The 2010 Election Cycle

Politics, PPACA and Self-funding (A Supreme Court Update)

UAHU Presentation September 2012Recap on Supreme Court DecisionThe Supreme Court upheld the constitutionality of PPACA and the individual mandateAlthough the mandate was deemed not constitutional under the Commerce Clause, it was deemed to be a tax.Such taxation to encourage certain citizen behaviors or actions was deemed allowable under the constitution.In the Courts analysis of the Medicaid expansion, it held that it would be unconstitutional for the federal government to withhold all Medicaid funding in order to force states to comply. So States have the ability to choose.Health Reform and the Supreme Court

Whats potentially going to happen with the Supreme Court is also impacting all potential action on health reform3Supreme Court OutcomeAny attempt to undo provisions of this law that have been already implemented law would have been messy.Certain provisions are already in effect and dollars have been spent in implementation that cant be rolled back.Agents are going to be turned to by their clients no matter what the outcome. It is imperative that you are a source of guidance and information.Both individual and employer clients will require extensive counsel regarding decisions that are needed.The election may have a major impact, depending on the outcome.

Presidential and Congressional DilemmaRepeal/ Replace vs. Fix It!

There are extremes in partisanship on both sides. Ds are acting like the law is perfect and do not even want to fix the low hanging fruit (ie repeal the class act) because they see no political gain. Partisan Rs will only go with Repeal until the SC ruling and November electionbut they dont have a good replace plan yet that everyone agrees on. Members of Congress who actually want to make a few constructive fixes in the meantime to provide business owners with immediate relief no matter what the final political outcome may be are few and far between. Both parties trying to balance delivering on promises now and goals for 2012 elections. Inaction will only increase as we get closer to November

5Major Coverage Expansion ProvisionsThe ACA aims to expand coverage in 2014 through a series of provisions:Individual Mandate: Mandates that all Americans maintain a minimum level of health coverage or face a tax penaltyInsurance Exchanges: Creates state-based health insurance Exchanges and provides federal premium tax credits and cost-sharing subsidies to assist low- and moderate-income individuals without affordable employer-sponsored insurance in obtaining health coverageMedicaid expansion: Expands Medicaid up to 133% of federal poverty levelEmployer mandate: Mandates, for the first time, that employers with 50 or more full-time employees offer coverage or pay tax penaltiesImmediate Insurance/Benefit Change Timeline for Employers 2010Grandfathered Plan Requirements Took EffectSmall Business Tax Credits Temporary Federal High Risk Pool Program, PCIP, beginsFederal Retirement Reinsurance Program begins Sept. 23rd Reforms for All Plans-- Dependent Coverage to Age 26, No Preexisting Condition Limitations for Children, Rescission Restrictions, Annual and Lifetime Limit RestrictionsSept. 23rd Reforms for Non-Grandfathered Plans--Preventive Care, 105h Nondiscrimination rules for all fully-insured group plans (enforcement delayed), New coverage appeals process requirements 2011FSAs/HRAs/HSAs Reimbursement of OTC drugs not allowed without RxHSA distribution tax increasesSimple cafeteria plan rules beginMedical loss ratio requirements begin for all fully insured plansFederal Rate Review standards begin Annual DOL studies on the self-funded marketplace begin using form 5500 data 2012Newly defined preventive care requirements for non-grandfathered plans beginNew longer Summary Plan Description requirements New quality reporting requirements (to HHS and beneficiaries) for all employer plans and all individual and group carriers regulations for this have yet to be finalizedDelayed W2 Reporting begins (requirement is optional for employers who issue less than 250 W2s until further notice) (Due 1/31/2013)Employers whose carrier did not meet MLR standards receive rebate. 2013 FSA contributions capped at $2,500New federal premium tax on fully insured and self-insured group health plans to fund comparative effectiveness research program begins. Exchange notification requirements for employersNew Medicare taxes on unearned income and higher income employees and self-employedExcise tax on medical devicesFair Labor Standards Act noticesImmediate Insurance/Benefit Change Timeline for EmployersThe Big Year - 20142014Individual MandateHealth Insurance ExchangesEmployer MandateModified community rating for individual and small group markets (UT carriers can use 6 to 1 and 5 to 1 at present this will change to 3 to 1)Individual market guaranteed issueElimination of preexisting condition look-back and exclusionary periodsSubsidies available for qualified individuals purchasing individual coverage through the (State) exchangesMedicaid expansionNew premium taxes on fully-insured plansEssential benefit and actuarial value requirements for individual and small group plansQuality standards for qualified individual and small group plansMinimum value standard for large group plansDeductible Limits for Small Businesses

PPACA in 2016-20182016Automatic expansion for state small group markets to 100 employees if the state hasnt taken action to raise the threshold already.

