Hcr presentation v32 7.22.2012

Chris Harrison, PresidentEBENCONCEPTS

David Smith, Vice PresidentEBENCONCEPTS

Health Care ReformPatient Protection and

Affordable Care Act (PPACA)

Version 32July 22, 2012

Deadlines & Regulations

Deadlines vary based on the way law was written All plans after 9/1/11 will have complied with the initial

deadline (for plans renewing after 9/23/10) and its provisions. A number of changes effective January 1, or at renewal, for the

next few years are to come

Regulatory “Clarifications” continue to be issued HHS, DOL issuing regulations, FAQs answer many questions

Ongoing efforts to revise have moved forward For instance, 1099 requirement repealed W-2 requirements postponed

“But isn’t this law going away?”


“2012 Elections have potential to affect implementation” Political Reality: Efforts to repeal vs. realities of trying to repeal

House’s multiple attempts to stop health care reform through defunding or policy statements have failed; although changes to the regulations have occurred

Senate would require 60 votes to completely repeal the bill Outcome of 2012 elections are uncertain

Carrier investments in PPACA compliance are significant Lots of quiet support for health care reform by carriers Their perspective is important in terms of how the courts are

considering this question and may answer it…


“The courts will strike this down” Supreme Court ruled on June 28, 2012 that the individual

mandate was constitutional as a tax and therefore this law is going forward toward full implementation

Only complication is about states being required to expand Medicaid eligibility and to be responsible for a portion of the funding, which has no impact on employers and individuals buying health insurance

Post-decision polls are showing a majority of Americans say it’s time to move on and that fewer numbers of businesses will drop coverage

So… we’re moving forward!

2010Grandfathered Plans

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. Starting point: What were the benefits as of March 23,

2010 New regulations define what changes are permissible to

retain grandfathered status


Grandfathered plans are permanently exempt from the following reforms: Preventive services mandates Annual cost sharing, deductible requirements & essential benefits 105(h) Nondiscrimination rules apply to fully-insured plans Certain reporting & rating requirements Appeals process Designation Rules for Primary Care Providers Coverage of clinical trials No discrimination against providers

Main reasons to maintain status Savings of 3-5% in additional health care costs Non-discrimination rules


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


Grandfathered plans are subject to the following requirements (continued): Six months after enactment

Limitation on lifetime and annual limits Limitation on pre-existing condition exclusions Limitation on waiting periods Coverage of adult children (only if adult child is NOT

eligible to enroll in another eligible employer plan) 2014 for employees

Prohibition on rescissions


Cannot retain grandfathered status if: Increase of 5%* or more of employee contribution amount for

any tier of coverage (EE only, ES, EC, Family) Change of 15%* or more of deductible or out-of-pocket max Any increase in employee’s coinsurance % (e.g. 20% to 30%) Increase copayments by more than $5 or 15% Eliminate coverage to diagnose or treat a particular condition Obtain new policy, certificate or contract of insurance

These are lifetime exceptions one and done: cannot use annually Exception: medical inflation increases


What can you do? Add family members or new employees Disenroll employees Make changes as a result of state or federal regulations Make changes to voluntarily adopt some or all of the law’s

requirements Change third party administrator if you are self-funded Increase premiums


October 2010 guidance Multiple plans?

Each plan would have be evaluated separately Implementing wellness discounts?

Creates lower contribution levels may affect grandfathered status

Do these rules apply to dental or vision plans? No… If they are separate policies, certificates or contracts of

insurance or If not separate, employees must have right to choose not to

have dental or vision benefits, and if they choose to have them, must pay premium to cover it


Most carriers have announced that all of their post-10/1 plans will be compliant with mandates Higher costs, but not necessarily affecting group’s

grandfathered status

Notice mandate Employers are required to provide annual notice to

employees of grandfathered plan status Three forms: grandfathered, non-grandfathered, “gray”

grandfathered

Can layer plans to maintain grandfathered status Using HRA with group health plan to maintain current

benefits is one innovative way to build GF plan


Other recent guidance Changes mid-year change grandfathered status at time of

change, not time of contract Example: 1/1 plan year, but make benefit change eff 7/1 Lose grandfathered status as of 7/1

Change in formulary does not change grandfathered status Drug move from tier to tier because of availability of generic Change in carriers that results in a drug change of tier

Defined Contribution Plan and Grandfathered Must maintain percentage of actual cost levels to maintain

grandfathered status Example: $300 per employee per month


What are we doing? Providing our clients the “correct” employee notice of

their grandfathered status at renewal Grandfathered Non-grandfathered Benefits are compliant but plan still grandfathered

