Healthcare Reform Webinar Discussion for BenefitMall Key

Accounts

Monday, August 13, 2012 2:00 p.m. EST

Meet the PanelMike BrachlowBenefitMall Executive Sales

Director, Large Group

Randy MadryBenefitMall Consultant

Garry Carneal, JD, MABenefitMall Consultant

Moderator

Speaker

Speaker

Meet The Panel

Webinar Overview

Healthcare Reform Update

Individual Mandate

Healthcare exchanges

New carrier benefit

summaries

Flexible Spending Account changes

W-2 reporting

Medical Loss Ratio (MLR)

Future

Source: www.besthealthcarerates.com

Individual Mandate Effective January 1, 2014 Who does the individual mandate apply? Applies to everyone except the following:

Who already have minimum essential coverage through an employer-sponsored plan

Who have individual qualified coverage Who are enrolled in a Medicaid or Medicare program Who are covered by a military plan Who are dependents of active military enrolled in a TriCare plan Who are permanently incarcerated

• Other exceptions include persons who: Who are members of Indian tribes Who express religious objection Are without coverage for less than three months Would be contributing more than eight percent of their household income as

a “required contribution,” The Secretary of HHS determines that obtaining coverage would constitute

an extreme hardship

Individual Mandate: What are the tax penalties for non-

compliance?

The annual tax (formerly known as a penalty) for not obtaining minimum essential coverage will be the greater of a flat dollar tax amount per individual or a percentage of the individual’s taxable income.

The applicable flat dollar amount for 2014 for a tax filer with no dependents will be $95 and the amount for 2015 will increase to $325. This amount will increase over the years, rising to $695 in 2016, and will be further revised in 2017 according to the changes in cost-of-living.  

Each adult will pay the rate of an individual, and then you need to add the dependent at the 50% rate. For example, in 2016 a couple with one child under 18 would be assessed a flat dollar penalty of $1,737.50 (two adults x $695 plus one child at $347.50 -- one half of adult penalty).

A family of four (one couple with two children over 18) would only be required to pay the 300% cap in 2016. Three hundred percent of the $695 flat amount for 2016 is equal to $2,085. This amount is less than the flat amount that could be charged if the cap were not in place (two adults + two children over 18 = $695 x 4 = $2,780).

Healthcare Exchanges

Exchange types

Individual SHOP

PPACA: State-based versus Federal

Exchange

States have three options

State standalone Exchange

State & Federal

Partnership Exchange

Default to Federally-

run Exchange

Must be certified

and operational by Oct 1,

2013

Exchange Primary Functions

Purchasing cooperative that promotes transparency

Qualified health plan certification

Standardizing benefit offerings (including essential health benefit requirements and gold/silver/bronze levels)

Creation and maintenance of Website for consumers

Resource on Medicaid, Medicare and CHIP eligibility (with goal of automated enrollment)

Operate or supervise electronic enrollment processImplement an electronic calculator to determine the actual cost of coverage

taking into account eligibility for premium tax credits and cost sharing reductions

Vehicle for premium subsidies-- Who is eligible and how much is it worth?

State Exchange Updates 10 states and D.C. have adopted

legislation 4 states through executive order 20 states have enacted laws or are

leaning toward opting out of broad healthcare reform

What is going to happen next?

Source: www.NCSL.org

Summary of Plan Benefits and Coverage

Effective September 23, 2012, insures and group benefit plans must issue a standardized Summary of Benefits and Coverage (SBC)

SBC should detail “in plain language, simple and consistent information about health plan benefits and coverage that…will help consumers better understand the coverage they have, and, for the first time, allow them to easily compare different coverage options.”

NAIC provided recommendations that were adopted by the federal government Should include coverage examples that illustrate benefits provided under the

plan or coverage, detail out-of-pocket costs, and explain any coverage exclusions for common benefit

Person requesting an SBC must be provided with the document within seven (7) business days

Upon renewal, must be provided to both participants and beneficiaries as part of any written enrollment application materials

Experts differ as to when updated SBCs need to be issued – after Sept 23 or after new policy year (?)

Obligations of employers versus the insurance carriers

W-2 Reporting Requirements

PPACA requires employers to report the cost of health benefits coverage under an employer-sponsored group health plan on an employee’s Form W-2, in Box 12, using Code DD

Reporting for the 2011 calendar year (meaning the Form W-2 generally required to be furnished to employees in January 2012) was optional.

