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Federal Healthcare Reform – What’s Next?

Willis Human Capital Practice Legislative and Regulatory Update Jay M. Kirschbaum, JD, LLM, FLMI Practice Leader National Legal & Research Group

This material and any accompanying remarks are provided for informational purposes only and nothing contained in either should be taken as a legal opinion or as legal advice

When you come to a fork in the road take it.

Yogi Berra

Healthcare Reform

    Impact on employers, employees, insurers       Immediate issues for employers and employees  New Notices  Grandfathered Status - What is it and how meaningful is it?

Preventive Services Mandate New Appeals Process Annual and Lifetime Dollar Limit Prohibition and Waiver Process Adult Child Guidance “Insurance Reforms” OTC Guidance Q&A Future issues for employers and employees if time permits  Highlights included on slides 2

Uninsured Americans – 2007

63% 7% 17% 17% Private - Non group Medicaid/other public Uninsured Employer Sponsored

Data are from U.S. Census Bureau and Bureau of Labor Statistics, 2008a 3

Increases in Health Insurance Premiums Compared to Other Indicators

20.0% 18.0% 16.0% 14.0% 12.0% 12.0% 18.0% 14.0% Health Insurance Premiums Workers Earnings Overall Inflation 12.9%* 13.9%^ 11.2%* 10.9%* 10.0% 8.0% 6.0% 4.0% 8.5% 5.3%* 8.2%* 9.2% 7.7% 6.1% 5.0% 2.0% 0.8% 0.0% -2.0% 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

*Estimate is statistically different from the previous year shown at p<0.05.

Note: Data on premium increases reflect the cost of health insurance premiums for a family of four.

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits: 1999-2007; KPMG Survey of Employer- Sponsored Health Benefits, 1993, 1996; The Health Insurance Association of America (HIAA), 1988, 1989, 1990; Bureau of Labor Statistics, Consumer Price Index (U.S. City Average of Annual Inflation (April to April), 1988-2006; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey, 1988-2006 (April to April).

5.0%

EXISTING MEASURES

Recent federal healthcare reform measures affecting employers

1996  HIPAA (portability, nondiscrimination, standard electronic transactions, privacy, security, etc.)   MHPA NMHPA  WHCRA 2008  GINA   MHPA amendments Michelle’s Law  MSP reporting 2003  MMA (HSAs and Medicare Part D) 2009  CHIPRA  ARRA (COBRA subsidy, breach notification, comparative effectiveness research)  COBRA subsidy extension (does not seem to be in works again) 6

EXISTING MEASURES

Recent state healthcare reform measures affecting employers

 Mandates to cover older dependent children  Pay or play statutes  San Francisco: Pay $X/hour toward healthcare under employer sponsored plan or under public program ‒ Supreme Court refused appeal ‒ 9 th Circuit decision stands and law remains in effect  Massachusetts: Make fair and reasonable contributions toward health coverage or pay a penalty ‒ Also required to provide a cafeteria plan to avoid free rider surcharge ‒ Individual mandate subject to minimum coverage criteria ‒ Connector 7

PPACA – Several Parts

 Patient Protection and Affordable Health Care Act  Passed by House March 21, 2010  Signed by President March 23, 2010  Reconciliation Bill “Side car” (Health Care and Education Reconciliation Act of 2010)  Passed by Senate with changes  Passed by House March 25, 2010  Signed by President March 30, 2010 8

Post-Legislative Political Headlines

     Financial Charge-Downs Announced by major employers  Q1 adjustment to earnings ‒ Medicare Part D Rx subsidy becoming taxable ‒ Ex: AT&T $1 Billion charge State Lawsuits  20 Attorneys General filing lawsuits challenging the constitutionality of individual insurance mandate Public reaction – Numerous polls negative   CBS News poll (conducted 3/29-4/1/10) ‒ “53% of Americans disapprove of the new reforms, including 39% who say they disapprove strongly“ Rasmussen – 9/4/10 (essentially unchanged since passage) ‒ 56% favor repeal (45% strongly) ‒ 38% oppose repeal (30% strongly) ‒ 51% feel it will be bad for the country ‒ 37% feel it will be good AHIP and HHS Dialogue  “zero tolerance for this type of misinformation and unjustified rate increases” Republican stance – defund the implementation 9

CHANCE FOR REPEAL AFTER NOVEMBER ELECTIONS?

   Essentially zero (Rassmussen and all other pollsters)  Senate seats up for election ‒ 18 – D ‒ 18 – R  Republicans may gain majority in Senate (unlikely) ‒ Biden tie-breaking vote  Even if gain majority in House (more likely but still no sure thing) ‒ No credible chance to gain 2/3 votes needed to overturn certain Presidential veto Perhaps after 2012 Republican stance – defund the implementation if gain majority 10

FEDERAL HEALTH CARE REFORM – OVERALL FINANCIAL IMPACT

2010/2011

KEY PROVISIONS Carrier Medical Loss Ratio (MLR) Mandates and Rebates Beginning in 2011, Large Group fully insured plans which spend less than 85% of premium revenue on claims, and Small Group and Individual Market fully-insured plans which spend less than 80%, must provide a rebate to Enrollees/Employers. These new thresholds will leave less premium allocated for administrative expenses Most states currently have no mandated MLRs.

