signed legislation declaring the state’s intent to establish the Illinois Health Benefits Exchange and creating the Health Benefits Exchange Legislative Study Committee. In addition, bills to establish the Illinois Exchange are currently pending in the Illinois legislature. More information on the Illinois Exchange is available at:
http://insurance.illinois.gov/hiric/hie.asp.

TEMPORARY HIGH-RISK INSURANCE POOL

ACA requires the establishment of a temporary high-risk health insurance pool to provide affordable health insurance coverage to uninsured individuals with pre-existing conditions. ACA’s high-risk health insurance pool is called the Pre-Existing Condition Insurance Plan (PCIP). The PCIP will continue until Jan. 1, 2014, when individuals will be able to purchase health coverage through ACA’s health insurance exchanges.

HHS administers the PCIP in some states, while other states have requested to run their own PCIP. Illinois administers its own PCIP. More information on Illinois’ PCIP is available at: http://insurance.illinois.gov/IPXP.

INSURANCE RATE REVIEW

To help hold insurance companies accountable for their proposed rate hikes, ACA requires HHS to establish a process for the review of certain premium increases.
• Effective Sept. 1, 2011, insurers seeking rate increases of 10 percent or more for non-grandfathered plans in the individual and small group markets must publicly disclose the proposed increases, along with justification for the increases.
• Starting Sept. 1, 2012, the 10 percent threshold will be replaced with a state-specific threshold to reflect insurance and health care cost trends particular to each state. HHS will work with states to develop the applicable thresholds.

The proposed increases must be reviewed by either state or federal experts to determine whether they are unreasonable. States with effective rate review systems will conduct their own reviews, but if a state does not have the resources or authority to conduct rate reviews, HHS will conduct them.

According to HHS, Illinois has an effective system for reviewing insurance rates. In Illinois, the Illinois Department of Insurance (IDOI) conducts rate reviews for the individual and small group markets. The IDOI has a webpage that describes its health premium rate review program and discloses premium rate increase information, which is available at: http://insurance.illinois.gov/hiric/rate-filings.asp.

HEALTH INSURANCE REFORMS

ACA requires sponsors of self-funded and insured group health plans to make changes to their plans’ design and administration over the next several years. For example, effective for plan years beginning on or after Sept. 23, 2010, ACA requires:
• Group health plans to extend dependent coverage up to age 26; and
• Non-grandfathered group health plans to follow minimum requirements for external review of claims appeals.

Dependent Coverage Requirements

Although ACA creates federal standards, the health insurance market is primarily regulated at the state level. Some states may have laws that go beyond the federal minimums established by ACA. For example, some states extend dependent coverage beyond age 26. In Illinois, health insurers are required to provide coverage for military veteran dependents up to age 30.

External Review Process

In addition, ACA requires insured plans to comply with their state’s external review process if it includes certain minimum consumer protections. If a state’s external review process does not include the minimum consumer protections, health insurers in the state will need to comply with a federal process for conducting external reviews, effective Jan. 1, 2012.

HHS has concluded that the Illinois external review process includes the minimum consumer protections. Thus, insured health plans in Illinois must conduct external appeals in accordance with the Illinois external review process. More information on the Illinois external review process is available at: http://insurance.illinois.gov/ExternalReview/default.asp.

These regulations affect employers with 50 or more full-time employees. Beginning in 2014, if a large employer’s health coverage does not meet ACA’s minimum essential coverage requirements and a full-time employee receives a premium tax credit under an exchange, the employer may be subject to ACA’s shared responsibility penalty.

For employers whose health coverage does not meet the requirements for minimum essential coverage, these penalties amount to $250 monthly for each full-time employee who receives a premium credit, to a certain maximum. A separate penalty applies to large employers that do not offer health coverage.

Minimum Essential Coverage

In addition to other requirements, to qualify for the tax credit an individual cannot be eligible for minimum essential coverage.

Minimum essential coverage includes coverage under government-sponsored coverage, such as Medicare or Medicaid, or employer-sponsored minimum essential coverage.

An employee who may enroll in an employer-sponsored plan is generally considered eligible for minimum essential coverage if the plan is affordable and provides minimum value. Employees who are eligible for minimum essential coverage are not eligible for the premium tax credit, and therefore don’t trigger the shared responsibility penalties.

