2013: Racing Toward the Pinnacle
Last year, we started off our 2012 Reform News series by encouraging everyone to "buckle up" for the wild ride of reform-related events that the year was certain to bring – and did it ever!
Between the Supreme Court decision, the elections and several new provisions taking effect, it was a year that will go down in history.
2013 brings its own set of challenges as we count down to reform’s pinnacle in 2014. With just 11 months to go and even less time before key events such as the first Exchange open enrollment, I’d like to suggest some thoughts about what we see as the top priorities for employers and brokers.
Coming in January 2014, is the so-called "Employer Mandate," which subjects large employers (with 50 or more full-time or full-time time equivalents) to potential penalties unless they offer 95% of their full-time employees (and their dependent children up to age 26) health coverage that is both “affordable” and provides “minimum value.”
According to the recent proposed rule, no penalties will apply to employers sponsoring fiscal year plans (i.e., plans with plan years beginning other than January 1) until the first day of the 2014 plan year, provided all full-time employees and dependents on December 27, 2012 are offered affordable and minimum value coverage.
December 27, 2012 may seem like an odd date for a provision that doesn’t start until 2014, but what the government calls “transitional relief” from penalties is only available to employers who had non-1/1 plan years as of December 27, 2012. Employers cannot change their plan year in 2013 to take advantage of the transitional relief.
Under the “employer mandate,” large employers that do not offer coverage to 95% of their full-time employees are subject to a penalty of $2,000.00 per full-time employee minus the first 30 employees if a single full-time employee receives federal premium assistance for coverage purchased on an Exchange.
What is also important is that if any of the remaining 5% of employees who are not offered coverage receive the federal premium assistance, the employer may still have exposure to pay a penalty.
Even if a large employer offers coverage to its full-time employees, it will be subject to a penalty if the coverage is either not "affordable" or does not provide "minimum value."
"Affordable" means that the cost of coverage for the employee must be less than 9.5% of the employee's W-2 wages with the employer. (This regulatory “safe harbor” recognizes the fact that employers have no way of knowing the employees "household income" which is the threshold under the law.)
"Minimum value" means that the plan pays at least 60% of all covered expanses.
If the employer-sponsored coverage is not "affordable" or does not provide "minimum value," the employer is subject to a penalty for the lesser of:
- $2,000 per full-time employee (minus the first 30) if a single full-time employee receives federal premium assistance for Exchange coverage, and
- $3,000 for each employee who receives the federal premium tax credit.
The penalty amounts are annual, but the penalty is determined monthly applying 1/12th of the annual penalty amount.
Employers need to quickly determine whether they have a sufficient number of employees to be subject to the employer mandate and, if they are, are which employees have "full-time" status to be sure that they are offered insurance.
A full-time employee is one who works on average 30 hours a week. For many employees, it is easy to determine whether they are full-time, but how does a large employer treat employees who work variable hours?
Treasury Notice 2012-58 describes safe harbor methods that large employers may use to determine whether a particular employee is a "full-time employee" for purposes of the employer mandate.
It’s complex, and the rules differ for new employees and ongoing employees, so we will be offering a web meeting on this topic in February. However, we also suggest that you refer to the Notice and work with your legal counsel to deal with the nuances of your unique employee population.
PPACA requires that each state set up health insurance Exchanges for individuals and small employers by January 2014. If a state elects not to do so, HHS will establish the exchange for the state.
These Exchanges are intended to serve as health insurance marketplaces for individuals and smaller employers (up to 50 or fewer employees until 2016 when the definition of small employer moves from 2-50 to 100 or less).
The Exchanges will serve as a vehicle for the evaluation, selection and enrollment in medical health insurance offered by Qualified Health Plans (QHPs). Many of the details about the Exchange models, operations and processes are unfolding as of the writing of this column, it is a critically important area for individuals and employers to monitor and understand these developments.
Fees and Taxes
We have been communicating with you regularly through our Web Meetings, Fact Sheets and Sales Teams about the new fees and taxes that PPACA brings. In our last Reform Today column, Bill Harrington, our Actuarial Senior Director for Healthcare Pricing, did a fantastic job of laying out the three major items coming due – the Comparative Effectiveness Research Fee for some plans starting in July of this year, and the 2014 Health Insurance Industry Fee and Reinsurance Assessment.
Since Cigna cannot provide you with tax or legal guidance, we encourage you to stay up to speed on these provisions and to consult your attorney or tax consultant as soon as possible to avoid financial exposure.
Lastly, as we all know, 2013 also brings with it several new regulations, including the increased Medicare tax, Flexible Spending Account caps and W-2 reporting requirements. We have been emphasizing the importance of preparing for these changes to our clients and brokers through a variety of channels, including on this website. As always, our client representatives are available to answer any questions they might have.
With all that is facing us, it is certainly shaping up to be yet another wild ride as we work with you to comply with and meet the challenges of this complex legislation.