Our notices are continually updated; for instance in 2011 to included required information regarding Medicaid and CHIP programs. Carriers are not providing any guidance on this issue

2010(Very) Small Business Tax Credit

Eligible small businesses are eligible for phase one of the small business premium tax credit. Requirements:

Less than 25 employees Must pay up to 50% of premiums 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


Must have taxable income for the tax credit: Carry back 1 year / Carry forward 20 years

Controlled Groups / Common Ownership are treated as a single employer

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)


How will it work? Take all employee hours from the prior year

Example: 10 FT employees, 20 PT employees Determine # of employees

20 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 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



How will it work? 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

However… the tax credit will be reduced if your average group size is greater than 10 and/or average salary is greater than $25,000


Phase-out for amounts above certain limits 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 under §152


New guidance as of December 5, 2010 IRS Notice 2010-82 now available Who gets counted as an employee?

Includes those who have terminated, or who waived coverage Determining hours of service

Can use any of the common methods (count actual hours, days-worked or weeks-work equivalencies)

Could use different methods for different employees within same employer

Form for filing for tax credit issued IRS Form 8941 (available on IRS website)


How has it gone? Original estimate: $2B annually in tax credits Latest data from IRS: $278M claimed in 2010

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Less than 10 FTEs

10-25 FTEs

$25-50,000 Partial Credit115,800

Partial Credit20,800

Less than $25,000

Full Credit28,100

Partial Credit6,000


What are we doing? Developed an excel spreadsheet to assist employer-

clients with determining their eligibility and estimated amount of tax credit for 2010 and 2011

Available for our clients through our sales team

2010“Older” Dependent Children Coverage

Mandate for all groups Employee’s children who are up to 26 years of age are eligible to

be on parents’ insurance Includes up to the date before the child turns 26 Regardless of whether full-time student or a tax dependent of employee

(amount deductible through child turning 27 per IRS) Still have COBRA eligibility for 36 months following loss of eligibility (so

covered until day before they turn 29 years old) Amount paid by employee is not taxable income (new change)

Prohibited from vary premium contributions based on child’s age Does not apply to spouse of child, nor to the child’s child(ren) Other benefit restrictions still apply

Per regs, creates new eligibility period employee and dependent Grandfathered plans do not have to extend eligibility if the child is

eligible for other employer coverage


New guidance – 9-23-2010 “Child” means:

Biological child Step-child Adopted child Foster child

Does not require the coverage of employee’s grandchildren, custody arrangements or children of domestic partner Could still extend to these “other” children, and could

also place restrictions on their inclusion (such as student status, etc.)


State Income Tax Issues Even though federal law says that contributions for

non-dependent children, a number of states do not follow federal law when it comes to that state’s tax laws


How is it working? According to May 2012 survey of largest health

insurers, at least 3.1 million new young adults are now covered because of this provision


What are we doing? Providing our clients the correct notice for the open

enrollment which is mandated under this provision Two different notices – grandfathered and non-

grandfathered Recommending this notice be given out 30 days prior

to renewal to avoid retro adding dependent children Assisting our clients in communicating this

information to their employees and answering the “complex” questions that will undoubtedly come

2010Preventative Service Mandates

Applies to Non-grandfathered Plans (mostly) New regulations issued July 12, 2010

A part of the 2010 implementation mandates 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 http://www.healthcare.gov/law/about/provisions/services/lists.html

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

Much higher levels of preventative care received per HHS reports 54M Americans received at least one free preventative service

in past year


The creeping expansion of preventative service mandates August 2011: HHS adopted additional Guidelines for Women’s

Preventive Services Requires the following services to be provided at no additional cost (no

copay, deductible or other cost-sharing): Annual well-woman preventive care visit Gestational diabetes screening for women 24 to 28 weeks pregnant,

and those at high risk of developing gestational diabetes High-risk human papillomavirus (HPV) DNA testing for women who

are 30 or older every three years, regardless of pap smear results STI counseling, and HIV screening and counseling Contraception (including all FDA-approved contraceptive methods)

and contraceptive counseling Breastfeeding support, supplies, and counseling Domestic violence screening

Applies to new health plans starting in August 2012

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The creeping expansion of preventative service mandates Guidelines for Women’s Preventive Services

Lots of reactions against contraceptive requirements Two “compromises” for religious nonprofits only

• Delayed requirements to be in compliance until August 1, 2013

• Allow religious nonprofit to not pay for contraception for their employees, but require that the insurance company pay for it instead

No exceptions for other employers who may object on moral grounds

Stay Tuned: This battle is not over yet

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2010Guidance on Notices

USDOL/HHS announced early November 2010 Employers must provide the grandfathered notice

whenever they provide a participant or potential participant a copy of their benefits

May be given or delivered in paper or electronically

Mini-Med Policies

Affects plans that do not provide “comprehensive” medical benefits Lower annual caps (e.g. $25,000) Limited benefits for office visits, etc.

