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