Effective Date: January 1, 2011

NAIC Draft 09/23/2010  Plans not aggregated for determination of ratios  Increase in premiums expected

Employers POTENTIAL IMPACT

Clients with favorable claims experience will get returned premium; Rates will likely increase 2% 4% by mandating participating contracts

Self funded medical plans – No direct impact

Employees

Same as Employers 12

2010/2011

(continued)

KEY PROVISIONS POTENTIAL IMPACT Other Market Reform Changes



Increase age limit to age 26 for uninsured dependents



Remove dollar Lifetime and Annual Coverage caps



Eliminate Pre-Existing Condition clause for children



Provide first dollar coverage for preventive health services Employers Employees

Increased premium cost of 2% - 4% for improved plan provisions for fully insured employers or those not currently covering preventive services Same as Employers 13

2010/2011

(continued)

KEY PROVISIONS POTENTIAL IMPACT Small Business Tax Credit for Purchase of Health Insurance Employers Employees

Should help small Employers afford to provide medical plans Same as Employers

For Employers with less than 25 employees and average annual wages of less than $50,000 per ee that purchase health insurance for employees with a tax credit



From 2010 – 2013: Tax credit of up to 35% of Employer’s contribution of health premium, provided they pay at least 50% of total premium. Formula-based tax credit phase-out from 10-25 employees (full credit under 10 employees).



From 2014 – 2015: Tax credit increased to 50% if plans purchased plans through new exchanges – credit ends after 2 years



Effective Date: 1/1/10

What HR Will Be Asking/Asked

HR Policy Issues and Questions*  Short term impact between now and 2014?

 What steps do we take NOW to mitigate anticipated cost increases?   Will employers eliminate group coverage and pay the penalties?

 Push employees to the exchanges  Reduce current expenses 

Negative impact on

‒ ‒

Recruiting and retaining talent and Increase employee unrest

 ‒ ‒

Concern with whether exchanges will actually work Will employees be able to obtain comparable coverage at comparable cost?

‒

What will the employer get for the $2,000?

Remember – tax benefits still apply!

What steps to take between now and 2014 to position plans?

‒ Permit option to implement coverage if exchanges do not work?

 Consider different strategies for different lines of business  

What is the long term strategic plan?

Regardless of group benefits sponsorship, what will your strategies be to maximize health and productivity? *HR Policy Association Issues Brief provided initial questions for this slide 15

RELATIVE COSTS OF POOR HEALTH: TOTAL VALUE OF HEALTH Direct Costs: Medical & Pharmacy Indirect Costs:

Presenteeism LTD STD Absenteeism Edington, Burton. A Practical Approach to Occupational and Environmental Medicine (McCunney). 140-152. 2003

FEDERAL HEALTH CARE REFORM – IMPACT ON PLAN COMPLIANCE

COMPLIANCE IMPACT

Open Enrollment 2011 New Notices

 Dependents Model Notice – if dependent coverage is offered  Grandfather Model Notice – if grandfathered disclose impact  Lifetime Limits Model Notice

General Periodic Notice Requirements



Patient Protection Model Notice

        

CHIPRA Model Notice WHCRA Model Notice General Notice of Pre-Existing Condition Exclusion HIPAA Special Enrollment Rights Sample Initial Notice of COBRA Continuation Rights

 Provide COBRA Notice (required at enrollment).

 Compliance considerations for purposes of delivery of Initial Notice to spouse.

HIPAA Notice of Privacy Practices

 Provide HIPAA Notice of Privacy Practices (although not required, some employers provide this every open enrollment).

Model HIPAA 3-year Notice

 provided every three years if new notice is not provided each year

CMS Notification of SSN Refusal - Model Form

 Provide CMS Group SSN Collection Form — when an employee and/or spouse refuses to provide an SSN to be provided to CMS (collect annually).

Michelle’s Law Sample Notice

GRANDFATHERED PLANS

Who are you going to believe, me or your own eyes?

-

Chico Marx

GRANDFATHERED PLANS

What is a Grandfathered Plan? What is the Impact?

  Any group health plan or individual plan in existence as of March 23, 2010

Some compliance exemptions – but only for insurance reforms



All grandfathered plans must meet minimum coverage requirements for purposes of meeting the individual mandate



Regulations issued permit some minor changes to retain status



Most plans will lose status



Determine value of status

GRANDFATHERED PLANS

What is a Grandfathered Plan?