Carriers could obtain waiver for mini-med to continue to offer benefits, but must establish that failure to obtain waiver will result in a: Significant decrease in access to benefits OR Significant increase in premiums

Waiver only applies to EXISTING plans and does not permit the sale of new policies Limited exception – existing mini-med customers

buying a replacement policy from a different carrier

2010

Mini-Med Policies

If Plan is approved (HHS determination), employer must provide a notice to mini-med participants Notice must:

Clearly indicate the dollar amount of the annual limit and the benefits affected by the lower annual limit

Be prominently displayed in 14 point bold type State waiver is good for only one year

Model language is available Obligation to provide notice is an EMPLOYER

responsibility and not one for the CARRIER

2010

High Risk Pools

Creates high-risk pool coverage for people who cannot obtain current individual coverage due to preexisting conditions and have been uninsured for 6+ months. Many states have implemented new pool, and federal pool

have opened to mixed enrollment Must be uninsured by more than six months Employers and Insurers cannot put people in the pool—would

pay penalty.

Ends January 1, 2014, when Exchanges are operational

Financed by a $5 billion appropriation.Enrollment to date: over 73,333 through June 2012

4,124 in North Carolina

2010★

2010Reinsurance for Early Retirees

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

Federal ReinsurancePlan paid stop-loss coverage

$15,000 $90,000


Federal gov’t assumes some risk for early retirees’ health care costs Effective June 23, 2010 Impact: dramatically reduce costs for early retirees on

group health plans Health care costs for 55-64 populations are significantly higher

(estimated to be more than 30%) than younger workers Health care costs for early retirees are higher than those

working Caveat:

Must invest the difference in wellness and chronic care management programs

Ends January 1, 2014, when Exchanges are operational


The following are not eligible for reimbursement Custodial care Routine foot care (e.g., orthopedic shoes) Personal comfort items (e.g., TV in a hospital room) Routine services and appliances for vision (e.g., glasses, contact lenses) Hearing aids and auditory implants Cosmetic surgery Routine dental services Assisted suicide In-vitro fertilization, artificial insemination, sperm and embryo

procurement Abortion services, except if the pregnancy resulted from rape or incest

or endangers the life of the woman Drugs that are not covered by a standard Part D plan (unless covered

under Parts A or B) Items or services not furnished in the United States


Latest update: Spent approximately $3.6B (of $5B) of the

available pool money through the end of FY2011 (ending 9/30/2011)

Approximately $1.4B left for the remaining two years; funds expected to run-out prior to 2014.

No new employers may participate after May 5, 2011

2010Rescission of Coverage

Regulation defines “rescission” as a cancellation or discontinuance of coverage that has a retroactive effect.

Plan may not rescind coverage unless: individual or person seeking coverage on behalf of individual

performs act, practice, or omission that constitutes fraud or intentional misrepresentation of material fact.

“Inadvertent” failures to provide health information not considered intentional misrepresentation.

Example: premium deducted but not eligible for coverage Regs say that the individual “relied” on coverage and

employer may not retro-term the individual’s coverage on the health plan

2010Rescission of Coverage

Not considered “rescission” if cancellation is prospective or only is effective retroactively to extent attributable to a failure to timely pay required premiums or contributions. Plan must provide 30-days advance written notice to

each participant affected (regardless whether individual or group coverage).

No guidance yet on cancellations (Preamble says will be issued in future). Statute requires advance notice.

Guidance: be very careful if you want to revoke someone’s participation on plan

Benefit Changes

No Lifetime limits on benefitsSome annual limits allowed for now

prohibited completely by January 1, 2014

Cover preexisting conditions for children 0-19Emergency services covered in-network

Includes new limitations on copayments for going to ER

Enrollees may designate any in-network doctor as their primary care physician.

