Health Care Reform 2010

Health Care Reform 2010

Patient Protection and Affordable Care
Act (PPACA)

David Smith
 Employer Implementation Timeline

y Some provisions go into effect in 2010

y All changes effective on PLAN anniversary on or after effective date
y Changes effective January 1, 2011
{ Limits on OTC benefits
{ SIMPLE cafeteria plan rules for small employers
y Changes effective January 1, 2012
y W-2 Changes go into effect
y New SPD requirements
y Changes effective January 1, 2013
{ Loss of Medicare Part D deduction
{ $2500 Cap on FSA salary reductions
y Changes Effective 2014
{ Employer coverage requirement/excise tax
{ Exchange and vouchers
y Changes effective in 2018
{ “Cadillac Plan” excise tax
 2010: Grandfathered Plans

y Grandfathered Plans:
{ Individuals and employer group plans can keep their
current “grandfathered” policy if the only plan changes
made are to add or delete new employee/dependents or
part of a collective bargaining agreement.
{ At this time, it is not clear whether any significant
modifications of coverage under a plan design will alter a
plan’s “grandfathered” status.
 2010: Grandfathered Plans

y Grandfathered plans are permanently exempt from the following

reforms:
{ Preventive services mandates
{ Annual cost sharing and deductible requirements
{ Nondiscrimination rules imposed under PPACA
Ù i.e., the application of Code Section 105(h) to fully- insured plans
{ Certain reporting requirements
{ Appeals process
{ Designation Rules for Primary Care Providers
{ Coverage of clinical trials
{ No discrimination against providers
{ Individual responsibility requirements
Ù Coverage under a grandfathered plan satisfies the individual responsibility
provisions of the bill

Ù Savings of 1-5% in
additional health care costs
 2010: Grandfathered Plans

y Grandfathered plans are subject to the following

requirements:
{ Changes in tax rules relating to health plans
{ Uniform explanation of coverage
{ Cost reporting and rebates
{ Automatic enrollment
{ Notification of availability of the exchange and subsidies
{ Notices regarding the exchange
{ Requirement to provide employees vouchers
 2010: Grandfathered Plans

y Grandfathered plans are subject to the following

requirements (continued):
{ Six months after enactment
Ù Limitation on lifetime and annual limits
Ù Limitation on pre-existing condition exclusions
Ù Limitation on waiting periods
Ù Coverage of adult children (only if adult child is NOT eligible to
enroll in another eligible employer plan)
{ 2014 for employees
Ù Prohibition on rescissions
 2010: Grandfathered Plans
New
Guidance

y Cannot retain grandfathered status if:

{ Any change in coinsurance percentage (e.g. 80% to 70%)
{ Change more than 5%+ in employee contribution amount
{ Change of 15%* or more of deductible
{ Increase copayments by more than $5 or 15%
{ Eliminate any benefit
{ Obtain new policy, certificate or contract of insurance

y Obligations
{ Notify employees of grandfathered plan status (model
language provided)
 2010: Grandfathered Plans
New
Guidance

y What now?
{ Lots of remaining uncertainty: change to structure (fully-
insured vs. self-funded), alter provider network, change
formulary

y Obligations
{ Notify employees of grandfathered plan status (model
language provided)
 2010: (Very) Small Business Tax Credit

y Eligible small businesses are eligible for phase one

of the small business premium tax credit.
{ Requirements:
Ù Less than 25 employees
Ù Must pay up to 50% of premiums
Ù Average salary must be $50,000 or less.

{ Sliding scale based on # of employees and average payroll

{ Businesses and non-profits are eligible for the credit.

{ Credit for amounts paid for dental and vision eligible

 2010: (Very) Small Business Tax Credit

y Must have taxable income for the tax credit:

{ Carry back 1 year / Carry forward 20 years
y Controlled Groups / Common Ownership are
treated as a single employer
y How subsidy claimed varies based on how taxes
paid by employer
{ “C” Corporations - reflected on tax return
{ “S” Corps or other disregarded entities – distributed to
owners via K-1
{ Nonprofits – used to pay employment taxes
(but not more than annual amounts)
 2010: (Very) Small Business Tax Credit

y How will it work?

