Voluntary Employer Participation in CLASS Program Premium Collection
The ‘CLASS’ acronym stands for Community Living Assistance Services and Supports. The provision is found in Title VIII of the new healthcare law.
Specifically, the CLASS program is a long-term care insurance program that takes effect in 2011. Benefits will depend on a person’s degree of impairment, but will not be less than $50 per day (paid on a daily or weekly basis). Eligibility guidelines for benefits associated with the CLASS program require that an individual must pay premiums for at least five years before qualifying for benefits. There is no lifetime limit on the funds available.
The Secretary of Health and Human Services (HHS) has not yet set premiums for the CLASS program. The Congressional Budget Office estimated in 2009 that premiums would begin at $123 per month, with fewer than 10 million persons enrolling in the program over a 10-year period.
The program itself is voluntary, but employees of participating firms would be auto-enrolled. That is, under Section 3204(a), employers that choose to participate must enroll workers automatically and become responsible for making automatic payroll deductions on a monthly basis for each of the employees enrolled in the program. A separate section of the law, Section 3204(b) states that workers may choose to opt out of the CLASS program.
You can read about the CLASS program beginning on Page 710 of the Patient Protection and Affordable Care Act.
Starting in 2014, all individuals are required to demonstrate and maintain proof of insurance coverage that either meets the definition of minimum essential coverage or that is part of an approved grandfathered health plan. Qualified plans include: government-sponsored health insurance programs (e.g., Medicare, Medicaid), grandfathered group health plans, employer-sponsored plans and plans purchased in the individual market. The Secretary of Health and Human Services will provide guidance through the regulatory process to further define what will be considered minimum essential coverage.
For those unable to afford coverage, an individual, depending on their income, will either apply for premium assistance credits or government programs will be made available so that individual can gain access to coverage.
Failure to demonstrate and maintain qualified coverage will leave the individual subject to financial penalties. For an individual, the penalty begins in 2014 at the greater of $95 or 1% of household income. In 2015, it grows to $325 or 2%. In 2016, it reaches $695 or 2.5%. (For families, the figure will be $2,085 in 2016.) After 2016, the amount will rise by a cost-of-living adjustment.
Aside from the financial penalty, the law specifically prohibits the IRS from imposing civil or criminal penalties on individuals who do not comply with the individual mandate.
Employer Mandate and New Employer Penalties
The healthcare law requires employers with 50 or more full-time equivalent employees to either provide insurance, pay penalties or both. For purposes of defining a full-time employee, the new healthcare law defines a full-time employee as anyone who is employed an average of at least 30 hours per week. Anyone who works an average of less than 30 hours per week is considered a part-time employee.
An employer with fewer than 50 full-time equivalent employees is not subject to this provision. That does not mean that those small employers are exempt from the healthcare law in its entirety. Rather, they are only exempt from this single provision.
It is important to note one area that remains unclear—how seasonal workers will be defined under the new healthcare law. Under the new law, an employer is not considered “large” (and thus, subject to the new employer mandate) if the employer has 50 full-time employees for 120 days or fewer during the year, and the employees that go above that 50-FTE threshold are seasonal workers. The federal government will provide guidance through the regulatory process to determine who is deemed to be a seasonal worker.
How Does the Employer Mandate Affect Your Business?
How the employer mandate affects a particular business depends on a number of factors, including: (1) the number of full-time (or part-timers counted as full-time equivalent; see the section
Part-time Employee Counting Requirements; (2) whether or not the firm offers coverage; and (3) whether or not one or more employees qualify for government subsidies toward the purchase of health insurance. An employee qualifies for a subsidy if his or her household income is below 400% of the federal poverty line ($88,000 for a family of four today).
Here are some of the rules:
Non-Offering Firms: More than 50 full-time employees. Does not offer insurance. One or more employees receiving premium subsidies. Penalty = $2,000 per full-time employee (minus the first 30 employees).
§ For example, in 2014, Employer A fails to offer minimum essential coverage and has 100 full-time employees, 10 of whom receive a tax credit for the year for enrolling in a state exchange-offered plan. For each employee over the 30-employee threshold, the employer owes $2,000, for a total penalty of $140,000 (100 employees - the 30 threshold = 70, multiplied by $2,000 each). This penalty is assessed on a monthly basis.