New coverage appeal process.Federal grant program for small employers

providing wellness programs to their employees

2010

Other Provisions

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 Delayed until regulations are implemented

Medicare Part D changes Deductibility for Part D subsidies is eliminated in 2013, but

this results in an immediate accounting impact. Provides a $250 rebate to seniors who hit the “donut hole in

2010 (and closes the donut hole over time)

Nursing mothers must be given breaks/location Employers with less than 50 employees may

not have to comply if there is “undue hardship”

2010

Other Provisions

Expanded claims appeals process Six major changes include:

Reducing urgent care claims from 72 to 24 hours Expanded notice requirements for denials Mandated use of state-based external review of claims

Delayed enforcement until 7/1/2011

2010

2011Changes Effective in 2011

Penalty for use of HSA for nonqualified medical expenses increases to 20%.

OTC drugs no longer be reimbursable unless prescribed by a doctor.

Small employers (less than 100 lives) will be allowed to adopt new “simple cafeteria plans.” Easier eligibility requirements

Employees who work more than 1,000 hours a year Could exclude employees under 21 or those who have been employed

less than one year Minimum contribution requirements based on non-elective or

matching methods A uniform percentage (2%+) or less of 6% of salary or 2x

employee’s salary reductions Cannot favor HCE or key employees

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MINIMUM MEDICAL LOSS RATIOS: Rebates must be provided to consumers if health plans spend below

minimum loss ratios based on percentage of premium spent for HC expenses 85% for large group plans 80% for small group and individual

Remember: it’s not how your group does… it’s how that carrier’s entire market segment performs

Also, self-funded plans are not subject to these rules What counts toward HC Expenses?

Reimbursement of clinical services Activities that improve health care quality All other non-claims expenses excluding state and federal taxes, licensing or

regulatory fees Standard for what is administrative expenses has been approved for 2011 Ongoing efforts among numerous groups to have their

expenses excluded from “admin cost”

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MINIMUM MEDICAL LOSS RATIOS: Beginning January 2011, This will result in some carriers

sending rebates to payers Estimated rebates for 2011: $1.3-2.0B

Carriers are required to report MLR results annually Notices have been mailed to both groups affected and those

who are not going to receive a rebate

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MINIMUM MEDICAL LOSS RATIOS: What happens if you receive a rebate?

What is the source of funds used to pay the premiums? All employer money: money stays with employer Part employer and part employee money: percentage paid by

participants/ employees is considered a plan asset Distribute to former plan participants?

If the cost of calculating and distributing to former participants is approximately to amount of proceeds• Yes: may limit allocation to current plan participants• No: must distribute to former plan participants

Distribute to current plan participants? No if not cost effective (amount is de minimis) or taxable consequences

• If participant’s portion was paid with pre-tax dollars, then the return of those premiums – whether received in cash or as a credit against future premiums – will be subject to both income and employment taxes

Deadline: 90 days from receipt of rebate to return or apply

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MINIMUM MEDICAL LOSS RATIOS: What are we doing?

We have prepared an Excel spreadsheet to assist employers with determining what portion of the rebate could be owed to participants and to assess the economic cost of doing so

Further, we developed a corporate resolution form so that the employer can, on behalf of the Plan, show how the funds are being handled: Returned to current and/or former participants Rebates kept in the Plan and applied toward future participant

premium payments and/or benefit enhancements

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Regulating “unreasonable” premium hikes Any premium rate increase of 10% or more on carrier’s

entire block (trend increases) are subject to review by the states and HHS for renewals on or after 9/1/11 individual or small employer group insurance markets does not apply to grandfathered plans or the large group

market 10 percent threshold based on nationwide cost trends

exceeds both the average rate of growth in the medical component of the consumer price index (3.7%–4.4%) and the average annual rate of growth in national health care expenditures over the last five years (4.4%–6.9%)

Developing state-level thresholds for 2012

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Changes Effective in 2011

Regulating “unreasonable” premium hikes Carriers must submit public disclosure to justify the increase that “allow

consumers to understand the factors driving rate increases” Review to be done by States (if rate review process in place) or by HHS

if the state does not complete rate review or no process The following ten states are likely to be regulated by HHS: Alabama, Arizona,

Idaho, Iowa, Louisiana, Missouri, Montana, Pennsylvania, Virginia and Wyoming

Review will carry with it one of three labels: "excessive"

unreasonably high in relation to the benefits provided "unjustified"

lacking adequate data to determine whether it is reasonable "unfairly discriminatory"

resulting in premium differences for enrollees that are not permissible under state law or unjustified based on expected cost differences.

2011★

2012Changes effective in 2012

Employers report on W2s the aggregate cost of employer-sponsored health benefits. Amounts continue to be not taxable, and is

informational only Applies to benefits provided during taxable years after

December 31, 2011 Mandatory for businesses that issue 250 or more

W-2s in a calendar year Optional for smaller businesses… for now.