2017States can allow large group plans to join their exchanges, thereby triggering massive market reform changes for all fully-insured large group plans

2018Cadillac tax or a 40% excise tax goes into effect for all group plans, including self-insured plans. The tax would be paid by the insurer in the case of a fully insured group or the TPA in a self-insured arrangement, but would be passed on directly to the employer.10Current Compliance Issues for EmployersEnforcement delayed on 105 (h) non-discrimination rules for all fully insured non-grandfathered plansIRS solicited comments in March 2011No word on when new guidance will be issued/enforcement could beginEnforcement likely to be prospective and with a grace periodAuto-Enrollment for groups of 200+ delayed Effective date of this provision is unclear in the statuteThe Administration has notified employers that the guidance on auto-enrollment will not be published before 2014. Auto-enrollment is not effective, until guidance is issued. Consequently, no auto-enrollment before 2014!Current Compliance IssuesEmployers need to be addressing the following compliance issues right now:Reporting on W-2s the value of employer provided health insurance is required for 2012MLR rebates issuedPreventive care requirements for women begin on August 1, 2012 Summary of benefit requirements begin on plan years beginning on or after September 23, 2012

Employers will be required to include the value of group health plan coverage on W-2s issued after 1/1/2013.Reporting for 2011 is voluntary.The new reporting requirements do not change the tax treatment of employer-provided health coverage. The reporting is for informational purposes only. Small Employer ExceptionEmployers issuing fewer than 250 Forms W-2 in the preceding calendar year are exempt from the reporting requirement.May be on an entity rather than control group basisNote- this is not the total number of employees, but the total number for Forms W-2Applies to all employers who provide applicable employer sponsored coverage

W-2 ReportingWhat to ReportEmployers are required to report the value of all applicable employer-sponsored coverage. Generally, group health plans, including:Major medicalMini-medsOn-site medical clinicsMedicare supplemental coverageHealth FSA contributions (employer)Employee assistance & wellness programs (with separate COBRA rates)Optional Reporting IRS guidance permits employers to report the cost of coverage that is not required to be reported (e.g. multiemployer, HRA) if reported coverage is otherwise applicable employer sponsored coverage It is possible to apply this template to exiting presentations.Have the latest presentation template openClick on the View tab and select Normal Delete all unwanted slidesClick on the Insert tab from the menu bar and select Slides from FilesClick on Browse. Navigate to the presentation you wish to update with the new template. Highlight the presentation and click Open Wait for the slides from the presentation to load and click on Insert All. Then click CloseCheck the inserted slides to ensure that the most appropriate master slide has been used on each slide To change the master applied to a slide select the slide you wish to apply a different master to then click on the Format tab from the menu bar and select Slide DesignFrom the Used in This Presentation section choose the master you wish to apply to the slide and hover over it to reveal a drop-down arrow. Click on the arrow and select Apply to Selected SlidesIt is important to thoroughly check the presentation to ensure that no further formatting is needed.How to Report: Determining the Aggregate CostMust report the aggregate costInclude pre-tax and post-tax coverageInclude employer and employee contributions (e.g. employer premium contribution or employee cafeteria plan contributions)Multiple methodologies for determining aggregate cost. General Rule: Use cost of COBRA premium Womens Preventive Care Based upon Institute of Medicine Recommendations to HHSEffective for the first plan year on or after August 1, 2012Screening for gestational diabetesHuman Papillomavirus (HPV) testingAnnual counseling and screening on STDs & HIV All FDA approved contraceptives, sterilization procedures, and counselingLactation support and equipment rentalScreening and counseling for domestic violenceAt least one well-woman preventive visit annuallyPer HHS: Religious based, non profits, have until August 1, 2013 to comply New accommodation Insurance Carriers must provide, not EmployerGrandfathered plans will need not comply unless they adopted initial set preventive rules

Medical Loss Ratio RebatesApplies to fully insured medical plans onlyCarrier calculation based on calendar yearFirst applicable CY 2011First checks to be issued by August 1, 2012Probably arrived in JulyCarrier to send participants and group policyholder notificationGroup policyholder to be issued rebateMay be in the form of a future premium credit

