Healthcare Reform FAQ Recently, Meritain Health offered a series of informational seminars about the Patient Protection and Affordable Care Act (ACA), also known as healthcare reform. The following are frequently asked questions from others in your field, broken out by topic. The topics discussed in this document are: n The Patient-Centered Outcomes Research Institute n The Transitional Reinsurance Assessment Program n Benefit related mandates
> Pre-existing limitations > 90-day waiting period > Automatic enrollment n The individual mandate n Exchanges n Employer penalties
If you have any questions in addition to those answered below, please contact your Meritain Health representative.
Acronym listing Throughout this document, various acronyms are used. While the acronym is defined when first used in the document, to assist you with understanding an acronym that may be used later in the document, we have put together this short acronym list: n ACA—The Patient Protection and Affordable Care Act n CMS—The Centers for Medicare and Medicaid Services n COBRA—Consolidated Omnibus Budget Reconciliation Act (of 1985)
The PCORI Fee Under the ACA, health insurance issuers and sponsors of self-funded group health plans will be assessed an annual fee to fund the PCORI. The fee is imposed for a limited number of years, beginning in 2012 and ending in 2019. The PCORI was created “to assist patients, clinicians, purchasers and policy makers in making informed health decisions by advancing the quality and relevance of evidence concerning the manner in which diseases, disorders and other health conditions can effectively and appropriately be prevented, diagnosed, treated, monitored and managed.”
How is the fee assessed? The amount of the assessment is $1 times the average number of covered lives under the plan for policy years or plan years ending on or after October 1, 2012 (i.e., October 1, 2012, through September 30, 2013). The assessment is $2 times the average number of covered lives for plans ending after September 30, 2013, and then is subject to adjustment for projected increases in National Health Expenditures—an amount CMS has projected will increase 6.6 percent to 7.0 percent per year for the years 2014–2019.
What is the definition of “covered lives”? For purposes of the calculation, the term “covered lives” includes all participants and beneficiaries (i.e., members) that are residents of the United States and its possessions (e.g., Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa and the Northern Marianas Islands).
n FAQ—Frequently Asked Questions
Do any exclusions apply?
n HHS—The Department of Health and Human Services
The fee does not apply to lives covered by exempt governmental programs, including:
n IRS—Internal Revenue Service n PCORI—The Patient-Centered Outcomes Research Institute
n Medicare Parts A, B, C and D.
n SCHIP—State Children's Health Insurance Program
n Medicaid. n SCHIP. n Federal programs covering members of the
armed forces and members of Indian tribes. Additionally, the fee does not apply to lives covered by excepted benefits. Meritain Health
How are covered lives calculated? There are three methods a self-funded plan sponsor can use for calculating average lives covered:
For plan years ending on December 31, 2012, IRS Form 720 and related fees are due to the IRS by July 31, 2013. For plan years ending June 30, 2013, IRS Form 720 and related fee are due by July 31, 2014.
n Actual count method—Count the total number of
lives covered for each day of the plan year and divide by the total number of days in the plan year. n Snapshot method—Add the total number of lives
covered on one date in each quarter of the plan year, or more dates if an equal number of dates are used for each quarter, and divide that total by the number of dates on which a count was made.
> The particular date(s) used must be the same in each quarter (e.g., first day of each quarter, last day of each quarter, first day of each month). The date used in the second, third and fourth quarters must be within three days of the date that was used in the first quarter. All dates must fall within the same plan year. The 30th and 31st are both treated as the last day of the month.
> Snapshot Factor Method—The number of lives on a
Transitional Reinsurance Assessment Program Under the ACA, health insurance issuers and third party administrators will pay an assessment to fund state nonprofit reinsurance entities for the purpose of establishing a high-risk pool for the individual market. The assessment is imposed for a limited number of years, beginning in 2014 and ending in 2016.
Does the reinsurance fee apply to both fully insured and self-funded groups? Yes. Both health insurance issuers (on behalf of fully insured group health plans) and third party administrators (on behalf of self-funded group health plans) will pay the assessment.
date is equal to the sum of the number of participants with self-only coverage, plus the number of participants with coverage other than self-only on the date, multiplied by 2.35.
Are all these fees for everyone or only the employers covering more than 50 employees?
