Health Care Reform

Summary of Provisions Under the Patient Protection and Affordable Care Act (PPACA)

Presented March 2013 By Allegiance Benefit Advisors Inc.

Allegiance Benefit Advisors Inc.

495 Purchase Street, Swansea, MA 02777-5023 Phone/Fax (774) 565-2002 • [email protected]

PPACA Background

The Patient Protection and Affordable Care Act (PPACA) is aimed primarily at decreasing the number of uninsured Americans and reducing the overall costs of health care. It provides a number of mechanisms—including mandates, subsidies, and tax credits—to employers and individuals in order to increase the coverage rate.

PPACA together with the Health Care and Education Reconciliation Act represents the most significant regulatory overhaul of the U.S. healthcare system since the passage of Medicare and Medicaid in 1965.

Event

The Patient Protection and Affordable Care Act (PPACA) was signed into law First set of major changes takes effect Supreme Court Upholds the Law Obama Administration begins second term

Date

3/23/10 9/23/10 6/27/12 1/20/13 Allegiance Benefit Advisors Inc.

Health Reform Timeline

2010

• • • • • • • • • • • • • •

Small business tax credit

Temporary high risk pool Early retiree reinsurance program (ERRP) Adult child coverage until age 26 No pre-existing conditions for kids until age 19 Rescissions prohibited except for fraud or non payment Lifetime dollar limits prohibited Annual dollar limits restricted Preventive services with no cost sharing Pediatricians as PCPs, direct access to OB/GYNs ER coverage as in-network, no prior authorization Initial appeals review standards Medicare Part D rebate for beneficiaries in the gap Online consumer information at healthcare.gov

2011

• • • • • • • • • •

Minimum medical loss ratio (MLR): 85% for large group; 80% for small group and individual

Annual rate review process Appeals ombudsmen and process documentation HSAs/HRAs/FSAs: limitations for OTC medications Increase penalty for non-qualified HSA withdrawals Small business wellness grants Annual fee on pharmaceutical manufacturers begins Discounts in Medicare Part D “donut hole” Non discrimination rules apply to insured plans (implementation delayed until regulations are released) Auto-enrollment for Groups with 200+ FTEs (implementation delayed until regulations released)

2012

• • • • • • • •

Uniform explanation of coverage and standard definitions

Appeals provision fully implemented 60 day advance notice of material modification Accountable Care Organization requirements Quality bonus begins for Medicare Advantage plans Comparative effectiveness fee ($1 per member/year) Administrative simplification begins 1st medical loss ratio rebates to be paid by August Allegiance Benefit Advisors Inc.

Health Reform Timeline

2013

• • • • • • • •

Employee notification of access to Exchanges FSA contributions limited to $2,500 High earner tax begins

Employers to report value of employer- sponsored health benefits on W2s Annual fee on medical device sales begins Deduction for expenses allocable to the Part D subsidy for “qualified prescription drug plans” eliminated Comparative effectiveness fee increases to $2 per member/year ICD-10 code adoption

2014

• • • • • • • • • • • • • •

Health benefit exchanges Individual & employer mandates Tax credits and subsidies for individuals and small employers OOP limits must comply with OOP limits for HSA qualified plans Deductible caps cannot exceed $2k for individual and $4k for family

Guaranteed issue and renewal rules No annual limits No pre-existing condition exclusions Rating restrictions Standardized essential health benefits Waiting period limits Mandatory coverage for clinical trials Annual insurance industry tax Coverage for all adult children until age 26 including those that have employer coverage (formerly not covered for grandfathered plans)

2015+

• • • • States can open Exchange to all employers (2017) and CHIP eligibles (2015) High-value plan excise tax begins (2018) Insurance industry tax through 2018 Medicare Part D “Donut hole” closed by 2020 Allegiance Benefit Advisors Inc.

2013

Employee notification of access to Exchanges Employers to report value of employer- sponsored health benefits on W2s FSA contributions limited to $2,500

2013

Define

The Department of Labor (DOL) has announced that employers will not be held to the March 1 deadline. The DOL has yet to issue a model notice, FAQs or guidance about the employer notice requirement. The DOL acknowledged that it would be premature to issue a notice in March because specific exchange information is not yet available. As a result, the upcoming guidance on the provision is expected to reflect a more realistic compliance date.

Employers required to file 250 or more W-2 forms will be responsible for reporting to employees the total cost of their group health benefit plan coverage. This requirement is informational only and does not mean that employer-provided coverage will be subject to income tax. This requirement is effective with the 2012 W-2 forms distributed to employees in January 2013.