2011 W-2 already allows reporting in Box 12 via Code DD

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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 Health Insurance Premium Amount (portion paid by EE and ER) Employer Contributions to FSA (but not HRA, HSA or Archer MSAs) Wellness Programs and/or Onsite Medical Clinics that are COBRA-eligible Governmental Plans (except for military)

Not required to include HRA spending, separate dental and vision plans Will not report costs when two employees are married and covered on

health plan How determined? Premium charged or core COBRA rates, and

reflect cost changes during the year — amounts could be composite for all employees


New Fee to pay for comparative clinical effectiveness research will be charged to all insured and self-funded groups beginning 10/1/2012 To provide information regarding the effectiveness, risks and

benefits of various medical treatments Costs

First year: $1 x average number of covered lives Second and subsequent years: $2 x average number of covered

lives Who pays?

Insured: carrier Self-funded: employer

If separate HRA – must collect double-fee

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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. No guidance YET on what this report will look like…

The Department of Labor will begin annual studies on self-insured plans using data collected from Form 5500.


Notice of changes in benefit plans Under current guidance, notice of any material modification

of benefits must be given 60 days prior to the change Would include any enhancement or reduction in coverage services

or benefits (including copay, deductible and other changes) or changes in premium or employee contribution amounts

This presents a number of complications… Resolution of this issue is somewhat related to the Summary

of Benefits and Coverages (next slides) and related regulations Federal agencies are soliciting comments on this notice

requirement, including whether there are any circumstances where 60-day advance notice might be difficult

Also soliciting comments on the format of the notice No requirement… YET.

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Summary of Benefits and Coverage (SBC) When: Renewals or start of open enrollment after September 23, 2012 Limited on size

No more than four doubled-sided pages (but flexible) Must be delivered more quickly

Renewals: Must be delivered 30 days prior to renewal date (NLT seven business days after issuance of new policy or written confirmation of intent to renew)

Mid-Year: If there are changes to plan mid-year, must be communicated at least 60 days prior to the effective date of the change

Must delivered: when shopping for coverage, when coverage is renewed before each policy year, at least 60

days before any change to coverage and within seven business days of request Who is responsible for producing the SBC?

Insured: insurance company and the employer Self-funded: employer

Who is it delivered to: Anyone eligible to enroll on the plan: EE and beneficiaries have same address: one Separate addresses: to each address

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Summary of Benefits and Coverage (SBC) Notice must include certain information

Uniform definitions of standard insurance and medical terms List of 44 terms (e.g. “allowed amount,” “urgent care”)

Description of coverage including cost-sharing for each benefit Eliminated mandate to include cost of coverage within SBC

Exceptions, reductions, and limitations of the coverage, along with cost-sharing provisions including deductibles, co-payments and coinsurance

Statement that SBC is only a summary and that the plan document, policy or certificate of insurance should be consulted to determine the governing provisions.

Internet addresses for obtaining the uniform glossary and for obtaining any formulary or provider network that a plan uses.

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2012Changes effective in 2012★


Summary of Benefits and Coverage (SBC) How Distributed?

Electronically or paper – if electronic, must deliver paper if requested by an enrollee

“Culturally and linguistically appropriate” If more than 10% of employer’s population speaks one

of the following languages must have translation available:Chinese (1), Spanish (100+), Tagalog (2) or Navaho (3) Limited number of counties require SBC available in language always

Penalty for non-compliance: $1,000 for each failure to provide Mandate applies to health insurers for fully-insured plans and employers

for self-funded plans Penalties delayed for first year with “an emphasis on

assisting with compliance rather than enforcement”

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Summary of Benefits and Coverage (SBC) Final(?) Answers

How SBC coordinates with existing ERISA-required SPDs, and other communications, such as open enrollment materials Can be incorporated into SPD – but must be first

What are the specific coverage examples (birth of a child, cancer treatment and managing diabetes) that might be included Limited to just childbirth and diabetes, for now… Expected to include other coverage examples in the future

May combine multiple coordinated plans into single SBC Example: When there is an outside administered HRA

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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 Very similar to Social Security Disability Designed to reduce the government’s obligations under

Medicaid to pay for long-term care expenses Requirements?

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.)

Benefit estimated to be $50-75 per day depending on ADL loss Must opt out – either employer or employee or will

automatically be required to take out amount from paycheck


CLASS Act FAQs from HHS released 4-2011

Outlined general information about the program Mentioned that HHS has until 10/2012 to announce “details of the

CLASS program” and that implementation would start thereafter COULD BE REPEALED BY CONGRESS

Two bills introduced in current session to repeal CLASS provisions Main concerns are about cost and viability HHS has said that, consistent with the law’s requirement, it will not

move forward with the program until it is clear that it will be sustainable.