The IRS intends to issue additional regulations in the future to determine when a plan is affordable and provides minimum value. In the meantime, the final regulations provide the following guidance:

- An employee is not eligible for minimum essential coverage during any waiting period before employer coverage becomes effective. However, the IRS is expected to issue guidance that relieves employers from the shared responsibility penalty for any waiting period during the first three months following any employee’s date of hire.
- An individual who may enroll in COBRA continuation coverage is considered eligible for minimum essential coverage only for the months that the individual is enrolled in the coverage.
- An individual who is enrolled in employer-sponsored coverage does not qualify for the tax credit, regardless of whether the plan meets the affordability and minimum value requirements.
- Individuals who are automatically enrolled in employer-sponsored coverage will be given a period of time to decline enrollment to maintain their eligibility for the tax credit.

The VanDyke Group, Inc will keep you updated as further guidance is released and more information becomes available on this subject.

]]> http://www.thevandykegroup.com/final-regulations-on-employee-tax-credit-to-impact-employers-2/feed/ 0 http://www.thevandykegroup.com/health-care-reform-law-upheld-employee-faqs/?utm_source=rss&utm_medium=rss&utm_campaign=health-care-reform-law-upheld-employee-faqs http://www.thevandykegroup.com/health-care-reform-law-upheld-employee-faqs/#comments Wed, 05 Sep 2012 20:24:51 +0000 matthew http://www.thevandykegroup.com/?p=1042 Read More]]> Since the Supreme Court recently upheld the health care reform law, it is likely that your employees are experiencing confusion about how this ruling will affect them. Read on for a list of common employee questions and how to answer them.

Do I now have to buy health insurance?
Currently no law requires you to purchase coverage, but starting in 2014 most people will be required to have health insurance or pay an additional tax.

What if I can’t afford health insurance?
Beginning in 2014, the federal government is offering to pay for the expansion of state Medicaid programs. If you are unable to afford health insurance and your income is at or lower than 133 percent of the federal poverty level you will be eligible for Medicaid.

Based on the current guidelines, 133 percent of the federal poverty level is $14,856 for individuals or $30,656 for a family of four. However, states are not required to participate in the Medicaid expansion and may not offer this program.

If your income is too high to qualify for Medicaid, you may still be eligible for government subsidies to help you pay for private insurance.

If I have health problems, will it be easier for me to obtain coverage?
Yes. Beginning in 2014, carriers will no longer be allowed to reject applicants based on a preexisting condition.

Will my health care cost more because of the law?
No one knows for certain. The law was designed to decrease health care cost by expanding coverage to everyone, thereby eliminating uninsured medical costs. Those opposed to the law believe the additional coverage requirements will increase the cost of coverage.

]]> http://www.thevandykegroup.com/health-care-reform-law-upheld-employee-faqs/feed/ 0 http://www.thevandykegroup.com/federal-court-temporarily-blocks-contraceptive-mandate/?utm_source=rss&utm_medium=rss&utm_campaign=federal-court-temporarily-blocks-contraceptive-mandate http://www.thevandykegroup.com/federal-court-temporarily-blocks-contraceptive-mandate/#comments Tue, 21 Aug 2012 20:54:23 +0000 matthew http://www.thevandykegroup.com/?p=1037 Read More]]> On July 27, 2012, the U.S. District Court for Colorado temporarily blocked the enforcement of a health care reform rule requiring certain health plans to cover contraceptives without copays or other cost-sharing. This ruling applies only to the specific business involved in the lawsuit and does not stop the rule from going into effect. However, it is only one of many lawsuits challenging the mandate and could signal the beginning of an extended period of litigation.
Employers should be aware of potential changes to the contraceptive rule that could result from these lawsuits. The VanDyke Group, Inc will monitor any legal actions and rulings related to this issue.

