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Health Care Reform Questions and Answers

As changes to our health care system are being implemented, many consumers, business owners, human resources professionals and insurance brokers are assessing what the Patient Protection and Affordable Care Act (PPACA), commonly known as health care reform, means for them. Following is a list of common questions and answers about health care reform to help individuals and businesses ascertain what PPACA means for them, what options will be at their disposal, and what steps they will be required to take by law.

Although many aspects of the new law are already in effect, major provisions will be implemented in 2013 and 2014. With so many moving parts, developing a long-term plan to comply with the law and manage health care costs can be a cumbersome and overwhelming task for many benefits decision makers.

For organizations just now tackling this issue, one option is to determine if their current plan qualifies as a grandfathered health plan. If so, those organizations may want to consider retaining that plan. However, 90 percent of employers believe their current health care plan will lose its grandfathered status by 2014.1 A second option is to offer a new qualified health care plan, or finally, drop employer-sponsored coverage altogether. Retaining a grandfathered plan may give companies more time to develop a long-term health care strategy for those organizations without giving up the coverage their employees need.

To provide employees useful and comparable consumer information regarding the value of their health care benefits, ACA requires employers providing applicable employer-sponsored coverage under a group health plan to report the value of the health care coverage on their employees’ 2012 W-2’s (Wage and Tax Statement). This amount is not taxable, and should include both the portion paid by the employer, as well as the portion paid by the employee.

Helpful facts:

  • The first required reporting will be in January 2013 for the 2012 W-2 reporting tax year (work performed in 2012).
  • The cost must be reported in Box 12 (using Code “DD” to identify the amount) of an employee’s W-2.
  • The reporting requirement currently applies only to employers who filed 250 or more eligible employee W-2 statements in the preceding year.
  • The amount reported will generally include both the portion paid by the employer and the portion paid by the employee, regardless of whether it is paid by the employee on a pre-tax or after-tax basis.

Yes, certain insurance plans offered by Aflac are included in the reporting requirement.

Accounts are required by law to report coverage for hospital indemnity or specified illness plans. If the following Aflac products are filed in the accounts state as either hospital indemnity or specified illness, then they must be included in the report if any portion is paid by the employer or the employee paid the premiums on a pre-tax basis (e.g. cafeteria plan):

  • Hospital Indemnity

  • Hospital Intensive Care

  • Cancer

  • Specified Health Event

  • Specified Disease

  • Critical Illness

Exempt policies

The reporting requirement generally applies to employer-sponsored coverage under a group health plan with the exception of Aflac’s Accident, Disability, Dental and Vision plans long-term care coverage, stand-alone Dental and Vision coverage, and Health Care Spending Account contributions (Flexible Spending Arrangements, Health Reimbursement Arrangements, Health Savings Accounts, and Medical Savings Accounts).

Aflac’s W-2 Reporting Tool

Beginning January 2013, Aflac accounts will have access to new online W-2 Reporting tool through Aflac Business Services. To view and print benefits reports, log-in to Aflac Business Services or, if you receive paper statements, sign up today at: aflac.com/business/business_services/register. This tool, which is for informational purposes only, may be helpful as you prepare for your W-2 reporting of employer-sponsored health care coverage.

A grandfathered health plan is one in which at least one employee continues to be enrolled since March 23, 2010. They are exempt from many of the new health care reform mandates. Grandfathered plans may stay in effect indefinitely, as long as they meet certain conditions set forth by the PPACA. All employer sponsored grandfathered plans are required to comply with the following plan provisions:
  • No lifetime dollar limits on coverage.
  • A maximum waiting period for new employee coverage of no more than 90 days.
  • Reasonable annual limits (and no annual limits starting in 2014).
  • For insured plans, a required medical loss ratio of at least 85 percent for large employers and at least 80 percent for small employer and individual plans.
  • No rescissions (retroactive terminations).
  • Coverage for children up to age 26 on family policies, unless they have access to employer-provided coverage.
  • No pre-existing condition exclusions for covered individuals younger than 19 (or for any covered individual starting in 2014)
  • Summary of Benefits and Coverage requirements

If a business has a grandfathered plan, it can continue to add new participants and cease to cover employees who terminate employment. Employees can also be transferred to another plan or plan option if there is a bona fide employment-based reason for the transfer. Grandfathered plans cannot do any of the following without losing their status:

  • Significantly cut or reduce benefits to diagnose or treat a particular condition (i.e., diabetes, AIDS/HIV).
  • Raise the coinsurance percentage.
  • Lower the employer-provided contribution as a percentage of total cost by more than 5 percent.
  • Lower annual limits or add new annual limits on what the insurer pays.
  • Significantly raise deductibles or an out-of-pocket by more than the rate of medical inflation plus 15%.
  • Raise copayment charges by more than $5 or, if greater, the rate of medical inflation.
Employers need to understand and prepare for the potential financial implications of health care reform. The law includes several provisions that may result in increased premiums for companies with grandfathered plans. They include:
  • Required coverage for pre-existing conditions.
  • A requirement to cover children up to age 26, regardless of marital status.
  • No annual or lifetime limits on benefits.

