Federal Health Care Reform Legislation: What it Means for Michigan

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Federal Health Care Reform Legislation: What it Means for Michigan Employers

May 18, 2010

Presented by:Gregory W. Moore151 S. Old WoodwardSuite 200Birmingham, MI 48009248-988-5842

Copyright Clark Hill PLC 2010 2

Overview

� Patient Protection and Affordable Care Act, with Amendments by the Health Care Reconciliation Act of 2010, was signed into law i n March.

� The new law substantially changes the way group health plans will operate in the future, as well as the options that will be avail able to individuals for obtaining group health care coverage.

� Many of the law’s provisions will not be effective for years; but others must be addressed sooner.

� The new law envisions issuance of extensive regulations over the nex t few years.


Question #1

� How many employees do you have?

— Fewer than 25 employees

— Between 25-50 employees

— More than 50 employees but less than 200

— More than 200 employees

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Grandfathered?

Determine whether your group health plan is a “grandfathered plan” –

� It is “grandfathered” if it provided coverage to participants on March 23, 2010 (the date the President signed health care reform into law).


Grandfathered Group Health Plans

If you have a grandfathered group health plan, do not make changes to your group health plan unless required by law and/or until we have a better idea of what actions end grandfathered status -

� Especially important not to materially reduce benefits – (might end grandfathered status).

� Act provides that you can add new participants to an existing group health plan without losing grandfathered status.


Grandfathered Group Health Plans

If your group health plan is grandfathered

� For plans that provide dependent coverage health care reform requires

coverage of dependents to age 26 beginning January 1, 2011 for calendar year plans only if not eligible for other employer coverage until January 1,

2014 (can you / should you implement now?);

� Health care reform prohibits rescission of coverage except in the case of fraud or misrepresentation (beginning January 1, 2011 for calendar year plans);

� Health care reform prohibits exclusion based on pre-existing conditions for

children younger than age 19 (beginning January 1, 2011 for calendar year plans); and

� Health care reform prohibits lifetime caps on essential benefits (beginning January 1, 2011 for calendar year plans) and annual caps (2014).

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Non-Grandfathered Plans

Among the many additional requirements affecting non-grandfathered plans (including all of the provisions applicable to grandfathered plans), key ones include:

� Nondiscrimination rules beginning January 1, 2011 for calendar year plans

which penalize discrimination in favor of HCEs;

� Effective January 1, 2011 for calendar year plans, group health plans must establish new appeal and review rules;

� Effective January 1, 2011 for calendar year plans, certain preventative care

benefits (immunizations, screenings, etc.) must be provided to participants at no cost to them; and

� Effective January 1, 2011 for calendar year plans, law requires coverage of

dependents to age 26 regardless of whether they are eligible for other employer coverage.


Is there a CBA?

Also determine whether the group health plan is subject to a Coll ective Bargaining Agreement (“CBA”)

� Collectively bargained plans in effect March 23, 2010 are not subject to health care reform until the date on which the last CBA relating to coverage terminates;

� Question – still grandfathered? We think so, but await clarification.


Question #2

� Do you have an existing Collective Bargaining Agreement for any un it within you place of employment?

— Yes

— No

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Do you Sponsor an FSA?

FSA Plan changes

� Disallow FSA (and HRA and HSA) Plan “over the counter” drug reimbursements effective for Plan Years beginning after 2010; and

� Limit FSA maximum annual employee deferrals to $2,500 beginning in 2013.


Retiree Health Subsidy

Can your Company benefit from the Retiree Health Subsidy?

� Subsidizes 80% of claim between $15,000 and $90,000;

� For coverage of retirees between age 55 and 64; and

� Available beginning June 23, 2010 to earlier of exhaustion ($5 billion) or

January 1, 2014.


Small Employer Credit

Can your Company benefit from the small employer credit?

� Are you a “qualified” small employer?

� Do you contribute at least 50% of premium per employee?

� Do you have fewer than 25 employees?

� Do you provide average annual wages of less than $50,000 for 2010 to 2013, adjusted thereafter.

� If 10 or fewer employees with average annual wages less than $25,000 you are eligible for full credit.

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Question # 3

• Based on the criteria on the prior slide, are you eligible for t he small employer tax credit?

— Yes

— No


Items to Look Forward To

� Effective January 1, 2014, employers with more than 200 em ployees must automatically enroll employees in health insurance coverage offere d by the employer; however, employees may opt out of employer coverage (opting out will trigger a tax to the employer).

