Health Care Reform: A Practical Look from

the HR Perspective

Presented to the HRACCApril 26, 2011

Bruce B. BarthRobinson & Cole LLP

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Please note:

This seminar is designed to provide accurate information about the subject matter. However, it provides general information only and does not constitute legal advice. No attorney-client relationship has been created. If legal advice or other assistance is required, let me know directly. My contact information is displayed at the end of this presentation.

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Agenda

• Timeline for PPACA:– Now

– 2012

– 2013

– 2014

– 2018

• Noncompliance consequences

• Exemptions

• Legislative & court challenges

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Timeline for PPACA

• Considerations before 2014:– Guidance affects implementation and effective dates

• 2014 and beyond:– Exchanges

– Individual mandate

– Employer mandate

– Other law changes

• Grandfathering plans

• Challenges to PPACA implementation

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Timeline: Now

• Early retiree reinsurance

• High-risk pools

• Dependent coverage for adult children under the age of 26

• Restrictions on rescission

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Timeline: Now

• Participants can select primary care provider

• No preauthorization or increased cost sharing for emergency

• No preauthorization or referral requirement for OB/GYN services

• First-dollar coverage required for certain preventive care

• Elimination of the preexisting condition exclusion for children under age 19

• Routine costs of patients who are part of clinical trials covered

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Timeline: Now

• Small business tax credit

• Simple Section 125 cafeteria plans are available for companies with less than 100 employees

• Tax on distributions from a health savings account is increased from 10% to 20%

• Adoption assistance limits increased

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Timeline: Now – Medical Loss Ratios

• Plans must spend a certain percentage of premium dollars on clinical services and quality activities or else issue rebates to policyholders

• 85% medical loss ratio for large group market

• Ratio does not apply to self-insured plans

• Greater transparency regarding where premiums are going

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Timeline: Now – OTC Drugs

• No reimbursement for medications, including a health FSA or an HRA, unless the medicine– requires a prescription,

– is available without a prescription (i.e., OTC) but the individual otherwise obtains a prescription, or

– is insulin

• Health FSA and HRA debit cards may be used to purchase OTC drugs as long as certain procedures are followed

• Equipment, medical supplies (e.g., bandages), and devices are not subject to the prescription requirements

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Timeline: Now – Nursing mothers

• Must provide a “reasonable break time” – Applies for one year after the child’s birth– No limit on the number of the breaks– No guidance on the duration of such breaks

• Must provide a place other than a bathroom and must be “shielded from view and free from intrusion from coworkers and the public”

• Employers with fewer than 50 employees are exempt if providing the break or the place to express milk would impose an “undue hardship”

• Does not preempt state law if the state law is more protective of its employees

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Timeline: Now – Claims and Appeals

• Urgent care time reduced to 24 hours

• Must provide continued coverage pending the outcome of an appeal

• Strict compliance - any mistake in meeting these requirements allows the claimant to proceed to court

• External review process – independent review organizations

• Effective generally January 1, 2012 (effective date has recently been delayed from July 1, 2011)

• Model notices available

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Timeline: Now – Lifetime & Annual Limits

• No lifetime limits for essential health benefits • Reasonable annual limits related to essential

health benefits:– $750,000 for plan/policy years before Sept. 23, 2011– $1.25 million for plan/policy years beginning on or after

Sept. 23, 2011, but before Sept. 23, 2012– $2.0 million for plan or policy years beginning on or

after Sept. 23, 2012, but before Jan. 1, 2014– 2014 – annual limits eliminated

• Retiree medical and HRA considerations• Waivers of annual limit granted if requirement

results in significant decrease in access to benefits or significant increase to premiums

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Timeline: Now – Annual Limit Waivers

• One-year waiver, and application must be submitted no less than 30 days before the beginning of the plan year

• Generally applies only to policies that were in place before September 23, 2010

• Notice to participants is required

• Regulators have approved 94% of requests, covering over 1000 plans with over 2.4 million people

• No waivers will be granted for years beginning on or after January 1, 2014

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Timeline: Should Have Been Now, Delayed – W-2s

• W-2’s must disclose cost of employer-provided health benefits

• IRS notice made such reporting optional for 2011: – Optionally report the amount in Box 12, using code DD – No additional directions or details regarding the

calculations involved in reporting this information • Effective for 2012 Form W-2s

– Delayed effective date if not required to file more than 250 W-2s in prior year

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Timeline: Should Have Been Now, Delayed – Nondiscrimination

• Originally, for plan years beginning on or after September 23, 2010, nondiscrimination requirements were to apply to fully insured plans

