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HEALTH REFORM

An Update for Employers

Presented by: Will Heavin

The Health Reform BillThe

Patient Protection

and Affordable Care

Act

(H.R. 3590)

The Health Care and

Education Affordability

Reconciliation Act of 2010

(H.R. 4872)

&

Signed into law on March 23, 2010

Today’s AgendaImmediate Changes (first 3 months)

• Small Business Tax Credit

Other 2010 Changes

• First wave of plan changes

2011 Changes

2012 Changes

2013 Changes

2014 Changes

• Second wave of plan changes

• Guarantee issue requirements

• Individual mandate

• Large employer mandate (play or pay)

• Health Insurance Exchanges for Individual and Small Groups (2-100)

2018 Changes

• Cadillac Tax

HealthCare.gov

On July 1, 2010, the Secretary of DHHS launched an

information portal for state residents to obtain uniform

information on sources of affordable coverage.

Risk Pools – June 23, 2010

Within 90 days of enactment: National high risk pool created

by DHHS or another arrangement made with the state.

Eligibility: any individual who has been uninsured for at least 6

months and has a preexisting medical condition

Funded with $5 billion federal appropriation, premiums capped

Risk Pools End, Exchanges Begin

In 2014, temporary high-risk pool coverage will

end and covered individuals will be transitioned

into the exchanges.

RISK POOL

EXCHANGE

Other 2010 Changes

PLAN CHANGES WAVE 1

First anniversary on or after 9/23/2010

Preventive Care

All group plans, except self-funded, must cover

preventive care on a first-dollar basis with no cost-

sharing.

PPACA requires qualified health plans to provide at a minimum coverage without

cost-sharing for preventive services rated A or B by the U.S. Preventive Services

Task Force, recommended immunizations, preventive care for infants, children, and

adolescents, and additional preventive care and screenings for women.

Source: http://healthreform.kff.org

Emergency Care

Requires group and

individual plans to cover

emergency care services

even if the provider is not

a participating provider at

in-network rates.

No annual limits on essential benefits

No lifetime limits on essential benefits

No Pre-X for Children

All group and individual plans, including self-insured

plans, will have to cover pre-existing conditions for

children 19 and under.

Providing Relief for Young Adults

• Plans and issuers that offer dependent coverage must offer

coverage to enrollees’ adult children until age 26, even if the

young adult no longer lives with his or her parents, is not a

dependent on a parent’s tax return, or is no longer a student.

• There is a transition for certain existing group plans that

generally do not have to provide dependent coverage until

2014 if the adult child has another offer of employer-based

coverage aside from coverage through the parent.

• The new policy providing access for young adults applies to

both married and unmarried children, although their own

spouses and children do not qualify.

Source: www.HealthCare.gov

2011 Changes

Minimum Loss Ratio

Starting on January 1, 2011, a minimum loss ratio requirement

will apply to all fully insured plans including grandfathered

plans.

The MLR is 85% for large group plans and 80% for individual

and small group plans (100 and below).

PPACA allows the Secretary of DHHS to make adjustments to

the percentage if it proves to be destabilizing to the individual or

small group markets.

OTC Drugs Not an Eligible Expense

Effective January 1st, 2011, over-the-counter drugs may not be

reimbursed through an HRA, HSA, or FSA without a prescription.

CLASS ACT

PPACA establishes a national

voluntary insurance program

(CLASS Program) for purchasing

community living assistance

services and support.

Employers must decide whether

they want to participate or not.

If so, employers must deduct the

premium from the paychecks of

employees who haven’t opted out.

CLASS =Community Living Assistance Services and Supports

CLASS ACT• 5 year vesting period before

participants eligible for benefits

• No underwriting required

• Initial premiums estimated at $65 per

month

• Any premiums charged must be

actuarially sound for at least a 75

year period.

• Benefits estimated to begin at $50

per day.

This program will be financed through voluntary payroll

deductions and will provide a cash benefit to

individuals unable to perform two or more functional

activities of daily living.

2012 Changes

Universal Explanation of Coverage

Beginning in 2012, all group plans and group and individual health

insurers (including self-insured plans) will have to provide a summary

of benefits and a coverage explanation that meets specified criteria to

all enrollees when they apply for coverage, when they enroll or re-

enroll in coverage, when the policy is delivered, and if any material

modification is made to the terms of their coverage.

Can be no more than 4 pages in length with no smaller than 12 point

font, written in a culturally linguistically appropriate manner.

There is a $1,000 per enrollee fine for willful failure to provide the

information.

National Association of Insurance Commissioners (NAIC) charged

with developing standards for Uniform Explanation of Coverage.

Deadline is 12 months from enactment but DHHS has asked them to

finish early.

W-2 Reporting

Employers must report aggregate value of employer-

sponsored coverage on W-2 forms (first report due in 2012)

W-2 Reporting

Inclusion of Cost of Employer-Sponsored

Health Coverage on W-2 Effective for taxable years beginning after December 31,

2010 (W-2s usually issued in January 2012)

Because employees that terminate their employment during the year

have the right to request their Form W-2 upon termination, payroll

systems should be updated by January 2011.

Based on the aggregate (COBRA) value of the premiums

Although the law amends Section 605 of the Internal

Revenue Code to require the reporting of the value, it does

not change the tax treatment of employer-provided health

coverage (not included in taxable income).

2013 Changes

FSAs Limited to $2,500

The bill limits FSA contributions for medical expenses

to $2,500 per year with the limit indexed for inflation.

Exchange Notice

Effective 3/1/2013, employers must notify employees at

time of hiring:

• Of the existence of the exchange

• That the employee may be eligible for a subsidy under the

exchange if the employer’s plan does not meet bronze level

actuarial value or if the employee’s premium exceeds a

certain percentage of income

• That if employee purchases a policy through the exchange

without employer providing a voucher, he or she may lose the

employer contribution to any health benefits offered by the

employer

Medicare Changes

What was

that?

