There are a number of risks associated with this situation.  The ACA (or PPACA) made a number of amendments to the Public Health Services Act (PHSA) that were incorporated by reference into ERISA and the Code, making the mandates applicable to group health plans subject to the Code, ERISA, and the PHSA.  Although the substantive requirements in each are virtually identical, the consequences of noncompliance differ depending on the enforcement mechanism.  Private-sector group health plans (including MEWAs) are subject to enforcement from both the Code and ERISA.

Code §4980D imposes an excise tax for a group health plan’s failure to comply with certain requirements, including provisions of the Code that incorporate the PHSA mandates of healthcare reform.  Subject to certain exceptions, failure to comply with a PHSA mandate will potentially trigger an excise tax of $100 per day under the Code “with respect to each individual to whom such failure relates.”  That’s $100 per day per enrollee in the plan.  The minimum excise tax for a compliance failure is $2,500.  This minimum increases to $15,000 if violations are “more than de minimis.”  The maximum excise tax for “unintentional failures” is the lesser of 10% of the amount paid during the preceding tax year by the employer for group health plans, or $500,000.

For single employer plans, this excise tax is imposed on the employer as the plan sponsor.  For multi-employer plans, or MEWAs, the excise tax is imposed on “the plan.”  Just where does the liability fall?  Entities liable for the Code §4980D excise tax must self-report on Form 8928.  Multi-employer plans must file the return by the last day of the seventh month following the end of the plan’s plan year (just like Form M-1 and Form 5500 required by ERISA of plans with 100 or more members).  Employers must file the form on or before the due date of the employer’s income tax return.  But how does an employer know if the Form 8928 should be completed at the MEWA level or the employer-member level?  If the ERISA Form 5500 regulations are any guide, the answer is not always at the MEWA level.

Assuming the MEWA is responsible for the Code §4980D self-reporting and the associated tax penalties for compliance failures, there is still risk of liability for the employer.  The employer-member of the MEWA is at risk for noncompliance with the PHSA mandates incorporated under ERISA.  Risk under ERISA comes from two fronts – enforcement action by the Department of Labor (DOL) and civil lawsuit by a participant or beneficiary.  (See ERISA §502(a) & §715.)  The DOL has broad discretion to impose civil penalties following an audit, and the civil lawsuits brought by participants can seek claims for payment of benefits, damages for unpaid benefits, interest, and attorney’s fees.

The DOL has specifically identified heightened scrutiny of MEWAs as one of its enforcement priorities, most recently in the Health Benefits Security Project (HBSP) established in 2012.  The HBSP involves a broad range of health care investigations, including examinations for compliance with the ACA and civil and criminal investigations of MEWAs.  In March 2013, the DOL finalized two sets of previously proposed regulations relating to MEWAs.  One regulates MEWA reporting requirements and the other provides MEWA enforcement rules.  These final regulations implementing MEWA-related health care reform provisions are intended to assist the DOL’s efforts to combat fraud and other abuses.

In addition to issues with legal and regulatory compliance, the mandates that the MEWA plans will not be in compliance with are some of the most publicized benefits for individuals as a result of healthcare reform.  Not only does this pose an employee relations issue, but it also could increase the risk of a participant lawsuit by individuals who do not gain coverage for pre-existing conditions during 2014, spend significantly more than the out of pocket maximum in 2014, or hit an annual limit on any services qualifying as essential health benefits, just to name a few examples.

It is also worth noting that in all of the ACA implementing regulations we have received to date, there is no hint of a special rule for employers who are members of a MEWA that have an off-cycle plan year for their ERISA group health plan.  Employers are strongly encouraged to consult legal counsel to assist in quantifying the risk of pursuing a plan with a MEWA where the employer has actual knowledge that the plan(s) offered to employees will not be in compliance with the PHSA mandates at any point in 2014 and to seek a formal legal opinion before proceeding with implementing such a plan.  Such employers should also carefully review insurance policies, as they may not cover penalties or lawsuits arising out of ACA noncompliance.  Finally, an employer should consider seeking indemnification from the MEWA for any penalties or costs incurred by the employer as a result of noncompliance with the ACA.  The safest route, however, may simply be to purchase a compliant plan elsewhere for the 2014 plan year and reevaluate the MEWA options for the plan year beginning in 2015, after the MEWA has fully implemented the healthcare reform mandates.

Click here for the DOL’s MEWA guide to Federal and State regulation.

*ERISA defines a MEWA as an employee welfare benefit plan that provides medical or other welfare benefits to employees of two or more employers.  MEWAs exist in the form of self-funded or insured trade association plans offered to members of the association, and self-funded or insured commercial plans offered by a multiple employer trust to its members.