BACKGROUND

The health care reform law requires non-grandfathered health plans to cover preventive health services without imposing cost-sharing requirements. This mandate generally became effective for plan years beginning on or after Sept. 23, 2010. The preventive care services that must be covered are described in a series of guidelines.
On Aug. 1, 2012, additional preventive care guidelines for women will go into effect for the first time. These additional guidelines, which are generally effective for plan years beginning on or after Aug. 1, 2012, require non-grandfathered health plans to cover women’s preventive health services, including contraceptives, without charging a copayment, a deductible or coinsurance.
Under the guidelines, plans must cover all Food and Drug Administration approved contraceptive methods, sterilization procedures, and patient education and counseling for all women with reproductive capacity. According to the Department of Health and Human Services (HHS), the recommendations do not include abortifacient drugs.

CONTRACEPTIVE SERVICES AND RELIGIOUS EMPLOYERS

Group health plans sponsored by certain religious employers such as churches, and group health insurance coverage in connection with these plans, are exempt from the requirement to cover contraceptive services. A religious employer is one that: (1) has the inculcation of religious values as its purpose; (2) primarily employs persons who share its religious tenets; (3) primarily serves persons who share its religious tenets; and (4) is a nonprofit organization under Internal Revenue Code section 6033(a)(1) and section 6033(a)(3)(A)(i) or (iii).
This exemption does not extend to nonprofit employers (such as universities, hospitals and charities) that do not qualify as religious employers under this definition. It also does not apply to private employers that simply object to providing contraceptive coverage on a religious basis (or for any other reason). HHS has announced a one-year delay in the application of the rule for these nonprofit employers while a compromise is explored. However, no such delay is available for private employers.

THE COURT’S RULING

There are 24 reported lawsuits that have been filed attempting to strike down the contraceptive mandate. Many of these suits involve nonprofit employers that are affiliated with a religious organization. This particular case—Hercules Industries, Inc. v. Sebelius—involves a private business, a Colorado HVAC company owned by a Catholic family.

The owners of Hercules Industries stated that their religious beliefs prohibit the use of contraceptives and that they seek to run their business in a manner that reflects those beliefs. They argued that the birth control mandate violates their First Amendment rights by interfering with their ability to freely practice their religion.
The judge did not rule on the merits of the case. He has not yet determined whether the contraceptive requirement is in fact a violation of the First Amendment. However, the judge found that the rule should not apply to Hercules Industries while the case is being decided and granted a temporary injunction to keep the rule from being enforced. The judge concluded that the possible harm to Hercules Industries in having to implement the rule far outweighed the potential harm of temporarily blocking the requirement.
The judge also made clear that his ruling applies only to Hercules Industries and not to any other case or employer. He stated that the injunction does not relate to any other party’s free exercise of religion and does not affect enforcement of the preventive care mandate against any other party.

MORE INFORMATION

Please contact The VanDyke Group, Inc for more information on coverage of preventive care services required by health care reform or see one of the following resources:
• Women’s Preventive Services Required Health Plan Coverage Guidelines: www.hrsa.gov/womensguidelines.
• The court’s ruling: http://sblog.s3.amazonaws.com/wp-content/uploads/2012/07/Judge-Kane-ruling-on-birth-control1.pdf.

]]> http://www.thevandykegroup.com/federal-court-temporarily-blocks-contraceptive-mandate/feed/ 0 http://www.thevandykegroup.com/supreme-court-ruling-%e2%80%93-what-it-means-for-employers/?utm_source=rss&utm_medium=rss&utm_campaign=supreme-court-ruling-%25e2%2580%2593-what-it-means-for-employers http://www.thevandykegroup.com/supreme-court-ruling-%e2%80%93-what-it-means-for-employers/#comments Thu, 05 Jul 2012 19:29:37 +0000 matthew http://www.thevandykegroup.com/?p=1006 Read More]]> On June 28, 2012, after much anticipation and speculation, the U.S. Supreme Court essentially upheld the entire Affordable Care Act (ACA) as constitutional. The main issue in the case was whether Congress had the authority under the U.S. Constitution to enact ACA’s individual mandate. Beginning in 2014, the individual mandate requires most individuals to obtain health care coverage or pay a penalty.

Opponents of the law argued that Congress exceeded its constitutional authority by enacting the individual mandate. Since the mandate is intertwined with the rest of ACA’s reforms, the law’s opponents also argued that the entire law should be struck down. In a close 5:4 decision, the Court ruled that Congress had the authority under its taxing power to enact the individual mandate. Since the individual mandate was upheld, the Court did not have to address whether the individual mandate could be separated, or severed, from the rest of ACA’s requirements.

