© Copyright 2011 Aronberg Goldgehn Davis & Garmisa Andrew S. Williams 330 N. Wabash Avenue, Suite 1700 Chicago, IL 60611 (312) 755-3145 [email protected]

© Copyright 2011Aronberg Goldgehn Davis & Garmisa

Andrew S. Williams330 N. Wabash Avenue, Suite 1700

Chicago, IL 60611(312) 755-3145

[email protected] www.benefitslawgroupofchicago.com

Health Care Reform: The Good, The Bad and the Ugly

Andrew S. Williams has practiced in the employee benefits and ERISA arena since ERISA was passed in 1974. He has been recognized by his peers through a survey conducted by Leadings Lawyers Network as among the top 5 percent of Illinois lawyers in Small, Closely and Privately Held Business Law and Employee Benefits Law. He maintains a website at www.benefitslawgroupofchicago.com with additional updates, commentary and analysis of benefits and employment topics.

2011 AGDG – All rights reserved.

mailto:[email protected]

http://www.benefitslawgroupofchicago.com/



Andrew S. [email protected]

PPACA will impose:• expanded access• mandated benefits• compliance responsibilities• corresponding costs increases



Who Are The Uninsured?

• Those who do not have access to employer-provided coverage, including the unemployed



• Those with family incomes over $75,000 who elect not to be covered



• Those who are already eligible for government health coverage and have not enrolled



• Undocumented workers



PPACA is intended to help millions more Americans obtain health insurance coverage, but its requirements will affect almost all of us, beginning now



Consider the following overview of only the most significant changes:



THE GOOD

(current requirements only)



• Subject plans must cover otherwise eligible children under age 19 regardless of any pre-existing conditions



• PPACA prohibits cancellation of individual policies because of faulty or incomplete information disclosed on application forms (there’s an exception for fraud)



• Lifetime coverage maximums are abolished



• Coverage of adult children up to age 26 is required under a parent’s group health plan, regardless of their student, dependency or marital status



• Insurers must rebate a portion of premiums to policy holders if more than 15 percent of premium revenue (20 percent for small group and individual plans) is expended on costs other than payment of medical claims



• Except for “grandfathered” plans, group health coverage will also have to provide:



• first dollar care for designated diagnostic procedures (immunizations, blood pressure checks, mammograms and colon cancer screenings)



• emergency medical services must be available without pre-authorization or out-of-network surcharges



• participants must be allowed to choose a primary care provider in plans which require one



• Additional Medicare benefits include lower Part D prescription drug costs, “free” annual physical exams and certain “free” preventative services



Miscellaneous other perks include:• a health care tax credit for employers with

fewer than 25 employees with an average wage of less than $50,000 per year, and

• an exemption from the penalties for failure to provide employee health coverage for employers with 49 or fewer employees



THE BAD



Coverage mandates and other expansions of coverage will cost additional premium dollars, estimated at between an extra 1 to 9 percent of premium expense this year. That’s on top of premium increases reflecting the general upward trend of medical costs.



Extra taxes, incentives and other revenue raising rules affect individuals and a wide variety of industries ranging from tanning salons to bio fuel producers



Individual Mandate Excise Tax: Starting in 2014, anyone not buying “qualifying” health insurance must pay an income surtax according to the higher of the following:

1 Adult 2 Adults 3+ Adults

2014 1% AGI/$95 1% AGI/$190 1% AGI/$285

2015 2% AGI/$325 2% AGI/$650 2% AGI/$975

2016+ 2.5% AGI/$695 2.5% AGI/$1390 2.5% AGI/$2085



Employer Mandate Tax (Jan. 2014): If an employer does not offer health coverage, and at least one employee qualifies for a health tax credit, the employer must pay an additional non-deductible tax of $2000 for all full-time employees. This provision applies to all employers with 50 or more employees. If any employee actually receives coverage through the exchange, the penalty on the employer for that employee rises to $3000. If the employer requires a waiting period to enroll in coverage of 30-60 days, there is a $400 tax per employee ($600 if the period is 60 days or longer).



Surtax on Investment Income (Jan. 2013): This increase involves the creation of a new, 3.8 percent surtax on investment income earned in households making at least $250,000 ($200,000 single)



Excise Tax on Comprehensive Health Insurance Plans (Jan. 2018): Starting in 2018, new 40 percent excise tax on “Cadillac” health insurance plans (plans charging more than $10,200 single/$27,500 family annual premiums)



Hike in Medicare Payroll Tax (Jan. 2013): Withholding tax for higher incomes (over $200,000 individual, $250,000 married) increases from 1.45% to 2.35% (employee portion)



Medicine Cabinet “Tax” (Jan. 2011): Americans no longer able to use health savings account (HSA), flexible spending account (FSA), or health reimbursement (HRA) pre-tax dollars to purchase non-prescription, over-the-counter medicines (except insulin)