Businesses with grandfathered plans must ensure that their medical coverage plans meet the new mandates that apply to their plan. Health plans offered by businesses without grandfathered plans are subject to still more requirements, including 100 percent coverage for preventive care, limits on deductibles for small employers, limits on out of pocket expenses, and the requirement to cover essential benefits for insured, small employer plans.

Because of the narrow range of changes that may be made to a grandfathered plan, many employers whose health insurance costs will increase may face a dilemma. If deductibles, copayments or the percentage of employer contribution is increased by more than the amounts allowed under the new law, the plans will lose grandfathered status. If the plans lose grandfathered status, employers may choose to offer a new health plan. If a new health plan is offered, it must comply with all new insurance market reforms, including the new IRS nondiscrimination rules. Employers may also choose to terminate coverage altogether. If all coverage is terminated, not only employees, but also business owners will lose the benefit of having health coverage paid with pre-tax dollars.
No. Voluntary worksite benefits, also called supplemental or excepted benefits, include accident, disability, and stand-alone vision and/or dental plans, as well as cancer and hospital indemnity insurance. Supplemental policies help policyholders cope with daily living expenses and out-of-pocket costs associated with covered accidents or illnesses—costs major medical insurance was never intended to cover.

These policies pay regardless of any other coverage, including policies that may be in place through public and private health care exchange options.

The new health insurance reforms are aimed at improving access to major medical coverage and therefore, don’t negate the need for supplemental products or affect an employer’s ability to make them available to employees.

PPACA imposes nondiscrimination rules on all employer-sponsored insured health plans, except grandfathered plans and excepted benefits. In general, the purpose is to prevent highly compensated individuals from receiving better benefits or more generous employer contributions for those benefits than are available to other employees. These rules are intended to be similar to the nondiscrimination rules that currently apply to self-funded plans. As a general guideline, under the current rules, if a business covers 70 percent or more of its eligible workforce under the same plan and charges all employees the same rate, the rules will be met, but detailed analysis is often needed to take into account actual benefit structures. An excise tax—$100 per affected person per day—will be imposed on employers whose plans do not meet the new nondiscrimination rules. The nondiscrimination rules for insured plans are currently delayed until regulatory guidance is issued.
The Congressional Budget Office predicted that under PPACA the cost of health insurance will continue to rise at about the same rate until 2019, and then premiums should begin to level off. Employers everywhere are struggling to keep their health care costs in check and continue to provide the coverage their employees need. In the past, most businesses have paid a portion of the premium increase and passed a portion on to their employees. But in a challenging economy, many businesses are finding that they are unable to afford higher premiums, and more and more businesses are reluctant to pass the increase on to their employees. Given the circumstances, many employers are asking their insurer to increase the copayments, deductibles, and out-of-pocket maximums of their plan. It’s inevitable—one way or the other, employees will be responsible for more of their own health care expenses.

Given the growing complexities brought on by health reform, employers will need to invest in more frequent and effective communication to employees about the benefits programs, and the potential changes and opportunities the employer makes available to help employees manage their out-of-pocket costs.

The primary focus of health care reform is to ensure that Americans of all ages and incomes are protected by creditable, comprehensive major medical health insurance. Because supplemental insurance isn’t major medical insurance, the reform does not pertain to supplemental products. Supplemental insurance plans help people cope with incremental out-of-pocket costs associated with serious accidents or illnesses—costs major medical insurance was never intended to cover. In the event of a serious accident or illness, participants receive cash benefits that are often used to help with daily living expenses, such as rent, gas, groceries, babysitting and other necessities (determined by the policyholder), not to mention out-of-pocket medical expenses.
The law does include provisions that will hinder employees’ ability to fund their out-of-pocket health expenses through their FSA, HRA or HSA accounts. PPACA limits FSA employee salary reduction contributions to $2,500 per year and prohibits the purchases of over-the-counter medications through FSA/HRA/HSA, without a prescription.

These limitations and caps will likely create more out-of-pocket expenditures that are not eligible for individual reimbursement, resulting in less money available to pay for an unexpected emergency, illness or injury. This, in turn, will make voluntary benefit plans, such as critical illness and accident, more important in offering financial protection and safety to workers.