For years after 2011, employers generally are required to report the cost of health benefits provided on the Form W-2

Reported amount is not taxable because employers excludable contribution is being reported

Limitations to W-2 filing requirements such as an employers filing fewer than 250 Forms W-2 for the previous calendar year

Many employers are eligible for W-2 reporting transition relief for tax-year 2012 and beyond, until the IRS issues final guidance for this reporting requirement

Flexible Saving Accounts

Beginning in 2013, flexible spending accounts are limited to an annual contribution of $2,500

The $2,500 limit will be indexed for inflation after 2013 Married couples may each contribute $2,500 to their employer

FSA plan to total $5,000 One spouse may not contribute $4,000 to theirs and the other

spouse $1,000 to total the $5,000 The limit is $2,500 each Can wait until renewal date in 2013

Why the Change? It was implemented to: Move individuals into the Exchange insured pools Decrease the amount of income that was tax exempt and to

generate more federal income tax revenue to pay for the PPACA

MLR in a Nutshell

Beginning in 2011, insurers had to spend and track MLR ratios

Large Group (defined as 100 or more FTEs)•85% clinical services and qualified quality

programs•15% administrative

Small Group (defined as 2 to 100 FTEs) and nongroup •80% clinical services and qualified quality

programs•20% administrative

Calculations are based by legal entity, state and line of

business

Rebates checks for 2011 will be issued in 2012

MLR in a Nutshell

MLR reports filed to HHS June 1st each year

If a health plan or insurer meets or exceeds the MLR, notices will be

issued with the first plan document after July 1, 2012

If 80/85% percentage not achieved, notices and rebate checks must be

distributed by August 1st the following year

HHS says that it will start publishing MLR reports during the summer of

2012

Three month requirement from August 1 to take action on the MLR

rebate options

Plan Types and Plan Asset Overview

Variations in the MRL Rebate Process ERISA versus non-ERISA plans Does not apply to self-funded plans

Who is the policyholder? Could be the employer, trust, or an individual

The role of a plan fiduciary Determining when the MLR proceeds is a “plan asset “under

ERISA? Plan document description governs (within ERISA guidelines) When plan documents silent, look to source of premium

payment: Paid completely be employer (no) Paid by employee (yes) By both? (yes, employee portion) Paid through trust assets?(yes)

See DOL Technical Guidance 2011-04

Plan Asset Determination Examples

The portion of the rebate requiring treatment as plan assets depends on how the premiums for the coverage were initially paid:

• If all premiums are paid by the employees, the entire rebate constitutes plan assets;

• If the premiums are shared by a fixed percentage (e.g., employer pays 75% of the premium cost and employees pay 25% of the premium cost), that ratio determines the amount of the rebate that constitutes plan assets (25%);

• If an employer pays a fixed amount and the employees pay the remaining amount (the employer pays $350 per month, the employees pay the balance), the rebate constitutes plan assets up to the amount paid by employees; and

• If the employees pay a fixed amount and the employer pays the remaining premium (the employees pay $350 per month, the employer pays the balance), the rebate constitutes plan assets only to the extent it exceeds the amount paid by the employer.

Employer MLR Distribution Rebate Options

DOL Technical 2011-04 Release

Based upon already established ERISA principles, the DOL guidance provides employers with four options. An employer may:• Distribute rebates to current (and, if desired, former)

participants• Enhance benefits provided to plan participants by

additional benefits or wellness programs• Pay reasonable plan expenses (?)• Reduce future premiums for current plan participants

(?)• Note: For the purposes of MLR rebate checks, COBRA

plan participants are considered plan participants.

BenefitMall Recommendations

Three Simple Ways to Go

• Checks to employees• Premium holiday• Enhanced benefits

Example Calculation: Rebate Check = $5,000

Step 1: Calculate total premium employer paid to carrier in the 2011 plan year = $100,000

Step 2: Calculate total contribution paid by employees and COBRA participants for the same year = $25,000

Step 3: Divide Step 2 by Step 1 = the total percentage of the premium paid by employees and COBRA participants ($25,000/$100,000 = 25%)

Step 4: The percentage calculated in Step 3 is multiplied by the total rebate check which equals the amount due the employee/COBRA participants ($5,000 x 25% = $1,250)

Step 5: Calculate the total amount of 2011 plan year contribution paid by employees and COBRA participants currently insured using payroll records = $20,000

Step 6: Take the amount paid by each employee or COBRA participant in the 2011 plan year and convert it to a percentage of the total in Step 4. Employee A contributed $200/ $20,000 = 1%

Step 7: The percentage calculated in Step 6 would then be applied to the net plan participant portion of the rebate check (Step 4) and the resultant sum is what that plan participant should receive (Employee A 1% x $1,250 = $12.50)

Document Process!