� Effective January 1, 2014, if an employer with greater t han 50 employees (a “large employer”) does not offer “essential” health insurance coverage and such employer has at least one full-time employee receivi ng a premium tax credit, then the employer will be assessed an a dditional fee of $2,000 (up from $750) per full time employee. However , the first 30 employees are not counted in payment calculations.

� Effective January 1, 2014, employers with greater than 50 employees that offer “essential” health insurance coverage and such employer has a t least one full-time employee receiving a premium tax credit , will pay the lesser of $3,000 for each employee receiving a premium cre dit or $2,000 for each full-time employee.


Items to Look Forward to (Cont.)

� Effective January 1, 2014, employers that offer health insura ncecoverage will be required to offer an “essential” health benefits package. This means that each employer plan offered must meet certain minimum health plan coverage requirements including a hea lth plan that provides a comprehensive set of services, covers at least 60% of the value of the covered benefits, limits annual cost-sharing to the current HSA limits ($5,950 / individual and $11,900 / fam ily in 2010), and is not more extensive than the typical employer plan. Additi onally, in 2014, all qualified health benefit plans, including those offered through the exchanges and those offered in the individual and small group markets (except grandfathered plans) must meet the requirements of an essential health benefits package.

� Effective January 1, 2014, waiting periods for insurance cover age limited to 90 days.

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Items to Look Forward To (Cont.)

� Effective January 1, 2014, group health plans will be prohibite d from containing pre-existing condition exclusions for any individual (Note: Effective June 23, 2010, a temporary national high-risk pool wi ll be established to provide health coverage to individuals with pre-exis ting medical conditions who have been uninsured for at least six months. Eligible individuals will receive subsidized premiums. This temporary national high-risk pool will remain in effect until 2014.)


Items to Look Forward To (Cont.)

� Effective January 1, 2018, the law imposes an excise tax on insurers of “Cadillac” health plans with aggregate values that exceed $10,2 00 for individual coverage and $27,500 for family coverage (indexed annual ly), provided higher thresholds apply for retirees age 55 and older not eligible for Medicare (and subject to additional special limit s) and employees in high risk professions. The excise tax will equal 40% of the value of the plan that exceeds the threshold amounts. The aggregate value of the health insurance plan includes reimbursements for heal th FSAs or health reimbursement arrangements (“HRAs”), employer contributions to an HSA, and coverage for supplementary health insurance coverage.


Lifetime & Annual Limits

� Group health plans are prohibited from placing lifetime limits on the dollar value of benefits for any participant or beneficiary. (9/23/10)

� Group health plans are prohibited from placing annual limits on the dollar value of benefits for any participant or beneficiary (restricte d annual limits for plan years beginning prior to January 1, 2014 are permitted). ( 1/1/14)

� However, group health plans may place annual limits on covered bene fits that are not "essential health benefits" to the extent that s uch limits are otherwise permitted by the Secretary. (1/1/14)

� But, keep in mind Mental Health Parity.

� Requires reductions in the maximum limits for out-of-pocket expens es for individuals enrolled in "qualified health plans" whose incomes are between 100% and 400% of the poverty limit.

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Employer Mandated Coverage

� Employers are not required to provide group health insurance to empl oyees, but not offering coverage comes with a price, depending on employer size.

� Employers that offer health insurance coverage will be required t o offer an "essential" health benefits package. This means that each employ er plan offered must meet certain minimum health plan coverage requir ements including a health plan that provides a comprehensive set of servi ces, covers at least 60% of the value of the covered benefits, lim its annual cost-sharing to the current HSA limits ($5,950 / individual and $11, 900 / family in 2010), and is not more extensive than the typical employer pla n.

� Group health plans must provide coverage for, and not impose any cost sharing requirements (i.e. deductibles) for: (1) specified prevent ive items or services; (2) recommended immunizations; and (3) recommended prev entive care and screenings for women and children.


Employer Fines & Penalties

� If an employer with greater than 50 employees does not offer "ess ential" health insurance coverage and such employer has at least one full -time employee receiving a premium tax credit, then the employer will be assessed an additional fee of $2,000 (up from $750) per full time emp loyee. However, the first 30 employees are not counted in payment calculations.

� Employers with greater than 50 employees that offer "essentia l" health insurance coverage and such employer has at least one full-time em ployee receiving a premium tax credit, will pay the lesser of $3, 000 for each employee receiving a premium credit or $2,000 for each full-ti me employee.