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The SHOP (Small Business Health Options Program), originally scheduled to go live on October 1, 2013 with the individual marketplace, was previously pushed back to November 1.  The first delay to online enrollment in the SHOP followed the Administration’s announcement of reduced functionality for 2014, back in April.  Last week, the Administration pushed online enrollment back even further.  Although small employers can review plan options in the SHOP, enrollment has to be done the old fashioned way – through an agent, broker or an insurance company.  The Administration calls this the “new direct enrollment process.”  On-line enrollment through the SHOP will not be available to small employers until November 2014.

The Affordable Care Act (ACA) does not require small employers (employers with fewer than 50 full-time equivalent employees) to offer health insurance to their employees, but it provides financial incentives for some small employers that do.  The Small Business Health Care Tax Credit, first available in 2010, increases in 2014 to up to 50% of employer-paid premium costs for qualifying small employers.  In order to access the credit, coverage must be purchased through an agent, broker or insurance company that offers plans through the SHOP and can conduct enrollment according to CMS standards.  A completed paper application for the Small Business Tax Credit will be submitted to the SHOP Marketplace either directly by the small employer, or by the agent, broker or insurance company.  Employee enrollment can begin before tax credit eligibility is determined.  If the SHOP later determines that the small business is ineligible for a tax credit, the insurance company is not required to terminate coverage.

Small employers that whish to make SHOP coverage effective for employees on January 1, 2014, must enroll by December 23, 2013.  The previous enrollment deadline of December 15 has been extended.  Access the CMS FAQs on the new direct enrollment process here and the companion blog post by HHS here.

When the SHOP website is fully functional, it is anticipated that small employers in all 50 States and the District of Columbia will be able to offer their employees a choice of plans from multiple issuers while making a single monthly payment, for coverage taking effect on or after January 1, 2015.  Currently, the direct enrollment process is available in states that are using the Federally Facilitated SHOP Marketplace (like North Carolina).  For businesses located in the few states that are running their own SHOP Marketplace, that state’s application and enrollment process must be followed.  For state status, contact your agent, broker or insurance company, or try your luck at HealthCare.gov or by calling the SHOP Employer Call Center, toll-free at 1-800-706-7893.

The post Small employers can shop, but can’t buy, on the SHOP Exchange appeared first on The North Carolina Healthcare Reform Digest.

The selected questions and responses include information about the following issues:

• How premiums will be calculated in the FF-SHOPs;
• How premium rates for small employers with employees in multiple states will be calculated;
• Whether a small employer’s premium rate may be changed during the employer’s plan year (for example, if the employer moves its headquarters to another state during the plan year);
• Whether composite (or average) premiums may be used in the FF-SHOPs;
• How employers may contribute to employee and dependent premiums in an FF-SHOP;
• Whether employers purchasing coverage through the FF-SHOP may vary premium contribution amounts to different employee classifications (i.e. part-time vs. full time, hourly vs. salary);
• How employees will be allowed to contribute to their premiums in an FF-SHOP;
• What happens if an employer’s estimate of the number of employees who will participate (elect coverage) is different from actual participation, and the associated impact on premiums; and
• Examples of contribution calculations.

Small employers with 50 or fewer employees are currently eligible to purchase group health insurance coverage through a SHOP Exchange.  However, online enrollment for the FF-SHOPs will not be available until November 1, 2013.

For more information, see our prior post on the delay of online enrollment or contact one of the Experts at Hill, Chesson & Woody

The post CMS Publishes New FAQ for Federally-Facilitated SHOP Exchange for Small Businesses appeared first on The North Carolina Healthcare Reform Digest.

SHOP Exchanges will provide a new avenue for small businesses to purchase group health insurance for employees.  Despite this delay of the online enrollment function, small businesses will still be able to apply for coverage through a SHOP Exchange on October 1, but will be required to mail or fax their SHOP enrollment information to the SHOP.  This delay impacts the SHOP Exchanges in the 34 states that have chosen not to operate their own state-based SHOP Exchange.  Some states that elected to operate their own small business health insurance exchanges, including Maryland and Washington, have delayed access to their state-based small business health insurance exchanges.

For more information about the SHOP online enrollment delay, the Washington Post, CNN, New York Times (subscription required), and Wall Street Journal (subscription required) report.

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The proposed rules, in additional to providing more detail about the health insurance tax credit for small employers, also provide some transition relief for those small employers that have non-calendar year plans that do not begin on the same date as their taxable year.  A small employer (25 or fewer full time equivalent employees for purposes of the health insurance tax credit) will be treated as offering coverage for the entire 2014 tax year for purposes of eligibility for and calculation of the health insurance tax credit if the small employer:

• Offers coverage that begins on a date other than the first day of its tax year; and
• Offers coverage during the period before the first day of the plan year beginning in 2014 that would have qualified the employer for the credit under the rules that applied before January 1, 2014; and
• Begins offering coverage through a SHOP Exchange as of the first day of its plan year that begins in 2014.