An excellent opportunity to discuss Long-Term Care Insurance options with employers A number of states have adopted LTC Partnership

plans which are designed to assist with these costs


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

Why important: payroll impact – talk to your payroll providers ASAP to make sure you’re ready


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.


$2,500 Cap on Medical FSA contributions annually indexed for inflation begins. Only applies to employee contributions to FSA No cap on employer contributions No impact on use-it-or-lose-it rules There is active discussion of repealing cap Effective when plan renews on or after 1/1/13

All employers must provide notice to employees of the existence of state-based exchanges.

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Taxes and Fees

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.

Also a fee will be charged to cover reinsurance for the individual market for 2014-16 A federally-established amount (per-capita instead of %

of premium) will be collected during first three years Amount will gradually be reduced over the three years

2014

Rating Changes

Redefine small group coverage as 1-100 employees.

Strict modified community rating standards for pricing all small group products 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.

2014

Exchanges

Two types of Exchanges

2014★

AHB Exchanges for Individual Purchasers•Open to individuals whose:

- employers do not offer coverage

- employer-sponsored coverage is deemed inadequate or unaffordable

- are ineligible for Medicaid

•The only place where premium subsidies can be received

SHOP Exchanges for Small Employers•Open to individuals who are employed by employers with less than 50 FTEs

•No premium subsidies – employer receives 50% tax credit for the non-elective costs of coverage

Exchanges

Main job: a marketplace where individuals and small employers will be able to shop for insurance coverage.

Must be “fully operational” by October 1, 2013 Will also direct people to Medicaid if they're

eligible Facilitate the sale of qualified benefit plans to

individuals, including new federally administered multi-state plans and non-profit “CO-OP” plans

2014★

2014Exchanges

Certain individuals will get premium credit based on a sliding scale (non-Medicaid eligible individuals) Incomes up to 400% of FPL to buy coverage through the

exchange. Slight increases to the subsidy amounts for all subsidy-

eligible individuals and increases the cost-sharing subsidies for those making 250% FPL or less.

Each Exchange must approve the carriers who will participate (called Qualified Health Plans “QHP”) This process will be better defined in coming regs

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Exchanges

Other important information: Only applies to individuals and those working for employers

with less than 100 employees Every state is different – some have adopted laws, others

are doing it by Executive Order, make-up of boards may vary “Interested parties” may not make up a majority of the Board Majority of Board must have relevant experience

Every Exchange must have a website for comparative data about health plan options and create a common enrollment form

States that do not create an Exchange will fall under the applicable federal exchanges (just like has occurred with the high-risk pools)

2014★

2014How Premium/Tax Credit Will Work?

AHB Exchanges will make advance determinations of eligibility for individuals who: Enroll in coverage through an exchange Seek financial assistance

Exchanges will determine: Whether the individual satisfies the income and other

requirements for advance credit payments. The amount of the advance payments, which are made: on a

monthly basis; to the insurer of the QHP in which the individual enrolls.

★


Guidelines for determining who is an "applicable taxpayer" eligible for the premium tax credit who must be: Enrolled in one or more QHPs through an exchange. Not eligible for "minimum essential coverage," other than

coverage in the individual market, defined to include: government-sponsored programs; eligible employer-sponsored

programs; grandfathered health plans; and certain other health benefits coverage.

The regulations include detailed guidelines, including numerous examples, for calculating the premium assistance credit amount, defined as the sum of the premium assistance amounts for all coverage months in the tax year for individuals in the taxpayer's family.

★


Actual credit for the tax year computed on a taxpayer's tax return with the amount of advance payments must be reconciled with their annual taxes. if a taxpayer's credit amount is greater than the amount of the

taxpayer's advance payments for a tax year, the taxpayer may receive the excess as an income tax refund;

if a taxpayer's advance payments are greater than the taxpayer's credit amount, the taxpayer owes the excess as an additional income tax liability.

★

2014Recent Premium Tax Credit Guidance

Larger tax credit for older Americans Since they have higher premiums

Credit is refundable Families with moderate incomes will be able to receive the

full benefit of the credit

Covers Premiums Upfront Will be paid directly to the insurance company by Treasury

Amount to be paid toward the cost of coverage by individual varies based on Federal Poverty Level 100% FPL: 2% of income 400% FPL: 9.5% of income

Who falls where?