Employee Premium Tax Credit

� Important to understand eligibility in order to understand potential f ines & penalties

� Household income falls between 133% and 400% of federal poverty l imit

— 2009 FPL extended to 2010

— 100% of FPL = $10,830 (family of 4 = $22,050)

— 400% of FPL = $43,320 (family of 4 = $88,200)

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State Exchange Programs

� Employers offering coverage will be required to provide a "free choice" voucher to employees with incomes less than 400% of Federal Pov erty Level ("FPL") whose share of the premium cost exceeds 8%, but is less than 9.8% of their household income. Such employees will be permitted to obtai n health insurance coverage from the health insurance exchange create d by the legislation.

� The free choice voucher amount will be equal to what the employer w ould have paid to provide coverage to the employee under the employer's plan.

� Accordingly, the voucher will be used to offset the premium cost s for the plan in which the employee is enrolled.

� Employers providing free choice vouchers will not be subject to f ines or penalties for employees that receive premium credits in a s tate based health insurance exchange.


Cadillac Tax

� The law imposes an excise tax on insurers of "Cadillac" healt h plans with aggregate values that exceed $10,200 for individual covera ge and $27,500 for family coverage (indexed annually), provided higher thresholds apply for retirees age 55 and over not eligible for Medi care (and subject to additional special limits) and employees in high risk professions. The excise tax will equal 40% of the value of the pl an that exceeds the threshold amounts. The aggregate value of the health insurance plan includes reimbursements for health FSAs or healthreimbursement arrangements ("HRA"), employer contributions to a nHSA, and coverage for supplementary health insurance coverage.

� January 1, 2018


Pre-Existing Condition Prohibition

� Pre-existing condition exclusions for children are prohibited (Note: there has been controversy over the effective date of this provision. The Department of Health and Human Services is expected to issue g uidance soon.)

� Group health plans will be prohibited from containing pre-existing condition exclusions for any individual (Note: Effective June 23, 20 10, a temporary national high-risk pool will be established to provide heal th coverage to individuals with pre-existing medical conditions who have been uninsured for at least six months. Eligible individuals will re ceive subsidized premiums. This temporary national high-risk pool will r emain in effect until 2014.)

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Information Reporting Requirements

� Employers will be required to report on W-2s the co st of employer sponsored health coverage that is excludable from an employee 's gross income. (Years after 12/ 31/2010)

� Large employers will have additional reporting requ irements to the IRS regarding plan enrollment, waiting periods, and plan cost inf ormation. (1/1/2014)

� Group health plans are required to disclose the per centage of premiums spent on clinical services, quality and other costs and prov ide a rebate to participants if the group health plan does not spend a minimum of 80% ( small group or individual plans) or 85 % (large plans) on clinical services a nd quality (the requirement to provide a rebate becomes effective January 1, 2011) .

� Mandates that the Secretary establish a process of reviewing increases in health plan premiums and will require plans to justify unr easonable premium increases, as well as require states to report on trends in pr emium increases and recommend whether certain plans should be excluded from the state based insurance exchange based on unjustified premiums.


Auto Enrollment Requirements

� Employers with more than 200 employees must automatically enrol lemployees in health insurance coverage offered by the employer; however, employees may opt out of employer coverage (opting out will trigger a tax to the employer).

� Waiting periods for health insurance coverage will be limited to 9 0 days.

� January 1, 2014


HSA / FSA Changes

• A "Simple Cafeteria Plan" becomes available to provide a vehicle through which small businesses can provide tax-free benefits to their em ployees by easing the administrative burdens of sponsoring a cafeteria pl an. This provision also exempts employers who make contributions for employee s under a "Simple Cafeteria Plan" from nondiscrimination require ments. (plan yr after 12/31/10)

• Health Savings Accounts ("HSA"), medical savings accounts, and he alth flexible spending accounts ("FSA") must exclude the cost of over-t he-counter drugs not prescribed by a doctor from reimbursement. (1/1/1 1)

• The law caps the maximum amount of contributions per health FSA to $2,500 per year (adjusted annually). (1/1/13)

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Nondiscrimination Rules

� Group health plans are prohibited from discriminating in favor of highly compensated individuals.


Thank You

Questions?

NOTE: This document is not intended to give legal advice. It is comprised of general information. Employers facing specific issues should seek the assistance of an attorney.

Documents

Federal Health Care Reform Legislation: What it Means for Michigan