HSA Withdrawal Tax Hike (Jan. 2011): Increases additional tax on non-medical early withdrawals from an HSA from 10 to 20 percent



Flexible Spending Account Cap – a/k/a “Special Needs Kids Tax” (Jan. 2013): Imposes cap of $2500 (Indexed to inflation after 2013) on FSAs (now unlimited)



Tax on Medical Device Manufacturers (Jan. 2013): This law imposes a new 2.3% excise tax on medical devices



Raise “Threshhold” for Medical Itemized Deduction from 7.5% to 10% of AGI (Jan. 2013)



Tax on Indoor Tanning Services (July 1, 2010): New 10 percent excise tax on indoor tanning salons



• Tax on Drug Companies (Jan. 2010): $2.3 billion annual tax on the industry imposed relative to share of sales made that year



• States are responsible for additional Medicare and Medicaid costs

• Medicare premiums for Part B and Part D coverage also will increase in 2011 for higher income recipients



Non-grandfathered, self-insured plans may have to engage independent claims review organizations (either directly or through their third party administrators) in order to satisfy PPACA’s new external claims review requirements



Non-grandfathered fully insured plans will have to comply with nondiscrimination rules that previously applied only to self-insured plans. Failure to comply in an insured plan exposes the employer to an excise tax of $100 per day per participant, not just the taxation of benefits to highly compensated employees (enforcement of this provision has been postponed indefinitely)



THE UGLY

Click To Play : http://www.youtube.com/watch?v=1LRcLMScEqo

http://www.youtube.com/watch?v=1LRcLMScEqo





PPACA reforms technically allow employers to keep their group health plans as they existed on March 23, 2010 if they meet certain requirements for “grandfathered” plans



Premium changes are not taken into account when determining whether or not a plan is grandfathered



Plans will lose their grandfathered status if they choose to make significant changes that reduce benefits or increase costs to participants. Examples of prohibited changes include:



• A Significant Cut or Reduction in Benefits. For example, if a plan decides to no longer cover care for people with diabetes, cystic fibrosis or HIV/AIDS



• Raising Co-Insurance Charges. Typically, co-insurance requires a patient to pay a fixed percentage of a charge (for example, 20% of a hospital bill). Grandfathered plans cannot increase this percentage.



• Significantly Raising Co-Payment Charges. Compared with the copayments in effect on March 23, 2010, grandfathered plans will be able to increase those co-pays by no more than the greater of $5 (adjusted annually for medical inflation) or a percentage equal to medical inflation plus 15 percentage points. For example, if a plan raises its copayment from $30 to $50 over the next 2 years, it will lose its grandfathered status.



• Significantly Raising Deductibles. Compared with the deductible required as of March 23, 2010, grandfathered plans can only increase these deductibles by a percentage equal to medical inflation plus 15 percentage points.



• Significantly Lowering Employer Contributions. Grandfathered plans cannot decrease the percent of premiums the employer pays by more than 5 percentage points.



• Adding or Reducing an Annual Limit on What the Insurer Pays



For insured plans, insurance companies probably will impose plan changes without regard to grandfathered status



Accordingly, by government estimates, about 80 percent of existing small business plans will be unable to maintain their grandfathered plan status – those employers will not be able to keep their current plan if they like it



What To Do?



Because insurers’ gross margin on policy premiums are now limited to 15 percent (20 percent for small group plans and individual policies), broker commissions are likely to be reduced or eliminated – so commission fee brokers may be a thing of the past.



Consider plan design changes to shift high risk employees to the state insurance exchanges



Anti-discrimination rules for insured group health plans require careful planning while definitive guidance is being prepared –



• Don’t continue a two-tiered plan• Be careful with any executive agreement

that provides additional health benefits, including subsidized COBRA



Consider personal tax strategies to minimize exposure to the 3.8 percent health care surtax or investment income effective starting in 2013



Harvest capital gains in 2012



Convert conventional IRAs to Roth IRAs



Consider tax-exempt or tax-deferred investments (municipal bonds, tax-deferred annuities, life insurance, real estate, and charitable remainder trusts)



Discontinue your employer provided group health plan



The above material is intended for general information and promotional purposes, and should not be relied on or construed as professional advice. Under the Illinois Rules of Professional Conduct, the above information may be considered advertising material. The submission of this information is not intended to create, and receipt of it does not create, a lawyer-client relationship



Aronberg Goldgehn Davis & Garmisa330 N. Wabash Avenue

Suite 1700Chicago, IL 60611

Andrew S. Williams

(312) 755-3145

[email protected]

mailto:[email protected]


Documents

© Copyright 2011 Aronberg Goldgehn Davis & Garmisa Andrew S. Williams 330 N. Wabash Avenue, Suite 1700 Chicago, IL 60611 (312) 755-3145 [email protected]