Processing the MLR Rebate Checks

How does an employer

calculate the refunds when

there are multiple plans?

What happens if an employer offered both an

HMO policy and PPO policy in 2011, and the HMO hit 78% and the PPO hit 87%?

Who do the rebate checks go to? (e.g., current vs.

former participants)

How much effort must employer

make to track down former employees?

What happens if refund

amount is very small?

Does the MLR rebate have to

match the payments by

participants for the plan year

that the rebate is based on?

MLR Rebate Reminders•From the

perspective of administrative simplicity and cost, nothing prevents an employer from treating the entire rebate as plan assets and not receiving any of the rebate proceeds for its own benefit.

•The use of a rebate generated by one plan to benefit the participants of another plan would be a violation of the fiduciary responsibility to the plan participants.

•If employer is using a cafeteria plan, Technical Guidance 92-01 offers further information on the requirements to assist in the treatment of plan assets.

Employers & Plan Assets

•Distribute rebates within 3 months

•Set up a trust which allows more time to distribute rebates

•DOL notes that employer could direct insurer to apply the rebate toward future participant premium payments or toward benefit enhancements adopted by the plan sponsor would avoid the need for a trust, and may, in some circumstances, be consistent with fiduciary responsibilities.

Insured Plans

(i.e., an unfunded trust)

MLR Rebate Reminders•Decisions on how to apply the

plan's portion of a rebate are subject to ERISA's general standards of fiduciary conduct. This includes a duty of impartiality to the plan's participants.

•In deciding on an allocation method, the plan fiduciary may properly weigh the costs to the plan and the ultimate plan benefit as well as the competing interests of participants or classes of participants provided such method is reasonable, fair and objective.

•Under no circumstances should the employer ever receive for its own benefit more than it originally paid in premiums and plan expenses in the MLR year.

Guidance on rebate distributio

n

Additional MLR Rebate Observations

•The distribution of the rebates to plan participants raises significant tax issues that should be considered before choosing that option.

•The IRS has issued FAQ page with examples that address the tax implications of direct distribution of rebate funds to plan participants. See IRS “Medical Loss Ratio (MLR) FAQs”

•Taxable if cash is paid through a pre-tax cafeteria plan – must be tracked on W-2

When Rebate

becomes a taxable event

•Not defined in regulations

•Plans can defined through good faith effort

•Examples that would probably qualify: Wellness, Dental and Vision

Benefit Enhancement

s

MLR Impact: Kaiser Foundation Study

Refund: MLR rebate checks this year estimated $1.3 billion Non-Group Market: Rebates are expected to go to almost

one-third (31%) of consumers in the individual market. The share of consumers in the individual insurance market

expected to receive rebates ranges from near zero in several states to as high as 86% in Oklahoma and 92% in Texas

Group Market: About one-quarter (28%) of the small group market and 19% of the large group market is projected to receive rebates.

Amount: Checks could range from an average of $72 for those with insurance through a large employer to an average of $127 for those who bought individual policies

Reflection PointsAdministrative burden of tracking employee contributions

Process for calculating eligibility for employers

Quick pace of adoption with some regulatory ambiguity

More regulations to come

DOL will be auditing all plans and assessing penalties (Note: IRS is hiring 16,000 FTEs)

Some insurers concerned about market disruptions especially in the large group market

Healthcare Reform: Looking Ahead

More regulations and guidance on key PPACA deliverables

Federal versus State rights

More insurance coverage;: Who is eligible for the subsidies?

Expect more lawsuits

Need funding for federally run state exchanges

The Elections

Budget concerns including Congress’s sequestration rule

Disclaimer

  Disclaimer: This webinar is for informational purposes only. Please seek legal and tax expert advice before implementing your MLR rebate program.

Questions & Answers After today’s webinar, please contact:

Mike BrachlowExecutive Sales Director, Large Group 1133 Westchester AvenueSuite S229White Plains, NY 10604Email: mike.brachlow@benefitmall.com

Mike will route follow-up questions to the speakers and/or BenefitMall contact

For additional Healthcare Reform updates, please monitor: www.benefitmall.com www.healthcareexchange.com