IRS – 26 CFR Parts 54 and 602 DOL – 29 CFR Part 2590 HHS – 45 CFR Part 147

 Any group health plan or individual plan in which an individual was enrolled on March 23, 2010 (as long as it maintains that status under the rules of the IFR)    Applies to each benefit package (undefined) Does not lose status just because people (even all) who were enrolled on 3/23/2010 cease to be enrolled

New policy, contract or certificate after 3/23/10 (FAQ – Will address this in future guidance)

 Loses grandfathered status  Special rule for collectively bargained plans 22

GRANDFATHERED PLANS

What is a Grandfathered Plan (cont)?

 Family members and new employees can join  Anti-abuse rules  M&A ‒ Principal purpose can’t be to use grandfather  Change in plan eligibility ‒ Transfers must be for bona fide employment based reason 23

GRANDFATHERED PLANS

Maintenance of Grandfathered Status?

 Disclosure mandate  Documentation requirement  Changes that will cause plan to lose grandfathered status  Elimination of benefits ‒ To diagnose or treat a particular condition  Increase in percentage cost-sharing (co-insurance)  Increase in fixed-amount cost-sharing other  than a copayment (deductible or OOP) Increase in fixed-amount copayment ‒ More than $5 + medical inflation (since 3/23/10) ‒ And more than medical inflation (currently .3%) plus  15% (since 3/23/2010) New policy, contract or certificate after 3/23/10 (may change with new guidance) 24

GRANDFATHERED PLANS

Maintenance of Grandfathered Status (cont.) ?

 Changes that will cause plan to lose grandfathered status (cont.)  Decrease in contribution rate (by more than 5 percentage points) ‒ Based on employer’s cost of coverage ‒ Based on formula  Changes in annual limits ‒ Adding limit or decreasing current  Decrease in lifetime limits  Value of grandfathered status?

 Uncertain  Calculate value of status vs. need for design changes 25

ISSUES AFFECTING EMPLOYERS AND PLANS

Requirements and Prohibitions

 Effective first day of the first plan year that starts on or after 

September, 23, 2010

Grandfathered and non-Grandfathered plans

 No lifetime dollar limits on essential benefits   No rescissions (retroactive revocation of coverage) except for fraud/intentional misrepresentation of a material fact No annual limits on dollar value of “essential health benefits” ‒ Except as permitted by HHS until 2014  Must cover children of covered individual up to age 26 ‒ No tax dependent requirement ‒ Married/unmarried ‒ Not child or spouse of dependent ‒ Tax favored basis ‒ Up to 1/1/2014

grandfathered plans

can exclude if eligible for employment based coverage (other than a parent’s plan)  No pre-ex condition exclusions for enrollees under 19 (applies to all for 2014 plan year) 

Amend plan and SPD, prepare for 2011 open enrollment

ISSUES AFFECTING EMPLOYERS AND PLANS

Adult child coverage mandate

 Applies only

plan provides dependent child coverage  Applies to:  Major medical   Health reimbursement arrangement Limited medical (or mini-med) – but see below          Excluded (HIPAA-portability excepted)  Retiree only  Dental and vision if “stand alone” Health flexible spending account Health savings account Long-term care Specified disease (cancer, etc.) Fixed/Hospital indemnity Supplemental Disability On-site clinics  Applies for children (as defined) but not dependents 27

ISSUES AFFECTING EMPLOYERS AND PLANS Adult child coverage mandate

 Applies for children (as defined) but not dependents  Includes natural sons and daughters, step-children, foster and adopted children.

 DOL Website Posting (9/21) - Grandchildren and others not so defined ‒ Can be covered by plan (even as a dependent) ‒ Adult child rules will not be mandatory ‒ Plan permitted to cover them in the same way 28

ISSUES AFFECTING EMPLOYERS AND PLANS

Requirements and Prohibitions-cont.

  Effective first plan year starting on or after

September, 23, 2010

     Non-Grandfathered plan —same as grandfathered

plus

 Requirement for coverage of certain preventive health services and immunizations without cost to covered individuals*  Insured plans subject to nondiscrimination rules currently applicable to self insured plans  Cover dependent child through age 26 ‒

Cannot

exclude those with other employment based coverage*  Implement and provide notice of available internal and external appeals processes*  Allow participants to choose any primary care provider available to them* Choice of pediatrician as child’s primary care provider* Access to emergency services* Access to obstetrical and gynecological care* Wellness programs may not require disclosure/collection of information relating to presence of firearms and benefits cannot be based on firearm ownership

Plan documents and SPD - does not apply necessarily to grandfathered plans *Amplified in recent regulation

PREVENTIVE SERVICES COVERAGE MANDATE Non-grandfathered plans may not impose any cost sharing for preventive services

 Rating of A or B by US Preventive Services Task Force  Immunizations that meet recommendations of Advisory Committee on Immunization Practices of the CDC  Infants, children and adolescents - preventive care and screenings in guidelines by the Health Resources and Services Administration (“HRSA”)  Women - any other preventive care and screenings as provided in the HRSA guidelines (not yet issued) 30

