Healthcare Reform Its The Law

CHERNOFF DIAMONDBenefits and Risk Management Consultants

April, 2010

HEALTHCARE REFORM – THE LAW

The Patient Protection and Affordable Care Actand

The Health Care and Education Affordability Reconciliation Act of 2010

Session Moderator

Ralph Sepe - Partner

Session Presenters

• Jill Bergman, CEBS - Compliance Manager, Health & Welfare Services

• Frank Aiosa – Partner

Webinar Guidelines

• Muted phone lines during the presentation

• Polling questions and asking questions

• Presentation materials will be made available

• Copy of the slides and Questions and Answers from the audience

Today’s Presentation

• Health Care Reform is in its infancy

• Key elements and issues for employer-sponsored programs

• Identify critical issues of concern for your organization

• Help predict questions your employees will ask

• Implementation timeline

• Tax Year 2010

• Plan years beginning after September 23, 2010

• January 1, 2011 - 2018

• Questions

Today’s Agenda

• President Obama signs two healthcare reform laws

• The Patient Protection and Affordable Care Act (PPACA) was signedon March 23, 2010

• Original Senate bill with no changes

• The Healthcare and Education Affordability Reconciliation Act of 2010(HEARA) was signed on March 30, 2010

• Contained tax and budget related changes to the PPACA

• Passed through the reconciliation process

• These two laws create the newly enacted healthcare reform legislation

• All information reflects our understanding (to date) of both of these laws

Healthcare Reform LegislationIt’s The Law

Grandfathered Plans

• Plans in effect on the date of enactment (March 23, 2010)

• Preserve the right to maintain existing coverage

• Clearly allows new enrollment of members and dependents

• Certain provisions do not apply or apply differently to grandfathered plans

• Collectively bargained plans with coverage changes are grandfathered

• Additional guidance is needed to clearly define a grandfathered plan

Full-Time Employee

• Generally refers to 30-hours per week (unless otherwise noted)

• Determination of employer size for various provisions including “pay or play”

Important Definitions

• Small business tax credits (2010 tax year)

• Temporary retiree medical reinsurance pool to help employers lower costs for early retirees (90 days through 2014)

• Insurance market reforms (various)

• 10% excise tax on indoor tanning services (July 1)

• Health & Human Services (HHS) to develop informational website portal (July 1)

• Relief begins for retirees in the Medicare Part D coverage gap “donut hole”(2010)

Early ImplementationThe First Six Months

2010 2011 2012 2013 2014

• No more than 25 full-time equivalent employees (FTE)

• Average wages less than $50,000

• The employer contributes at least 50% of the total cost of coverage

• Maximum credit is 35% of the employer’s share of the contribution which is reduced as the number of lives and average wages increase

• Beginning in 2014

• Tax credit for coverage purchased through the Exchange increases to 50%

• Available for two years

• Credits are also allowed for non-profit businesses

• Q&A on the IRS website:

Small Business Tax CreditsBeginning Tax Year 2010

http://www.irs.gov/newsroom/article/0,,id=220839,00.html

• Eliminate lifetime limits and annual limit restrictions

• Eliminate pre-existing condition limitations for children

• Expand dependent coverage

• Cover preventive care

• Require nondiscrimination testing

• New coverage appeals processes

• Emergency services must be covered as in-network services

• Designate any in-network doctor as a primary care physician

Six Months After EnactmentSeptember 23, 2010

2010 2011 2012 2013 2014

• Eliminate lifetime limits

• Applies to fully insured, self-funded plans, and grandfathered plans

• Secretary of Health & Human Services to regulate annual limits for non-essential benefits

• Annual limits no longer allowed beginning in 2014

• Applies to fully insured, self-funded and grandfathered plans

• Eliminate pre-existing condition limitations for children under age 19

• Pre-existing condition limitations no longer allowed beginning 2014

• Applies to fully insured, self-funded and grandfathered plans

Plan Limits and Pre-Existing ConditionsPlan Years Beginning On And After September 23, 2010

• Expands coverage for dependent children (regulations to define) to age 26

• Applies to fully insured and self funded plans

• Medical expense reimbursements (benefits) are not taxable to the employee

• IRC was changed to allow nontaxable reimbursement to a child who has not attained age 27 by tax year end - eliminates imputed income requirement

• It is believed that Congress also intends the coverage (premium costs) to be nontaxable as well, although this apparently has not been addressed, as yet