Note: This Snapshot Factor approach is recommended for situations where it is difficult to count covered dependents.
Is the fee based on number of employees or number of enrolled participants?
n Form 5500 Method—For self-only coverage, add the
average number of participants at the beginning of the plan year with the total number of participants at the end of the plan year, as reported on the Form 5500 (“Annual Return/Report of Employee Benefit Plan”), and divide by two. In the case of plans with self-only and other coverage, the average number of total lives is the sum of the total participants covered at the beginning and the end of the plan year, as reported on the Form 5500.
Who is responsible for paying the assessment? For self-funded plans, the plan sponsors are responsible. For insured plans, the health insurance issuers are responsible.
The fees are applicable regardless of group size.
The fee is based on number of enrolled participants (i.e., covered lives enrolled in the plan).
What is the fee amount for 2014 and how does the government know how much is owed? The recently issued proposed regulations still leave many procedural questions unanswered; but we do know the fee for 2014 is estimated to be $63 per covered life. Plans will receive a notice from Health and Human Services (HHS) in November 2014 indicating the aggregate dollar amount of the assessment, and the fee will be payable in December.
When is the assessment due and where must it be paid?
Under the ACA, several benefit changes are going to be needed by 2014.
The assessment must be paid annually, on or before July 31 of the calendar year following the last day of the applicable plan year.
Plans will be prohibited from imposing preexisting exclusion limitations, regardless of age. www.meritain.com
This mandate applies whether a health plan is grandfathered or non-grandfathered.
If an employee is offered coverage in 2014, the plan is prohibited from imposing a pre-existing limitation, even if the employee didn't have coverage in 2013, is this correct? Even if they came from another employer and didn't elect COBRA, they would not have a gap in coverage. That is correct. Beginning with the first day of the first plan year starting in 2014, plans are prohibited from imposing a pre-existing limitation on any individual enrolled in a group health plan subject to healthcare reform, regardless of age.
90-day waiting period Plans will be prohibited from imposing waiting periods that exceed 90 days. This mandate applies whether the health plan is grandfathered or non-grandfathered.
Does the waiting period for new participants, usually 31 to 59 days, have a negative impact? Is it subject to employer penalties? This will not impact the employer mandate provision.
Does coverage have to begin on the 91st day, or can it still be the first of the month following 90 days? Waiting periods in excess of 90 days will be prohibited in 2014. Therefore, the first of the month following 90 days will not comply with this requirement.
Automatic enrollment The ACA requires employersâ€”that offer health coverageâ€” with more than 200 full-time employees to automatically enroll new full-time employees in a coverage option. Employers must also automatically continue existing elections from year to year for current full-time employees.
When are the automatic enrollment provisions effective? On December 23, 2010, HHS released an FAQ confirming that employers are not required to comply with this new provision until regulations are issued by the Secretary of Labor. In Technical Release 2012-01, issued February 9, 2012, the Department of Labor reported that the regulations will not be ready by 2014, and that employers are not required to comply with the automatic enrollment provision until final regulations are issued and become applicable. Meritain Health
What is a full-time employee? The ACA does not define full-time employee for purposes of the automatic enrollment provision. However, for purposes of ACA's employer mandate, a full-time employee is an employee who performs, on average, at least 30 hours of service per week. The agencies have indicated that these two definitions will be coordinated.
How does the automatic enrollment provision impact compliance with state payroll laws? Any applicable state laws regarding payroll, such as permissible deductions of wages, will continue to be in effect except to the extent the state laws prohibit employers from implementing automatic enrollment.
What plan must a full-time employee be automatically enrolled in? For example, the plan with the lowest premium? This is unclear. It is expected that regulations will clarify this issue.
May an employee opt out of coverage? Yes. Employees must be given adequate notice regarding automatic enrollment and the opportunity to opt out of coverage.
Individual Mandate Beginning in 2014, individuals must have health insurance or potentially pay a penalty for noncompliance. Individuals will be required to maintain minimum essential coverage for themselves and their dependents. Some individuals will be exempt from the mandate or the penalty, while others may be given financial assistance to help pay for the cost of health insurance.
What type of coverage satisfies the individual mandate? Minimum essential coverage satisfies this mandate.