{ Take all employee hours from the prior year
Ù Example: 10 FT employees, 20 PT employees
Ù Determine # of employees
| 10 PT employees work, on average, 1,000 hours annually

| Add full-time employees hours (10 x 2080) and part-time EE hours (20 x
1000) = 40,800 then divide by 2,080 = 19.6
Ù Determine average salary
| Total salaries for all employees (except for owners)

| Average salary for FT workers: $26,000

| PT employees paid an average of $12/hr

| Add FT employees salaries ($260,000) + PT ee’s income ($240,000) =

$500,000 then divide by # employees above (19.6) = $25,510.20
 2010: (Very) Small Business Tax Credit

y How will it work?

Ù Amount paid for health insurance by employer
| Only covering 10 FT employees

| Employer portion is $200 per employee per month

| Annual cost: $24,000

| MUST PAY AT LEAST 50% OF EMPLOYEE COSTS TO BE ELIGIBLE and

the premium amount cannot exceed the state average
| Tax credit amount reduced by any state tax credit for health insurance

Ù What is the max tax credit?

| For Profit Business: No more than 35% of employer portion
• Tax CREDIT (not deduction) of $8,400
• Reduces tax deduction under Section 152 by the amount of tax credit
| Non-profit Organization: No more than 25% of employer costs
• Tax CREDIT (not deduction) of $6,000
 2010: (Very) Small Business Tax Credit
New
Guidance

y Phase-out for amounts above certain limits

Ù These formulas will calculate the REDUCTION in
subsidy to a small employer
| More than 10 FTE’s
• (number FTE’s – 10) / 15 * Max Tax Credit Amount
• (19.6-10) / 15 = 0.64 * 8,400 = $5,376
| More than $25,000 average wage
• (average wage - $25,000) / $25,000
• (25,510-$25,000) / $25,000 = 0.0204 * 8,400 = $171.36
| REVISED TAX CREDIT AMOUNT
• $8,400 - $5,376 - $171.36 = $2,852.64
• Still able to deduct $21,147.36
 2010: High Risk Pools

y Creates high-risk pool coverage for people who

cannot obtain current individual coverage due to
preexisting conditions.
{ Employers and Insurers cannot put people in the pool—
would pay penalty.
{ Could work with existing state high-risk pools

{ Ends January 1, 2014, when Exchanges are operational

{ It will be financed by a $5 billion appropriation.

 2010: Reinsurance for Early Retirees

y Federal gov’t will assume partial risk for early

retiree health costs
{ Only for early retirees who are 55 or older
{ Plans would pay first $15,000 in claims

{ Share risk on the next $75,000 on an 80/20 basis

{ Plan assumes liability for costs in excess of $90,000

Plan paid stop-

Federal Reinsurance loss coverage

$15,000 $90,000
 2010: Reinsurance for Early Retirees

y Federal gov’t will assume partial risk for early

retiree health costs
y Effective June 23, 2010
{ Details of operational issues are not yet known

{ Impact: dramatically reduce costs for early retirees on

group health plans
Ù Health care costs for 55-64 populations are significantly higher
(estimated to be more than 30%) than younger workers
Ù Health care costs for early retirees are higher than those working

{ Ends January 1, 2014, when Exchanges are operational

2010: “Older” Dependant Children Coverage
New
Guidance

y Mandate for all groups

y Employee’s children who are up to 26 years of age are eligible to be on
parents’ insurance
y Includes up to the date before the child turns 26
y Regardless of whether full-time student or a tax dependant of employee
y Still have COBRA eligibility for 36 months following loss of eligibility (so covered
until day before they turn 29 years old)
y Amount paid by employee is not taxable income (new change)
y Does not apply to spouse of child, nor to the child’s child(ren)
y Other benefit restrictions still apply
y Per regs, creates new eligibility period employee and dependant
y Prohibited from vary premium contributions based on child’s age
y Grandfathered plans do not have to extend eligibility if the child is eligible
for other employer coverage
 Preventative Service Mandates