This flexibility will help those small employers who might have otherwise qualified for the Small Business Health Insurance Tax Credit but either would have missed out on it for a portion of the year or faced the administrative challenges of terminating an existing group health plan early in order to purchase coverage through the SHOP.

The IRS has requested comments on these proposed rules.  Comments and any requests for a public hearing must be submitted within 90 days after the Notice of Proposed Rulemaking is published in the Federal Register, which should occur next week.

The post IRS Issues Proposed Regulations on Small Business Health Insurance Tax Credit appeared first on The North Carolina Healthcare Reform Digest.

Under the Patient Protection and Affordable Care Act, small employers are those employers with 50 or fewer full time equivalent employees.  This number will increase to 100 full time equivalent employees in 2016.  In 2014, small employers may use the SHOP to purchase a group health plan for their employees and to qualify for the Small Business Health Insurance Tax Credit.  For more information on this tax credit for small employers, please see our prior post.  Although the SHOP was intended to provide great flexibility for employees of small employers to choose from a variety of plans offered through the SHOP Exchange, this year small employers may only choose one plan that will be available to their employees.  Employees will be able to choose from a variety of plan options in later years.  Only Blue Cross Blue Shield of North Carolina will offer plans through the North Carolina SHOP Exchange.

Click here to reach the Health Insurance Marketplace’s alert regarding SHOP and Small Business questions.

Image courtesy of Stuart Miles / FreeDigitalPhotos.net

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Specifically, H649 adds the term “Grandfathered health plan” to the NC Small Employer Group Health Coverage Reform Act and changes the definition of “small employer” to mean “an employer that employed an average of at least one but not more than 50 employees on business days during the preceding calendar year and that employs at least one employee on the first day of the plan year.”  Most notable about this change to the small employer definition is that the number of employees must be determined using the same method as that set forth in section 4980H(c)(2) of the Internal Revenue Code, which was added by the Affordable Care Act (ACA).  Section 4980H(c)(2) requires that the hours of service of part-time employees be considered in the employer size computation by converting the hours of all part-time employees to full-time equivalents.  There is a limited exception for hours of service provided by seasonal employees.  The new small employer definition takes effect on January 1, 2014.  The old definition will still be applicable after January 1, 2014 to grandfathered health plans.

H649 also adopts community rating provisions similar to those in the ACA.  As of January 1, 2014, carriers in the small group market are only allowed to adjust premiums based age, geographic area and tobacco use.  Like the provision in the ACA, premium adjustments for age may not vary by more than the ratio of three to one (3:1) for adults.  However, the variations permitted by the ACA for tobacco use are limited by H649.  In the ACA, premiums may vary by a ratio of one and one-half to one (1.5:1) for tobacco users.  H649 limits the permissible premium rate variation in the small group market for tobacco users to one and two-tenths to one (1.2:1).  For example, the ACA permits a carrier in the small group market to  charge a smoker $375 for the same policy a non-smoker receives for $250 (i.e., 1.5:1).  Under H649, however, a carrier in the small group market will not be permitted to charge a smoker more than $300 for the same policy a non-smoker in North Carolina recieves for $250 (i.e., 1.2:1).  Previously, rating variations based on tobacco use were not permitted in North Carolina, but were permitted in 33 other states.  (See State Health Facts from the Kaiser Family Foundation)  The community rating provisions of H649 will take effect on January 1, 2014, at the same time the community rating provisions of the ACA take effect.

Perhaps the most significant change to the small group market is in Section 3 of the bill.  Section 3 of H649 changes the prohibition on providing stop loss coverage to small employers by making the prohibition applicable only with respect to employers “who employ fewer than 26 eligible employees.”  The resulting expanded access to self-insurance arrangements for small employers requires an annual attachment point for claims incurred per individual of at least $20,000, and an annual aggregate attachment point of at least $20,000 or 120% of expected claims, whichever is greater.  The effect of permitting stop loss coverage in the small group market is to allow groups with at least 26 eligible employees to avoid the community ratings required by the ACA.  The anticipated disruption in the small group market due to community ratings has been characterized by some as “siesmic.”  The expanded availability of stop loss coverage to groups in the small group market may lessen the disruption, or at least provide an alternative to small groups dreading the change.  This section of the bill is scheduled to become effective on October 1, 2013.

