FMI Independent Operators

Patient Protection and Affordable Care Act: Plan Impact Coverage Mandates and Employer Requirements

Groom Law Group December 7, 2010 1

Overview

     The Patient Protection and Affordable Care Act (“ACA” or “Act”) was effective March 23, 2010

2010 Changes

 Small employers will be eligible for tax credits for providing health coverage, if they employ no more than 25 full-time equivalent employees

2011 Changes

 For plan years beginning on or after 9/23/2010, plans will be required to comply with coverage mandates for all employees (including part-time employees) covered under the plan  OTC medicines and drugs reimbursable only with a prescription

2014 Changes

 Employers may be penalized if an employee receives federal assistance to purchase health coverage in an Exchange, if they employ at least 50 full-time equivalent employees  Individuals will be required to have health care coverage and will be eligible for federal assistance to purchase health coverage, if meet certain criteria  Additional coverage mandates take effect  State-based Exchanges will be established through which individuals and small businesses may purchase health insurance coverage Various other ACA provisions will go into effect over the next eight years

Key Concepts

Coverage Mandates

 Shorthand for the new benefit requirements and prohibitions imposed on group health plans (like the prohibition on lifetime limits and waiting periods longer than 90 days).

 Employers are not required to include part-time employees in a plan, but if the employer does, the coverage mandates apply to part-time employees also.

Play or Pay Requirement

 In 2014, large employers must provide “minimum essential coverage” to full-time employees or may be penalized. The play or pay requirement applies regardless of grandfathered status.

Minimum Essential Coverage

 Minimum essential coverage must be (1) affordable and (2) cover at least 60% of the benefit costs offered. Minimum essential coverage is different than essential health benefits.

 Minimum essential coverage does not require any particular benefits be provided.  Certain benefits, like dental and vision coverage, do not qualify as minimum essential coverage.

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Key Concepts

Grandfathered Plans Essential Health Benefits

 Shorthand for plans that were in existence on 3/23/2010 that do not make any of the six prohibited changes  Generally, the prohibited changes are when a plan makes a change that decreases employee benefits or increases employee costs  Grandfathered plans do not have to comply with some of the

coverage mandates, but are subject to all of the ACA’s other

requirements, like play or pay  Insured collectively bargained plans are subject to a special rule, under which a prohibited change will not result in loss of grandfathered status until date last CBA terminates  A list of categories of benefits in the ACA  Plans may not impose lifetime limits on essential health benefits  Plans may only impose “restricted” annual limits on essential health benefits until 2014, when annual limits are prohibited  Annual limits waiver program available 

Essential health benefits are not minimum essential coverage

 In 2014, small insured plans must provide essential health benefits 4

Essential Health Benefits

 Secretary to define, but must include categories listed below.  Ambulatory patient services  Emergency services  Hospitalization  Maternity & newborn care  Mental health and substance use disorder services  Prescription drugs  Rehabilitative & habilitative services & devices  Laboratory services  Preventive & wellness services and chronic disease management  Pediatric services, including oral & vision care 5

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What Plans Must Comply with Coverage Mandates?

Group health plans (insured and self-insured) & health insurance issuers offering coverage to group health plans Enforced through the PHSA, ERISA and the Code  ACA does not apply to HIPAA Excepted Benefits  Retiree-only plans (stand-alone)  Accident, life, disability, long-term care  Limited scope dental & vision  Specified disease (cancer policy)  Fixed indemnity  Supplemental plan 6

Key Coverage Mandates for Group Health Plans

2011

Applies to all plans, including grand fathered plans Applies only to non grand fathered plans  No lifetime limits on essential health benefits  Restricted annual limits on essential health benefits  No preexisting condition exclusions for enrollees under age 19  Extension of coverage to adult children to age 26  No rescissions unless fraud  Must cover preventive care (including immunizations) without cost-sharing  Must provide internal appeals and external review  Must allow emergency services without preauthorization and treat as in-network

2014

 No annual limits on essential health benefits  No preexisting condition exclusions for any enrollee  Waiting periods cannot exceed 90 days  Must follow cost-sharing and deductible limits  Insured plans in the small group market must cover the essential health benefits 7

Costs and Benefits of Maintaining Grandfather Status

Costs

 May not eliminate all or substantially all benefits for a particular condition  May not increase coinsurance above the 3/23/2010 level

Benefits

 Avoid application of certain coverage mandates (see coverage mandate table above)  Avoid application of new “rating” rules (insured plans only)  May not increase a deductible/out of pocket limit by more than medical inflation + 15%  May not increase a copayment by greater of med. inflation+15%, or $5+med. Inflation  May not decrease an employer contribution by more than 5% below rate on 3/23/2010 (but may pass along premium increases)  May not make certain changes to annual limits 8

Key Coverage Mandates - 2011

Coverage Mandate

No lifetime limits permitted and only restricted annual limits on essential health benefits Coverage of children to age 26

Impact

Must remove all lifetime limits on essential health benefits and must raise annual limits to $750,000 (or apply for a waiver) for 2011 calendar year plans Must cover children for an additional length of time No pre-existing condition limitation exclusions (for under 19 in 2011-2013) No rescissions except in the case of fraud or intentional misrepresentation Cannot use pre-existing condition limitation exclusions to manage increased costs caused by elimination of lifetime limits and restrictions on annual limits Employment, dependent and other coverage audits must comply with this new requirement; plans may have to cancel coverage only prospectively 9

Key Coverage Mandates - 2011

Coverage Mandate

Nongrandfathered plans may not discriminate in favor of highly compensated individuals in insured coverage