Individuals can save up to $2,500 per year (the Department of Health and Human Services will adjust the amount to inflation) in their flexible spending accounts.

The PPACA taxes single individuals with yearly income greater than $200,000 from self-employment or wages by 0.9 percent. For married couples, an income of $250,000 for those filing jointly or $125,000 for a married person filing separately would also be taxed. High earner tax begins Comparative effectiveness fee increases to $2 per member/year An additional tax of 3.8 percent applies to net investment income or an adjusted gross income that exceeds $200,000, whichever is less. For married couples, either the net investment income or an adjusted gross income that exceeds $250,000 for those filing jointly or $125,000 for a married person filing separately would also be taxed.

Revenue from this tax will fund research to determine the effectiveness of various forms of medical treatment. Effective for plan years that began on and after October 2, 2011, insurers and self-insured group health plans must pay a $1 tax per participant. The fee increases to $2 per participant in 2013, then to an amount indexed to national health expenditures for future years. The comparative effectiveness fee phases out by 2019.

Allegiance Benefit Advisors Inc.

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2014

Health benefit exchanges Individual & employer mandates

2014

Define

On January 1, 2014, states are required to establish health care exchanges where individuals and small employers can evaluate and purchase health insurance. In 2017, states may allow large employers (more than 100 employees) to purchase insurance through exchanges.

The PPACA requires all U.S. citizens and legal residents to have minimum essential coverage in 2014. People who do not have coverage will be taxed monthly on their annual incomes taxes. There are a few exceptions to the penalty.

If employers do not offer health insurance benefits to full-time employees, the PPACA directs the Internal Revenue Service to tax them. The tax is $2,000 each year for each full-time employee over the first 30 employees.

If an employer offers health insurance to full-time employees, but an employee still qualifies for premium assistance from the federal government and can buy more affordable insurance on a state exchange, the employer will still be taxed.

The tax will be lesser of $3,000 for each employee receiving premium assistance or $2,000 per employee for each full-time employee over the first 30 employees.

Deductible caps cannot exceed $2k for individual and $4k for family & OOP limits must comply with OOP limits for HSA qualified plans Allegiance Benefit Advisors Inc.

Individual Mandate in Reform

Under health care reform law, all people must have minimum essential coverage beginning January 1, 2014.

People have "minimum essential coverage" if they have a:  Government-sponsored plan  Employer-sponsored plan  Individual plan People can choose to buy health insurance on or off state insurance exchanges that will open in 2014. Some people can also get federal premium assistance on an exchange.

If a person cannot keep minimum essential coverage, the Internal Revenue Service will collect a tax penalty from him or her. The monthly tax penalty is described as 1/12th of the greater of:  For 2014: $95 per uninsured adult in the household (capped at $285 per household) or one percent of the household income over the filing threshold.  For 2015: $325 per uninsured adult in the household (capped at $975 per household) or two percent of the household income over the filing threshold.  For 2016: $695 per uninsured adult in the household (capped at $2,085 per household) or 2.5 percent of the household income over the filing threshold  The penalty will be half of the amount for people under age 18.

There are a few exceptions to the penalty, including:  Religious reasons  Not present in the United States   In prison Not able to pay for coverage that is more than eight percent of the household income  An income that is below 100 percent of the poverty Level   Having a hardship waiver Not covered for less than three months during the year Allegiance Benefit Advisors Inc.

PPACA subsidies provide to people buying health insurance

Eligibility rules enacted under PPACA give states the option of extending coverage in Medicaid to most people with incomes under 138% of poverty. For people with somewhat higher incomes (up to 400% of poverty), PPACA provides tax credits that reduce premium costs. People with incomes up to 250% of poverty also are eligible for reduced cost sharing (e.g., coverage with lower deductibles and copayments) paid for by the federal government. The premium tax credits and cost-sharing assistance will begin in 2014.

Who is eligible for premium tax credits?

Citizens and legal residents in families with incomes between 100% and 400% of poverty who purchase coverage through a health insurance exchange are eligible for a tax credit to reduce the cost of coverage. • • People offered coverage through an employer if: the employer plan does not have an actuarial value of at least 60% the person’s share of the premium for employer-sponsored insurance exceeds 9.5% of income.