Family size Medicaid Health-care exchange

1 $0 to $14,856 $14,857 to $44,680

2 $0 to $20,123 $20,123 to $60,520

3 $0 to $25,390 $25,390 to $76,360

4 $0 to $30,657 $30,657 to $92,200

5 $0 to $35,923 $35,923 to $108,040

6 $0 to $41,190 $41,190 to $123,880

7 $0 to $46,457 $46,457 to $139,720

8 $0 to $51,724 $51,724 to $155,560

To see what the subsidy amounts look like:http://healthreform.kff.org/SubsidyCalculator.aspx

2014Individual Mandate

All American citizens and legal residents to purchase qualified health insurance coverage. Exceptions: religious objectors, individuals not lawfully present incarcerated individuals, taxpayers with income under 100 percent of poverty,

and those who have a hardship waiver members of Indian tribes, those who were not covered for a period of less than

three months during the year People with no income tax liability

2014Individual Mandate

Penalty for non compliance flat dollar amount per person or

The alternative is a fixed dollar amount that phases in beginning with $325 per person in 2015 to $695 in 2016.

a percentage of the individual’s income 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.

whichever is higher

Employer Mandate

There is no true requirement to buy: “Pay or Play”

If an employer does not offer health benefits to their employees, then they will pay a penalty

Quality or Pay If the plan doesn’t meet the coverage levels required,

then the employer pays a penalty Limit contributions or pay

If the amount that an employee pays is more than a certain threshold, the employer pays a penalty

★ 2014

Employer Mandate

Does not mandate coverage for those who are working less than 30 hours a week No requirement to cover part-time employees They should be covered through Exchanges

When is this effective? Tax years beginning January 1, 2014

★ 2014

2014What does “employer” mean?

“Applicable large employer” An employer that had an average of 50 or more full-

time employees during the preceding year based on the sum of full-time employees and full-time

equivalent employees (FTEs)

But there are complications…

★

Common Ownership

What if there are multiple employers which are commonly owned? Common Law Test Control Group rules apply (IRC §414(c))

Look at percentage of ownership

★ 2014

Common Ownership

Multiple owners at different shares of different businesses Look at the common percentage of ownership among

the various businesses Examples

★ 2014

Common Ownership

Why does this matter? Business 1: 20 employees Business 2: 40 employees Business 3: 5 employees

On their own, none have the mandate Under common ownership, all three must offer

coverage to their respective employees

★ 2014

2014What are “full-time equivalents”

Full-time employees Each employee who works an average of 30 hours of

service per week or 130 hours per month with the employer

Each employee who works more than 30 hours/week or 130 hours/calendar month would count as ONE FTE Note: even if they are considered “part-time” (meaning

that they work less than 40 hours a week but 30 or more hours), they could be considered full-time based on these rules

★


How do you count those who work less? Look at their hours worked during the “look-back

stability period” – which would be between 3 months and 12 months

Compare that as a percentage to 30 hours/week or 130 hours per month

The fractional shares are added together to reach a “non-FT” FTE count

★


Example: Company A

Group 1 30 employees who work 130 hours or more a month

Group 2 40 employees who work 20 hours a week or 86 hrs a

month (on average) Now add it up

Group 1: 30 Group 2: 26.667 TOTAL: 56+ FTEs – Employer Pay or Play Mandates

apply

★

Seasonal Employees

Some will not be counted Who? Who knows for now….

Who will be counted: Much more complicated formula IRS contemplates using a six-step process to

determine whether a seasonable employee is eligible for coverage

However if the “over 50” is not for more than four months in the prior calendar year No employer pay-or-play mandate

★ 2014

Who is eligible?

Employer would calculate each employee’s full-time status by looking back “at a defined period of not less than three but not more than 12 consecutive calendar months” determine if the employee worked an average of 30 hours

per week during this “measurement” period. Stability period: considered a full-time employee during a

subsequent “stability” period, regardless of the number of hours worked during that subsequent period.

Exception: Hired to work part-time or not sure if full or part-time

(seasonal) and 30+ hour average during measurement period: If representative of hours to be worked: eligible If not, not eligible

★ 2014

Who is eligible?

Example: Sally works an average of 25 hrs a week However for a three month period, she works full-time

to fill in for someone… Since the number of hours worked was not represent

what Sally would normally work, then she would not be eligible to go on health plan.