y New regulations issued July 12, 2010

{ A part of the 2010 implementation mandates

y Outline list of tests/procedures to be covered with no

cost sharing to the plan participant
{ Three page list of procedures to be covered includes STD
testing, pregnancy tests, mammograms, vision exams for
children, and colonoscopies
{ Also includes covering costs of immunizations and other well-
child and well-baby care
{ Likely to be the most expensive aspect of first phase of
HCR implementation
 2010: Benefit Changes

y No Lifetime limits on benefits

y Some annual limits allowed for now
{ prohibited completely by January 1, 2014

y Cover preexisting conditions for children 0-19

y Emergency services covered in-network
y Enrollees may designate any in-network doctor as
their primary care physician.
y New coverage appeal process.
y Federal grant program for small employers providing
wellness programs to their employees
 2010: Benefit Changes

y For all group and individual health plans, but not

grandfathered plans, mandates coverage of specific
preventive services with no cost sharing.
y Minimum covered services are specified based on existing
federal guidelines on specific topics
y This could be a significant cost change for many plans.
{ Unclear if dental and vision for children will be included in the
preventive care requirements.
{ Impact may be immediate in 2010 or in 2014 with essential
benefits package.
 2010: Other Provisions

y All group plans will be required to comply with the

Internal Revenue Section 105(h) rules that prohibit
discrimination in favor of highly compensated
individuals within six months of enactment.
y Deductibility for Part D subsidies is eliminated in
2013, but this results in an immediate accounting
impact.
y Nursing mothers must be given breaks/location
y Only applies to businesses with 50+ employees
y Provides a $250 rebate to seniors who hit the “donut
hole in 2010 (and closes the donut hole over time)
 Changes Effective in 2011

y Penalty for use of HSA for nonqualified medical

expenses increases to 20%.
y OTC drugs no longer be reimbursable unless
prescribed by a doctor.
y Small employers (less than 100 lives) will be allowed
to adopt new “simple cafeteria plans.”
{ Easier eligibility requirements
{ Uniform eligibility to benefits
{ Minimum contribution requirements based on non-elective or
matching methods
{ Cannot favor HCE or key employees
 Changes Effective in 2011

y MINIMUM MEDICAL LOSS RATIOS:

{ Health plans must report to HHS information on loss ratios for
2010 and later plan years
{ Report must provide percentage of premium spent for:
Ù Reimbursement of clinical services
Ù Activities that improve health care quality
Ù All other non-claims expenses excluding state and federal taxes,
licensing or regulatory fees
{ Reporting requirement details to be developed by HHS and
National Association of Insurance Commissioners (NAIC)
 Changes Effective in 2011

y MINIMUM MEDICAL LOSS RATIOS:

{ Beginning January 2011, rebates must be provided to
consumers if health plans do not meet certain minimum loss
ratio
Ù 85% for large group plans
Ù 80% for small group and individual
 Changes effective in 2012

y The Department of Labor will begin annual studies on

self-insured plans using data collected from Form 5500.
y All employers must include on their W2s the aggregate
cost of employer-sponsored health benefits.
{ If employee receives health insurance coverage under multiple plans,
the employer must disclose the aggregate value of all such health
coverage,
{ Excludes all contributions to HSAs and Archer MSAs and salary
reduction contributions to FSAs.
{ Applies to benefits provided during taxable years after December 31,
2010.
{ Must provide any payee a 1099 if paid more
than $600 (including utilities, etc)
 Changes effective in 2012

y Group plans (including self-insured) must report

whether benefits provided to employees:
{ meet criteria (to be established) on improving health outcomes, reducing
medical errors, and wellness and health promotion activities.
{ This report must also be provided to plan participants.