• Rules “similar” to self-insured• Awaiting guidance for implementation• Will likely require an "eligibility test" and

a "benefits test" • Take actions now to prepare• Effective reasonable time after guidance issued

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Nondiscrimination: Key Concerns

• Highly compensated individuals (HCIs):– The five highest-paid officers

– Shareholders who own more than 10% of the value of the employer stock, or

– The highest paid 25% of all employees

• To be nondiscriminatory on its terms: – Required employee contributions must be identical for

each benefit level

– Maximum benefit level must not vary based on age, years of service, or compensation

– Same type of benefits must be available to HCIs and to non-HCIs

– Must be no varying waiting periods

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Timeline: Uncertain, Now Delayed – Automatic Enrollment

• Employers with 200 or more full-time employees • FAQ states regulations will be issued to provide

rules for determining full-time employee status.  Until those regulations are issued, employers will not be required to comply with the automatic enrollment requirements.

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Timeline: Uncertain, Now Delayed – Advanced SMM

• 60-day advance notice of material modifications –FAQ states it will not become effective until the summary of benefits and coverage explanation becomes due

• General summary plan description and summary of material modifications rules continue to apply to most group health plans under ERISA

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Timeline: 2012 and 2013

• Report health care quality and wellness initiatives to HHS

• Fee of $2 per average number of enrollees/lives ($1 for policy/plan years ending during fiscal year 2013)– To fund comparative effectiveness research– Bills introduced to repeal the comparative effectiveness

research – not likely to go anywhere

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Timeline: 2012 – Summaries

• 4-page “summary of benefits and coverage” must be provided to applicants and enrollees before enrollment or reenrollment

• Requires HHS to issue guidance by March 23, 2011 (not yet issued)

• Act states it is effective March 23, 2012 • Penalty of up to $1,000 per failure plus possible

breach of fiduciary duty action• 60-day advanced notice of plan material

modifications

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Timeline: 2013 – Exchange Notice

• Employer notice must be provided beginning on March 1, 2013, to notify employees in writing of: – The existence of the Exchange

– Potential eligibility for federal assistance if the employer’s health plan is “unaffordable”

– The fact that they may lose the employer’s contribution if they purchase health insurance through the Exchange without a voucher

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Timeline: 2013 – Taxes

• Additional 0.9% Medicare tax on wages in excess of $250,000 for joint return filers, and $200,000 for others

• 3.8% tax on unearned income for joint filers with modified AGI in excess of $250,000, $200,000 for singles, $120,000 for married filing separately

• Effective January 1, 2013, the maximum amount that can be made available through a health FSA limited to $2,500, indexed

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Timeline: 2014 – Exchanges

• State health exchanges are required to be established for individuals and small businesses of 100 or fewer employees

– Prior to 2016, states can limit this to businesses with up to 50 employees

– Beginning 2017, states can allow the state health exchanges to become available for all employers

• Federal exchange if state does not comply

• Exchange will have a variety of insurance options to satisfy the new mandates

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Timeline: 2014 – Individual Mandate

• To avoid penalty, nearly all individuals will be required to have “minimum essential coverage”– Subsidies/Vouchers for those up to 400% of federal

poverty level or if employer coverage is not “affordable”

– Medicaid will be expanded

• For 2014, penalty is $95/uninsured adult or 1% of household income over filing threshold

• For 2015, penalty is $325 or 2%• For 2016 and after, penalty increases to $695* or

2.5%

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Timeline: 2014 – Employer Mandate

• Law does not require employers to offer coverage

• BUT, large employers may face a penalty if they: – Do not offer coverage

– Offer coverage that is not affordable, or

– Offer coverage that does not meet the minimum essential standards

• Large employer is an employer who has 50 or more full-time employees or full-time equivalents– Full-time employees - those that work 30 or more hours

a week, calculated on a monthly basis

– Penalty amount only applies with respect to full-time employees, not full-time equivalents

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Timeline: 2014 – Employer Mandate

• If full-time employees (and dependents) are not offered minimum essential coverage, penalty applies if at least one full-time employee receives federal assistance to purchase through Exchange: – Penalty = $2,000 multiplied by the total number of full-

time employees, not taking into account the first 30 employees

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Timeline: 2014 – Employer Mandate

• A penalty also applies if the coverage offered is:– Unaffordable because the employee’s required

contribution is more than 9.5% of employee’s household income, or

– The plan pays for less than 60% of covered health care expenses

• This penalty is equal to: – At least $3,000 multiplied by the number of full-time

employees receiving assistance

– BUT, no more than $2,000 multiplied by the number of full-time workers, not taking into account the first 30 employees