[i] Therefore, the employer would pay a monthly portion of the total penalty (1/12 of the total each month). In the example of Employer A, that would amount to $11,666.66 per month.
Non-Offering Firms: 50 or fewer full-time employees. Does not offer insurance. No penalty.
Offering Firms: More than 50 full-time employees. Offers insurance that meets the standards for affordable minimum essential coverage. One or more employees receiving premium subsidies. Penalty equals lesser of $3,000 per subsidized employee or $2,000 per full-time employee (minus the first 30 employees).
§ For example, in 2014, Employer A offers health coverage and has 100 full-time employees, 20 of whom receive a tax credit for the year for enrolling in a state exchange-offered plan. For each employee receiving a tax credit, the employer owes $3,000, for a total penalty of $60,000 (20 employees x $3,000). The maximum penalty for this employer is capped at the amount of the penalty that it would have been assessed for a failure to provide coverage, or $140,000 ($2,000 multiplied by 70 (100-30)). Since the calculated penalty of $60,000 is less than the maximum amount, Employer A pays the $60,000 calculated penalty. This penalty is assessed on a monthly basis.
[ii] Therefore, the employer would pay a monthly portion of the total penalty (1/12 of the total each month) amounting to $5,000 per month.
Offering firms: More than 50 full-time employees. Offers insurance. Has no employees receiving premium subsidies. No penalty on employer.
Part-time employee counting requirements: Part-time employees’ hours will be converted into full-time equivalents for purposes of determining whether the employer is a large employer and subject to the employer mandate. This is done by adding up all of the hours worked by employees who are not full-time and dividing by 120. For example, if 6 employees each work 5 hours per week, they will count as if the firm had one additional full-time employee, calculated monthly (6 employees x 5 hours per week each = 30 hours per week x 4 weeks = 120 hours/120 = 1).
Employers will not be required to provide coverage to part-time employees, but their hours will be used to determine whether the employer is subject to the requirements of the employer mandate.
Other factors Affecting “Large” Employers Subject to the Employer Mandate
Waiting Periods: There are extra penalties for firms who have a waiting period of more than 90 days before employees are eligible for insurance.
Vouchers: If an employee’s household income is below 400% of the federal poverty line and his or her insurance premium falls between 8% and 9.8% of household income, the employer must offer the employee a voucher (equal to the amount the employer contributes toward an employee’s premium) to purchase insurance in the exchange. An employee meeting these characteristics will not trigger the employer penalties.
Auto-Enroll: Employers with more than 200 employees will be required to auto-enroll employees in the employer’s health plans, though the employee may opt out.
Factors Affecting All Employers Offering Health Insurance, Whether or not They Are Subject to the Employer Mandate
Individual and Small Group Market Changes
Note: The degree to which you may be affected by insurance market reforms depends on whether:
There are currently several changes being made in the individual and small group marketplace. Over the next few years and in 2014, you will see significant changes in both of these markets.
There are currently many differences in how the individual market and small group market functions. The rules dictate how insurers can determine their expected costs and therefore, price your premium. The changes created by the new healthcare law will adjust these differences, making the two marketplaces somewhat more similar.
The following changes apply to new markets, including:
Individual, small group, large group and self-funded and grandfathered plans in the individual and group market
Pre-existing conditions
Changes to pre-existing conditions apply to all plans except grandfathered individual market plans. Beginning September 23, 2010, children under the age of 19 cannot impose exclusions from coverage based on pre-existing conditions.
Annual and Lifetime Limits
Beginning September 23, 2010 new plans will be prohibited from placing lifetime limits on the dollar value of coverage. For example, some policies today have a $1 million dollar cap on the amount the insurance company will pay out on a policy. The prohibition on lifetime limits takes full effect January 1, 2014. Until then, lifetime limits on coverage are allowed at discretion of the secretary of Health and Human Services. The new rules on lifetime limits will apply to all plans. The rules on annual limits will apply to all plans except for individual market plans that maintain grandfather status.
