Health Care Reform “ A Synopsis” What You Need to Know

Patrick C. Haynes, Jr. Today’s presenter

As counsel for Crawford Advisors’ Employee Benefits and Executive Compensation Group,

Mr. Haynes advises employers and plan sponsors in a variety of health and welfare benefit plan

compliance matters, including, but not limited to, tax qualification and other Internal Revenue Code

issues, ERISA, COBRA and HIPAA portability and privacy issues. Mr. Haynes lectures frequently

and has published many articles on health and welfare benefit plan compliance topics.

Practice Areas

Employee Benefits & Exec Comp, ERISA, COBRA,

HIPAA, §125, and §§ 105, 106, 129, 132

Education

Temple University School of Law, LL.M.

Rutgers University School of Law, J.D.

Rutgers University School of Business, M.B.A.

Rutgers University College of Arts & Sciences, B.A.

Admitted to Practice

U.S. Supreme Court

Federal and State Courts of

New Jersey

Pennsylvania

Connecticut

District of Columbia

Agenda

• PPACA – CO-OP Rules

• U.S. to Sponsor Health Insurance

• New Protections, Benefits & Changes to Medicaid, Medicare & CHIP

• Disclosure of Plan Data & Financials for 2014

• Implementation Efforts to Continue

• The Individual Mandate

• Other Requirements for Later Years

• Who Will Qualify for Help (Federal & State Subsidies) “Up Front Tax Credits”

• Questions?

PPACA CO-OP Rules

• The U.S. Department of Health and Human Services (HHS) recently proposed regulations for the Consumer Operated and Oriented Plan (CO-OPs) which is an initiative intended to create a new type of nonprofit, consumer-governed health insurer. This provision was established in an effort to bridge the gap between Democrats who wanted to create a single-payer, “Medicare for all program” and other politicians who favored a market-oriented approach.

• PPACA envisioned CO-OPs to begin selling qualified health plans through the new health insurance exchanges set to start in 2014.

• This is another option for EEs to participate, as well as, an alternative to a defined contribution plan.

• A CO-OP will have the option to sell coverage to small businesses, giving them the control over their health coverage that many of their larger competitors have in place. These small business owners will go through the Small Business Health Option Program or “SHOP.” CO-OPs will be able to offer health plans through the new, competitive health care marketplaces in their state, called the Affordable Insurance Exchanges. Additionally, CO-OPs may offer heath plans outside of an Exchange.

• CO-OP regulations do not allow any entity that was selling insurance in 2009 from becoming a CO-OP.

• CO-OPs are prohibited from converting to for-profit-status.

• HHS is proposing that state university centers and their hospitals and physician practices would not be able to sponsor a CO-OP plan.

• HHS allows for the creation of a “formation board” to the cooperative under way, but would require the election of an “operational board” by the members of the cooperative no later than one year after the organization began to provide coverage.

• At least two thirds of the health insurance policies & contracts issued by the CO-OP plan in each state would have to be for qualified individual & small group health plans.

Source: http://insurance.about.com/od/reformresources/a/Hhs-Drafts-PPACA-Co-Op-Rules.htm

CO-OPs have numerous provisions under PPACA that create innovative health plan structures:

American’s Health Insurance Plans (AHIP), believes in principle that “there must

be a level playing field where all companies providing insurance, including

CO-OPs, are required to abide by the same rules and regulations.”

U.S. to Sponsor Health Insurance

• As the U.S. government begins to sponsor health insurance plans offered to consumers in every state, these national plans will compete with other private insurers and may have some important advantages:

• The premiums and benefits for multistate insurance plans will be negotiated by the United States Office of Personnel Management (the agency that arranges for health benefits for federal employees).

• The new plans would be offered to individual and small employers through the insurance exchanges being set up in each state.

• Under the ACA, at least one of the nationwide plans must be offered by a nonprofit entity.

• To be eligible to participate in the multistate-program, insurers must be licensed in every state. These plans need to compete on a level playing field as other qualified health plans

• Some potential problems include:

• Multistate plans are exempted from some consumer protection standards.

• The Office of Personnel Management (OPM) has not released rules specifying the requirements for the multistate plan.

• Follow requirements of which state?

• Federal rules?