Eligibility Rules:
  • An employer must provide health care coverage to qualify: A qualifying employer must cover at least 50 percent of all coverage for its workers, generally based on single coverage. Beginning in 2014, the credit will only apply for two consecutive years to coverage purchased through an exchange. It is available for both taxable (for-profit) and tax-exempt firms.
  • Firm size: A qualifying employer must have 24 or fewer full-time equivalent (FTE) workers. (Employers with more than 24 workers may be eligible if they still have fewer than 24 FTEs. For example, if a firm has 40 employees who work half-time, the firm may count 20 as FTEs and, therefore, the firm would qualify in this group. Note: The PPACA says that employers with 25 or fewer FTEs may qualify for the credit; however, the credit is zero for an employer with 25 FTEs.
  • Average annual wage: A qualifying employer must pay average annual wages of less than $50,000 (owners, their family members, and seasonal employees are not included).
  • Maximum amount of credit: The credit is worth up to 35 percent (25 percent for tax-exempt employers) of a small business’ premium contributions. On January 1, 2014, this rate increases to 50 percent (35 percent for tax-exempt employers) and is available for two consecutive years if coverage is purchased through an exchange.
  • Phase-out of credit: The credit phases out gradually for firms with average wages between $25,000 and $50,000, and for firms with between 10 and 25 FTE workers. The federal tax credit reduces a business’s tax if a tax liability exists. If a liability doesn’t exist in a given year, the credit may be carried back one year or carried forward 20 years until it has been used. For tax-exempt entities, the federal tax credit reduces federal withholding and Medicare taxes.

Technically, no. However, employers with 50 or more full-time equivalent (FTE) employees will pay a shared-responsibility penalty if a full-time employee opts to purchase coverage through an exchange and receives a premium subsidy. If an employer does not offer coverage to substantially all full-time employees and their dependents, and even one full-time employee receives a premium subsidy, the fee will be $2,000 times the total number of full-time employees, excluding the first 30. If coverage is offered but does not meet affordability or minimum value standards, the employer will pay a fee of $3,000 for each full-time employee who actually purchases coverage through an exchange and receives a subsidy, subject to a cap of $2,000 times the total of full-time employees, less the first 30. The IRS has provided several methods for an employer to use to determine affordability, including rate of pay and W-2 wages. An employer plan provides minimum value if it pays for at least 60 percent of covered benefits.

Update: On Feb. 10, 2014, the federal government announced a delay to the employer shared-responsibility penalty, giving employers time to transition into the new rules. Given this delay, starting in 2015 businesses with 100 or more full-time equivalent employees need to provide affordable, minimum value health care coverage to 70 percent of all full-time employees and their dependents, unless the employer qualifies for 2015 dependent coverage transition relief, or face a penalty.

In 2016, the 70 percent threshold is increased to 95 percent, and the shared responsibility penalties will also apply to employers with 50 or more full-time equivalent employees.

Dependent coverage transition relief:

There is no penalty for failure to cover dependents during the 2015 plan year if the employer takes steps during 2015 toward satisfying the requirement in the following plan year.

This transition relief applies to employers for the 2015 plan year for plans under which: (1) dependent coverage is not offered; (2) dependent coverage that does not constitute minimum essential coverage is offered; or (3) dependent coverage is offered for some, but not all, dependents. The transition relief is not available to the extent the employer offered dependent coverage during either the 2013 plan year, or the 2014 plan year and subsequently dropped that offer of coverage. The transition relief only applies for dependents who were without an offer of coverage from the employer in both the 2013 and 2014 plan years. In addition, the employer must take steps during the 2014 or 2015 plan year (or both) to extend coverage under the plan to dependents not offered coverage during the 2013 or 2014 plan year (or both).

The short answer is no. Although the market can still be characterized as an employer’s market, it will begin to shift back to an employee-driven environment, where top talent will be in short supply and high demand. When this happens, a company’s ability to demonstrate value and goodwill to its workers by offering a benefits package unmatched by competitors will mean the difference in retention rates.

Business leaders know that in order to achieve new productivity expectations and requirements, they need productive employees. And productive employees deliver tremendous value for their company, but only in return for tangible and intangible value that enhances their lives.

One of the most sought-after of these tangible rewards is comprehensive benefits. Consider that 79 percent of workers say benefits are influential over their job satisfaction; 75 percent say they influence loyalty; 72 percent say it impacts their likelihood to leave their employer; and 65 percent say benefits influence their productivity, according to the 2012 Aflac WorkForces Report. 2

Health reform is clearly having an impact on benefits. With the establishment of minimum benefits standards and the option to move from employer plans to exchange plans, major medical coverage is becoming more homogenous. This will make employer supplemental insurance policies and ancillary benefits offerings a greater differentiator than ever before in the battle to attract a talented workforce.

The delivery of benefits to workers is taking on more significance and necessity than ever before.

Sources

1 Aon Hewitt and Associates (2010). Employer reaction to health care reform grandfathered status survey, accessed December 19, 2012, from www.aon.com/attachments/thought-leadership/ER_Reaction_HC_Grandfathered.pdf
2 2012 Aflac WorkForces Report, a study conducted by Research Now on behalf of Aflac, January 24–February 23, 2012.

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4/2/14