Transcript HEALTH REFORM - Fennemore Craig

I'm Not In The Health Care Business
So How Will Health Reform Affect My
Business?
Live Webinar Presentation
November 19, 2010
Erwin D. Kratz and Anne L. Kleindienst
Fennemore Craig, P.C.
3003 N. Central Ave., Suite 2600
Phoenix, Arizona 85012-2913
[email protected]
[email protected]
I'm Not In The Health Care
Business
So How Will Health Reform Affect
My Business?
To access the audio portion of the program:
• Call 866-740-1260
• Enter access code 8796401
Email Questions to [email protected]
Health Reform Legislation
• Patient protection and Affordable Care Act
(PPACA) (HR 3590)
– Signed 3/23/10
• Health Care and Education Reconciliation
Act (HR 4872)
– Signed 3/30/10
Health Reform
• Phased in between 2010 and 2018 (mostly
between 2011 and 2014)
• Lots of new regulations being issued
– Jointly from DOL, IRS, and HHS on coverage,
reporting and notice issues
– IRS on purely tax issues
• Court challenges
– Prop 106
• Attempts to repeal/revise
The Highlights
• Larger employers pay tax for failure to provide
minimum essential coverage to all full time
employees
• Employers must cover 60% of the cost of
minimum essential coverage or pay “free rider
penalty”
• Even employers that provide coverage may be
subject to “free rider penalty” if certain lower
income individuals opt for exchange
• Employers must provide vouchers for use by
certain employees to purchase coverage in the
exchange
The Highlights
• Individuals subject to tax for not purchasing
coverage
• Government subsidies for lower income individuals
• States to set up health benefit exchanges where
individuals and employers can purchase
coverage
• Insurers and employer plans required to
enhance coverage and to provide coverage
without preexisting conditions or various other
limitations
The Highlights
• Minimum Medical Loss Ratios imposed on
insurers starting in 2011
– Large group plans must spend 85% of
premium revenue on clinical services
– Requirement is dropped to 80% for small
group plans and individual coverage
The Highlights
• The “right to maintain existing coverage”
exempts grandfathered plans from many (but
not all) provisions.
– External review requirements
– Choice of provider requirements (pediatrician as PCP
and Ob/Gyn without referral)
– Non-discrimination requirements for fully insured
plans
– Preventive services without cost sharing
• Limited utility due to difficulty of maintaining
grandfathered status
The Big Picture
The Big Picture
• Get good professional help:
– Benefits consultants
– Payroll and benefits service providers
– Legal
– Tax advisors
• Designate clear internal responsibility for
evaluation and compliance
Implementation Timeline
• Changes effective in 2010
• Changes effective first plan year on or after
9/23/10
• Changes effective in 2011
• Changes effective in 2012
• Changes effective in 2013
• Changes effective first plan year on or after
1/1/14
• Changes effective in 2014
• Changes effective in 2018
Grandfathered Plans
Any of six changes (measured from March 23, 2010) will cause a loss
of grandfather status:
• Elimination of substantially all benefits to diagnose or treat a
particular condition
• Increase in a percentage cost-sharing requirement (e.g., raising an
individual’s coinsurance requirement from 20% to 25%)
• Increase in a deductible or out-of-pocket maximum by an amount
that exceeds medical inflation plus 15 percentage points
• Increase in a copayment by an amount that exceeds medical
inflation plus 15 percentage points (or, if greater, $5 plus medical
inflation)
• Decrease in an employer’s contribution rate towards the cost of
coverage by more than 5 percentage points
• Imposition of annual limits on the dollar value of all benefits below
specified amounts
Grandfathered Plans
• If concerned about maintaining grandfathered
status, be careful when redesigning existing plan
(esp. when changing coverage, cost or cost
sharing provisions)
– Newly eligible employees (and their families) may be
added without losing grandfather status
– Family members of current employees who are
covered by a grandfathered plan may also be added
Changes Effective in 2010
• Small employer tax credit of up to 35% of employer paid
premiums for employee health insurance (up to average
premium paid in state)
– To qualify, employer must
• Have no more than 25 “full-time equivalent” employees
• Have annual average wages of no more than $50,000 per employee
• Pay uniform % of at least 50% of employee cost of coverage