New Protections, Benefits and Changes to

Medicaid, Medicare & CHIP

• Medicaid expansion in 2014 – The ACA will expand the Medicaid program to cover people under age 65, including people with disabilities, with income of about $15,000 for a single individual (higher incomes for couples and families with children). Subsidies will be made available to families and individuals with household income up to 400% of the Federal Poverty Level (FPL), declining incrementally as income levels rise, which for a family of four at 400% of the FPL which is approximately $92,200.

• Loss of Medicare Part D Subsidy Deduction – Effective 1/1/13, the deduction for the portion of health care expenses that are reimbursed to the employer through the Medicare Part D subsidy program will no longer be available. However, the Retiree Drug Subsidy will remain in existence, but the employer’s ability to deduct the amount of the subsidy will end. This change increases an employer’s income tax liability, in effect increasing the employer’s cost of providing prescription coverage to retirees. This applies to insured & self-insured health plans regardless of their grandfathered status.

New Protections, Benefits and Changes to

Medicaid, Medicare & CHIP - Continued

• FICA Medicare Tax Increase: The FICA Medicare tax rate will increase by 0.9% for wages over $200,000 ($250,000 for married couples filing jointly). Since the FICA taxes are comprised of Social Security and Medicare taxes, this change increases the employee’s portion of the FICA Medicare tax from 1.45% to 2.35% for wages over $200,000 ($250,000 for married couples filing jointly). An employer will be required to collect the employee’s portion of this FICA Medicare tax; but can only do so if the employee’s salary is in excess of the stated number; ER’s cannot increase withholdings based upon joint-family income.

• The Children’s Health Insurance Program (CHIP) would be eliminated at the end of 2013 according to a House bill and children in separate state CHIP programs with incomes below 150% of poverty would be transitioned to Medicaid and those with incomes above 150% poverty would be transitioned into the new insurance exchange(s).

• Florida, Georgia, Louisiana, Mississippi, South Carolina and Texas refused to expand eligibility for Medicaid. Since ERs pay indirectly some of the cost of uncompensated care, ERs with a significant presence in these states may continue to bear the burden as a result of their state’s decision.

Disclosure of Plan Data & Financials for 2014

• The Secretary of Labor will update the participant plan disclosure requirements to be consistent with the standards established by the Secretary of HHS for Exchange plans, pertaining to the below:

• Claims payment policies and practices

• Periodic financial disclosures

• Data of enrollment

• Data of disenrollment

• Data on the number of claims that are denied

• Data on rating practices

• Information on cost-sharing and payments with respect to any out-of-network coverage

• Information on enrollee and participant rights

• Any other information the Secretary of HHS determines appropriate.

Penalty for Large Employers Not Offering

Coverage Starting in 2014, a large employer will be subject to a penalty if any of its full-time employees receives a

premium credit toward their exchange plan. The monthly penalty assessed to employers who do not

offer coverage will be equal to the number of full-time employees minus 30 multiplied by one-twelfth of

$2,000 for any applicable month.

For example:

The annual penalty calculation is the number of full-time employees minus 30, times $2,000. (The

employer has 50 full-time employees in this example). If only one employee or all 50 employees receive

the credit; the employer’s annual penalty in 2014 would be (50-30) x $2,000 or $40,000.

Note: EEs eligible for Medicaid are exempt from this calculation.

Employer Taxes & Penalties

• $2,000 per employee when:

• if coverage is not offered by the employer – Subtract first 30 employees

• If coverage is not available for EEs working 30 hours/week

• If coverage does not begin by the 90th day

• $3,000 per employee when:

• Not affordable as payroll contributions are more than 9.5% of household income

• Actuarial value of coverage less than 60% of expenses; below “Minimum Essential Benefit”

• Employees are covered under an Insurance Exchange receiving Federal assistance

Penalty for Large Employers Offering Coverage

• ERs who offer health coverage will not be treated as meeting the ER requirements if at least

one full-time employee obtains a premium credit in an exchange plan because, in addition to

meeting the other eligibility criteria for credits, the EE’s required contribution for self-only

coverage exceeds 9.5% of the EE’s household income or if the plan offered by the employer

pays for less than 60% of covered expenses.

For example:

If an ER with 50 full-time EEs had 30 full-time EEs who received premium credits,

then the potential annual penalty to the ER for those individuals would be

$90,000. Because $90,000 exceeds this ER’s overall limitation of $40,000 (50 EEs minus 30-

free-EEs = 20 EEs times $2,000), the ER penalty in this example would be limited to $40,000.

