New Health New Health Insurance LawInsurance Law

What It Means for You and Your What It Means for You and Your ClientsClientsApril 2010

Copyright © 2010 National Association of Insurance and Financial Advisors (NAIFA)

New Health LawNew Health Law

March 23, 2010President Barack Obama signed the Patient

Protection & Affordable Care Act into law

March 30, 2010 Amendments were signed into law

OverviewOverview

The new law makes significant changes to the health insurance industry

Many provisions are complex and not yet defined by the federal government

And many more are subject to the rules and regulations process both at the state and

federal levels

Some measures will be implemented this year

Many take effect in 2014

Others are not implemented until 2018

20102010

New Programs:New Programs:

• Temporary Retiree Reinsurance Program (retirees over 55 not eligible for Medicare)

• National Risk Pool• Small Business Tax Credit (under 25 employees/average

annual wage less than $50,000)• $250 Doughnut Hole Rebate

20102010

Insurance Reforms:

• Prohibits lifetime benefit limits • Restricts annual limits for essential benefits (as

determined by HHS)• Prohibits rescissions (except for fraud or intentional

misrepresentation)• Prohibits cost-sharing for preventive services• Mandates dependent coverage up to age 26 • Prohibits discrimination based on salary

20102010

Insurance Reforms:

• Mandates coverage for emergency services at in-network cost sharing level with no prior authorization

• Prohibits pre-existing condition exclusions for dependent children (under 19 years)

2010 2010

Insurance Reforms for Grandfathered Plans:

• Prohibits lifetime benefit limits • Restricts annual limits for essential benefits (as

determined by HHS)• Prohibits rescissions (except for fraud or intentional

misrepresentation)• Mandates dependent coverage up to age 26• Prohibits discrimination based on salary • Prohibits pre-existing condition exclusions for

dependent children (under 19 years)

2010 2010

Tax Changes:

• 10% tax on indoor tanning services• Limits deductibility of executive and employee

compensation to $500,000 per individual for health insurance providers

• $500,000 tax on non-profit hospitals failing to meet new requirements

2011 2011

Insurance Reforms:

• Uniform coverage documents and standardized definitions developed by HHS (in consultation with NAIC)

• Mandates 85% medical loss ratio for large groups (with refund)

• Mandates 80% medical loss ratio for individual and small group (with refund)

2011 2011

Medicare Reforms:

• Medicare Advantage cost sharing limits• Medicare beneficiaries in doughnut hole

receive 50% discount on brand name drugs• Freeze Medicare Advantage plan payments• Wealthy seniors ($85K/$170K) begin paying

higher Part D premiums (not indexed for inflation)

2011 2011

Employer Reforms:

• Report value of health care benefits on employees’ W-2

• Voluntary federal LTC program made available to workers

• Small employers (under 100 lives) allowed to adopt “Simple Cafeteria Plans”

• Grants to small employers that establish wellness programs

2011 2011

Other Reforms:

• 5 year demonstration grants to states for alternatives to current tort litigation

• Chain restaurants and vending machines to disclose nutritional content of each item

2011 2011

Tax Changes:

• Prohibits FSA, HSA, HRA & Archer MSA distributions for over the counter medicines

• Penalties for non-qualified HSA and Archer MSA distributions double (20%)

• New annual fee on pharmaceutical manufacturing sector

• New $2 per enrollee tax on all private health insurance policies (including self-insured plans) to pay for comparative effectiveness research

2012 2012

Medicare & Medicaid Reforms

20132013

Insurance Reforms:

• Create Consumer Operated and Oriented Plan (CO-OP) program

• Adopt single set of operating rules for health insurance

20132013

Medicare Reforms:

• Part D doughnut hole reduction begins• Establish national Medicare “bundled

payment” pilot program

20132013

Tax Changes:

• Increases Medicare wage tax by 0.9% and impose a new 3.8% tax on investment income including annuities for those earning over $200k/$250k (not indexed to inflation)

• Imposes $2,500 annual cap on FSA contributions (indexed to CPI)

• Increases the threshold for itemized deduction for medical expenses from 7.5% to 10%

• Eliminates deduction for Part D retiree drug subsidy employers receive

• Imposes 2.3% excise tax on medical devices

20142014

Insurance Reforms:

• Create state-based exchanges• Guaranteed issue/renewability required• Modified community rating: individual or

family coverage; geography; 3:1 ratio for age; 1.5:1 for smoking

• Prohibits pre-existing condition exclusions

20142014

Insurance Reforms:

• Creates essential benefit plan • Lifetime and annual dollar limits are

prohibited for essential benefits• Limits any waiting periods for coverage to 90

days• Creates multi-state qualified health plans

offered through exchange

20142014

Insurance Reforms:

• Allows states to merge individual and small group markets

20142014

Reforms for Grandfathered Plans:

• Prohibits pre-existing condition exclusions• Prohibits annual dollar limits for essential

benefits

20142014

Individual Reforms:

• Requires individuals to have qualifying health coverage

• Affordability tax subsidies to eligible individuals and families with incomes between 133-400% FPL to purchase insurance through the exchanges

• Establishes a 10-state pilot program to reward participation in a wellness program

20142014

Employer Reforms:

• Employers (50+ employees) who fail to offer "affordable" coverage pay a $3,000 penalty for every employee that receives a subsidy

• Employers (50+ employees with at least one employee eligible for a tax credit) who do not offer insurance must pay a tax penalty of $2,000 for every fulltime employee (first 30 not counted in assessment)

• Employers with more than 200 employees to auto-enroll employees in health plan (with opt-out)

20142014

Employer Reforms:

• Permits employers to offer employees rewards up to 30% of the cost of coverage for participating in a wellness program and meeting certain health-related standards

20142014

Medicare & Medicaid Reforms:

• Reduce out-of-pocket amount that qualifies an enrollee for catastrophic coverage in Medicare Part D

• Require Medicare Advantage plans to have medical loss ratios no lower then 85%

• Medicaid expansion to all non-Medicare eligible individuals under age 65 with incomes up to 133% federal poverty level

20142014

Tax Changes:

• Individuals without government-approved coverage are subject to a tax of the greater of $95 or 1% of income

• Employer (50+ employees) assessments for not providing “affordable coverage”

• $8 billion tax on private health insurance plans based on market share

20152015

Tax Changes:

• Individuals without government-approved coverage are subject to a tax of the greater of $325 or 2% of income

• $11.3 billion tax on private health insurance plans based on market share

20162016

Tax Changes:

• Individuals without government-approved coverage are subject to a tax of the greater of $695 or 2.5% of income

• $11.3 billion tax (same as 2015) on private health insurance plans based on market share

20172017

Tax Changes:

• $13.9 billion tax on private health insurance plans based on market share

20182018

Tax Changes:

• $14.3 billion tax on private health insurance plans based on market share

• 40% tax on “high cost” plans – aggregated benefit value above $10,200 individual coverage, and $27,500 for family coverage annually

The BeginningThe Beginning

“A public plan is something that’s sponsored by the government, and therefore has very low or

almost nonexistent administrative costs, compared to others. It doesn’t have the need

to have brokers out selling; it wouldn’t have the need to have a lot of costs and profits, the way private plans would. So it has that advantage.”

Nancy Ann DeParle White House “Czar” on Health Reform

April 15, 2009

Where We StartedWhere We Started

• Government-run plan• No agent role• National exchange• Taxes on life insurance and annuities• Taxes on employer-provided health plans• Cut backs on FSAs, HSAs, HRAs• Government-run LTC program• Repeal McCarran-Ferguson

SuccessSuccess

Often our greatest successes are those provisions that aren’t enacted

AccomplishmentsAccomplishments

• No tax on life insurance • Role for the agent• Agent commissions NOT set by HHS• No federal government-run option • FSA cap indexed• Current law antitrust exemption remains • No federal exchange• State exchanges

Challenges RemainChallenges Remain

• New government-run LTC program• Meaningful agent role• Medical loss ratio• National high risk pool structure• Guaranteed issue without a mandate • Paying for reform- 3.8% HI tax on annuity

payments• Cost to clients

Opportunities ExistOpportunities Exist

• Federal regulatory process• National Association of Insurance

Commissioners (NAIC)• State regulatory process• Technical corrections legislation• New legislation

“Insurance brokers are an extraordinarily powerful group politically, and they can be counted on to protect their privileges.”

Timothy Stoltzfus Jost Washington and Lee University School of Law

December 2009

What Others Are Saying!

The Game Is The Game Is Never OverNever Over

• Short-term opportunities/challenges

• Long-term opportunities/challenges

What can you and NAIFA members do to positively affect legislative outcomes?

What You MUST Do…

…To stay in the game!!

• Recruit Members—The life blood of volunteer organizations

• Never let a GOVALERT go unanswered• Give to IFAPAC—100% participation is the goal

“If you got no gas in the car, it ain’t going nowhere.”