Impact

Must analyze any executive health insurance policies for compliance Nongrandfathered plans must allow individuals to choose providers and allow female participants access to OB/GYN without a referral Nongrandfathered plans must treat emergency services the same in and out of network and allow services without preauthorization Nongrandfathered plans must provide more extensive internal claims procedures and must also provide external review Likely minimal as most plans already comply Potentially higher out-of-network emergency costs External review may be costly and external review decisions are binding on the plan Nongrandfathered plans must cover immunization and preventive care with no cost sharing May be costly, depending on current benefit structure 10

OTC Drug Changes

  Restrictions on OTC medicine or drug reimbursements Effective for expenses incurred after 12/31/10   Regardless of plan year or any grace period OTC medicines and drugs reimbursable only with a prescription  Written or electronic order meeting legal requirements in state in which expense incurred   Issued by individual legally authorized to issue prescription in state Restrictions do not apply to OTC items that are not medicines or drugs 11

OTC Drug Changes

 Debit cards generally may not be used to purchase OTC medicines or drugs  Transition relief through 1/15/11  90% pharmacies  Could affect debit card purchases of prescription-only drugs 12

W-2 Changes

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Requires employers to report the aggregate cost of applicable employer sponsored health coverage on employee's W-2

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Aggregate cost determined under rules similar to COBRA valuation rules

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Voluntary for 2011

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FSAs, HRAs and HSAs

 Restrictions on the reimbursement of over-the-counter (“OTC”) drugs from FSA, HRA and HSA, effective 2011.

 Increases additional tax on distributions from HSAs that are not used for qualifying medical expenses from 10% to 20% of the distribution, effective 2011.

 Employee salary reduction contributions to FSAs limited to $2,500, indexed to CPI-U, effective 2013.

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Changes in 2012 and 2013

Summary of Benefits document  The Department of Health and Human Services will issue a template  Must summarize benefits in 4 pages, 12 pt. font  Auto-enrollment for Large Employers  Employers with more than 200 full-time employees must automatically enroll new full-time employees in coverage and continue enrollment of current employees  Inform employees about the existence of the Exchange and eligibility for federal subsidies 15

Key Coverage Mandates - 2014

Coverage Mandate

Waiting periods cannot be longer than 90 days Cost-sharing limits Required coverage of essential health benefits (insurance in the individual and small group market) No preexisting condition limitations permitted for any enrollee

Impact

Cannot manage increased costs caused by elimination of annual/lifetime limits and other mandates through waiting periods Can continue to impose different waiting periods on part-time and full-time, but cannot impose any period longer than 90 days Nongrandfathered plans cannot impose cost sharing that exceeds a deductible limit of $2,000 individual / $4,000 family and an out of-pocket limit of $5,950 individual / $11,900 family. This further limits the plan’s ability to control costs.

Small group health insurance costs will likely rise in response Cannot use pre-existing condition limitation exclusions to manage increased costs caused by shorter waiting periods and elimination of annual/lifetime limits 16

Play or Pay - 2014

   Full time (avg. at least 30 hours per week for any month) Part time Grandfather status does not affect play or pay requirement.

Large Employer = at least 50 Full-Time Equivalent (FTE) employees Insufficient minimum essential coverage is not “affordable” or does not provide “minimum value” Large Employer does not offer minimum essential coverage Large Employer offers insufficient minimum essential coverage Large Employer offers sufficient minimum essential coverage Penalty If at least one FT employee whose family income is less than $88,000 purchases coverage with a federal subsidy through an exchange, the employer must pay a yearly penalty of $2000 x the

number of full-time employees (minus the first 30)

No penalty Penalty If at least one FT employee whose family income is less than $88,000 purchases coverage with a federal subsidy through an exchange, the employer must pay a yearly penalty of

$3000 x the number of full-time employees who receive subsidies

No penalty No penalty No penalty 17

Play or Pay –

Insufficient Minimum Essential Coverage

 Minimum essential coverage must be  “Affordable” - which means it costs 9.5% or less of an employee’s gross income, and  Provide “minimum value” - which means that the plan’s share of the costs of benefits under the plan is 60% or more  If employer-sponsored coverage does not meet this threshold (if not “affordable” or does not provide “minimum value”), the employee may go to the Exchange to purchase coverage and may be eligible to receive a federal subsidy 18

Play or Pay –

Free Choice Vouchers

 Employers must provide free choice vouchers to employees whose contribution for coverage through the employer’s plan is between 8% to 9.8% of the employee’s income and whose family income is less than $88,000.

 Amount of the Voucher: The most generous amount the employer would have contributed for self-only (or family, if applicable) coverage under the employer’s plan.

 This provision does not specify that a qualified employee must be full-time. Guidance could require that employers provide free choice vouchers to part time employees.

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“Cadillac Plan” Tax – 2018

40% excise tax on health insurers and/or persons administering self-insured plans on amounts in excess of high cost health plan limits  High cost = $10,200/single; $27,500/family (increased by a “health cost adjustment percentage”)  Tax imposed on amounts in excess of limit  Limits indexed based on CPI-U (not medical inflation)  Higher limits for “qualified retirees” and “high risk” professions  Limits may be increased by age and gender characteristics  Likely to be passed through to employers 20

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“Cadillac Plan” Tax – 2018

40% excise tax on high cost plans (continued)

 Include employee-paid portion in valuation  Include FSAs, HSAs, HRAs  Tax imposed on insurer, employer, or person administering plan benefits  Employer required to calculate excess benefit amounts and allocable share of each provider and notify provider and IRS.

 Dental, vision, LTC, accident/disability, and fixed indemnity plans paid with after tax-dollars are excluded.

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