★ 2014

Penalties

If no coverage Employer does not have a group health plan for their

employees $2,000 per FTE annual penalty Credit for 30 (or $60,000) under current rules Example:

75 FTEs within group, but no coverage offered Penalty: $90,000 annually

★ 2014

Penalties

If “unaffordable” coverage Employee pays more than 9.5% of their household

income on benefits $3,000 per FTE annual penalty (no reduction) Example:

75 FTEs within group, but employees required are required to pay $250/month for employee only coverage

Employer pays penalty for each employee who makes less than $31,250 annually

★ 2014

Penalties★ 2014

Penalties

If benefits are not “minimum level” Each plan must have benefits at or above the actuarial

value of the “bronze” level benefit If benefits do not meet that level, $3,000 per

employee penalty (no reduction) Who is responsible for actuarial determination?

Employer or insurance company? How do you determine if a plan is creditable or

noncreditable for Medicare Part D notices? Employer ultimately responsible

★ 2014

Penalties

Details on the penalties Treated as an Excise tax

not deductible from income Those taxed as partnerships (“S” Corps, LLCs, etc)

would have the penalty go to the owners’ personal taxes

★ 2014

How caught?

Just one employee who gets coverage from Exchange would cause employer to be reviewed for penalties

How will they know? The Exchanges are responsible to review each

individual’s income to determine the level of premium subsidy that they are eligible for in the Exchange

The Exchange will obviously review tax information for each applicant they find employer

★ 2014

What are larger businesses considering?

Drop employer coverage completely Pay the $2,000 penalty and absorb productivity issues

Keep existing coverage and not add other populations Pay $3,000 per non-covered employee penalty

Drop employer coverage and subsidize employee coverage through exchanges Pay $2,000 penalty + pay all or some portion of

coverage cost

Continue employer-based coverage Economic realities may make this difficult…

2014What about participation?

Could an employee choose not to be covered? If employer has less than 200 FTEs: Yes If employer has more than 200

Employee must be covered on employer plan Only way for employee to waive coverage is to prove that

they have other coverage• Other group coverage• Medicaid or Medicare

Effective date is officially 2014, according to guidance issued in January 2012

Waiting periods in excess of 90 days are prohibited

This mandate does not go into effect until 2014

★

Small Business Incentives

Small employers will receive a 50% tax credit/subsidy for the first two years of purchasing coverage through the exchange Details? None yet

2014Employer Mandate

Free Choice Vouchers Requires employers to provide a voucher to use in the

exchange instead of participating in the employer-provided plan in limited circumstances Employees must be ineligible for subsidies Employees share of premium must be more than 8% to

9.8% of family income that is less than 400% of FPL Employee can keep amounts of the voucher in excess of

the cost of coverage

Benefits

Three benefit packages to be defined – Gold, Silver, & Bronze

Known changes to the benefit mandates 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.

2014

Benefits

All plans must meet standard packages or be based on actuarial equivalents The plans will define maximum cost-sharing amounts,

benefit mandates, and other minimum covered benefits Ambulatory patient services Emergency services Hospitalization Maternity and newborn care Mental health and Substance use disorder services Prescription drugs Rehabilitative services and devices Preventive and wellness services and chronic disease

management Pediatric services, including oral and vision care

2014

Benefits

Institutes of Medicine recommendations: Build the plan to look like the “typical” small employer health plan Be sure that it costs about what the average small employer would pay If there are changes to be made, process should be transparent Summary: Keep it affordable was the recurring theme

Late 2011 - HHS: no “national” essential benefits design will be established and will allows states/Exchanges to establish the standards reflective of their local needs Differing opinions on this “solution” More to come

Standards will not apply to large group (100+)or self-funded plans

2014★

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.

2014

Beyond 2014

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. Transition relief would be provided for 17 identified high-cost

states. Values of health plans include reimbursements from FSAs,

HRAs and employer contributions to HSAs. Stand-alone vision and dental are excluded from the

calculation. Premium values are indexed to CPI Allows plans to take into account age, gender and certain

other factors that impact premium costs

What happens from here?

Regulatory Process Numerous federal agencies in charge of drafting rules

for implementing law HHS in charge (working with DOL, Treasury/IRS,

EEOC, FTC)

State Implementation Legislatures, Governors, Insurance Commissioners

Litigation Supreme Court: DONE

What happens from here?

From Mercer, Emerging challenges and opportunities in the new health care world, May 2011

EbenConcepts

We are actively involved in the “next steps”

We will be updating our clients regularly COBRA Subsidy HIRE Act compliance work today Modified HCR Notices

We will work cooperatively with our clients to find the best product, to protect their status as grandfathered plans, and to continue to advocate for your needs with carriers or administrators

Chris [email protected]

David C. [email protected]

Questions?

Documents

Hcr presentation v32 7.22.2012