PREVENTIVE SERVICES COVERAGE MANDATE Non-grandfathered plans may not impose any cost sharing for preventive services

   Exceptions  Office visits – ‒ if billed separately, can apply co-pay or deductible ‒ If not billed separately, and primary purpose is for preventive care, no cost sharing  Out-of-Network Providers ‒ Plan not required to pay for OON provision of services ‒ Plan not prohibited from imposing OON cost-sharing even for preventive services “Reasonable” medical management permitted Services not described – can be provided with cost-sharing 31

PREVENTIVE SERVICES COVERAGE MANDATE Non-grandfathered plans may not impose any cost sharing for preventive services

 Miscellaneous  Effective plan years starting on or after 9/23/2010 or, if later, one year after  recommendation or guideline is issued Changes to guidelines or recommendations ‒ May have to give advance notice – ‒ Plan can stop providing the services if they are no longer recommended 32

INTERNAL AND EXTERNAL APPEALS PROCESS

Non-Grandfathered plans must implement internal and external appeals process

Effective for plan years starting after 9/23/2010 Internal Appeals – based on ERISA required procedures   Must adhere to internal appeals rules or deemed exhausted Meaning – claimant can go directly to external appeals or court External Appeals – DOL Tech Release - Issued 8/23/2010  Insured plans – not employer responsibility  State process for insurance issuers – not ERISA plan/employer responsibility  If available, they can be used, otherwise new federal rules apply  Self-insured plans  If subject to state requirements (church, government plans, MEWAS) ‒ If state rules available, they can be used, otherwise new federal rules apply  Self- funded, non-grandfathered ERISA plans ‒ New federal rules apply 33

INTERNAL AND EXTERNAL APPEALS PROCESS

Non-Grandfathered plans must implement internal and external appeals process

Internal Claims appeal IFR issued 7/22/2010   Adverse benefit determination  Includes rescission (retroactive termination of coverage)  Does not include eligibility Urgent Care Claims – must be decided as soon as possible, but no longer than 24 hours  Procedural criteria  Provide, in advance, new or additional evidence considered  Disclose, in advance, any new rationale for denying claim  Avoid conflict of interest – reviewers cannot be chosen on likelihood of upholding initial adverse benefit determination or paid bonuses based on claims denied 34

INTERNAL AND EXTERNAL APPEALS PROCESS

Non-Grandfathered plans must implement internal and external appeals process

External Appeals (cont.)  Procedural criteria (continued)  Notice requirements ‒ Culturally and linguistically appropriate ‒ Additional identifying information regarding claim (such as date of service, amount of claim, etc.) ‒ Additional information regarding claim denial (such as denial code and meaning) ‒ Contact information for health insurance commissioner or ombudsman ‒ Strict adherence to

internal

process or internal process deemed exhausted 35

INTERNAL AND EXTERNAL APPEALS PROCESS

DOL Technical Release – applies as safe harbor until further guidance

Plan must consider request for external appeal if filed within 4 months of final adverse benefit decision Preliminary review by plan  Required within 5 days of receipt    Must determine  Claimant covered by plan  Denial based on ineligibility (not subject to external review)  Claimant exhausted internal review process if required Claimant provided all necessary info to process review Within 1 day of determination must inform claimant, in writing, if request is not eligible or incomplete 36

INTERNAL AND EXTERNAL APPEALS PROCESS

DOL Technical Release – applies as safe harbor until further guidance

Consideration of external appeal – ineligible or incomplete    Claimant has remainder of 4 months or 48 hours (whichever is greater) to cure If eligible for external review – assign to independent review organization (IRO)  In not complete, must describe info necessary to complete Must have at least three accredited IROs available and other rules to prevent bias  If not eligible, must include reasons and EBSA contact info If IRO reverses, plan must immediately provide coverage or pay claim Tech Release 2010-02  Enforcement grace period until 07/01/2011 for some changes     Urgent care determination timeframe Culturally and linguistically appropriate notices Broader content and specificity requirements Substantial compliance 37

LIFETIME AND ANNUAL LIMITS

Lifetime and annual dollar limits on “essential health benefits” prohibited

 Dollar limits on non essential benefits permitted  Applies to

dollar

 limits Silent on other types of limits  Presumption that number of visits, number of procedures, limits on cost per procedure, etc., are permissible     Annual limits phased in  $750,000 Plan years starting on or after 09/23/2010  $1,250,000 - Plan years starting on or after 09/23/2011 $2,000,000 - Plan years starting on or after 09/23/2012 No limits Plan years starting on or after 01/01/2014 Limited Medical (“mini-med”) – HHS may waive annual limits for plan years starting before 01/01/2014 if limits would result in  Significant decrease in access to benefits or  Significant increase in premiums for plan or coverage 38

LIFETIME AND ANNUAL LIMITS

Lifetime and annual dollar limits on “essential health benefits” prohibited

           Essential benefits in legislation – no further clarification, yet, in regulations  Ambulatory patient services Emergency services Hospitalization Maternity and newborn care Mental health and substance use disorder services, including behavioral health treatment Prescription drugs Rehabilitative and habilitative services Laboratory services Preventive and wellness services and chronic disease management Pediatric services,

including oral and vision care

IFR permits interpretation of essential health benefits based on “good faith efforts” to comply with a “reasonable interpretation” as long as that is consistently applied 39

LIFETIME AND ANNUAL LIMITS

Lifetime and annual limits on “essential benefits prohibited” (cont.)

