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Health Care Reform: What’s In Store for
Employer Health Plans?
April 21, 2010Presented by:
Norbert F. [email protected]
(616) 752-2186
Sue O. [email protected]
(616) 752-2153
Copyright 2010 by Warner Norcross & Judd LLPAll Rights Reserved
(Materials included in the following outline are not intended to provide legal advice and are for seminar use only.)
What Is Health Care Reform?
� Patient Protection and Affordable Care Act (PPACA) March 23, 2010, as amended by Health Care and Education Reconciliation Act (Reconciliation Act)
� Over 2,400 pages� Legal challenges/repeal efforts� Voluminous regulations to come
30,000 Foot View� Health Plan Changes (aka Insurance Reform). New
mandates and features including bans on pre-existing condition exclusions and plan dollar limits, expanded dependent coverage, etc.
� Individual mandate (“Individual Responsibility”). Individuals subject to tax if they don’t purchase coverage
� Employer mandate (“Play or Pay” or “Employer Responsibility”). Larger employers (50+ FTEs) pay tax if they don’t make affordable health coverage available to employees
� Health Benefit Exchanges. State-established electronic marketplace where individuals and employers can purchase health insurance coverage
Today’s Presentation
� Early retiree health plan reinsurance program
� Small employer tax credits� Year-by-year analysis of changes for
group health plans� Health Plan Exchanges and the “shared
responsibility” requirements
Employer Implementation Timeline
� Immediate health care reform� Incentives for providing health care� Changes for plan years beginning on or after September 23,
2010� Changes effective in 2011� Changes effective in 2012� Changes effective in 2013� Changes effective in 2014� Changes effective in 2018
Grandfather: Exempt
Immediate ChangesSmall Employer Tax Credit
� Purpose: encourage small business to offer or continue employee health coverage
� Tax credit for small business and tax-exempt employers� Fewer than 25 FTEs� Average annual FTE wages below $50,000� Employer pays at least 50% of cost of employee single
coverage
� Maximum credit� 35% of premiums (for-profit), 25% (non-profit)� Increases to 50%, 35% in 2014� Credit highest if 10 or fewer FTEs and average pay is $25,000
or less
� Effective for 2010 tax year
Immediate ChangesEarly Retiree Medical Reinsurance
June 21, 2010� Purpose: Encourage employers to continue retiree medical for pre-
Medicare retirees until Exchanges available
� Reimburse 80% of participant’s claims between $15,000 and $90,000 during plan year
� Applies to retirees 55-64 not eligible for Medicare (also spouse, dependent, surviving spouse)
� Can use only to reduce premium costs, retiree contributions or out-of-pocket expenses
� Cost savings program in place for high cost/chronic conditions
� $5 billion in funding
� Temporary – begins June 21, 2010 and ends January 1, 2014 or, if earlier, when money runs out
� HHS application available in June
Immediate ChangesTemporary High Risk Pool
Established by June 21, 2010
� National high risk health insurance pool to provide health insurance for individuals with pre-existing medical condition until Exchanges established
� Directly or through contracts with states or private non-profit� Uninsured for 6 months with pre-existing condition� Subsidized premiums� $5 billion� Expires January 1, 2014� Penalty (must reimburse employee’s medical expenses) if employer
encourages disenrollment in employer plan to join high risk pool
Plan Years Beginning on or after 9/23/2010
Grandfathered Plans
� President Obama: You will be able to keep the health plan that you have through your employer
� PPACA: A group health plan in which an individual is enrolled on the date of enactment does not have to comply with all of the new requirements� Such a plan is “grandfathered”
Grandfathered plans
� Requirements for being Grandfathered:� Plan had individuals enrolled on March 23, 2010.� Do not lose grandfathering if:
� Re-enrollment of employees/families� Enrollment of new employees/families� Addition of dependents for currently enrolled employees
� If plan is grandfathered:� Certain requirements do not apply at all.� Some are delayed.
� Non-grandfathered plans must comply with all requirements
Grandfathered Plans
� How long does grandfathering last?� Collectively bargained plans: until last
collective bargaining agreement ratified prior to 3/23/2010 expires
� All other plans: not clear� Grandfathering not intended to last forever� Substantial modification?
� Is being a grandfathered plan crucial?
