Health Care Reform Patient Protection and Affordable Care Act (PPACA) David Smith, Vice President...

Health Care ReformPatient Protection and Affordable

Care Act (PPACA)

David Smith, Vice PresidentEBENCONCEPTS

Version 16

Deadlines, Regulations & 2010 Elections

• Deadlines vary based on the way law was written– Some provisions go into effect in 2010

• All changes effective on PLAN anniversary on or after 9/23/10

– A number of Changes effective January 1, 2011, 2012, 2013 and then 2014

• Regulatory “Clarifications” come out every week– HHS, DOL issuing regulations, FAQs answer many questions

• 2010 Elections will not fundamentally change employer obligations– Political Reality– Carrier investments– Efforts to repeal vs. realities of trying to repeal

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.

• Impacts plans in place as of March 23, 2010• New regulations define what changes are permissible to

retain grandfathered status

– Plans that made changes between March 23 and June 14 have an opportunity to reverse any significant changes made without losing grandfathering status.

• This must be done by the plan year following September 23, 2010


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

• Main reasons to maintain status– Savings of 1-5% 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– Requirement to provide employees vouchers


• 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– 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

• Obligations– Notify employees of grandfathered plan status


• New guidance – 10-12-10– 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

insuranceor

• 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


• 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

• Some uncertainty about…– Change to from fully-insured to self-funded, altering

provider network, changing drug formulary


• 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

• Employer contributions may decrease more than 5% if the following conditions are met: – Insurer requires plan sponsor (employer) to disclose its

contribution rate on March 23, 2010– Insurer’s policies/certificates/contracts prominently

display requirement that employer must notify insurer if contribution rate changes during the plan year


• What are we doing?– Providing our clients the “right” employee

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

– 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?• Amount paid for health insurance by employer

– Only covering 10 FT employees– Employer portion is $200 per employee per month– Annual cost: $24,000– MUST PAY AT LEAST 50% OF EMPLOYEE COSTS TO BE ELIGIBLE

and the premium amount cannot exceed the state average– Tax credit amount reduced by any state tax credit for health

insurance

• 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


• 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)

http://www.irs.gov/pub/irs-pdf/f8941.pdf


• What are we doing?– Developed an excel spreadsheet to assist

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

– 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• 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.)


• 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

• 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

– 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

2010Guidance on Notices

• USDOL/HHS announced early November – 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. – Employers and Insurers cannot put people in the pool—

would pay penalty.– Could work with existing state high-risk pools – Ends January 1, 2014, when Exchanges are operational– It will be financed by a $5 billion appropriation.

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 ReinsuranceFederal ReinsurancePlan paid stop-loss coveragePlan 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

2010Rescission of Coverage

• 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.

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

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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

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Benefit Changes

• No Lifetime limits on benefits• Some annual limits allowed for now

– prohibited completely by January 1, 2014

• Cover preexisting conditions for children 0-19• Emergency 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 within six months of enactment.

• 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

• All plans must provide new summary of benefits (SPD) to enrollees at specified times. – Can be no more than 4 pages in length and must be

culturally and linguistically appropriate – 25% or more of eligible employees speak a language

other than English as their primary language

2010

Other Provisions

• Approval process (waiver) for mini-med and annual plan limits– Required since the lifetime limits and permitted annual benefit limits

would make most mini-med products in violation of PPACA– Mini-med plans must show that failure to approve waiver would result

in either: • Significant loss of benefits• Significant increase in cost

– Numerous factors to be considered for approval• How many people would be uninsured by failure to approve• Current policy limits• Anticipated change in premium for failure to approve• Number/type of benefits subject to annual limits• Number of enrollees covered by mini-med plan seeking waiver

– 733 waivers have been approved though January 2011• Mainly approved mini-med plans to continue• Another focus on non-integrated HRA plans

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– Uniform eligibility to benefits– Minimum contribution requirements based on non-

elective or matching methods– Cannot favor HCE or key employees


• MINIMUM MEDICAL LOSS RATIOS: – Health plans must report to HHS information on loss

ratios for 2010 and later plan years– Report must provide percentage of premium spent for:

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

taxes, licensing or regulatory fees

– Reporting requirement details have been recommended to HHS by National Association of Insurance Commissioners (NAIC) as of October 2010


• MINIMUM MEDICAL LOSS RATIOS: – Beginning January 2011, rebates must be provided to

consumers if health plans spend below minimum loss ratios

• 85% for large group plans• 80% for small group and individual

– This will result in some carriers sending rebates to buyers

• Later guidance requires that any rebate be returned proportionately by the employer to the contributing employee

2012Changes effective in 2012• The Department of Labor will begin annual studies on self-insured plans

using data collected from Form 5500.