People eligible for public coverage are not eligible for premium assistance in exchanges. In states without expanded Medicaid coverage, people with incomes less than 100% of poverty will not be eligible for exchange subsidies

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PPACA subsidies: Tax Credit Amounts

The amount of the tax credit that a person can receive is based on the premium for the second lowest cost (silver) plan in the exchange area where the person is eligible to purchase coverage. A silver plan is a plan that provides the essential benefits4 and has an actuarial value of 70%. (In PPACA, a 70% actuarial value means that on average the plan pays 70% of the cost of covered benefits for a standard population of enrollees.) The amount of the tax credit varies with income such that the premium a person would have to pay for the second lowest cost silver plan would not exceed a specified percentage of their income (adjusted for family size), as follows:

Income Level

Up to 133% FPL 133-150% FPL 150-200% FPL 200-250% FPL 250-300% FPL 300-400% FPL

Premium as a Percent of Income

2% of income 3 – 4% of income 4 – 6.3% of income 6.3 – 8.05% of income 8.05 – 9.5% of income 9.5% of income Allegiance Benefit Advisors Inc.

Subsidy Amounts

Not yet available Allegiance Benefit Advisors Inc.

Employer Mandate

Businesses with 50 or more full-time employees or full-time equivalents face potential employer mandate penalties. In this context, a full-time employee is one who works 120 hours per month or more. In counting toward 50, each 120 hours per month of part-time labor comprises an FTE.

If an owner has several different businesses, the full-timers and FTEs in those separate businesses may be added together aggregated to determine whether the employee count is 50 or more. The decision on whether to combine an owner’s businesses in this way rests with the Internal Revenue Service.

Employer Offers Coverage

If an employer offers health insurance to full-time employees, but an employee still qualifies for premium assistance from the federal government and can buy more affordable insurance on a state exchange, the employer will still be taxed.

The tax will be lesser of $3,000 for each employee receiving premium assistance or $2,000 per employee for each full-time employee over the first 30 employees.

Employer Does Not Offer Coverage

If an employer does not offer health insurance benefits to full-time employees, the PPACA directs the Internal Revenue Service to tax them. The tax is $2,000 each year for each full-time employee over the first 30 employees.

Allegiance Benefit Advisors Inc.

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Exchanges

By October 1, 2013, Exchanges must be operational in each state to begin Open Enrollment for the 2014 plan year. The Exchange will make it easier for small businesses with fewer than 50 employees and individual consumers to compare plan offerings and buy health insurance.

– – – – Each state must establish an individual and a small business Exchange. States may choose to establish a single Exchange that serves both markets.

Exchange governing boards must be publicly accountable, transparent and have technically competent leadership among other rules regulated by the Department of Health and Human Services.

Any plan offered on an Exchange must be a Qualified Health Plan (QHP) - an insurance plan certified by the Exchange through which it’s offered. And, all plans must provide essential health benefits.

Plans will be available within a level of cost sharing that best fits the needs of those individuals and small business seeking a plan on the Exchange. The cost share levels are also referred to as the Actuarial Value, and are distinguished by metal levels.

Plan Level

Platinum Gold Silver Bronze

Actuarial Value

90% 80% 70% 60% Allegiance Benefit Advisors Inc.

Premium Assistance Tax Credit

Citizens and legal residents in families with incomes between 100% and 400% of poverty level who purchase coverage through a health insurance exchange are eligible for a tax credit to reduce the cost of coverage. People eligible for public coverage are not eligible for premium assistance in exchanges. People offered coverage through an employer are also not eligible for premium tax credits unless the employer plan does not have an actuarial value of at least 60% or unless the person’s share of the premium for employer-sponsored insurance exceeds 9.5% of income. People who meet these thresholds for unaffordable employer sponsored insurance are eligible to enroll in a health insurance exchange and may receive tax credits to reduce the cost of coverage purchased through the exchange. Allegiance Benefit Advisors Inc.

Exchange Timeline

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Small Business Tax Credit

Assistance for Those With Fewer Than 25 Employees Beginning in 2010, tax credits were available for small employers providing health insurance to their workers. Eligibility for this assistance is Limited to: • • • • • Firms with fewer than 25 employees Average annual employee compensation does not exceed $50,000 Available to a “for-profit” business up to 35% of the employer’s cost of health insurance if the employer provides more than 50% of the employees’ premium expenses Available to small “not-for-profit” business up to 25% of the employer’s cost of insurance and offsets any payroll taxes that employees incur These subsidies will increase in 2014 to 50% and 35% for the “for profit” and “not-for-profit” businesses, respectively.

Allegiance Benefit Advisors Inc.

Decision Making Resources

• • • • •

Is my Firm Subject to the Employer Mandate?

Do I have to Offer Health Insurance?

What is my Financial Exposure?

How Do I Communicate Changes to Employees?

Am I Eligible for Tax Credit

Allegiance Benefit Advisors Inc.

We Can Help

Allegiance Benefit Advisors Inc.

495 Purchase Street, Swansea, MA 02777-5023 Phone/Fax (774) 565-2002 • [email protected]