Because the Court upheld ACA, employers must continue to comply with ACA’s reforms.

• ACA changes that have already been implemented will remain in effect, such as the requirement to cover adult children until age 26 and the requirement for non-grandfathered plans to cover certain preventive care services without cost-sharing.
• ACA’s provisions that are not currently in effect will continue to be implemented as planned. For example, effective for 2013 plan years, participants’ pre-tax contributions to health flexible spending accounts (FSAs) will be limited to $2,500 per year.

While it is possible that changes will be made to ACA through future legislation or court rulings, ACA is the health care reform law currently in effect. Thus, employers should continue to prepare for ACA changes that become effective in 2012 and 2013. Employers should also keep in mind the ACA reforms that will take place in 2014.

ACA REFORMS – 2012 AND 2013

Annual Limits
Beginning Jan. 1, 2014, group health plans will no longer be able to impose annual limits on essential health benefits. However, until then, certain minimum annual limits are permitted. Unless a plan received a waiver of the annual limit requirements, its annual limits on essential health benefits should be set at least as high as the following amounts for each applicable plan year:
• $750,000 for plan years beginning on or after Sept. 23, 2010, but before Sept. 23, 2011;
• $1.25 million for plan years beginning on or after Sept. 23, 2011, but before Sept. 23, 2012; and
• $2 million for plan years beginning on or after Sept. 23, 2012, but before Jan. 1, 2014.

Form W-2 Reporting Requirements

Beginning with the 2012 tax year, employers that are required to issue 250 or more W-2 Forms must report the aggregate cost of employer-sponsored group health coverage on employees’ W-2 Forms. The cost must be reported beginning with the 2012 W-2 Forms, which are due in January 2013.

This requirement is optional for smaller employers for the 2012 tax year and until further guidance is issued. This reporting is for informational purposes only; it does not affect the taxability of benefits.

Women’s Preventive Care Services

Effective for plan years starting on or after Aug. 1, 2012, non-grandfathered plans must cover specific preventive health services for women without cost-sharing, such as deductibles, copayments and coinsurance. These services include well-woman visits, breastfeeding support, domestic violence screening, STD screening and contraceptives. Exceptions to the contraceptive coverage requirement apply to religious employers.
Medical Loss Ratio Rebates
Fully insured plans may receive rebates in August 2012 if they qualify for a rebate from their health insurance issuers due to the medical loss ratio (MLR) rules. The MLR rules require insurance companies to spend a certain percentage of premium dollars on medical care and health care quality improvement, rather than administrative costs.
Employers may receive rebates from issuers in the form of a premium credit, lump-sum payment or premium holiday, if permissible under state law. Any portion of a rebate that is a plan asset must be used for the exclusive benefit of the plan’s participants and beneficiaries. This may include, for example, reducing participants’ premium payments.

Summary of Benefits and Coverage

Plans and insurance issuers must provide a summary of benefits and coverage (SBC) to participants and beneficiaries. The SBC is intended to be a concise document – no more than four double-sided pages – providing simple and consistent information about health plan benefits and coverage in plain language. A template for the SBC is available, along with instructions and examples for completing the template and a uniform glossary of terms.
Plans and issuers must start providing the SBC as follows:

• Issuers must provide the SBC to health plans effective Sept. 23, 2012.

• Plans and issuers must provide the SBC to participants and beneficiaries who enroll or re-enroll during an open enrollment period beginning with the first day of the first open enrollment period that begins on or after Sept. 23, 2012. Thus, many plans will need to include the SBC in their open enrollment packages for 2013.

• For participants who enroll in coverage other than through an open enrollment period (for example, newly eligible individuals and special enrollees), plans and issuers must provide the SBC beginning on the first day of the first plan year that begins on or after Sept. 23, 2012.

If either the plan or issuer provides the SBC to a participant or beneficiary in accordance with the timing and content requirements, both will have satisfied their SBC obligations. Thus, a fully-insured plan will satisfy the requirement to provide an SBC to an individual if the issuer provides a timely and complete SBC to the individual.