– Amount of credit is phased out for employers with more than 10
employees or annual average wages of more than $25,000
– Credit changes in 2013:
• 35% credit increases to up to 50% of employer cost
• $25,000-$50,000 phase out limits are adjusted for inflation
– As of 2014, employers can only claim the credit for two years
after they start offering employee coverage through health
exchange
Changes Effective in 2010
• Auto-enrollment for employers with more
than 200 employees
– Provision has no separate effective date, so
general rule that effective date is date of
enactment appears to control
– But compliance is effectively delayed until
regulations are issued
– Probably 2014
Effective in 2010 (90 days after
3/23/10)
• State Pre-Existing Condition Insurance Plan (PCIP) =
high risk pool for individuals who are denied coverage by
insurers due to pre-existing conditions
– Arizona’s PCIP is run by HHS. Info at
https://www.pcip.gov/StatePlans.html
– PCIPs are to establish procedures to identify and report to HHS
if insurers or group plans are discouraging individuals from
remaining enrolled due to their health status (“dumping”). Some
factors:
• Financial consideration for dropping coverage
• Unexplained increase in premiums
– Insurer or employer found to have encouraged individuals to
disenroll and join high risk pool must reimburse expenses
Effective first plan year after
9/23/10 (6 months after enactment)
• Coverage Requirements
– No lifetime limits on essential benefits
– No preexisting condition exclusions or
limitations for under age 19 (applies to all in
2014)
– No rescission of coverage (except in cases of
fraud or intentional misrepresentation)
Effective first plan year after
9/23/10
• Coverage Requirements cont…
– First dollar coverage (i.e., no cost-sharing) for
preventive care
– Plans that cover dependent children must
provide coverage for adult children until age
26
– Cost sharing for emergency services same in
and out of network
Effective first plan year after
9/23/10
• Notice requirements
– Notice to participants of coverage changes
•
•
•
•
no lifetime limit
extension of dependent coverage to age 26
right to designate pediatrician as primary care provider
right to get obstetrical or gynecological care w/out prior
authorization
– Notice of grandfathered status
– Annual summary of benefits and coverage
• Significant penalties (up to $1,000) for each willful failure)
• Initial distribution deadline is 24 months after 3/23/10
Effective first plan year after
9/23/10
• Other
– External claims appeals
– Fully insured plans cannot discriminate in
favor of highly compensated employees
• Requirements include complex eligibility tests and
benefits tests
• Consequence of noncompliance appears to be
$100/day excise tax, not taxation of benefits
Effective in 2011
• Employers must report aggregate value of employersponsored coverage on Form W-2 (using COBRA rates)
– IRS has waived this for 2011 – effectively delayed until 2012
• No reimbursement of OTC medicines or drugs (except
insulin) by health FSA, HRA, or HSA without prescription
• “Simple” cafeteria plans (years beginning after 12/31/10)
– Available to eligible small employers (100 or fewer employees
during either of two preceding years)
– Treated as meeting nondiscrimination rules for cafeteria plans
and their components (e.g., group term life, health FSAs,
DCAPs)
– Must meet minimum contribution, eligibility, and participation
requirements
Effective in 2011
• Tax on HSA distributions not for qualifying
medical expenses increases to 20% (from
current 10%)
• Deduction previously permitted for
amounts allocable to the Medicare Part D
subsidy for prescription drug plans is
eliminated
Effective in 2012
• 1099 reporting for all payments made to
people or corporations totaling more than
$600 in a tax year
– Unsuccessful repeal already tried
Effective in 2013
• EE share of FICA tax increased by 0.9%
for wages in excess of $200,000 (single)
or $250,000 (joint return)
– ER FICA share unchanged, but ER must
withhold EE tax to extent possible
• Health FSA salary reductions limited to
$2,500 each year
– The cap is indexed to the CPI starting in 2014
Effective in 2013
• Effective 3/1/2013, employers must notify
employees at time of hiring of—
– Existence of the exchange
– That employee may be eligible for a subsidy under
the exchange if the employer’s share of total costs of
benefits is less than 60%
– That if employee purchases a policy through the
exchange without employer providing a voucher, he