• Employee could add as family member and pay with pre-tax dollars

• Grandfathered Plans to 2014 – only applies if these dependents are not eligible to enroll in an employer-sponsored plan

• Carefully coordinate with more generous state provisions (insured plans)

Expanding Dependent CoveragePlan Years Beginning On and After September 23, 2010

• Requires fully insured and self-funded plans to cover specific preventive services with no cost sharing imposed on the member. Exempts Grandfathered Plans

• Evidence-based items with A or B rating - U.S. Preventive Services Task Force

• Screening adults for depression, oral fluoride supplementation to children (6 months+, high blood pressure screening for adults (age 18), intensive behavioral dietary counseling for adult patients with known risk factors for cardiovascular and diet-related chronic diseases

• Immunizations recommended by the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention

• Evidenced-informed preventive care for infants, children and adolescents in accordance with Health Resources and Services Administration

• Additional services for women such as mammography and cancer screenings

Covering Preventive CarePlan Years Beginning On and After September 23, 2010

• Requires fully insured and self-funded plans satisfy nondiscrimination rules under IRC 105(h)

• Cannot discriminate in favor of highly compensated employees

• Eligibility and benefits

• Does not apply to Grandfathered Plans

• New safe harbor cafeteria plan rules for small employers

• 100 or fewer employees

• Require minimum participation and contribution requirements

• Will automatically satisfy testing requirements

• Effective January 1, 2011

Nondiscrimination TestingPlan Years Beginning On And After September 23, 2010

• Spending account restrictions

• New W-2 reporting requirements

• CLASS Act

• Uniform standards developed by HHS for communicating benefit provisions

• Freeze threshold for income-related Medicare Part B premiums and reduce subsidy for individuals with incomes greater than $85,000

Key Provisions In 2011A Brief Summary

2010 2011 2012 2013 2014

• Only allow reimbursement of prescription drugs and items under Flexible Spending Accounts (FSAs), Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs)

• Over-the-counter items no longer considered “qualified medical expenses”

• Diabetic necessities still qualify

• Tax year beginning January 1, 2011

• Restricts reimbursements after December 31, 2010 for non-calendar year FSAs when annual elections may have already been made

• Increase the tax on HSAs from 10% to 20% for non qualified medical expenses -tax year beginning January 1, 2011

• Limit FSA salary reduction to $2,500 beginning tax year January 1, 2013

Spending Account RestrictionsBeginning January 1, 2011 and 2013

• Requires employers to include the “Aggregate Cost” of employer-sponsored health coverage on annual W-2 regardless of who pays the cost

• Pertains to health benefits that are excluded from gross income

• Includes medical, dental, vision

• Appears employer contributions to an HRA are included

• Excludes HSA contributions (employer and employee) and FSA salary reduction amounts

• Aggregate Cost is determined using “Cobra-like” rules

• Premium for insured plans or premium equivalent for self-funded plans

• First reported on 2011 W-2 issued in January 2012

New W-2 Reporting RequirementsBeginning Tax Year January 1, 2011

National Community Living Assistance Services and Support

• Voluntary national long-term care program

• Financed through voluntary payroll deduction

• Automatic enrollment, unless an employee opts out

• Appears that employers can decline to participate

• Provide a cash benefit not less than $50 per day for non-medical services

• 5-year vesting requirement

CLASS ACTBeginning January 1, 2011

• Implement uniform standards for communicating benefit information with $1,000 fine for each failure (2012)

• Salary reduction to FSAs are limited to $2,500, with annual index (2013)

• Employers must notify employees plan benefits and Exchanges (March 2013)

• Annual comparative effectiveness research fee of $2 per member assessed on fully insured and self-funded plans

• Individuals with earnings greater than $200,000 and households with earnings greater than $250,000 subject to additional taxes (2013)

• Medicare payroll tax is increased by .9% (from 1.45% to 2.35%)

• 3.8% tax on unearned income

Key Provisions In 2012 and 2013A Brief Summary

2010 2011 2012 2013 2014

• Eliminate the tax deduction for employers who receive Medicare D retiree drug subsidy payments (2013)

• Accounting implications recognized immediately

• Reports from large employers such as Caterpillar, Verizon and AT&T

• New taxes on the industry providers and manufacturers

• Pharmaceutical manufacturing (2012)

• 2.3% on medical device sales (2013)

