HealthCare Reform Exec Brief - Companies Under 250 Employees

Executive Brief
Understanding the Impact of
Health Care Reform on Your Business in 2015

<50 50-99 >100
<50 50-99 >100
Company Size
<50 50-99 >100
Elevated
High
Severe
Levels of Risk
Agenda
General Overview of Health Care Reform (HCR)
Critical Decisions and Considerations for 2015
• Individual Mandate
• Employer Shared Responsibility (Play or Pay)
• Reporting
• Cost Drivers
• State Marketplaces
HCR Action Items
Your Business Strategy
insperity.com | 866.210.7415
2

Complexity Compliance Cost
More complexity
in workforce
management
Increased
compliance
burdens
Rising costs
for businesses
General Overview of HCR
Provisions 2010 - 2018
Impact to Your Business
• Insurer Mandates
• Access to Affordable, Quality Coverage
• Taxes, Penalties, Fees and Credits
• Reporting and Administration
3

Critical Decisions and
Considerations for 2015
Individual Mandate
Employer Shared Responsibility (Play or Pay)
Reporting
Cost Drivers
State Marketplaces
4

What is it?
Individual Mandate
• Effective January 2014, all individuals must purchase qualifying
health coverage
• Limited exceptions apply
• Penalties for failure to comply collected through individual’s federal
income tax return
2014
2015
Penalty is $95/adult and $47.50/child (up to $285/family) per year
OR 1% of annual household income, whichever is greater.
Penalty is $325/adult and $162.50/chile (up to $975/family) per
year OR 2% of annual household income, whichever is greater.
Penalty is capped at the national average cost of bronze-level coverage in the state marketplaces.
For 2015, that average cost is $207/month for an individual, up from $204/month in 2014.
50 50-99 100
Complexity
Compliance
Cost
5

Examples of Individual Mandate Penalty
50 50-99 100
Complexity
Compliance
Cost
2014 Penalty 2015 Penalty 2016 Penalty
% Based
Per Adult
Per Child
Family Max
$95
$47.50
$285
1% of annual
household income
$500
2% of annual
household income
$1,000
2.5% of annual
household income
$1,250
$325
$162.50
$975
$695
$347.50
$2,085
* Whichever is greater
** Modified Adjusted Gross Income
OR*
Example
Annual Taxable
Income: $50,000
Individual Mandate
6

2014 IRS Form 1040
50 50-99 100
Complexity
Compliance
Cost
Individual Mandate
7

Example of Potential Impact to Your Business
The individual mandate may increase participation of employees not
enrolled in your plan today
Company ABC HCR Impact
• 40 FTEs*
• Offers coverage
• 75% participation
• 10 FTEs currently not enrolled
• $5,000 contribution per employee
A. 10 FTEs (currently not enrolled)
enroll because of individual mandate
B. Employer’s cost of offering
coverage increases
C. 10 x $5,000 = $50,000
*Full-time employees
50 50-99 100
Complexity
Compliance
Cost
Individual Mandate
8

Critical Considerations
• Are you prepared to answer employees’ questions?
• Will the penalty change your employees’ behavior?
• Will more employees (and their spouses and dependents)
enroll in your health insurance offering?
• What is the impact to your total health care cost?
50 50-99 100
Complexity
Compliance
Cost
Individual Mandate
9

Individual Mandate
Reporting
Cost Drivers
State Marketplaces
10

Employer Shared
Responsibility (Play or Pay)
Beginning Jan. 1, 2015, employers with 50 or more FTEs
(including full-time equivalent employees, or FTEQs) in the prior
calendar year* must comply with Play or Pay rules
• Called Applicable Large Employers (ALEs)
Applies to employers with 50-99 FTEs in 2014 who:
1. Maintain employee count and total labor hours as of 2/9/2014 through
12/31/2014 – unless necessary for legitimate business reasons, and
2. Maintain approximate health coverage and employer contribution levels
offered as of 2/9/2014 through end of 2015 plan year
Transition Relief from Play or Pay Available for 2015 Only
50 50-99 100
Complexity
Compliance
Cost
*For 2015 only, a period of 6 consecutive months can be used to determine ALE status.
11

Employer Shared
ALEs must offer qualifying coverage to FTEs and dependents
(children) or face possible penalties
Under 50 FTEs Rules do not apply Rules do not apply
Offer coverage to ≥95% of FTEs50-99 FTEs
Rules may apply; Determine eligibility
for Transition Relief (TR);
If TR not available, offer coverage
to ≥70% of FTEs
100+ FTEs Offer coverage to ≥70% of FTEs Offer coverage to ≥95% of FTEs
# of FTEs
(including equivalents)
2016 and beyond2015
50 50-99 100
Complexity
Compliance
Cost
12