Pre-Existing Condition Exclusions
� Plan cannot impose a pre-existing condition exclusion on coverage for children under age 19� Applies to all plans (even grandfathered plans)
� What To Do� Determine whether change required� Confirm changes with insurance company or TPA� Revise plan documents, SPDs, enrollment materials,
etc. as necessary
Coverage of Dependent Children� Must provide coverage to children of covered employees until child
reaches age 26� For grandfathered plans: until 1/1/14, need not cover adult child who
is eligible for coverage under another employer’s plan� Non-grandfathered plans: must cover all adult children until age 26� Tax Code revised to allow coverage through end of year child turns
age 26� Does not require coverage of child’s dependents
� What To Do� Review Plan’s eligibility rules� Confirm changes with insurance company or TPA� Revise plan documents, SPDs, enrollment materials, etc. as
necessary
Rescission of Coverage� Group health plans may not rescind
coverage except in cases of fraud or intentional misrepresentation of material fact as prohibited by terms of plan
� What To Do� Review termination of coverage provisions in
plan documents, SPDs, etc. and revise if necessary
� Review terminations on case-by-case basis
Lifetime Limits
� Plan may not impose lifetime dollar caps on essential plan benefits.� Essential plan benefits are:
� Ambulatory patient services� Emergency services� Hospitalization� Maternity and newborn care� Mental health and substance use disorder benefits (including behavioral health
treatment)� Prescription drugs� Rehabilitative and habilitative services and devices� Prevent and wellness services and chronic disease management� Pediatric services, including oral and vision care
� Can have lifetime dollar limits per beneficiary on specific benefits that are not essential plan benefits.
� Applies to all plans (including grandfathered plans)� What To Do
� Identify lifetime limits currently imposed and determine whether change required
� Confirm changes with insurance company or TPA� Revise plan documents, SPDs, enrollment materials, etc. as necessary
Annual Limits
� Until 2014, no unreasonable annual limits for essential plan benefits� Department of Health & Human Services will issue guidance on
permitted restrictions� Can continue to impose annual limits on non-essential plan
benefits� What To Do
� Compare annual limits with guidance to determine whether change required
� Confirm changes with insurance company or TPA� Revise plan documents, SPDs, enrollment materials, etc. as
necessary
PYB: 9/23/2010
Nondiscrimination� Insured plans will be subject to nondiscrimination rules that currently apply
only to self-funded plans� Cannot discriminate in favor of highly compensated employees in terms of
eligibility and benefits� Eligibility tests apply� Benefits provided to highly compensated employees must also be provided to non-
highly compensated employees� Applies only to non-grandfathered plans
� What To Do� Determine if plan is grandfathered� If not grandfathered, determine if discrimination may be an issue� If there is an issue, consider alternatives� Confirm changes with insurance company� Revise plan documents, SPDs, enrollment materials, etc. as necessary
Grandfather: ExemptPYB: 9/23/2010
Preventive Care Coverage� Must provide coverage without cost-sharing for certain immunizations and
other preventive care� Based on recommendations by:
� United States Preventive Services Task Force� Advisory Committee on Immunization Practices of the Centers for Disease Control
and Prevention� Health Resources and Services Administration
� May cover more than these minimum requirements� Does NOT apply to grandfathered plans
� What To Do� Determine if plan is grandfathered� If not grandfathered, determine whether change required� Confirm changes with insurance company or TPA� Revise plan documents, SPDs, enrollment materials, etc. as necessary
Grandfather: ExemptPYB: 9/23/2010
Appeals Process� Claims appeals must be subject to internal and external review
� ERISA claims procedures will still apply to internal reviews� External reviews now also required
� Uniform External Review Model Act provisions promulgated by the National Association of Insurance Commissioners; or
� Standards issued by HHS� Only applies to non-grandfathered plans
� What To Do� Determine if plan is grandfathered� If not grandfathered, determine whether current process meets requirements� If changes are necessary, confirm with claims administrators� Revise plan documents, SPDs, enrollment materials, etc. as necessary—including
form letters used with claims appeals
Grandfather: ExemptPYB: 9/23/2010
Coverage of Emergency Services
� For emergency services covered under plan:� No pre-authorization requirement� No requirement that treating physician be a participating provider� Out-of-network cost-sharing must be the same as in-network � Does not apply to grandfathered plans
� What To Do� Determine if plan is grandfathered� If not grandfathered, determine whether change required� Confirm changes with insurance company or TPA� Revise plan documents, SPDs, enrollment materials, etc. as
necessary
Grandfather: ExemptPYB: 9/23/2010
Designation of Primary Care Providers� If plan requires or allows for designation of a primary care provider,
then each participant, beneficiary or enrollee must be allowed to:� Designate any participating primary care physician who is available