   Excluded benefits 

Health

(NOT dependent care) FSA, MSA, HSA  Integrated health reimbursement arrangement (HRA)  Retiree-only plans (including HRA) Any HIPAA-excepted benefits (limited scope dental & vision, specified disease, hospital fixed indemnity, supplemental) Stand-alone HRA – comments requested  Participant or beneficiary previously met lifetime limits  Must provide notice and, if not currently enrolled, open enrollment period (of at least 30 days)  For first plan year starting after 09/23/2010 ‒ Model notice from DOL ‒ Can be included with annual enrollment materials if the notice is “prominently” displayed  If enrolled but some plan options not available, must permit to choose among all coverage options generally available under the plan 40

    

WAIVER PROCESS FOR LIMITED BENEFIT (“mini-med”) PLANS

Waiver Requirements

 Insurers can apply for contract and applies to holders  Plan offered prior to 9/23/10 for plan year beginning between 9/23/10 and 9/23/11 Application must be submitted not less than 30 days before the beginning of such plan year Plan or policy year that begins before 11/02/10 not less than 10 days before the beginning of such plan year Plan administrator or CEO should retain documents in support of application for potential examination by the Secretary HHS will process complete waiver applications within 30 days of receipt  Pre 11/02/10 plan years processed at least 5 days prior to plan year Waiver applies only for the 9/23/10 plan year  Plan must reapply for subsequent plan years prior to 1/1/14 41

WAIVER PROCESS FOR LIMITED BENEFIT (“mini-med”) PLANS

Waiver Requirements (cont.) The application must include:

 Terms of the plan for which waiver is sought;  Number of individuals covered by the plan submitted;   Annual limit(s) and rates applicable to the plan submitted Brief description of why compliance with IFR would result in a significant decrease in access to benefits for those currently covered by such plans or significant increase in premiums paid by those covered by such plans along with any supporting documentation; and  Attestation, signed by the plan administrator or Chief Executive Officer of the issuer of the coverage, certifying  plan was in force prior to 9/23/10; and  application of restricted annual limits to the plan would result in significant decrease in access to benefits or significant increase in premiums paid 42

PHYSICIAN AND OTHER PROVIDER CHOICES

Physician and other provider choice issues

 Participant can choose as primary care provider  Any network primary care provider available (excluding specialists)  Any network pediatrician available (for children)  Women can see health care professional in ob/gyn without preauthorization or referral  Not required to be a physician  Plan can require further treatment to be subject to authorization or referral  Plan must provide notice of these rights  Model notice from DOL  Also must be in SPD 43

EMERGENCY SERVICES

Plan must provide emergency services

 Without prior authorization (in

and out

 But can require notification  of network) Benefit reduction for failure to obtain authorization violates this provision  Out of network co-payments and co-insurance can be no more restrictive than in-network  Rules set minimum standards for amount of payment for OON services  But, remaining balance for OON services can still be enrollee’s responsibility  Deductibles and out-of-pocket limits for OON services can differ from in-network  But – cannot apply separately for emergency services  Example - $250 deductible for in-network and $500 OON. Can apply $500 to emergency (as long as it is not only for emergency) 44

PREEXISTING CONDITIONS EXCLUSIONS

Preexisting Condition Exclusions Prohibited

 Relatively small impact on employer plans (vs. individual coverage) given HIPAA applications  Limited time, only if 63 day break, etc.

 But there are additional restrictions  Preexisting condition exclusions entirely eliminated  All participants ‒ Plan years starting on or after 01/01/2014  Enrollees under age 19 ‒ Plan years starting first plan year that begins on or after 09/23/2010 (01/01/11 for calendar year plans)  Treatment requirement eliminated  Cannot refuse treatment or coverage for any condition present prior to effective date of coverage regardless of prior medical advice, diagnosis, care, or treatment 45

PREEXISTING CONDITIONS EXCLUSIONS

Preexisting Condition Exclusions Prohibited (cont.)

 Applies to health status generally  Cannot deny coverage of conditions of individual based on information before effective date of coverage including pre-enrollment questionnaire, physical examination, or review of records  Does NOT require plan to provide coverage for conditions that would otherwise be excluded just because it arose prior to the effective date of the coverage 46

RESCISSIONS

New requirement regarding rescission of coverage (vs. revocation)

 Generally, plans cannot “rescind” coverage once an enrollee is covered  Exceptions  Acts or practice by the covered individual consisting of fraud or intentional misrepresentation of a material fact ‒ No clarity on “material” or intent ‒ Inadvertent omission or unintended misrepresentation will not permit a recession  Nonpayment of premiums    Cancellation permitted (not retroactive so not a rescission of coverage)  Withdrawal from the market of the issuer or product (applies mainly to insurance providers) Relocation outside service area Cessation of membership in sponsoring organization 47

RESCISSIONS

New requirement regarding rescission of coverage (vs. revocation) (cont.)

