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Association of Washington Cities 1
The Current Conversation The Current Conversation on Health Care Reformon Health Care Reform
Presented to: PSFOA MeetingJuly 11, 2012
By: Carol WilmesAWC Trust Program Manager
Association of Washington Cities 2
Today’s Conversation
Big picture developments W-2 reporting Claims & appeals Summary of benefits & coverage
(SBC) Planning for 2013 & 2014 Distant future - 2018 Excise tax on
high cost coverage
Association of Washington Cities 3
Big Picture
Year 3 of Health Care Reform• Original effective date: March 23, 2010
Supreme Court ruling on constitutionality of individual mandate
Potential for legislative action• 2012 election implications• Congressional reaction
Key elements of health reform for employers
2011 2012 20132010 2014
• Change in tax treatment for over-age dependent coverage
• Accounting impact of change in Medicare retiree drug subsidy tax treatment
• Early retiree medical reinsurance
• Medicare prescription drug “donut hole” beneficiary rebate
• Auto-enrollment of full-time employees (effective TBD)
• Break time/private room for nursing moms
• Employers must distribute uniform benefit summaries to participants
• Employers must provide 60-day advance notice of material modifications (TBD)
• Form W-2 reporting for 2011 health coverage
• $2,500 health FSA contribution cap (indexed)
• Medical device manufacturers’ fees start
• Higher Medicare payroll tax on wages exceeding $200,000/ individual; $250,000/couples
• New Medicare tax on net investment income for taxpayers with incomes exceeding $200,000/ individual; $250,000/couples
• Research fees begin
• Change in Medicare retiree drug subsidy tax treatment takes effect
• Health insurance exchanges
• Individual coverage mandate
• Financial assistance for exchange coverage of low-income individuals
• Medicaid expansion
• New health plan regulations
• HIPAA wellness limit increases
• Shared responsibility penalties
• Free-choice vouchersFree-choice vouchers
• Additional reporting and disclosure
• Dependent coverage to age 26 for any covered employee’s child**
• No annual dollar limits**
• No pre-existing condition limits**
• No waiting period over 90 days**
• Additional new standards for new or “non-grandfathered” health plans, including limited cost-sharing
• Health insurance industry fees begin
• Excise tax on “high cost” or Cadillac plans
* Applies to all plans, including “grandfathered” plans, effective for plan years beginning on or after Sept. 23, 2010 (Jan. 1, 2011, for calendar year plans). Collectively bargained plans may have a delayed effective date.
** Applies to all plans, including grandfathered plans, effective for plan years beginning on or after Jan. 1, 2014.
2018
• Dependent coverage to 26 (no other employer coverage available)*
• No lifetime dollar limits*• Restricted annual dollar limits*• No pre-existing condition
limitations for children up to age 19*
• No rescissions*• Additional standards for new or
“non-grandfathered” health plans, including non-discrimination provisions for insured plans and mandatory preventive care with no cost-sharing
• No health FSA/HRA/HSA reimbursement for non-prescribed drugs
• Increased penalties for non-qualified HSA distributions
• Voluntary long-term care Voluntary long-term care “CLASS” program slated to start“CLASS” program slated to start
• Pharmaceutical manufacturers’ fees start
• Medicare, Medicare Advantage benefit and payment reform
• Insurers subject to medical loss ratio rules*
Key Elements of Health Care Reform
Association of Washington Cities 5
Market changes and health reform are
converging
Consumers
Greater accountability for health status
More choices and financial consequences
Direct to consumer retail marketing
Providers
Consolidation, integration, and risk sharing
Community based care management
Insurers
Drive for retail market share
New products and services
Changing risk sharing and insurance models
Employers
Considering new strategies
Understand new public and private benefit markets
More employee responsibility and incentives
Government
Over 35 million more people get tax credits or Medicaid
Create exchanges and individual insurance markets
Political and implementation uncertainty
Association of Washington Cities 6
Is it Constitutional? Yes!
Constitutionality of individual mandate• Argued in March to U.S. Supreme Court• Historical discussion = compared to
Brown v. Board of Education of 1954• Decision issued June 28, 2012 – Yes!
What does the Campaign Trail & Elections have in store for us?
Association of Washington Cities 7
Supreme Court Bracketology – Individual Mandate
Anti-injunction act:individual mandate
No ruling until at2015, when tax is first assessed and paid; OR federal government authorized due to
compelling need
Supreme Court rules on constitutionality of individual mandate
Commerce clause: is individual mandate unconstitutional
Is the individual mandate severable from the rest of the law?
Health care reform implemented without individual mandate
Tax Tax or Penalty?
Health care reform moves forward
Health Care Reform
No
No
Yes
Yes/Partially
Issues
•Will exchanges be available?
•Will Congress enact legislation to incent healthy individuals to buy coverage?