• All employers must provide a 1099 if any outside party is paid more than $600 annually (includes utilities, rent, raw materials, etc)

– Will be reported in 2013 for 2012 spending– Likely to be modified or eliminated by 2011 Congress

• 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,

– Excludes all contributions to HSAs and Archer MSAs and salary reduction contributions to FSAs.

– Applies to benefits provided during taxable years after December 31, 2010. Now December 31, 2011

2012Changes effective in 2012

• 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.

• All plans must provide new summary of benefits (SPD) to enrollees at specified times. – Mandated to give notice of any “material benefit change”

at least 60 days prior to effective date.


• 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

– 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.)

– Must opt out – either employer or employee or will automatically be required to take out amount from paycheck


• 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


• 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.

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

Taxes and Fees

• A new federal tax on fully insured and self-funded group plans, equal to $2 per enrollee, takes effect to fund federal comparative effectiveness research takes effect in 2012.

• 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.

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

• Requires each state to create an Exchange to facilitate the sale of qualified benefit plans to individuals, including new federally administered multi-state plans and non-profit co-operative plans.

• States must create “SHOP Exchanges” to help small employers purchase such coverage. – Each state cold choose to allow large groups (over 100)

to purchase coverage through the exchanges beginning in 2017

2014

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


• 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


• Sliding-scale tax credits for 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.

2014Employer Mandate

• Employer must count all full-time employees and part-time employees – on a full-time equivalent basis – in determining if they have 50 or more employees– Certain seasonal workers are not counted in determining

if employer has 50 workers– Full-time = 30+ hours per week, determined on a

monthly basis– Penalties assessed for “no coverage” or coverage that is

not “affordable”– Does not mandate coverage for part-time workers (those

working less than 30 hrs per week)


• Penalty if NO COVERAGE OFFERED– If an employer fails to provide its full-time employees

(and their dependents) the opportunity to enroll in “minimum essential coverage,” and

– One or more full-time employees enrolls for coverage in an exchange and qualifies for a premium tax credit or cost-sharing reduction, then

– Employer penalty = $2,000 for each of its full-time employees in the workforce


• Penalty if UNAFFORDABLE COVERAGE:– If employer offers its full-time employees (and their

dependents) the opportunity to enroll in minimum essential coverage, and

– One or more FT employees enrolls for coverage in an exchange and qualifies for a premium tax credit or cost sharing reduction because

• The employee’s share of the premium exceed 9.5% of income, or

• The actuarial value of the coverage was less than 60%, then

– Employer penalty = $3,000 for each full-time employee who receives a tax credit or cost-sharing reduction

Summary of Potential Employer Penalties under PPACA, Cong. Research Service, May 14, 2010


• 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

2014Other Responsibilities

• EMPLOYERS– Must automatically enroll “new full-time employees” in

employer-sponsored coverage• Required to provide adequate notice and opportunity to opt

out• Applies to employers with “more than 200 full-time

employees”• No effective date specified, but must be “in accordance with

regulations promulgated by the Secretary (of DOL)…” (so presumably not effective until regulations are issued)

– Waiting periods in excess of 90 days are prohibited• This mandate does go into effect until 2014

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

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– Numerous states, numerous approaches– Virginia/Florida vs. Georgia

Questions? Chris Harrison

[email protected]

David C. [email protected]

Health Care Reform Patient Protection and Affordable Care Act (PPACA) David Smith, Vice President...

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Transcript of Health Care Reform Patient Protection and Affordable Care Act (PPACA) David Smith, Vice President...