 Applies to “rescission”  Cancellation or discontinuance of coverage that has a “retroactive effect” ‒ Void as of any date before the cancellation ‒ Voids benefits paid prior to cancellation  Cancellation that applies prospectively is not a rescission (so not prohibited)  Can also rescind retroactively if it is attributable to failure to pay premiums for the period of coverage  Advance notice required, when rescission is allowed 48

OTHER REQUIREMENTS

2011

Changes apply to Grandfathered and non-Grandfathered plans

 Health insurers report medical loss ratio to HHS and provide rebates to enrollees if MLR is than 85% (80% for small groups)  Auto enrollment for large employers (200 or more employees)  Immediate/retroactive effective date – unlikely  OTC medications cannot be reimbursed pre-tax from FSA, HSA, HRA or MSA 

Amend plans and SPDs

 Non-qualifying distributions from HSA and MSA penalty increase to 20% 

Review material for HDHP and HSA contributions (vendor resp.?)

 W-2 reporting of the value of employer provided coverage (issued in January, 2012) 

Gather data for reporting on 2011 coverage

‒

Work with payroll vendors for details

‒

COBRA premium calculation for 2011 will be critical for many purposes

OTC GUIDANCE ISSUED

Prescription defined:

 Written or electronic order for a medicine or drug meeting legal requirement state in which medical expense incurred  Issued by individual legally authorized  Effective date 1/1/11 regardless of employer's plan year and grace period, if any  Reimbursements after 1/1/11 prohibited even if funds set aside in 2010  Does NOT apply to non medicines or drugs such as (equipment, supplies or diagnostic devices)  Ex. - crutches, bandages and blood sugar test kits. 50

OTC GUIDANCE ISSUED

Debit cards

 The IRS will not challenge the use of health FSA and HRA debit cards for expenses incurred through January 15, 2011 because of inability to comply with substantiation requirement of debit card usage.  Medical expenses other than OTC medicines or drugs can continue to be reimbursed through debit card.  Debit cards may continue to be used at pharmacies that do not have a qualifying Inventory Information Approval System, as long as the store satisfies the requirement that 90% of its gross receipts were for medical care expenses and substantiation is properly submitted.

Retroactive amendments to conform to requirements if adopted no later than June 30, 2011, is permissible 51

EARLY RETIREE REINSURANCE PROGRAM Commenced as of June 1, 2010

 

ERRP Provisions

Employment based plans ‒ State or local government, employee     organization, VEBA, multiemployer Early retiree = age 55 but not Medicare eligible 80% of medical claim at least $15k not exceeding $90k Claims incurred between June 1, 2010 and January 1, 2014 Tax free 52

EARLY RETIREE REINSURANCE PROGRAM

    ERRP Provisions (cont.)  Application process open Not first come first served Errors will cause application to be returned Conditions ‒ Cost savings programs for chronic or high cost conditions and fraud and abuse ‒ Restrictions on use of proceeds ‒ Subject to audits ‒ Certified by Secretary of HHS ‒ Sponsor must have PHI agreement with plan or insurer ‒ Document actual medical claims costs ‒ Medical costs = health benefits (e.g., not long-term care) ‒ Payments must lower plan costs not be returned to general revenues 53

SMALL EMPLOYER INCENTIVES

2011

   Simple Cafeteria Plans  Safe harbor from nondiscrimination rules for cafeteria plans (and benefits offered through a cafeteria plan)  All “nonexcludable” employees eligible to participate Certain minimum contribution requirements met Employed an average of 100 or fewer employees on business days during either of the two preceding years    Small employer tax credit  25 or fewer employees with average annual wages of less than $50,000  Tax credit up to 35% (25% for tax exempt employers) of the employer’s contribution ‒ employer contributes at least 50% of a benchmark premium  10 or fewer employees with annual wages of less than $25,000 will be eligible for full credit Credits phase out as size and wage increases

Determine if credit applies or if plan can be amended to come within limits

CLASS ACT

2011

   Optional for employers  Government run voluntary long term care program ‒ Once program begins, participating employers required to automatically enroll employees who do not opt out and facilitate payroll deductions ‒ Eff. in 2011, but HHS must provide guidance Employees must opt-out of program —if not wanting to participate Pays cash benefits of an average  $50 per day Five year vesting period before benefits provided ‒