Shared Responsibility Tax / Employee’s Tax

For any EEs that waive coverage or Americans

that choose not to select, buy & keep coverage

2014

• $95 per adult in household in 2014, and $47.50 per child (up to $285 for a family) or

• 1% of household income, whichever is greater

2015

• $325 per adult in household and $162.50 per child (up to $975 for a family) or

• 2% of household income, whichever is greater

2016 & Forward

• $695 per adult in household and $347.50 per child (up to $2085 for a family) or

• 2.5% of household income, whichever is greater

• Capped at/by that year’s “Bronze Plan” Premiums

Implementation Efforts to Continue

• ACA requires health plans and insurers to provide participants with a Summary of Benefits and

Coverage (SBC) by the first day of the first open enrollment period beginning on or after 9/23/12.

• SBCs must also be prepared for all new hires, status changers and to be delivered to plan

participants whenever they request them

• This applies to both fully insured and self-insured plans whether or not the plan is grandfathered.

• This applies to health insurance issuers that offer group or individual health insurance coverage.

• Example: A fully insured HDHP will have a carrier-issued SBC. But, if that HDHP includes

a self-funded HRA (employer-sponsored Health Reimbursement Arrangement) the HDHP’s

SBC will not have the HRA data in it. The SBC will read as “non-PPACA-compliant” and

your compliance efforts will be required to integrate the two documents, or issue 2,

separate SBCs.

• The only plans that are exceptions are not subject to the SBC requirements: retiree only &

HIPAA-excepted benefit plans (such as stand-alone dental & vision plans).

Other Implementation Efforts Should Continue

• Additional upcoming provision requires companies to report the value of health benefits on EEs W-2s. If an ER offers HCFSA-credits, or a free clinic, or the ability to purchase AFLAC coverage, pre-tax, then the dollar value of the benefit must be calculated and reported.

• $2,500 health care FSA limit (for all plans beginning on/after 1/1/13).

• No cost sharing for preventative women’s services (unless a GF plan).

• Effective 9/1/13, all ERs will be required to notify all EEs & new hires about the creation of the public exchanges and they may be able to shop for coverage on the exchanges (for coverage effective in 2014).

• ERs need to notify EEs about the eligibility rules for premium assistance and advise EEs that if they choose to purchase insurance through the exchange, the EE will lose the ER’s pre-tax contribution towards coverage.

• Exchanges will be available to individuals beginning in 2014, and for ERs with < 50 EEs. In 2016, for ERs with <= 100

EEs; and in 2017, exchanges may begin to

operate for all sized-ERs.

What Other Requirements are Needed in Later

Years? 2014 • ERs with > 50 full-time employees (FTEs) - subject to the ACA’s Shared Responsibility

provisions. ERs must provide health care benefits to EEs that work 30 hours/wk or face penalties [$2,000 per EE (first 30 EEs aren’t counted)].

• Coverage must be at least 60% “actuarial value,” and must be “affordable,” meaning: EE contributions for single coverage <= 9.5% of an EE’s W-2 earnings. The “actuarial value” combines a plan’s many cost-sharing tools into a single measure that allows consumers to decide the plan’s overall financial protection.

• Failure to comply means: ERs will owe, $3,000 for any EEs that apply for/obtain subsidized-exchange coverage.

• ERs with > 50 EEs will have to pay penalties starting at $2,000 per EE if they do not offer a set level of health benefits.

• If 200 or more FTEs, auto enroll EEs in health plan. (Map them into EE-only coverage for cheapest plan, unless/until they make another/different election).

• Eliminate waiting periods over 90 days and eliminate all pre-existing limitations.

What Other Requirements are Needed in Later

Years?

• Grandfathered plans must remove Annual Maximums on Essential Benefits.

• Grandfathered plans must begin coverage for children until age 26 even if other employment-based coverage is available.

• In 2014, HIPAA-qualifying-wellness program penalties/rewards may be raised from 20% to 30% of the plan’s cost.

The Comparative Effective Research Fee

• The IRS issued proposed regulations on the CER-fees, The Comparative Effective Research Fee under PPACA on April 12, 2012.