or she may lose the employer contribution to any
health benefits offered by the employer
Effective for plan years on or after
1/1/14
• Coverage Requirements
– Max 90 day waiting period
– No pre-existing condition exclusions or
limitations
– No annual limits on the value of essential
benefits
– Out of pocket limits cannot exceed HDHP
limits ($5,950 for individuals and $11,900 for
families)
Effective in 2014
• States receive funding to establish
exchanges
• Available to individuals and small
employers
– Small employer = 100 or fewer employees
• Starting in 2017, states may open
exchanges to all employers
Effective in 2014
• Individual coverage mandate applies
• The per family member penalty for not having qualifying
coverage is the higher of:
– $95 or 1% of income in 2014;
– $325 or 2% of income in 2015;
– $695 or 2.5% of income in 2016
• The per household member penalty for not having
qualifying coverage is capped at 3X the per family
member penalty
• Individuals are exempt from the penalty if the cost of
basic coverage from their employer or through the
exchange is more than 8% of household income
Effective in 2014
• Free Choice Vouchers for Qualified Employees
effective in 2014
– If employer provides coverage and makes a
contribution toward the cost, it must give a voucher
option to Qualified Employees
– Voucher = amount employer would have paid toward
the cost of coverage in its plan
– Voucher can be used to buy coverage through the
exchange
– Qualified Employees = household income less than
400% of federal poverty level and EE’s required
contribution under the employer’s plan is between 8%
and 9.8% of income
Effective in 2014
Employer Play or Pay Mandate
• Applies to employers with average of 50 or more FTE
employees on business days in prior calendar year
• “No-coverage” penalty
– For employers who do not offer “minimum essential coverage”
for full-time employees (and dependents) in any month in which
any full-time employee receives subsidized coverage through
exchange
– Penalty = Number of full-time employees (over 30) for month X
$166.67 (1/12 of $2,000)
– Example: Business with 51 employees for entire year not offering
coverage must pay tax equal to 21 X $2,000 per year
Effective in 2014
Employer Play or Pay Mandate, cont…
• “Subsidized-coverage” penalty
– Applies even if employer offers coverage for full-time
employees (and dependents), but (1) ER contributes
less than 60% of the cost of the coverage or EE’s
share is more than 9.5% of household income AND
(2) any full-time employee receives subsidized
coverage through exchange
– Penalty = Number of employees receiving a subsidy
for month X $250 (1/12 of $3,000) (capped at $166.67
X full-time employees minus 30 for month)
Effective in 2014
Employer Play or Pay Mandate, cont…
• Maximum ER penalty for providing no
coverage at all is $4,000 per year per full
time employee in excess of 30
• ER could reduce the maximum to $2,000
per year per full time employee in excess
of 30 by offering EE-pay-all coverage
Effective in 2014
Increased Employer Reporting to the IRS
• Confirmation that employers offer (or do not
offer) minimum essential coverage to their fulltime employees and their dependents
• Length of any applicable waiting period
• Lowest-cost option in each enrollment category
under the plan
• Employer’s share of the total allowed costs of
benefits provided under the plan
• Total number and names of full-time employees
receiving health coverage
Effective in 2018
Cadillac Plan tax
• 40% excise tax determined by employer and assessed
against the “coverage providers”
• Tax is based on value of employer-sponsored health
coverage that exceeds $10,200 (single coverage) or
$27,500 (family coverage)
– These limits will be adjusted if health care costs increase by
more than anticipated before 2018
– Limits increase by CPI + 1% in 2019 and by CPI thereafter
– Limits may be increased for age and gender characteristics
– Higher limits for retirees and high risk professions
Effective in 2018
Cadillac Plan tax cont….
• “Coverage Providers” include:
– For fully insured plans, the health insurer
– For HSA or Archer MSA contributions, the
employer making the contributions
• For self insured plans and FSAs, the plan
administrator
Conclusions
• Designate clear internal responsibility for assessing
requirements and ensuring compliance
–
–
–
–
Coverage
Reporting
Notice
Taxes
• Get professional help to satisfy coverage, reporting,
notice and tax requirements
–
–
–
–
Benefits consultants
Insurance company
Legal
Accounting
Questions