•Court could determine which components stay and which go
Association of Washington Cities 8
Supreme Court Bracketology – Medicaid
ExpansionMedicaid expansion
“coercive”?
Medicaid status quo Proceed as enacted
States receive federal funds for expanding Medicaid coverage
Yes No
Will individuals be eligible for premium tax credit or cost-sharing subsidy to
purchase coverage in the Exchange?
Association of Washington Cities 9
W-2 Reporting
Cost of health coverage must be reported in Box 12, Code DD on the W-2
Effective for 2012 W-2 end-of-year forms (issued in early 2013)
Applies to employers filing more than 250 W-2s
Employers with less than 250 W-2s have an indefinite reprieve
Association of Washington Cities 10
W-2 Reporting (cont.)
What to report?• Aggregate cost of all plans in which the
employee participates Pre-tax & after-tax COBRA Premium (active coverage premium) Must reflect mid-year cost changes
• Both employee & employer contributions• Dependent coverage• Vision/dental if bundled• Employer contributions to FSA
Association of Washington Cities 11
W-2 Reporting (cont.)
What NOT to report:• Employee contributions to FSA• HSA or HRA contributions• Specific disease policies (i.e., cancer)• Unbundled vision/dental policies
Separate election for coverage Separate premium for coverage
• Retiree or COBRA participants• EAPs, wellness programs and on-site
medical clinics
Association of Washington Cities 12
Claims & Appeals
Rules apply to non-grandfathered plans, including non-ERISA group health plans (local government)
Specified response time & method:• Urgent care claims – 72 hours• Diagnosis & treatment codes do not
have to be in claim notices
Association of Washington Cities 13
Claims & Appeals (cont.)
• Denial notices must be provided in non-English languages in counties where 10% of the county is literate in the same non-English language (4 languages specified):
Spanish Mandarin
Self-funded plans:• Only for medical judgment or rescission• Contract with 2 (instead of 3) external
reviewers until 7-1-12
Association of Washington Cities 14
Summary of Benefits and Coverage (“SBC”)
Group Health Plan Facts
Deductibles
$500/Individual • $1,000/Family
Out-of-Pocket Maximums
$2,000/Individual • $4,000/Family
PPO Network? Yes
Services Not Covered
Cosmetic, Bariatric Surgery
Dental, Infertility
Co-Payments, In-Network $35
Co-Insurance, In-Network 20%
Co-Insurance, Out-of-Network 40%
Preventive Care Costs $0
Your Coverage Costs*
Having a baby $1,500
Managing diabetes $3,500
*Numbers based on average costs. Your costs may be different and are likely to exceed these numbers.
Association of Washington Cities 15
SBC (cont.)
Final regulations issued in Feb. 2012 (FAQs issued in March)
SBC required as of 1st open enrollment after 9-22-12
Highlights:• Responsible entities to report• Timing• Method• Content & Appearance
Association of Washington Cities 16
Planning for 2013
Health FSA limited to $2,500 (indexed) for calendar year plans
Employer notice to employees about State Health Care Exchanges• March 2013 (assuming no regulatory
delays)
Association of Washington Cities 17
Planning for 2013 (cont.)
Non-grandfathered plans must cover expanded preventive care for women at 100%• Contraceptive coverage, STD screening
and counseling, breastfeeding supplies• Watch Rx coverage: NO COPAYS
Association of Washington Cities 18
Planning for 2014
Grandfathers will now be non-grandfathers• No pre-ex exclusions for anyone• No annual limits for Essential Health
Benefits• Maximum 90-day waiting periods• Dependent children to age 26
Cost-sharing limits to level of HSA-eligible HDHP• Not exceed $2,000/ee & $4,000/family ded.
Association of Washington Cities 19
Planning for 2014: Individual Mandate
Individuals must pay tax if they, their spouses, or their tax dependents do not have “minimum essential coverage”
Minimum essential coverage includes:• Any employer-sponsored plan• Any government-sponsored plan• Plans in the individual market• State Health Care Exchanges
Association of Washington Cities 20
Planning for 2014: Individual Mandate (cont.)