ALE and FTE Determinations
Step 1
Determine ALE Status Each Year
Step 2
For ALEs: Monitor FTE Coverage Eligibility
• Consider controlled group status
• Perform FTE calculation* for each calendar month using:
- Employment Status (full-time, part-time, seasonal)
- Hire Date
- Hours Worked
• Average the 12 monthly totals to determine
ALE status for following year
• Ongoing Data Tracking/Analysis
- Record hours and determine coverage eligibility
of all employees using either:
1. Monthly measurement method
2. Look-back measurement method
• New hires must be tracked separately from
on-going employees
* FTE calculations must include hours worked by part-time and seasonal employees. These hours contribute
to the total number of FTEs in the form of full-time equivalent employees.
50 50-99 100
Complexity
Compliance
Cost
Employer Shared
13

Qualifying coverage is minimum essential coverage
(MEC)* that meets the following requirements:
Minimum Value Affordable
60% of essential health benefits
costs covered by the plan**
Cost of employee-only coverage
cannot exceed 9.5% of employee’s
household income
* MEC = employer sponsored coverage that does not consist solely of excepted benefits
** Referred to as the Actuarial Value
50 50-99 100
Complexity
Compliance
Cost
Employer Shared
14

Examples of Potential Impact in 2015
* Penalty could increase to $2,080 based on inflation adjustment clause of
ACA. IRS has not yet confirmed this adjusted figure.
** For 2015, less the first 80 FTEs if ALE had 100+ FTEs in 2014
*** Offers to 95% FTEs for 2016 and beyond
50 50-99 100
Complexity
Compliance
Cost
Employer Shared
• 100 FTEs(including FTEQs)
• ≠ MEC, or
• Offers MEC to 70% FTEs***
A. 1 FTE goes to state marketplace
B. 1 FTE receives premium tax credit
C. Penalty on employer is triggered
D. (100 – 80) x $2,000 = $40,000
Not Offering MEC to at least 70% FTEs. Penalty: $2,000* for all FTEs
(less first 80)** if any FTE receives a premium tax credit for state
marketplace coverage
15

Examples of Potential Impact in 2015
*Penalty could increase to $3,120 based upon inflation adjustment clause of ACA.
IRS has not yet confirmed this adjusted figure.
50 50-99 100
Complexity
Compliance
Cost
Employer Shared
• 100 FTEs (including FTEQs)
• Offers Coverage
≠ Minimum Value
≠ Affordable
A. 10 FTEs go to state marketplace
B. 5 FTEs get premium tax credits
C. Penalty on employer is triggered
D. 5 x $3,000 = $15,000
Offering Coverage ≠ Minimum Value or Affordable. Penalty: $3,000* for
each FTE who receives a premium tax credit for state marketplace coverage
(or the penalty for not offering MEC, whichever is less)
16

Employer Shared
50 50-99 100
Complexity
Compliance
Cost
• Are you an ALE for 2015 based upon the number of FTEs you had in 2014?
If so, are you measuring hours worked by employees to determine health
insurance eligibility?
• Does your business qualify for Transition Relief to defer the possibility of
Play or Pay penalties until 2016?
• If you offer health insurance, does it meet the minimum value and
affordability requirements?
• What is your exposure to Play or Pay penalties? For instance, do you think
any of your full-time employees will receive a premium tax credit (subsidy)
for state marketplace coverage? (See Slide 39)
• Have you implemented a compliance strategy?
17

Individual Mandate
Reporting
Cost Drivers
State Marketplaces
18

ALE members must report annually on the MEC offered to
FTEs (those working an average of 30 or more hours per week)
for purposes of Play or Pay penalty assessments. IRS can also
levy fines for non-compliance with Reporting rules.
Reporting
• Process mirrors the W-2/W-3 reporting process for wages
- First employee benefit statements (Form 1095-C) to be distributed
to all full-time employees by Jan. 31, 2016
- First employer transmittal form (Form 1094-C) to be filed along with
statement copies with IRS by February 28, 2016 (or March 31 if filed
electronically for 250 or more forms)
50 50-99 100
Complexity
Compliance
Cost
19