� For child, designation may be a pediatrician� For female, designation may be OB/GYN (and test or procedures ordered by
non-PCP OB/GYN treated as though ordered by PCP)� Does not apply to grandfathered plans
� What To Do� Determine if plan is grandfathered� If not grandfathered, determine whether change required� Confirm changes with insurance company or TPA� Revise plan documents, SPDs, enrollment materials, etc. as
necessary
Grandfather: ExemptPYB: 9/23/2010
Changes for 2011
Effective January 1, 2011� Over-the-Counter Meds - Expenses incurred on or after January 1,
2011 for over-the-counter drugs and medications (except insulin) without doctor’s prescription not a qualified medical expense for FSA, HRA, HSA� Affects open enrollment materials in 2010
� Reporting on W-2 – Employer must report aggregate cost of employer-provided coverage beginning with 2011 W-2 issued in January 2012
� HSA penalty tax upped - Tax on HSA distributions not used for qualified medical expense increases from 10% to 20%
� What To Do� Revise plan documents, SPDs, enrollment materials as necessary for
OTC meds
� Prepare for W-2 reporting
CLASS Act (Community Living Assistance Services and Support)
January 1, 2011
� Voluntary federal long-term care insurance for active employees
� Employer and employee participation voluntary� Age-related premiums
� Determined by HHS� Paid by payroll deduction
� 5-year vesting period for benefit eligibility� $50/day minimum benefit
Simple Cafeteria PlansEffective January 1, 2011
� Safe harbor from complex nondiscrimination requirements
� Eligible employer: 100 or fewer employees during either of two preceding years
� Control group rules apply (substituting 50% for 80%)
� All non-excludable employees with 1,000 hours of service preceding year must be eligible
� Minimum employer contribution requirement� Partners, sole proprietors, 2%-plus shareholders
of S-corp still excluded
Medicare Part DEffective January 1, 2011
� “Donut hole” begins closing� May affect Creditable Coverage for
Medicare Part D Prescription Drug Notices
Changes for 2012
Uniform Explanation of Coverage by March 23, 2012
� HHS to develop uniform terms and formats for summaries of health benefits and coverage
� Plan sponsor (self-insured plans) or insurer (insured plans) must provide before March 23, 2012 to enrollees, re-enrollees and applicants
� Not more than 4 pages or smaller than 12 point font
� “Culturally and linguistically appropriate” with understandable terminology
� Paper or electronic
� $1,000 per enrollee for willful failure to comply!
� Applies to Grandfather Plans
Advance Notice of Modifications
� Material modification to terms of plan or coverage
� Not later than 60 days prior to date modification is effective
� Applies to grandfather plans
3/23/2012
Annual Reporting Requirements
� Required annual reports to HHS and participants regarding health care quality and wellness initiatives� Regulations due by March 2011
� Does not apply to grandfathered plans
Grandfather: Exempt
Annual Fees
� Annual fees begin to apply to insured and self-insured benefit plans to fund patient-centered outcomes research� $2 per average number covered lives ($1 for
2013 fiscal year)
� Applies for plan years ending after 9/30/2012)
� Will be paid as a tax
Additional HIPAA Transactions
� Regulations due for unique health plan identifier and electronic funds transfers� Health plans will have to certify compliance
� May require amendment of business associate agreement with TPAs
Changes for 2013
Notification of Exchange
� Must notify employees of availability of insurance through Exchange� Applies to all plans beginning March 1, 2013
� Give to:� New employees upon being hired� Existing employees not later than 3/1/13
� HHS to publish regulations
FSA Limits
� Limits annual health FSA contributions to $2,500� Applies January 1, 2013
� Limit is indexed to inflation for following years
� Applies to all plans (including grandfathered plans)
Taxation of Medicare Part D Subsidy
� Currently, employers who sponsor retiree health benefits that provide creditable prescription drug coverage may get a tax-free federal subsidy
� Starting in 2013, the subsidy becomes taxable� Consider whether there is an immediate
impact on income statements
Changes for 2014
Additional ChangesPlan Year on or after January 1, 2014
� No annual limits on dollar value of coverage� Cover all children up to age 26� No pre-existing condition exclusions or limitations for
adults (under 19 already covered)
� Waiting period cannot exceed 90 days� Increased wellness program maximum incentive (for
achieving health standard)� 20% to 30% of premium cost� Regulators can increase to 50%
All above changes apply to grandfather plans
Additional ChangesPlan Year on or after January 1, 2014
� Cost Sharing Limits� Out-of-pocket expenses cannot exceed HSA out-of-pocket
maximum� Currently $5,950 single, $11,900 family
� Deductible cannot exceed $2,000 single, $4,000 family (indexed)
� Clinical trials � Must cover routine patient costs in connection with clinical trial
Grandfather: Exempt
Play or Pay Requirements
Health Plan Exchanges� Each state required to have in place either:
� American Health Benefits Exchange; or� Similar market approved by HHS
� Market for:� Individual/family insurance policies.� Small employer policies
� Small employer if 1-100 employees in prior calendar year