y All plans must provide new summary of benefits

(SPD) to enrollees at specified times.
{ Can be no more than 4 pages in length and must be culturally and
linguistically appropriate
{ Mandated to give notice of any “material benefit change” at least
60 days prior to effective date.
 Changes effective in 2012

y CLASS Act
{ What? A government program to pay for long-term care
expenses, but with a smaller benefit and mandatory “taxes” to
pay for this benefit
Ù Very similar to Social Security Disability
{ Requirements?
Ù Monthly payment of $180-240 for a period of at least five years to
receive a small daily benefit for long-term care expenses (rest
home, etc.)
{ Must opt out – either employer or employee or will
automatically be required to take out amount from paycheck
 Changes effective in 2013

y Higher taxes:
{ Additional 0.9% Medicare Hospital Insurance tax on self-
employed individuals and employees with respect to earnings
and wages above $200,000 individuals/$250,000 joint filers
(not indexed).
{ Self-employed individuals are not permitted to deduct any
portion of the additional tax.
{ New 3.8% Medicare contribution on certain unearned income
(e.g. rental income) from individuals with AGI over
$200,000/$250,000 joint filers
 Changes effective in 2013

y The threshold for the itemized deduction for

unreimbursed medical expenses would be increased
from 7.5% of AGI to 10% of AGI for regular tax
purposes.
{ The increase would be waived for individuals age 65 and older
for tax years 2013 through 2016.
y $2,500 Cap on Medical FSA contributions annually
indexed for inflation begins.
y All employers must provide notice to employees of
the existence of state-based exchanges.
 The BIG Year: Changes effective in 2014

y TAXES & FEES:

{ A new federal tax on fully insured and self-funded group plans,
equal to $2 per enrollee, takes effect to fund federal
comparative effectiveness research takes effect in 2012.
{ Imposes annual taxes on private health insurers based on net
premiums. Coverage must be offered on a guarantee issue
basis in all markets and be guarantee renewable.
 The BIG Year: Changes effective in 2014

y RATING RESTRICTIONS:
{ Redefines small group coverage as 1-100 employees.

{ All individual health insurance policies and all fully insured

group policies 100 lives and under (and larger groups
purchasing coverage through the exchanges) must abide by
strict modified community rating standards
{ Premium variations only allowed for age (3:1), tobacco use
(1.5:1), family composition and geography
{ Geographic regions to be defined by the states and experience
rating would be prohibited.
{ Wellness discounts are allowed for group plans under specific
circumstances.
 The BIG Year: Changes effective in 2014

y EXCHANGES:
{ Requires each state to create an Exchange to facilitate the sale
of qualified benefit plans to individuals, including new
federally administered multi-state plans and non-profit co-
operative plans.
{ States must create “SHOP Exchanges” to help small employers
purchase such coverage.
{ States may choose to allow large groups (over 100) to purchase
coverage through the exchanges in 2017
 The BIG Year: Changes effective in 2014

y INDIVIDUAL MANDATE:
{ All American citizens and legal residents to purchase qualified
health insurance coverage. Exceptions:
Ù religious objectors,
Ù individuals not lawfully present
Ù incarcerated individuals,
Ù taxpayers with income under 100 percent of poverty, and those
who have a hardship waiver
Ù members of Indian tribes,
Ù those who were not covered for a period of less than three months
during the year
Ù People with no income tax liability
 The BIG Year: Changes effective in 2014

y INDIVIDUAL MANDATE (continued)

{ Penalty for non compliance to either a flat dollar amount per
person or a percentage of the individual’s income, whichever is
higher.
{ In 2014 the percentage of income determining the fine amount
will be 1%, then 2% in 2015, with the maximum fine of 2.5% of
taxable (gross) household income capped at the average
bronze-level insurance premium (60% actuarial) rate for the
person’s family beginning in 2016.
{ The alternative is a fixed dollar amount that phases in
beginning with $325 per person in 2015 to $695 in 2016.
 The BIG Year: Changes effective in 2014

y INDIVIDUAL MANDATE:
{ Creates sliding-scale tax credits for non-Medicaid eligible
individuals with incomes up to 400% of FPL to buy coverage
through the exchange.
Ù The reconciliation provides slight increases to the subsidy
amounts for all subsidy-eligible individuals and increases the cost-
sharing subsidies for those making 250% FPL or less.
Ù However, beginning in 2019, a failsafe mechanism is applied that
reduces overall premium subsidies if the aggregate amount
exceeds 0.504 percent of GDP.
 The BIG Year: Changes effective in 2014