Rescissions
Beginning September 23, 2010, Insurers are prohibited from rescinding coverage except in cases of fraud. This will apply to all plans.
Dependent Coverage
Beginning September 23, 2010 all plans are required to provide dependent coverage for children up to age 26.
If you do not have a grandfathered plan or you purchase a new plan you will also be subject to are requirements related to preventative coverage.
Coverage of Preventative Services
Beginning September 23, 2010 all new plans that are not grandfathered plans are required to provide 100% coverage (no cost-sharing – deductibles or co-pays) for:
- Items or services with an "A" or "B" rating in the current recommendations of the United States Preventive Services Task Force ("USPSTF");
- Immunizations for routine use as recommended by the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention;
- Preventive care and screenings for infants, children and adolescents provided for in the guidelines supported by the Health Resources and Services Administration ("HRSA"); and
- Preventive care and screening for women provided for in guidelines supported by the HRSA (to be issued no later than August 1, 2011).
Deductible Limits
Effective January 2014, deductibles in the small group marketplace will be limited to $2,000 for individuals and $4,000 for families.
Insurance Rating Reforms
Effective January 2014, all plans in the individual and small group markets (including those in the exchange) will be required to have guaranteed issue and renewability. The rating factors that insurance carriers will be allowed to use are:
Premiums may only vary by:
- Age (3:1 maximum)
- Tobacco (1.5:1 maximum)
- Geographic rating area
- Individual or family coverage (family composition)
The states, along with the Secretary of HHS will be responsible for developing standards for geographic rating areas. The Secretary of HHS, in collaboration with the National Association of Insurance Commissioners (NAIC) will develop the “age bands” used for the age rating process.
To obtain more information on how these changes affect your health insurance plan, please contact your agent or broker, or call your health insurer. There is also more helpful information on
your state insurance commissioner’s website.
Health Insurance Exchanges
New State Health Insurance Exchanges
The new healthcare law requires states to set up health insurance exchanges. If the state chooses not to participate, the federal government will create an exchange in that particular state. There are federal rules that set the foundation for these exchanges but beyond that, states have flexibility to design them in ways that meet the needs of their own population. Two state exchanges have already been created—the Utah Health Exchange and the Massachusetts Health Connector.
The exchange model was created to assist mostly the individual and small group markets. Beginning in 2014, the law requires that states establish an exchange to sell private health plans to individual and small group coverage. You will be able to purchase them directly through the exchange or through an agent of your choice.
There is a cap on the size of businesses that may purchase plans in the exchanges. For the first two years, the exchanges will be available to individuals and small businesses with up to 50 employees. Beginning in 2017, exchanges can open up to businesses with more than 100 employees, at state discretion.
Many states currently separate the individual and small group markets. That is, the two pools operate as separate risk groups. Under the new healthcare law, states have the option of merging these two markets.
The exchanges will not be the only place where you can purchase coverage. In addition to the new exchanges, there will continue to be a marketplace outside the exchange marketplace. The rules governing the health plans are the same in both marketplaces. However, it is critical to note that the exchanges will be the only marketplace for individuals and small businesses that are eligible for certain kinds of financial assistance.
These new exchanges will house
premium and cost-sharing credits to individuals and families with incomes between 133% and 400% of the federal poverty level. You cannot access premium credits outside of the exchanges. Access to premium credits are not allowed by individual employees if there is an offer of coverage from the employer, except in certain cases. These exceptions include: if the employer plan does not have an actuarial value of at least 60% (if you are fully insured, your carrier will certify the plan meets this value) or if the employee’s share of the premium exceeds 9.5% of their income.
There is also a tax credit available to small businesses that purchase health insurance in the exchange. A maximum credit equal to 35% of the employer contribution is available from 2010 to 2013.
Beginning in 2014, a 50% credit is available for an additional two years, but only if the small business purchases health insurance through a health insurance exchange.
Click here for more information on whether your business qualifies for the small business tax credit.
Exchanges will be required to maintain a call center and establish procedures for enrolling individuals and businesses. Agents and brokers will be able to sell plans inside and outside the exchanges.