Exemptions for:• Religious conscience• Health care sharing ministry participants• Taxpayers with income below filing
threshold• Individuals who cannot afford coverage
(when required contribution is more than 8% of income)
• Members of Indian tribes
Association of Washington Cities 21
Planning for 2014: Employer Pay or Play
Apply to employers with >50 full-time employees
Full-time employee (awaiting regulations)• Current definition 30+ hours/week• Hint in recent FAQs in another section
(90-day look with 90-day grace) Penalties kick in when an employee
receives a premium tax credit
Association of Washington Cities 22
Planning for 2014: Employer Pay or Play
(cont.) Employers who do not offer coverage
and have an employee who receives a premium tax credit:• Must pay $2,000 per FTE (after subtracting
the 1st 30 FTEs) Employers who offer coverage and
have an employee who receives a premium tax credit:• Must pay $2,000 per FTE OR $3,000 per
FTE receiving tax credit, whichever is less
Association of Washington Cities 23
Planning for 2014: Premium Tax Credit
Employee not eligible for premium tax if employee has access to minimum essential coverage
Employer-provided coverage is minimum essential if:• Coverage provides 60% of total allowed
costs• Affordable coverage: employee only
coverage of lowest plan option does not exceed 9.5% of household income
Association of Washington Cities 24
Shared Responsibility 2014 Affordability mandate –
income segments
Income Segments Under Health Reform
<133% FPL
133-400% FPL
>400% FPL
0%
100%
200%
300%
400%
500%
600%
Household Incomeas % of FPL
% F
PL
Shared responsibility penalties may apply
Single individual Family of Four
% of FPL Annual Household Income
Household income in excess of 400% of
Federal Poverty Level
Not eligible for subsidy through Exchange
400% $48,784* $99,296*
300% $36,588* $74,472*
200% $24,392* $49,648*
150% $18,294* $37,326*
133% $16,220* $33,016*
* Note: Number based on Mercer forecasts for 2014 based on current contributions; illustrative only
Association of Washington Cities 25
2014: Projected contributions at Medicaid thresholds
Provisions – Shared Responsibility
If employee premiums for at least one plan are less than or equal to approximately $133 (“Employer Contribution Affordability Threshold” at the 138% or Medicaid level), then the shared responsibility penalties would not apply
Employers may pursue a strategy of keeping “employee-only” contribution rates low, while increasing other coverage tiers (employee + one and employee + family)
Association of Washington Cities 26
Planning for 2014: State Exchanges
Exchanges initially only open to individuals and small employers
States may choose to expand to larger employers later
Will vary by state – Core plan of “metal tiers” – bronze, silver, gold, platinum
State Exchanges must be approved by Jan. 1 2013 for Jan. 1 2014 operation (first open enrollment is Oct. 1 2013)
Association of Washington Cities 27
Washington Healthcare Reform: Overview
Narrowed focus down to 3 goals:• Increase access to affordable health
plans• Organize a transparent & accountable
insurance market – to facilitate consumer choice
• Provide an efficient, accurate & customer-friendly eligibility determination process
Association of Washington Cities 28
Health Insurance Exchange• E2SHB 2319 passed both houses on
March 8 & delivered to Governor• Establishes Exchange Board as final
rule maker of Exchange structure• Submit recommendations to
Legislature by 12-1-12• If no 2013 Legislative agreement, then
Board proceeds with implementation
Washington Healthcare Reform: Exchange
Association of Washington Cities 29
Washington Healthcare Reform: Exchange
Health Insurance Exchange (contd.)• “Market” rules outside of the Exchange
• Concerning language that all health plans offered outside Exchange must conform to “precious metals” structure
• Concerning language regarding association plans
• Centralized administration as your risk and/or income level changes
• Extremely aggressive timeline for 3-1-12 education deadline
Association of Washington Cities 30
Washington Healthcare Reform:
AWC Trust Response Long Range Strategic Planning Retreat 2011
• Trust has continued role• Educate membership – Be a leader• Bend the trend
Monitor Exchange plan design & cost for comparable offerings
Retain legislative advocate to address pooling laws and rolling cities into PEBB
Federal voice – staying connected with NLC• i.e., definition of full-time employee (30-hr
work wk) Watchful waitingWatchful waiting
Association of Washington Cities 31
Health care reform issues -Finally in 2018 – Excise tax on
high cost plansIssue Patient Protection and Affordable Care Act, as amended
40% excise tax on “high cost” employer coverage
■ 40% excise tax on “high cost” coverage, including medical, employee and employer health FSA contributions, onsite medical clinics, and employer (but not employee) contributions to HSAs (but not insured stand-alone dental and vision coverage)
■ Employers to determine aggregate cost, report to insurers and TPAs who must pay the tax
Thresholds for excise tax(Indexed to CPI + 1% in 2019, CPI thereafter)
Self-only Any other tier
General $ 10,200 $ 27, 500
High-risk professions
$ 11,850
$ 30,950
Retiree aged 55 through 64
Multiemployer plan
$ 27,500 $ 27,500
Association of Washington Cities 32
Added Slide from Live Presentation - Understanding the Cost Impact Sample
Output
Excise Tax Provision Results vary significantly based on assumed trend applied to employer costs (below assumes 9%/year) Average employer of 100 with varied enrollment Preferred Plan with $500 deductible
PPO High
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Employee Only PEPY Employee + Family PEPY Single Threshold Family Threshold
Employer Excise Tax (in $ ,000s)
Year 2018 2019 2020 2021 2022 2023 2024 2025
Tax $0 $0 $248 $726 $1,261 $1,830 $2,694 $3,701
Association of Washington Cities 33
Questions?
Source of Materials & Graphs: Mercer Health & Benefits; and Stoel Rives