Prepare additional payroll deductions and opt-out election

‒

Prepare and distribute employee communications

MISCELLANEOUS - GENERAL AND NEW STUFF

1099 reporting  PPACA §9006 application to all vendors of more than $600  Possible political fix – failed in amendment to Small Business Jobs Act of 2010  Politically unpopular so opponents look for ways to pass repeal of that provision  Additional benefit to self-employed  Small Business Jobs Act of 2010 (HR 5297)  §2042 – Deduction for health insurance costs in computing self employment taxes in 2010 56

Post-2011 Issues

2013

KEY PROVISIONS New Medicare Taxes For individuals earning more than $200,000, and couples earning more than $250,000, new Medicare taxes as follows:



Increase Payroll tax from 1.45% to 2.35%



Create new 3.8% Medicare tax on unearned investment income Employers

No impact 

Effective Date: 1/1/13 POTENTIAL IMPACT Employees Carriers

Increased taxes for higher compensated No impact 58

2013

KEY PROVISIONS POTENTIAL IMPACT FSA max limits reduced



Annual salary reduction contributions to a health FSA may not exceed $2,500.

Employers Employees Carriers

Employers based on the average compensation of their workforce may see a change in FICA contributions Increased taxes by reducing opportunity to defer compensation No impact 

Effective Date: 1/1/13

2014

KEY PROVISIONS New Excise Taxes on Medical/Health Industry Excise Taxes of $67 Billion will be imposed on Medical Carriers FROM 2014-2019 POTENTIAL IMPACT Employers

May increase premiums by 2% 4%

Employees Carriers

Same as employers Pass through these new taxes resulting in higher premiums

Effective Date: 1/1/14

2014

(continued)

KEY PROVISIONS Establishment of State Based Insurance Exchanges Employers POTENTIAL IMPACT Employees Carriers State-based Insurance Exchanges will be established for individuals and small groups under 101 employees (In 2017, this access ceiling could be increased by each state). These exchanges will likely become the only market for these individuals and small Employers

Could create lower cost options Same as employers May squeeze carrier pricing/ profitability further, but also provides access to newly covered enrollees

Effective Date: 1/1/14

2014

(continued)

KEY PROVISIONS Employer “Play or Pay” Mandates Employers POTENTIAL IMPACT Employees Carriers Employer mandate required for groups with over 50 employees. This penalty will apply to Employers who don’t offer coverage and/or have eligible individuals who opt out and buy subsidized coverage through the exchanges. After subtracting the first 30 employees from the calculation, the penalties will range from 1)$2,000 for offering no coverage to FT employees working more than 30 hours per week 2) to $3,000 for any employees who leave the Plan and buy subsidized coverage through the new Exchange Effective Date: 1/1/14

Imposes penalties for non-coverage situations Should increase coverage opportunities for some employees, including part-timers Employer Issue 62

2014

(continued)

KEY PROVISIONS Individual Coverage Mandates Combined with Eliminating All Pre-Existing Condition Exclusions POTENTIAL IMPACT Employers Employees Pre-Existing Condition Exclusions will be completely eliminated in exchange for an Individual Coverage Mandate for all U.S. citizens. Penalties for non coverage phase-in from $95 in 2014 up to $750 or 2% of household income

Improves plan coverage but could lead to higher claim costs and premiums

Carriers

Provides coverage for ALL conditions but creates a penalty for uninsured individuals Penalty is not enough of a deterrent and will likely cause adverse selection and increase rates – possible increase in new enrollees

Effective Date: 1/1/14

2014

KEY PROVISIONS HIPAA Wellness: POTENTIAL IMPACT Increase HIPAA limit on financial incentives for participation in wellness programs from 20-30% (with possible regulation change up to 50%) .

Employers

Provides Employers the opportunity to vary their medical programs and contribution strategies

Employees Carriers

Motivated employees will recognize the incentive to be healthy. Others may view it negatively Opportunity to enhance product offerings opening new lines of business

Effective Date: 1/1/14

2018

KEY PROVISIONS 40% Tax on “Cadillac” Medical Plans Employers POTENTIAL IMPACT Employees Carriers 40% Excise Tax would be imposed on insurers of Employer-Sponsored Health Plans with aggregate values that exceed $10,200 for individuals and $27,500 for family coverage

Excise Tax will likely be passed along to Employers in higher premiums – most clients will look to eliminate these plans Same as Employer

Effective Date: 1/1/18

Excise Tax will cause increase in premiums for these “Cadillac Plans” 65

MANDATED DISCLOSURE AND 1099 REQUIREMENT

2012

 Mandated disclosure requirement – HHS will issue format  Uniform explanation of coverage documents

as of March 23, 2012

‒ No more than 4 pages, using 12 point font ‒ Culturally and linguistically appropriate manner ‒ Information on covered benefits, exclusions, cost sharing, continuation ‒ Notify of material coverage changes no less than 60 days in advance of effective date  1099 Mandate  1099s for all corporate (health) service providers receiving more than $600 66