Who must report?
50 50-99 100
Complexity
Compliance
Cost
Under 50 FTEs None None None
50-99 FTEs None; IRS encouraged
voluntary reporting
Report to IRS provide
statements `to FTEs in
early 2016
Report to IRS provide
statements to FTEs in
early 2017
Report to IRS (including
Transition Relief Certification*)
provide statements to FTEs in
early 2016
Report to IRS
provide statements
to FTEs in early 2017
100+ FTEs
# of FTEs
(including equivalents)
2016 Data2014 Data 2015 Data
*To qualify for Transitional Relief, the company must:
• Have 50-99 FTEs in 2014, including FTEQs
• Maintain employee count and total labor hours as of 2/9/14 through
12/31/14 – unless necessary for legitimate business reasons
• Maintain approximate health coverage and employer contribution levels
offered as of 2/9/14 through end of 2015 plan year
Reporting
20

Current Status: First ALE reports due to IRS in
early 2016 to report 2015 calendar-year data.
• Draft forms and instructions issued by IRS in late August 2014
inviting public comment; forms finalized in February 2015
• Data collection and storage at the individual employee level
must begin with the 2015 calendar year. For example:
- Eligibility data
- Offers of coverage
- Months of coverage, including dependent information
- Employee-only tier cost of least expensive plan offered
50 50-99 100
Complexity
Compliance
Cost
Reporting
21

ALE Employee Statement: IRS Form 1095-C
50 50-99 100
Complexity
Compliance
Cost
18 unique indicator codes will be used on lines 14 and 16. A few examples include:
1B-MEC providing MV offered to EE only
1D-MEC providing MV offered to EE spouse (but not children)
1F-MEC not providing MV offered
1H-No offer of coverage
Reporting
22

ALE Transmittal: IRS Form 1094-C
50 50-99 100
Complexity
Compliance
Cost
Reporting
23

ALE Transmittal: IRS Form 1094-C (continued)
50 50-99 100
Complexity
Compliance
Cost
Use Part II to indicate controlled group status and to attest to eligibility for the Play or Pay
Transition Relief for ALEs with 50-99 FTEs in 2014 (Line 22(C))
Reporting
24

50 50-99 100
Complexity
Compliance
Cost
Reporting
25

50 50-99 100
Complexity
Compliance
Cost
Reporting
26

50 50-99 100
Complexity
Compliance
Cost
• W-2 reporting on cost of employer-sponsored coverage for small employers*
• Evidence of compliance with state/local requirements
• RS Play or Pay penalty determination notices or appeals
• Sharing of employee data to verify subsidy eligibility
Potential Reporting
What else is coming?
It is widely expected that some form of reporting will be required of
ALL employers in order to facilitate operation of state marketplaces
and enforcement of HCR regulations.
* Already required for businesses issuing 250 or more Form W-2s
Reporting
27

50 50-99 100
Complexity
Compliance
Cost
Payroll
IRS HHS DOL CMS States
Benefits
Your Business
HR Systems
Business
Agencies
Example of Potential Impact to Your Business
Data for required reporting and compliance is typically housed in
multiple systems which must then be compiled and organized for
reporting to various government agencies.
Reporting
28

50 50-99 100
Complexity
Compliance
Cost
• Is your business an Applicable Large Employer for 2015 and thus required
to prepare and distribute HCR tax forms in early 2016?
• Are you prepared to comply with existing or future reporting requirements?
• Are your payroll processing, benefits administration and HR services
managed by multiple systems and/or vendors?
• How will you coordinate the tracking of necessary information on a
timely basis?
Reporting
29

Individual Mandate
Reporting
Cost Drivers
State Marketplaces
30

50 50-99 100
Complexity
Compliance
Cost
Insurer Excise Tax
Transitional Reinsurance Fee
Patient Centered Outcomes
Research Institute Fee
Pharmaceutical Manufacturer
Excise Tax
Medical Device Sales Tax
$63 per covered life per year
$2.08 per covered life per year
2.3% of premiums
for fully insured plans
2.3% of premiums
for fully insured plans
Examples and Estimated Impact of Taxes and Fees
20152014
Cost Drivers
What are they?
Taxes and fees on insurers/health care industry are estimated to increase
costs for businesses by 3.5% to 4%, or $400 per employee per year.
31