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Timeline: 2014

• Elimination of preexisting condition exclusions for all participants

• No annual dollar limits • Waiting periods cannot exceed 90 days• No cost sharing (out-of-pocket maximum and

annual deductible) in excess of the limits on high-deductible health plans

• Wellness incentive limit increased from 20% to 30%

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Timeline: 2018

• Cadillac plan tax becomes effective– 40% tax on “excess health coverage”

– Tax imposed on issuers of fully insured plans and on administrators with respect to self-funded plans

– $10,200 for single and $27,500 for family

– Retirees and high-risk professions - $11,850 for single and $30,950 for families

– Adjusted for inflation

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What Happens If a Plan Doesn’t Comply? $100 per Day Excise Tax!

• COBRA• Special enrollments• Mental health parity• Dependent coverage to age 26• No lifetime limits and restricted annual limits on

essential health benefits• No rescissions• Appeals and external review• Preexisting condition exclusion for those under

19• Preventive care• Choice of health care professionals and

emergency services• Nondiscrimination rules

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Excise Tax Example

• For an insured plan, the potential penalty is $100 per individual for each day the violation continues. So if a plan with 500 participants provides discriminatory benefits to the top three executives, the potential penalty is $100 a day for each of the other 497 employees

• Compare this to the penalty for a discriminatory self-insured plan, which is loss of tax benefits for the highly compensated individuals who benefited from the discrimination

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Grandfathered Plans

• A grandfathered plan is generally any plan in which an individual was enrolled on March 23, 2010

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What Grandfathered Plans Are Exempt From

• Reporting health care quality and wellness initiatives to HHS

• Incorporating cost-sharing limits on out-of-pocket and deductible expenses

• Covering routine costs of patients who are part of clinical trials

• Providing participants with the right to select a primary care provider/pediatrician

• Elimination of preauthorization or referral for OB/GYN services

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What Grandfathered Plans Are Exempt From

• Elimination of any preauthorization or increased cost sharing for emergency services

• First-dollar coverage for preventive care

• Providing minimum essential benefits

• Changes to the appeals process

• Nondiscrimination requirements for fully insured plans

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What Grandfathered Plans Must Still Comply With

• Restrictions on annual and lifetime limits• Preexisting condition exclusion requirements• Coverage for adult children to age 26• New tax rules (including changes for FSAs)• 4-page summary• Employer mandates • Providing notice of grandfathered status

AND grandfathered plans are still subject to the excise tax if they do not comply.

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What Affects Grandfathered Status?

• Eliminating all or substantially all benefits to diagnose or treat a condition, or any necessary element to diagnose or treat a condition

• Decreasing or imposing a new annual limit on the dollar value of benefits

• Increasing any cost-sharing % (coinsurance)• Increasing a fixed-amount cost-sharing

requirement, other than a copayment, by more medical inflation plus 15%

• Increasing a fixed-amount copayment by more than the greater of:– $5 increase by medical inflation or – A total % that is more than the sum of medical inflation

plus 15 %

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What Affects Grandfathered Status?

• Decreasing the employer's contribution rate toward the cost of any tier of coverage by more than 5% – Guidance for insurers so that they can determine if

contribution rate has changed

– Over time, this becomes more and more difficult to maintain

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What Does Not Affect Grandfathered Status?

• Changing a self-insured plan's TPA • Changing an insured plan’s carrier after Nov. 15,

2010 • Making changes effective after March 23, 2010,

pursuant to a legally binding contract entered into on or before March 23, 2010

• The loss of grandfathered status for one policy does not mean you lose it for all– Can be grandfathered for one policy, but not

another

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When Does a Plan Lose Grandfathered Status?

• When the amendment becomes effective

• Plans could lose grandfathered status during a plan year

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Legislative Challenges to PPACA

• House approved a complete repeal; Senate did not

• Legislators trying to attack through appropriations

• President Obama has promised to veto any repeal bill

• Opt-out bill for states gaining some traction– Massachusetts

– Connecticut SustiNet

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Court Challenges to PPACA

• At issue is the individual mandate

• 3-2 in favor of PPACA being constitutional

• Florida judge threw out the PPACA in whole – Individual mandate was so intrinsically linked to the

rest of PPACA

• More than 20 challenges to some aspect of PPACA have been filed around the country

• Oral arguments in the first appellate reviews are scheduled for May and June

• Until USSC hears, PPACA remains in effect

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Contact Information

Bruce B. BarthPartner

bbarth@rc.com

860-275-8267 Phone

860-275-8299 FaxAdmitted in Connecticut, Colorado,

and the District of Columbia