FUTURE ISSUES AFFECTING EMPLOYRS AND PLANS

2013

 FSA contributions capped at $2,500  Indexed to CPI  Subsidy for retiree drug coverage eliminated  Allowable deduction reduced by tax-free subsidy    Employer notice informing employees of State Exchange  If plan’s share of total allowed costs of benefits is less than 60%  Availability of tax credit Availability of free choice voucher Current employees

as of March 1, 2013

and subsequent new hires 67

TAX CHANGES

2013 – Tax Changes

  Payroll tax increase To .9% on earnings over $200,000 for individuals  and joint filers over $250,000

Adds 3.8% tax on same individuals’ net

‒

investment income over $200,000/$250,000

interest, dividends, royalties, rents, gross income from trade or business involving passive activities, and net gain from disposition of property (other than property held in trade or business) - reduced by properly allocable deductions      Participant fee for comparative effectiveness research $1 per participant for first $2 per participant following year Not applicable to HIPAA exempt benefits Sunsets 1/1/2020

plan year ending after September 30, 2012

ADDITIONAL MANDATES

2014

 

Employer reports to IRS to enforce individual mandates Coverage offered employees, length of waiting period, lowest cost option, actuarial value

 Auto enrollment mandated for employer plans with 200 or more employees  Prohibits waiting periods greater than 90 days  Wellness Programs will be able to increase incentives to 30% or up to 50% if HHS approves 69

PAY OR PLAY MANDATE

Effective in 2014



Nondeductible penalty on some employer plans with 50 or more FT



(30 hours/week or more) employees Part time employee equivalents used to determine FT number

 

First 30 FT employees excluded from tax Tax is $2,000 per FT employee if no coverage at all and at least one employee receives tax credit for coverage on an exchange



Tax is $3,000 per FT employee if employer DOES offer coverage but employee receives tax credit for coverage on an exchange but no more than $2,000 X all employees

 

Seasonal employees are NOT excluded

For the penalty, are to determine size of employer

VOUCHERS AND INDIVIDUAL MANDATE

Effective in 2014

   Vouchers Employer must offer vouchers to permit certain employees ‒ eligible under plan AND ‒ required premium is between 8% and 9.8% of income AND ‒ total household income does not exceed 400% of FPL  Voucher can be used to purchase coverage outside of employer plan

retain any excess tax free and

 Must equal the largest portion the employer provides toward type of coverage  No free rider penalty for employees receiving vouchers  Individual mandate commences – fines for failure to purchase: ‒ $95 in 2014 ‒

$325 in 2015

‒

$695 in 2016

‒ ‒ ‒

Or 1.0% of taxable income in 2014 2.0% of taxable income in 2015 2.5% of taxable income in 2016 and thereafter

INSURANCE REFORM MANDATES

  

Effective in 2014 – Affects on all plans (grandfathered until effective date)

 Mandated benefit package – determined by HHS  Clinical trials for life threatening diseases (grandfathered plans exempt)  No discrimination of provider acting within scope of license No pre-existing condition exclusion No annual limits on essential benefits Cost sharing limitations-OOP does not  exceed qualified HDHP coverage and deductibles do exceed $2,000/4,000 (grandfathered plans exempt) State insurance exchanges commence for individuals and small businesses 72

INSURANCE EXCHANGES

Commence in 2017

 State insurance exchanges commence for employers with more than 100 employees 73

HIGH COST PLAN EXCISE TAX

Effective in 2018

   Excise taxes on “Cadillac” plans

40% nondeductible tax

Value of all employer –

sponsored

medical benefits in excess of: ‒ $10,200 for individual coverage ‒ $27,500 for more than individual coverage    High risk occupations* and retirees ‒ $11,850 individual ‒ $30,950 more than individual Indexed at CPI + 1% in 2019, CPI thereafter Active and retired employees * Longshoremen, repair or install electrical or telecommunications lines, law enforcement, fire protection, EMT, construction, mining, agriculture (except not food processing), forestry and fishing 74

HIGH COST PLAN EXCISE TAX

2018 – Cadillac Plans – cont.

  Value includes All medical coverage ‒ Group medical ‒ EAP ‒ HSAs, FSAs, HRAs ‒ Employer paid ‒ Employee paid ‒ Pre-tax ‒ After-tax 

Not

disability or life 75

HIGH COST PLAN EXCISE TAX

Effective in 2018 – Cadillac Plans – cont

 Excise tax on an individual basis 

Threshold and tax calculated monthly

 Paid by the employer  Based on COBRA determination amount   Intent to keep employer plans under threshold so consider Reduce benefits?

  Reduce account based plans?

Eliminate ancillary coverage?

QUESTIONS AND COMMENTS

Federal Healthcare Reform – What’s Next?

Willis Human Capital Practice Legislative and Regulatory Update Jay M. Kirschbaum, JD, LLM, FLMI Practice Leader National Legal & Research Group

This material and any accompanying remarks are provided for informational purposes only and nothing contained in either should be taken as a legal opinion or as legal advice