• Does not include eyeglasses, contact lenses, and hearing aids

Key Provisions In 2012 and 2013A Brief Summary

2010 2011 2012 2013 2014

• Requires U.S. citizens and legal residents to have insurance or pay penalty

• State based exchanges established for individuals and small groups(100 lives) to purchase coverage with required benefit plans being offered

• Employers with 50+ employees are required to offer coverage or pay a penalty

• Minimum essential benefits must be offered to individuals and small groups outside the exchange – Grandfathered and large employer plans are exempt

• Premium and cost sharing credits for low-income individuals (up to 400% of FPL)

• Employers with 200+ employees must automatically enroll employees (opt-out)

• Maximum waiting period limited to 90 days

Major Changes In 2014A Brief Summary

2010 2011 2012 2013 2014

• Insurance industry taxes begin which impact fully insured plans

• Eliminate pre-existing condition limitations and annual limits

• “Cadillac Tax” becomes effective in 2018

• 40% tax on excess value assessed on insurer or plan sponsor (self-funded)

• $10,200 for individual coverage; $27,500 for family coverage

• Aggregate value includes medical, dental, vision if under single plan

• Stand-alone vision and dental would be excluded

• Adjustments for age, gender and other factors may be considered

Other Changes In 2014 and BeyondA Brief Summary

2010 2011 2012 2013 2014

• Requires individuals to have qualifying coverage or pay a penalty - greater of flat dollar amount or percentage of income, scheduled to increase beginning 2017

• Flat Dollar Fine (3x per family) Percentage of Taxable Income (capped at average Bronze premium)

• 2014 $95 1%• 2015 $325 2%• 2016 $695 2.5%

• Exemptions for financial hardship, religious objections, American Indians, those without coverage less than 3 months, incarcerated individuals, undocumented immigrants

• Exempt if lowest cost option is greater than 8% of income

• Exempt if income is less than filing threshold ($9,350 and $18,700) in 2009

Individual MandateJanuary 1, 2014

• Open to individuals and small employers (100 lives) to purchase coverage

• States may open to larger employers beginning in 2017

• Pre-tax purchase of coverage only available to group plans

• Must provide standard benefit packages that include minimum essential benefits

• Bronze (60%), Silver (70%), Gold (80%) and Platinum (90%) of plan costs

• Out-of-pocket limits tied to HSA limits ($5,950 individual and $11,900 family)

• Catastrophic plan for young adults under age 30

• Restricted “community rating” underwriting criteria

• 3:1 age ratio , family composition, 1.5:1 tobacco usage, geographic location

• Premium and cost sharing subsidies if income is 133% - 400% of FPL

State Health Benefit Exchanges January 1, 2014

• Employers with 50+ employees must offer coverage or pay penalty if one full-time employee is receiving a premium tax credit via the Exchange

• $2,000 per full-time employee based on 30-hours per week

• Exclude the first 30 employees from the assessment

• Employers with 50+ employees that offer coverage but have one full-time employee receiving a premium tax credit pay the lesser of:

• $3,000 for each employee receiving a credit, or $2,000 for each full-time employee

• Eligible for premium tax credit if family income is less than 400% FPL and:

• Actuarial value of employer coverage is less than 60%, or

• Employee is required to pay more than 9.5% of income for coverage

Employer MandatesJanuary 1, 2014

• Employers with 50+ employees who offer coverage

• Offer free-choice vouchers to employees with income less than 400% of FPL

• Share of the premium is between 8.0% and 9.8% of household income

• The employee wishes to enroll in the Exchange

• Voucher is equal to the employer’s share of the premium

• The employer will be exempt from the penalty for employees who receive a free choice voucher

• Employee can keep any excess contribution without being taxed

• All penalties are assessed on a monthly basis

Employer MandatesJanuary 1, 2014

• “How To” requires substantial input from authorities – guidance and regulations

• What are grandfathered plans?

• How to monitor income under 400% of FPL?

• What if someone has income from multiple sources?

• What if someone’s earnings change substantially during the year?

• What if someone is covered under another plan – how do we monitor?

• Who determines the “value” of the plan for W-2 and voucher purposes?

• As more information and regulations become available we will guide you through the process

Implementing The LawSo Many Unanswered Questions

• Additional information and guidance from the Department of Health & Human Services, Congress, IRS, Insurance Industry

• Repeal and Replace

• Will it reduce costs?

• Will employers eliminate coverage when the Exchanges are implemented?

• What happens in 2018 when the Cadillac Tax becomes effective?

Healthcare Reform LegislationExpectations

QUESTIONS