50 50-99 100
Complexity
Compliance
Cost
• Rating bands compressed to 3:1 – premium costs between old and young are compressed
• Guaranteed issue and renewability – no one can be denied coverage
• Cannot increase rates or deny coverage for pre-existing conditions
• Underwriting criteria limited to age, family size (coverage tier), geography and tobacco use
• Essential health benefits (EHB) must be included
• Out-of-pocket maximums shift costs to insurer
• Elimination of annual benefit limits on EHB increases carriers’ liability
• Maximum 90-day wait period for extending benefits coverage
Adjusted Community Rating
Underwriting Restrictions
Plan Design Mandates
Cost Drivers: Employers 50 FTEs
What are they?
Taxes and fees on insurers/health care industry are estimated to increase
costs for businesses by 3.5% to 4%, or $400 per employee per year.
NOTE: Many provider networks being narrowed to offset increased coverage costs.
32

50 50-99 100
Complexity
Compliance
Cost
$$$
$
Impact on Small Group Health Insurance Costs
Younger Older
Current State
3:1 Ratio
Prior State
8:1 Ratio*
33

50 50-99 100
Complexity
Compliance
Cost
Limited Underwriting Criteria
Before 2014 Now
• Family size (Coverage tier)*
• Age
• Gender
• Geographic area
• Occupation
• Industry
• Tobacco use
• Weight
• Health status
• Claims history
• And more...
• Family size (Coverage tier)*
• Age
• Geographic area
• Tobacco use
* Indicates who is covered by policy (e.g., individual, individual plus spouse, individual plus children, etc.)
34

50 50-99 100
Complexity
Compliance
Cost
Deadline Extensions
• The federal government will allow some noncompliant small group health
plans to renew through Oct. 1, 2016.
• State insurance commissioners will decide whether to honor the extension
and for what period of time.
• Affected provisions include:
- Adjusted community rating
- Limited underwriting criteria
- Guaranteed issue
- Pre-existing conditions for adults
- Essential health benefits
- Out-of-pocket maximums
35

50 50-99 100
Complexity
Compliance
Cost
• Rating bands compressed to 3:1 – premium costs between old and young are compressed*
• Guaranteed issue and renewability – no one can be denied coverage
• Cannot increase rates or deny coverage for pre-existing conditions
• Underwriting criteria limited to age, family size (coverage tier), geography and tobacco use*
• Essential health benefits (EHB) must be included*
• Out-of-pocket maximums shift costs to insurer
• Elimination of annual benefit limits on EHB increases carriers’ liability
• Maximum 90-day wait period for extending benefits coverage
Underwriting Restrictions
Plan Design Mandates
Cost Drivers:
Employers 50-99 and 100+ FTEs
What are they?
* These restrictions and mandates will apply to businesses with ≤100 employees in 2016.
36

50 50-99 100
Complexity
Compliance
Cost
Cost Drivers:
• Will new small group regulations increase your costs?
• What impact will taxes and fees have on your cost structure?
• Can you modify your plan designs to offset expected cost increases?
• Should you adjust employee contributions to offset higher costs?
• Can you adjust your product or service prices to cover expected
increases in expenses?
37

Individual Mandate
Reporting
Cost Drivers
State Marketplaces
38

50 50-99 100
Complexity
Compliance
Cost
State Marketplaces
What are they?
• State marketplaces were established for individuals and small businesses to
view, compare and purchase health insurance
• Subsidies for individuals are available on a sliding scale for those earning
between 100% and 400% of federal poverty level (FPL)
- $46,680 for individual, $95,400 for family of four (2014 FPL)
- Primarily available for coverage obtained through marketplaces
- Unavailable to FTEs if employer offers qualified coverage
• Small Business Health Options Program (SHOP)
- Businesses with 50 or fewer FTEs are eligible
- Limited access and product choices in 2015
39

50 50-99 100
Complexity
Compliance
Cost
State Marketplaces
Impact to Your Business
• Employers relying on state marketplaces for employee medical coverage
may be disadvantaged against competitors who attract and retain top
talent through a comprehensive benefits strategy
• Since October 2013, employers must distribute a “Notice of Exchanges
and Subsidies” to all new hires within 14 days of their start date
• State marketplaces may not provide a consistent health insurance
solution for employees across multiple states
• State marketplace products may be limited to medical, dental and
Rx only, requiring you to seek other solutions for ancillary insurance
products (e.g., vision, life, disability, etc.)
40

50 50-99 100
Complexity
Compliance
Cost
State Marketplaces
• Are you distributing the marketplace notice to your new hires within 14
days of their start date?
• Are you prepared to answer your employees’ questions on the state
marketplaces?
• Are you aware that some of your employees could incur greater costs by
purchasing coverage through state marketplaces?
• Are your employees prepared to purchase insurance on their own?
41