In addition, once the SBC requirement becomes effective, plans and issuers must provide 60 days’ advance notice of any material modifications to the plan that are not related to renewals of coverage. Notice can be provided in an updated SBC or a separate summary of material modifications.

CER Fees

Self-funded plans and health insurance issuers must pay comparative effectiveness research fees, or CER fees, to help fund ACA’s new Patient-Centered Outcomes Research Institute. The CER fees apply for plan years ending on or after Oct. 1, 2012. The CER fees do not apply for plan years ending on or after Oct. 1, 2019. For calendar year plans, the research fees will be effective for the 2012 through 2018 plan years.

For plan years ending before Oct. 1, 2013 (that is, 2012 for calendar year plans), the CER fee is $1 multiplied by the average number of lives covered under the plan. The CER fee will increase to $2 for the next plan year. For plan years ending on or after Oct. 1, 2014, the CER fee amount will be indexed for inflation.

Sponsors of self-funded plans and issuers must report and pay their CER fees by July 31 of each year for the plan year that ended during the preceding calendar year. The first possible due date for reporting and paying CER fees is July 31, 2013.
FSA $2,500 Contribution Limit
Effective for plan years beginning on or after Jan. 1, 2013, an employee’s salary reduction contributions to a health FSA offered under a cafeteria plan are limited to $2,500. The $2,500 limit will be indexed for cost-of-living adjustments for 2014 and later years.

Elimination of Retiree Drug Subsidy Deduction

Employers that receive the Medicare Part D retiree drug subsidy have been able to take a tax deduction for their prescription drug costs, including costs attributable to the subsidy. Also, these employers do not have to pay tax on the drug subsidy amount. Effective for 2013, the deduction for the retiree drug subsidy will be eliminated.

Additional Medicare Tax Withholding

Effective Jan. 1, 2013, an additional 0.9 percent Medicare tax will apply to high-income individuals. Employers are required to withhold the additional Medicare tax on an employee’s wages in excess of $200,000 ($250,000 for married couples filing jointly).

Health Insurance Exchanges – Notice of Availability

Employers must provide all new hires and current employees with a written notice about ACA’s health insurance Exchanges and the consequences if an employee decides to forgo employer-sponsored coverage and purchase a qualified health plan through an Exchange. This notice requirement generally becomes effective as of March 1, 2013. The Department of Health and Human Services (HHS) has indicated that it intends to issue model Exchange notices. More agency guidance is also expected on this notice requirement.

ACA REFORMS – 2014

Additional ACA coverage mandates and reforms become effective in 2014. For example, effective for plan years beginning on or after Jan. 1, 2014, group health plans and issuers may not:

• Impose pre-existing condition exclusions on any covered individual, regardless of the individual’s age;

• Have a waiting period for coverage that exceeds 90 days; or

• Apply any annual limits on essential health benefits.

In addition, effective in 2014, ACA’s state-based insurance Exchanges are scheduled to be operational. Also in 2014, the individual mandate will become effective, as will ACA’s “pay or play” penalties for employers. Under the pay or play rules, certain employers with at least 50 full-time equivalent employees will face penalties if one or more of their full-time employees obtains a premium credit through an Exchange. An individual may be eligible for a premium credit either because the employer does not offer health care coverage or the employer offers coverage that is either not “affordable” or does not provide “minimum value.”

FUTURE OF HEALTH CARE REFORM

Although ACA survived a major hurdle when the Supreme Court upheld it, changes may be made to the health care reform law in the future by the courts or by Congress. Legal challenges to ACA’s validity are likely to continue. For instance, Catholic-affiliated institutions have already filed lawsuits challenging ACA’s contraceptive coverage requirement on the basis that it violates their religious freedoms. Also, Republican lawmakers are continuing with their efforts to eliminate or modify some of ACA’s controversial provisions. However, major legislative changes to ACA will likely require a significant shift in power in the legislative and executive branches of government and, thus, will depend on the outcome of the November 2012 elections.

The VanDyke Group, Inc will continue to monitor the status of the health care reform law, and will provide updated information as it becomes available.

]]> http://www.thevandykegroup.com/supreme-court-ruling-%e2%80%93-what-it-means-for-employers/feed/ 0