What is minimum essential coverage? Minimum essential coverage is defined as: n Coverage under certain government-sponsored plans. n Employer-sponsored plans, with respect to any
employee. n Plans in the individual market. n Grandfathered health plans.
n Any other health benefits coverage, such as a state
health benefits risk pool, as recognized by the HHS secretary. Minimum essential coverage does not include health insurance coverage consisting of excepted benefits, such as dental-only coverage.
How does minimum essential coverage differ from essential health benefits? Essential health benefits are required to be offered by certain plans starting in 2014 as a component of the essential health benefit package. They are also the benefits that are subject to the annual and lifetime dollar limit requirements. This is different than minimum essential coverage, which refers to the coverage needed to avoid the individual mandate penalty. Coverage does not have to include essential benefits to be minimum essential coverage.
Are there other exceptions to whom the penalty may apply to? Yes. A penalty will not be assessed on individuals whom:
1. Cannot afford coverage based on formulas contained in the law.
2. Have income below the federal income tax filing threshold.
3. Are members of Indian tribes. 4. Were uninsured for short coverage gaps of less than three months.
5. Have received a hardship waiver from the Secretary of HHS, or are residing outside of the United States, or are bona fide residents of any possession of the United States.
How is the penalty paid by the individual? The penalty is paid at the end of the year through the individualâ€™s tax return process.
What is the penalty for noncompliance? The penalty is the greater of: n $95 per uninsured person or 1 percent of household
income over the filing threshold (for 2014). n $325 per uninsured person or 2 percent of household
income over the filing threshold (for 2015). n $695 per uninsured person or 2.5 percent of household
income over the filing threshold (for 2016 and beyond). There is a family cap on the flat dollar amount (but not the percentage of income test) of 300 percent, and the overall penalty is capped at the national average premium of a bronze-level plan purchased through an exchange. For individuals under 18 years of age, the applicable perperson penalty is one-half of the amounts listed above. Beginning in 2017, the penalties will be increased by the cost-of-living adjustment.
Who will be exempt from the mandate? Individuals who have a religious exemption, those not lawfully present in the United States and incarcerated individuals are exempt from the minimum essential coverage requirement.
Exchanges What are exchanges? Exchanges are online marketplaces where consumers can go to shop for health insurance. On these sites, consumers can compare the plans available to them and then purchase health insurance online.
Who creates and maintains the exchanges? n Each state has the option to create and operate its
own exchange. n If the state opts not to offer an exchange, a federal
exchange will be available. n Outside of the government, private exchanges may
How many states have indicated they will operate their own state-based exchange program? Eighteen states have opted to run state-based exchanges. Those states are: California, Colorado, Connecticut, District of Columbia, Hawaii, Idaho, Kentucky, Maryland, Massachusetts, Minnesota, Nevada, New Mexico, New York, Oregon, Rhode Island, Utah, Vermont and Washington.
Who can shop on an exchange? Starting on October 1, 2013, the federal and state-based exchanges, for those states that choose to participate, will be available for small employers and individuals shopping for health insurance. Visit our exchange timeline to learn more about other dates key to the development and operation of exchanges.
Do exchanges help address the cost of health insurance? For individuals who meet certain criteria, two new elements can help make health insurance affordable for them:
1. Subsidies 2. Tax credits What kind of plans will be available on an exchange? To participate on an exchange, health plans will need to meet specific criteria. While some of these are still being defined, here are the basics that a plan must meet to be considered an exchange-based plan: n Essential health benefits n Network requirements n Qualified health plan n Coverage levels
When are we required to provide notice to our employees about the exchanges? Originally, this notice was required by March 1, 2013; however, this notice has been delayed until further guidance is received to assist employers with this requirement.
What is a large employer for purposes of these penalties? n In determining whether an employer is a large
employer subject to these penalties, the employer must employ 50 or more full-time or full-time-equivalent employees during the preceding calendar year. Therefore, an employerâ€™s employee population in 2013 will determine whether it will be subject to the employer penalties in 2014. The employer aggregation rules set forth in Section 414 of the Internal Revenue Code apply. n An employer will not be considered to employ more
than 50 full-time employees if (a) its workforce exceeds 50 full-time employees for 120 days or fewer during the calendar year, and (b) the employees in excess of 50 employed during the 120-day period were seasonal workers.