In 2013, increases the

Medicare payroll tax from

2.9% to 3.8% for wages and

self-employment income

above $200k ($250k married).

Current 2.9% rate retained for

wages and self-employment

income below this amount.

New 3.8% Medicare

contribution on certain

unearned income for people

with AGI over $200k ($250k

for joint filers).

2014 Changes

January 1, 2014: D-Day

The majority of the provisions in

the bill, especially those relative

to health insurance coverage,

take effect on January 1, 2014.

All Plans Guaranteed Issue

All plans, including self-insured plans,

must be offered on a guaranteed-issue

basis and be guaranteed renewable.

No Pre-X or Gender Discrimination

No Discrimination Due to Pre-Existing

Conditions or Gender Insurers are prohibited from refusing to sell coverage or

renew policies because of an individual’s pre-existing

conditions.

In the individual and small group market, insurers can no

longer charge higher rates due to gender or health status.

Waiting Periods

Waiting periods of more than 90 days are

prohibited for all plans.

This is a big issue for employers with a lot of transitional employees.

Essential Benefits

The Secretary of DHHS will establish a standard of essential benefits used to determine four types of coverage packages of varying actuarial values.

90% Platinum

80% Gold

70% Silver

60% Bronze

Bronze =

Minimum Essential Coverage

90% 70%

80% 60%

Essential Benefits

• Ambulatory patient services

• Emergency services

• Hospitalization

• Maternity & newborn care

• Mental health & substance abuse

• Prescription drugs

• Rehabilitative services and devices

• Laboratory services

• Pediatric services

• Coverage for clinical trial participation

Cost Sharing Limitations

OUT OF POCKET LIMITS

PPACA limits annual cost-sharing to

the current law HSA limits:

• $5,950 per individual

• $11,900 per family

DEDUCTIBLE LIMITS

Deductibles cannot exceed

$2,000 for single coverage and

$4,000 for family coverage

PPACA limits deductibles for health plans in the

small group market to $2,000 for individuals

and $4,000 for families unless contributions are

offered that offset deductible amounts above

these limits.

PRICING

Community Rating

All individual health and fully insured small group policies

must abide by strict modified community rating standards.

Community Rating

Premium variations only allowed for:

• Age (3 to 1)

• Tobacco use (1.5 to 1)

• Family composition

• Geographic regions

• Wellness discounts

• Cannot rate based on gender or health – no medical

questions for <100 employees

INDIVIDUAL RESPONSIBILITY

Everyone Must Buy Coverage

All American citizens and legal residents are required

to purchase qualified health insurance coverage.

Income Tax Reporting

Individuals must report on their federal income tax returns the

months of the year for which they had qualified health insurance

coverage as part of the individual mandate.

Health plans, including self-funded employer plans and public

programs, must also provide documentation to individuals and

the IRS.

Individual Penalty

– A fixed dollar amount of $95 in 2014,

$325 in 2015 and $695 in 2016 and

thereafter.

– A percentage of income equal to 1% in

2014, 2% in 2015, and 2.5% in 2016 and

thereafter.

– Families will pay half the amount for

children up to a cap of $2,250 for the

entire family or percentage of household

income (if greater)

– After 2016, dollar amounts will increase

by the annual cost of living adjustment.

There will be a phased-in penalty for noncompliance of

either:

People Exempt from the Penalty

What was

that?

• Religious Objectors

• Individuals “not lawfully present”

• Incarcerated Individuals

• Those who cannot afford coverage

• Taxpayers with income <100% of poverty

• Members of Indian tribes

• Those who have received a hardship waiver

• Those who weren’t covered for < 3 months of the year

EXCHANGES

Exchanges

Beginning January 1, 2014 each state must create an

Exchange to facilitate the sale of qualified benefit plans to

individuals and a “SHOP Exchange” to help small employers

purchase coverage.

“Travelocity-type” website

for health insurance

–President Obama

The Exchange

The exchanges will be a web-based portal that will direct

individuals to insurance options and provide a tax credit

calculator and determine public program eligibility.

EMPLOYER REQUIREMENTS

No Penalty for Small Employers!

Companies with fewer than 50 full-time employees are

not required to offer coverage (no penalties).

Large Employer – No CoverageEmployers do not have to offer coverage, but if they employ

more than 50 full-time employees and one or more receive a

premium-assistance tax credit to buy coverage through the

exchange, the employer must pay a fine of $2,000 per year for

each full-time employee (determined monthly) with the first 30

excluded.

Example:

100 Full-Time Employees

1 EE gets subsidy through

Exchange

Penalty = (100-30) x $2,000

= $140,000

2018 Changes

Cadillac TaxIn 2018, the “Cadillac tax” goes into effect for all group plans,

including self-insured plans. The tax would be paid by the

insurer in the case of a fully insured group or the TPA in s self-

insured arrangement but would be passed on directly to the

employer.

40% excise tax on plans with values that exceed $10,200 for

individual coverage and $27,500 for family coverage, with

higher thresholds for retirees over the age of 55 and employers

in certain high-risk professions.

Includes:

• FSAs

• HRAs

• ER contributions to HSAs

The Employer SpectrumSmall Employers

(2-10)

No requirement to

offer coverage

May be eligible for

full tax credit

Small Employers

(11-25)

No requirement to

offer coverage

May be eligible for

partial tax credit

Small Employers

(26-50)

No requirement to

offer coverage

Large Employers

who offer cvg.

Could be penalized

for employees who

purchase subsidized

coverage

May have to issue

free choice vouchers

Large Employers

who don’t offer cvg.

Could pay severe

penalties if any

employee qualifies for

a subsidized plan