Lastly, Section 4 of the bill expands the small employer definition to include employers with up to 100 employees, effective January 1, 2016, as required by the ACA.  With so many changes to the small group market set to take effect on Janaury 1, 2014, little attention has been paid to the fact that the small group market is scheduled to get much, much bigger in 2016.  Whatever disruption may result from community ratings come January 1, 2014, it will shed some light on the disruption that can be expected in 2016 when community ratings are required for all employers with 100 or less employees.

You can read the text of the ratified House Bill 649 here.

UPDATE: Governor McCrory signed House Bill 649 into law on July 25, 2013.  Session Law 2013-357, as it is now called, can be found here.

The post NC Poised to Challenge the Affordable Care Act’s Reach in the Small Group Market appeared first on The North Carolina Healthcare Reform Digest.

A key part of the Affordable Care Act (ACA) is the Health Insurance Marketplace, scheduled to open in October.  The marketplace is designed to give families, individuals and small businesses “more choice and control over..health insurance options.”  A short video on healthcare.gov, the Department of Health & Human Services’ healthcare reform website, describes the marketplace as a place to “compare a wide range of quality health insurance plans.”

Mr. Covington reports that the range of insurance plans offered through the marketplace in North Carolina may not be as wide as originally hoped.  He reports that individuals buying health insurance coverage in the marketplace this fall will be choosing among products from only two or three carriers (BlueCross BlueShield of North Carolina, Coventry and FirstCarolinaCare Insurance Co. in Pinehurst).  That compares to about seven carriers now offering individual insurance products in North Carolina.  Small business will see products from only one carrier in the SHOP (the marketplace for small businesses), BlueCross BlueShield of North Carolina.  Read the full article here.

The post NC Health Insurance Exchange: Marketplace or Mini-Mart? appeared first on The North Carolina Healthcare Reform Digest.

This FAQ comes not long after a general delay in the way SHOP Marketplaces were intended to operate.  Instead of an employer in the small group market going through a SHOP Marketplace to provide its employees a choice of various coverage options, the employer can only pick one plan for all employees.  The ability for employees to choose from a menu of different health insurance options will not be available until 2015.

For more information, see the original FAQ from CMS.

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This lack of understanding regarding the status of the law highlights another important issue – a potential lack of understanding of how PPACA will impact individuals and families in 2014.  Since the passage of the law, it has been widely publicized that PPACA would eliminate exclusions for pre-existing conditions, restrict waiting periods to 90 days, cover preventative care at 100% with no cost sharing, and prohibit annual and lifetime limits on essential health benefits.  What has been less publicized, and less understood, is how the tax penalties work for individuals and families who do not maintain health insurance, and how individuals and families can avoid paying these tax penalties.

Generally, individuals and families must either participate in an employer’s group health plan, purchase insurance through the public Marketplace, or participate in Medicare, Medicaid, or another federal healthcare program.  With limited exception, individuals and families who do not maintain health insurance will be subject to tax penalty of $95 for the first year or 1% of household income, whichever is greater.  Tax penalties increase in later years – $695 or 2.5% of household income by 2016.  For many individuals, the decision may come down to the cost of the tax vs. the cost of insurance on an annual basis, at least initially.  Marketplace reports on the likelihood that Americans will purchase insurance, which is likely to cost significantly more than the tax penalty, instead of paying the penalty and going uninsured.

This is fueled by the uncertainty surrounding the variety of plans that will be available through the Marketplace, and more importantly, their costs.  With carriers requesting double digit increases to compensate for the elimination of pre-existing condition exclusions, taxes assessed on insurers by PPACA, and a population of individuals with unknown risk, coverage purchased through a Marketplace may not be inexpensive, even with the aid of premium tax credits or cost-sharing subsidies. Individuals making more than $45,960, and families of four with household incomes greater than $94,200 will not be eligible for premium tax credits for coverage purchased through a Marketplace.

How does this impact employers?  Employers should bear in mind the impact on employees and their families when exploring benefit strategies.  However, many employers also have a golden opportunity to communicate to employees how PPACA will impact them individually, and the role the employer’s group health plan (or lack thereof) will factor in to employee’s individual decisions.  For employers with non-calendar year plans scheduled to hold open enrollment in the upcoming months, the next open enrollment may be the last opportunity for employees to enroll in the group health plan or change elections prior to January 1, 2014.  Proposed regulations provide that employers may, but are not required to allow a one-time opportunity for employees to enroll in or terminate their participation in the group health plan when January 1, 2014 arrives.  Communicating effectively to employees during this time is crucial in promoting employee understanding of the employer group health plan and healthcare reform.  How employers communicate in the upcoming months can either generate many questions and create frustration on the part of both HR professionals and employees, or it can pave the way for a smooth transition to 2014.

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