Who is counted as a full-time employee and a full-time equivalent employee? n A full-time employee is one who works an average of
at least 30 hours per week or 130 hours monthly. Part-time employees are counted as full-timeequivalent employees. Seasonal workers are excluded, unless they work for an employer for more than 120 days. n To determine the total number of full-time and full-time-
equivalent employees for a particular month for purposes of determining if the employer is a â€œlarge employer,â€? the employer must add together (a) the total number of full-time employees for the month, plus (b) a number that is equal to the total number of hours worked in a month by part-time employees, divided by 120.
Do these penalties apply to part-time employees?
Employer Penalties Employer penalties for not offering coverage, or for providing unaffordable coverage to full-time employees and their dependents, will go into effect in January 1, 2014.
When do the employer penalties go into effect?
Part-time employees are counted as full-time equivalent employees for purposes of determining whether an employer is a large employer subject to these penalties. However, part-time employees are not counted for purposes of calculating the actual penalty amount. An employer will not pay a penalty for any part-time employee, even if that employee receives subsidized coverage through an exchange.
Based on current guidance, these penalties are slated to go into effect with a firm date of January 1, 2014, and will not be based on the first plan year after January 1, 2014, as with the benefit provisions that are slated to take place in 2014. Meritain Health
What is the penalty for not offering minimum essential coverage? n Beginning in 2014, if a large employer does not offer
minimum essential coverage to its full-time employees (and their dependents), the employer will be subject to a monthly penalty if any full-time employee receives subsidized coverage through an exchange. Generally, an employee may qualify for subsidized coverage through an exchange if his or her household income is less than 400 percent of the Federal Poverty Level (currently, that level is set at $88,200 per year for a family of four and $43,320 for an individual). n The monthly penalty is equal to $2,000 divided by 12,
multiplied by the number of full-time employees employed during the applicable month, not counting the first 30 full-time employees. Only full-time employees (not full-time equivalents) are counted for purposes of calculating the penalty. After 2014, the penalty amount may be indexed.
What is the penalty for providing minimum essential coverage that is not affordable? n If a large employer offers its full-time employees (and
their dependents) the opportunity to enroll in coverage, the employer will be subject to a penalty if the employer-sponsored coverage does not provide “minimum value” or is “unaffordable” and one or more full-time employees receive subsidized coverage through an exchange. n Generally, employees who are eligible for employer-
sponsored coverage are not eligible to receive subsidized coverage through an exchange. However, an employee may qualify for subsidized coverage through an exchange if his or her household income is less than 400 percent of the Federal Poverty Level (currently, that level is set at $88,200 per year for a family of four and $43,320 for an individual) and (a) the employer does not pay at least 60 percent of the allowed costs under the employer-sponsored plan (the coverage does not provide “minimum value”), or (b) the employee’s required contribution for coverage exceeds 9.5 percent of the employee’s household income (i.e., the coverage is “unaffordable”).
However, the penalty will not be greater than the monthly penalty that would apply if the employer offered no coverage at all ($2,000 divided by 12, multiplied by the number of full-time employees employed during the applicable month, not counting the first 30 full-time employees). Only full-time employees (not full-time equivalents) are counted for purposes of calculating the penalty. After 2014, the penalty amount may be indexed.
Are employers required to offer dependent coverage? Yes, coverage will be required to be offered to dependent children, but there is no requirement that coverage must be offered to spouses.
Can an employer tier premiums based on salaries so that lower-paid employees are paying less then highly paid employees? Yes, this is permissible as long as their highly compensated employees are not receiving a richer benefit then their lower-compensated employees, which should not be the case if higher-paid employees are required to pay more.
As long as an employer offers minimum coverage that is affordable, there are no penalties if the employee uses the exchange to obtain cheaper family coverage? Correct. As long as the employer meets the requirement described above, there will not be a penalty.
Are the penalties an employer may have to pay tax deductible? No, the penalties are not tax deductible.
Is there an instance where both penalties may apply with one plan? No. The employer will either be penalized for not offering coverage or penalized for providing coverage that is deemed unaffordable, but will not be assessed twice.
n The monthly penalty is equal to $3,000 divided by 12,
for each full-time employee receiving subsidized coverage through an exchange for the month.
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