Medical Loss Ratio RebatesHeadlines estimate $1.3 billion in rebatesWhat does the really mean to consumers? Not the windfall some predicted$14-127 average annual rebate for 2011 Individual market consumers will receive the mostThe vast majority of insured consumers are not entitled to any rebate at all

Medical Loss Ratio RebatesRebates to be distributed proportionate to CY 2011 employer contribution structureChasing down former participants is not necessarily required (but many carriers sent letters to former employees)No guidance from IRS (yet)ERISA Plans can hold rebate funds in trust for the betterment of the planRebates are taxable to employees if paid with pre-tax dollars IRS FAQ revised April 2012

Summary of Benefits Requirements All insurers and self-funded employers will have to give people who apply for or enroll in individual or employer-sponsored coverage a standardized summary of benefits and coverage that includes:Four page coverage summaryCoverage terms glossaryCoverage examples of two set medical scenariosCustomer service and website informationIntent is to give consumers standardized information for comparative purposesEffective date has been delayed to on or after the plan year that begins on or after September 23, 2012Applies to all plans, including grandfathered plans and self-funded plans.HIPAA excepted benefit plans (e.g., stand-alone dental, specific diseases, etc.) do not have to comply

More Looming IssuesEssential Benefits metal levels and actuarial valueMinimum value calculation for larger plansValuation for CDHC plansSmall employer deductibleMarket reforms modified community ratingEmployer mandate 90 day waiting periodOther reporting by employerExchanges in each state

Links to GuidanceDefinition of full-time employeehttp://www.irs.ustreas.gov/pub/irs-drop/n-12-17.pdfhttp://www.irs.ustreas.gov/pub/irs-drop/n-11-36.pdfAffordabilityhttp://www.irs.utreas.gov/pub/irs-drop/n-11-73.pdfMinimum valuehttp://www.irs.ustreas.gov/pub/irs-drop/n-12-31.pdf

Why Self-funding Why NowSelf-funding is a smart long-term strategySelf-funding is a plan in which the employer assumes financial liability of their employee claims.Dental, vision, RX, STD, and medical can all be self-funded.Stop loss coverage is purchased for excessive risk

Started 1967 Taft Hartley Plan1974 ERISA put control of self-funded plans in the hands for the Federal GovernmentSelf-funded plans escape most state mandates. PPACA does effect self-funded plans but not to the extent of fully funded plans

Self-Funded vs Fully InsuredSelf-FundedAdministered by an ASO or TPASubject to ERISA & PPACAClaims paid by employer fundsHighly customizable plansEmployer has access to plan dataEmployer keeps profitsPay premium taxes on only the stop-loss premium

Self-Funded vs Fully InsuredFully InsuredAdministered by an insurance companySubject to Federal and State lawsClaims paid from insurerChoose from a selection of plansVery limited access to plan informationInsurer keeps profitsPremium taxes are collected on full amount of premium

Benefits of Self-FundingElimination of much of the premium taxesLower administrative costsProfit margin goes to employerAbility to avoid State Mandates for most plansEnhanced data and reportingControl

DisadvantagesRequires diligent monitoringLegal and financial responsibilities of the employerLarge claim liability (lasers)Higher degree of involvement in the health plan (however this can be a plus)The maximum claims liability can be higher than fully insured premium, so should be considered, but aggregate claims are not commonStarting in 2012, employers sponsoring group health plans must pay $1 per participant. The fee increases to $2 per participant in 2013, then to an amount indexed to national health expenditures thereafter. Currently phased out by 2019

Dispel the MythsSelf-funding for group of 500 + (it can actually be a good option for down to even a 25 life group)Its too much workEveryone has heard at least one nightmare storyDont have to follow the rulesMust have a significant Specific Deductible. NAIC model is $20,000 currently but they are looking at raising that

Why Self-Fund Now?MLR does not apply (at this time)Ability to craft plans (can even avoid some of the PPACA requirements) Self-funded plans are not required to provide coverage with minimum essential benefitsSelf-funded plans are exempt from participating in a risk-adjustment system, but individual and small group are required to participateSelf-funded plans are not subject to provision that are intended to limit insurer earnings (medical loss ratio and review of premium increases)In 2014, health insurers are required to pay an annual fee to be calculated by the Secretary, but self-funded plans do not have to pay this feeGain immediate control of your health plan

Contact Information:Lynns@wmimutual.com801 263-8000, ext. 113Recognition and thanks to NAHU and their Washington Council Ernst & Young for providing much of the information in this presentation.