Your Company is Responsible
To Do
50 FTEs* 50-99 FTEs* 100+ FTEs*
2015 HCR Action Items
To Do
Are you distributing the marketplace notice to your new
hires within 14 days of their start date?
Expect market reforms to continue to impact cost of
group health insurance.
Ensure group health plan design meets HCR coverage
requirements (e.g., no pre-existing condition exclusions,
must include essential health benefits coverage with no
annual dollar limits).
Make sure the waiting period for your group health
coverage eligibility does not exceed 90 days from
employee’s date of hire (except where state law may be
more restrictive).
Issue “Notice of Exchanges and Subsidies” to all new hires
within 14 days of their start date.**
42

To Do
50 FTEs* 50-99 FTEs* 100+ FTEs*
Ensure that incongruent compliance regulations are being
followed if you have employees working in different states.
Provide an informed and reliable resource to answer
employee questions about various aspects of the new
healthcare laws (e.g., individual mandate penalties,
marketplace subsidies, mandatory coverage levels).
Secure an authoritative and reliable information resource
to keep your business well informed about rapidly evolving
rules and regulations.
Make sure your Health Flexible Spending Account (FSA)
annual employee contribution maximum does not exceed
$2,500.***
Make sure you are withholding the additional 0.9%
Medicare Tax on high wage employees (different thresholds
may apply depending upon employee filing status).***
43

To Do
50 FTEs* 50-99 FTEs* 100+ FTEs*
Provide employees with a standard “Summary of Benefits
and Coverage” that explains their coverage and costs.***
Return or reinvest any Medical Loss Ratio Rebates paid by
insurance carrier.***
Include HCR reporting and compliance costs when you
determine your 2015 and 2016 budgets.
If not already completed, build your data tracking and
analysis systems for 2015 reporting requirements,
including new IRS report for ALEs.
Track FTE information for determination of your 2016
Applicable Large Employer (ALE) status, by calendar month
throughout 2015. Catch up on your 2015 ALE status if not
already completed.
Track hours worked and measure all employees to meet
coverage eligibility requirements.
44

To Do
50 FTEs* 50-99 FTEs* 100+ FTEs*
Prepare for additional IRS reporting requirements that
become effective in 2015.
Determine if you qualify for 2015 Transitional Relief from
Play or Pay penalties.
Decide if you will Play or Pay in 2015 by offering qualified
coverage that meets minimum value and affordability
requirements to at least 70% of your FTEs in 2015 or risk
paying a penalty.
Determine your plan’s measurement, administration and
stability periods for eligibility and coverage.
Report the aggregate cost of employer-provided group
health plan coverage on employee W-2s if you issue 250
or more forms annually, beginning with 2012 form W-2.***
*FTEs: Full-time employees, including full-time equivalent employees (FTEQs)
**For businesses covered by the Fair Labor Standards Act (FLSA)
***Required by Health Care Reform prior to 2015
45

Your Business Strategy
How does health care reform influence your strategy to care
for your employees and ensure the continued growth and
success of your business?
Strengths
Weaknesses
Opportunities
Threats
• Your role as business owner vs. employer
• Your comprehensive benefits offering
• Your workforce
• Limited understanding of regulations and their impact
• No infrastructure/processes to manage reporting burden
• Inadequate resources to stay abreast of changing landscape
• Gain a competitive advantage through a superior benefits strategy
• Reduce administrative and regulatory burdens by outsourcing
HCR compliance
• Cost volatility
• Better prepared competitors
• Potential penalties (Play or Pay, reporting)
46

Why Insperity
Insperity offers solutions that address the challenges of
health care reform. Here’s how we can help your business:
Complexity Compliance Cost
Reduce administrative burdens
through a dedicated service
team and best-in-class IT
infrastructure
in workforce management
Minimize risk of fines
and penalties through
continuous monitoring
of changing federal and
state regulations
Stabilize health care
costs through our
fully insured health
plan and its
low-cost structure
For more than 28 years, Insperity has provided large company benefits and
employment administration to America’s best small and midsize businesses.
47

Legal Notice
To Do
50 FTEs* 50-99 FTEs* 100+ FTEs*
The information provided in this communication is for educational and informational purposes only, and is not legal advice.
IRS Circular 230 Disclaimer: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal
tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be
used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending
to another party any transaction or matter addressed herein. You should seek advice based on your particular circumstances
from an independent tax advisor with respect to any federal tax transaction or matter addressed herein.
82-896 | HCR-P0215-231insperity.com | 866.210.7415
48

HealthCare Reform Exec Brief - Companies Under 250 Employees

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