� Beginning 2017, states may allow large employers (101 or more employees) to purchase through Exchange
Qualified Health Plans� Creates standards for health plans to be sold through state
Exchanges� Essential health benefits� Deductible and out-of-pocket limits� Various levels of coverage:
� Bronze (60% coverage)� Silver (70% coverage)� Gold (80% coverage)� Platinum (90% coverage)
� Catastrophic-only plans for:� Those under age 30 (“Young Invincibles”)� Those exempt from individual responsibility requirement
Individual Mandates
� Individuals generally required to maintain minimum essential coverage beginning 2014� Exempts those at or under the tax filing threshold
� Penalty for failing to maintain coverage:� 2014: greater of $95 or 1% of income� 2015: greater of $325 or 2% of income� 2016: greater of $695 or 2.5% of income
� Penalty will not be more than average cost of bronze plan for individual’s family size
Assistance for Individuals� Refundable tax credits for individuals who purchase
qualified health plans� Incomes must be between 100 to 400 percent of federal
poverty line (approx. $88,000 for a family of four)� Credits not available if eligible for coverage under
employer health plan, unless:� Employee’s premiums for single coverage would exceed 9.5% of
income; or� Benefits paid under plan are less than 60% of the costs
� Reduced cost-sharing for those under 400 percent of federal poverty line (tiered)� Out-of-pocket amounts reduced� Increased percentage of costs covered
Employer Responsibilities
� Employers with more than 50 FTEs who do not offer “affordable” coverage to all “full-time”employees will likely pay penalties� “full-time” means employees working an average of
at least 30 hours per week/120 hours per month� “affordable” means:
� Employee contribution does not exceed 9.5% of household income; and
� Plan covers at least 60% of actuarial value of total allowed costs
Employer Responsibilities
� Penalties for employers with more than 50 FTEs� Triggered if at least one “qualified individual”:
� enrolls in coverage through exchange; and� qualifies for premium tax reduction or cost-sharing reduction
� “qualified individual” means employee with household income of less than 400% of federal poverty level� household income of less than $43,320 for individual, or
less than $88,200 for family of four (2009 levels)
Responsibility of Employers with more than 50 FTEs
� if employer does not offer health plan coverage:� pay penalty of $2000 per year per full time employees
(reduced by 30).� Monthly pro rata is $166.67 per month
� If employer’s health plan coverage is not affordable coverage:� $3000 per per year per full time employee who enrolls
in Exchange coverage and qualifies for premium tax reduction or cost-sharing reduction
� Penalty does not apply of free choice voucher applies
Free Choice Vouchers
� Employer offers affordable coverage, but employee coverage costs more than 8% and less than 9.8% of household income� Employee does not participate in plan but chooses
to enroll in an Exchange plan� Voucher amount equals employer’s contribution to
employer’s health plan� If multiple plans, the plan to which the employer
contributes the largest portion of the cost� Same amount employer would contribute toward
single or family coverage under employer’s plan
Changes for 2018
Cadillac Plan TaxJanuary 1, 2018
� 40% excise tax on “excess benefit” under employer plan� “Excess benefit” = annual value of coverage above
$10,200/individual and $27,600 family; $11,850/$30,950 for post-55 retirees and high-risk industries (indexed after 2018)
� Includes� Employee contributions� FSA and HRA and employer-paid HSA contributions� Non-work related coverage provided at onsite medical
� Excludes stand-alone dental, vision, disease specific, long-term care
� Value determined similarly to COBRA premiums� Includes grandfather plans
Who Pays Cadillac Tax?
� Tax imposed on coverage provider
� Insured plan – insurer
� Self-insured – “person that administers the plan”defined as the plan sponsor if the plan sponsor administers plan benefits
� Tax will likely be passed on to employers/employees
� If more than one plan, allocated among coverage providers
Other Issues
Automatic Enrollment Effective Date Not Clear
� Employers with more than 200 employees
� Must automatically enroll new full-time employees in one of health plans it offers (subject to waiting period)
� Employees may opt out
� Effective date likely delayed until regulations issued
What Happens If Your PlanLoses Grandfather Status?
� If plans become un-grandfathered, it becomes subject to all rules that apply to group health plans, including� Coverage of preventive services without cost-sharing
� New annual reports to government
� Cost-sharing limitations
� External claims procedures
� Cannot limit choice of primary care provider
� Coverage of certain emergency services
� Access to pediatric and ob/gyn care
� Coverage of individuals in clinical trials
� Nondiscrimination rules apply to insured plans
Conclusion� Basic overview of mandates for employers, new
plan design and administrative requirements and other provision that affect employer health plans
� Still many unanswered questions
� Future webinars as guidance issued will keep you updated
� Meanwhile call us or e-mail us if we can help
Health Care Reform: What’s In Store for
Employer Health Plans?
April 21, 2010Presented by:
Norbert F. [email protected]
(616) 752-2186
Sue O. [email protected]
(616) 752-2153