• Plan sponsors of self-funded health plans & insurers of insured health plans must pay a fee, the CER, helps the Patient-Centered Outcomes Research Trust Institute, a new entity intended to advance comparative research.

• Reporting and payment on IRS Form 720 is required by July 31 of the calendar year immediately following the last day of the policy or plan year.

• CER fee will be imposed for each plan year ending 10/1/12, and before 10/1/19. This fee is a specified dollar amount times the average number of lives covered under the plan for the plan year. For plans ending before 10/1/13, the specified amount is $1; for plan years ending before 10/1/14, the amount is $2; for plan years ending on or after 10/1/14 and will be increased each year based on the projected per capita amount of National Health Expenditures.

• Four methods for calculating “covered lives” (includes a factor for non-EEs).

• http://www.crawfordadvisors.com/employee-benefits-news/irs-issues-

proposed-rule-for-ppaca_fee%E2%80%9D

The Comparative Effective Research Fee

• The CER fee does not apply to “HIPAA Excepted” Benefits, such as stand-alone dental and vision plans and most Health FSAs.

• The fee does not apply to HSAs at all (they are bank accounts) and does not apply to HRAs that are integrated (with Med/Rx); BUT does apply to stand-alone HRAs.

• The CER fee must be paid for each "applicable self-insured health plan", which includes any plan providing accident or health coverage, regardless of size. This includes ERISA plans, and plans sponsored by church employers, federal, State and local government employers and Indian tribal government employers.

• Stand-alone plans that only cover retirees are subject to the CER fee, even though they are otherwise exempt from the Health Care Reform law requirements. http://www.crawfordadvisors.com/employee-benefits-news/irs-issues-proposed-rule-for-ppaca_fee%e2%80%9d

The amount of the tax credit varies with income, such that the premium a person

would have to pay for the second lowest cost silver plan would not exceed a specified

percentage of their income (adjusted for family size), as follows:

What is the amount of the tax credit

provided to people?

Income Level Premium as a Percent of Income

Up to 133% of FPL 2% of income

133 - 150% FPL 3 - 4% of income

150 - 200% FPL 4 - 6.3% of Income

200 - 250% FPL 6.3 - 8.05% of Income

250 - 300% FPL 8.05 - 9.5% of Income

300 - 400% FPL 9.5% of Income

Note: The Federal Poverty Level (FPL) was $10,830 for an individual and $22,050 for a family of

four through early 2010. For more information, please see the Department of Health and Human

Services Poverty Guidelines, available at http://aspe.hhs.gov/poverty/

A person who wants to purchase a plan that is more expensive would have to pay the full difference

between the cost of the second lowest cost silver plan and the plan that they wish to purchase.

An example shows how the premium tax credits work. Assume: • Steve is 45 years old and has an income in 2014 that is 250% of poverty (about $28,735).

• The cost of the second lowest cost silver plan in the exchange in Steve’s area is projected to be

about $5,733.

• Under PPACA, Steve would not be required to pay more than 8.05% of income, or $2,313, to

enroll in the second lowest cost silver plan.

• The tax credit available to Steve would be $3,420 ($5,733 premium minus the $2,313 limit on

what Steve must pay).

Because health insurance premiums have typically grown more rapidly than income, PPACA adjusts

the percent of premium that people are required to pay to reflect the excess of the premium growth

over the rate of income growth.

Beginning in 2019, if aggregate premiums and cost-sharing subsidies exceed 0.54%

of GDP, the premium percentages would be further adjusted to reflect the excess of

premium growth over CPI.

Source: www.kff.org/healthreform/upload/7962-02.pdf

Employee Eligibility for Subsidies

Under Health Care Reform (Based on

2014 Employee Contribution Levels)

FP

L L

evel

400% +

138%-

400%

0%-

138%

Not Eligible for Subsidy

Not Eligible for

Subsidy

No ER Penalties

Eligible for Subsidy

Potential ER Penalty of $3,000

per each EE in this range

Medicaid Eligible

No ER Penalties for Medicaid Enrolled EEs

0.0% - 9.5% 9.5% +

ER Plan EE Premium Contribution as a Percent of

Income

Questions

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• 200 International Circle, Suite 4500, Hunt Valley, MD 21031

• Devon Square Two, 744 West Lancaster Avenue, Suite 215, Wayne,

PA 19087

• 800.451.8519

• www.CrawfordAdvisors.com

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