Fight Promoter(and sometimes political pundit)

Don King

What You MUST Do…

…To help your clients

• Provide general information to your clients now

• Help them understand the complexity and that many details are not yet known

• Assure them you are available to answer questions today and as additional information is made available

• Tell them about five provisions effective in 2010

5 Things Clients Need to Know

1. Dependent coverage extended to age 262. No lifetime limits3. No pre-existing condition exclusions for

dependent children4. New retiree reinsurance 5. Small business tax credit

Dependent Coverage

1. Dependent coverage extended to age 26 (beginning with plan years on or after September 23, 2010)

• Dependent children must be covered until the child reaches age 26. This includes married dependent children, but does not include the spouse or grandchildren

• Grandfathered plan may exclude such dependent children if they are eligible for coverage under another employer-sponsored plan

• Dependent age extension applies only to medical plans

No Lifetime Limits

2. No lifetime limits (beginning with plan years on or after September 23, 2010)

• No lifetime dollar limits on the value of “essential benefits”

• Lifetime limit prohibition does NOT apply to non-essential benefits

• Grandfathered plans may not receive this benefit change until their next scheduled renewal date

• Prohibition on lifetime limits applies only to medical plans

No Pre-ex Exclusions

3. No pre-existing condition exclusions for dependent children (beginning with plan years on or after September 23, 2010)

• Prohibits pre-existing condition exclusions on children under the age of 19

• Prohibition of pre-existing condition exclusions for adults takes effect in 2014

• Prohibition on pre-ex applies only to medical plans

Retiree Reinsurance

4. Retiree reinsurance program (beginning June 23, 2010)

• New program to encourage employers to maintain benefits to retirees over 55 and not eligible for Medicare

• The program will reimburse employer-provided health plans for 80% of certain costs of providing health insurance to early retirees

• Reimbursement applies only to claims that exceed

$15,000 but are no greater than $90,000

Small Business Tax Credit

5. Small business tax credit (effective now)

• Must pay at least 50 percent of the cost for workers, pay average annual wages below $50,000, and have less than the equivalent of 25 full-time workers (i.e. a firm with fewer than 50 half-time workers would be eligible)

• Tax credit worth up to 35 percent of the premiums (25 percent for nonprofits)

• Full credit is available to firms with average wages below $25,000 and less than 10 full-time equivalent workers 

• Phases out gradually for firms with average wages between $25,000 and $50,000 and equivalent of between 10 and 25 full-time workers 

Other Agent Considerations

• Client Service

• Compensation

• Contingency Plans

Never Forget!Never Forget! NAIFA

• Keeps you in business

• Helps you grow your business

• Promotes ethical business practices

www.NAIFA.org/webinars

• The health insurance law discussed in this document is new, untested The health insurance law discussed in this document is new, untested and presents various questions with unknown answers.  NAIFA tries to and presents various questions with unknown answers.  NAIFA tries to provide helpful and current information to its members, but the provide helpful and current information to its members, but the accuracy and timeliness of this information is not guaranteed.  accuracy and timeliness of this information is not guaranteed. 

• This document does not constitute legal, tax, insurance, financial or This document does not constitute legal, tax, insurance, financial or any other professional advice by NAIFA or any other individual or any other professional advice by NAIFA or any other individual or entity, and must not be relied on as such advice for any reason.  entity, and must not be relied on as such advice for any reason. 

• This document is intended only to give general summarized This document is intended only to give general summarized information about the topics addressed as NAIFA understands them at information about the topics addressed as NAIFA understands them at the current time.  NAIFA reminds its members that it is their the current time.  NAIFA reminds its members that it is their responsibility to ensure that the manner in which they solicit and sell responsibility to ensure that the manner in which they solicit and sell insurance and other financial products, and the advertising and sales insurance and other financial products, and the advertising and sales materials they use, comply with applicable state, federal and materials they use, comply with applicable state, federal and regulatory requirements, and the compliance rules of the insurance regulatory requirements, and the compliance rules of the insurance and other financial companies they represent.  and other financial companies they represent.  

• If in doubt about compliance issues, check with your company. NAIFA If in doubt about compliance issues, check with your company. NAIFA disclaims all liability for any claims or damages that may result from disclaims all liability for any claims or damages that may result from the use of this document or its content.the use of this document or its content.

Reminder

Copyright © 2010 National Association of Insurance and Financial Advisors (NAIFA)