y EMPLOYER MANDATE:
{ The employer responsibility requirements take effect for companies
that employ more than 50 Employees
Ù Coverage must meet the essential benefits requirements in order to be
considered compliant with the mandate.
Ù When determining whether an employer has 50 employees, part-time
employees must be taken into consideration based on aggregate
number of hours of service.
{ If an employer does not provide coverage and one employee receives
a tax credit through the exchange, the employer will pay a penalty for
all full-time employees.
{ Fine for noncompliance is $2000 per employee annually, but first 30
employees not counted (i.e., if the employer has 51 employees and
doesn’t provide coverage, the employer pays the fine for 21
employees).
 The BIG Year: Changes effective in 2014

y EMPLOYER MANDATE (continued):

{ An employer with more than 50 employees that does offer coverage
but has at least one FTE receiving a tax credit in the exchange will
pay the lesser of $3,000 for each of those employees receiving a tax
credit or $2,000 for each of their full-time employees total.
{ An individual who has employer sponsored coverage available and
has family income up to 400% of FPL is eligible for a tax credit
through the exchange instead of employer coverage if-
Ù the actuarial value of the employer’s coverage is less than the
minimum standard
Ù or the employer requires the employee to contribute more than 9.5%
of the employee’s family income toward the cost of coverage.
{ Waiting periods in excess of 90 days are prohibited.
 The BIG Year: Changes effective in 2014

y EMPLOYER MANDATE (continued):

{ Requires employers to provide a voucher to use in the
exchange instead of participating in the employer-provided
plan in limited circumstances.
Ù Employees must be ineligible for subsidies
Ù An affordability test is required
Ù Voucher to be provided must be adjusted for age
Ù Employee can keep amounts of the voucher in excess of the cost of
coverage
{ There is NO mandate that employers cover their
part-time employees
 The BIG Year: Changes effective in 2014

y EMPLOYER MANDATE (continued):

{ Requires employers of 200 or more employees to auto-enroll
all new employees into any available employer-sponsored
health insurance plan.
Ù Waiting periods subject to limits may still apply.
Ù Employees may opt out if they have another source of coverage.
Ù Implementation date is unclear, may change to earlier via
regulation
 The Senate Bill in 2014

y BENEFITS:
{ Essential benefits packages are defined
Ù Based on actuarial equivalents
Ù Defines cost-sharing, mandates, and minimum covered benefits
{ Preexisting conditions limitations prohibited
{ Prohibition on any annual limits or lifetime limits in all group (even
self-funded plans) or individual plans.
{ Multiple levels available based on actuarial equivalents
{ Self-funded plans may not be subject to all requirements, but may
not meet employer mandate requirements if they don’t comply
{ Allows catastrophic-only policies for those 30 and younger.
 The BIG Year: Changes effective in 2014

y WELLNESS:
{ Codifies and improves upon the HIPAA bona fide wellness
program rules and increases the value of workplace wellness
incentives to 30% of premiums with DHHS able to raise to
50%
{ Establishes a 10-state pilot program to apply the rules to
HIPAA bona fide wellness program rules the individual market
in 2014-2017 with potential expansion to all states after 2017.
{ New federal study on wellness program effectiveness and cost
savings.
 Beyond 2014

y Cadillac Tax:
{ 40% excise tax on insurers of employer-sponsored health plans
with aggregate values that exceed $10,200 for singles and from
$27,500 for families takes effect in 2018.
Ù Transition relief would be provided for 17 identified high-cost
states.
Ù Values of health plans include reimbursements from FSAs, HRAs
and employer contributions to HSAs.
Ù Stand-alone vision and dental are excluded from the calculation.
Ù Premium values are indexed to CPI
Ù Allows plans to take into account age, gender and certain other
factors that impact premium costs
 What happens from here?

y Regulatory Process
{ Numerous federal agencies in charge of drafting rules for
implementing law
{ HHS in charge (working with DOL, Treasury/IRS, EEOC, FTC)

y State Implementation
{ Legislatures, Governors, Insurance Commissioners

y Litigation
{ Numerous states, numerous approaches
{ Virginia/Florida vs. Georgia
Questions?