Exchanges will offer four benefit categories and offer a separate catastrophic plan for certain qualified individuals. The four benefit categories and catastrophic plans will be available based on eligibility and will be sold inside and outside the exchange.
The plans will be identified as either bronze, silver, gold, or platinum level. The levels of coverage, as described in a summary of the new law provided by the National Association of Insurance Commissioners (NAIC) are defined in the following way.
Bronze level-Must provide coverage that provides benefits that are actuarially equivalent to 60% of the full actuarial value of benefits under the plan.
Silver level-Must provide coverage that provides benefits that are actuarially equivalent to 70% of the full actuarial value of benefits under the plan.
Gold level-Must provide coverage that provides benefits that are actuarially equivalent to 80% of the full actuarial value of benefits under the plan.
Platinum level-Must provide coverage that provides benefits that are actuarially equivalent to 90% of the full actuarial value of benefits under the plan.
An individual who is either under 30 years old or is exempt from the individual mandate because of lack of affordability or hardship may purchase a catastrophic plan. That plan provides the essential benefits package with a deductible equal to the total limitation on cost-sharing above and first-dollar coverage of at least three primary care visits.
As exchanges are developed, more information will be available here. Check back often for updates.
Minimum Essential Coverage
Individuals will be required to have qualified health insurance by 2014 or face penalties. This is the individual mandate requirement in the new healthcare law. You can either meet this requirement by maintaining your grandfathered plan or by purchasing a plan that meets the new minimum essential coverage standards.
If you or your business is able to maintain your grandfathered plan (i.e., plans that were in existence on March 23, 2010, when the law was signed), you will be deemed as meeting your obligations for the individual mandate. For all other health plans following March 23, 2010, there are new minimal essential coverage requirements.
Minimum essential coverage has not been fully defined yet by the Department of Health and Human Services (HHS). Defining regulations will be released by HHS throughout 2010 and 2011.
However, the law does outline the types of benefits that are required to be included in any package deemed to meet minimum essential coverage. Section 1302 of the new healthcare law specifies that all plans meeting these requirements will include at least the following categories:
(A) Ambulatory patient services.
(B) Emergency services.
(C) Hospitalization.
(D) Maternity and newborn care.
(E) Mental health and substance use disorder services,
including behavioral health treatment.
(F) Prescription drugs.
(G) Rehabilitative and habilitative services and devices.
(H) Laboratory services.
(I) Preventive and wellness services and chronic disease
management.
(J) Pediatric services, including oral and vision care.
This will be a floor of required services and the states can go above this floor.
Employers who offer coverage will be required to offer minimum essential coverage to their employees worth at least 60% of the actuarial value of the covered benefits the insurance carrier pays out or face penalties. For the policyholder, that means paying no more than 40% of costs.
There will be limits on annual cost sharing and they are tied to current HSA limits ($5,950 for individual and $11,900 for a family). The HHS Secretary will be allowed to review and update the minimal essential coverage annually beginning in January 2014.
All plans inside and outside the exchange (including those in the individual and small group market) will be required to meet or exceed the new coverage requirements set forth in the new healthcare law.
To access the timeline for overall implementation of the healthcare law, please see
Reform Timeline.
Expanded 1099 Information Reporting
Beginning in 2012, businesses will be required to provide Form 1099-MISC for additional business-to-business transactions. Currently, a 1099 is issued to unincorporated (sole proprietor, partnership) businesses that provide services valued at $600 or more. The expanded information reporting requirement includes services from incorporated businesses, as well as purchases of property of $600 or more from both incorporated and unincorporated businesses. In addition, the reporting business must include on the 1099 the service-providing business’s taxpayer identification number. If the TIN is inaccurate or no TIN is provided, the reporting business is required to withhold 28% of the total contract. The IRS is currently working on additional guidance, including an exemption for certain credit card transactions, and will update the form 1099-MISC.
[i] Joint Committee on Taxation, Technical Explanation of the Revenue Provisions of the “Reconciliation Act of 2010,” as amended, in combination with the “Patient Protection and Affordable Care Act” (JCX-18-10), March 21, 2010. Page 39